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- 1. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm UPSTREAM DEVELOPMENTS IN THE BLACK SEA AND THEIR GAS INFRASTRUCTURE IMPLICATIONS 1
- 2. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm GLOBAL SNAPSHOT 2 In international investment climate over the last 12 months • 2017 Oil and Gas Trends – execs are optimistic, but extremely cautious; • The industry has survived tough years with weak demand and low prices; • Brent crude was up around 90 percent in 2016, to USD 50 per barrel — they are still well below the USD 115 of March 2011; • Growing number of projects can break even at oil prices in the high USD 20s (Statoil’s Johan Sverdrup field in the North Sea); • Capital expenditures are expected to increase by 7 percent in 2017 (E&P Spending Survey of Barclays); • Private equity is likely to have a bigger hand in the industry: U.K.’s North Sea: Siccar Point Energy’s acquisition of OMV’s assets and Chrysaor buying divested assets from Shell • The future activity - focused on OPEC countries and the U.S; • Other regions: Mexico (deep water – COOC, Total, BHP Billiton, Chevron, ExxonMobil, Inpex);
- 3. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm BLACK SEA OVERVIEW 3 The upstream market in the Black Sea • Interest from majors: Total (BG); Shell (TR, BG); OMV (RO, BG); Repsol (RO, BG), ExxonMobil (RO), Lukoil (RO), etc. • “The addition of Shell to the companies exploring offshore Bulgaria offers a long- term boost to upstream potential” (BMI Research); • “Total has made a deep-water oil discovery in the Black Sea, Bulgaria, opening up a new play” (Offshore Engineer); • "Starting next year, a new important natural gas sources of 4 billion cubic metres a year will be commissioned, namely the natural gas discovered in the Black Sea. From that moment on, Romania virtually becomes an exporter, because the new structure will generate a surplus that exceeds normal demand in Romania…" (Chairman of Romania's National Energy Regulatory Authority (ANRE) Niculae Havrilet). • “The Black Sea Oil and Gas (BSOG) company discovered in the Black Sea between 10 and 20 billion cubic meters of natural gas and the production could start in 2019” (Mark Beacom, CEO of BSOG). • “Especially this year, we will take important steps to address exploration and drilling issues, particularly in the Black Sea…" (Energy and Natural Resources Minister of Turkey Berat Albayrak).
- 4. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm INFRASTRUCTURE IMPLICATIONS - PCIs 4 PCIs are focused to the most promising parts of Black Sea – Romania/Bulgaria: - BRUA (Romania-Hungary- Austria transmission corridor) project – EIA; - Balkan Gas Hub – Feasibility Study; - Chiren UGS expansion; - Expansion of the Bulgarian TSO system; - TANAP studies financing
- 5. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm EXPLORATION IN BULGARIAN WATERS – TOTAL, OMV & REPSOL Success of the largest 3D seismic exercise in the Black Sea – Bulgarian public procurement/contractual support; First deep offshore well in Bulgaria – Bulgarian regulatory/environmental support prior and during the works; The most expensive exploration project in Bulgaria to date – Legal support for the delivery below budget and on schedule; Legislation changes during implementation – Legal challenges and successful recognition; Preparation for the Second well - Legal aspect of data interpretation / environmental and contractual focus; Extension and Commerciality. The project Khan Asparuh was started in July 2012: Total (40%), Repsol (30%) and OMV (30%); The area of the block covers 14,220 sq. km. Contract with the Bulgarian Government – obligation to drill two exploration wells. First well – summer of 2016; Total has made a deep-water oil discovery in October 2016 5
- 6. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm EXPLORATION IN BULGARIAN WATERS – SHELL Successful completion of the Exploration agreement negotiations – Bulgarian regulatory and contractual legal support; Acquiring the seismic data - Dealing with various challenges / support of the local community / CSR; The international synergies - Inter- Governmental and public international law assistance for potential synergies; Changes to the Exploration agreement – possible approaches and lessons learned; Next steps and potential challenges – Assistance with the regulatory and administrative support. Royal Dutch Shell concluded exploration activities on Bulgaria’s Black Sea shelf in January 2017, Shell holds the licence for the 1-14 Silistar block, which covers about 6900 square km; The company will analyse the data collected in 2016 over a period of six months; Mr. Alexander Kayes of Shell was quoted by Sofia Echo saying that the initial results were “encouraging”. 6
- 7. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm EXPLORATION AND PRODUCTION IN BULGARIAN WATERS – PETROCELTIC New production concession - Kavarna East field was discovered in 2010 (9.6 Bcf) – Legal support for final tie-in completion in 2018; Kaliakra concession agreement – Legal support for the extension of the production term beyond the initial 7 years of production; Kavarna and Kaliakra concession agreements – Out-of-court discussions with the Bulgarian Government over “minimal production volumes”; Galata Exploration block – Potential extension – legal aspects; Galata Gas Storage Project – Part of the Bulgarian Energy Strategy to 2020. Petroceltic is an international Oil & Gas company, headquartered in the UK with operations in Algeria, Egypt, Bulgaria and Italy. The Company, whose shares were formerly admitted to trading on the AIMS and Irish Stock Exchange, was subject to a restructuring in June 2016. The Petroceltic Group is now private, owned by an Investment Funds managed by Worldview Capital Management (Cayman Islands) with associated operations in the UK and the USA 7
- 8. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm EXPLORATION AND PRODUCTION IN ROMANIA – CARLYLE’s RECENT DISCOVERY Final Investment Decision in 2017 following the conclusion of Front End Engineering and Design (FEED) Contract for Midia Gas Development with Xodus Group in November 2016; Engineering and design for the Midia Gas Development: • Well-head platform (water depth ~ 69,5m); • In-field pipeline (~18km) and offshore export pipeline (~121km); • Onshore pipeline to Gas Treatment Plant (“GTP”) (~5km) and commissioning of GTP; Production depends on some actions that the Government should take to settle the fiscal regime – a common theme in Romania these days. Romania to become a net exporter of natural gas in 2018; Black Sea Oil & Gas SRL, wholly owned by Carlyle International Energy Partners, is a Romanian based independent oil and gas company; Black Sea Oil & Gas SRL discovered in the Black Sea between 10 and 20 billion cubic meters of natural gas and the production could start in 2019; The total investment by now is 200 million US dollars 8
- 9. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm EXPLORATION AND PRODUCTION IN ROMANIA – EX 30 Trident block of LUKOIL LUKOIL will continue to explore at the EX30 Trident block where, according to preliminary estimates, the natural gas reserves exceed 32 billion cubic meters; There have been ongoing debates over the country's taxation of the industry, with new regulation on the issue raising investment concerns. 32 mature oil fields ended operation over the past five years as they lost commercial viability; as the same trend is estimated to continue in the next few years, Romanian Government is considering a new approach to the industry. Regional integration and interconnections LUKOIL, PanAtlantic and Romgaz discovered large deep-water gas field offshore Romania in 2015; Concession Agreement with the Government of Romania of 2011; LUKOIL's share is 72%, PanAtlantic Petroleum owns 18% and Societatea Nationale de Gaze Naturale Romgaz owns 10%; The Lira-1X well is located at a distance of about 170 km (90 miles) from the coast, where the depth of the sea is about 700 meters; The well was drilled to a depth of 2,700 meters. 9
- 10. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm EXPLORATION AND PRODUCTION IN ROMANIA – NEPTUN DEEP BLOCK Exxon and OMV Petrom estimate Black Sea gas deposits at 100 billion cubic meters; The activity in the Black Sea deep water area is of a frontier, pioneering nature, involving high investment risks and therefore requiring a stable investment framework; Romania plans to increase royalties for oil and gas produced from the current 3 per cent to 13.5 per cent; Exxon and OMV Petrom just decided to gave up Midia Deep (ex Sterling) to focus on Neptun Deep. Final investment decision is expected for 2018. Exxon and Petrom (OMV) - started exploration in the Neptun block in 2011; So far Exxon and OMV invested USD 1.5 bn in the block. 10
- 11. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm UPDATE ON TURKEY “The western part of the Black Sea is one of the most promising hydrocarbon bearings in South East Europe. The likelihood is that there is much oil and gas to be retrieved from the Black Sea, and some companies are bolder than others at putting their money into exploring.” (Offshore Technology); In March 2017 the seismic detection vessel "Barbaros Hayrettin Paşa," belonging to the Turkish Petroleum Corporation, has started shooting seismic in Samsun, Ordu and Giresun in the Black Sea. Turkey plans to perform deep-sea drilling and seismic exploration of oil and natural gas resources in the Black Seas over the next years. In 2014, TPAO and Shell began a joint USD 300m drilling project 100km off the coast of Istanbul. Turkey and Shell remain confident of their long-term projects. TPAO alone has invested around USD 4bn in offshore oil exploration in the Black Sea. The exploration block of TPAO and Shell is adjacent to the Silistar block in Bulgaria currently explored by Shell; International publications suggest further interests of majors in the region. 11
- 12. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm BLACK SEA – DISCOVERIES AND INFRASTRUCTURE 12 West Black Sea region – Romania / Bulgaria / Turkey – the most promising part for oil and natural gas discoveries with majors actively involved over the last years; This region is the main focus of the EU PCIs in the gas sector – interconnectors, UGS facilities and expansion; Southern gas corridor, assistance to the TSOs; Countries in the region put the oil & gas exploration on the top of their political agenda; Challenges: • Geo-political risks: the pol & gas majors were the first to abandon their projects following the situation with Crimea; • Issues with the national legislation: tax challenges (Romania); unreasonable sanctions (Bulgaria); local exploration ambitions (Turkey); • Lack of sufficient regional integration.
- 13. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm CMS – ONE OF THE LARGEST GLOBAL LAW FIRMS 13
- 14. Eurasian Natural Gas Infrastructure Conference | 31 May 2017 CMS Firm Kostadin Sirleshtov Partner, CEE Head of Energy T +359 2 9219910 F +359 2 9219919 kostadin.sirleshtov@cms- cmck.com CMS Cameron McKenna LLP Landmark Center 14 Tzar Osvoboditel Blvd Sofia , Bulgaria Languages English, Bulgarian Relevant experience Advising Melrose Resources and Petroceltic on the Galata Exploration Agreement and Production Concessions in the Black Sea. Advising Total/OMV/Repsol on their successful bid for Han Asparuh block and deep-water exploration in the Black Sea. Advising Shell on their successful bid Silistar block and exploration in the Black Sea. Kostadin Sirleshtov is a partner at CMS Sofia and Head of Energy for CEE. His particular area of expertise is in conventional, nuclear, renewables, oil & gas, infrastructure, projects, PPP, public procurement, underground resources. He has worked as the Chief of the Minister’s cabinet for the Ministry of Energy and Energy Resources. Kostadin has a vast experience in the conventional power and electricity sector. He has represented clients, including renewables organisations, in negotiations with the Bulgarian Government, National Electricity Company and the Electricity Transmission System Operator. He has also advised major international oil & gas prospecting and exploration companies in Bulgaria on various onshore and offshore projects. In addition, he is particularly focused on advising renewables companies (in relation to wind, hydro, solar and biomass projects) on the development, operation and/or sale of their projects in Bulgaria, including on litigation matters. Kostadin is ranked as one of the top Bulgarian energy experts in the world's leading legal directories Chambers & Partners and Legal 500. Education LLM (Hons) Law Faculty Sofia University, EU & UK law diploma, Cambridge University Memberships Bulgarian Bar Association, International Bar Association Lectures and Publications List Available upon request 14
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