COMMERCE Minister Neoclis Sylikiotis said yesterday that talks with a French-Russian consortium over exploration rights in offshore Block 9 were abandoned because the bidders’ estimate of the gas reserves lying within the prospect did not match the government’s assessment.
It’s understood that, under the working formula, the higher the estimate of reserves in a prospect, the greater the government’s share in a production-sharing contract. It appears that the estimate by the Total-Novatec consortium was lower than the government’s – which would have meant a smaller cut for Cyprus once extraction began.
Speaking on condition of anonymity, government sources said yesterday that under ENI-KOGAS’s offer on Block 9, the state’s share could now go up to 70 per cent. By comparison, the share for Block 12 (with US firm Noble Energy) is “around” 60 per cent, depending on the operator’s costs.
On Wednesday the Cabinet announced that the state would commence negotiations with the Italian-South Korean joint venture ENI-KOGAS for Block 9, after talks with the Total-Novatec did not progress as desired. In addition, negotiations are to be launched with Total E&P Activites Petrolieres (a French company) for block 10. Until now, no negotiations had taken place with any interested party on this block.
The move raised some eyebrows, as the French-Russian consortium had initially been picked for Block 9 despite its bid being ranked fourth or fifth. According to press reports at the time, Total-Novatec’s bid had scored around 50 points short of the top-ranked bid submitted by ENI- KOGAS.
At the time, the government insisted there was nothing untoward in changing the ranking of the bids, stating that other parameters – such as national security – were taken into account. Now, the government has gone back to the bidder who had obtained the highest score in the first place.
It’s also understood that, on Block 10, Total’s bid on was top-ranked, followed closely by ENI-KOGAS.
Sylikiotis said that during a meeting on Monday with representatives of the Total-Novatec consortium, “it emerged that further progress could not be achieved and the negotiations were terminated by common consent.”
He added: “Because we felt it important to maintain Total’s strong presence in the process, to ensure this we opened talks with them on Block 10.”
The minister denied that talks with Total-Novatec had crashed and burned: “It is up to each company to say how it assesses this or that block.”
He also dismissed suggestions that the consortium was disqualified because the signature bonus it offered for Block 9 was too low; a signature bonus pales in comparison to the amount the state stands to make from actual exploitation, he explained.
“What matters the most in the contracts is the stake of the state. It’s possible that in the final contracts Cyprus could secure some of the highest percentages in the world, perhaps reaching 65 to 70 per cent,” he said.
In early January the ENI-KOGAS people will be back on the island for talks on Block 9, while at the same time negotiations will start with Total on Block 10.

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