Obviously, the man in the street expects that Minister Joe Mizzi, now responsible for oil and gas exploration, makes it a priority to seriously consider a proper investment strategy and draw up a solid oil exploration plan. As reported in the media, Mr Mizzi said the government was giving a boost to oil exploration and would open all the areas around Malta for interested companies. Mr Mizzi hit the road running as he has already had meetings with a company interested in drilling two exploratory oil wells. The government intends to open all seven areas on the island’s continental shelf for exploration licensing.

We all know that the investment needed by a company in drilling offshore wells in deep waters reach upwards of €60 million each, apart from the cost of 3D seismic surveys. Persuading companies to take the plunge and risk their capital in Malta acreage takes time. In this context it is encouraging to read that PKF this year had teamed up with Master Investor 2013, the UK’s leading investment show that took place in central London to attract investors in this sector. The show is now in its 11th year and attracted over 2,500 attendees where investors met with top executives in various sectors including oil and gas exploration and ancillary industries. It also gave investors unique insights on country specific opportunities. The speaker from PKF explained at the London event that it was more than 50 years ago that the government of the day embarked on a drive to market Malta's offshore oil acreage among investors with a view to encouraging them to prospect for oil and gas.

Priorities change under different political administrations. In the past, administrations spearheaded Malta’s oil exploration drive but unfortunately did not become a top priority as Malta had to overcome great difficulties to develop its economy. Following the UK services rundown, Malta needed a massive injection of development capital to build hotels and catering establishments to create not only a new tourism industry from scratch but to diversify into manufacturing and service industries. Observers lament that oil exploration since the late eighties was not viewed as a viable industry, and more so under the PN administration of the past decade as it had even gone in reverse drive.

With hindsight, the culture of “money no problem” propagated in the early nineties saw the administration throw caution to the wind and start to accumulate a national debt mountain with the proviso that all such credit was safe as no foreigners were asked to contribute because it was the locals / banks that snapped up all the government bonds. Did it cross our politicians’ mind that if proper investment was set aside for regular oil and gas drilling this could have resulted in another income stream which would prove useful if properly harvested and set aside to repay the debt now reaching a figure exceeding 75 per cent of GDP.

Not enough drilling was done and the few wells that were undertaken since 1953 failed, resulting in 12 dry wells and a few others with limited oil and gas shows. Exploration frenzy was triggered by the discovery of oil in Triassic dolomites at Ragusa in nearby SE Sicily in 1953, when a local company, “The National Oil Development Company (Malta) Ltd”, financed by Maltese businessmen applied for a permit to start prospecting, which failed due to lack of capital. This was followed in 1954 by an agreement with the D'Arcy Oil Exploration Company to co-ordinate deep boring and conduct detailed geological and geophysical surveying. In 1955, petroleum mining concessions were granted to BP Exploration Co. Ltd in respect of the whole of the land area of Malta. Between 1955 and 1959, the British Petroleum Co. Ltd carried out three stratigraphic onshore holes: Ghar Lapsi No.1 (929 feet), Naxxar No.1 (2000 feet), and Zabbar No.1 but registered no commercial success and BP gave up its licences in 1959. The chequered history of our drilling saw, in June 2005, a company Pancontinental signing an agreement with Houston based Anadarko to carry out a four-week seismic programme to determine the viability of Chianti and Limoncello, which it considered as being “significant, world class prospects”. Equally optimistic about these prospects, Anadarko had agreed to fund this programme covering an area of 1,385 kilometres. The programme was meant to start in 2005 but the Maltese government told the companies to suspend the programme for six months to try and resolve border issues Malta has with Tunisia and Libya. This was never resumed. So, obviously, the burning question to ask is whether we stand a fair chance of discovering hydrocarbons in our offshore fields? The answer is not easy given that the subject is taboo especially now, following the general election with so many high expectations to convert heavy fuel oil BWSC plant to run on clean gas.

Many are suffering from a dose of déjà vu considering the island has not drilled an oil well since 2005 (only drilled 12 wells in 50 years); in contrast, Italy attributes its success to drilling over 7,000 (onshore and offshore). It is a paradox how Enemalta (the national electricity generator), which buys oil on the open market in for millions, has never invested to conduct its own seismic 3D surveys and try to secure an alternative source of oil. Some may tell you that this is explainable when reading the shocking revelations in a damning report recently compiled by the National Audit Office on how Enemalta oil procurement policy was conducted in the years 2008 to 2011, which makes interesting reading. It gives a hint that the decision to buy refined oil was allegedly in the hands of one person – the chairman (a political appointee). The Energy Minister has passed the investigative report to the police for further questioning and one expects more surprises in the media to keep us busy reading the tasty parts on our tablets when relaxing on the beach this summer. 

Yet it is not all doom and gloom as the good news is the acquisition by Genel Energy, an oil exploration company listed on the London Stock Exchange, of a 75 per cent participating stake in Mediterranean Oil and Gas (MOG), which holds an exploration licence for Area 4 located to the south of the country. MOG said it is advanced in its preparations for the Hagar Qim 1 well offshore set to start drilling in the final quarter of the year. More good news followed early this year as three offshore blocks totalling 6,400 square kilometres were awarded by the government to the oil company Capricorn Malta Limited to conduct a study and to acquire additional data and assess the exploration potential of the acreage under an Exploration Study Agreement (ESA). The company is a subsidiary of Cairn Energy plc, a company listed on the London Stock Exchange with its head office in Edinburgh, Scotland, which conducts vast operations in North West Europe, North Atlantic, Mediterranean and South Asia.

The board of Mediterranean Oil & Gas recently announced that, following the grant of approval by the government, it has acquired through its wholly owned subsidiary Melita Exploration Company, a 40 per cent working interest in the ESA relating to offshore Malta Area 3 - – 1, 2 and 3, alongside Capricorn Malta Ltd. In December 2012, Cairn entered into a two-year ESA with the government for Blocks 1, 2 and 3 of Area 3, which are located north of Malta in the Sicily Channel and contain a number of prospective leads. Dr Bill Higgs, chief executive of Mediterranean Oil and Gas, commented: “We are very pleased to have completed this transaction with Cairn. This enables us to expand our footprint offshore Malta ahead of our exploration drilling in Area 4 later this year as MOG continues to geographically diversify exploration activities and capital spend. We look forward to working with Cairn to evaluate the exploration potential of Blocks 1, 2, and 3 of Area 3, which we believe could mirror the exploration opportunities demonstrated elsewhere in the Sicily Channel.”

The Prime Minister recently held talks on joint oil exploration matters with his Italian counterpart and an international oil and gas conference is to be organised in Rome to promote such activity. One knows that it usually takes six to seven years from the date of first successful drilling to the regular pumping and selling of hydrocarbons, but the earlier it starts the better (at least we will make up for lost time). So one may well ask – should the new Labour administration be encouraged to invest capital to bet on the recovery of hidden secrets in the deep?

Let us consider Cyprus – another island in the Med that only recently discovered huge deposits of natural gas in the Levant basin and kindled hopes in other neighbouring countries to tap this valuable resource. On its part, Cyprus appears to be on track to further expand its exploration efforts, offering a possible solution to an economy weighed down by its own debt and the country’s insolvent banks saddled with a close connection with Greece own stagnated economy. Quoting Reuters, the Levant basin offers Cyprus access to an estimated 5.1 trillion cubic feet of natural gas, which enables it to be able to meet domestic needs with local natural gas by 2017 and earn export revenue by 2019.

Malta is lucky to have the services of Mr Mizzi, the energetic minister responsible for this sector. Logically, the oil and gas conference planned to take place in Rome will be an ideal platform to start the ball rolling on how to chart our oil exploration and attract more foreign direct investment in the Ragusa basin with its highly recommended acreage. Let’s start rolling the dice...

The writer is a partner in PKF an audit and business advisory firm

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