30 November 2005

The Web
Business Today

Myths and fallacies about striking oil

The news that the drilling company Mediterranean Oil and Gas has just been floated in the UK Stock Exchange augurs well for Malta’s latest prospects in its unrelenting effort to strike oil

In the past, politicians of all colours and creed who tried to dangle the carrot of an oil strike prior to elections have always lost the ballot. As can be expected, for a micro economy such as ours oil exploration is an expensive and risky business. But we did not leave any stone unturned to strike it lucky with the black gold.
Can you blame the electorate to be sceptical after so many dry wells?
It already had more than its fair share of disappointment, with 13 exploratory wells proving dry despite the fact that Sicily in the north and Libya in the south have both struck oil not very far from Malta’s territorial waters. A couple of years ago people’s expectations rose sky high as rock formations and traces of gas that had been absent in previous exploratory wells were encountered at Kercem. Regrettably there was no gusher, but only a dramatic anti-climax which left many voters wondering whether it was really worth the expense given the country’s limited finances and the burgeoning national debt. Does this mean that we close the chapter on oil exploration?
Certainly not.
Any streak of good news will travel far and the news that the drilling company Mediterranean Oil and Gas has just been floated in the UK Stock Exchange augurs well for Malta’s latest prospects in its unrelenting effort to strike oil.
According to the editor of Oilbarrel.com the company has just secured over £12 million in its floatation. Its chief executive Giovanni Catalano confirmed that this funding will better equip the company in its drive to exploit potential oil and gas assets in its Malta concession.
Mediterranean Oil & Gas had acquired rights from the Malta government over Blocks 4,5,6, and 7 in Area 4 a territory previously relinquished by Shell in 1996. This area sounds more promising now that technology has vastly improved. A small part of Block 7 has been subjected to 3D seismic survey and according to Tony Trevisan the executive director it has been assessed as having a potential of some 218 million barrels that could be recovered from a deposit of amounting to 614 million. This information was obtained from the results of the seismic survey over the western part of the licence to resonate over the structure underlying the Lower Eocene carbonate leads.
Another promising area previously licensed to the Australian company Hardman Resources covers blocks 4 and 5. This is located 60 km east of Malta and southeast of several oilfields off Sicily. The largest of these fields, Vega, is 65 km away from blocks 4 and 5. It was discovered in 1981 by Italy and is reported to contain 300 mm barrels of recoverable oil.
It is good to notice that last year oil exploration was scheduled to take place off the southeast coast of Malta but unfortunately Hardman Resources found some difficulties in locating a risk taker who will finance the drilling operation. Hardman Resources announced it has decided to abandon the ambitious project. Reliable sources quote a internal company report saying that "although large prospects had been identified in the licence area, offshore Malta is still regarded as a relatively high risk carbonate play and the well was expected to cost about $8m. Considering that the market value of crude oil has trebled since last year ,it may be less risky to fork out the necessary capital to fund the drilling operation . But as yet there has been no take up of the renounced concession.
In the midst of all this we take comfort in the words of Stewart Dalby a previous news editor and foreign correspondent of the Financial Times of London and now editor of OilBarrel.com. In his editorial last month he commented that Malta has been unlucky so far in its efforts although the possibility of a rich strike could not be far away. He urges his readers to spare a thought on Malta as a potential oil exporter in the Mediterranean basin surrounded by large deposits currently exploited by Italy in the north, Tunisia in the west and Libya in the south.
All this makes us feel like a Cinderella cocooned by its three ugly sisters. A lot of effort has been placed by Government to attract oil companies to share the risk of prospecting for oil. With hindsight we know it started in earnest in the 1980’s and later on in the 1990’s we saw a sea change in tax concessions to attract more interest in the oil concessions on offer. With the help of foreign companies, the Maltese Government started mapping out offshore areas for petroleum. Previous seismic work by the Maltese Government in the 1980s and by Texaco Corp. from 1990 to 1992 resulted in the identification of several prospects. The prospects are located along the same geological trend as several Italian oilfields successfully developed in nearby Sicily.
The unfortunate incident in the 1970’s when an unilateral action by the Libyan government who sent a gunboat and a submarine to stop Texaco exploring for oil on the Medina Bank did not help matters.
This incident did not go unnoticed by the international media and has delayed and possibly scared away potential companies. Since then the matter was referred to the international courts. No prize for guessing why the Libyan government had started to provide us with oil at reduced prices. But this concession is now on hold. Two years ago Eddie Fenech Adami, then prime minister referred to the visit by Libyan Prime Minister Shokry Chanim and hinted at the possibility of cooperation for oil exploration.
This year we have witnessed yet another burst of interest from Libya on a variety of issues. It would be interesting to know what has provoked Libya's interest in negotiating with Malta a reopening of the offer for fuels at a lower cost and other items such as illegal immigration. Again the disputes over delineation of areas with both Libya in the south and Tunisia in the west are not entirely resolved. But this should not deter our resolve to find a lasting solution to the problems since experts say that the area is rich in oil deposits which can potentially be extracted now even more profitably considering crude prices are currently sky high.
Lately the opposition spokesman for energy has urged the government to restart oil exploration efforts. He also questioned the efforts made by the responsible authority to attract bona fide operators to take the risk in oil prospecting.
Are we making headway to solve the delineation problems? Was it a tactical move not to mention new fiscal incentives for oil exploration in the cash strapped budget? One may ask if the prospects are encouraging why have we not placed more resources at the disposal of the Malta Resources Authority so that it can take the necessary legal steps to settle the disputes? This is a pity.
Just consider the favourable reports from Pancontinental Oil & Gas, a large Australian company. In its March 2005 report it commented that the conclusion of the Seismic survey in Area 5 and Block 3 Area 4 provided a quantitative understanding of these prospects and leads present in the area and confirmed the presence of several leads with potential world class oil reserves. Political analysts are of the opinion that one should not raise the electorate’s hopes too high when these were repeatedly quashed in the past. Voters are feeling a deep sense of déjà vu.
Others contend that the public should be taken into confidence by the government and be better informed of the true picture. Why has this matter of national importance been always shrouded in mystery and myth? Hot on the heels of a massive hike in energy costs taxpayers would be relieved to hear that a solution may be in sight in the coming years.

Business Today is published weekly on Wednesdays.
Website is updated weekly on Thursdays
Copyright © MediaToday., Malta
Editor: Kurt Sansone
Business Today, MediaToday, Vjal ir-Rihan, San Gwann
Tel: (356) 2138 2741 | Fax: (356) 2138 5075 | E-mail