French energy company Total is likely to abandon a search for oil and gas off Cyprus after failing to find tangible evidence of reserves, dealing a blow to the island’s hopes of a natural resource bonanza after a painful bailout in 2013.
Energy minister Yiorgos Lakkotrypis said on Wednesday that Total, granted a concession two years ago, had failed to pinpoint reserves that would justify costly drilling.
“The company informed us some months ago that it was having difficulty finding any structures, targets, in the blocks it had a licence for … and they informed us last September they had not found any target to drill,” Lakkotrypis told state radio.
Total is among a raft of international oil exploration and production companies, including BP and ConocoPhillips , that have slashed 2015 budgets in light of lower oil prices.
Drilling in the east Mediterranean is costly, because of its considerable depth. Asked if authorities had been told drilling will not commence, Lakkotrypis said: “Essentially yes.”
Lakkotrypis said Total knew from the beginning that it “was operating in a high-risk area” for which no “special” seismic data existed like in the case of the Levantine Sea, the easternmost part of the Mediterranean, on the other side of the Eratosthenes mount, which lies 100 kilometres south of the western part of Cyprus.
“We knew that block 10 and block 11 are a new geological structure,” Lakkotrypis said. “We knew that block 10 and block 12 were from a geological point of view very difficult, and the oil price situation does not help either”.
Cyprus needed a €10 billion bailout in early 2013, and had partly pinned hopes on natural gas to aid recovery.
Total’s decision was unlikely to have a significant effect on Cyprus’ short-term outlook, but would be a dampener in the medium and longer term, said Sofronis Clerides, associate professor at the Department of Economics at the University of Cyprus.
“An important upside risk just became less likely. Expectations that natural resource revenues and related economic activity will fuel a faster economic recovery will have to be adjusted.
“The only silver lining is that Cyprus may now be able to have a discussion about its natural resource prospects that is grounded in reality rather than in wishful thinking,” he told Reuters.
Italy’s ENI failed to find gas in a drill last year and is now searching elsewhere off Cyprus. US energy company Noble found gas reserves in 2011.
Turkey has challenged Nicosia’s right to drill for gas, maintaining the island’s estranged Turkish Cypriots have an equal claim.
Ankara has dispatched its own research vessel to the area, prompting President Nicos Anastasiades to pull out of reunification talks.
Lakkotrypis said any decision by Total was unrelated to the political controversy.
He said the government was expecting to be briefed by the company on whether its decision not to go ahead with drilling is final.
“The issue will be clarified next week,” he said.
Total has “contractual obligations,” Lakkotrypis said and added that it may have to pay a due performance penalty.
The legislative and regulative framework are likely to prevent the government from granting Total a license for an alternative exploration area he said and added that the Eni-KoGas programme continues as planned ahead normally as well as the exploitation programme for the Aphrodite finding in block 1.
Ruling DISY leader Averof Neophytou said it was a saddening development but everyone must know that the existence of reserves was an assumption until it was fully confirmed.
Article Published in Cyprus Mail on January 21, 2015.