ExxonMobil To Strike Back In The Black Sea?

BMI View : ExxonMobil appears to be giving the Turkish Black Sea a second chance if it does farm-in to a deepwater block as reported. Extending its interests here is consistent with its wider Black Sea deepwater portfolio in the region. I ts financial firepower and expertise will certainly keep Turkey's hopes to boost output from the Black Sea alive as the country seeks to uncover new domestic sources to keep up with its growing energy needs.

ExxonMobil could be taking another chance on the Turkish Black Sea. Besim Sisman, acting chief executive of Turkish national oil company (NOC) TPAO , reportedly told Reuters that the firm is in discussions for the US supermajor farm-in to a deepwater block in the Black Sea. This follows exploration manager Erdal Coskun's comments in Turkish newspaper Hurriyet Daily on June 6 that the NOC was in talks with 'two companies for two different wells', of which one is 'entering the region for the first time' but 'we had a partnership in the Black Sea with the other one'.

While Exxon declined to comment, the supermajor had partnered TPAO in the Turkish sector of the Black Sea. In 2010, it joined the NOC and Petrobras in the Sinop, Ayancik and Carsamba sub-blocks, which lie within the Samsun block spanning exploration licences AR/TPO/3922 and AR/TPO/3921. However, the semisubmersible rigs Leiv Eiriksson and Deepwater Challenger deployed by Exxon failed to find noteworthy quantities of hydrocarbons in this area.

Building Its Black Sea Portfolio

Exxon could be hoping for better luck the second time around. Its interest in the Black Sea complements its portfolio in this underexplored deepwater play.

  • Russia : A deal with Rosneft , signed January 2011, gave it exploration and production rights in an 11,200 square kilometres (sq km) area in the Tuapse Trough along the coast of Russia's Krasnodar.

  • Romania : In February 2012, its Domino-1 well in the Neptune block hit gas. The block is estimated to have 42-82bn cubic metres (bcm) of gas-in-place. In November 2012, the supermajor put up a tender for services to drill one to seven wells in its Black Sea acreage.

  • Ukraine : Selected to explore and develop the deepwater Skifska field as part of a consortium that also includes Royal Dutch Shell and OMV Petrom . Ukraine expects the production sharing contract (PSC) for the block to be signed by August 2013 .

At the Ukrainian Energy Forum held in April 2013, head of Exxon E&P Ukraine Jim Johnston told the audience that the firm will 'be spending billions of dollars' on deepwater projects, which could make up 12% of ExxonMobil's total spending by 2040.

Despite its previous lack of success in the Turkish Black Sea, interest could have been revived by TPAO's discovery made in the Istranca-1 field in September 2012. Better understanding of the Black Sea from activities in Romania and earl ier drilling efforts could also have raised the risk appetite of Exxon as it seeks acreage with higher chances of success based on previous exploration . TPAO's Coskun was also optimistic about Turkey's Black Sea potential, as a result of 'better-than-expected performance' of the country's new seismic vessel Barbaros Hayrettin Pasa, suggesting that technological improvements could boost the prospects of commercial discoveries.

If it does take on another block in the Turkish Black Sea, the US giant will not be alone in holding on to Turkey's deepwater prospects. Anglo-Dutch competitor Shell had been the latest major international oil company (IOC) to enter the Turkish Black Sea, having signed a joint exploration agreement with TPAO in February 2013 ( see 'Black Sea - A New Hope', January 30 ).

All The Help It Can Get

The stakes of Exxon's renewed commitment to the Black Sea are higher for TPAO than for the supermajor. Indeed, an expected acceleration in Turkey's energy demand has turned the country to all forms of energy sources possible to meet domestic needs - from renewables, to coal and gas. The power sector is driving this increase in energy consumption, and our Power team forecast s that Turkey's rate of electricity consumption growth is expected to exceed the average rate for the Central and Eastern Europe (CEE) region.

Powering Energy Consumption Growth
CEE Vs. Turkey: Growth In Electricity Consumption (%), 2013-2022

While Turkey is actively building its energy import infrastructure to prepare for a growing volume of oil and gas imports, domestic production would offer the country relief on its energy import bill. This would reduce the cost of gas-fired power generation in particular, which is set t o experience growth of 67% between 2013 and 2022 according to BMI 's Power team .

Gas Demand Up From Power Needs
Turkey's Gas-Fired Power Generation, 2012-2022 (Twh)

TPAO reported on June 10 that the Black Sea is already contributing to the country's gas production, with the Ayazli-Akkaya and Dogu Ayazli regions contributing about 350,000 cubic metres to daily output in 2012 - or the e quivalent of 0.128bcm per year and a little more than 10% of Turkey's estimated gas production in 2012. The energy ministry has been courting further investment into its underexplored Black Sea acreage, in hope of raising production levels. Minster Taner Yildiz had vowed to explore its 280,000 sq km of offshore territory, which includes the Black Sea, 'with a fine-tooth comb' in order to fully realise Turkey's offshore hydrocarbons potential. With its financial firepower and deepwater expertise, further investment by ExxonMobil could certainly assist Turkey in these efforts.

This article is tagged to:
Sector: Oil & Gas, Power
Geography: Turkey, Romania, Russia, Ukraine

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