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ENI goes boldly forward

By Charles Ellinas

ENI has just announced its much-expected drilling campaign in Cyprus’ EEZ, starting November. And it is a bold move. Drilling starts at Block 8 at a target named ‘Eratosthenes South 1’ (ES1), followed by a target named ‘Cuttlefish’ in Block 3, owned 80% by ENI and 20% by KOGAS, and then ‘Calypso’ in Block 6, jointly-owned with Total.

The latter is a bold move by ENI, given Turkey’s claims.

ENI has chosen to start its campaign in Block 8, where the most promising prospects probably are, completing this drilling round at Block 6, thus asserting its rights to the Block and confronting Turkey’s claims. However, the exact drilling programme is still to be finalised.

In accordance with its Production Sharing Agreements with the government of Cyprus, ENI’s drilling programme involves two wells in Blocks 2,3,9, in addition to the two unsuccessful wells drilled in 2014-2015, two in Block 8 and one in Block 6.

Should this lead to commercial hydrocarbon discoveries, the number of wells to be drilled may be doubled to 10, as a result of additional appraisal drilling to confirm hydrocarbon quantities.

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ENI is progressing submission of documentation required to receive environmental, safety and other approvals, needed to start drilling FS1. It should be pointed out that the areas around mount Eratosthenes are considered to be particularly sensitive environmentally, requiring special attention. It is expected that this process will be completed by September.

Based on the seismic data released by Cyprus during the third licensing round, there are good indications of presence of hydrocarbons in Block 8 in carbonate formations similar to Zohr. So, it is not surprising that ENI decided to start its campaign with this Block.

ES1 lies about 128km south of Limassol, close to the subsea mount Eratoshenes, at 1930m water-depth and about 3,300m below seabed level. Drilling will be performed by the SAIPEM-12000 ultra-deep drilling rig, eminently suitable for the water and well-depths expected during this campaign, and it is scheduled to last 36 days. ENI’s drilling support base will be at Limassol port.

Interestingly, detailed surveys of the seabed around ES1 have revealed archaeological finds in the form of pottery and other objects. In order to avoid disturbing these, ENI actually moved ES1 by about 1km away from the initially-chosen location.

ENI will have the benefit of the results from drilling in the nearby Block 11, which should be completed in September. This is jointly-owned by Total and ENI. As a result, it can take this additional information into account before finalising its plans to drill FS1.

If all goes to plan, drilling will continue at Cuttlefish in Block 3 and at Calypso in Block 6. Not only could it coincide with the period of the presidential elections in Cyprus in February, but ownership of Block 6 is hotly disputed by Turkey.

Geopolitical challenges

Turkey’s claims on part of Cyprus EEZ are well known. Turkey disputes Cyprus rights to its EEZ, claiming parts of Blocks 1,4,5,6,7, and considers any activities by Cyprus in Block 7 and west of it to be a ‘red-line’, which will cause it to ‘intervene’. Turkey claims about half of Block 6 and in fact it carried out its own seismic surveys in the Block in July using Barbaros.

Its Minister of Energy Berat Albayrak, has already declared that Turkey is in the process of buying its own drilling vessel, determined to drill in the East Med within 2017. Even though he has not indicated where, this could include Block 6. In fact, in an interview on August 12 Mithat Rende, Turkey’s retired OECD Permanent Representative and Chairman of the Executive Committee of the OECD in 2014, said: “Turkey should start drilling where Greek Cypriots discovered gas…Turkey also has the right to drill in its continental shelf, which is again overlapping with one of the Blocks declared by Greek Cypriots.”

Clearly Turkey is trying to create a fait-accompli situation to support its claims, however untenable these are. These attempts should not be under-estimated.
Recently Turkey’s President Recep Tayyip Erdogan told the oil companies to be careful they did not lose a ‘friend’ by participating in the exploitation of hydrocarbon deposits around Cyprus. Turkish Prime Minister Binali Yildirim called Cyprus’ moves “untimely and dangerous”. Turkey’s intimidation increased following the collapse of the Crans-Montana negotiations to re-unify Cyprus and it has even threatened to take stronger measures on its own, up to direct interference in the internal affairs of Cyprus.

ENI has investigated in detail and has substantiated the legitimacy of Cyprus’ rights to its EEZ, both on the basis of UNCLOS and other relevant international conventions and agreements. On this basis, ENI and Total are fully satisfied about their rights to explore and exploit this and the other Blocks, which they won legitimately through international competition.

Italy and France support this and made their positions clearly known during recent visits to Cyprus by their defence ministers. In addition, Cyprus claim to its EEZ is recognised by the EU, the US and the international community.

During her visit to Cyprus, Italian Minister of Defence Roberta Pinotti, said: “Italy’s ENI is working right now (in Cyprus) and I believe that we will have a positive development for the whole of Europe.” Intended as a message to Turkey, she added “We have to work for security and to confront difficulties and obstacles. We have to work for the future welfare of Europe within the framework of a flourishing economy.”

Looking forward

Total, through its low-profile yet steady work in Block 11, under constant intimidation from Turkey, and ENI, through this bold decision to declare its intention to drill in Block 6 early next year, have shown determination which must be matched by Cyprus. Turkey’s threats so far have not changed anything. Despite tensions, the companies believe that the political risk is manageable.

President Anastasiades has declared that Cyprus will react strongly, through diplomatic channels, in the event that Turkey materialises its threats to drill in Cyprus’ EEZ. He said: “If the Turks violate international laws and what the Law of the Seas foresees, there will be proportionate intense actions on the part of the Republic towards the international bodies, the Security Council and others.” It is hoped that the government will also be ready to act proactively to safeguard Cyprus’ rights to its EEZ through international courts and legal channels, if need be.

In the meantime, Total has moved to the next stage of its drilling at Onesiphoros in Block 11, with initial indications expected within 10 days and first proof of hydrocarbons in early September. All indications so far are hopeful.

Success will boost prospects for more discoveries during ENI’s forthcoming drilling campaign and later in 2018 by ExxonMobil in Block 10.
However, there is still a long way between discoveries and successful exploitation through international gas sales. Global gas prices are low and the global gas market is challenging. As a result, expectations need to be managed with a dose of realism.

Dr Charles Ellinas is a non-resident Senior Fellow, Eurasia Energy Futures Initiative, Atlantic Council

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