On the surface, Turkey has everything going for it in oil and gas. Onshore, it’s under-explored with one of the top international shale plays—the Dadas Shale—about to get tested for the first time with new technology.
Offshore there is talk of a Black Sea bonanza. The country has good governance, full-package infrastructure, easy access to markets and attractive fiscal terms.
But under the surface—in the ground, where it counts—there has yet to be a big discovery to ignite the country’s energy sector, and the share prices of the Canadian and American juniors active there.
BACKGROUND—Big Oil is All Around Turkey
Turkey’s oil production doesn’t tell much of a story. Production is less than 70,000 boe/d, and Turkey imports 90% of its oil and natural gas needs.
Nor is Turkey about proven reserves: It only has about 270 million barrels of proven oil reserves and 218 billion cubic feet of natural gas reserves, so it isn’t exactly Iraq—which borders Turkey to the southeast.
Turkey is about close-ology and a recently renewed interest by the majors in the tight oil, or shale oil—the “unconventional” stuff.
In terms of close-ology, there is:
1. To the North—Black Sea potential.
2. To the South—27 billion barrel onshore finds like Iraq’s Kirkuk field.
3. To the East—Azerbaijani oil fields.
4. To the West—well, this just gets silly. Look at this list:
a. 22+ billion barrels of oil in Greek waters in the Ionian Sea.
b. 4 billion barrels in the Greek waters of the northern Aegean Sea.
c. An estimated 7 billion cubic feet of natural gas in one well offshore the Greek-held part of Cyprus discovered late last year.
d. 33+ trillion cubic feet of gas discovered in nearby Israeli waters.
And Turkey knows how to lure investors. It offers foreign oil companies a flat 12.5% royalty tax and a 20% corporate tax rate.
Countries compete for private industry exploration dollars, and one key advantage Turkey has over competing nations—like those in the South American countries where a lot of juniors spend money—is speed in the bureaucracy. “Approval processes are clear and rapid,” Patrick McGrath, Chief Financial Officer for Anatolia Energy Corp., told OGIB. Anatolia is exploring for the Dadas shale in southern Turkey.
Turkey has a web of pipelines, refineries and export terminals. Here, there is no question of refinery difficulty or getting product to market.
For pipelines, there is:
- The Blue Stream system transporting Russian natural gas to Turkey under the Black Sea.
- The Baku-Tbilisi-Ceyhan pipeline (the longest), which transits oil from Azerbaijan.
- Kirkuk-Ceyhan pipeline (the largest), which transits oil from northern Iraq.
- The planned Samsun-Ceyhan crude oil pipeline which will run from Turkey’s Black Sea province of Samsun to the Turkish Mediterranean hub at Ceyhan.
Six operating refineries can produce 714,275 bpd—yet there’s only 58,000 bopd of internal production. The southwestern port at Ceyhan is becoming a major regional energy hub, with several new refineries already permitted.Combine this with the most favorable financial terms in the region and the infrastructure to get oil to market, and Turkey should be an energy hotspot. It just needs a big discovery. The majors are working offshore, and majors and juniors are working onshore.
OFFSHORE POTENTIAL—To the North AND to the South
State-owned Turkish Petroleum Company (TPAO) estimates there are up to 10 billion barrels recoverable in the Black Sea.
Turkey’s offshore hopes have been hit as BP’s Black Sea exploration failed to find any oil reserves in the marine regions off the northern Turkish coastline, though exploration continues. In late 2010, Chevron temporarily withdrew and a year later Exxon packed up in two areas after exploration yielded no finds.
But offshore exploration potential to the west remains attractive because of its geography: It adjoins Israeli, Cypriot and Greek waters where massive finds ALSO include:
- 232+ million barrels of oil and another 1.8 trillion cubic feet of gas discovered off Tel Aviv in March
- Turkey has also started exploratory drilling for onshore oil and gas in the Turkish north of Cyprus
This has also created some geopolitical tectonics.
Turkey has threatened war if Greece drills any further into the Aegean. And a deal struck between Israel and Greek Cyprus has Turkey worried that it will never benefit from its “share” of Cypriot gas. The Turks invaded Cyprus in 1974 and the island has since been split between the Greek zone (two-thirds) and the Turkish zone.
In early November, the Turkish authorities warned foreign oil and gas companies that they would be banned from participating in new oil and gas projects in Turkey if they cooperated with Greek Cypriot offshore drilling plans. This is a direct response to the Greek Cypriots awarding four Mediterranean Sea gas concessions.
The problem here is that the Turkish Republic of Northern Cyprus—and Turkey proper—claim the same rights to these concessions. Everyone is eyeing this Aphrodite field greedily as it sits next to Israeli waters that hold gross mean gas resources of more than 33 trillion cubic feet.
Turkey warned military action last year, but Greek-held Cyprus is supported by the United Nations, and the Turkish-held part is not recognized internationally.
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