The eastern Mediterranean Sea could become the hottest offshore play in the Middle East area, depending on the outcome of a key exploration attempt later this year.
This Mediterranean offshore expanse is a Miocene playground with a large sandbox and carbonate reservoir potential, as evidenced by Eni’s supergiant Zohr field offshore Egypt, a 2015 discovery.
Now Total plans a 2017 exploration well on deepwater Block 11 offshore Cyprus, to the north of and contiguous to Zohr’s Egyptian Shorouk offshore block.
It’s the first time in the region that a carbonate rather than a sand reservoir has been targeted, according to Graham Bliss, senior director of plays and basins research for IHS Markit in London, and lead author of an analysis series examining upstream energy competition in the eastern Mediterranean.
“As it relates to Block 11, we assume that Total will not merely be drilling the northerly margin of Zohr field, but that they are testing a genuinely independent prospect. In addition, it is our initial assumption that there is no problem with source rock, and if a discovery is found, it will be gas,” Bliss said.
The IHS Markit analysis also pointed to some possibility of oil potential in a deeper but unproven Cretaceous target on the Cypriot block.
Projected spud date for the Total exploration well is now in May, although the project has already gone through one delay. IHS Markit considers it “one of the most critical wells drilled globally in 2017 for the E&P industry, especially given the slowdown in exploration drilling worldwide.”
Bliss said he has not seen any prospect data for the well, but “I would guess that this is a moderate to high-risk prospect. However, before we can adequately begin to assess the risk level, there are a number of key questions that will need to be addressed:
- “Do carbonates extend along the Eratosthenes High into Block 11? If so, are they the same carbonate reef buildup facies as those found in the Zohr discovery?
- “Was the subsidence rate of the Eratosthenes High in Block 11 such that it enabled a carbonate reef to build significant thickness?
- “If present, do these carbonates have the same diagenetic history as in Zohr and, as such, would they provide the same very high-quality reservoir, enabling among other things, a minimum number of development wells?
“A negative outcome for any of these questions could lead to the prospect being a dry hole, or an uneconomic discovery,” he noted.
The Economic Question
And economics will be key to success. Another giant field in the area is Noble Energy Inc.’s Leviathan gas field in the Levant Basin offshore Israel, just now being sanctioned for commercial production expected by the end of 2019.
“The Eastern Mediterranean is a complex jigsaw of new energy supply chasing growing gas markets. A large discovery in Total’s Block 11 would be in direct competition with Leviathan and other large fields in the area,” Bliss said.
“For this reason a range of gas market opportunities is important for new supply in the region. These markets could be Egypt, Turkey, Greece or the rest of Europe. Widening the breadth of marketing opportunities is as much a political issue as it is one of pipeline technology – the market potential drives investment,” he added.
For exploration to progress, Bliss said commercialization opportunities must be clarified and political hurdles resolved to prop up investor confidence, and to minimize both business and operational risk.
“Without such market opportunities, several existing and (potential) future discoveries in the area will become stranded,” he said.
Eni caught the world’s attention two years ago with the Zohr discovery, which reportedly has in-place resources of 32 trillion cubic feet (Tcf) of dry gas and possible recoverable resources of about 20 Tcf.
The company has drilled five wells on the Zohr structure to date, confirming a large gas accumulation and the existence of a very high-quality reservoir, according to IHS Markit. Zohr Field Phase 1 is due to come on-stream this year.
“The existence of a carbonate reef play, which Zohr has proven to be, is very different from the turbidite sand-play discoveries in the Israeli Levantine and the Egyptian Nile Delta Basin,” Bliss said.
“If the Zohr carbonate play extends northward into Total’s Block 11, then the potential for a significant discovery in Block 11 exists, resulting in profound implications for the region,” he observed.
Current conditions favor Egypt as the regional commercialization hub for all of the eastern Mediterranean, Bliss said. He sees a likely gas price of between $4-6 per thousand cubic feet for a Block 11-type development if gas is exported to Egypt.
“This is due to both its domestic market potential and its established liquefaction capacity, which enables export of incoming gas. Depending on the outcome of Total’s program in Block 11, 2017 could be a significant year for the region, and we could see competition and investment really begin to heat up,” Bliss said.
Geopolitics play a part also, with Cyprus split into pro-Turkish and pro-Greek factions, although “the regional geopolitical landscape is not static,” he observed.
Turkey’s interest in reducing reliance on Russian gas imports and in importing both Israeli and Cypriot gas could provide an important boost to the island’s reunification discussions. Recent meetings in Geneva marked one of the few times since 1974 that Turkish and Greek Cypriots sat down together at the negotiating table, he noted.
“We at IHS Markit envision a large discovery in Total’s Block 11, though not necessarily as large as Eni’s Zohr discovery, to be economically viable with the sort of gas price expected for Zohr,” Bliss said. “Such an economically viable discovery would certainly encourage further exploration within the eastern Mediterranean.”
That exploration outlook is directly tied to product economics. An important factor could be the establishment of a range of market monetization possibilities for a Block 11 discovery.
“It is the reality of this wider opportunity for monetization options that will encourage further exploration in what has the potential to be an increasingly tight region in terms of new gas supply, from Israel, further Egypt and now Cyprus, but also, in the longer term, from Lebanon,” he said.
Bliss said the eastern Mediterranean “is undoubtedly a hot spot at present.”
“The breadth of play types, both new and well-established, that exist in the area and the range of potential markets must encourage further exploration interest. One problem for newcomers, however, is access to acreage,” he noted.
Most of the attractive offshore acreage in Israel, Egypt and now Cyprus is taken by established players, in many cases either majors or large independents, Bliss said. Big prospectors in the region include Eni, Shell, BP, Total, ExxonMobil and Rosneft.
“The extent and speed of future offshore exploration activity here will be driven by these established players. In addition, exploration enthusiasm will also be driven by whether a range of monetization opportunities exists or not.
“So the eastern Mediterranean might be considered a rather unique spot compared to other areas around the world, and exploration enthusiasm there may not be reflected in other places,” he said.