Recent Hydrocarbon Developments in Cyprus

Recent Hydrocarbon Developments in Cyprus
Gary Lakes
Director, ERPIC Energy Program

It’s Tuesday, November 13^th, and the Stena IceMax should arrive at the Block 10 drill site which is operated by Exxon Mobile. It’s an important well and most significant about it will be two wells drilled back-to-back by Exxon Mobil. They’re expected to take perhaps two to three months to complete. At the end of that Cyprus should have some idea whether or not there is anything significant in Block 10. What I understand, the target is the carbonate strata that most likely extends from the one that runs through the Egyptian waters where the giant Zohr gas field was discovered. Fortunately, the drillship arrived on site without any interference from Turkey so far. Hopefully, it will remain that way. Block 10 is outside the area that Turkey is claiming as its continental shelf. Block 11 is outside of that as well. However, there have been a lot of warnings from Turkey. Turkish president Erdogan has made a number of comments warning Cyprus and the companies involved in the offshore exploration not to explore in what Turks consider Turkish waters and those that the so-called Turkish Republic of Northern Cyprus is claiming as their own territory.  

Cyprus was adhering to the UN Convention on the Law of the Sea when it drew up its Exclusive Economic Zone (EEZ). And so there have been a number of steps taken by Turkey to basically interfere with that. One is the claim by Turkey to quite a large continental shelf that extends to what it considers to be Egyptian waters. It doesn’t recognize the Republic of Cyprus. It doesn’t take Cypriot EEZ seriously. Then, also to the eastern side of the island and to the south east of the offshore of the Turkish administration of the North has made some claims and awarded those claims to Turkish Petroleum. So, this follows an incident last January when the Italian company ENI made a discovery which could be a six to eight trillion cubic feet (tcf) at the Calypso well in Block 6, which is to the west off the island. It then sent its drillship the Saipem 12000 east to the Block 3 to drill another one and it was confronted there by Turkish warships that prevented it from reaching the drill site and also forced ENI to abandon the plan.

Turkey claims the continental shelf extends from the mainland south to the west of the island. These claims overlap with Cypriot blocks 1, 4, 5, 6 and 7. And the Turkish Cypriot administration claims the offshore area north and east off the island, also south and southeast off the island, and these have been licensed, as I said, to TPAO. The claim overlaps Cyprus blocks 1, 2, 3, 8, 9, 12 and 13. But it doesn’t extend as far south as the Aphrodite gas field which is located near the Cypriot, Israeli and Egyptian maritime borders. So, Turks and Turkish Cypriots claim practically everything with the exception of Blocks 10 and 11. Following the statements made by the Turks and the Turkish Cypriots, it seems as if Turkey’s policy is to control exploration production in the Cypriot waters or to stop it, judging by their actions.

So, Cyprus has made it clear to Turkey and the Turkish Cypriots that any benefits received from future gas sales would be shared amongst all the Cyprus citizens. This seems to be a big complaint by the Turkish Cypriots as they feel that they’re not going to be giving any share from these gas resources when, and if, they’re eventually developed. The Cypriot government has repeated several times that all Cypriot citizens, Turkish Cypriots included, will have some share in whatever revenues are received and that they’ll be distributed fairly.

So, last week, speaking at the 14th Economist Cyprus Summit in Nicosia President Anastasiades remarked that Cyprus would have a geostrategic role to play as hydrocarbon resources in the region are developed. He said that future Cyprus policy would be based on the pillars of respect for international law, creation of opportunity and the conviction that hydrocarbon discoveries would lead to closer cooperation amongst all the countries in the region. So, Cyprus has close relations with all countries, he said, except Turkey. And he added that the government would continue with its energy program despite Turkey’s provocations for the benefit of all islands’ legal citizens.

The Foreign Minister Mr. Christodoulides also said at the conference that they advised Turkey to get involved with the exploration in the East Mediterranean. But the ball was in Turkey’s court on this.

The Energy Minister Giorgos Lakkotrypis said that Cyprus would be drawn into play if, what he called, the instability came with Turkey over claiming rights in the Cyprus EEZ. He said the Ministry had been operating in close coordination with the license companies in the Cyprus offshore and their main offices, and the government had also been working to solidify good relations with these Mediterranean companies in order to establish the geopolitical stability that those companies seek to work in. So, Lakkotrypis said the focus is now on further exploration and the monetization of gas discoveries, those being the Aphrodite field and the Calypso discovery.

Plans for new wells in 2019 are under discussion and also Block 7 is due to be licensed within the next couple of months. So, a crucial commercial agreement to pipe Aphrodite gas to Egypt for export is under negotiations and in the coming year we should see some important developments in Cyprus and the East Med, and hopefully that will be the case.

On Aphrodite, companies started negotiations with the government to re-frame the production sharing contract and adjust the revenues shares because the partners are saying that it’s going to be quite an expensive undertaking and the return on investment under the current contract will be sufficient. Apart from that, they’re hoping to get a final investment decision by the end of 2020 and then, once development takes place, the gas should flow to Idku LNG plant in Egypt by around 2022.