Mediterranean Oil & Gas to spud Malta oil well in December 2013

Oil drillers Mediterranean Oil & Gas (MOG) have earmarked December 2013 as the start of their oil exploration efforts in an offshore area in Malta, claiming new and wide-ranging seismological data has been encouragin

The AIM-listed oil exploration firms has gas and oil interests around Italy and in the south-west of France, but it has been conducting seismic studies in Malta since 2005.

This €8.3 million data collection exercise, chief executive Bill Higgs said, confirms that drilling for oil is neither a cheap, nor quick business.

"We had a transformational year in 2011, because last May we acquired shareholders' approval for an important recapitalisation that allowed us to write-off debts and invest in our other interests in Italy.

"Since we got our one-year extension from the Malta Resources Authority last year, only in December we completed the largest-ever 3-dimensional seismic data offshore Malta, in the so called 'Area 4' where we have a production-sharing contract with the government," Higgs told MaltaToday.

As the CEO and MOG's chief operations officer Sergio Morandi explained, the new data - gathered using a 9-km cable that uses sonar to explore any oil prospects in the sea underground - is the largest ever data acquisition for Malta.

The "exciting" geological data from the undisputed frontier Malta has with Tunisia, could mean a prospective oil deposit for anything up to 200 million barrels.

Higgs said the Hagar Qim exploration project, as it has been dubbed, is being funded by former BP chief Tony Hayward's Genel Energy, and dispelled any notion that Hayward's firm would be in charge of operations. "We are the operators of this well, and Genel will be funding two wells which confirms our great interest in seeing this development through."

Genel is currently awaiting due diligence clearance from the Malta Resources Authority, upon which MOG plans to then start drilling in December 2013 a $30 million (€22.8 million) well that will be fully funded by Genel.

Genel's agreement with MOG is a farm-out of 75% for $10 million cash, funding 100% of the first exploration well and also a second well up to a cap of $30 million.

"There is always a 10% risk that we don't strike oil," Higgs said, who pointed out that while total depth would be reached by Christmastime, it generally takes anything between eight to ten years to finally produce a deliverable hydrocarbon product like oil.

"We're hoping it will take us five years," both Higgs and Morandi say, citing the encouraging data they have. "The oil will be shared under our production agreement with the government of Malta, after first taking what we call 'cost oil' to cover our capital costs. But the government of Malta will also be taking corporate tax from our profits."

Higgs discounted claims that many of the interests that oil firms have in Malta was as a springboard for Libya or to have production sharing contracts that only serve to bump up their share price.

"The market is very pure," Higgs say. "And it does not value ideas. It gives you the funds you need only if you drill wells - you have to get the drill-bit into the ground. What I can say is that Genel has been very complementary about the technical work done so far, and that is why they are interesting in financing out first two years."

Morandi also adds that so far, although Libya offers interesting prospects, the company is still observing the situation as things stand, with hostilities in the north African country still not completely under control.

Higgs also said MOG will carry out its business to the highest of safety standards, when asked over environmental concerns following the Gulf of Mexico explosion on a BP rig, then under Tony Hayward's watch. "We will work with the MRA to raise our standards higher."

And does MOG's announcement of drilling a well have anything to do with talk of upcoming elections for the current administration? Higgs smiles, clearly sensing the cynicism of the question - "Well, we wouldn't spend eleven million dollars just like that. The natural course of events led up to an announcement at this stage, but once we drill for oil the elections would by then have long passed."