Iceland on Friday awarded two exploration and production licenses to energy firms hoping to find oil and gas in the northeastern waters off the North Atlantic island's coast.
Icelandic energy authority Orkustofnun said in a statement that it had "signed and issued licensing documents for exploration and production of hydrocarbons in the Dreki area."
The island nation will get a helping hand from neighbouring Norway, Europe's second largest oil producer, after Oslo took a 25 percent stake in both licenses awarded on Friday through state-owned oil company Petoro.
"This is of course an important step, these are the first real licenses that we believe will be used and they call for extensive research in the area," said the Icelandic Minister of Industries and Innovation, Steingrimur Sigfusson, referring to a derailed licensing round in 2009.
"The Norwegian participation is also important, we think that it strengthens the matter in every way, not least to have the support of Norway and its massive knowledge in this field," he added.
Norway and Iceland signed an agreement in 1981 that gives Norway the rights to a share of all exploration and production on the Jan Mayen Ridge, which separates the Norwegian Sea from the Greenland Sea.
"It's the first time that the Norwegian government takes assets directly in licenses outside the Norwegian border," said the Norwegian Minister of Petroleum and Energy, Ola Borten Moe.
"We are doing this because we find the area prospective and promising and we are also working on opening up the Norwegian side of the border in the near future," he added.
Still, without any figures on how much oil and gas the area could hold it's unclear how important the industry will be for Iceland, which was hard hit by the financial crisis in 2008 after its three major banks collapsed.
A survey by Iceland's energy authority in 2008 indicated the presence of oil and gas in the area.
"I have both feet on the ground," Sigfusson said when asked about how optimistic he was on the prospects of finding oil.
"Based on the Norwegian history, at least, it very easily takes ten years plus before we really know if we have something to develop," said the chief executive of Petoro, Kjell Pedersen.
A Norwegian study last year claimed the global share of oil and gas from the Arctic, often presented as the promised land by oil companies, is expected to decline by 2050 because of prohibitively high production costs.
The researchers attributed the decrease to the boom of unconventional oil and gas sources, such as shale gas in North America, and growing conventional gas production in the Middle East.
Norway is the world's eigth largest oil exporter and the second largest exporter of natural gas, according to the International Energy Agency.
Petoro's partners in the two licenses are Faroe Petroleum (67.5 percent) and Petroleum Iceland (7.5 percent), and Valiant Petroleum (56.25 percent) and Kolvetni (18.75 percent), respectively.