25 January 2006

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Business Today

Strategic oil prospects in the Mediterranean

Considering that Libya, Tunisia, Sicily and Algeria all have considerable offshore oil discoveries it is surprising how Malta lying in the midst of this oil basin can be so unlucky.

This year we have witnessed yet another burst of interest from Libya on a variety of issues. In this context, Dr Frendo and the Secretary of the General People's Committee for Foreign Liaison and International Cooperation Abdulrahman Shalgam agreed to hold technical meetings between representatives from the Ministry of Foreign Affairs and from the Ministry of Justice and Home Affairs of both countries, to enhance methods of co-operation between Malta and Libya.
In polite and very diplomatic terms a joint statement was issued both countries agreed to reactivate an agreement which was on hold since 1984.While we are still striving to reach agreement on delineation disputes through diplomatic channels with our neighbours, we note that Libyan Prime Minister Shokri Ghanem said that his country may ask foreign companies such as Royal Dutch Shell to help expand oil output at existing fields. The plan would allow the companies to own part of each barrel pumped and book reserves that lie underground in so-called production-sharing agreements. No time is being wasted by our oil rich neighbours to make hay while the sun shines on the astronomically high oil prices.
Similar stacked reef mounds in adjacent Tunisian and Libyan waters are prolific producers of both oil and gas. Back to Malta we recall that in October 2003 then-Prime Minister Eddie Fenech Adami had announced that Malta and Libya had agreed to co-operate on oil exploration. More than two years have passed since that announcement and now we hear that Dr Frendo has revisited the subject matter with his counterpart in Libya. 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. The stalemate was confirmed in Parliament on 9 January by Resources Minister Ninu Zammit, who explained that talks are being held with neighbouring countries on the delineation of the continental shelf and a six month moratorium has been imposed on drilling activities. 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 remains a mystery which defies logic.
With hindsight we note that with the help of foreign companies, the Maltese Government had started in the late 1970’s 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. Considering that Libya, Tunisia, Sicily and Algeria all have considerable offshore oil discoveries it is surprising how Malta lying in the midst of this oil basin can be so unlucky. Luck may not have anything to do with the reason why we have not tapped oil even if politicians may console us that we share the fate of a Cinderella country.
While memories run short one cannot forget that on August 20, 1980 we probably experienced our worst incident when Libyan gunboats approached the Texaco rig Saipem II, threatening personnel on board and forcing activities to stop. Twenty five years ago our prospects for hitting it rich were dashed as Texaco was interrupted in its exploration activity. Texaco was duly authorised by the Maltese government to drill in areas regarded as Malta's territorial waters. It turned out that the Maltese and Libyan governments had very different opinions on how to partition the continental shelf between the two countries. This was later referred to the international court which inevitably delayed further exploration. Since then Government has put in a lot of effort to attract oil companies to share the risk of prospecting for oil. With hindsight we know government 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. As recent as last June a world class drilling company Pancontinental signed an agreement with Houston-based Anadarko to carry out a four-week seismic programme to determine the viability of two wells nicknamed Chianti and Limoncello. The 2005 seismic report states: "the company has assessed the two largest Chianti and Limoncello leads to have un-risked speculative potential oil reserves of 450 and 960 million barrels respectively."
The potential estimates are based on current seismic mapping and using representative reservoir parameters from neighbouring commercial field analogues in Libyan and Tunisian waters. More exciting good news comes from Sun Resources. Last July 2003, Sun Resources invested A$325,000 to earn a 20% interest in an interesting seismic project. The seismic survey was conducted within undisputed Maltese waters away from unresolved border areas.
The aim of the seismic programme was to further delineate the extent and nature of large stacked Lower Cretaceous to Eocene age reefal mound structures that have been previously confirmed by Afrex-Pancon’s earlier reconnaissance 2D seismic survey.
With this information the Sun Joint Venture will be inviting a number of the major operators in the area to earn equity in the project by drilling exploration wells on those prospects in the near to medium term. Sun Resources reports that at the end of June 2005, the Malta Joint Venture had signed a Participation Agreement with Anadarko, which provided for Anadarko to earn an interest in the Malta Project by funding agreed activities on two contiguous permit areas.
At 65 dollars a barrel, if this prediction turns into reality we can see our cash strapped Exchequer welcoming a windfall which may well exceed the EU cohesion funds for the next seven years. Unfortunately our expectations and hopes of discovering oil and gas in commercial quantities have been raised on a number of occasions, but this time experts feel that we may be getting closer to drilling in better prospects. Equally optimistic about these prospects, Anadarko agreed to fund this programme covering an area of 1,385 km. The programme was meant to start last year but the Maltese government told the companies to suspend the programme for six months to try to resolve border issues we have with Tunisia and Libya. Hopefully the talks that Dr Frendo just concluded with Libya have tackled these matters and shortly the green light is lit for the island to search for its bounty. We do not expect pennies from heaven such as subsidised oil as in the past but we hope to start lifting the riches from under the waves that can judiciously be invested into productive areas to revive the stagnant economy. Should we become a net producer and with the surplus forge a plan to conscientiously start paying back our national debt albeit we may need another ten years to wipe our slate clean.
Naturally, this will only happen if politicians are self disciplined not to squander our hard earned fortune on a string of white elephants while forgetting to lock the door to oil barons who thrive on sleaze and profligacy. Another sobering thought lingers in our minds. Once Maltese oil deposits starts bearing commercially viable returns will this event change our security policy vis-à-vis our Mediterranean neighbours?
Most probably Malta may need to revise its internal and foreign policy to ensure a higher level of national security given the consequences that arise from attaining an oil producing status. Let us hope that Chianti and Limoncello lead us to better fortunes in 2008 which also happens to be an election year.

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Editor: Kurt Sansone
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