The Economist Conferences 10 th Cyprus Summit November 4 th, 2014 Hilton Park Nicosia, Cyprus Natural gas commercialization in Cyprus Noble Energy International Ltd 1
Dead Sea Transform Eastern Mediterranean ERATOSTHENES HIGH Cyprus Leviathan LEVANT BASIN Tamar Dalit NILE DELTA Noa Mari-B 2
185 Km NAHR AL LITANI RIVER JORDAN Major Levant Basin Discoveries Recent Eastern Mediterranean Gas Discoveries KYRENIA NAHR AL ASI NAHR AL ASI KTIMA Cyprus LIMASSOL Vasilikos NAHR AL ASI NAHR AL ASI NAHR AL LITANI Lebanon Block 12 Syria Cyprus A Leviathan Tamar Dalit JORDAN Israel HADERA TEL-AVIV JORDAN Jordan Mari-B ASHDOD ASHKELON DEAD SEA 3
Levant Basin History Commercial activities commenced with Noble s Mari-B natural gas discovery in Israel in 243 m WD, in 2000 (1 TCF) production started in 2004, supplying domestic power generation Ultra-deep-water era started with Tamar discovery in 2009, in 1,676 m WD (about 10 TCF, currently producing up to 1 BCFD) Leviathan discovered in 2010 in about 1,700 m WD, about 20 TCF, currently working to sanction Phase I Development Aphrodite discovered in Cyprus Block 12 in 2011, also in about 1,700 m WD; appraisal well in 2013 (Press release: 3.6 to 6 TCF, mean of 5 TCF) Exploration drilling by ENI currently taking place in Block 9 Additional drilling planned in 2015 in Cyprus EEZ 4
Levant Basin Commercialization Currently about 40 TCF have been discovered in Israel and Cyprus Tamar has commenced production (subsea tieback to platform, pipeline to shore) Leviathan Phase I, targeting domestic and regional sales, planned to sanction in 2015 Other fields being appraised Commercialization concepts under consideration: Onshore LNG FLNG CNG Regional pipelines Petrochemical/fertilizer projects 5
Cyprus Gas Commercialization Commercialization concepts: Concept Pros Cons Onshore LNG Max market reach, High Capex, requires large expandable resource FLNG Max market reach, High Capex, unproven not expandable technology CNG Lower Capex, faster Limited market reach cycle time unproven technology Regional pipelines Lower Capex, faster Single buyer, least cycle time flexibility Petrochemical/fertilizer Grow local industry Usually requires cheap feedstock 6
Levant Basin Hurdles Physical Water depth (>2000m to Cyprus) Rugged, tectonically active seabottom Distance to shore (can be >180 kms) Commercial Small Cyprus domestic market requires creation of an export project to justify high cost of development Insufficient gas resource to date for onshore LNG Emerging technology issues for FLNG and CNG Lack of existing infrastructure Physical (distribution grids, etc.) Regulatory 7
Commercializing Cyprus Gas Key factors: Unknowable: Oil and gas prices World economic trends Political trends Knowable (on a relative/estimated basis): Resource dimensions Project elements and costs Projected timing Economics of a project combines the above to provide one or more scenarios. 8
Economic Factors Economics are very sensitive to: Time value of money the cost of delaying a project (e.g. slow regulatory regime) Front-end incentives to offset heavy front-end Capex (e.g. corporation tax holidays) Project execution (adhering to the plan, staying within budget) 9
Financing of Energy Projects Generally, high-capex oil and gas industry projects require some portion of outside financing International lenders look for: Operator with good track record Government contract with strong stabilization clauses Sufficient gas resource to cover gas supply contract during the plateau production phase An investor-friendly legal and regulatory environment Alignment between upstream and midstream parties Well-structured GSPA s 10
Environmental, Health & Safety (EHS) and Training EHS Regulatory environment in Cyprus is evolving to fully address oil and gas industry activity REMPEC (Malta) facilitating implementation of offshore regulations EU Safety Directive being extended to East Med EU has signed Offshore Protocol for the Med Establishing Environmental Emergency Management Preparedness and Response capabilities in East Med Training In early stages of development for knowledge of the oil and gas industry Government contract-mandated training programs being implemented University programs specific to the industry have been initiated 11
Cyprus Opportunities Formative hydrocarbons industry can draw on more established projects in the surrounding regions (e.g. Egypt, Israel) Good probability of significant quantities of gas being found with additional drilling Possibility of deep oil New hydrocarbon projects can develop an accretionary industry hub in Cyprus (with significant job creation) Long-lived hydrocarbon projects can assist in providing economic and political stability to the region, as well as meaningful cash flows to Cyprus over decades of time. 12