Who is to win, who is to lose on the Black Sea banks: ExxonMobil - OMV Petrom, a successful strategic alliance

In early February 2009, Romania had prevailed in The Hague in the trial with Ukraine on the delimitation of the continental shelf of the Black Sea, as the International Court of Justice (ICJ) confirmed 80% of the land in dispute for Romania. It was a verdict that put an end to a long-lasting territorial dispute and was to radically change Romania’s oil and natural gas reserves picture.

petrom offshoreEstimations in 2009 pointed to the fact that The Hague Court’s decision could bring Romania incomes from royalties amounting to EUR 1 billion, as the quantities of oil and natural gas extracted from the Black Sea were to reduce the domestic market’s dependence on imports. Specifically, the decision of The Hague Court acknowledged that the Serpents Island is actually a rock, incapable of having water resources and to be inhabited, i.e. exactly what Romania argued in its pleadings. According to estimates made at the time of the trial by Romanian representatives, the Black Sea exploitable perimeter could have some 70 billion cubic metres of natural gas and 12 million tons of oil. “The figures regarding the level of reserves in this area are only presumptions and are based on certain measurements made in blocks of similar sizes. Once these blocks are licensed and exploration works will begin, we’ll certainly know what lies in the depths,” Mihai Gherman, Deputy Director General with the National Agency for Mineral Resources (NAMR) was saying at the time.

Serpents Island

  • Located some 45 km away from Sulina.
  • It has an area of 17 ha, with a length of 1,973 meters.
  • In the vicinity of the island energy reserves of about 100 billion cubic meters of natural gas and 110 million tons of oil were estimated.
  • Romania won 9,700 square kilometres of exclusive economic zone and continental shelf, representing 79.34% of the total surface in dispute for many years.

US oil company ExxonMobil, in alliance with OMV Petrom, has estimated that investments will reach USD 1 billion to support the exploration of natural gas in the Black Sea. The two companies announced in 2012 that they had discovered in the Romanian shelf a deposit of 42-84 billion cubic meters, equivalent to three to six times the annual consumption of Romania. In November 2008, ExxonMobil Exploration and Production Romania and Petrom signed an agreement whereby Exxon purchased a 50% stake of the deep sea Neptun Block. During 2009 - 2010 Petrom and ExxonMobil have acquired data for more than 3,000 square kilometres in the Neptun perimeter, using 3D seismic technology, within the framework of the largest seismic program ever undertaken in Romania. The Neptun Block covers an area of approximately 9,900 square kilometres in waters with depths ranging between 50 to 1,700 meters. In late July 2011 the government decided to extend by five years the period in which OMV Petrom has the exploitation rights in Neptun Block in the Black Sea. Subsequently, ExxonMobil Exploration and Production Romania announced that the first exploration well may be drilled in late 2011 or early the following year. Total costs of the development and production stages in the oil perimeter Neptun of the Black Sea were estimated between USD 3 - 10 billion dollars, if the exploration phase was to conclude successfully. ExxonMobil has extensive experience in exploration in deep water. Of the 7,800 wells operated by ExxonMobil in the last ten years, over 250 wells have been drilled in waters with a depth exceeding 750 meters.

State incentives

In order to boost the operations in the offshore area, the government decided that the companies carrying exploration drilling in the underwater continental shelf are exempt from the requirement to obtain construction permits. Of this provision benefited OMV Petrom, ExxonMobil and Lukoil. The decision was adopted by emergency ordinance which amended Law 50/1991 on authorizing the execution of construction works.

Domino-2 followed Domino-1

ExxonMobil Exploration and Production Romania Limited and OMV Petrom announced last summer that they will start drilling in Domino-2 well, in the Neptun Block deepwater area, in the Romanian sector of the Black Sea. Data collected during the drilling program will be used to assess the size and commercial viability of the natural gas deposit discovered by the Domino-1 exploration well in 2012, a press release from ExxonMobil read. Domino-2 is located approximately 200 kilometres offshore and is drilled by Ocean Endeavour rig in waters with depths of about 800 meters.

The deepwater Neptun Block area covers a surface of about 7,500 sq km and water depth varies between 100 and 1,700 meters. In 2012, ExxonMobil and OMV Petrom announced the discovery of a natural gas field in the Domino-1 deepwater perimeter. The Domino-1 well is located 170 km offshore in waters with depths of about 1,000 meters.

A new discovery in the Istria area

OMV Petrom has recently announced the discovery of a new oil deposit in the shallow waters of the Black Sea in the Istria area. The deposit was found about 60 kilometres offshore and the output potential is estimated by the company to about 1,500-2,000 boe/day. “The Black Sea is a very important area for OMV Petrom, a zone where there is potential for new discoveries. Currently, the output in the shallow region of the Black Sea represents about 18% of the company’s total output in Romania,” said Gabriel Selischi, member of OMV Petrom Executive Board, responsible for Exploration and Production, quoted in a press release of the company.

GSP joins the business

In late 2013 Exxon contracted Grup Servicii Petroliere (GSP), owned by businessman Gabriel Comanescu, for prospecting services in the Black Sea.

According to the contract concluded between the two parties, the Americans were to pay GSP over USD 23 million (VAT excluded). The objective of the framework agreement, concluded for a period of three years, was to secure ExxonMobil’s access to the resources identified as necessary, for the provision of services under contracts subsequent to geophysical prospecting by an autonomous underwater vehicle in the deep water, to be carried out in the Black Sea. GSP is not facing the first collaboration with a global giant. Among the companies for which GSP worked over the time, carrying out deepwater drillings, are Gazprom, Rosneft, Lukoil, Total, Pemex and Turkish Petroleum. In late 2005, GSP took over from Petrom six offshore drilling rigs, for USD 100 million.

Lukoil starts drillings

Russian oil group Lukoil announced in late June its intent to drill two wells in Romania’s continental shelf by the end of 2015, according to the company’s president Vagit Alekperov, quoted by the international press.

In February 2011, a consortium led by Lukoil Overseas, a Lukoil oil group subsidiary, has signed a concession agreement with the NAMR for the exploration and development of oil blocks Est Rapsodia and Trident located in the Romanian sector of the Black Sea. Est Rapsodia and Trident blocks are located under water with depths between 90 and 1,000 meters, some 60-100 kilometres offshore. “We hope to finish drilling two wells on block Trident this year. We have now reached a depth of 1,700 meters while the project depth is 3,400 meters,” Vagit Alekperov told the Russian press.

During 2014 - 2015, throughout the exploration programme of the continental shelf of Romania, Lukoil plans to drill five exploration wells, three of which are mandatory and two optional.

Sterling Resources - huge plans, yet unfinished

Canadian oil and gas company Sterling Resources Ltd., through its subsidiary in Romania, Midia Resources, signed in May 2012 a contract for Ioana exploration offshore drillings in the Midia perimeter and Eugenia in the Pelican perimeter, with Grup Servicii Petroliere (GSP). Midia Company has contracted a drilling rig to drill the two wells, under a programme that provided the drilling of Ioana well in waters with a depth of 93 meters, with the objective of environmental research in the median Pontian collector, with a total depth estimated to 1,600 meters. After drilling the first well, the rig has moved north to drill the Eugenia well, in waters with depths of 55 meters, with the objective to research Oligocene classic collectors, Eocene and Senonian strata, with a total depth estimated to 2,300 meters.

Sterling had a 65% stake in Pelican and Midia blocks and a 50% stake in Luceafarul perimeter, being also operator of these three concessions. The Canadians also owned a 40% stake in Muridava perimeter.

In late 2013, Sterling announced through a statement that it reduced estimates of the total reserves of owned hydrocarbons by 9% as compared to 2012 (50.2 million boe less), mainly as a result of the additional assessments on resources of the concessions in Romania. On April 11, 2014 it started the drilling of an exploration well in Muridava offshore block in the Black Sea, in which the Canadians held a 40% stake and it was expected that the following year two more wells to be drilled.

In January 2014 Midia Resources had completed the 3D seismic prospecting works over an area of 550 square kilometres on Luceafarul offshore block in the Black Sea, where Sterling had a 50% stake and was the operator of the concession. In February 2014 the 3D seismic exploration works were completed, over an area of 800 square kilometres of Midia and Pelican blocks where Sterling holds a 65% stake, being the operator of the concession. The programme included 500 kilometres of prospection in the perimeters Ana-Doina and 100 square kilometres of prospection in perimeters Bianca, Ioana and Eugenia.

In October 2012 Sterling Resources sold the deep water offshore perimeter Midia XV (Midia Deep) in the Black Sea, the contract came into force in January 2014. The transfer contract was signed by ExxonMobil and OMV Petrom, on the one hand, and Sterling Resources Ltd. and Petro Ventures Europe BV on the other hand, after the go-ahead from the Bucharest government. At the beginning of 2014, the Canadians have extended the NARM licenses for the shallow plateau of Midia and Pelican blocks in the Romanian sector of the Black Sea. Midia and Pelican licenses would have expired in May 2014. The Canadian oil and gas company had chosen to extend them, with extra options for extension until May 2015, May 2018 and May 2020.

Despite these huge plans, Sterling Resources announced this spring an agreement on the sale of its entire business in Romania to Carlyle International Energy Partners for the amount of USD 42.5 million. According to a company press release, the transaction was to be completed in Q2 2015, and this includes licenses for offshore oil perimeters 13 Pelican, 15 Midia, 25 Luceafarul and 27 Muridava. Carlyle International Energy Partners is affiliated with the venture capital fund Carlyle Group.

Petroceltic leaves Romania

Also this year, Petroceltic International announced, by mid-June, the sale of Romanian operations to GVC Investment BV. Petroceltic representatives said its subsidiary acquired the stakes from its partners - Sterling Resources Ltd and Beach Energy Ltd, in deposits in Romania before the sale to the GVC. Concerned were the perimeters EX-27 Muridava and EX-28 East Cobalcescu (approx. 2,000 sq km) located in the Black Sea continental shelf 145 kilometres offshore. Cobalcescu well sud-1 aims at two geological layers which, according to company estimates, could contain reserves of up to 11.5 billion cubic meters. The second well, Muridava-1 aims at layers that may contain up to 4.8 billion cubic meters. The Muridava concession also includes the discovery of untapped Olimpiyskaya. Financial details of the transaction were not disclosed.

Petroceltic International is a company specialized in exploration and production activities in the field of oil and gas, based in Dubai and it operates in Algeria, Bulgaria, Egypt, Greece, Italy and Kurdistan. Petroceltic had entered Romania after taking over from Sterling Resources Ltd. a 40% stake in EX-27 Muridava perimeter of the Black Sea continental shelf.

Petroceltic CEO Brian O’Cathain informed that the company has withdrawn from Romania and Kurdistan, as it does not want to invest in high-risk operations anymore, international media reported quoting the Irish Times newspaper. Petroceltic gave a signal since February 2015 when it announced the plans to limit exploration operations in Romania, Bulgaria and Greece, in order to focus on Italy and Egypt, under a program that aims to reduce operational costs and capital expenditures.

Muridava and Cobalcescu wells, more than technical challenges

Under the terms of the concession agreement, the exploration period was set by contract to six years from the entry into force of the agreement, i.e. October 24, 2011, divided into two phases, one mandatory and one optional, each with separate programmes. According to the appendix to the concession agreement, the mandatory programme for the first phase of exploration works was spread over 36 months, from October 24, 2011 to October 23, 2014. The mandatory programme of works intended to be executed in the first year of the first phase has been fully met and exceeded.

Based on the NAMR approval, the 400 km 2D seismic acquisition were replaced by 320 sq km of 3D seismic, leading to a total executing volume of high quality 3D seismic acquisition for an area of 963 square kilometres. The increased volume of 3D seismic data has led to longer intervals and to the increase of resources needed for their acquisition, processing and interpretation. The drilling for Muridava-1 well, included in the second year of the first phase was scheduled to start in November-December 2013 with the Prometeu jack-up drilling rig, provided by GSP. Following the data and drilling parameters analysis, resulting from the drilling by the same GSP Prometeu rig of 1 RX Cobălcescu south exploration well to a depth of 3,105 meters in the EX-28 East Cobalcescu (neighbouring the Muridava EX-27 perimeter), it was concluded that for obtaining appropriate drilling parameters (pressure drilling fluid, volume and the effective rate of progress) the elimination of technical and technological risks related to drilling Muridava-1 well was needed, and a comprehensive process of modernization of Prometeu offshore drilling rig was necessary.

The works required, which included the replacement and modification of key components and structural changes needed in the main systems of the rig (the drilling fluid system, power system, lift system) were compulsory, otherwise, the drilling of Muridava-1 well and the following wells with the Prometeu rig under the above mentioned conditions were unachievable because of the impossibility to control the technical challenges, with significant probability of loss of the wellbore itself. Complex works to modernize the Prometeu offshore drilling rig aimed at drilling, in safe and effective conditions, according to the parameters imposed by the mechanical and geological structures crossed and by the latest oil industry standards for Muridava -1 well and for the other wells expected to be drilled in the Black Sea continental shelf belonging to Romania.

In addition, seismic data from EX-27 Muridava perimeter and the information resulting from the works performed in the adjacent EX-28 East Cobalcescu area showed that geological structures of EX-27 Muridava perimeter are actually more complicated than initially estimated. In such circumstances, for a better understanding of the geological structures that would enable proper design of future works, a more complex, in detail processing of data is needed, as well as seismic modelling , concomitantly with conducting a study on the regional petroliferous system.

For those reasons, by the application no. 1285, dated February 4, 2014, registered to NAMR, the owner asked to sign an addendum to the concession agreement, by which the duration of the first phase of the exploration period is modified from 36 to 54 months, and the mandatory work program for this phase includes further work, consisting of ‘creating a programme for the basin’s modelling, seismic processing and interpretation for 300 square kilometres’, at an estimated cost of USD 100,000. Thus, other impediments...

History of drillings in the Black Sea

Romania has a long experience with maritime drilling since 1976. The pioneer in this field was Intreprinderea de Foraje si Lucrari Geologice – IFLGS, who commissioned the first Romanian offshore drilling rig – ‘Gloria’ rig. In the first location, 1 Ovidiu East well had the depth of 84 meters (the platform was designed for a maximum water depth of 90 meters). The drilling was conducted in normal working conditions and reached a depth of 5,006 meters (the rig’s maximum capacity was 6,000 meters). The well had provided rich geological information material, but from the economic point of view it was a sterile well, later dropped. A second exploration well was drilled in Midia structures. It was drilled to a depth of over 4,000 meters, but encountered major difficulties and was eventually abandoned as sterile well. Thus, a third location in the Black Sea was reached, Gloria rig being placed on Lebada structure, on 8 Lebada location respectively, in an area with sea depth of about 50 meters, located next to the Razim Lake, 80 km north-east of Constanta.

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