Oil wells to be drilled to the south of Malta in two years' time are considered to have a lot of potential given that they will be located in areas thought to be similar to Libya's lucrative geological setting.
International oil companies licensed to conduct oil exploration around Malta have spoken about the possibility of striking huge reserves, considered by the Oil Exploration Department of the Resources and Rural Affairs Ministry as being of "giant" proportions.
According to estimates made by the ministry there is a 20 per cent chance of finding a commercially-feasible oil and gas reserve in the areas in question.
Two wells will be drilled between 2010 and 2011 in "attractive" offshore areas and the prospects of each are more exciting than those in the past because the earmarked zones have a different geological setting that is more similar to Libya's.
Malta Oil Pty Ltd, which was granted a licence last July, will drill a well in Area Four while Heritage Oil, whose licence was issued last December, has Areas Two and Seven at its disposal. Heritage Oil will be drilling a well in only one of the two areas.
Leni Gas and Oil plc, which has a 10 per cent share in the well that will be drilled in Area Four, said last week the area may contain some five billion barrels of oil, 1.475 billion of which is probably recoverable. This would be a major field, similar to that of Bouri in Libya.
The Resources Ministry opted for a more cautious forecast, saying that, although the study quoted by Leni was realistic and credible, the estimates were rather high and did not take into account the risk-factor.
"There is still a chance of finding nothing or something that is economically not worth recovering," a spokesman for the ministry's Oil Exploration Department said.
But Malta has nothing to lose in its search for oil because it is the drilling companies that have to pay to carry out the exploration, a venture which costs about $40 million. They will also have to pay income tax on the profits they will make if they find what they are looking for.
As the contracts stipulate, if oil is found Malta will own between 50 and 60 per cent of the reserve. "The more we drill, the higher the chance of making an oil strike that is economically feasible, so more exploration licences are expected to be issued within the next few years," the spokesman said.
Until oil is struck, the government is considering its options carefully, because its bargaining position is rather weak when compared to other neighbouring countries. A country like Libya, which offers oil companies rather riskless ventures, can demand a 90-10 deal in its favour because oil is abundant in the region.
If there is an oil strike in Malta, the government will be able to contract more oil companies and negotiate better deals with them, the spokesman explained.
An oil strike will have a "major" impact on the economy, although this will depend on the global price of oil at the time.
While 2010 is the earmarked year for the drilling to start, it will take two or three more years for the studies to confirm whether the oil is recoverable or not. So by the next general election, Malta may have an oil production industry in its infancy or yet another failed attempt at finding an adequate reserve.
cperegin@timesofmalta.com