Cablegate: Few Bids for Exploring Offshore Cyprus

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PP RUEHWEB

DE RUEHNC #0675 2291429
ZNR UUUUU ZZH
P 171429Z AUG 07
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC PRIORITY 8083
INFO RUEHTH/AMEMBASSY ATHENS 3909
RUEHBS/USEU BRUSSELS
RUEHLO/AMEMBASSY LONDON 1327
RUEHAK/AMEMBASSY ANKARA 5020
RUEHNY/AMEMBASSY OSLO 0209
RUEHTV/AMEMBASSY TEL AVIV 6410
RUEHEG/AMEMBASSY CAIRO 0244
RUEHLB/AMEMBASSY BEIRUT 4278
RUCPDOC/USDOC WASHDC

UNCLAS NICOSIA 000675

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EPET ETRD EINV ECON CY
SUBJECT: FEW BIDS FOR EXPLORING OFFSHORE CYPRUS

Ref: 06 Nicosia 1361

Nicosia 120

SENSITIVE

1. (SBU) On August 16, the GoC announced the results of bids to
obtain oil and gas exploration licenses off the south and southeast
coasts of Cyprus. Despite speculation that the 11 available blocks
could contain gas and liquids valued up to USD 400 billion and
strong marketing efforts by the GoC, only three groups entered bids
on three separate blocks. Bids for two blocks abutting Egypt's
offshore gas fields were bid by two consortia of companies from the
UK, United Arab Emirates and Norway (A Cyprus newspaper says that
the companies that are participating in the consortium are the
Norwegian firm DNO, the UAE company Larsen Oil & Gas -which also has
Norwegian ties- and the British Increase Oil Recovery.) U.S. company
Noble Energy bid on a block bordering Israel's Exclusive Economic
Zone (EEZ).

2. (SBU) An official with Noble told us that they decided to make
their bid only at the last moment primarily at the urging of their
Israeli partners in an offshore gas platform within Israel's EEZ.
The Israelis had purchased seismic data from a sounding taken in the
area prior to the sounding commissioned by the GoC. The Israeli
geologists felt that there was potential in the block and the new
field could be economically viable if it were tied into the existing
offshore Noble/Israel platform despite the deep water (5000 meters)
and deep geology of the Cyprus block. Also encouraging Noble was
Cyprus' status as an EU member, considered a "big plus" because
"this means laws won't change on a whim." An outstanding issue for
Noble is the lack of a treaty demarcating the boundary between the
Israeli and Cypriot EEZs. Cypriot officials told Noble that a treaty
should be completed "very soon." Comment: Local embassy contacts do
not seem as certain that an agreement will be reached anytime soon.
End Comment.

3. (SBU) The lack of bids, especially from any of the oil majors,
has been criticized by opposition media in Cyprus. The reasons given
by our sources for the lack of bids were 1) political risk from
strong Turkish and Turkish Cypriot opposition to the process (see
reftel B); 2) lack of detailed seismic data and, given how busy oil
companies are looking for deposits, a lack of geologists to analyze
the data available; 3) possibly a desire by companies to sit back
and observe the first round of bidding before making a decision and;
4) the seismic data and results from elsewhere in the region
indicate a low likelihood for oil (as opposed to gas), and there
remains a strong preference among oil companies to invest in oil
assets first. Bidders were found only for those blocks near existing
operating fields in Israel and Egypt. The Ministry of Commerce has
already said that it expects the bidding for two additional blocks
(abutting the Lebanese border) next year to be much stronger because
3D seismic data will be available for those blocks. This was echoed
by the local General Manager for BP who claimed his company would be a bidder for those blocks.

4. (SBU) Next steps towards actual drilling calls for a
"Consultation Committee" to consider the bids received and measure
them against the published Guidance Note for evaluation. The
Committee will provide its recommendations to the Minister of
Commerce by December who will then present his advice to the Council
of Ministers. Noble hopes to enter contract negotiations by early
next year and intend to send a high level delegation to meet Cypriot
officials this fall.

5. (SBU) Comment: The GoC, helped by a media prone to
hyperventilation, over-hyped the likely bidding leading to the
current letdown. Nevertheless, it could be a political positive if
contracts are signed just before the February presidential
elections. The bidding specifications allowed only companies with
the financial and technical wherewithal to bid, preventing bids from
purely financial players or small wildcatters. There is a
possibility that bids could be entered late by firms that wanted to
see how things went before acting. The Turkish saber-rattling was a
factor in the lack of bids, but given oil companies' long experience
dealing with politically dicey situations, this was probably not the
major reason for the lack of bidders.

SCHLICHER

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