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EXPLORATION LEGISLATION INCENTIVES AND ~DROCARBONRESOURCES DISTRIBUTION IN GREECE

DR. E.CONOPHAGOS, DR. TH.NOUSSINANOS, DR.P.KALOFONOSPUBLIC PETROLEUM CORPORATION OF GREECE (DEP - EKY S.A.)

ABSTRACT

Potential targets for hydrocarbon exploration in Greece areobjectives geologicaly rather complex, but economicalypromising. Most of them can be classified as relatively highrisk - high reward targets.Taking into account this considerations and the recent evo-lution of the international oil and gas market, the existingGreek legislation for exploration and production activitiesin the country (Law 468/76) has to be modified, in order tobecome more flexible and more attractive to foreign inve-stent.

We have considered and suggested the main points to bemodified in a new and more flexible legislation frameworkthat will allow the country to establish a long term explo-ration strategie, for areas insufficiently explored andclassified geologicaly as moderate to high risk, but wheresignificant petroleum discoveries could be lo~ated.

INTRODUCTION

It is well known that oil exploration is a risky businessand requires constant and costly effort.Nevertheless our country chose to involve itself directly orindirectly in exploration and development activities - usingits own national company DEP S.A - governed by the hydrocar-bons law 468/76. This law was ratified by the Greek Parlia-ment during a period of relatively high oil prices and underthe influence of newely oil and gas discoveries in the NorthAegean Area.

Through this law, Greece tried at the time (1980-81) to openoil exploration to private companies, but for political andother reasons law 468/76 was in fact never applied.

From 1975 to 1992 exploration activities were in practiceconducted only by the National oil Company (DEP), whichinvested limited amount of money (200 MM $).

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For this reason our country remains one of the few relative-ly unexplored areas of the Mediterranean .. The use of oldtechniques and the complex geology of Greece, has in thepast inhibited large scale exploration works.

Terms and conditions of the Law 468/76 are today not flex-ible, very tough, not compatible with Greece geologicalcomplexity and with today's market situation and evolutionin Eastern Europe or in the ex-Soviet Union teritory. Themodification of this law in order to give incentives becameour days a must.

1. GEOLOGY AND HYDROCARBON RESOURCES DISTRIBUTION

The last 18 years exploration activities in the Aegean andthe Ionian Sea lead to the development of two commerc~al oiland gas fields (Prinos and South Kavala) and on the dis-covery of two other marginal oil and gas fields (W. Katako-Ion and Epanomi). The Prinos and South Kavala fields ~n theNorth Aegean are producing today about 18,000 bbls/day and15 MMCF/day of gas (recoverable reserves being 100 HHBBLSand 2 BCM sm3 of associated gas).The H/C exploration activities in Greece remain even todayin relatively low level, due to the geological co p ~cationof the formations associated with it.From a geological point of view the prevailing aspectsconcerning the geodynamic situation of the Hellenides arebased on the model of plate tectonics.

This system consists of four orogenic cycles (Cimerian,Eohellenic, Mesohellenic and Neohellenic cycles).Within this sequence, the orogenic activity migrated fromthe internal to the external regions of the hellenic arc.

From the migration of the orogenetic arc, as an example,that causes the change of the plate tectonics position ofeach basin, the type and the 'size of the tectonic deforma-tions have been determined through the time. The relevantstructural styles, as they appear in each basin and regionwere also identified.

The continuous study of the geological structure of theHellenides, based on the up to date geological, geophysicaland borehole results, has definetely improved the knowledgeof it. Thus, the H/C exploration is reoriented to moreacceptable models in such a way that the classification ofrisks concerning the corresponding targets ensures theselection of areas of higher prospectivity.

The sedimentary areas and relative targets of H/C explora-tion showed in the included map (see page 3.) are:

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MAP

PROMISING

OF GREECE

AREAS FOR

SHOWI NG THE

HYDROCARBON

MOST

EXPLORATION

., ~1) .•..36· 39·

.~ .~

15· 3e"

NO SOU:-

25· 2.· 27· 28·20· 2'· 22· 23· H·

• OIL SHOWS • O'L OR GAS FIELDS

ARE ••• 5 FOR EXPLORATION

WATER DEPTH SURFACE

OHSH ORE -- _ ,"5.000 Km2

OFFSHORE 0 - 200 m '4.000 Km2ZOO - 500 m - 6'.000 Km2

500 - 1000 n'I ,...., 51.000 Km2

CU MU l A TI VE 22'.000 Km2

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a) The overthrusts belt of Triassic. toonshore and offshore in the west part ofabove mentioned sequences the depth, thegeological substratum are unknown.Petroliferous formations are considered

Tertiary ageGreece. In thenature and the

to be:i) Clastic sediments of Tertiary ageii) carbonate deposits of Mesozoic and1ii) Triassic evaporites and pre-triassic substratum

b) The molassic and post alpine basins such as Mesohellenic trench, Katerini - Thermaikos, Limnos, Xanthi-Komotini,

Alexandroupoli Samothraki and Orestias that werecreated during the Mesohellenic orogenic cycle, datedfrom Middle-Upper Eocene to Oligocene.

c) The post alpine basins and the corresponding sedimentary areas, that created during the Neohellenic cyclein the Miocene. Basins of the style can be found eitherin the Aegean Sea (Prinos field) or the Ionian Sea.

The State Oil Company (DEP-EKY S.A.) has mainly explored therelatively shallow both onshore and offshore targets.The most recent estimations concerning the H/C potential ofthe country lead to deeper targets considered as high prior-ity targets. More specifically, in~ the western Greeceunder the actively deformed zones, where the model of con-tinuous repetition of thrusting may includes high sizereservoirs, but difficult to locate and not easy drillable.Such types of targets have not yet been explored in WesternGreece, but they have been successfully explored in theneighboring country of Italy.

The geological outlook, including specific sedimentary areascharacteristics and sea water depths distribution,is sug-gesting that exploration targets and their possible relativeproduction cost distribution is widely spread through theCountry. In cetain areas possible drilling targets can bedefined mostly as relative high risk - high reward targets.

For these reasons the initial Law 468/76 hasliberalised in certain main points, in order toflexible and more attractive to foreign investment.

to bebe more

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2. MODIFICATION OF LAW 468/76

Following a detailed study of the hydrocarbon legal frameworksin E.C. and other Countries, and taking into consideration thefollowing facts :

a) The regulations of E.C., concerning the integrationof Internal Market in the field of exploration andexploitation of oil and gas,

b) The draft of European Energy Charter (HydrocarbonProtocol) r

c) The results derived by the experience and explorationworks, performed in Greece over the last 30 years.These results led to the conclusion that the explorationrisk in Greece should be considered rather high,

d) Our intention to have a modern hydrocarbon law toattract Foreign Investors in relatively high riskareas,

e) The compliance of the Greek hydrocarbon law to theexisting law applicable in E.C. Countries,

f) The international practice in the procedure forallocating exploration and exploitation permitsto foreign investors,

g) The necessity to apply the non discrimination principlesto all foreign investors,

i) Safety measurements and protection of the environment,

h) To allow more flexibility to the state owned companyin order to develop a new role through possibleparticipation in joint ventures with other parties,instead of keeping a monopoly status,

technical, economical and legal main points to be modified havebeen considered and suggested.

3. SUGGESTED BASIC ELEMENTS OF THE MODIFICATION

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Among other provisions, the modified law must include inprinciple the following:

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Exploitation work, commitments

Submission within six months detailed- exploitation andproduction program.within the same time limit CONTRACTOR must form a Companywith head office in Greece, which sole object shall be tomanage on CONTRACTOR's behalf its contractual rights andobligation, on a not profit basis.Rest commitments similar to those accepted in the internationalpractice.Imports supplies

CONTRACTOR and its sub-contractors may purchase and import fromabroad all necessary machinery and equipment in general, as wellas spare parts and materials.

Duration of Exploitation25 years.In case of gas discovery, the 25 year period can be extendedfor all time necessary to install facilities for disposingthe gas to the market.

Bonus PaymentsNone.

Government Participation

The State or the State Company may participate in a jointventure with the CONTRACTOR. The percentage and detailsof participation will be specified in the call for tender.

Royalty payments

There is not minimum requirement. It will be open for bidding.An excalation based on the increamental daily production oron the profitability index may be preferable. Royalty is taxdeductible.Government Share (Production sharing)

The minimum percentage of Government Share will be specifiedby Presidential Decree. Share will be open for bidding. Anescalation based on the increamental daily production maybe preferable. Government share is tax deductible.

Income TaxIncome tax between 40-50%. No other additional tax is applied.CONTRACTOR's exploitation expenses account can be debitedwith expenses of exploration works within the contractualarea.

DepreciationAll expenses including exploration expenses are depreciated.Depreciation tables will be issued by Ministerial Decree.It is more likely that five years straight line or declining

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balance depreciation could be applied, with an upper limitportion of the yearly gross revenues.

Sale Prices

True and reasonable prices will be applied as established inthe International Market, for similar quality hydrocarbons.

Adjustment of the prices may be applied, due to variationsof the specific gravity, the sulfur content, transportationcost and sale conditions.Domestic supply Requirements

Only in case of war or emergency situation, contractor isobligated to sell to the state all or portion of its shareof production.Settlement of DisputesAll disputes shall be settled exclusively with arbitrationconducted in Athens by an arbitration court of threearbitrators, two of which shall be apPointed by the parties,the umpire being appointed by such two arbitrators andin case of disagreement of the latter, umpire shall beappointed by the International Chamber of Commerce whichresides in Paris.

Safety Measures, Environmental ProtectionAll relevant regulations will be specified by PresidentialDecrees, according to international practice. A speCialreserved antiCipated to cover the removal of the facilitiesat the end of the production. Such reserved may be treatedas tax deductible.Other ProvisionsSimilar to those applied in international exploration andexploitation Agreements.

CONCLUSION

One must conclude that from the existing hydrocarbon explorationdistribution possibilities in Greece, incentives must be givento foreign investors through a new modified Greek hydrocarbonlaw. It is important for the Country to adjust accordinglyits petroleum policy to the new international environment,which now applies to exploration and production activities.

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