www.poten.com May 31, 2012 Cyprus Deems Second Bid Round A Success Despite saber-rattling from Turkey, a host of bidders responded to the recent offshore licensing round held in Cyprus. Nicosia said offers exceeded expectations, with the blocks attracting some big name players including Total, Eni, Petronas and Woodside Petroleum. Even Gazprom, a major gas supplier to Turkey, made an appearance through Gazprom Bank in a link-up with fellow Russian firm Novatek and Total. Noble Energy’s Aphrodite find in block 12 has already yielded between 5 and 8 Tcf of estimated recoverable reserves, and this discovery was the principal reason for the heightened interest. Nearly Cyprus Offshore Bid Round (2012) 30 firms, some on their own but most banded together in Company / Consortium Country Petra Petroleum Inc Canada consortia, put their names in ATP East Med No 2 / Naphtha US/Israel/Israel the hat for the country’s 12 Israel Petroleum / DOR /Israel remaining marine blocks. Chemicals / Modiin Energy Total France Blocks 9 and 2 were the most France/Russia/ Total / Novatek / GazpromBank popular – bidders hope the Russia same gas structure in block Premier Oil / Vitol UK/UK UK/UK/ Premier Oil / Vitol / Petronas 12 will extend into these two Malaysia permits. Only blocks 1, 4 and Italy/Israel/ Edison / Delek Drilling / Avner Israel/Italy/ 13 failed to attract bids. Oil / Enel / Woodside Australia Allowing for time to examine Eni / Kogas Italy/Korea the bids, the winners are AGR Energy / CO Cyprus Norway/Israel likely to be announced late Opportunity Energy Oak Delta NG Exploration US/Israel this year or early next. The Capricorn Oil / Marathon Oil / UK/US/ bidders have their eyes firmly Orange Nassau Energie / CC Netherlands/ set on LNG exports, since Energie Lebanon Winevia Holdings Cyprus Aphrodite will likely cover RX-Drill Energy Cyprus Cyprus domestic needs for years to PT Energy Mega Persada & Indonesia/ come while also supporting a Frastico Holdings Canada/Cyprus Emmannuelle Geoglobal Israel single train LNG project. Rosario With the Cypriot government Source: Poten & Partners Email: [email protected] NEW YORK LONDON PERTH ATHENS HONG KONG SINGAPORE GUANGZHOU strongly behind the project, Noble has already started early marketing of the output from this 5 MMt/y train. Noble, however, chose to stay on the side lines during the second bid round. For now, it seems the US-based firm has enough on its plate appraising and developing block 12 before opening up new plays. Nicosia’s plan to build an LNG import terminal has been shelved as Noble discusses potential development schemes for Aphrodite with the government. In the meantime, the combined cycle gas turbine power units that were largely destroyed in an explosion at Vasilikos last year are being restored with the first CCGT due back on-line within a month. There is no gas to fuel this unit, however, nor has the Electricity Authority of Cyprus been permitted to negotiate new supply deals. As a result, the country will continue to run its power plants using expensive imported oil. Noble’s current block 12 development schedule sees first gas four years from now. According to the Ministry for Commerce, Industry & Tourism, discussions with Noble should lead to clarity by the end of May on a tentative timeline for initial output from Aphrodite and the start of pipeline deliveries to the CCGTs at Vasilikos. The decision will then be taken on whether to wait for domestic reserves offshore Cyprus to be developed or to move ahead with an interim import solution to supply the power plant. Nicosia might opt for a temporary floating storage and regasification unit, either alone or potentially in combination with a floating LNG production project as some FLNG proponents have suggested. But compressed natural gas and other options will also be considered, with the price and the length of supply on offer the most important considerations. Cyprus banned imports via FSRU solutions several years ago when it was aggressively pursuing a land-based terminal, and the restriction would need to be reversed to implement this option. Email: [email protected] NEW YORK LONDON PERTH ATHENS HONG KONG SINGAPORE GUANGZHOU The proposed pipeline to deliver gas from Aphrodite to Vasilikos would also provide gas for an LNG export plant located adjacent to the power plant. Nicosia already firmly backs an LNG plant at Vasilikos, with Cyprus Offshore Exploration Licenses Noble as a significant shareholder. A project framework has been mapped out, and Noble will begin early marketing for the first 5 MMt/y train at next month’s World Gas Conference in the Malaysian capital Source: Poten & Partners Kuala Lumpur. Work still needs to be done on structuring the country’s hydrocarbons sector, although the government is due to incorporate a national energy company within weeks. But feedgas volumes, location, governmental support and commercial intent for the project are already in place. Nicosia has been advised by Noble that the company is planning a final investment decision in early 2015 with first volumes expected in 2019. The LNG project will support an expensive subsea pipeline to transport competitively- priced indigenous gas into the domestic market by 2018, the government’s underlying priority. Nicosia’s biggest concern is to ensure that Noble does not exploit its first-mover advantage to monopolize the entire gas complex. It has been careful to stick to the letter of the Third Gas Directive, which guarantees third-party access to LNG facilities. Since there is room for three or even four trains at the site, this means Noble would be prohibited from taking all of the capacity at the wider project. With the award of the new licenses unlikely before early 2013, it is difficult to envisage drilling beginning before mid to late- 2015, especially given the difficulties finding deepwater rigs. Output from these blocks would be years further down the track. If the project were forced to wait for gas from the later permits, it Email: [email protected] NEW YORK LONDON PERTH ATHENS HONG KONG SINGAPORE GUANGZHOU would push startup beyond 2020 and this would be unacceptable from a domestic market perspective. It is therefore highly probable that gas from round two will be directed to expansion trains at Vasilikos while block 12 will feed the project’s initial capacity. Cross-border gas from Israel’s massive Leviathan field is no longer viewed as a likely option following recent moves by Israel to ban exports of Israeli gas from third-party countries (see LNGWM, Apr ’12). Strident opposition from Ankara remains a dark cloud on the horizon. The island has been effectively partitioned since Turkey invaded northern Cyprus in 1974. Ankara remains defiant that offshore drilling rights are not Nicosia’s alone to administer, and that the Turkish Republic of Northern Cyprus needs to be part of the process. Through a posting on its foreign ministry website, Turkey warned bidders to “act with common sense” and avoid the tender or risk an escalation of the dispute and exclusion from future energy projects in Turkey. As a result, interest in the second bid round was probably lower than it would otherwise have been. Turkey’s economy is performing strongly, and a planned oil pipeline with the Kurdistan Region announced this month only emphasizes the potential for oil players. Email: [email protected] NEW YORK LONDON PERTH ATHENS HONG KONG SINGAPORE GUANGZHOU .