Shell Agrees Energy Exploration Pact with Turkey

LONDON (Dow Jones Newswires), Nov. 23, 2011

Shell and state-owned Turkish Petroleum Corporation (TPAO) Wednesday signed a deal to conduct oil and natural exploration in the south east of the country and off its Mediterranean coast, the latest move to secure access to potentially lucrative natural gas deposits in the region but one which may further raise tensions with Cyprus.

Shell and TPAO will spend a combined $200 million looking for oil and gas, with both parties expected to share output if the exploration program is successful.

The deal, which still requires government approval, means Turkey is beating a similar path to one initially laid by rivals Israel and Cyprus.

Turkey has become increasingly angered by moves first from Israel and then Cyprus to draw up agreements with each other and other states around the Mediterranean, defining which waters are theirs to drill in. The island of Cyprus has been divided since Turkey's military invaded in 1974, in the wake of a Greek coup. The international community recognizes the government on the Greek half of the island as legitimate, but Turkey does not.

The search for energy turned into a rancorous dispute when U.S. independent Noble Energy Inc. (NBL) began exploratory drilling for Cyprus in mid-September.

However, Turkey's Energy Minister Taner Yildiz has denied that Wednesday's agreement with Shell was agreed in retaliation against Cyprus, telling AFP that the deal was "the result of technical work, which has nothing to do with international speculation."

When asked whether any of the areas it would be drilling in were subject to the territorial dispute, Shell said the company had "not received formal notification of any complaint."

In response to the Cypriot exploratory drilling, Turkey drew up its own agreement defining territorial waters with the de facto government of northern Cyprus. It then sent out a seismic research ship in the same waters that the Greek Cypriot government considers its own.

Cyprus Wednesday announced that it will conduct a second round of offshore licensing in spite of Ankara's objections. "With today's decision, the [Cyprus] government stresses, once again, its determination to exercise, always in accordance with international law, its sovereign rights in the Exclusive Economic Zone of the Cyprus Republic," government spokesman Stefanos Stefanou was cited as saying by AFP.

TPAO's accord with Shell will include the collection of seismic data off the Mediterranean province of Antalya, as well as onshore drilling work in the southeastern province of Diyarbakir.

Shell's head of global exploration and production, Malcolm Brinded, said the deal was "a great opportunity" for both the company and the country. "We are happy to support Turkey in its efforts to increase production," said Brinded.

Turkey is heavily dependent on energy imports, having few current resources of its own and consumption forecast to rise with its rapidly growing economy.

Copyright (c) 2011 Dow Jones & Company, Inc.


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