By Charles Ellinas
At a presentation in Nicosia on Tuesday ExxonMobil confirmed that it plans to drill two exploratory wells in Block 10 during the second half of 2018.
ExxonMobil and Qatar Petroleum (QP) secured the exploration licence for Block 10 in April.
Following ENI’s early August announcement of its intention to drill in Blocks 3, 6 and 8 starting in November, ExxonMobil has also ignored Turkey’s threats and is proceeding with its own drilling plans, recognising Cyprus’ rights to its Exclusive Economic Zone (EEZ).
ExxonMobil’s intentions have the full support of the US government, whose Cyprus ambassador attended the presentation – even as the Turkish navy was conducting exercises with live ammunition in Cyprus’ EEZ, following yet another NAVTEX issued by Ankara.
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In making the presentation, ExxonMobil Vice-President for Europe, Russia and the Caspian, Tristan Aspray, said “the Zohr and Leviathan finds have created cause for optimism” in the region.
Embodiment of corporate America
If there is one company that embodies what corporate US is all about, it is ExxonMobil, the largest independent oil company in the world. Its former CEO Rex Tillerson is US President Donald Trump’s US Secretary of State.
Its oil and gas production has been reasonably steady since 2012, at about 4 million boe/d, with just over half being liquids, from over 1,800 fields in 25 countries.
ExxonMobil has worked with QP since 2000, developing the world’s largest non-associated gas field, North Field, with over 900 tcf proven reserves.
The two companies built 12 out of the 14 LNG trains working in Qatar and have developed a formidable partnership exporting LNG worldwide.
As America’s biggest oil and gas company, ExxonMobil is often likened to a state within a state. In the countries where it operates it has its own disciplined agenda. Its policy is all about business and doing what is best for its shareholders. Compromise is not ExxonMobil’s way.
Hence, business in Cyprus should not be expected to be any different.
ExxonMobil’s interest in Cyprus is two-fold.
Firstly, it has been attracted by the prospect of making a significant gas discovery in a stable region, within the EU, with established regulatory, taxation and fiscal systems. A discovery of a Zohr-size gas field could add over 20% to ExxonMobil’s proved reserves, which is of particular importance to the company.
Secondly, a sizeable discovery can be used to develop LNG exports, particularly if gas prices recover in the mid-2020s.
Increasing its gas and LNG portfolio is a high priority for ExxonMobil as it tries to diversify from oil to gas, in line with its longer-term plans.
During its Nicosia presentation ExxonMobil confirmed that preparation to enable the start of drilling during the second half of 2018 was already in progress.
Earlier, in a June presentation, meanwhile, Steve Greenlee, ExxonMobil’s President of Exploration had said: “our vision, which I believe you all share, is for Cyprus to become an energy centre, and we do hope to find enough quantities of natural gas – something that will set the foundations for Cyprus to become an energy exporter”.
He also said that, based on work done by the company by that time, the state of play appears to be good.
This is in line with indications from the initial assessment of the 3-D seismic data obtained by PGS on behalf of the Ministry of Energy. This data, made available to ExxonMobil, shows geological formations similar to those of Zohr, with indications of the presence of a similarly-sized gas reservoir in carbonate formations.
However, as Aspray noted in his presentation, there is considerable uncertainty about the results of drilling, as geology can change significantly even over short distances, advising caution.
During the presentation, ExxonMobil confirmed that acquisition of 3-D seismic data was now complete. Preliminary processing of the data is also complete, with detailed evaluation in progress.
On this basis, the company is now pressing on with well design and its contracting plans, to include securing a drilling rig, support vessels and services, setting-up the onshore drilling support base, etc.
And, of course, finalisation of the documents needed to obtain the necessary approvals from the Cyprus government, including the all-important environmental impact assessment.
The company is strengthening its local team with additional staff in preparation for drilling. It is also working with the government to develop local capabilities through training, internships and scholarships.
Aspray said that planning further future developments will depend on the results of next year’s drilling campaign. Should it be successful, export will probably be in the form of LNG.
Depending on conditions, such as gas quantities and commercial factors, being right, this could be through an onshore LNG plant, hopefully in Cyprus. He also said that successful drilling could be the beginning of long-term cooperation with Cyprus.
Meanwhile, Total is also progressing in drilling at Onesiphoros in Block 11 as planned, and without interruptions.
Energy Minister Yiorgos Lakkotrypis said it is likely that initial results will be announced next week.
Both ENI and ExxonMobil will be looking at these results with interest as they will be invaluable in helping the energy giants finalise the details of their drilling plans.
However, there is still a long way to go between discoveries and successful exploitation through international gas sales. Global gas prices are low, and will stay low in the longer term, and the global gas market is challenging.
Ultimately, collaboration will be the key to keeping development costs down. In a low-price environment, only integrated projects which minimise costs from well-to-export will stand a chance of becoming financially viable and securing export markets.
And even then it will be challenging.
Dr Charles Ellinas is Nonresident Senior Fellow, Global Energy Center, Atlantic Council