Global Insight Perspective | |
Significance | Cyprus received three bids from two different parties in its inaugural licensing round, a relatively poor showing considering the 11 blocks on offer. |
Implications | The muted interest was probably not helped by ongoing protests from neighbouring Turkey over the legitimacy of the licensing round, but may also reflect the speculative nature of making investments at this early stage in the development of Cyprus's exploration industry. |
Outlook | The country remains optimistic on the prospects of oil and gas discoveries within its territory and is committed to seeing its licensing round through, indicating that relations with Turkey are likely to remain tense. |
Three Out of 11 Ain't Bad?
Cyprus's Commerce and Industry Ministry announced that it had received three applications for exploration rights in three different blocks in the country's inaugural oil and gas licensing round, following the passing of the bid deadline yesterday. The receipt of just three bids represents a relatively poor showing for the country, after earlier indications had suggested a range of international energy companies including Russian, Chinese, United States, Indian, German, French, and Norwegian firms were among those considering submitting an offer (see Cyprus: 22 February 2007:Government to Press Ahead with Exploration Programme in Cyprus, Says President). Ultimately, just two parties—one a U.S.-based firm and the other a consortium of Norwegian, U.K., and U.A.E. companies—submitted offers for the 11 blocks on offer. The government did not release further details on the identities of the bidders, but Houston-based Noble Energy later confirmed it had lodged a bid for one block. The consortium, whose members have not been identified, lodged two bids for two separate blocks.
Cyprus adopted a positive spin on the results, with a spokesperson for the Commerce and Industry Ministry stating "We deem the results to be very satisfactory…it is about the number we expected”. There can be little doubt, however, that the Ministry would have preferred to receive a few more bids to reflect what it sees as solid prospects for oil and gas discoveries within its territorial waters.
Outlook and Implications
One reason for the positive spin will be Cyprus's desire to demonstrate it has not been affected by ongoing protests from neighbouring Turkey over the legitimacy of its licensing process. Turkey has backed calls for Turkish Cypriots living in the north of Cyprus to receive a share of any proceeds from the country's energy development. Following the launch of Cyprus's licensing process earlier this year, Turkey called on Lebanon and Egypt—which have both entered agreements with Cyprus to allow the licensing process to proceed—to resist further co-operation, and, in a move clearly designed to antagonise the situation further, launched its own exploration programme in the eastern Mediterranean Sea (see Cyprus:15 February 2007: Eastern Mediterranean Oil Exploration Pits Turkey Against Cyprus).
Turkey might now be hailing its attempts to scare off potential investors in the Cypriot licensing round a success, given the muted interest eventuating from the first phase. Indeed, the prospect of getting caught up in a long-running and deeply-ingrained political and territorial battle between the two Mediterranean nations is likely to have dimmed the interest of at least a few prospective participants. Still, such risks are unlikely to be turn away investors on their own—indeed, international oil companies have invested in much riskier regions where the potential benefits are known to be significant—and it is therefore likely that the relative discovery prospects demonstrated by the seismic data on offer was also a significant contributing factor.
Cyprus is offering licences for an area of 70,000 sq. km off its south-eastern coast, covering the Eratosthenes seamount, the Levant Basin, and the Nile Delta. Experts commissioned by the Cypriot government have previously indicated there are positive signs for hydrocarbon discoveries, particularly gas, in the region, part of which adjoins Egypt's NEMED block, where Shell is currently extracting natural gas. Some estimates have suggested the territory could contain between 8 billion and 10 billion barrels of oil equivalent, at depths ranging from 400 metres to 3,000 metres beneath the sea.
However, the interest levels in this first licensing phase would indicate that firm prospects in the region have yet to be identified. Data collection is ongoing, and three dimensional surveys are expected to be available for the second phase of licensing to be launched next year. The remaining blocks from the first round will all be made available in this second phase, the outcome of which is likely to give a better idea of the prospects that lie within Cyprus's exploration zone. Cyprus is committed to seeing the current licensing phase through—it intends to make a decision on awarding blocks to the two bidders by the end of this year—and also appears steadfast in carrying out its second licensing phase in 2008. While there can be no guarantees of success in its effort to uncover hydrocarbons within its territorial waters, one thing does look certain: the long-running tensions between Cyprus and Turkey are set to continue for the foreseeable future. Indeed, the dispute over oil and gas exploration in the eastern Mediterranean could continue to see such tensions escalate and could even prove the forum through which some resolution to these tensions is eventually brokered.