Cyprus: Cyprus Concludes Second Hydrocarbon Licencing Round

Last Updated: 20 February 2013
Article by Andrea Psara and Kirill Vahonin

In late 2011, Noble Energy International Ltd ("Noble") announced the discovery of an average of 7 trillion cubic feet of natural gas in Block 12 of the Republic of Cyprus' ("Cyprus") Exclusive Economic Zone ("EEZ"), which opened the way to a second hydrocarbons licencing round with the involvement of some major international companies and consortia enthusiastic about exploring and exploiting in the future these potentially vast reserves.

Pursuant to Article 3(2)(a) of the Directive 94/22/EC of the European Parliament and of the Council dated 30th May 1994, Cyprus, represented by the Ministry of Commerce, Industry and Tourism (the "Ministry"), published a notice in the Official Journal of the European Union on 11th February 2012 (Notice No. 2012/C 38/10) inviting interested contractors to apply for hydrocarbon exploration licences and subsequent hydrocarbon exploitation licences. By the expiration of the three month bidding period on 11 May 2012 five companies and ten consortia submitted 15 bids for nine of the 12 remaining blocks. Bids were not restricted to any one block and in total 33 applications for licences were made. The interested contractors bidding in the second hydrocarbons' licencing round are outlined in the list below:

  1. Company: Petra Petroleum Inc (Canada);
  2. Consortium: ATP East Med Number 2 B.V. (US), Naphtha Israel Petroleum Corp. Ltd (Israel), DOR Chemicals Ltd (Israel), Modi 'in Energy Limited Partnership (Israel);
  3. Company: Total E&P Activities Petrolieres (France);
  4. Consortium: Total E&P Activities Petrolieres (operator) (France), NOVATEC Overseas Exploration & Production GMbH (Russia), GPB Global Resources BV (Russia);
  5. Consortium: Premier Oil (operator) (UK), VITOL (UK);
  6. Consortium: Premier Oil (operator) (UK), VITOL (UK), Petronas (Malaysia);
  7. Consortium: Edison International S.p.A. (operator) (Italy), Delek Drilling Ltd Partnership (Israel), Avner Oil Exploration Ltd Partnership (Israel), Enel Trade S.p.A. (Italy); Woodside Energy Holdings PTY Ltd (Australia);
  8. Consortium: ENI (Italy), KOGAS (South Korea);
  9. Consortium: C.O. Cyprus Opportunity Energy Public Company Ltd (Cyprus), AGR Energy AS (operator) (Norway);
  10. Consortium: Oak Delta NG Exploration Joint Venture (US/Israel);
  11. Consortium: Capricorn Oil (UK), Marathon Oil (US); Orange NASSAU Energie (Netherlands), CC Energie S.A.L (Lebanon);
  12. Company: Winevia Holdings Ltd (Cyprus);
  13. Company: RX-DRILL ENERGY CYPRUS LTD (Cyprus);
  14. Consortium: PT Energi Mega Persada Tdk & Frastico Holdings Ltd (Canada/Indonesia/Cyprus); and
  15. Company: Emannuelle Geoglobal Rosario (Israel).

After the application deadline, the Minister from the Ministry (the "Minister") convened a meeting of the Advisory Committee established under Article 6 of the Hydrocarbons Law No. 4(I) of 2007, as amended from time to time (the "Law"), in order to examine each application and to see whether it was submitted in accordance with the provisions of the Law and the Hydrocarbons (Prospection, Exploration and Exploitation) Regulations of 2007 and 2009, as amended from time to time. The Advisory Committee also examined the applications to insure that the information submitted complied with the requirements of the relevant Guidance Note and in order to insure that there was adequate information to make an evaluation of each of the applications. The Advisory Committee was then required to submit a reasoned opinion to the Minister as to whether or not a licence should be granted.

The final decision, however, rests with the Council of Ministers who may within six months from the start of the negotiations on the terms of the Exploration and Production Sharing Contract ("EPSC") grant a licence to a preferred bidder. After successful negotiations with the Council of Ministers, Consortium 8 signed three EPSCs in relation to blocks 2, 3 and 9 and Company 3 signed two EPSCs in relation to blocks 10 and 11. The concession periods will be valid for 3 years with an option to renew for another 2 year period, although 25 per cent of the licenced area will have to be relinquished on each renewal. The evaluation of the remaining bids and applications will continue and it is possible that other licences may be awarded in the near future.

The recent discoveries of hydrocarbons in the Cyprus EEZ and the status of Cyprus as a full Member State of the European Union ("EU") enables the country to contribute to the strengthening of the EU's energy security at a time of high demand for natural gas and at a time where energy diversity is very much on the agenda. The proximity of Block 12 to Israel's Leviathan and Tamar gas fields as a neighbouring lucrative natural gas reserve, and the location of blocks 2, 3 and 9 in the Levantine basin with large gas potential, make liquefaction and export of natural gas by both Cyprus and Israel, through the proposed Cyprus LNG plant, a possibility in the future. It is estimated that construction of the infrastructure to host the LNG plant will not be completed before 2018. Cyprus has also recently taken further steps to strengthen its cooperation with Israel through an agreement that has been reached on around the 11th February 2013 whereby Noble will transfer 30 per cent of its rights held in Block 12 to Israel's Delek Drilling and Anver Oil and Gas Exploration. Furthermore, irrespective of the abovementioned time frame constraints Cyprus may be in a position to exploit its hydrocarbon reserves sooner, as Company 3 will also be looking to drill for potential oil deposits, which if successful, may not require the above infrastructure to be in place in order to deliver oil to its customer as these can be delivered onboard oil tankers.

The latest licencing round is a welcome development for the Cyprus economy as under the EPSC the participating companies and consortia will be required, within three months following the effective date of the EPSC, to establish an office in Cyprus for the whole duration of the licence (in respect of the consortia, the consortium as such and not each consortium member will be required to establish an office in Cyprus). The ability to use and maximize the local workforce is a significant element for the success of the contractors' operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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