On Greece O&G: Negative Outlook For Licensing Rounds

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Marina S. Petroleka

Marina S. Petroleka

Negative Outlook For Licensing Rounds

by Marina S. Petroleka, Head of Energy & Infrastructure Research at BMI Research. 

Below and above-ground risks have deterred international participation in the Western Greece Onshore Licensing round. We expect an equally lacklustre result for the upcoming 2nd international offshore licensing round, planned for May 2015, but most likely delayed to late 2015 in our view. Competition from similarly frontier aspiring producers in the region will be high and in a year of lower capex we anticipate capital will flow in the direction of markets that offer the industry most stability in all facets of above-ground parameters.

BMI View: Below and above-ground risks have deterred international participation in the Western Greece Onshore Licensing round. We expect an equally lacklustre result for the upcoming 2nd international offshore licensing round, planned for May 2015, but most likely delayed to late 2015 in our view. Competition from similarly frontier aspiring producers in the region will be high and in a year of lower capex we anticipate capital will flow in the direction of markets that offer the industry most stability in all facets of above-ground parameters.

The low oil price environment has been the crucial external determinant in industry sentiment towards the Western Greece Onshore Licensing Round. Uncertainty on the fiscal and licensing regimes in Greece, as well as political and economic volatility increased regulatory uncertainty and resulted in a lacklustre tender for three onshore blocks offered in western Greece.

Total, Shell and Repsol, rumoured to be interested, did not submit bids at deadline on February 6th, neither did Italian Enel, whose interest in the blocks in 2014 prompted the launch of the tender by the previous government. Greek independent Energean submitted bids for blocks Arta-Preveza and Aitoloakarnania. Hellenic Petroleum submitted bids for blocks Arta-Preveza and NW Peloponnese. An ad hoc committee to assess these bids over the next three months has been set up, with the Ministry of Energy by-passing the Hellenic Management Company for Hydrocarbons (EDEY), the semi-independent body set up by the previous government to manage Greece’s licensing rounds.

The lack of any international participation in this round dampens optimism for the 2nd International Licensing Round offering 20 offshore blocks, which Greece is due to launch 2015..

Competitive Landscape

Against a backdrop of capex cutbacks  from both International Oil Companies (IOCs) and National Oil Companies (NOCs) and with exploration budgets bearing the brunt of these cuts, we believe frontier areas (such as offshore Greece) will go on the back-burner of exploration programmes. We forecast average Brent price for 2015 to be USD55/barrel (bbl), rising to USD60/bbl in 2016, but not surpassing annual average of USD80/bbl during this decade. In this much more capital-constrained environment, we believe the industry will focus its efforts in markets with the most robust and investor-friendly above -ground profiles.

In Greece’s immediate region (Adriatic and East Mediterranean) there is fierce competition for the industry’s capital and exploration commitments with licensing rounds planned or underway in Croatia, Montenegro, Cyprus, Lebanon, Italy (see table below). On a global scale, frontier exploration gained momentum in recent years, with exploration licensing rounds recently completed or planned in New Zealand, Greenland (where Statoil recently relinquished its exploration licences due to capex cuts), Morocco, Ireland, Uruguay, Senegal, Uganda and Cambodia (see table below). While not a frontier region, Mexico’s licensing round over 2015 will be the flagship for the year and it is where we expect IOCs will gear their attention towards.

Europe – Mediterranean Licensing Rounds, 2014-2015 – Frontier Plays

Country Name of Tender Tender Details Status Date
Algeria 4th Bid Round 2014 92 onshore blocks on offer Completed/Four Licences Awarded

2014

Bulgaria Silistar, Teres Licensing Round Silistar, Teres Offshore Blocks Tender Launched

Dec-14

Croatia 1st International Onshore Croatian Licensing Round, 6 blocks offered Ongoing

Jul-05

Croatia 1st International Offshore Croatian Licensing Round, 29 offshore blocks offered Underway/10 Licences Awarded/April 2015 signing

2015

Egypt EGAS International Bid Round 8 blocks offered, onshore & offshore Completed Q1 2015
Egypt EGPC 2013 Bid Round 15 blocks offered Completed Q1 2015
Greece 2nd International Licensing Round 20 blocks offered, offshore, greenfield Underway / May 2015 deadline for bids

2015

Greece 3 Onshore Blocks tender 3 onshore blocks offered, brownfield Underway/ Bids submitted (February 2015)

2015

Ireland 2015 Atlantic Margin Oil and Gas Exploration Licensing Round 21 onshore & offshore blocks Underway/ Qualification closing September 2015

2015

Lebanon First Offshore Licensing Round 2013 9 blocks on offer, offshore Underway / Bid deadline extended

2015

Montenegro Montenegro 1st licensing round 13 offshore blocks on offer, offshore Underway /Bids submitted

2015

Ukraine Nadra Ukrayny Onshore Tenders 3 onshore blocks offered (21, 22, 23) Underway 2014-2015
Ukraine Nadra Ukrayny Onshore Tender (20) 12 onshore blocks offered Completed / 4 licences awarded

2014

Source: Deloitte Petroleum Services Group, BMI Research

Global Licensing Rounds, 2014 – 2015 – Frontier Plays

Country Name of Tender Tender Details Status Date
Philippines 5th Philippine Energy Contracting Round 11 blocks offered, offshore
Peru Peru 2015 International Bidding Round 7 onshore blocks on offer Underway

2015

Peru International Bidding Round for Blocks III and IV  Blocks III and IV offered Completed

Dec-14

Oman Oman Bid Round 2014 5 blocks offered, offshore & onshore Underway

2015

New Zealand 2014 Block Offer 15 licences awarded, onshore & offshore Completed

2014

New Zealand 2015 Block Offer 7 blocks offered, onshore & offshore Underway

2015

Mozambique 5th Mozambique Licensing Round 15 blocks offered, offshore & onshore Underway

2015

Liberia Liberia Basin Competitive Bid Round 2014 4 blocks offered,   1 bid ratified Completed

2014

Jordan International 2014 Bid Round 3 blocks offered, onshore
India 10th New Exploration Licensing Policy (NELP X) 46 blocks offered,   onshore & offshore Underway

2015

Equatorial Guinea Equatorial Guinea 2014 Licensing Round 18 blocks offered, offshore Underway / Some licences granted

2015

Colombia 2014 Licensing Round 90 blocks offered, 26 received bids Completed

2014

Australia 2015 Offshore Petroleum Exploration Acreage Release 28 blocks offered, offshore Underway – officially to commence in May 2015

2015

Trinidad and Tobago  Trinidad and Tobago Deep Atlantic Area Bid Round 6 blocks offered, 2 bids received, offshore Completed

2014

Thailand 21st Petroleum Bidding Round 29 blocks offered, onshore and offshore Underway / February close for bids

2015

Suriname 2015 Offshore Licensing Round 5 blocks offered, offshore & onshore Underway – March 2015 Notification of Winners

2015

Brazil Brazil Round 13 offshore blocks Planned

2015

* This table excludes Licensing Rounds and Tenders in established oil producing regions such as GoM, North Sea, SE Asia and Middle East. Source: Deloitte Petroleum Services Group, BMI Research

With 29 licensing rounds recently completed, planned or underway around the world, excluding tenders planned for major oil and gas producing regions such as the North Sea and the Gulf of Mexico, the industry will be highly selective on where to commit capital to. Assuming a similar level of geological risk across most of the more frontier areas, we believe markets that offer the most transparent, stable and fiscally attractive conditions will attract the most capital commitments.

Above-Ground Risks For Greece

In this context, Greece’s hydrocarbon profile is unattractive,  which underpins our pessimism towards the country’s upstream ventures. With the outlook for the sector in flux, we expect little international participation in the sector. Exploration risk in offshore, deepwater Greek acreage is high, an especially challenging characteristic accentuated in an environment of low oil prices. Compounding this challenge is the plethora of above-ground uncertainties.

While there has been some momentum in Greece’s upstream in the past three years, there have also been lengthy delays under the previous government in launching and concluding the 1st International Licensing Round (Patra, Katakolo, Ioannina blocks), which highlighted the inexperience of the state in the modus operandi of the industry.

New Energy Minister Lafazanis noted – though has yet to confirm- that the 2nd International Licensing Round (20 offshore blocks) will be annulled, re-launched and governed by a new licensing framework. The ministry has expressed a preference for using Production Sharing Agreements (PSAs) over Concession Agreements that is the current framework. There are also suggestions that there will be a National Oil Company (NOC) established, though it is uncertain if Hellenic Petroleum (35.5% owned by the state) will take a larger footprint in blocks or a new NOC will be set up. We note that the latter however could come at odds with Greece’s commitments under the EU acquis communautaire competition rules.

The deadline for bid submissions of May 2015 is almost certainly going to be pushed back while the government re-examines the entirety of the upstream model and framework in Greece. In an optimistic scenario, we estimate the round could be re-launched by the end of the year. We also expect the government to re-examine the fiscal regime (including tax and royalties) adding further uncertainty for prospective investors and further harming the prospects of future licensing rounds.

*First published on BMIResearch’s website on the 20th of February 2015.

 

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