Malta’s search for oil - groping in the dark

PKF is speaking at an international oil and gas summit in London, organized by the Resourceful Events Pty Limited, which will take place from 18 June to the 19 June 2014 at the Marriott Hotel Regents Park London in London.

The four day event will see a number of keynote speakers such as Neil Gregson, Fund Manager, JP Morgan Asset Management, UK, Peter Kiernan, Lead Analyst, Energy, Economist Intelligence Unit, UK; Jonathan Waghorn, Co-Portfolio Manager, Guinnes Global Business Fund, UK and amongst many others, Freddie Lee, Director, Barclays Natural Resource Investments, UK.  The chairman for the first day shall be Stewart Dalby, Editor and Director of OilBarrel. 

This unique event will tackle current issues in the conventional oil and gas world such as for example: - Understanding the oil and gas sector through the eyes of the expert investor; what is guiding their investments and how do they view the industry’s near term prospects? What are the most significant factors influencing investor appetitive for this industry? Another hot topic is the assessment of political and project risk: What do investors perceive as the biggest risks for current small and mid-cap oil and gas companies?

Speakers will examine a number of driving factors behind supply and demand, such as to what extent could the US shale gas revolution impact global supply and demand dynamics in the near to medium term?

It is planned to attract a number of high ranking investors with a potential spend of $12.5 billion. In a wider context, PKF is gearing up to sow the seeds that will see Malta grow into an offshore oil and gas producer. In a more ambitious stance, it wants to attract media attention for investors wishing to turn Malta into a hub servicing the needs of operators requiring maintenance and upgrading of rigs and in particular building of advanced subsea modern structures.

Still there is a feeling of déjà vu among islanders that in view of the high costs needed to drill for hydrocarbons, some would prefer that the government ‘goes slow’ on promoting the sector yet continues to put its money where its mouth is i.e. supporting the public expenditure including the heavy investment in free healthcare and other welfare support systems.

Others disagree and prefer to risk capital on looking for the fabled Black Gold as in the past very little was spared. Last week a well was spudded in the south of Malta by Genel a UK company that bought 75% of a Mediterranean Oil Gas (MOG) for a $10 million cash payment, a capital support of $30 million for drilling a well nicknamed Hagar Qim to be followed by a second well next year. A loan agreed with preferential rate of interest will guarantee that the company is more than adequately funded during the execution of both wells.

Last month MOG sold its remaining 25% share at a premium to Rockhopper Ltd., a listed company for a substantial sum with an added bonus of an extra payment to MOG shareholders if drilling is successful. One may ask what is so special about the 13th well that is being drilled after more than a decade of non- activity? All previous 12 wells proved dry and this took a long stretch of 55 years, during which time Italy invested heavily in prospecting and drilled in thousands of places - both offshore and onshore.

The speculation is high this time as in the words of Dr Bill Higgs, speaking at a Oil Barrel conference this year, “the location in the south of Malta in area 4 is closest to the oil producing offshore Libyan acreage”. The good news is that the Area 4 is not part of any contestation by neighboring countries and the acreage contains mature prospects analogous to proven plays in the Libyan Sirte basin and field analogues in Tunisia.

According to media reports, the latest interpretation shows prospective oil resources of about 300 million barrels. This Area 4 could hold as much as 130-200 million barrels recoverable and drilling is expected to take approximately 60 days, with results expected mid-July.

Dr Gatt, a geologist writing in Sunday Times last week, sounded skeptical of the 13th hole. He is of the opinion that Malta’s oil exploration efforts are doomed to fail due to lack of proper geological data about Malta’s continental shelf. This doom and gloom attitude begs the question – why, after six decades since oil was discovered in offshore Sicily, have we neglected the sector?

Perhaps, using Gatt’s words, in the past the directorate responsible for the collection of seismic data was politely ordered to maintain the status quo. Can we afford to hear the damning words of a trained geologist without taking remedial action? It is a crying shame to recall how we spent €6 billion to finance our annual deficits but never spared a few to set up a proper national institution to survey the country’s geology.

It stands to reason that the man in the street has been suffering a feeling of déjà vu when last year he read news of drilling Hagar Qim well as it appeared in Times of Malta, three weeks before the general election. The cynical observer would never justify the absence of a national Geological Survey, financed by the State, to carry out seismic surveys, gathering scientific data that can be used as a marketing tool to attract oil companies.

Can we feel contrite now that, for many years, we have abandoned our harvest when others such as Cyprus and Israel have done much better, using the geological information they possess is an essential tool to attract investors? Malta is not alone in the race to attract investors, as the central and eastern Mediterranean is agog with attractive offers for oil and gas prospecting.

Again, crying in the corner, saying that the country has to face territorial claims from Italy, Tunisia and Libya in its vast (yet hardly explored) 70,000-square-kilometre continental shelf is only palliative. If we believe in ourselves then we can start putting our money where our mouth is and focusing on setting a national company responsible for oil exploration, manned by a professional team as was promised in the last budget speech. Proper funding is required to attract scientists to upgrade our geological data room.

Medserv director Anthony Duncan has said that Malta could well become a “mini North Sea” if all the oil and gas activity being planned in the Mediterranean takes off. We deserve to join in the list of Mediterranean countries that are actively involved in offshore exploration. It is true that it has been over a decade since the last well was drilled but party apologists conveniently blame disputes over our offshore boundaries as the main reason why no seismic tests were commissioned.

Malta holds the unenviable record of having the longest disputed maritime boundary in the Mediterranean, with over half of its continental shelf claimed by neighboring countries, but recent attempts are ongoing to try to persuade such countries to accept joint drilling on contested areas. Certainly nobody can blame the man in the street for displaying a high level of cynicism on the chances of a lucky strike at Hagar Qim.

Yet hope springs eternal when considering that the latest seismic study on offshore Area 4, which comprises four contiguous license blocks in the southern offshore area, is encouraging. It is a fact that our vast acreage map is surrounded by neighbouring countries who are themselves active and competing in offshore oil drilling.

This sounds very encouraging but one cannot ignore the warnings uttered by Gatt, who remarks that there is an element of secrecy that has characterized Malta’s oil exploration efforts. For example, when the government issues international calls for exploration in offshore areas, bidders’ names are not published.

This lack of transparency has not killed PKF’s enthusiasm in its effort to promote Malta, even though during such pioneering days there is a dearth of sponsors and equally lacking support from government. PKF is gearing up to promote the island at the Oil and Gas Summit (mentioned earlier) among investors prepared to participate in the exploration of our mostly untapped continental shelf.

News of oil and gas discoveries is now a common occurrence and it is being found in ever-larger quantities in many remote places around the world due to improved technology such as subsea drilling. This new technology has produced many success stories and may come to our rescue to make up for lost time - imagine our destiny if we drilled 200 and not just 12 wells if oil was discovered close to our waters!

To conclude, one hopes that the Oil And Gas Summit conference in London will help usher in a new era of sustained interest in our offshore acreage and concurrently increase our chances to become an oil or gas producer in Mediterranean.

Readers who may be interested to participate may contact Kinga Warda on [email protected].