Eastern Mediterranean: Zohr’s discovery revives interest for exploration

The discovery of Zohr, a major field off Egypt’s coast that could potentially hold around 30 tcf of natural gas, seems to be reviving interest in the Eastern Mediterranean. If it plays its cards right, Cyprus stands to gain the most out of this renewed interest. The location of Zohr, a few kilometers away from Cyprus’ block 11, is one reason. Although current data does not show that it extends into Cyprus’ EEZ (this question will be settled with further drilling), the Zohr discovery could boost interest for proceeding with exploration, off the Cypriot coast, particularly in areas thought to potentially share the same geological play. A second reason is stability. With regulatory hurdles putting the Israeli gas sector on hold, political deadlock crushing a Lebanese oil & gas sector in its infancy, and a war raging in Syria, Cyprus (and increasingly Egypt) stands out as haven of stability in the region. That is one less problem investors, interested in the EastMed potential, have to worry about.

Earlier this year, France’s Total relinquished Block 10 and decided to keep Block 11 for further exploration without committing to drill. Total’s license expires in February 2016. Did Zohr revive Total’s interest in exploring for oil and gas in the areas currently under its license? Zohr certainly gave ENI a dose of confidence, which explains renewed interest for exploration off the Cypriot coasts, with an eye on blocks that are not currently licensed to it, Blocks 10 and 11 in particular. But after two disappointing drilling results, and taking into consideration its plans of divesting some of its assets (worth about €8 billion, 70% of which will be put up for sale by the end of 2015) and to focus instead on mature provinces, will ENI’s interest be confirmed? In any case, after months of doubting EastMed’s potential under current market conditions, there is a renewed interest, in large part spurred by Zohr’s discovery. There may be a window of opportunity to now consider the possibility of organizing a new licensing round in Cyprus. These are the main themes of this 917-word note, reserved for our clients.