By Lefteris Adilinis
Oil and gas majors Total and Eni are expected to be busy drilling wells in plots of Cyprus’ Exclusive Economic Zone (EEZ) in 2017 says the Minister of Energy, Commerce, Industry and Tourism; these companies and oil giant ExxonMobil with Qatar Petroleum could be signing new exploration contracts in January.
In an interview with the Cyprus Weekly, Minister Yiorgos Lakkotrypis made clear that even if the political problem was not resolved in the coming months, the Cyprus Republic will continue its efforts to be established as an envoy between the European Union and the energy rich countries of the Eastern Mediterranean.
The drilling agenda
The Energy Minister has received a new exploration schedule from Total indicating that “they will start drilling the well in Block 11 (of Cyprus’ EEZ) in May”. The French company was planning activities for April 2017 but it was delayed by problems of getting needed support from Limassol port.
That troubling situation has changed recently and “the differences existing between Total and the contractors in the port of Limassol has now been cleared”, Lakkotrypis said. Total was the first of the majors to reluctantly move its support base from Larnaca to Limassol port.
Eni was equally reluctant, but the government feels the Italian major is very close to also transfer its land operations to Limassol. The company’s board has informed the Energy Ministry that they “are scheduling their remaining (Block 9) drills within 2017”. Eni had dry drills in the Onasagoras and Amathousa wells in block 9 of Cyprus’ EEZ in 2014 and 2015 respectively. Both Eni and Total renewed their interest in Cyprus’ prospects after the discovery of the huge Zohr gas field in the EEZ of Egypt using a new geological model. Zohr is adjacent to blocks of Cyprus’EEZ, a fact that apparently explains their change of heart.
High expectations
Two weeks ago, the Cyprus government declared an ExxonMobil – Qatar Petroleum consortium as well as Total and ENI as preferred bidders for EEZ Blocks in the third round of licensing. Exxon and Qatar bid for Block 10, Total with Eni will negotiate an exploration contract for Block 6, where as Eni also bid for Block 8. The Energy Minister, in his Cyprus Weekly interview confirmed that detailed negotiations will start immediately with the aim “to sign contracts within January”.
The parties will negotiate seven-year contracts which put the prospect of exploiting any findings well into the mid 2020s.
“Realistically speaking, I would expect exploratory drilling to start after 2018 at the earliest,” Lakkotrypis pointed out. If a first drilling is successful, it will be followed by the appraisal well, a second drill to confirm finding.
And only then does the search for potential buyers begin the presentation of a development plan, and finally the process of extracting the gas and transporting it to the buyer.
Nevertheless, the Minister appeared particularly encouraged by the commitment of the three majors.
“Organisations of this scale do not invest in a particular country without having substantial prospects. Knowing their proposals, I can tell you they are willing to spend a lot of money in our EEZ.”
Considering the current dire circumstances in the oil and gas industry, where oil and gas companies postpone or even cancel investments, the level of participation in the third licensing round allows the government to be “cautiously optimistic”.
In any case, Lakkotrypis pointed out that “until we proceed with the drilling campaigns and we actually see if there is gas and in what quantities, we cannot be certain”.
The political game
The Energy minister said from the start that “the Eastern Mediterranean doesn’t resemble politically the North Sea”.
It is a subtle reference to the serious problems Cyprus has with Turkey as far as energy matters are concerned. With the political problem unresolved, Ankara contests the bounders of Cyprus’ EEZ and doesn’t recognise Nicosia’s right to drill for gas in it.
In the autumn of 2014, Turkey sent its survey vessel Barbaros to do seismic research within Cyprus’ EEZ as a reaction to Eni’s drilling work in Block 9. Turkey is expected to react strongly again in May when Total will start drilling if a settlement is not in the vicinity by then.
In his Cyprus Weekly interview, Lakkotrypis said that the decision to proceed with gas exploration was taken by the cabinet, not by technocrats, and as a result there is a strong political angle.
“This is legislation fully aligned with European law. It tells you that the EU recognises that there is a definite political dimension in this kind of decision”.
The minister avoided to politicise the outcome of the third licensing round or to be drawn to early conclusions with regard to Exxon’s CEO being nominated for the position of US Secretary of State.
He focused more on the technical and financial depth of the companies involved in the third licensing round. He also stressed the importance of operating in a stable Eastern Mediterranean.
He did stress, though, that if, despite all efforts to the contrary, the Cyprus problem remains unresolved, then the RoC “will continue exercising its role as the representative of the EU in the East Med and as the representative of East Med in the EU”.
He also put a brave face to Turkey’s pressure for Cyprus not to develop Block 6. Ankara claims that part of the block falls within its own continental shelf.
“We will negotiate number 6 in the same way we will negotiate Blocks 8 and 10” Lakkotrypis said.
*Part II of this interview on Aphrodite gas and the East Med will appear in the January 6, 2017 issue of the Cyprus Weekly