Cyprus Mail
Guest ColumnistOpinion

Which companies are likely to win in Cyprus’ third licensing round?

LNG plant at Damietta Egypt

By Abboud Zahr

 

In May 2016 Cyprus launched its third offshore licensing round, which will close on July 22. In this round, three blocks (6, 8 and 10) are expected to be awarded by early 2017. Block 10 has been relinquished by Total after the oil major did not find potential prospects in the said block.

Energy Minister Giorgos Lakkotrypis said recently at an energy conference in Brussels, that he is seeing strong interest from international oil companies (IOCs) in the country’s present licensing round.

ENI’s discovery of the giant Zohr field off Egypt is a game changer for nearby Cyprus. Zohr, just 6 km from Cyprus’s Exclusive Economic Zone (EEZ), was based on carbonate structures and ancient reefs, and similar key structures had been identified around the Eratosthenes Seamount in Cyprus’s EEZ. This mega discovery is thought to host a massive reserve of 30 trillion cubic feet (TCF) of natural gas. Zohr discovery revolutionised the industry in the Eastern Mediterranean as it was the first time that gas had been found in carbonate rocks rather than in porous sands. It offers the hope that searches with the different geological focus will produce discoveries in nearby Cypriot blocks.

Cyprus has five Production Sharing Agreements (PSAs) in effect: Block 12 with Noble Energy, Delek and BG/Shell, where the consortium discovered the Aphrodite field with 4.5 TCF; three PSAs (blocks 2, 3 and 9) with ENI and Kogas; and a PSA with for Block 11.

Noble Energy, operators of Block 12, relinquished to the government part of the block, abiding by the exploration contract, which expired on May 23, 2016. However, the Aphrodite discovery remains with Noble, and development of the field is expected to start in the near future. After satisfying its domestic needs, Cyprus is hoping to export the gas to Egypt, where demand is huge. Furthermore, it is foreseen that some gas exported to Egypt could be re-exported as LNG, from existing liquefaction plants there.

It is highly expected that several super-majors will submit their bid within the present licensing round, especially the current players, ENI and Total.

Even Russian firms – with that nation having shown a lot of interest in the geopolitics around Leviathan – are expected to participate in the bidding round, albeit within consortia.

Among the three blocks under tender, Block 10 will attract the highest interest due to its closeness to Zohr. ENI will be the most interested in clinching this block, due to its geological knowledge gained from drilling several wells in the surrounding area.  Furthermore, ENI is already well established in Cyprus and it will have a lot of synergies by adding new blocks to its existing ones. Additionally, the under-used LNG plant in Damietta (Egypt), owned partially by ENI, will help, when the time comes, export part of the Cypriot production as LNG. This option will allow ENI to monetise its production swiftly and with no major investments in infrastructure. However, ENI will seek a consortium partner to lower its risk. This partner could be Kogas or, most probably, another oil major.

On the other hand, the major question that is raised nowadays, is how much the current oil and gas price level will help in the success of this bidding round, and more importantly, whether the government will enjoy success in this latest round? It is a challenge for Cyprus to succeed in its third bidding round, especially now that the companies’ exploration budgets are slashed to less than half.

The coming months will clarify all these points.

 

Abboud Zahr is managing director of Dep Levant Oil and Gas Company Ltd

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