The cabinet on Friday approved the contracts with the winners of the third oil and gas round for blocks 6, 8 and 10 in Cyprus’ exclusive economic zone (EEZ), which could determine the future the island’s hydrocarbon development programme by containing Turkey’s reaction, Energy Minister Yiorgos Lakkotrypis said.
Lakkotrypis who was speaking to reporters following the cabinet meeting said that he was given the authorisation to sign the agreements.
“The signing will take place on April 5-6 and details will follow shortly,” he said.
US energy giant ExxonMobil and Qatar Petroleum filed the winning bid for block 10 and Italy’s Eni and France’s Total for block 6. Eni also won block 8.
“Today, we had the opportunity to present more technical, financial and legal details that emerged from this negotiation to the cabinet,” Lakkotrypis said adding that the government will receive a total of €103.5m in signatory bonus. The minister did not disclose how this amount is broken down among the bidders.
Cyprus announced its third oil and gas round a year ago, after the discovery of Zohr, a mammoth gas finding off the coast of Egypt, reinvigorated interest in the eastern Mediterranean. On Tuesday, Luca Bertelli, chief exploration officer of Eni which made the discovery in September 2015, did not rule out the existence of a similar gas field in Cyprus’s EEZ.
Lakkotrypis said that he warned of excessive expectations which can only be confirmed by a drilling. The fact that energy giants are ready to invest and risk in Cyprus “means a lot” with respect to both prospects and expectations in Cyprus and the region, he added.
The energy minister added that Eni, which has together with South Korea’s KoGas the exploration licence for blocks 2, 3 and 9, plans two more drillings beside the one announced together with Total with which it shares the licence for block 11. Lakkotrypis added that no decision has been taken with respect to the blocks in which Eni will drill for hydrocarbons.
“Seismic data will show this in more detail,” he said. “Our intention is to have a drilling in block 11 and two more drillings begin before year’s end”.
ExxonMobil which leads the consortium with Qatar Petroleum, is the second US energy company involved in hydrocarbon exploration in Cyprus. In 2011, the Houston-based Noble Energy announced the discovery of Aphrodite in block 12, a field containing up to 4.5 trillion cubic feet of natural gas.
The successful conclusion of talks with ExxonMobil and Qatar Petroleum, further strengthens Cyprus’ access to the administration of US president Donald Trump, after the latter appointed the former ExxonMobil top executive Rex Tillerson as secretary of state. The former Bank of Cyprus vice-chairman Wilbur Ross is Trump’s secretary of commerce.
The US interests in the area, as well as those of France and of the UK via Royal Dutch Shell which is partner with Noble in Aphrodite, may help deal with the probable reactions of Turkey which opposes Cyprus’ oil and gas exploration with the Cyprus problem remaining unsolved and claims a large chunk of the Cypriot EEZ for itself. While Noble was drilling in block 12 in the third quarter of 2011, Turkey sent warships to the area. The US, UK and France are all permanent members of the UN Security Council.
As Turkey is holding a referendum on April 16, which will decide whether president Recep Tayyip Erdogan will get additional powers, the latter sharpened his rhetoric against NATO allies Netherlands and Germany likening them to Nazis. Erdogan’s reaction came after Dutch and German authorities banned political gatherings on their soil with the participation of Turkish politicians.
On Thursday, President Nicos Anastasiades said that he was concerned that Turkey could even go as far as to risk an “incident”. Relations between Anastasiades and the Turkish Cypriot leader Mustafa Akinci soured last month and the UN are working towards a resumption of reunification talks.
“I fear the period from now until the referendum in Turkey, as well as the effort to create a climate of fanaticism within Turkish society,” Anastasiades told CNN Greece in an interview.
On Friday, Lakkotrypis played down probable concerns of the hydrocarbon companies with respect to Turkey’s reactions.
“Have you seen any concern in all this effort, either in the planning for the drilling or in the third round?” he said in response to a question. “What I am saying is that we have to go ahead with confidence to face technical, financial and geopolitical challenges we are facing. We must remain focused on our targets which at this stage, is the exploratory programme”.
Still, Harry Tzimitras, who manages the PRIO Cyprus Centre of the Norwegian think tank Peace Research Institute of Oslo, said that he expects that geopolitical concerns combined with low energy prices which reduce exploration budgets and limit marketability, could lead to a new postponement of drilling in block 11 as reunification talks remain in limbo.
“I am not sure whether we will have any drilling this year,” in Cyprus’ EEZ, Tzimitras said in a telephone interview. “It is likely that ExxonMobil goes ahead in late 2018 or early 2019 and the other companies will wait for the outcome before the start with their own drilling”.
Should ExxonMobil’s drilling lead to a “considerable discovery” then the other energy companies “will too go ahead and Turkey will not do anything” (to prevent them), he continued.
The French government which has ties to Total, “is a realist and I am sure they wouldn’t like to put Anastasiades in a difficult position,” by starting drilling work at this stage which could trigger a reaction from Turkey, Tzimitras said.
In the second half of 2014, when Eni-KoGas carried out an unsuccessful exploratory drilling in block 9, Turkey reacted by sending its seismic vessel Barbaros to collect data in Cyprus’s EEZ, prompting Anastasiades to walk out from talks with Akinci’s predecessor Dervis Eroglu.
“As the Cyprus problem stands now, any drilling could cause problems,” he said.
