International oil firms show interest in Cyprus’ oil and gas exploration

Several major international oil companies (IOCs) with experience in deepwater drilling are expected to make bids for Cyprus’ inaugural offshore upstream licensing round. At the launch of bidding for 11 offshore blocks, industry experts told that “a significant number” of major oil companies have purchased 2D seismic data acquired by PGS Geophysical early last year and were expected to apply for exploration licenses before the deadline of July 16.
Each license will be offered for about CYP 600,000 to CYP 1.1 mm (EUR 1.03 mm–EUR 1.89 mm), earning the state at least CYP 10 mm (EUR 17.2 mm) from the initial stage. More than 200 company officials and foreign government representatives attended the launch in Nicosia, including Egypt’s Oil Minister Sameh Fahmy.

In his speech, Commerce Minister Antonis Michaelides said that the Republic of Cyprus has signed an agreement on the delimitation of the exclusive economic zone with Egypt and Lebanon, based on the internationally accepted principle of the median line and in accordance with the UN Convention of the Law of the Sea.
“These agreements constitute an example of respect to the independence and the sovereignty of states, which is an element of modern political perception. Cyprus expects from the remaining neighbouring countries to show such modern political behaviour and formulate similar agreements,” he said.

Michaelides added that recent geophysical surveys in the region have proven to be successful and that this, in conjunction with the current high oil prices, makes the region a significant exploration target.
“Thus, the government of Cyprus considers that the time has come for Cyprus to embark on hydrocarbon exploration in its exclusive economic zone, an activity in which neighbouring countries are engaged for some decades,” he said.

In his speech, the Egyptian Minister of Petroleum described the event as an historic milestone towards achieving future energy stability for the current and future generations in Cyprus. He reassured that Egypt is fully committed to work very closely with the Cypriot side offering all necessary support and experience, to help Cyprus achieve its oil and gas future plans.
The Egyptian Minister referred to the dialogue between Cyprus and his country “which resulted in a clear vision for future cooperation in the oil and gas sector, namely in the areas of exploration and development, gas export, know-how and experience transfer in exploring frontier areas, model agreements and any other areas we believe together that are of interest to either party.”

According to France’s Beicep-Franlab, which analysed the seismic data, 17 major concept plays have been identified and the play fairways are of considerable size.
Speaking at the launch, Lucien Montadert said the “existence of active petroleum systems is assured,” adding that in view of discoveries made offshore Egypt, it was likely that gas and condensate were present and that the presence of crude oil could not be excluded. Montadert said play concepts were spread throughout the area and that there were a variety of structures.
The Director of Energy Service at the Ministry of Commerce, Industry and Tourism Solon Kassinis said the Cyprus offshore are could gas prone but added that the Eratosthenes structure “might even lead us to oil.”

Water depths in the 70,000 sq km area surveyed by PGS run from 800 to 3,000 metres and any attempts at exploration drilling will require a deepwater effort, an expensive undertaking that could easily cost as much as $ 40 mm per well. In this licensing round, the Cyprus government is offering exploration licenses that require at least one well to be drilled within a three-year period.
During the conference, Kassinis told delegates the production sharing contract (PSC) would include a floating percentage scale for production sharing that would reflect crude oil prices and that taxation would be included in the state’s share.

The seismic campaign was carried out after cooperation agreements were signed with Egypt, which allowed PGS to pass over Shell’s North East Mediterranean Deepwater (NEMED) block in order to compare and correlate data acquired in Cyprus’ Exclusive Economic Zone (EEZ). In January, Cyprus signed an EEZ agreement with Lebanon, where PGS is carrying out an offshore 3D seismic survey.
Blocks 3 and 13 in the eastern part of the Cyprus EEZ were not offered in this first licensing round because exploration work is still underway in those areas. Negotiations for a similar accord with Israel are also in progress.

But the accord with Lebanon and Cyprus’ announcement of the launch of the first licensing round has prompted Turkey to warn oil companies that any contracts signed with the Greek Cypriot government may be considered illegal by Ankara. Turkey claims the bilateral agreements and contracts may not take Turkish Cypriot interests into consideration.
On February 13, Turkish Energy Minister Hilmi Guler said Turkey would issue its own licenses for offshore oil and gas exploration in the Mediterranean and Aegean Seas to its national oil company TPAO and foreign oil companies.

Under the rules announced by Cypriot officials, IOC bids will be evaluate by a government consultation committee and the minister, who will later negotiate the terms and conditions of a PSC with the bidder. The Council of Minister will then approve and grant the licenses.
The terms of the PSC will cover minimal exploration work obligations, economic terms in accordance with production tiers and pricing, annual surface fees, a minimum budget for recruiting and training Cypriot and EU personnel, a signature bonus and a maximum percentage of cost recovery.

The main criteria of evaluation of a bid will depend on the company’s technical and financial ability, national security and public interest, offered financial consideration, and ways the activities will be carried out. The main terms and conditions to be met include protection of the environment, national security and public health and safety, financial contribution, proper performance of activities and the safety of the installations for workers.
Cyprus will award prospecting, exploration and exploitation licenses for the blocks six months after the end of the bid period on July 16. A one-year prospecting license covers gross evaluation of hydrocarbon potential in the block by identifying geological structures with gravity and magnetic surveys and 2D/3D seismic acquisition.

An exploration license will be granted for three years with the possibility of two, two-year renewals. Each renewal will require the relinquishment of 25 % of the initial license. The exploration license will include gravity and magnetic surveys, 2D/3D seismic and exploration drilling.
A discovery will give the exploration license holder the right to an exploitation license. Exploitation licenses will be granted for up to 25 years with an option for renewal up to 10 years.

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