Block 12 could hit oil jackpot

Experts caution that it's still too early to tell whether Cyprus has struck gold

By Elias Hazou

TIME will tell, but debt-ridden Cyprus may have hit the jackpot after Noble Energy announced yesterday that some 1.5 billion barrels of oil could lie in deepwater strata off the island’s southern coast.

In a statement, the Texas-based energy company said “There is evidence of multiple opportunities in the Eastern Mediterranean with approximately 3 billion barrels of gross unrisked oil potential in the deep Mesozoic play in both Cyprus (1,496 MMBoe) and Israel (1,538 MMBoe). We are evaluating 3D seismic data on an ongoing basis and plan to resume exploration drilling in the Eastern Mediterranean in late 2014 or early 2015.”

MMBoe stands for one million barrels of oil equivalent.

The statement followed a conference hosted by Noble in Houston with analysts and investors on the company’s operational outlook.
“Significant exploration potential remains on the company’s acreage position in the Eastern Mediterranean, with approximately 3 billion barrels of gross unrisked oil potential in the deep Mesozoic play in both Cyprus and Israel and four trillion cubic feet gross of natural gas potential in Cyprus,” the company said during the conference.

‘Unrisked’ is industry jargon for a rough estimate of reserves that does not reflect the probability of geologic success. And experts caution that it’s still too early to tell whether Cyprus has struck gold.

The Mail learns that it was last week that senior Noble execs first tipped off the government on the potential for an oil bonanza in Cypriot waters.

The information was relayed to the President during a meeting in Nicosia with Keith Elliott, Noble Energy Senior Vice Chairman for the Eastern Mediterranean.

Coming out of that meeting, company execs were guarded, with Elliott telling newsmen only that they planned to prospect for oil as well as for natural gas.

“We are looking for oil and gas but primarily we’re looking for gas,” Elliott said at the time, adding: “We really don’t know at the moment which is coming to the forefront.”

Though low-key, Elliott’s remarks sparked speculation here that Noble was onto something – beyond natural gas – in its Block 12 concession.

Daily Phileleftheros broke the story on Monday morning, before Noble’s announcement. The daily reported that the reserves would translate, on Cyprus’ end, into revenues of approximately €60bn, based on the profit-sharing agreement between the government and Noble.

There was no immediate reaction from the government, but political parties jumped on the oil bandwagon urging the administration to speed up exploration and development.

Earlier in the day, when asked to comment on the Phileleftheros report, energy minister Giorgos Lakkotrypis advised a wait-and-see approach, pointing out that more reliable data on the presence of oil would be available by April of next year, when Noble is expected to release their final assessment of three-dimensional seismic surveys in their Block 12 concession.

This summer, in addition to conducting appraisal drilling at the Aphrodite prospect in Block 12, Noble carried out 3D seismic surveys of the entire Block 12 to reveal the potential of additional gas – and possibly oil – finds.

Lakkotrypis stressed that it would be possible to talk of proven oil reserves in Block 12 only once drilling has taken place.

Noble Energy has not indicated even a tentative timeline for oil drilling. But the company is slated to carry out additional exploratory drilling for natural gas at other locations within Block 12 in late 2014.

With a barrel of oil going for around $100, the quantities cited by Noble could theoretically be worth $150bn (€110bn), though likely to fetch far less, if and when the reserves are proven. That’s because any revenues will depend on the amount of oil that is actually recoverable.

At any rate, the order of magnitude of the oil would be well worth monetising, said Constantinos Hadjistassou, a researcher on hydrocarbons and lecturer at the University of Nicosia.

Developing oil would require deploying at the site a drilling rig as well as a floating production, storage and offloading (FPSO) unit. An FPSO vessel is designed to receive hydrocarbons produced from nearby platforms, process them, and store oil until it can be offloaded onto a tanker or, less frequently, transported through a pipeline.

An FPSO carries a price tag of anywhere from $1.2bn to $2bn, and drilling operations could cost several hundred million dollars.

“Say a ballpark figure of $2.5bn to $3bn for the total development cost, so obviously any estimated revenues above that definitely makes it worthwhile,” said Hadjistassou.

The development outlay for oil would be far less than for Liquefied Natural Gas (LNG); an LNG terminal might cost between €6bn and €8bn – and take longer to build.

In a report issued in April 2010, the US Geological Survey estimated a mean of 1.7 billion barrels of recoverable oil and a mean of 122 trillion cubic feet of recoverable gas in the Levant Basin using a geology-based assessment methodology. The Levant Basin does not include most of Cyprus’ Exclusive Economic Zone, but does encompass a portion of Block 12.

Meanwhile in a presentation following the conference in Houston, Noble outlined three options for developing Cypriot gas, with the top choice being via an onshore LNG facility at Vasilikos, but with the caveat that additional discovered resources are needed.

The second option was via a floating LNG vessel, and the third alternative, a pipeline to onshore LNG facilities in Egypt.