My brief visit to Moscow last month turned out to be a cold and wet one, which did not detract from the sprawling capital where one finds the greatest cluster of millionaires and a coterie of self-made billionaires. The 10-lane avenues clogged with never ending traffic going in both directions boasts the finest array of luxury cars in a country where the average net salary is under €600 monthly. I stayed at the Hotel Lotte with its magnificent shopping Plaza (where the previous G20 conference was held) – it charges the starting rate of €500 a day for a double room and provides guests with a lavish breakfast fit for a king.
Polished marble adorns the floors of bedrooms and one of the luxuries includes a gently heated toilet seat complete with five preset. Yes you will be excused for questioning how the ex- Soviet Union after it's break-up has accumulated so much wealth such that the main squares and churches flaunt gold onion shaped cupolas and the streets are spotlessly clean. Take a walk along the Arbat Boulevard and with its luxury shops and cafeterias where a Coke and a cappuccino costs over €13 (minus tips).
What contributed to the sudden accumulation of this vast explosion of wealth? The answer is simple – Russia went to great lengths to extract in commercial quantities its vast reserves of oil and gas whose output rose 35 per cent between 2001 and 2005. The fly in the ointment is that such riches have dwindled in recent years such that it only rose by five per cent between 2006 and 2010 – despite a fourfold increase in investment over the same period. This has forced it to look into shale oil even though its extraction is a difficult and unconventional process. Just to mention one location in the far north of Russia, near the Pechora river estuary, where unconventional shale oil extraction has been practised on a small scale for a number of years. It is here where the lion’s share of the shale oil reserves lies in Bazhenov, a huge geological formation in the heart of Siberia about 2,000 miles east of Moscow.
Bazhenov was formed from the gradual build-up of plankton and other organic matter over five to six million years ago in an area that was once a deep marine basin. Experts believe that it could be one of the largest accumulations of shale oil on the planet. One estimate suggests that the dense rock could contain as much as 100 billion barrels of recoverable oil, making it five-times larger than North Dakota’s Bakken shale, the Mecca of America’s recent mega shale oil discovery. However critics say that Moscow has all its eggs in one basket – trading in hydrocarbons. This may be true but as an emerging country in the BRIC group it wants to maintain its oil output so critical to the Kremlin’s projection of Russian power.
Moscow's ostentatious wealth is heavily dependent on its oil revenues even though experts point out that this is not an infinite source since conventional reserves are depleting unless drilling for shale comes to its rescue. Logically, President Putin wants to put money where his mouth is by investing in shale drilling at the Bazhenov site. Oil wealth is the secret how Moscow is the home of so many billionaires and is slowly becoming one of the most expensive cities in the Western world where to conduct business. Almost all the Russian majors – Rosneft, Gazprom Neft and Surgutneftegaz, as well as Lukoil, are exploring in the Bazhenov area. But Moscow lacks the high-end expertise of American drilling magnates and consequently is fast attracting the attention of US oil experts such as Baker Hughes, Halliburton and Schlumberger for cutting edge technology. Russian oil companies look at developments in the US with a mixture of fear, awe and envy as it is a paradox that as US output grows, Russia’s production is stagnating: hence the recent rush to turn to fracking.
Simply put, this is the practice of blasting water, sand and chemicals deep underground to create fractures in the shale rock This can open up vast reserves of natural gas and, later, oil that were previously unreachable, but fracking is strongly opposed in the Western world by environmentalists on grounds that it may endanger the water table and cause minor earthquakes. Luckily, in Siberia, unlike many European countries with shale resources, one meets with little environmental opposition to fracking – as it is a thinly populated region where many inhabitants depend on the oil industry for their livelihood.
But why is this relevant to our own prospects of discovering the black gold? Can we dream of our island ever becoming a oil and gas exporter in the middle of the Mediterranean sea – a process that is making millions for companies drilling in offshore wells owned by our neighbours? Can Malta be lucky enough to become another Cyprus which last year discovered vast acreage of natural gas offshore deep in the Levant waters?
Dream on says the armchair critic who quite rightly has heard the catch phrase of successful digs being orchestrated as a dream by unscrupulous politicians clamouring for votes weeks prior to a general election. In truth, over the past 60 years attempts to discover commercial quantities of hydrocarbons both inland and offshore have failed. Critics lament that not enough investment has been risked by foreign companies while local government was rather keen not to upset neighbouring countries which themselves were major producers of offshore oil or gas fields. In the south east there’s a recognisable fairway of oil discoveries and oil fields leading from onshore Sicily to its southern offshore waters.
No wonder that the offshore Sicily Vega oil field, with an estimated resource of one billion barrels of oil in place, is only 20km away from the northern border of the latest zone in Malta’s exploration efforts. Needless to say, experts predict that the proximity of similar concessions and similarity in geology to the producing basins of Tunisia and Sicily lend support to the theory that oil strikes for Malta cannot be excluded.
The “intrabasin” ridge trend therefore offers a new and highly prospective oil strike in our waters. But it is not doom and gloom – Mediterranean Oil and Gas (MOG) a company, which was awarded a licence in 2005 to explore, had concluded a 3D seismic survey and interpreted an extensive long-offset view over the area that looks promising. It is now apparent that this part of offshore site is geologically analogous to the Libyan Sirte Basin, meaning it appears to contain analogues to proven producing fields in Libya in addition to those offshore Tunisia. Specifically, the experts have identified a portfolio of prospects in the Lower Eocene/Palaeocene sequence. This was sweet music to the ears of shareholders of both the parent company Genel Energy and MOG while the markets sensed a good bet and the shares at that time rallied.
Dr John Hurst (COO for Genel) said, “We are delighted to have reached agreement to farm in to the Area 4 Block Offshore Malta, a licence with considerable exploration potential being geologically similar to known producing areas nearby in Libya and offshore Tunisia. It is consistent with our strategy of building a portfolio of high impact exploration assets within the Middle East and Africa.”
Genel Energy has awarded local company Medserv the contract for the provision of logistical supply base services, transportation and associated services in relation to the drilling of an exploratory oil well offshore. Such a lucrative contract covers one well for an initial duration of up to 120 days with an option for extension to a second well. The use of a rig carrying the name of Paul Romano will drill the Hagar Qim 1 exploration well in water depths of approximately 450 metres and will target reservoirs at a depth of approximately 2,500 metres. In this context it is encouraging to note that PKF had also teamed up with Master Investor 2013 in March, which is the UK’s leading investment show that took place in central London to attract investors in this sector. We all appreciate the Labour government recent success to sign memorandums of understanding with both Libyan and Italian authorities to start talks on joint exploration.
In the words of Medserv director Anthony Diacono, Malta could become a “mini North Sea” if all the oil and gas activity being planned in the Mediterranean takes off. Wisely, the government is careful not to raise expectations or to start spinning a web of feel good factor that we are better equipped to pursue the exploration drive after past failures and conjure a easy feeling that we stand a sure chance to reap our merited bonanza (if any) stored deep under the sea.
To conclude, one hopes that the government will lead us to the promised land of milk and honey and quickly set up a national oil committee made of experts to plan a feasible roadmap on the quickest way to give birth to this important industry. Such nectar will taste as sweet manna from heaven.
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The writer is a partner in PKF an audit and business advisory firm