Oil fortunes – our skeleton in the cupboard

George M. Mangion

Last month, the government decided to award a licence to British oil and gas company Albion Energy Malta Limited, a subsidiary of Albion Energy Limited, for it to be able to explore offshore Areas 2 and 7 located southeast of the Maltese Islands and totalling approximately 18,000 square kilometres.

Clyde Caruana, Minister of Finance and Employment said the Exploration Study Agreement has a duration of two years with a possibility of being extended by a further two years subject to an additional work programme. The work obligations for the first two years consist of geological and geophysical studies on existing data.

Many ask why Malta in the Central Med has fared so poorly in its attempts for upstream operations. Before determining whether we have any oil reserves or not, we must look at whether we have actually looked for it. Peter Gatt, a geologist, said that over the past 60 years Malta has only issued 13 licenses for drilling.

Quoting Gatt in his opinion this number is laughable, when compared to Italy and other neighbouring countries. “In the same period, Italy drilled over 6,000 wells, the UK has drilled 2,000 wells, even Israel has drilled hundreds of wells.” Gatt said “Malta has hardly started looking for oil” and cited Israel as an example of a country which persisted in its explorations and nowadays is exporting oil and gas. Nicosia is set to receive an average yearly income of $520m over an 18-year period.

By comparison, this equates to the annual income Malta in the past earned from running the Citizenship by Investment scheme but the Cyprus windfall stretches for a much longer term.

Recently, ExxonMobil and Qatar Petroleum discovered an even bigger natural gas reserve off the coast of Cyprus, holding an estimated five to eight trillion cubic feet. One appreciates that it took Cyprus more than a decade since it discovered oil in the Aphrodite well to start monetising its worth.

The question, one may ask is why Malta has not followed suit and one observes that during the PN administration (later followed by the Muscat government) there was no serious drive to attract investment to explore our waters. Nostalgically, it was 1954 when the first onshore concession was awarded to a company called D’Arcy Exploration (BP) to drill an onshore well in Naxxar.

All attempts since then failed with some dry wells and others with some oil and gas prospects but no commercial success followed albeit it is positive news that the main source rock for the oil is expected to be rich in the organic Streppenosa oil shale unit which is designated world class in its prolific oil generating capabilities. No wonder the rich Sicilian Vega oil fields to the north have an estimated resource of one billion barrels of oil in place, located only 20km away.

Needless to say, experts predict that the proximity of similar concessions and similarity in geology to the producing basins of Tunisia and Sicily lend support to the theory that oil strikes for Malta cannot be excluded. We have not exploited the rich heritage of scientific surveys at our disposal which were carried out over the years yielding imaging of the Cretaceous and Jurassic sequences – enabling several large leads to be defined at this stratigraphic level.

This legacy of seismic data and sporadic drilling was collected from various companies including BP, Texaco and Eni since the 1950s, albeit not enough political drive is present to intensify the search. Five years ago, there were strong rumours that a National Oil Company is to be set up to help promote upstream business but so far the idea seemed to have been shelved. Soon after the Labour Party won the election in 2013, the Muscat government reached a deal with Socar (an Azerbaijani national gas supplier) to supply LNG for electricity generation following a controversial tender which selected a private consortium – Electrogas. But no similar deals were ever reached by Castille to seriously start upstream business.

As an island, we still rely 100% on fossil fuel for electricity generation albeit now Dr Miriam Dalli, Minister for Energy is courageously impressing upon the nation to attract FDI in a roadmap to produce offshore green hydrogen in our EEZ, given that so far, due to spatial limitations, our renewable energy is around 11%. 

gmm@pkfmalta.com

George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years’ experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the island.