Yesterday afternoon four offshore blocks totalling 5715 square kilometers were awarded by the Government of Malta to the oil company Malta Oil Pty Limited for the exploration and production of oil and gas under a Production Sharing Contract. The company is a subsidiary of Mediterranean Oil & Gas Plc with head office in Perth, Australia, and operations in the Mediterranean region including Italy, France and Tunisia.

The Minister for Resources and Rural Affairs, the Hon. George Pullicino as Minister responsible for oil exploration, signed the contract on behalf of the Maltese Government.

The offshore areas granted are Blocks 4, 5, 6 and 7 of Area 4, located to the south of the island. The blocks were initially assigned to the company in March 2005 under an Exploration Study Agreement (ESA). During the term of the original agreement the company could proceed subsequently to a Production Sharing Contract which includes the drilling of a firm well.

The term of the Production Sharing Contract is of 30 years divided into an intial period of 6 years allocated to exploration, and a second period of 24 years allocated for development and production in case petroleum is discovered in commercial volumes.

The principal financial obligations of the company which were already established in the ESA original contract signed in 2005 are:

(i) A signature bonus of US$ 0.5 million to be paid to the Government on signing of the contract;

(ii) Expenditure of at least US$ 5.0 million in the first three years of the contract;

(iii) Annual rentals on a rising scale payable to the Government starting at US$ 120,000 per year;

(iv) Annual administration fee of US$ 100,000;

(v) Annual scholarship and training contributions of US$ 50,000 for the first 2 years and US$ 100,000 thereafter.

The work programme for the first three years consists mainly of the drilling of at least one firm well. The company has carried out extensive studies in the three ars and have also acquired a new seismic survey. This enabled the identification of a number of drillable prospects in an area that has not yet been drilled. The first well to be drilled will be on one of these prospects.

If petroleum is discovered, the company is contractually bound to produce it as efficiently as possible in line with good oilfield practice. It would retain part of the petroleum produced to recover the costs while the remaining part of production would be shared on a pre-agreed scale between the company and the government. On that part of profit petroleum allocated to the companies as a reward for the risk taken, a 35% income tax is also payable to the Government.

Should petroleum be discovered, the company would, after apprasing such a discovery, prepare a Developoment Plan for Government’s approval. Such a plan would consist mainly of:

(i) Technical and engineering plans for development;

(ii) A detailed economic, social and environmental impact study;

(iii) A study on Government’s needs to develop and improve its capacity to monitor, supervise and carry out development and production related activities.

An Advisory Committee is to be set up between the Government and the oil company to act as a forum to expedite the execution of the exploration, development and production prgorammes. A budget is to be prepared by the company so that offshore installations, etc., would be dismanteld and removed if these are no longer required for oil production, in order to ensure safety of navigation and to minimize damage to the environment. The contract also includes other major environmental safeguards.

There are also provisions for reference to experts and an arbitration tribunal for dispute resolution. This being a Maltese contract, Maltese Law is applicable.

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