All eyes are currently on the U.S. energy boom, led by the unprecedented exploitation of unconventional reserves. But what progress has there been on exploration of the vast reserves lying under the Arctic Ocean? And how have they been adapting to the transformed market realities?

After an initial burst of excitement — as technically challenging Arctic exploration finally became commercially feasible — oil majors have backed off in recent months. Given the technical and political complexities of operating in such a hostile and isolated environment, we are likely to see yet more delays before the Arctic Boom really gets going. 

 One thing disputed by few is that Arctic hydrocarbon reserves are vast. According to estimates by the U.S. Geological Survey, undiscovered hydrocarbon reserves in the region reach approximately 90 billion barrels of oil, 47 trillion cubic meters of natural gas, and 44 billion barrels of gas condensate. That adds up to 13 percent of the world's undiscovered oil reserves, and up to 30 percent when it comes to gas. 

 Eight countries border the Arctic seas, and they come together to hash out their disputes at meetings of the Arctic Council, an intergovernmental body that has flexed its muscle recently with legally binding agreements. They are Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the U.S. The spoils are not equally divided: Of the estimated 61 fields discovered so far in Arctic waters, 43 are in Russian territory, 11 in Canada, six in Alaska and one in Norway, according the U.S. Energy Information Administration. But the U.S. still leads the pack on oil reserves. 

 Aside from the scale of reserves, there is another critical strategic pull for E&P operators. As reluctant as oil majors may be to admit it, the progressive melting of the polar ice cap and the prospect of the opening up of the fabled Northwest Passage has a significant impact on the long-term strategies to head north (the channel could be open to shipping as early as 2050, not a long time by oil megaproject standards). 

 Although we have known of the existence of these Arctic reserves for some time, until recently the complexities of drilling in the Arctic have kept large-scale exploration at bay. The harsh northern climate means operating in darkness for much of the year. Nevermind the cost of attracting skilled labor to such an isolated region. A few more of the major challenges include the high costs of specialized equipment like ice breakers, environmental risks, and a tendency for long lead times and cost overruns that don't go down well with investors.

 Geopolitics provide a further obstacle, particularly given competing claims to economic sovereignty over the reserves themselves. Differing interpretations of international maritime law have caused disputes. The UN Law of the Sea gives each country jurisdiction over the seabed stretching 200 miles from their coastlines, beyond which they must prove that the land is a "natural prolongation" of their continental shelf if they wish to claim rights. This didn't stop Russia from provocatively planting a Russian flag at the North Pole in 2007, causing much consternation from fellow Arctic Council members. 

 But Russia and Norway have gone a long way to resolving the bickering over territory with a landmark treaty signed back in 2010. Buoyant oil prices are now making these fields commercially feasible, and these are exactly the sort of high-risk, high-reward prospects to which brave frontier drillers are being increasingly drawn. Two stories hitting the headlines recently highlight the risk/reward dilemma facing would-be Arctic drillers today. 

 Shares in British Tullow Oil have seen a nice boost in the stock markets after the company announced earlier this month that they and their co-venturers had made a significant light oil discovery in Norway's portion of the Barents Sea. However, the news for Anglo-Dutch Shell was less triumphant, when the EPA imposed $1.1 million of fines on the major for a series of air-quality violations at its Alaskan operations. Environmental groups were quick to interpret this as a signal of Shell not being "ready" for Arctic drilling

 The gung-ho attitude towards Shell's Alaskan explorations held in mid-2012 by their "man in the Arctic" — Robert Blaauw — contrast sharply with what came next. His prediction that "this will be a big year for the Arctic" was soon shattered by a series of incidents, mishaps and run-ins with the regulators over the remainder of the year. 

 This culminated in bad press on New Year's Eve when one of Shell's drill ships ran aground on Kodiak Island. Despite a total of $5 billion invested so far in Alaskan projects, with only two of the projected five wells drilled last year in the Chuchki and Beaufort Seas, Shell announced it was plugging its holes and suspending operations until next year. 

 And Shell is not alone. ConocoPhillips suspended its Arctic plans in April, citing regulatory concerns. CEO of French Total, Christophe de Margerie, opted out of Arctic oil at an early stage, arguing that "a leak would do too much damage to the image of the company."

 The danger of a public backlash is perhaps nowhere more acute than in the U.S., where there is a strong and influential environmental lobby. The 2013 U.S. Arctic Strategy states that "continuing to responsibly develop Arctic oil and gas resources aligns with the United States 'all of the above' approach to developing new domestic energy sources," but the resonance of environmental concerns, high costs and increasing regulatory scrutiny are taking their toll. 

 When environmental activists are not preoccupied telling shale producers to "frack off," they are boarding Shell tankers, hijacking their Twitter account or reminding of the ghost of the Deepwater Horizon disaster in 2010. They rightly point out that even a minor spill in the hostile environment of the Arctic would be infinitely more difficult to contain compared to the relatively well-connected Gulf of Mexico.

 But the critical factor here, beyond environmental opposition and technical challenges (petroleum engineers relish a challenge) could prove to be market realities, particularly where gas is concerned. The Petroleum Economist reported on the scaled-down pipeline plans to ship Alaskan gas from Arctic basins, under pressure from "gas on gas" competition from shale resources. The high-cost, high-reward game means relying on sustained high prices over long project-lead times, which now appears more doubtful than a year or two ago. 

 Daunted by Shell's rocky experience in Alaskan waters, we are likely to see majors playing the waiting game, despite heavy costs already sunk pursuing the Arctic dream. Against uncertain gas markets, they will sit it out for further signals as to how much of a "game-changer" this revolution will be. The Arctic is too vast a prospect to be ignored by oil companies in the long term, but for now perhaps more execs will heed the advice of De Margerie and hold tight.