Stormy waters: will PIGS ever fly again?

March 2, 2011

Recent events in North Africa provide a stormy backcloth to the Offshore Mediterranean Conference (OMC) in Ravenna 23-25 March, but the region nonetheless remains a highly prospective one for the offshore sector especially with Noble beginning to unlock the treasures of the Levantine Basin. Infield's Paul Main and Dr Roger Knight set the scene.

The nations of the southern tier of the Eurozone, the so called PIGS (Portugal, Italy, Greece and Spain), have been particularly hard hit by the double whammies of the credit crunch and the fall-out from the Macondo disaster. It will take a few years for the offshore sectors of these nations to recover the momentum they had earlier in the previous decade.

At the present moment interest is focusing in Spain and Greece on redeveloping old fields such as Amposta Marine and Kavala as sites for underground gas storage. Portugal falls outside the remit of this article, but Italy always has a few projects to keep the industry busy. Unfortunately environmental concerns in the wake of Macondo have delayed innovative projects such as the Ombrina Mare development in the Adriatic because it is relatively close inshore.

The impetus for keeping the Mediterranean countries busy has thus shifted to looking for work outside the region. Dragados in Spain, once it has finished work on the jackets for the Castor/Amposta gas storage project will build two platforms for Hess Denmark's South Arne field, and Rosetti Marino in Ravenna will follow the loadout of the Guendalina platform for Eni with work on three platforms to be used in the development of the HP/HT Jasmine field in the UK sector of the North Sea. Meanwhile Intermare Sarda is engaged on work for Total's West Franklin field, another UK HP/HT field development.

On the exploration front there is a glimmer of hope with the Spanish government recently awarding Cairn Energy two 100% interest hydrocarbon licences which consist of five contiguous blocks in the Gulf of Valencia. The blocks represent 3992km2 and have water depths of 50-1000m.

In this region there is still some pipeline activity with the 32in 200km Interconnector-Greece-Italy Poseidon line across the Adriatic undergoing FEED by a JV of IntecSea and IV Oil & Gas. This section of the pipeline, which will carry gas from BP's Shah Deniz field in Azerbaijan, will complete the Italy- Turkey-Greece project and may well provide a link to the Nabucco pipeline, at its western end; the Greece-Turkey section came onstream in 2007.

Across the Mediterranean, with the effects of the credit crunch resonating through the Mahgreb and revolution in the air, the North African political situation began to unravel at bewildering speed early this year, helping to push Brent crude oil prices to a new high. The collapse of President Ben Ali's longrunning regime in Tunisia was followed by Egyptian President Hosni Mubarak's 11 February decision to end his 30-year reign.

Most Egyptian oil & gas fields are far from population centres, which helped minimize disruption to exploration and earlier production activities during the mass protests. On 1 February, however, RWE Dea Nile declared force majeure on the Atwood Aurora jackup operating offshore Mediterranean Egypt. Troops were deployed along the SuMed oil pipeline linking the Mediterranean with the Red Sea. There was one reported attack by saboteurs on a major gas trunkline's metering station, causing the temporary suspension of gas supplies to Israel, Jordan and Syria, but the pipeline itself was said to be undamaged.

In the shadow of these events RWE Dea Egypt announced late January that it had made the NEA 3x gas discovery in its wholly operated North El Amriya concession. The successful testing of the reservoir opens chances of further future discoveries in the licence. The Egyptian Natural Gas Holding Company (EGAS) is also planning to offer up 17 new licence areas in the Mediterranean Sea for exploration. The licences up for offer consist of blocks relinquished by IOCs such as BG, BP, RWE and Eni. Interest in the offshore Nile Delta has dwindled in recent years with IOCs hesitant to invest in such a high cost area with low gas prices, but the planned investment of $9 billion by BP and RWE Dea in the deepwater West Nile Delta project could provide some added impetus for IOCs to rejoin the fray if the political situation remains stable.

As OE went to press, the regional clamour for regime change had reached Libya, and with events still unfolding it was already becoming clear that this would be a much bloodier affair. One company watching events closely will be BP, whose Sirte Basin licences (along with acreage in the onshore Ghadames Basin) were awarded by Libya's NOC in an eye-watering $2 billion exploration and appraisal deal back in 2008. The ultimate goal of BP, which has contracted Pride International's newbuild drillship Pride Deep Ocean Ascension to drill in Sirte's 1600m water depths, is to find enough gas to justify construction of a new LNG export facility.

Eastern promise
Finally the Levantine Basin in the eastern Mediterranean has become the new exploration hotspot in the area, with Noble Energy's 8.4 trillion cubic foot Tamar and the 600 billion cubic foot Dalit gas fields discovered in 2009. This region has over the last 50 years been a source of international niggles and the presence of hydrocarbons will no doubt add a little more fuel to this fire.

With Israel traditionally being a net importer of hydrocarbons, the Tamar find is a significant boon. Israel quite understandably would like the field onstream as soon as possible. One major factor in the decision making on Tamar's concept selection will be security concerns. Any development with surface production facilities would make it vulnerable to attack.

Noble's further discovery of the Leviathan gas find in the Rachel licence, mooted as one of the world's largest finds in the last 10 years with pre-drill resource estimate of 16tcf held in a 324km2 structure, has only increased the stakes.

But its exploitation may be complicated by as yet unresolved maritime boundary issues between Israel and its northern neighbour Lebanon. In a recent statement the United Nations Interim Force in Lebanon (UNIFIL) maintained that it would not be responsible for delimitation of the disputed maritime boundary. Lebanon had requested the UN's involvement, after an increase in Israeli exploration activity. Lebanon approved a new energy law in August 2010. It is looking to start offshore seismic activity this year, and is intent on launching an offshore licensing round in 2012.

Also on the radar is the issue of taxation. On 23 January the Israeli government approved a near doubling of the profit tax on gas and oil extracted from its territory – from 30% to between 52% and 62%. This should become law in the next few months, but how it will affect future exploration is as yet unclear.

A new concept has been mooted for the exploitation of Levantine basin gas. Delek Group (15.625% partner in the Tamar and 22.67% partner in Leviathan finds) has approached the Cyprus government with the idea of gas export from Israeli waters to a facility on the island. Shell has already floated the idea of a $6 billion LNG import terminal to supply the island with gas. The foreign ministers of Cyprus and Israel signed a maritime border demarcation agreement on 17 December 2010.

The Cyprus government is at the moment undertaking an assessment of the quantity of offshore hydrocarbons in part of its territorial waters. This process should be completed by March 2012 according to government sources, and present estimates are in the region of 10tcf of gas.

Any activity here will be closely monitored by the Turkish Republic of Northern Cyprus, which contends that any natural reserves discovered belong to the entire island. Turkey has also objected to exploration in the southern Cyprus maritime area and may hinder exploration. Noble was awarded block 12 offshore Cyprus in 2008 and is contractually obliged to start drilling between October 2011 and October 2013.

The future course of the Mediterranean offshore should be assured, but recent political events and long-running feuds suggest this hopeful picture will be anything but simple to achieve. OE

 



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