The home of IMF chief Christine Lagarde was raided by anti-corruption police investigating her near $400 million pay-off of a prominent Nicolas Sarkozy supporter when she was French finance minister. Simply put, you cannot rise that high up ...
As Israel takes its newly earned place among the world’s gas exporters, we are focusing this week on the Levant Basin region, where there is a flurry of interest and accompanying activity, and where investors should be keeping track and taking score.
Deals in Motion
• Italy’s Edison utility (owned by France’s EDF) is in talks to buy two Israeli gas fields from US explorer Noble Energy (behind Israel’s massive Levant Basin discoveries) and Israel’s Delek Drilling. The interesting part of this story is that Noble and Delek own the Leviathan gas field—the largest in the area—and now have to sell their stakes in two smaller fields or they will be labeled a “cartel”. The two offshore fields are Tanin and Karish and are believed to contain a combined total of up to 70 billion cubic meters of gas. This wouldn’t be Edison’s first foray into Israel’s offshore prospects. Edison is already exploring adjacent to the Leviathan field. We expect some problems with these talks, however, associated with Israel’s anti-trust authorities, who are attempting to see to it that operators build infrastructure at the same time as they explore. They will also restrict gas sales to the domestic market.
• Noble Energy and Delek—also partners in Israel’s smaller Tamar gas field—announced last weekend that they had signed a deal to provide $750 million worth of gas to IPP Delek Soreq for an Israeli-based power plant currently under construction. Under the deal, IPP Delek will purchase 3.3 billion cubic meters of natural gas over 15 years. IPP is controlled by Delek Group, which has a 31.25% interest in Tamar, through two subsidiaries—Delek Drilling and Avner. Noble is the operator of Tamar, with a 36% interest. Gas production at Tamar began in exactly a year ago today, and the field is estimated to hold around 223 billion cubic meters of natural gas.
• Israel sealed it first-ever gas export agreement last month, with Jordan. Noble and Delek will export $500 million worth of gas to two Jordanian companies under the deal. The gas will be exported over a 15-year period beginning in 2016. This deal requires the construction of a short pipeline south of the Dead Sea.
• In January, Noble signed a $1.2 billion contract with the Palestinian Electric Company to supply a power station in Jenin in the northern West Bank, which is still under construction. Gas for this will come from the Leviathan field over a period of 25 years. This gas is not considered “export”, rather is part of the 60% of Israeli gas slated for “domestic” consumption. This deal went through despite the fact that Israel is still blocking the development of the Gaza Marine field off the coat of the Gaza Strip, which is said to hold about 1 trillion cubic feet of gas and could itself supply Palestinian power stations. • Greece has launched an international tender for a study to assess the feasibility of a proposed pipeline to transport gas from Israel and Cyprus to reduce dependency on Russian gas supplies. This Eastern Mediterranean Pipeline would initially carry 8 billion cubic meters of Israeli and Cypriot gas annually to Greece and then further into Europe. The gas would be distributed to European markets through the IGI Poseidon pipeline run by Edison and Greek utility DEPA. They will have a hard time getting this pipeline off the ground because it would have to traverse maritime territory disputed with Turkey. This is where we will see some increasing competition between Greece, Cyprus and Turkey to become Europe’s key energy hub. For now, Turkey is refusing to recognize any gas deals that involve the Greek Cypriot side of the island. At the same time, the Russian aggression in Ukraine’s Crimea region is lending more impetus to the importance of getting Israeli gas to Europe, so we could see some positive movement on this under pressure.
• Another company with a lot invested here is Australia’s Woodside Petroleum, which is seeking a $2.6 billion stake in the Leviathan field to support a Woodside-operated LNG plant. However, Woodside’s entry terms into Leviathan are conditioned on tax issues concerning transfer pricing, which were supposed to be resolved by the end of this month. Right now, though, the Israeli Ministry of Finance appears to be leaning toward a resolution that is not in Woodside’s favor. Israel’s gas export tax committee is reportedly preparing to recommend that the Woodside LNG plant be taxed at a rate that is higher than the Australian company is bargaining for. The deal signed last month with Noble and friends over Leviathan is only conditional, and if the tax issue is sorted out and the deal is not made binding by 27 March, the deal could be changed.
Elsewhere in the Prospective Levant Basin …
Finally, in mid-February, prospective oil and gas explorers eyeing Lebanon’s portion of the basin (some of which remains disputed) had some good news in the form of a new Lebanese government. The failure to form a new government had been holding up the country’s first offshore oil and gas auction for some time. After 10 long months of deadlock, Lebanon announced the formation of a new politically inclusive 24-member government headed by Sunni Muslim centrist Tammam Salam. With the new government in place, the Cabinet can move towards approving two decrees necessary for exploration to move forward.
Last weekend, Lebanon’s new energy minister—Arthur Nazarian-- urged the government to move things forward quickly, eyeing the estimated 96 trillion cubic feet of natural gas reserves in its offshore territory. There is still a lot of work to do here. A month after the new Cabinet was formed, the decrees still haven’t been passed because the new government needs a vote of confidence in parliament first.
Of the decrees that must be past, one endorses the model exploration and production sharing agreement, while the other endorses the demarcation areas for 10 offshore blocks in Lebanon's 22,730 square km (8,776 square miles) exclusive economic zone. The decrees were drawn up by the Petroleum Administration which operates under the Ministry of Energy and Water. The deadline for closing the licensing round that was initiated last February has been postponed three times. Originally it was to have closed in November last year. The latest closing date is April 10. Bidders now say the 10 April closing date is too soon because the decrees have not yet been passed. Even if the decrees were passed on time, explorers typically need about three months to consider their bids and evaluate the geology of the blocks. We expect this to move forward now, but not within the April timeframe.
In the European Parliament in Strasbourg today, Labour Euro MPs voted for new EU wide rules to ensure the owners of companies and trusts are listed on public registers, fighting tax evasion and making dodgy deals harder to hide.
Euro MP, Arlene McCarthy, Vice Chair of the European Parliament’s Economic and Monetary Affairs committee said: “The IMF estimates that between two and five per cent of global GDP is dirty money – that’s €262-€356 billion laundered in the EU last year. Money laundering on this scale contributes to drug running, human trafficking, corruption and terrorism, bringing untold misery to millions and robbing governments of vital revenues.”
“We need to know who owns and controls the EU’s companies and trusts in order to be able to fight corruption and the theft of public funds. These new EU rules will help us to do that by making public exactly who owns these companies.”
“Anonymous shell companies and trusts are often central to money laundering, concealing the identity of individuals and businesses involved in trafficking of arms, drugs and people, theft of public funds and tax evasion.”
“This is not only an issue affecting EU countries, in 2010 African countries lost €44.3 billion through illicit financial flows compared to the €32.9 billion they received in aid the same year. These activities are robbing African countries of vital resources to invest in health, agriculture infrastructure and poverty reduction.”
However, Labour Euro MPs wanted the legislation to go further
U.S.-based companies are increasingly parking their earnings in offshore accounts, with some of the largest companies adding $206 billion to their accounts in low-tax countries to avoid forking over taxes to the IRS.
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Malta, in the heart of the Mediterranean, hasn’t made that one major find to make commercial extraction viable just yet, but it’s only a matter of time--and the low-level security and political risk make this venue a haven for prospective investors looking for the next big offshore opportunity.
Israeli finds in the Mediterranean’s Levant Basin provide us with enough of a prospective geological backstory here to spark interest in Malta. And when you consider the Malta’s offshore area is 150 times the size of its onshore territory—and larger than Israel’s continental shelf—the prospects suddenly widen.
We’re also keen on taking cue from investor darling, Anglo-Turkic Genel Energy Plc, which is banking on a big find offshore Malta.
Malta is a good venue even for the juniors, particularly because the risk is so much lower compared to other venues. Genel acquired a 75% interest in four offshore blocks in Malta in 2012, and in a recent interview with Oilprice, the company’s CEO, Tony Hayward (of BP fame), told us a bit about why Genel is optimistic about the venue.
“As with all of our acreage [it’s about] geology. As we have expanded outside Africa we have targeted opportunities to take material interests in high impact prospects, with the potential for field sizes of at least 250 million bbls. Malta and Morocco both fall firmly in these categories and, while expectations are dangerous in this business, we are confident in the geology and look forward to drilling them both,” Hayward said.
Last week, Hayward told local media that Genel will begin drilling at the end of March and will expect the first results in mid-July for Malta’s Area 4. What are the chances that Genel will strike commercially viable oil in Malta by July? Hayward says there is a “one in five chance”.
According to Mediterranean Oil & Gas (MOG)—from whom Genel acquired its 75% stake--the 3D seismic data in Area 4 has a potential of 200 to 300 million barrels of oil to exploit.
Legally, there is one ongoing court battle that has marred the venue’s otherwise clean slate. Last week a High Court in London began hearing the chairman of Leni Gas & Oil (LGO), David Lenigas, who launched legal proceedings last year against his former exploration partner in Malta for alleged fraudulent misinterpretation. In July 2012, Leni Gas agreed to sell its 10% stake in an offshore zone in Malta for £1 to MOG. Later that same year, MOG struck a deal with Genel to sell 75% of the rights to the same zone for around $25 million. Lenigas claims that he “was unfairly duped out of a sweetheart oil deal by his erstwhile partner”.
The Hub Potential
Malta is strategically situated in the heart of the Mediterranean, which means it is easily linked up with Europe and MENA (Middle East/North Africa). Indeed, Malta is a member of the European Union, but also has quick access to African ports such as Algeria, Libya, Tunisia and Egypt. Like Turkey, a big find could make it not only a key production venue, but a genuine oil and gas hub—spurred along by some top-notch port infrastructure with highly developed logistics. And it’s already one of the top-ten countries in the world for attracting foreign direct investment (FDI).
Earlier this month, the government of Malta announced it was preparing to unveil plans for transforming its Marsa ship-building site into a maritime hub. One of the possibilities is to shift its focus to the oil and gas industry, and logistics. So far, sources say that it is this that the government is eyeing as offering the most potential.
We believe that oil and gas will win out, making Malta an even more attractive venue for investors. Malta stands to become the central hub of Mediterranean oil and gas. And for developers, an added benefit is that rigs can be attracted from the Atlantic Ocean to West Africa—one week’s sailing each way. There is presently no rig repair station in the Mediterranean, so there is a logistics gap here that Malta could easily capitalize on. So far, Malta has received 28 international expressions of interest for the development of a Maritime Hub at Marsa.
Beyond this, we’re looking at a venue that is low risk: Political stability is high and corruption is low.
On 4 November 2013, the government of Malta opened up all geological and economic studies to potential explorers, and is also taking steps to establish the Malta Oil and Gas Corporation, which will be responsible for implementing the government’s oil and gas exploration plans.
We are also closely watching Malta shift to gas and the government’s plans for a floating LNG storage facility it wants to anchor at Marsaxlokk Bay for a new power station. Beyond exploration, there are opportunities here, as well—particularly as the gas sector is in a major transition phase. Siemens was offered an 18-year power purchase agreement with Enemalta, which led to its bid for a new power station. Speaking of the deal, Siemens described Malta as a “great country to invest in”, due to its stability and financial standing, as well as its use of the Euro currency.
This is all part of the proposed Delimara project, which will convert an older LNG carrier to a Floating Storage Unit, with LNG re-gasified on land and powering the existing power plant as well as the new plant that will be built by Siemens. The project is, however, the crux of a political controversy ostensibly over its safety, but we’re optimistic that it will be pushed through in the end.
For more information on Malta oil and gas exploration opportunities, contact James Stafford for details on OP Tactical operations and land packages.
By Eric MargolisSoviet leader Josef Stalin used to shrug off critics by his favorite Central Asian saying: “The dogs bark; the caravan moves on.”Russia’s hard-eyed president, Vladimir Putin, is following the same strategy over Ukraine and Crimea.
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