Global Markets

Greece: Uncertain steps in hydrocarbon exploration

17 May, 2014 | Posted By: Costis Stambolis

By Costis Stambolis
Greece, unlike Cyprus, lacks the resolve, determination and organisation to embark on a comprehensive programme for the development of its not insignificant hydrocarbon resources. This appears to be the main conclusion of a select team of experts who recently visited Athens on behalf of a London based international energy fund, in order to assess the country’s hydrocarbon potential as investment interest in Greece is rekindled following the success of the latest 3.0 bln Euro bond issue on April 10 and the return of Greece to the international money markets.
The recapitalisation of Greece’s still ailing banking sector following massive placements overseas over the last two weeks by the country’s three systemic banks – Pireaus, Eurobank and NBG – and the raising of some 700 mln euros from a successful bond issue last week by the electricity utility PPC, and a further 400 mln euros by Hellenic Petroleum with competitive interest rates, completes the picture of an unfolding investment renaissance as the country is gradually emerging from a four-year financial deep freeze.
However, the country’s hydrocarbon exploration sector, which badly needs investment and could have benefited enormously from global capital markets latest refocusing on Greece, is by no means ready to take advantage of this new opportunity. The oil and gas exploration sector is still in its infancy although four years have passed since the previous PASOK-led government decided to re-start the process of fully exploring for hydrocarbon resources after 15 year of complete inactivity.
This effort continued by the New Democracy – PASOK coalition which took over in the summer of 2012 with Energy Minister Yiannis Maniatis elaborating a well thought out strategic plan whereby in the first phase large scale seismic exploration was to be conducted in offshore Western Greece and South of Crete. The second phase of the plan foresaw the granting of concession agreements for three known deposits in Western Greece (offshore Katakolo and Patraikos and onshore Ioannina) following an Open Door type international round. With the third phase of the plan involving a large scale round for offshore plots in Western Greece, which is to be conducted based on the findings of the seismic exploration programme, since completed thanks to the work undertaken by the Norwegian PGS company.
But four years later, the government’s grand strategy appears to be in shambles as 27 months have passed since the Ministry announced the Open Door round in Western Greece and without any visible results, as the authorities have been unable to complete the round on time.
As the Financial Mirror was going to press we were informed that the concession agreements would eventually be signed in Athens on May 15. Because of Greece’s legendary red tape it took the Ministry of Energy a full 12 months to assess the bids by eight groups of companies for the three known and rather small in size deposits. It has then taken another 11 months to draft and agree with the concessionaire companies the royalty type agreements for exploration and production of the above three deposits which between them contain some 150 mln barrels of estimated oil and gas reserves.
Obviously, this is not a time frame that oil companies are used to work with.
“If Greece is serious about its return to the exploration arena she has to change its methods and shake up its tranquil Byzantine bureaucracy which prevents any progress,” notes a rather irritated general manager from one of the international companies which is involved in the Open Door round. If only some of the oil and gas from the Western Greece deposits was to be produced it could help Greece curtail its total oil dependency as it has to import 99.5% of the 320,000 barrels of oil it consumes daily. Today, Greece is producing only 2,000 barrels of oil per day from the Prinos field in Northern Greece which has been in operation since 1981 and with plans, by its current operator Energean Oil and Gas, to increase production up to 10,000 bpd by 2016 by exploiting some secondary deposits from the area’s complex geological structure.
Although Greece’s hydrocarbon potential appears limited with current proven reserves barely above 30 mln barrels of oil equivalent, estimates for deposits in place are much higher varying widely from 1.1 bln barrels of oil equivalent to 3.0 bboe depending on who is your source. With the findings from the PGS seismic research likely to increase these estimates even further, the government appears to be in a state of limbo unable to advance its plans and actually exploit the country’s not insignificant hydrocarbon reserves. Once the companies are able to sign the concessions this will enable them to invest some 80 – 100 mln dollars between them over the next two to three years so at to extract oil and gas from Western Greece’s reserves.
Meanwhile, the government is insisting that everything is moving according to schedule as it is getting ready to announce a major international round appropriately termed as “Greece Mega Project” later in the summer, and carries on with bombastic statements which tend to portray Greece as the new oil and gas Eldorado of South Europe. However, international oil companies, including the majors, who will be invited to participate and bid in this new round are extremely reluctant to commit valuable resources as many of them, under scrutiny from their investors, have been forced lately to cut down on exploration expenditure as new output is not matching their investments so far.
As a result of the government’s complacency and administrative shortcomings it seems that Greece is about to lose a window of opportunity which had been open over the last three years for the development of its limited but actual hydrocarbon deposits, thus depriving the country from valuable investments and future income.

Costis Stambolis is a Financial Mirror correspondent, based in Athens.