The Greek soccer team surprised a lot of critics by reaching the Round of 16 stage in the 2014 FIFA World Cup, and the squad only narrowly missed a trip to the quarterfinals after losing in a shootout with Costa Rica. Despite a weak team that performed very poorly in its first two games, the Greek squad demonstrated grit and determination, and a foundation on which the team can build.
The analogy is far from perfect, but the Greek economy has surprised critics and shown some green shoots as well. Although suffering a major employment crisis, the country has avoided a catastrophic default and currency crisis, which was a very real possibility not too long ago. Yields on Greek 10-year bonds have hit a multi-year low in 2014, dropping below 6% in June 2014, down from the ruinous levels of near 40% in March 2012. This year may mark the first year of growth for the Greek economy since 2007.
A feeling of optimism has finally hit Athens, and Greek Prime Minister Antonis Samaris, in a moment of bravado, even compared his country favorably to another country facing an economic crisis. “Things are now improving,” Samaras said to the European Parliament on July 2, 2014. “In a few years, I believe this is going to be a bad memory. If you want the opposite example of Argentina, a very rich country that went bankrupt back in 2002, 12 years later, today, they are still in a crisis, on the verge of a collapse again, much more suffering and no hope -- this is what we did not want…
The Greek soccer team surprised a lot of critics by reaching the Round of 16 stage in the 2014 FIFA World Cup, and the squad only narrowly missed a trip to the quarterfinals after losing in a shootout with Costa Rica. Despite a weak team that performed very poorly in its first two games, the Greek squad demonstrated grit and determination, and a foundation on which the team can build.
The analogy is far from perfect, but the Greek economy has surprised critics and shown some green shoots as well. Although suffering a major employment crisis, the country has avoided a catastrophic default and currency crisis, which was a very real possibility not too long ago. Yields on Greek 10-year bonds have hit a multi-year low in 2014, dropping below 6% in June 2014, down from the ruinous levels of near 40% in March 2012. This year may mark the first year of growth for the Greek economy since 2007.
A feeling of optimism has finally hit Athens, and Greek Prime Minister Antonis Samaris, in a moment of bravado, even compared his country favorably to another country facing an economic crisis. “Things are now improving,” Samaras said to the European Parliament on July 2, 2014. “In a few years, I believe this is going to be a bad memory. If you want the opposite example of Argentina, a very rich country that went bankrupt back in 2002, 12 years later, today, they are still in a crisis, on the verge of a collapse again, much more suffering and no hope -- this is what we did not want to happen in Greece.”
But recovering fully from its economic depression will require new sources of growth, and Greek officials are turning to the country’s potential oil and gas reserves. The Greek government announced at a London Conference on July 1 that it would invite major oil and gas companies to conduct drilling tests in Greek waters. To attract major oil companies, Greece will cut tax rates for oil and gas companies from 40% to 25%. “We have done this in order to incentivise our investors to invest in the future of Greece,” Ioannis Maniatis, Greece's Energy Minister, said at the conference.
Greece, which only produces miniscule levels of hydrocarbons, has historically been heavily dependent on imports of oil and gas to meet domestic needs. Last year it spent $21.2 billion on imported fossil fuels, equivalent to 8.6% of the country’s entire GDP.
However, the enormous discovery of natural gas off the coast of Israel in 2010 has sparked interest in potential hydrocarbon reserves elsewhere in the Mediterranean.
That year, Noble Energy (NYSE: NBL) announced the discovery of the Leviathan field, which holds an estimated 17 trillion cubic feet of natural gas just off the coast of Israel. The field is expected to become operational in 2017, and is expected to produce in excess of the entire country’s gas needs. In January 2012, Noble made another significant discovery of natural gas, this time in Cypriot waters. Noble estimated its find to be in the range of 5 to 8 trillion cubic feet, but has since been revised to 3.6 to 6 tcf.
While the prospects of oil and gas in Greek waters are immensely speculative at this point, Greece believes that it can be just as successful as its Mediterranean neighbors.
Greek Prime Minister Antonis Samaras told a summit of business leaders last December that Greece could hold an estimated 4.7 trillion cubic feet of natural gas. Offshore, the U.S. Geological Survey estimates that the Ionian Sea holds 22 billion barrels of oil, and the northern Aegean Sea holds an additional 4 billion barrels.
Energean Oil and Gas is the only domestic producer of oil in Greece, operating on several offshore fields in the northern Aegean Sea. For example, the Prinos field was first developed in 1973 and production peaked at 27,500 barrels per day in 1985. Output then went into a period of gradual decline, down to only 1,200 barrels per day in 2009.
Energean has since embarked upon a plan to more than double production, drilling new wells to boost pressure. It also upgraded its assessment of total reserves after new wells were drilled. Mathios Rigas, CEO of Energean, said that its sites in the Aegean could continue for another 15 years, revising its resource assessment up by 10%.
But, Greece is also enthusiastic about new sources of oil. To tap new reservoirs, the Greek government wants to attract international oil companies. Greek Energy Minister Ioannis Maniatis presented at the London Conference on July 1 and 2, announcing that the government will auction off 200,000 square kilometers in the Ionian Sea.
Maniatis then held private talks with executives at BP, Shell, Total, and ExxonMobil. The government plans on opening up 20 blocks for auction in the Ionian Sea, including 9 blocks south of Crete, the latter of which is speculated as being the most promising.
Critics argue that the government is knowingly trumpeting a domestic production outlook that is far too rosy. The government would be better off focusing on the leases it has already granted, by helping the leaseholders through the remaining permitting process, some say. Critics also see a government that is desperately trying to find a silver bullet to its budget woes.
Most importantly, the Greek government needs to lay out a clear tax regime for the long haul. “Greece has a habit of changing policies – changing tax rates – not just with oil and gas – everywhere,” Mathios Rigas, CEO of Energean Oil and Gas, said late last year. “There is no way any company is going to sign contracts without knowing what the tax regime is going to be. These are investments that can last for 25 years – they won’t take the risk if next year they say, No more 25 percent tax – now it’s a 40 percent tax.”
On the other hand, the latest announcement that the Greek government would cut the tax rate for drillers down to 25% should provide a shot in the arm for Greece’s moribund petroleum industry.
The government will officially publish a notice of the auction in the coming weeks, and will seek bids in the latter half of this year. The government has launched several attempts to kick start oil and gas exploration in its waters, but has failed thus far. The level of interest by the oil majors should provide an indication into whether or not this time will be different.
