Oil & Gas Exploration and Production A case on the Ioannina Block

2017-05-30
Enthusiastically

In an attempt to boost the country’s Oil and Gas Exploration and Production (E&P) industry, in 2012 the Greek Government approved its Licence Agreement for hydrocarbon exploration and exploitation on the Ioannina block located in North-Western Greece – a few miles away from the Albanian border. This region, although challenging in terms of morphology holds significant potential according to the company whose assignment is to research the region for what may be a forefront discovery.

This month Tekmon Geomatics (TG) speaks to Dr Costas Tzimeas (CT) from Energean Oil & Gas, a private E&P company with a strong track record of over 30 years in the field. In 2014, Energean was granted the license to explore the Ioannina block for potential hydrocarbon discoveries.

TG: Tell us about Energean and its main activities.

CT: Our main activity is to explore and produce hydrocarbons. Energean was established in 2007 but our affiliate company is Kavala Oil, which has been producing oil from the Prinos block in Northern Greece for over thirty years now. Currently, we’re actively involved in E&P in Greece, Israel and Egypt and we’re always on the lookout for new collaborations. We participate in public tenders in countries like Montenegro and South-East Europe has become a strong area of interest for us. We’re optimistic about the future in this region.

TG: For those of us who don’t know, what are hydrocarbons?

CT: Hydrocarbons is essentially what we call ‘fossil fuel.’ In other words, hydrocarbons are combustible organic materials that we burn for energy. Those in liquid form are known as crude oil and those in gas form are known as natural gas. From a geological perspective it’s taken millions of years to produce hydrocarbons. The primary material is always organic matter which stems from the remains of animals or plants. When adding exceptional climatic circumstances and underground temperatures and pressures, these decayed organic remains are converted to hydrocarbons that subsequently are expelled from the rocks they were initially buried in and migrate into porous rock formations. Hydrocarbons are eventually locked in these porous rock formations and hydrocarbon reservoirs are formed. As a whole, we first need rocks rich in organic material also known as source rock, the right temperature-pressure circumstances and migration to a porous rock formation that can trap hydrocarbons. All these factors have to co-exist in order to offer evidence of existing hydrocarbons. Hydrocarbons are then produced and processed in refineries. In terms of the Ioannina block, exploration will be a challenge because of its geological and tectonic settings. There are many risks because commonly used geophysical and non-geophysical methods have proved to be relatively unsuccessful in similar environments.

 

TG: Despite the challenges due to the area’s land morphology, what opportunities did you foresee that prompted you to bid for the block’s exploration?

CT: Exploration in Ioannina isn’t new. The Italians made an attempt at shallow drilling after the Second World War. Following that, a consortium between the Greek and French governments also drilled in the area and most recently (in the late 1990s early 2000s) there was Enterprise, a Canadian company later absorbed by Shell, which had also made an attempt but to no avail. So the area is well known in terms of hydrocarbon potential. There is even surface evidence of hydrocarbons near river beds and elsewhere. So, there is no doubt that hydrocarbons exist. The challenge it to discover the correct subsurface structures, find the right deposits, in sufficiently large quantities and all this within budget to make it worthwhile.

TG: How did Energean gain exploration permission?

CT: The Ministry of Environment, Energy and Climate Change put forward an Exploration and Production tender for the Ioannina block in 2012. The bidding round, proposal assessments, Greek Parliament approval and granting of all permits took a little under 3 years. Since October 2014, Energean is the block’s official sponsor. It wasn’t quick but it’s been almost 20 years since the area was last explored so the Ministry took additional precaution, especially in terms of environmental protection measures. Right now, we’re at the stage of implementing our technical and financial work programme precisely as stated in our bid.

TG: Tell us about your work programme?

CT: Our work programme will last 7 years and will include 3 exploration phases. Phase 1 is research only. At the beginning of phase 1 we have to submit an environmental baseline report which will outline how we will preserve and protect the environment. If drilling were to take place, this would inevitably happen in Phase 2.

The plot we’re exploring is 4,200 square kilometers. We’ve trekked the entire plot. I can tell you that the terrain is quite dense with a rough relief. Now, it’s obvious that we will not explore every inch of the plot because this isn’t financially viable. Our research will show which areas are worth exploring. Phase 1 will allow us to focus on the areas we deem of interest in other words, where we find evidence of trapped hydrocarbons. By the end of 2015 we’ll have a better idea of worthwhile locations for later seismic surveys that will point us to the right reserves.

TG: How will the local area benefit?

CT: If we discover and are in a position to exploit deposits, the community will benefit from additional income stemming from taxation and royalties, while new jobs will be created. 25% tax on profits is standard national tax, among which 5% goes to the local community. During the exploration phases we will require the services of local businesses and labour, therefore, creating work opportunities for the local community. It is estimated that, for each new job that is directly created, three more are created in the wider economy. In turn, a new project builds new skills in the local workforce and local staff will benefit from professional training, while there is also the chance of discovering and producing natural gas in an area which is not approached by Greece’s National Transmission System. We also foresee Energean sponsoring local events and community projects. We look forward to a long term collaborations with local authorities and the local community.

More importantly, we want to reassure the local community that out work programme will not have any consequences on the natural environment. At Energean, we take environmental issues very seriously. Our baseline environmental report and impact assessments are extremely important to us and we take every measure possible to avoid conflict with the local communities. We have an excellent track record as shown with our exemplary Prinos block where we haven’t had any problems for almost 35 years of oil and gas production. We’ve recruited local companies and individuals and have taken all measures to build a sound reputation. It’s all in good management and it’s entirely our responsibility to raise awareness and inform the local area of any possible risks to put their concerns at ease.

TG: Is the plot your exploring private or public ownership?

CT: It could be both. The government has leased the plot to us for exploration purposes. We don’t own the land that we’re exploring. We pay rent per square meter per year for permission to explore. There is legislation that will entitle land owners compensation for their land if deemed fruitful. But we’re talking about minute sized areas, perhaps a few acres.

TG: What quantities do you foresee in terms of oil and natural gas deposits?

CT: It is really early to say, but we are encouraged from the fact that in neighbouring areas proven or even producing oil fields exist, i.e. the Patos Marinza field in Albania, from which the Canadian firm Bankers Petroleum produces circa 20,000 bbls daily. Our objective is to discover carbonate rocks, such as limestones known as a ‘reservoir rock’ that contains hydrocarbons. Granted, that is an additional challenge because the tectonics of fold-and-thrust belt regimes such as in Ioannina, and Epirus in general, isn’t quite as straightforward. Similar landscapes exist in the Carpathian region of Romania and in the Middle East such as Iraq. It’s very difficult to reach our desired goal but deposits, as demonstrated in the aforementioned regions, may be so significant that they’ll reward the effort many times over. There is still a long way ahead.

TG: Upon discovery of Oil and Gas, how do you plan on making it commercial?

CT: As long as we pay our dues to the Greek government on production, as we have been doing for the last 30 years with the Prinos block, the company is at liberty to market the product as it wishes – within or outside the country’s borders or both. For example, we have signed a 6-year off-take agreement with BP for the entire production from Prinos. Of course, it all depends on daily production. The Oil and Gas industry in Greece is heavily regulated. Our production is strictly monitored by the relevant authorities so that all royalties incurred are paid to the state as agreed in our contract’s terms and agreements. It makes sense; the Greek government has to receive a piece of the pie, through taxation and disbursement of royalties. Otherwise we wouldn’t be able to produce. That’s the agreement. We are monitored on production only. Hence we pay tax and royalties on production.

TG: Today the price of oil has reached historically low levels. How will this affect Energean’s activities?

CT: There is an impact. However this will not affect our work programme for the Ioannina block. Low prices hit our profits. In terms of the Ioannina block, we’re still at the exploration phase. If we were to drill, it would be no less than three years from now. At that point, it’s difficult to predict what prices will look like. Oil prices have a cycle of 6-7 years. For the Ioannina block, the current drop in oil prices may be a benefit because we’re still exploring. For our other blocks, where we’re producing, we’ve been affected.

TG: The morphology of Epirus is not exactly flat. How do you plan on building well site locations?

CT: There are solutions, expensive ones, but they exist. If we have to drill on a rough topographic landscape we may drill from further afield, so at a distance. Drilling isn’t only vertical; it can be done horizontally as well, especially when we’re dealing with challenging topography. There are strict environmental laws around drilling and so the drilling itself does not leave any footprints. The only foot print that may exist, and that is if we reach a production stage, will be on the few acres where we’ll have to install facilities. The foot print is minimal. Of course, the company’s main responsibility is to keep the public well informed on all drilling techniques and their impact, however minor, on the environment. That is assuming we even reach that stage.

TG: Would hydraulic fracturing, also known as fracking, used religiously in the U.S., be practiced?

CT: There is no legislation regarding the use of hydraulic fracturing in Greece. We will use conventional methods.

TG: Optimistic?

CT: Yes. If you’re not optimistic about a project of such magnitude then it would be best not to get involved. There is evidence of deposits so we’re not going on a hunch. The question we need to answer is the one posed by the Ministry: Will deposits be significant enough to prove that the area is worth investing in? That’s our assignment.

 

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