Exxon’s entry seen as spark to reignite Cypriot offshore

14 November 2018
11 October 2018, Week 40, Issue 470

The US company is about to launch a two-well drilling programme, with a discovery likely to be a catalyst for broader development, reports Gary Lakes from Nicosia

WHAT: ExxonMobil and QP are to drill two wells in Block 10 in Q4. 

WHY: The companies are looking for a new field on the scale of the Zohr find in Egypt or Leviathan in Israel. 

WHAT NEXT: Cyprus has invited Eni, Total and ExxonMobil to bid on Block 7. 

As ExxonMobil gears up to search for gas offshore Cyprus, the company’s senior vice president Neil Chapman was in Nicosia recently to meet the country’s President Nicos Anastasiades.

“Our plan is to drill sometime in the fourth quarter,” Chapman told reporters. “We don’t have an exact date right now.” 

The US company, in partnership with Qatar Petroleum (QP), will drill two wells back-to-back in Block 10 in the coming weeks. Cyprus is hoping for a big discovery comparable to Egypt’s 9.5 tcm Zohr field or Israel’s 623 bcm Leviathan field. Nicosia also hopes the two wells will confirm that the carbonite stratum in which Zohr was found extends into Cypriot waters.

Slow moving

Few wells have been drilled in the Cypriot offshore in the past few years. In 2017, France’s Total drilled the island’s fifth well in Block 11, which was close to Zohr. The firm found some gas, but not enough to declare the well commercial and has yet to announce its next move in the block. 

Italy’s Eni, which partners Total in Block 11 and is operator with Total as partner in Block 6, announced a gas discovery of up to 200 bcm at the Calypso 1 well in the block in January. That is more than the 127 bcm found in the Aphrodite field in Block 12, which was discovered by US-based Noble Energy in December 2011, and which has sat untouched since that time.

Eni’s CEO, Claudi Descalzi, said Calypso was a good find that warrants further investment and that an appraisal well was needed to get a better estimate of its size, samples from which confirm the extension of a Zohr-like play.

Eni, which is the largest foreign investor in the island’s EEZ, operates five blocks in Cyprus and is partner in a sixth.

Ankara’s anxiety 

Eni has also not disclosed its next move, perhaps to avoid a repeat of an incident with Turkish warships off the southeast coast of Cyprus just days after completing the Calypso well. As the Saipem 12000 drillship moved from Block 6 to Block 3 to start the Cuttlefish 1 well in February it was surrounded by five Turkish warships that prevented it from reaching its designated location for nearly two weeks. The drillship eventually sailed to Morocco where another well was scheduled.

Each step taken by Cyprus inflames Turkey’s anxiety and aggression. Last week, Turkish President Recep Tayyip Erdogan threatened Cyprus and Greece and the IOCs working in their respective waters. “In Cyprus and the Aegean Sea, no move can be made without Turkey,” he said. “Those that try to ignore us in this region put their existence in jeopardy.”

For months Turkey has said it will soon launch its own drilling programme in the East Mediterranean, though it has not specified where. Last week Turkish Energy Minister Fatih Donmez said drilling would begin by the end of the month. Ankara keeps claiming it has rights in the East Mediterranean, which it does in its own offshore area. But the Turkish government also makes it clear that it has claims over Cyprus’ EEZ too. 

Turkey fears losing access to a resource that could put a dent in its annual gas import bill. A find the size of Leviathan or Zohr would have big ramifications for the Cyprus problem and for Turkey itself, which seeks to promote itself as Europe’s alternative route around Russia for natural gas.

Commenting on the Turkish sabre rattling against the Cypriot government, the chief spokesman for the European Commission, Margaritis Schinas, referred to a March 2018 ruling by the European Council that “strongly condemned Turkey’s continued illegal actions in the East Mediterranean and the Aegean Sea.”

Pushing forward

The IOCs continue to push ahead with their plans, despite the static emanating from Ankara. This week it emerged that four international financial firms had expressed interest in the plan to build a subsea gas pipeline connecting the Aphrodite field to Egypt.

The current plan is for gas from the field to be converted to LNG in Egypt for subsequent shipment to the European market.

Cyprus and Egypt last month signed an intergovernmental agreement clearing the way for the pipeline to be built, but a commercial agreement must be reached before development of Aphrodite and construction of the pipeline begins.

There are other issues with Aphrodite that must be resolved before the project can begin, however. 

First, Cyprus and Israel need to iron out a unitisation agreement, as a sliver of Aphrodite extends into Israeli waters.

Second, the Aphrodite partners, Noble Energy, Delek Drilling and Royal Dutch Shell, have requested a renegotiation of the field’s PSC in respect of the share of revenues. Noble, Delek and Shell contend that the 60:40 split in favour of the government in the PSC will not provide adequate return on investment and want the share reversed in their favour. Talks on the issue with the government are under way.

Cypriot Foreign Minister Nicos Christodoulides was this week quoted as saying that negotiations on a commercial agreement “are advanced and very close to conclusion, paving the way for the commencement of the implementation of the gas pipeline.” The negotiations concern Noble, Delek and Shell as Aphrodite partners, but also Shell as the operator of the LNG facility at Idku in Egypt.

Meanwhile, the government of Cyprus has invited the companies whose current licensed blocks adjoin Block 7 (Eni, Total, Exxon) to bid on the block, which contains the Eratosthenes Seamount, considered by some to be highly prospective.

Cypriot Energy Minister Yiorgos Lakkotrypis said the government had chosen to forego another licensing round and had opted for offering the block to existing foreign partners because “there are particular geological reasons related to the Calypso discovery.” 

The companies have one month to submit their interest, suggesting that someone – either the government or a company – is in a hurry.

Since the discovery of Aphrodite, the pace offshore Cyprus has been perplexingly slow and frustrating. Perhaps now there are signs that things are starting to move forward more quickly.

Edited by

Ryan Stevenson

Managing Editor

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