Tethys Deal Tip of Investment Iceberg for Georgian Oil and Gas Production
A new deal with Tethys Petroleum could be a harbinger for Georgia’s potential as a hydrocarbon producer, according to energy specialists.
Georgia, long promoted as a transit state for the region’s gas and oil, could be on the brink of a “game changer,” if investments from Tethys and other international investors meet expectations, noted Georgian Association of Petroleum Companies Chief Executive Officer (GAPC) Cliff Isaak.
The Black Sea country has a history as a minor energy producer: during the Soviet Union, at peak production, Georgia was churning out a reported 70 thousand barrels of oil a day from sites near Tbilisi, the country’s capital. The site has reportedly produced 210 million barrels of oil to date.
Based on figures distributed during the annual Georgian International Oil, Gas, Infrastructure, and Energy Conference (GIOGIE) in Tbilisi, gas and oil production continues, albeit at a slower pace.
In 2012, the country produced just over 49 thousand tons of oil, noted Deputy Head of the Agency of Natural Resources at the Ministry of Energy and Natural Resources of Georgia Giorgi Tatishvili during a presentation on Georgia’s potential as an energy producer. Gas volumes are also small: Georgia produced 10 million cubic meters in 2012, according to the CIA World Fact Book, just a shadow of the 588.9 billion cubic meters produced in Russia.
But, new technology and new investments have the potential to pump new life into the sector.
During his panel appearance at GIOGIE, Tatishvili said $68.3 million was invested in the energy sector in 2012 and the government is actively studying the country’s potential to determine how much oil and gas could be produced and where.
Georgia Minister of Energy and Natural Resources Kakha Kaladze was quoted by Business New Europe pledging $84 million from the state coffers to support oil and gas exploration.
By 2016, Tatishvili said, the country will complete 2D and 3D seismic surveys on 2000 kilometers of onshore terrain; there are no immediate plans for Black Sea basin exploration.
The survey results, he noted, will allow the government to “answer questions about…Georgia’s potential.”
Even without final, country-wide, results, investors are already showing interest: in addition to Tethys, investments have also been made by Czech-based MND and Indian Jindal Petroleum. Jindal pledged to invest $100 million after reportedly finding oil on one of the five lots it holds.
The MND investment, GAPC’s Isaak noted, is potential even larger than the Tethys deal. MND has pledged to invest €77.4m over three years, with a tentative option to increase investment to €1.47bn over the next seven years if production meets expectations.
Isaak said new technology and strong production sharing agreements with the government are encouraging more investment – a situation that could radically shift Georgia’s position as an oil and gas importer to a producer.
“There is oil… when you pull it out, it is the same as the Azerbaijani crude, really good quality. It is light crude,” he said.
“And Georgia has good … production sharing agreements…So people are finding it makes sense here with the regime.”
For Tethys, now is the right time to revisit Georgia’s potential.
“Our principal reason for returning to Georgia was obviously the potential we see in Georgia for oil and gas,” noted Sabin Rossi, Vice President of Investor Relations at Tethys Petroleum Limited.
“However, the recent improvement in the business climate brought about by the new Georgian administration was a key factor also and we see their business-like, transparent and focused approach to attracting business to Georgia in sectors such as energy to as being very important.”
Rossi added that limited investment in the sector following the Soviet’s successes had a negative impact on production. Today, however, new technology could open the way for bigger finds, he said.
“Our views on the potential for Georgia have been verified to a large extent by our independent resource auditors… who have assessed data on the Georgian project … and estimated mean unrisked recoverable resources of approximately 3 billion barrels of oil,” Rossi explained.
“Clearly Georgia is currently a net importer of energy both in terms of oil and gas. Georgia’s consumption today is relatively modest and it will certainly be possible, with even limited success, to go some way towards self-sufficiency for the country…”
Molly Corso