VZCZCXYZ0012
PP RUEHWEB

DE RUEHNC #0675 2291429
ZNR UUUUU ZZH
P 171429Z AUG 07
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC PRIORITY 8083
INFO RUEHTH/AMEMBASSY ATHENS 3909
RUEHBS/USEU BRUSSELS
RUEHLO/AMEMBASSY LONDON 1327
RUEHAK/AMEMBASSY ANKARA 5020
RUEHNY/AMEMBASSY OSLO 0209
RUEHTV/AMEMBASSY TEL AVIV 6410
RUEHEG/AMEMBASSY CAIRO 0244
RUEHLB/AMEMBASSY BEIRUT 4278
RUCPDOC/USDOC WASHDC

UNCLAS NICOSIA 000675 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET ETRD EINV ECON CY
SUBJECT: FEW BIDS FOR EXPLORING OFFSHORE CYPRUS 
 
Ref: 06 Nicosia 1361 
 
Nicosia 120 
 
SENSITIVE 
 
¶1. (SBU) On August 16, the GoC announced the results of bids to 
obtain oil and gas exploration licenses off the south and southeast 
coasts of Cyprus. Despite speculation that the 11 available blocks 
could contain gas and liquids valued up to USD 400 billion and 
strong marketing efforts by the GoC, only three groups entered bids 
on three separate blocks. Bids for two blocks abutting Egypt's 
offshore gas fields were bid by two consortia of companies from the 
UK, United Arab Emirates and Norway (A Cyprus newspaper says that 
the companies that are participating in the consortium are the 
Norwegian firm DNO, the UAE company Larsen Oil & Gas -which also has 
Norwegian ties- and the British Increase Oil Recovery.) U.S. company 
Noble Energy bid on a block bordering Israel's Exclusive Economic 
Zone (EEZ). 
 
¶2. (SBU) An official with Noble told us that they decided to make 
their bid only at the last moment primarily at the urging of their 
Israeli partners in an offshore gas platform within Israel's EEZ. 
The Israelis had purchased seismic data from a sounding taken in the 
area prior to the sounding commissioned by the GoC. The Israeli 
geologists felt that there was potential in the block and the new 
field could be economically viable if it were tied into the existing 
offshore Noble/Israel platform despite the deep water (5000 meters) 
and deep geology of the Cyprus block. Also encouraging Noble was 
Cyprus' status as an EU member, considered a "big plus" because 
"this means laws won't change on a whim." An outstanding issue for 
Noble is the lack of a treaty demarcating the boundary between the 
Israeli and Cypriot EEZs. Cypriot officials told Noble that a treaty 
should be completed "very soon." Comment: Local embassy contacts do 
not seem as certain that an agreement will be reached anytime soon. 
End Comment. 
 
¶3. (SBU) The lack of bids, especially from any of the oil majors, 
has been criticized by opposition media in Cyprus. The reasons given 
by our sources for the lack of bids were 1) political risk from 
strong Turkish and Turkish Cypriot opposition to the process (see 
reftel B); 2) lack of detailed seismic data and, given how busy oil 
companies are looking for deposits, a lack of geologists to analyze 
the data available; 3) possibly a desire by companies to sit back 
and observe the first round of bidding before making a decision and; 
4) the seismic data and results from elsewhere in the region 
indicate a low likelihood for oil (as opposed to gas), and there 
remains a strong preference among oil companies to invest in oil 
assets first. Bidders were found only for those blocks near existing 
operating fields in Israel and Egypt. The Ministry of Commerce has 
already said that it expects the bidding for two additional blocks 
(abutting the Lebanese border) next year to be much stronger because 
3D seismic data will be available for those blocks. This was echoed 
by the local General Manager for BP who claimed his company would be a bidder for those blocks. 
 
¶4. (SBU) Next steps towards actual drilling calls for a 
"Consultation Committee" to consider the bids received and measure 
them against the published Guidance Note for evaluation. The 
Committee will provide its recommendations to the Minister of 
Commerce by December who will then present his advice to the Council 
of Ministers. Noble hopes to enter contract negotiations by early 
next year and intend to send a high level delegation to meet Cypriot 
officials this fall. 
 
¶5. (SBU) Comment: The GoC, helped by a media prone to 
hyperventilation, over-hyped the likely bidding leading to the 
current letdown. Nevertheless, it could be a political positive if 
contracts are signed just before the February presidential 
elections. The bidding specifications allowed only companies with 
the financial and technical wherewithal to bid, preventing bids from 
purely financial players or small wildcatters.  There is a 
possibility that bids could be entered late by firms that wanted to 
see how things went before acting. The Turkish saber-rattling was a 
factor in the lack of bids, but given oil companies' long experience 
dealing with politically dicey situations, this was probably not the 
major reason for the lack of bidders. 
 
SCHLICHER