Islamic Relief 2013 Qurban

Arab Strife Pushes Big Prize Oil Search To Morocco, Malta

August 29, 2013 by  


By Sarah Young

LONDON, Aug 23 (Reuters) – Middle East turmoil has given a fresh spur to energy companies looking for big finds further afield to more stable and inviting hosts Morocco, Malta and Spain.

Close to known reserves and large markets, they offer tempting terms for explorers without the risks of production in Syria, Libya or Egypt.

Morocco has lured companies with the promise of a link to the energy-rich formations of west Africa, while in Malta there are hopes of an extension of Libya and Tunisia’s geology.

Off Spain, Cairn Energy sees geological similarities with Israeli waters, home to two of the largest offshore gas fields found in the past decade.

“You either have to go to the technical frontiers or the political frontiers. In Morocco and Malta we’re dealing with much more technical risk than political risk,” Genel Energy’s Chief Executive Tony Hayward, the former boss of oil major BP, told Reuters.

From Chevron, the second largest U.S. oil company with a market capitalisation of $231 billion, to Fastnet , listed on London’s junior market and worth $80 million, firms have flocked to Morocco over the last eighteen months.

Gulfsands Petroleum typifies the trend. It was pumping about 10,000 barrels of oil equivalent per day in Syria before the civil war started and sanctions imposed.

It shut up shop there in 2011, losing more than 90 percent of its production, and has since moved into Morocco.

“As you might imagine, after Syria what we’re looking for is some stability, and Morocco’s got terrific political stability, but it also has the best fiscal terms of any country in the Middle East and North Africa region,” Gulfsands’s commercial director Ken Judge said.

Morocco defused Arab Spring-style protests in 2011 through social spending, harsh policing and constitutional reforms.

Over 10 discovery wells are due to be drilled off its coast in the next 18 months, compared to analyst estimates of around nine since 1990.

Genel will start drilling off Malta in the first quarter of next year while Britain’s Cairn will start a well in Morocco in September. Cairn says on its website it could also start drilling in Spain in 2015.

“Given some of the challenges you’ll find in some of the more established (hydrocarbon producing) countries in North Africa, you’d say it was worth taking a punt on Morocco at this point in time,” Femi Oso, an analyst from energy consultancy Wood Mackenzie, said.

The punt comes at a cost of around $80 million to drill an average well off the coast of Morocco, according to one company which declined to be named. Between them companies there are targeting billions of barrels of oil, estimated but as yet unproven.

Modern technology has helped discover huge new oil and gas fields over the last decade in countries formerly overlooked by oil companies such as Ghana, Uganda and Mozambique, prompting a scramble for new acreage.

TAX TERMS

What the countries have in common, and what executives agree is key to nurturing new drilling, is attractive tax terms.

“Because of fiscal terms in Morocco, even a modest discovery of say 20 million barrels…would be phenomenally lucrative for our company,” Gulfsand’s Judge said, referring to the company’s solely onshore presence there.

Morocco is one of the world’s most energy-poor countries, importing around 95 percent of its needs, chiefly from Algeria, according to the World Bank.

Energy imports accounted for more than a quarter of the country’s imports and contributed to a record trade deficit of $23.6 billion last year.

Companies exploring offshore where developments tend to be more expensive need to find bigger fields. Executives told Reuters that in both Morocco and Malta finds of between 50 million and 100 million barrels of oil would make for commercially attractive developments, remaining tight-lipped over details.

Executives say governments often seek to change terms once big finds are made, but for now half a dozen companies polled by Reuters say the incentives are worth the risk.

The Moroccan government take of cash flow produced from any oil or gas field in Morocco would be about 30 percent lower than what was typical for Algeria, Libya and the rest of the North African and Middle East region, Wood Mackenzie analysts estimated.

One company looking at the region said the fiscal terms in Spain were as attractive as Morocco.

Like Morocco, Spain is a big energy importer, buying in over 80 percent of its energy needs, spending more than 40 billion euros – or about 4.5 percent of gross domestic product – a year.

In the midst of an economic crisis and struggling to keep energy debts in check, the country is keen to develop any oil and gas reserves it might have.

“We’re looking for hidden value in Spain,” Cairn Chief Executive Officer Simon Thomson said, explaining that a historic focus on beach tourism meant that much of the deep water off the country’s coast had never been drilled.

“We do want to invest there…It’s part of our long term plan to position ourselves.”

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