
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.