Iceland and Norway Friday signed an agreement allowing a Norwegian state-owned firm to take part in the search for oil and gas on the Icelandic continental shelf.
Iceland in October awarded two licenses for exploration of the seabed north-east of Iceland near the remote Norwegian island Jan Mayen.
A subsidiary of Norway's state-owned Petoro was to have a 25-per-cent stake in both concession areas, reportedly the first time Petoro was to take part in exploration outside Norway.
The deal was inked by Steingrimur Sigfusson, Iceland's minister of industries and innovation, and Norwegian Minister of Petroleum and Energy Ola Borten Moe.
"It offers a possibility to search in an exciting area that might have substantial assets," Moe said.
The countries in 1981 signed a bilateral agreement to cooperate on exploration near Jan Mayen.
Jan Rosnes of Petoro said the focus in the coming years would be on seismic investigations.
The remote area and long distances are part of the challenges, Petoro chief executive Kjell Pedersen said.
Conservationists such as Young Friends of the Earth Norway were critical of the plans.
"In the past year, we have seen that the oil industry is not ready to handle Arctic conditions," Silje Lundberg, leader of the environment organization, told the journal Ny Tid.