Do we need a national oil company?

It was more than sixty years ago that the government of the day embarked on a drive to market Malta's offshore acreage among oil companies with a view to encouraging investors to prospect for oil and gas. It was, precisely, 1954 when an unsuccessful onshore concession was awarded to a company called D'Arcy Exploration (BP) to drill a well in Naxxar. All attempts since then failed, with some dry wells and others with some oil and gas prospects but no commercial success.

It is heart-warming, though, to hear official circles reveal that the main source rock for the oil is expected to be rich in the organic Streppenosa oil shale unit, which is designated world class in its prolific oil generating capabilities, and most likely extends into the area from Sicily. There is a recognisable fairway of oil discoveries and oil fields leading from onshore Sicily into its southern offshore waters. No wonder that the offshore Sicily Vega oil field, with an estimated resource of one billion barrels of oil in place, is only 20km away from the northern border of the latest zone in Malta's exploration efforts.

Needless to say, experts predict that the proximity of similar concessions and similarity in geology to the producing basins of Tunisia and Sicily lend support to the theory that oil strikes for Malta cannot be excluded. The "intrabasin" ridge trend therefore offers a new and highly prospective oil strike in our waters. Mediterranean Oil and Gas (MOG), a company which was awarded a license in 2005 to explore for oil and gas, commissioned a specialist operator to shoot a seismic survey, and it succeeded to interpret an extensive and promising long-offset 3D view over the area. It is now apparent that this part of the offshore site is geologically analogous to the Libyan Sirte Basin, meaning it appears to contain analogues to proven producing fields in Libya, in addition to those off Tunisia. Specifically the experts have identified a portfolio of prospects in the Lower Eocene/Paleocence sequence.

The powerful scientific survey has for the first time allowed imaging of the Cretaceous and Jurassic sequences, enabling several large leads to be defined at this stratigraphic level. MOG will also invest in the first exploration well, which is planned for drilling to a minimum depth of 2,500 metres, and a 100% carry on the second exploration well up to a maximum of US$30 million gross expenditure. This is sweet music to the ears of shareholders of both the parent company, Genel Energy, and MOG, while the markets have sensed a good bet and the shares have rallied.

It is relevant to quote Dr John Hurst, COO for Genel. He was confident in saying, "We are delighted to have reached an agreement to farm into the Area 4 Block Offshore Malta, a licence with considerable exploration potential being geologically similar to known producing areas nearby in Libya and offshore Tunisia. It is consistent with our strategy of building a portfolio of high impact exploration assets within the Middle East and Africa." In another way it is also pertinent to quote Dr Peter Gatt, a qualified geologist with a number of years of experience in this sector, who conducted his own study consisting of a detailed geological analysis of the Malta platform. Here one can be encouraged to know that our offshore continental shelf spans approximately 150 km. His study focused on the analysis of rock samples from six exploratory wells drilled in the Maltese platform by oil corporations British Petroleum, Total and Shell, with some information dating back to 1956.

So can we ignore the commercial opportunities that have evaded us in the past? Certainly not, and with the recent favourable discussions with both Italy and Libya to commence joint exploration we need a full-fledged national oil company with adequate resources to move fast in this direction and exploit the opportunities which have so far eluded us. By comparison, Malta's intellectual assets in this sector are very thin on the ground with no updated seismic research, which is the right tool to attract potential well-heeled investors to be lured to drill in our continental shelf.

The subject of oil and gas has been associated with airy-fairy political spin prior to each election set to warm the hearts of voters and regrettably has been labelled a taboo subject, however with a change of government Malta is lucky to have the services of Joe Mizzi, the energetic minister who is responsible for this sector. Logically the oil and gas conference planned to take place in Rome in October, where both the Italian and Maltese energy authorities will speak, could be an ideal platform to start the ball rolling on how to attract more foreign direct investment in the Ragusa Basin, with its highly recommended acreage.

In this context it is encouraging to note that in March, PKF teamed up with Master Investor 2013, which is the UK's leading investment show and took place in central London to attract investors in this sector. The show is now in its 11th year and attracted over 2,500 attendees. Investors met with top executives in various sectors, including oil and gas exploration and ancillary industries. It also gave investors unique insights on country-specific opportunities, but more investment promotion events need to be planned in the near future. Put simply, the sector is treated as a Cinderella, with only lip service given by past administrations. We may recall the comment last year from the chairman of The Malta Council for Science and Technology, who called for a geological unit to be set up to carry out research on Malta's continental platform tp "make Malta attractive in terms of oil exploration and not just leave things to chance as we have done over the past 50 years". Even so drilling in territorial boundaries may only proceed once bilateral agreements with neighbouring countries are signed, as was announced last week by the prime minister.

With not a drop of oil or a cubic metre of gas, the island finds small comfort in the fact that it is located in the Mediterranean Basin, surrounded by rich oil deposits reaped by Italian, Tunisian, Libyan and Greek concessions. Perhaps one can console oneself that scientifically proven assessments suggest good prospects at Area 4 being licensed to MOG which is touted to yield gross recoverable un-risked prospective oil resources of 200 million barrels of oil. But this is all pie in the sky - with no oil revenues since independence, successive governments had to borrow from the people to start the necessary upgrades to the infrastructure. Now down the line we have amassed almost 72% in national debt in proportion to our GDP. Each year public expenditure exceeds revenue from taxes and licenses, resulting in a structural deficit which now has reached around €5 billion (the net proceeds from selling most of the family silver).

With hindsight we can stop and ponder what would have been our destiny if a stronger political effort had been employed to persuade neighbouring countries to reach an amicable agreement to concede joint drilling in disputed areas. But there is ample acreage which is not contested, and if proper investment is attracted the islanders will enjoy the windfall. Is there a reality check in view? Malta could become a '"mini North Sea" if all the oil and gas activity being planned in the Mediterranean takes off, Medserv director Anthony Duncan has said.

Wisely, the government has been careful not to raise expectations or to start spinning a web of feel-good stories that we are better equipped to pursue the exploration drive after past failures and stand a sure chance to reap our merited bonanza (if there is any) stored deep under the sea.

To conclude, one hopes that the prime minister will lead us to the promised land of milk and honey, and quickly set up a national oil committee made of experts to plan a feasible roadmap on the quickest way to give birth to this important industry. Only thus can we rightfully claim the black gold that has been eluding us for the past 60 years.

George M. Mangion is a partner at PKF, an audit and business advisory firm

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