Georgian Oil and Gas Corporation: Hope for the Future

Upstream foreign investors are ready to invest millions of dollars in energy exploration in Georgia, a injection of capital that could bolster the traditionally transit country’s ability to produce oil and gas, according to the Davit Tvalabeishvili, the head of the Georgian Oil and Gas Corporation (GOGC).

Tvalabeishvili, who was hired to lead the corporation in November 2012, noted that Georgia was a minor energy producer during the Soviet Union. A lack of investment in exploration, however, has stifled local production since independence.

“[P]roduction of oil and gas in Georgia is not very high at this moment. But I think we have very good hopes that in the next two or three years there are some plans that upstream investors in Georgia spend 100s of millions of dollars for exploration and we believe that this will result in discoveries and good results,” he said in an interview with Natural Gas Europe on May 17.

“Of course our prospects are not as high as neighboring countries but for Georgia this could be a very promising development. The investment they are going to make over the next few years is significant.”

The Georgian government has worked diligently over the past decade to diversify its energy partners, slowly shifting from complete dependence on Russia for natural gas to becoming a major energy transit country with a multitude of suppliers.

Energy Minister Kakha Kaladze raised concerns in May when he floated the idea of resuming gas imports from Russia; he later revised his statement, underscoring that the government is not in discussions with Moscow.

Tvalabeishvili noted that currently Georgia receives all the natural gas it requires from Azerbaijan’s SOCAR the Shah Deniz consortium, and other sources. In addition to overseeing gas and oil supply chains, GOGC is also working with the government to utilize the country’s extensive hydro power resources for electricity production.

GOGC facilitated a feasibility study for the Namakhvani hydro power plant, a new, 300 megawatt hydro power plant in western Georgia; while initially the corporation was tapped to pay for the plant, Tvalabeishvili said the new management decided to wait and evaluate the project once the study is completed.

“Georgia has a lot of potential in hydro power in the country and we want to use it in full. We understand that the production of oil and gas in Georgia is not very high, that is why we need to develop our hydro resources. Our involvement is one part of it, we want to also contribute to this development,” he said.

“Originally it was envisioned that some funds from the euro bond will be used for the project, but that project needs additional investigation, especially environmental investigations. I think the Eurobonds will be used for other projects and we are now discussing these opportunities with the government and the Partnership Fund (the state-run investment fund that owns GOGC).”

GOGC received a five-year, $250 mn Eurobond on May 2012. The previous government had also reportedly considered the idea of an initial public offering (IPO) for the GOGC, but Tvalabeishvili said there are no plans for an IPO at this stage.

Fitch Ratings and Standard & Poor affirmed GOGC’s BB-/stable in April.

Tvalabeishvili noted the score, the same as the GOGC received last year, is an indication the corporation is on the right track.

“The fact that they have established the same rating for us…the same rating we received last year… means we are doing the right steps and we are moving in the right direction,” he said.

One potential project for the GOGC is a new thermal power plant; Tvalabeishvili said negotiations are ongoing and a final decision should be made mid-summer. Other future priorities could include an underground natural gas storage facility for surplus gas once Georgia receives additional shipments from the second phase of the Shah Deniz gas fields, planned for 2018-2019.