Update on the Cyprus Oil & Gas Industry

Oil Gas Cyprus

Cyprus is an island with less than 1 million inhabitants located at the northernmost tip of the African plate, which in the Middle East area contains 65% of the world oil deposits. Following speculation over many years that there may be vast amounts of natural gas in Cypriot territorial waters and the June 2010 discovery of 453bn cubic metres of useable gas in the Leviathan gas fields in Israel, the Cypriot drilling finally begun in 2012 by the US-based energy company Nobel Energy in the zone known as Block 12 (Aphrodite field), an 800,000-acre (1,250-square-mile) area in the Cyprus Exclusive Economic Zone (EEZ) southeast of the island and only 34km from the Leviathan gas fields.

Industry Overview

The discovery of significant natural gas reserves in Block 12 of Cyprus and the nearby Tamar and Leviathan fields in Israel has indicated enormous petroleum and natural gas potentials in the region, deeming the circumstances for exploitation and production of oil and gas in Cyprus extremely positive and attracting great international interest from major energy providers. The Republic of Cyprus published in February 2012 requests for bids in the second round of tenders for offshore gas and oil exploration concessions in the official journal of the European Union.

The Cypriot government is offering concessions to Blocks 1 to 11, and Block 13, located to the south of the island inside the island's 51,000-square kilometre EEZ. When Cyprus published its first tender for offshore gas exploration in 2007, Noble Energy was the only company to bid. Cypriot officials were confident that the new tenders would draw far greater attention following the proven natural gas discoveries.

In January 2013 an ENI- KOGAS consortium was formed with licences for blocks 2, 3 and 9. Total E&P was issued with licences for blocks 10 and 11 in February 2013. Both ENI - KOGAS and Total plan to begin exploratory drilling during 2014. Noble Energy will be conducting further exploratory drilling in a new structure of Block 12 of Cyprus’ EEZ that it operates with a working interest of 70%, Delek Drilling and Avner Oil Exploration having each a 15% working interest in Block 12.

ENI-KOGAS will be drilling in Blocks 2, 3 and 9 of Cyprus’ EEZ in the third quarter of 2014, followed by Total that will be drilling in Blocks 10 and 11 of Cyprus’ EEZ in 2015.

The Government of the Republic of Cyprus continues its efforts regarding the infrastructure required for landing the gas in Cyprus and liquefaction for export.
Building an onshore LNG terminal would allow Cyprus to play the role of an energy hub, processing gas from neighbouring countries to export markets. An LNG export terminal would also allow Cyprus to generate revenue from the sale of gas to export markets. Also it has to be noted that an LNG terminal would provide the island the flexibility to reach lucrative markets regardless of their geographical location.

The International Energy Agency (IEA) predicts global gas demand will rise to about 140 Tcf by 2020 from 117 Tcf in 2012 (IEA, 2012). Current commercial analysis suggests that 9–10 Tcf of the additional 23 Tcf of demand will be in the form of LNG.

Summary of advantages

Cyprus has a number of comparative advantages that have contributed towards the Island becoming an International and Shipping Centre.

  • Member of EU 
  • Well developed socio – economic infrastructure
  • Stable, reputable political and legal system
  • Taxation advantages (Please refer to Baker Tilly tax guides) 
  • Has low set up and operating costs
  • Has double tax treaties with more than 45 countries
  • An active stock exchange
  • No stamp duty on ship mortgage deeds or other security documents
  • Efficient quality provision of services by the Department of Merchant Shipping
  • Highly educated and professional individuals who offer high and top quality services in broaden areas, such as legal, tax, audit and advisory services.

Regulatory Authority

The exploration and exploitation process is the responsibility of the Energy Service of the Ministry of Commerce, Industry and Tourism.

  • As a member of the EU, Cyprus has aligned its energy policy with the acquis communautaire (cumulative body of EU laws) and transposed all relevant EU Directives into national law. The Hydrocarbons (Prospection, Exploration and Production) Law 4(I) 2007 (Hydrocarbons Law) transposes Directive 94/22/EC on the conditions for using authorisations for the prospection, exploration and production of hydrocarbons, into national law.
  • In addition, the Republic of Cyprus ratified in 1998 the United Nations Convention on the Law of the Sea ( UNCLOS ‘82 ). A number of agreements have been signed between Cyprus and its neighbouring countries.

Taxation of Oil and Gas projects

At present, there are no specific tax laws governing this newly business section.

Therefore, taxable profits are taxed under the normal corporation tax rates where taxable profits are determined under a framework of deductions for expenses incurred wholly and exclusively for the purpose of trade.