The Malta Independent 21 May 2022, Saturday

The melancholy of another dry well

Malta Independent Wednesday, 16 July 2014, 09:57 Last update: about 9 years ago

The heading in the Times of Malta on 19 June read: “Oil investors biding their time till disputes solved”. In my opinion, this is a lame excuse and does not justify the dearth of investment, but some stakeholders have other axes to grind.

The article continues to placate us by saying: “Territorial disputes hanging over parts of Maltese oil licensing areas may be deterring actual investment, but there is still no shortage of interest from oil companies”. If there are so many gate-crashers at the Directorate of the Continental Shelf waving fat cheque books for new production-sharing licences, then why is it a state secret? It is so condescending, after a absence of drilling activity for the past 12 years, to still be reading official statements in the media telling us that “Neighbouring states have registered claims over part of Malta’s 76,000 sq. km acreage: Italy to the northwest and northeast, Tunisia to the west and Libya to the south.” Therefore, apart from Area Three and Area Four (now owned by Genel) there are other areas that are affected by overlapping interests.

Why, over a period of 25 years, have we not challenged such claims, or at least succeeded in reaching joint drilling agreements? The man in the street has by now become so fed up with reading about failed attempts that hope of a successful discovery has faded completely and melancholy has set in. Last month, a rig with the name Paul Romano started drilling at Hagar Qim, a well about 130 kilometres south of Malta, close to the Libyan oil rich Sirte basin. The rig, with a crew of 120, was fully equipped for drilling in water that is 450m deep with the objective of reaching 2,500m below the seabed. Then an announcement solemnly informed us that the rig was being immediately redirected to drill on the Sidi Moussa block, off Morocco, where Genel has a working interest.

Genel managing director Tony Hayward (ex CEO of BP at the time of the fatal Mexico disaster) was reported as saying that the well was abandoned ahead of schedule simply because the drilling operation had been so strong and efficient that it had finished the well ahead of schedule. This is a mystery that begs an answer – or possibly an independent inquiry – since previously a Genel spokesman had said that exploratory drilling would last between 45 and 55 days, so by the end of August it could be talking about the next phase.

This complete abandonment is a strange affair; what went so wrong that the well was plugged after only six weeks? This and many other questions will never be answered as the directorate is rather secretive about issuing public announcements or even sharing seismic data and is on record as saying it does not encourage initiatives from the private sector to attract new investors. Again, one recalls how MOG – the owner of the Area 4 licence previously issued in 2005 – has repeatedly requested, and was granted, many extensions for drilling .One of its ex-directors, Tony Trevisan, who is a founder and shareholder of Mediterranean Oil and Gas (MOG), talking to the Business Observer, remarked: “Exploration and drilling is a very expensive business and it makes no sense to make discoveries or fund research on behalf of other nations, particularly bigger and more influential ones”.

This is ridiculous, since islands elsewhere who are trying to sell offshore concessions are riddled with the claims of third parties, but in a smart way they all resolve their delineation disputes. Mr Trevisan refers to another concessionaire, Heritage Oil, a substantial exploration and production company that also sat on important and promising acreage to the south of Malta for seven or more years without any drilling (namely areas 2 and 7).

The dilemma is that, while Heritage has sat on the licence for many years, it has not risked any of its own capital on drilling, claiming potential disputes from third countries. Can you blame them? Not really, but then it is a chicken and egg situation and the directorate – or better still a potentially well structured national oil company – has to roll up its sleeves to resolve the impasse. It is no consolation to read comments from experts that Areas 2 and 7 show technically compelling evidence of geology that is synonymous with other discoveries in northern Africa.

Mr Trevisan concludes by waxing lyrical about the excellent work done by the Directorate of the Continental Shelf. Really and truly, we can only account for 13 dry wells dug in 60 years and this dismal performance may break our resolve to join the list of successful countries in the oil-rich Mediterranean Sea.

For example, let’s mention another example of licence holder: Cairn Energy. This company has been licensed to conduct a seismic test in area 3 in the north, close to the lucrative Vega oil fields, but only recently is reported as having switched to another prime location and will be drilling in offshore Spain next year. There it sees geological similarities with Israeli waters, home to two of the largest offshore gas fields found in the past decade. Cairn Energy will soon start a well in Morocco in September at a cost of around $80 million from which a number of companies are targeting billions of barrels of oil, estimated but as yet unproven.

According to Wood Mackenzie, the Moroccan government reduced its share of participation from any oil or gas field to about 30 per cent, which is much lower than the typical for Algeria, Libya and the rest of the North African and Middle East region. Officially, Malta does not make public the rate of tax it charges on production-sharing agreements, but one fears it is higher.

It is encouraging to note that once Malta succeeds in resolving its delineation disputes in its vast, largely untapped, acreage then modern exploration technology can quickly come to its rescue. This technology helped countries formerly overlooked such as Cyprus and Israel to discover huge new gas fields. It is true that Genel thinks there are more technical risks where Malta is concerned than ones of a political nature. A concession of block 7 in area 4 was awarded in 2005 to MOG and Genel paid handsomely for a 75 per cent stake. MOG spudded the well known as Hagar Qim on 24 May 2014 and 42 days later, on 4 July, reported that it was dry. Luckily for MOG, on the same day – ie 24 May 2014 – it sold its entire shareholding to the cash-rich company Rockhopper for a princely sum. This means that Rockhopper becomes entitled to a 25 per cent share in a dry well.

It is nostalgic (if not tragic) to recall how the exploration well drilled before Hagar Qim was the Lampuko – and this was in 2002 – which means that only 12 offshore wells have been drilled over a period of 60 years . When countries such as Egypt, Morocco, Albania, Cyprus, Israel, Croatia, Greece and Spain are busy chasing investors, can one hope that Malta becomes proactive and stops using a laid-back policy of “don’t look for them, let them come to us”. It is no surprise that Italy has been successful in its discoveries when, according to Assomineraria (Italy’s oil and gas producer association), it is estimated that private investment in exploration and production over the last 10 years has exceeded one billion euros.

In conclusion, there are no prizes for guessing that the efforts by our energetic Energy Minister Konrad Mizzi to make us part of a future EU gas platform will generate extra revenue and possibly new jobs, otherwise our exploration history will have left us with a melancholic taste in our mouths when we reflect on our vast acreage delineating the Continental Shelf contiguous to oil-rich neighbours. Destiny dictates: oil, gas everywhere but not a barrel in sight.


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

[email protected]

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