In September, the tiny Mediterranean island of Malta issued a notice in the official journal of the European Union, offering blocks ‘for authorisation on a permanent basis under either an exploration licence or an exploration and production licence”.
The offer of Blocks 1, 2 and 3 of Area 3, an area of 6,000 square kilometres north of Malta, appears to be an attempt by the government to revive its dormant offshore energy sector.
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Past oil exploration efforts off the island nation have been lacklustre. In 60 years, only 13 wells have been drilled, onshore and offshore, with no commercially viable reserves being found.
This is despite an independent review of prospects for oil drilling off Malta by ERC Equipoise, as reported by in 2012 by The Times of Malta, that the country has potential reserves of 260 million barrels.
A false start for oil exploration
Malta is situated near oil and gas rich Libya (a member of OPEC), Tunisia and Sicily, all of which have oil producing fields offshore.
Just last year, however, oil exploration firm Rockhopper abandoned its efforts exploring for oil in Area 3, the block currently up for offer. Cairn Energy, which also holds licences in the area, reportedly said earlier in the year that it was not conducting any activity in Malta and that it had “no news to report” when asked about its future plans. The company is supposed to be deciding whether or not to conduct 3D seismic surveying in the area.
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By GlobalDataMalta’s offshore acreage is divided into seven exploration and production areas covering an area of over 75,000 square km. According to a Maltese government website, the country has prospective petroleum geology with geological formations which are analogous to producing fields.
Presently, Areas 2 and Area 7 are licensed to Heritage Oil International Malta Limited, a subsidiary of Heritage Oil Limited, which drilled one well in the 80s that did not meet target. The company says the blocks are currently ‘under explored’.
Still, despite lots of seismic data and sporadic drilling from companies including BP, Texaco and Eni since the 50s, nothing worthwhile has been found. But due to its proximity to other producing fields, the acreage still holds potential.
Investment prospects
The question is: will companies invest in Malta’s waters to find 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.
Oil price has been rebounding from lows of $20 a barrel. However, as Edgar van der Meer, a senior analyst at NRG Expert, points out, Russia has just said it is willing to defy OPEC, going against the group’s production cuts aimed at supporting the price of oil.
“This will signify a lot of downward price pressure on oil going into 2018 and for the foreseeable future,” says van der Meer, “Any plan hatched right now will need to take that news into consideration.”
Furthermore, the areas offered for exploration are not on the south Libyan facing side but instead adjacent to Italy, on the north.
On the south side, there is a better opportunity to move around 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.
“The political stability Malta offers as EU member, and its own stable government, helps attract investment,” says van der Meer, “Therefore, if there is a significant find or potential it will rank higher than other countries, but at a limited scope based on the scale it could operate at.”
Therefore, in terms of investment dollars, pitted against Libya or other larger producing countries, it would undoubtedly rank lower.
“To make investment worth it, there would have to be serious negotiations and a restriction on the number of participants that would be able to come in,” adds van der Meer.
Location potential and limitations
Geographically, Malta is well placed. Rigs and drills can be easily brought in. It is also a popular flag for shipping, and oil could be shipped relatively easily to nearby ports for processing or through the Suez Canal, keeping onshore facilities to a minimum. It also has a favourable corporate tax regime, which, after deductions, is around 5%.
However, geopolitical tensions have been a problem in the past with some seeing this as a serious marker for having restricted exploration.
In 2015, Malta and Italy informally agreed to impose a moratorium on oil exploration activities in a vast offshore area southeast of Sicily and Malta, The Sunday Times of Malta reported. It is unclear if this agreement still stands, informally or not. The government were contacted for comment but didn’t reply.
Writing in Malta Today, George M. Mangionv, a partner in PKF, an audit and business advisory firm, said: “The penny has dropped that we have no current exploration activity planned for the foreseeable future. Much of the blame can be attributed to politics.”
Furthermore, Malta has a history of oil exploration-related tension with Libya. In the 1980s Libya sent a gunboat to stop an Italian oil rig from drilling for Malta in an area it considered as its own.
Mangionv urges Malta to focus on “political negotiations with Italy and Libya to resolve any disputes.”
Prospects going forward
In July, the Maltese government appointed former Air Malta chairman Maria Micallef as head of the National Oil Corporation within the Office of the Prime Minister.
Van der Meer thinks this could help encourage investment if the government is willing to take on some of the risk.
“There are other smaller nations that have been successful in setting up those structures and if the Maltese government, or the entity they are setting up, is willing to assume a lot of the risk it will help win foreign investment,” he says, “And large multinationals could come in with their expertise but not take on the full risk.”
If Malta, which currently relies heavily on tourism for its GDP, can win the investment and expertise from the multinationals it might stand a chance of developing a new revenue stream with an offshore energy sector. But with the industry still reeling from the oil price plummet and acting cautiously going forward, this possibility still hangs in the balance.
