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Cabinet authorises talks with Exxon, Qatar, Eni, and Total on 3 offshore blocks (Update 2)

Oil rig at Leviathan

The cabinet decided on Wednesday to enter negotiations with energy giants Exxon-Mobil, Qatar Petroleum, Eni, and Total, on hydrocarbon exploration and exploitation in three blocks offshore Cyprus, the energy minister said.

ExxonMobil and Qatar Petroleum will be negotiating for block 10 and Italy’s Eni and France’s Total on the exploration and exploitation rights in block 6, Energy Minister Yiorgos Lakkotrypis said. Separate talks will he held with Eni regarding block 8.

The companies had submitted bids as part of Cyprus’s third oil and gas licensing round that was announced earlier this year, six months after Egypt made public a 30 trillion cubic feet gas find in Zohr, an offshore field administered by Eni, which reinvigorated interest in the Eastern Mediterranean.

Eni, together with South Korea’s KoGas, already have permits for blocks 2, 3 and 9. Total has the licence for block 11 and had relinquished the rights for block 10 last year. ExxonMobil and Qatar are newcomers to Cyprus’s energy scene.

“Licences will be issued following successful negotiations and approval of the contract by the cabinet,” Lakkotrypis said. “Otherwise, runners-up will be invited to negotiations.”

The energy minister, whom the cabinet appointed together with his colleague, finance minister Harris Georgiades, to head the negotiating team, said he was optimistic after the government received three bids for block 10, one from Eni and Total and another one from Norway’s Statoil.

While the energy companies will have to drill exploratory wells to prove the energy potential of every block, “the fact that we have received bids for investment in such a difficult financial environment for the hydrocarbon sector, makes us cautiously optimistic.”

Energy prices fell more than 50 per cent since mid-2014 putting pressure on the budgets of energy companies worldwide. The price of a barrel of Brent was at $55.56 on Wednesday afternoon.

Conclusion of the negotiations with the winners of the third round depended on “many factors, the distance the two sides will have to cover in negotiation,” he said. “We would like to conclude by the end of January, early February”.

Each contract will have a duration of seven years split in three periods, three years for the first, and two years for the second and third, which will be subject to negotiation, he said.

One of the basic criteria of the technical evaluation will be the number and speed of drills proposed by every company or consortium, he added.

The first oil and gas licencing round, held in 2007, attracted a consortium led by the Houston-based Noble Energy which announced Cyprus’s so far single gas discovery five years ago after drilling in the Aphrodite field in 2011 prompting an angry reaction from Turkey which objects to Cyprus’s hydrocarbon development and sent warships to the area. Production in Aphrodite which contains 4.5 tcf of natural gas is not expected to begin before 2020.

The second round which attracted Total, which plans to drill for hydrocarbons in April, and Eni, was completed in 2012. The Italian energy giant failed to make a discovery when it drilled on two separate occasions in 2014 and 2015.

The energy minister said that Cyprus’s efforts to develop its hydrocarbon industry are unrelated to reunification talks.

“We are going ahead based on our planning because our basic priority is more exploratory programme and if possible, further discoveries, something which will help evaluate our energy potential,” Lakkotrypis said. “Beyond that, our strategy to exploit natural wealth in the Cypriot EEZ is one thing and procedures for the Cyprus Problem are another”.

President Nicos Anastasiades is scheduled to meet Turkish Cypriot leader Mustafa Akinci in Geneva in three weeks’ time to discuss the last remaining aspects in their reunification talks which include the territorial question. Representatives from Greece, Turkey and the UK are also expected to join them two days later to discuss security and guarantees.

Lakkotrypis said that Cyprus which is currently in talks with Egypt to sell gas from Aphrodite for its two largely mothballed liquefaction plants, has also requested geological data on Zohr, as “every drilling in our area offers important data for our efforts to interpret the geology of the Cypriot EEZ”.

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