An agreement for the exploration and production of oil and offshore gas in two offshore areas totalling 18,999 square kilometres was signed yesterday by the Malta government and Heritage Oil International Malta Limited.
The agreement was signed by Resources Minister Ninu Zammit and the CEO of Heritage Oil and Gas, Tony Buckingham, at the ministry in Beltissebh yesterday.
The company is a subsidiary of the Canadian oil and gas company Heritage Corporation which is based in Calgary, Canada, with its European headquarters in Lugano, Switzerland and technical services office in London.
The company has operations in several parts of the world including Russia, Uganda, Iraq, Oman, Pakistan, Mali and the Democratic Republic of Congo. The offshore areas granted to Heritage are named as Area Two and Area Seven, located to the south and south-east of the island. Both areas were previously held by the Norwegian company TGS Nopec under an exploration study agreement. The new contract with Heritage is a production sharing contract and is for a term of 30 years.
The company has several financial obligations, the principal of which include a signature bonus of US$2 million to be paid on the signing of the contract. The company also bound itself to spend at least US$22 million in the first there years of the contract while annual rentals on a rising scale payable to the government start at US$240,000 per year. There is also an annual administration fee of US$100,000 and an annual scholarship and training contribution of US$100,000.
The work programme for the first three years consists of carrying out a detailed seismic survey of the two areas awarded. From the date of the signature of agreement, the company is obliged to start drilling at least one well within three years.
The term of the contract is divided in two, the first six years allocated for exploration and the rest for development and production should oil and/or gas be discovered in commercial quantities. If petroleum is discovered, the company is bound to produce it as efficiently as possible in line with good oilfield practice. Heritage would retain part of the petroleum produced to recover its cost while the remaining part of production would be shared on a pre-agreed scale between the company and the government. On the part of profit petroleum allocated to the company as a risk taken – 25 per cent income tax is payable to the government.
Should oil be discovered, the company will, after appraising the discovery, prepare a development plan for the government’s approval. Such a plan would consist of technical and engineering plans for development, a detailed economic, social and environmental impact study and a study on the government’s needs to develop and improve its capacity to monitor, supervise and carry out development and production related activities.
An advisory committee is to be set up between the government and the company to act as a forum to speed up the execution of exploration, development and production programmes.
A budget is to be prepared by the company so offshore installations and other such equipment would be dismantled and removed if they are no longer required for production in order to ensure safety of navigation and to minimise possible harm to the environment.
The contract also includes major environmental safeguards. There are also provisions for reference to experts and an arbitration tribunal for dispute resolution. Being a Maltese contract, Maltese law is applicable. In a short comment to the media, Mr Buckingham said the company believed the area to be highly prospective and that a seismic survey of the seabed would be completed in 2008. Drilling should start in early 2009, adding that “now the hard work starts”.