Issue link: https://maltatoday.uberflip.com/i/258814
14 BUSINESS & FINANCE O n the 16 June PKF shall be attending an inter- national oil and gas conference in Aberdeen Scotland hosted jointly together with a reputable foreign or- ganiser who is a specialist in the field. It is expected to attract more than 250 investors who will be encouraged to invest sufficient resources into Mal- ta's nascent hydrocarbon sector and maritime support services. In a wider context, the conference is gearing up to sow the seeds which will see Malta grow into an offshore hub as has been the case for Aberdeen which we all know leads as a specialist pioneer in this sector. The subject of drilling for oil has been an enigma since the Borg Oliver administration and in the past 50 years there were various attempts to strike oil or gas but so far there has been little success. Still, there is a feeling of déjà vu among islanders that in consideration of the high costs to drill for hydrocarbons, some would prefer that the government 'goes slow' on promoting the sector yet continues to put its money where its mouth is…that is, supporting the public expenditure including the heavy investment in free healthcare and pensions. Others disagree and want to risk more capital as in the past very little was spared. So let us seriously reconsider the option of oil prospecting together with upgrading our facilities to service oil rigs and so on… which, if successful, can prove to be a panacea. Medserv director Anthony Duncan has said that Malta could well become a "mini North Sea" if all the oil and gas activity being planned in the Mediterranean takes off. Starting with the massive decommissioning works at the North Sea one can hope that Malta will be able to win part of the massive works that will be created. Decommissioning in the North Sea is a huge opportunity. Over the next 30 years, this market is estimated at £30-35 billion, and once we organise ourselves Malta can also export the know-how and experience in engineering and sheet metal skills that have been acquired over the decades as a major ship repair yard. To meet the scale of this decommissioning programme, our maritime industry needs to expand and push innovations that will attract part of the growing need to repair abandoned rigs and other unused equipment. It is an opportunity which cannot be missed – i.e., sharing the engineering tasks of decommissioning projects in the North Sea – and this fits perfectly within the vision of government with its policy to sustain the maritime sector by offering Marsa's former shipyard for international tenders. With such facilities, Malta can also provide support services to oil and gas activity in Libya, Tunisia, Egypt and Southern Italy. The possibilities for growth are existent and the long-term macroeconomics can be determined once government succeeds in attracting local operators to share their decommissioning overload. However, obtaining this information, or at least improving our understanding of short- term, operator-specific requirements, is crucial so that supply-chain companies can meet the right people and discuss with them the right topics at the right time, hence the scope of the PKF event. Wisely, the government has been careful not to raise expectations or to start cultivating a feel-good factor. We would be better equipped to pursue the maritime hub once we are privy to the good news of a new oil discovery. This is now a common occurrence and oil/gas is being found in ever-larger quantities in many places around the world. Yet not all oil is accessible on land or in shallow waters. One can find some oil deposits buried deep under the sea floor and of course improved technology such as subsea drilling is available to drill not only vertically but also in an omni-direction. In our case, the latest seismic study on offshore Area 4 which comprises four contiguous license blocks in the southern Maltese offshore area, are encouraging. The good news is that the Area 4 is not part of any contestation by neighbouring countries and the acreage contains mature prospects analogous to proven plays in the Libyan Sirte basin, and field analogues in Tunisia. According to media reports, the latest interpretation shows prospective oil resources of about 300 million barrels. One area – nicknamed 'Hagar Qim' – could hold as much as 130- 200 million barrels recoverable and is expected to take approximately 60 days to drill this year to depths of 2,500m. In passing, one reflects how Cyprus and Israel have both succeeded in drilling for offshore gas in the Levant and closer to us we know that the central Mediterranean is an intra basin where countries such as Greece, Italy, Libya and Tunisia have been active in offshore drilling. Part of our problem remains agreeing on the delineation of the continental shelf boundary. Recent ongoing attempts are trying to persuade such countries to accept joint drilling on contested areas, which now seems to be in progress. *** Allow me to digress momentarily from the subject of oil and maritime issues and to tap into the post- Independence route to industrialisation. The cost of modernising the economy, and continued sustainment of a welfare state by diversifying into new sectors, did not come cheap, but the island is now on the cusp to reaping benefits from such important reforms. Such an upgrade is a testament to hard working politicians who have succeeded in avoiding reaching out for an EU bailout, having at once also forestalled suffering the indignation of failed banks. We can never forget that other Mediterranean countries are paying the price for past profligacy and are, in the process, undergoing tough austerity measures which Malta has so far been spared. Progress has been registered last year as evidenced by increase in importation of Capital or Investment Goods, which contribute significantly to economic growth. Extracts from the NSO's figures confirm that since the middle of 2013, imports of Investment Goods have reflecting a turnaround with a strong increase of 38% in the third quarter and 77% in the last quarter of 2013. It is also encouraging to see an increase in credit extended to households, which included lending for house purchases. Naturally we have to explore new avenues for growth and the government is championing the task to revive the island's nascent maritime facility. The initiative by PKF to showcase the island as a mini-Aberdeen where it can service other offshore operators in the Med using its maritime facilities will generate extra revenues and jobs. Readers do remember with a nostalgic feeling the various attempts which grudgingly failed to produce oil wells of any commercial value, and that failure was bitter. Yes, those were difficult times but the ice with our neighbors seems to have slowly started melting as a memorandum of understanding to explore joint drilling was signed last year. Nobody can blame the man in the street for displaying a high level of cynicism on the chances of a lucky strike this time around. However, according to trained geologist Dr Peter Gatt the issue needs to be scientifically assessed in the light of new facts and improved drilling technology. Quoted in MaltaToday he said, "There is no reason to believe that Malta doesn't have its own oil reserves. In fact the indications I have seen suggest the opposite." Perhaps this is due to the recent study of 3D seismic reports which yielded what he describes as 'definite hydro-carbon indicators', mostly in the form of gas emissions. "In the rest of the world, such indicators would be interpreted as signaling a high probability of an underlying oil or gas field," he goes on. "Strangely, however, in Malta the same indicators were interpreted in the opposite way: i.e., as an explanation for Malta's failure to find oil." Dr Gatt also questions why Malta is not conducting enough research of its own. At this juncture it is important to note that geologists are the experts responsible for conducting scientific surveys to succeed in their quest to find the right conditions for an oil trap – the right source rock, reservoir rock and entrapment. One augurs that the conference in Scotland will help usher in a new era of investment into our offshore acreage. Readers who may be interested to participate may contactKinga Warda on kwarda@pkfmalta.com George Mangion is a partner in PKF an audit and business advisory firm gmm@pkfmalta.com maltatoday, WEDNESDAY, 12 FEBRUARY 2014 Turning Malta into a mini- Aberdeen George Mangion Medserv director Anthony Duncan has said that Malta could well become a 'mini North Sea' if all the oil and gas activity being planned in the Mediterranean takes off