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Cyprus block 11 reveals disappointing gas results

By Charles Ellinas

Initial results from Total and ENI’s exploratory drilling in block 11 in Cyprus’ EEZ are disappointing.

This was completed last week by the drilling vessel West Capella, which is now proceeding to plug and abandon the Onesiphoros well.

Based on analysis of seismic data Total was hoping to discover a 4 to 5 trillion ft3 gas-field, in carbonate formations similar to Zohr. Instead, initial estimates indicate a discovery below 0.5 tn ft3.

This is too small to justify commercial development on its own, unless it can be tied-in to any nearby future discoveries.

Such failures are common in exploratory drilling and should be expected. Internationally, the average success rate is 20% to 25%. In Cyprus we have so far completed four such wells with one success, two failures and the disappointment of Onesiphoros.

So we are within the international margins. It is now time for a new success!

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In an attempt to look at the positive side, Cyprus Energy Minister George Lakkotrypis said that drilling confirmed that the reservoir, albeit small, is in carbonate formations.

This indicates that the ‘Zohr-model’ extends into Cyprus EEZ, giving hope for more and hopefully larger discoveries during the forthcoming drilling campaign by ENI in blocks 6 and 8 and ExxonMobil in block 10.

Depending on the further assessment of the results from the Onesiphoros well, there may also be additional drilling in block 11.

In all these blocks drilling targets have been identified in carbonate formations and hopes for discoveries are still good.

But no doubt, ENI and ExxonMobil will be assessing the results from this well while finalising their drilling programmes, not to decide whether to continue with drilling, but mainly to improve their models.

Total and ENI will confirm their intentions and next steps for further drilling within 30 days.

The extension to their Production Sharing Agreement for block 11, but also for blocks 2, 3 and 9, expire at the end of February 2018.

Cyprus is putting a brave face on this, looking at the positive side, with press articles going as far as to say that ‘the results of drilling generate tremendous hopes!’

And ‘finding that the geological structure of the reservoir is very similar to that of Zohr suggests that significant gas reserves exist in the region.’

TRYING TO STAY POSITIVE

President Anastasiades putting a positive slant on it said: “There is no question of pessimism…This particular deposit – the reservoir – may not be sufficient enough to satisfy the conditions for exploitation on its own but the data create great hope.”

He was probably hoping for a more positive result to bolster the declaration of his candidacy for the presidential elections in January/February 2018.

No doubt, this positive slant by the government is designed to manage fallout and reduce the negative impact on the island and not to affect the wider exploration programme.

It is also an attempt to maintain strong interest in the gas potential of Cyprus’ EEZ. Nevertheless the outcome is disappointing.

Total will have to wait for results from further drilling, still to be decided, before it can formulate any development plans in Cyprus. Something similar applies to Cyprus’ government.

Exploration drilling so far, since the discovery of the 4.5 tn ft3 Aphrodite gas-field in 2011 has been unsuccessful.

Any hopes to develop and export gas to benefit the island’s economy will have to wait for another year, with inevitable delays in realizing any potential benefits.

For the next ten years, at least, the Cypriot economy will not be able to rely on natural gas for development – other avenues should be sought.

In any case, any decisions on future exploitation of any gas finds off Cyprus were always going to be left until after completion of all currently planned drilling, by the end of 2018.

With low international prices and a highly competitive global gas market, the cost of development should be kept as low as possible.

This depends on the quantities of natural gas, still to be found, and cooperation among the companies in developing such projects, in order to keep costs low so as to be in a position to face the challenges of the world market and secure firm sales.

The disappointing result in block 11 does not change this. Much hangs on the more optimistic indications that block 10 may hold significant amounts of natural gas, and of course blocks 6 and 8.

Let us wait patiently without exaggeration and without overstating our prospects.

In the meanwhile Turkey is maintaining its pressure on Cyprus by declaring yet another NAVTEX for naval exercises that started on Monday over an area which includes parts of blocks 6, 7, 10 and 11.

Asked to comment on this, the Energy Minister said: “What we have to do, and we do, is to build alliances with states that have their interests in the region, but also to continue to exercise our sovereign rights, as we have demonstrated by conducting drilling. Despite Turkey’s aggression, we continue.”

Dr Charles Ellinas is Non-resident Senior Fellow, Global Energy Center, Atlantic Council @CharlesEllinas

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