A Californian dream

The history of Malta’s oil exploration efforts is discouraging. Exploration has taken place offshore in both the north and south of Malta, as well as onshore in both Malta and Gozo. A mere 13 wells have been drilled over the past 60 years with no results

George Mangion is a senior partner of PKF Malta – an audit and consultancy firm.

Oil exploration efforts with countries Malta had considered as friends have also led to tension. The most prominent incident occurred in the 1980s, when Libya sent a gunboat to stop Sapiem – an Italian oil rig – from drilling for Malta in an area which Libya considered its own.

By the time the contestants finally reached a settlement the subsequent court dispute had lasted for over a decade, during which many opportunities were lost considering that, on the south side, there is a better opportunity for exploration. In the north, near Sicily, there are known oil fields, so there is a chance for a profitable find, but economies of scale must be considered.

Interest in oil exploration under the Labour administration eased when prices collapsed. Prime Minister Muscat had quicker ways of reviving the economy. Let’s face it – oil and gas exploration has a longer payback period compared to other cash-generating ventures such as the deal with Henley and Partners, or mega construction projects traded with public land parcels. Be that as it may, the news last month that the government had awarded a one-year exploration licence to Edison International in three blocks close to Sicily came as a bolt out of the blue.

Many have considered oil exploration a joke. The last serious attempt to drill was almost a decade ago and since then no initiatives have been taken to attract investment. In July 2017, the government appointed former Air Malta chairman Maria Micallef as head of the National Oil Corporation (NOC) within the Office of the Prime Minister. Since then there have been no announcements from the NOC, and observers suspect that the idea was shelved and the chairman had resigned.

To date, no company has been filed with the Registry of Companies, so the million-dollar question is: will companies invest in Malta’s waters to reveal its hidden reserves? This largely depends on the price of oil going forward and the investment risk companies are willing to take based on the perceived returns. Having wasted a decade waiting to issue the next licence, we witnessed how neighbouring countries in the central and eastern Mediterranean have succeeded in discovering vast quantities of oil in offshore waters.

This is an embarrassment – although the economy has raced ahead, based on other pillars. Really and truly, one cannot but mention with envy the success in offshore discoveries of Cyprus, Israel, Morocco, Egypt, the Lebanon, Greece and other locations in the Adriatic. Last month, Edison International announced that it had been allocated offshore blocks 1, 2 and 3 to explore, totalling approximately 6,400 square kilometres.

These are prime sites located close (only 80 kilometres away)

to the long-producing Vega offshore field in Sicily. As can be expected, the Continental Shelf department has accumulated substantial seismic studies carried out over the past 60 years, some of which could be useful if passed over to Edison (although data based on such old technology may now be obsolete). As a background, Edison International is an Italian mega firm and has only recently sold its oil and exploration arm to a Greekowned company – Energean Oil and Gas. The initial consideration was $750 million, plus other amounts based on future discoveries.

It is expected that an additional fee of US$ 100 million will be settled at the start of production of the Cassiopea gas field in Italy. Before its sale to Energean, Edison E & P was a mediumsized operation employing a total of 282 people as of last month. One hopes that Malta is well served by Energean and that the necessary risk capital is put at the disposal of the longawaited exploration project.

Malta has experienced so many false hopes on previous exploration mêlées that the electorate has started to consider such announcements (usually timed close to a general election) with a sense of déjà vu. Perhaps the companies which, in the past, had shown interest in researching and running seismic studies, had limited capital to spare and with so many discoveries in the eastern Mediterranean their focus had not been maintained.

To quote a good example, we need to go back a few years and mention a block called Haġar Qim to the south that was conceded to Genel Energy. This proved to be a false hope. Tony Hayward, Genel Energy’s Managing Director, was reported as saying that the well had been abandoned ahead of schedule simply because the drilling operation had been so efficient.

This is a mystery that begs an answer or possibly an independent inquiry, since a Genel spokesman had previously been reported as saying that exploratory drilling would last on average between 45-55 days. This plain abandonment is a stark affair: what went so wrong that the well was plugged after such a short period? This – along with many other questions – will never be answered, because the directorate is tight-lipped when it comes to making public announcements. It duly admitted having placed a technical representative on the rig to supervise and protect Malta’s interest.

Haġar Qim was the first well to be drilled since 2002 and, as mentioned above, it was Malta’s 13th attempt in 60 years of oil exploration. Readers may be relieved that, after such a long period of inactivity, the Prime Minister is trying to attract genuine interest from investors to explore our vast acreage – which exceeds 70,000 square kilometres. Talk to trained and independent geologist Dr Peter Gatt on the subject, who he is emotional about the dire attempts so far by past and present administrations to seriously fund the search for oil because it is ironic that we have failed, when the central Mediterranean is so rich in deposits. Perhaps it is all a Californian dream that we are living. Just stop to think that in the near future we will be investing around €200 million to connect ourselves to a sub-sea gas pipeline to Gela, Sicily. Having such a facility begs the question: if the discovery of a gas field becomes a reality, will we have the right infrastructure to export such an essential commodity to Europe. Dream on – as have the citizens of neighbouring countries which, in the past decade, have made hay while the sun shines.