Government ‘wait and see’ on possible farm out of oil concessions, as heat is on to drill off shore Malta

The reports were circulated in specialised media this week, which explained how oil companies Heritage Oil and Mediterranean Oil & Gas have individually briefed their investors and pointed out the prospect of farming out their concessions to maximise on their investments.

Heritage Oil and Mediterranean Oil & Gas are the only two companies which hold a joint producing agreement with the Maltese government, and have been given offshore blocks for exploration since 2007.

Heritage Oil is reportedly projecting farming-out Area 7 – South-West of Malta – despite its recent announcement that it was “actively seeking a rig” to commence drilling, after acquiring a controlling 51% stake within Libya’s Sahara Oil Services Holdings, which was meant to “enhance” the Malta operation.

But according to a Macquarie Equities Research (MER) report published this week, it was explained that “farming out this prospect would have obvious benefits for the balance sheet with well costs estimated at US$60m gross”.

The report also suggests that the timing for drilling the well – which according to Heritage Oil has the potential 500 million barrels of oil – has been put back to late 2012-2013.

Heritage Oil have not replied to questions forwarded by MaltaToday regarding the reported farm-out.

It remains unknown what kind of reservoir modelling Heritage Oil conducted to report 500 million barrels, and why the farm-out if the prospects are positive.

MER’s report explains that, the Malta exploration well has been put back to the last quarter of 2012 and will run over in to 2013, “having previously been pencilled in for summer 2012”.

It adds that while “the value proposition of this 500mmbl prospect is large, we believe that drilling could slip further. Farming out this prospect would help alleviate concerns on timing and have obvious benefits for the balance sheet with well costs estimated at US$60m gross”.

When asked to comment on this suggestion, a spokesman for the resources  ministry said that although farming out is an accepted concept in the production sharing contract with both Heritage Oil and Mediterranean Oil & Gas, this option remains subject to “government’s approval of the farmee”.

The spokesman added that “government will only comment if, and when approached formally on the matter by the company”. But while government replied to questions related to Heritage Oil’s projection, Australian stock exchange listed Mediterranean Oil & Gas Plc explained to its investors that the Company’s short term objectives are to become a medium-size oil producer from the development and exploitation of the Company’s Ombrina Mare discovery.

“To increase substantially the Company’s gas reserves and production through the development and extension of its Italian Onshore and Adriatic gas assets and to farm out and drill very substantial and mature prospects identified (3D seismic) in Offshore Malta (Block 7 Area 4, adjoining Libyan border); and also Mature offshore Malta Blocks 4, 5 & 6”.

MOG also updated investors on its activities offshore Malta, saying seismic acquisition there has started on last Wednesday.

Last week, the group had announced it commissioned the 3D seismic survey for the Area 4 licence offshore Malta under the Production Sharing Contract signed with the Maltese government in 2008.

Until Monday, approximately 15% of the target 3D seismic data has been acquired. 

The work is expected to take about 30 days, and results of the survey should be ready towards the end of the first quarter 2012.

MOG entered into a PSC with the Maltese government three years ago following what was described as “an encouraging geological and geophysical pre-assessment of Area 4” undertaken by the company and its consultants.

Four prospects and five leads have been confirmed and delineated in the PSC area. 

The total un-risked hydrocarbon potential of the PSC Area is estimated to be around 5 billion barrels of oil in place with the resultant total ‘most likely case’ un-risked prospective “recoverable oil resources being about 1,500 MMbbls”.

MOG is operator of the Area 4 PSC.

Meanwhile, Leni Gas & Oil Plc owns a 10% interest in the PSC that covers Blocks 4, 5, 6 and 7 offshore Malta adjacent to the internationally recognised border with Libya.

In 2008, the then-Libyan oil minister Shokri Ghanem had issued a ‘cease and desist’ warning over exploration in Area 7, claiming that the concession was violating Libya’s territorial integrity.

While the Maltese government has recently issued an international call for expression of interest for production sharing agreements, Barry Rushwell, chief executive of Australian firm Pancontinental Oil & Gas, announced last week that it was seeking an injuction against the Maltese government from halting its participation in an exploration study agreement.

In a company statement registered with the Australian stock exchange, Pan Continental Oil & Gas together with its partner Sun Resources Limited said that

it has been in discussions with the government of Malta about, among other things, whether or not its existing exploration study agreement has expired as alleged by the government or whether the obligations under the ESA are suspended pending the ending of the event of force majeure which was the subject of a notice to the government by the Joint Venture on 12 September, 2005.

The company explained that the event of force majeure is a border dispute between Libya and the government over an area offshore Malta within the area of the ESA which prevented, and continues to prevent, the Joint Venture from conducting an extensive  seismic programme.

The parties have been attempting to negotiate revisions to the ESA and at a meeting held on 22 July 2011 with representatives of the government the Joint Venture thought that substantial progress toward a resolution was made. However, notwithstanding the state of those negotiations and the Joint  Venture’s position that the ESA is still in force, the government, without any warning to the Joint Venture, has called for bids from interested companies for the grant of petroleum rights over certain offshore areas, a portion of which includes an area that is the subject of the ESA.

“Despite many requests by the Joint Venture and its representatives for a meeting with the government to discuss this sudden and unexpected development, the government has steadfastly refused to meet, leaving the Joint Venture with no alternative but to seek an injunction against the government seeking to restrain it from proceeding with the Bidding Regime in respect of any part of the area the subject of  the ESA and from granting any petroleum rights over that area until the dispute between the government and the Joint Venture is resolved,” Pancontinental said.

The ESA covers Area 5 and Block 3 of Area 4 held by the Joint Venture since 2001, and the companies pledged to “remain steadfastly resolved to  retain their rights under the ESA and to  recommence oil and gas exploration for the benefit of both Malta and their shareholders as soon as possible”.

While talks with Libya over a possible joint exploration agreement were repeatedly snubbed by the Gaddafi regime, the Maltese government is eager to commence talks with the new interim government in Tripoli over the same proposal.

Prime Minister Lawrence Gonzi and foreign minister Tonio Borg are expected to visit Tripoli for talks with Prime Minister Abdulrahim El-Keib.The reports were circulated in specialised media this week, which explained how oil companies Heritage Oil and Mediterranean Oil & Gas have individually briefed their investors and pointed out the prospect of farming out their concessions to maximise on their investments.

Heritage Oil and Mediterranean Oil & Gas are the only two companies which hold a joint producing agreement with the Maltese government, and have been given offshore blocks for exploration since 2007.

Heritage Oil is reportedly projecting farming-out Area 7 – South-West of Malta – despite its recent announcement that it was “actively seeking a rig” to commence drilling, after acquiring a controlling 51% stake within Libya’s Sahara Oil Services Holdings, which was meant to “enhance” the Malta operation.

But according to a Macquarie Equities Research (MER) report published this week, it was explained that “farming out this prospect would have obvious benefits for the balance sheet with well costs estimated at US$60m gross”.

The report also suggests that the timing for drilling the well – which according to Heritage Oil has the potential 500 million barrels of oil – has been put back to late 2012-2013.

Heritage Oil have not replied to questions forwarded by MaltaToday regarding the reported farm-out.

It remains unknown what kind of reservoir modelling Heritage Oil conducted to report 500 million barrels, and why the farm-out if the prospects are positive.

MER’s report explains that, the Malta exploration well has been put back to the last quarter of 2012 and will run over in to 2013, “having previously been pencilled in for summer 2012”.

It adds that while “the value proposition of this 500mmbl prospect is large, we believe that drilling could slip further. Farming out this prospect would help alleviate concerns on timing and have obvious benefits for the balance sheet with well costs estimated at US$60m gross”.

When asked to comment on this suggestion, a spokesman for the resources  ministry said that although farming out is an accepted concept in the production sharing contract with both Heritage Oil and Mediterranean Oil & Gas, this option remains subject to “government’s approval of the farmee”.

The spokesman added that “government will only comment if, and when approached formally on the matter by the company”. But while government replied to questions related to Heritage Oil’s projection, Australian stock exchange listed Mediterranean Oil & Gas Plc explained to its investors that the Company’s short term objectives are to become a medium-size oil producer from the development and exploitation of the Company’s Ombrina Mare discovery.

“To increase substantially the Company’s gas reserves and production through the development and extension of its Italian Onshore and Adriatic gas assets and to farm out and drill very substantial and mature prospects identified (3D seismic) in Offshore Malta (Block 7 Area 4, adjoining Libyan border); and also Mature offshore Malta Blocks 4, 5 & 6”.

MOG also updated investors on its activities offshore Malta, saying seismic acquisition there has started on last Wednesday.

Last week, the group had announced it commissioned the 3D seismic survey for the Area 4 licence offshore Malta under the Production Sharing Contract signed with the Maltese government in 2008.

Until Monday, approximately 15% of the target 3D seismic data has been acquired. 

The work is expected to take about 30 days, and results of the survey should be ready towards the end of the first quarter 2012.

MOG entered into a PSC with the Maltese government three years ago following what was described as “an encouraging geological and geophysical pre-assessment of Area 4” undertaken by the company and its consultants.

Four prospects and five leads have been confirmed and delineated in the PSC area. 

The total un-risked hydrocarbon potential of the PSC Area is estimated to be around 5 billion barrels of oil in place with the resultant total ‘most likely case’ un-risked prospective “recoverable oil resources being about 1,500 MMbbls”.

MOG is operator of the Area 4 PSC.

Meanwhile, Leni Gas & Oil Plc owns a 10% interest in the PSC that covers Blocks 4, 5, 6 and 7 offshore Malta adjacent to the internationally recognised border with Libya.

In 2008, the then-Libyan oil minister Shokri Ghanem had issued a ‘cease and desist’ warning over exploration in Area 7, claiming that the concession was violating Libya’s territorial integrity.

While the Maltese government has recently issued an international call for expression of interest for production sharing agreements, Barry Rushwell, chief executive of Australian firm Pancontinental Oil & Gas, announced last week that it was seeking an injuction against the Maltese government from halting its participation in an exploration study agreement.

In a company statement registered with the Australian stock exchange, Pan Continental Oil & Gas together with its partner Sun Resources Limited said that

it has been in discussions with the government of Malta about, among other things, whether or not its existing exploration study agreement has expired as alleged by the government or whether the obligations under the ESA are suspended pending the ending of the event of force majeure which was the subject of a notice to the government by the Joint Venture on 12 September, 2005.

The company explained that the event of force majeure is a border dispute between Libya and the government over an area offshore Malta within the area of the ESA which prevented, and continues to prevent, the Joint Venture from conducting an extensive  seismic programme.

The parties have been attempting to negotiate revisions to the ESA and at a meeting held on 22 July 2011 with representatives of the government the Joint Venture thought that substantial progress toward a resolution was made. However, notwithstanding the state of those negotiations and the Joint  Venture’s position that the ESA is still in force, the government, without any warning to the Joint Venture, has called for bids from interested companies for the grant of petroleum rights over certain offshore areas, a portion of which includes an area that is the subject of the ESA.

“Despite many requests by the Joint Venture and its representatives for a meeting with the government to discuss this sudden and unexpected development, the government has steadfastly refused to meet, leaving the Joint Venture with no alternative but to seek an injunction against the government seeking to restrain it from proceeding with the Bidding Regime in respect of any part of the area the subject of  the ESA and from granting any petroleum rights over that area until the dispute between the government and the Joint Venture is resolved,” Pancontinental said.

The ESA covers Area 5 and Block 3 of Area 4 held by the Joint Venture since 2001, and the companies pledged to “remain steadfastly resolved to  retain their rights under the ESA and to  recommence oil and gas exploration for the benefit of both Malta and their shareholders as soon as possible”.

While talks with Libya over a possible joint exploration agreement were repeatedly snubbed by the Gaddafi regime, the Maltese government is eager to commence talks with the new interim government in Tripoli over the same proposal.

Prime Minister Lawrence Gonzi and foreign minister Tonio Borg are expected to visit Tripoli for talks with Prime Minister Abdulrahim El-Keib.