By Haluk Direskeneli
Licensed by Greek Cyprus, Noble Energy (NYSE:NBL) of Houston, Texas began offshore oil exploration on September 19, 2011. It is for sure that Noble Energy will be at non-stop risk from nearby naval war exercises by the Turkish Navy all year long, due to the unfair share of natural resources between Greek and Northern Cyprus. Noble Energy and Greek Cyprus will constantly risk abuse and dogfights from the Turkish Navy and Air Force in the disputed waters.
I believe the company is behaving too boldly, as the business environment cannot stand for that much sovereign risk. The company has estimated that around 280 billion cubic meters of natural gas lie in wait below the seabed in the Aphrodite field.A stock analysis of Noble Energy illustrates a bearish engulfing candlestick pattern—as usual after offshore initiation in the markets. However, that is misleading. The company is pushing its luck, as bankruptcy could appear in the future due to high unforeseen risks, which is an important warning to share holders. Moreover, it has started to blame the rigs for repeated breakdowns and is seeking an alternative deep water offshore drilling platform.
In the eastern Mediterranean, contrary to the Aegean Sea, a dogfight is very easy for the Turkish Air Force but very difficult for the Greeks. Moreover, Greek Cyprus has almost no military capability. This does not mean a hot clash or military confrontation, but could only be simple military abuse, and that is sufficient to stop offshore works.All in all, any deep-sea offshore oil exploration in the eastern Mediterranean is impossible without the prior consent or approval of the Turkish government. Therefore, understanding respective interests and a joint agreement on sharing rights are necessary between all interested parties.
All figures or estimations regarding the reserves are predicted in nature, and are fiction and unreliable as of today until verified as proven after expensive deep-sea offshore drilling. These offshore explorations are expensive, so the operator company may go bankrupt before finding a profitable well.
Please do note that El Paso of the U.S. made three offshore drilling attempts in Iskenderun Bay in the eastern Mediterranean and found nothing in the recent past. Therefore, commercial risks are very high. All-risk insurance is very costly.
Eastern Mediterranean offshore drilling is not easy; work needs time, effort, money, and tranquil waters away from any dispute for a fair share of reserves. For instance, the EEZ of Greek Cyprus in the eastern Mediterranean is an Exclusive Military Zone (EMZ) for the Turkish Navy and Air Force. Therefore, if the Turkish Parliament or government does not approve or certify any legal document, then it is not applied in international law, such as the so-called EEZ in the eastern Mediterranean.
Eastern Mediterranean oil and gas explorations need long-term commitment and work, and will consume too much resources, time, money, and effort for exploration. Furthermore, its gas and oil offshore potential is an exaggeration of media sources; time should be taken to get responses from the first drilling, and results require patience.
A military clash or conflict is unlikely in the eastern Mediterranean, but military abuse is normal, as are dogfights. No country in the area matches the Turkish Navy and Air Force due to close logistics. NATO members cannot clash and the worst thing could be to freeze all work, which means money lost for the company investing in this project.
Considering the factors mentioned above, a commercial company should make risk assessments carefully, as it is not so easy to work for offshore drilling in the disputed waters of the eastern Mediterranean.
Greek Cypriot politicians look for fast good news about the future since the Vassilikos disaster; they promote offshore drilling in the region with no concrete or proven assessment.
The disputed waters are a difficult risk for offshore platform operators, as offshore drilling operations require a tranquil environment, which makes it a very hard job for Noble Energy.
Estimates regarding eastern Mediterranean offshore gas and oil reserves are over optimistic. The sea is too deep—more than 1500 meters—plus 2600 meters of rock and soil need to be drilled. One should recall once more that El Paso of the U.S. made three offshore drilling attempts in the shallow waters of Iskenderun Bay in the eastern Mediterranean in the past with high expectations, but found nothing, lost $30 million, and now expects a budget of$200million per deep water platform. In addition, the eastern Mediterranean is under the geographical domination of the Turkish Navy. Other neighboring countries are too far from Cyprus. Even Meis Island is isolated and open for scrutiny.
The situation today is very much like a “boatmen’s quarrel” of the Ottoman period in Istanbul, where there was no physical contact, but it was only possible to shout to beat your rivals in order to get customers. It is unlikely that a hot clash between Turkey and Israeli or Greek Cypriot naval ships in the eastern Mediterranean will occur, because democracies and NATO members never fight with each other.
A war of words between politicians is not effective in case of a strong presence of the Turkish Navy and Air Force in eastern Mediterranean offshore fields; the key is mutual work for a fair share. The region needs common sense from neighboring countries in order to tap the resources in a fair manner; otherwise it is a dispute to waste energy.
The writer may be wrong about the unlikelihood of democracies fighting. The world’s general instability right now could prompt huge miscalculations. In this sense, as energy analysts, we can just hope for the best and discuss. In this sense, your comments are always welcome.
Haluk Direskeneli, Ankara-based Energy Analyst. Statements of facts or opinions appearing in the pages of Journal of Turkish Weekly (JTW) are not necessarily by the editors of JTW nor do they necessarily reflect the opinions of JTW or ISRO. The opinions published here are held by the authors themselves and not necessarily those of JTW or ISRO.