By Elias Hazou
Cyprus’ plans for the Aphrodite gas reservoir, following BG’s buy-in, remain on track with production possibly starting in 2020, energy minister Giorgos Lakkotrypis said on Tuesday.
He was speaking to the public broadcaster a day after it was announced that BG acquired 35 per cent equity in offshore Block 12, which includes the Aphrodite gas field, in a transaction worth $165m (€155m).
Though the deal between Noble Energy, operators of Block 12, and BG is subject to government approval, Lakkotrypis indicated that this was mostly routine.
The government was kept abreast of negotiations between Noble and BG, which had been going on for eight months, he said.
And the administration was positively disposed to and had been encouraging such an agreement.
Under the deal, Noble remains the operator of Block, retaining 35 per cent of equity. The other stakeholders are Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership, each with a 15 per cent working interest.
The move allows Noble to spread out the capital investment risk. The total cost of developing Aphrodite is estimated at between €2bn and €3bn.
The agreement also achieves an “alignment of interests,” Lakkotrypis said, given that the new stakeholder in Block 12 – BG – also holds equity in the LNG export facility at Idku, Egypt.
“The terminal [at Idku] has been working at below capacity for years now, due to the channelling of Egyptian natural gas to domestic consumption. BG have for some time been looking to buy new quantities of gas. They have been engaged in commercial negotiations with Israel’s Leviathan and Aphrodite, and now they have an upstream interest in Aphrodite.”
It’s understood that Noble would build a Floating Production, Storage and Offloading (FPSO) unit atop the Aphrodite well, and would charge a fee for the gas at the site. The method of export – most likely a pipeline – is not Noble’s responsibility, but rather BG’s.
Asked whether BG’s participation would fast-track development plans for Aphrodite, the minister said the company has verbally relayed to the government “some ideas on speeding up, or shortening the time as well as the capital expenditures needed.”
On the seemingly low price paid by BG for the 35 per cent stake in Aphrodite, Lakkotrypis explained this merely reflects the net present value of Aphrodite, given the current low oil and gas prices globally.
As things stand, producing gas from Aphrodite is scheduled for 2020.
Once a commercial gas sales deal is struck and customers are lined up, said Lakkotrypis, the parties would sign a long-term contract spanning 10 to 12 years, and in turn the Aphrodite stakeholders would begin pouring money into the infrastructure.
Gas deliveries would be made every month. Asked about Cyprus’ share of the proceeds, the minister said it would range from 45 to 60 per cent of profits.
During the first years of production, Cyprus’ share would be on the lower end as the companies would be recouping their investment in the infrastructure.
According to energy analyst Charles Ellinas, BG’s entry into Block 12 is positive as it represents a “small step” forward in development of the gas field.
On the one hand, BG has achieved their objective of acquiring assets in the eastern Mediterranean, and in close proximity to their LNG operations in Egypt.
But on the flipside, BG’s involvement does not get around the problem of low gas prices, which at present discourage investment.
BG would effectively sell themselves their own gas from Aphrodite, pay for a pipeline to Egypt, liquefy the gas at the Idku plant, export it to Europe and then re-gasify it there.
“At the moment, LNG is going for $6.2 per mmbtu on the European markets. So will BG wait for prices to rise? It’s an unknown,” Ellinas said.
Another factor to consider is Royal Dutch Shell’s $70 billion takeover bid for BG Group. Assuming it goes through, what would Shell’s plans be for BG’s Egyptian operations?
Ellinas says Shell has indicated that BG’s venture in Egypt will not be a top priority and that they are primarily interested in BG’s Australian operations.
Last but not least, BG’s Aphrodite buy-in could be seen as an opportunistic move, given the low price-tag for the 35 per cent share.
Despite farming out a part of Aphrodite on the cheap, cash-strapped Noble has made a neat $165m, in addition to $73m from the recent sale of its 47 per cent stake interest in Israeli licenses offshore Karish and Tanin.
According to Ellinas, Noble is seeking to improve its cash-flow position, following disappointing results this year in its shale oil and gas operations in North America.
Earlier this month, Noble let go 180 employees, and more layoffs could follow.