The legal framework for Oil and Gas in Cyprus is an amalgamation of European Union Law and International Law.
As a Member State of the European Union (‘EU’), since 2004 and a signatory to the United Nations Convention on the Law of the Sea (UNCLOS) since 1988, Cyprus needs to abide with all the respective obligations prescribed both in EU and International level.
Following the regulations stipulated in UNCLOS regarding the delimitation of maritime boundaries, the Republic of Cyprus in 2004 passed a law defining and regulating its Exclusive Economic Zone (‘EEZ’), with The Contiguous Zone Law 2004 and The Declaration of the EEZ Law 2004. These provide that “the Republic has sovereign rights for the purposes of exploring and exploiting, conserving and managing the natural resources… of the waters superjacent to the seabed and of the sea bed and its subsoil”. Furthermore, the exploration or exploitation of the non-living resources in the EEZ is subject to the permission of the Council Of Ministers or any other competent authority as designated by law.
For the purpose of delineating its EEZ, the Republic of Cyprus sought to enter into a number of bilateral delimitation agreements with its neighbouring countries.
In February 2003, a delimitation agreement was signed with Egypt in accordance with the International principle of median line, as specified in UNCLOS, along with a Framework Agreement concerning development of cross median line hydrocarbon resources and a Confidentiality Agreement in May 2006.
In January 2003 the Republic of Cyprus entered into an agreement with Lebanon although this has not been ratified.
In December 2010, a delimitation agreement was concluded with Israel which was ratified and entered into force in February 2011.
The most significant domestic laws governing the area of hydrocarbon activities are the Hydrocarbons (Prospecting, Exploration and Exploitation) Law of 2007 (Law No. 4(I)/2007) (Hydrocarbons Law) and the Hydrocarbons (Prospecting, Exploration and Exploitation) Regulations of 2007 and 2009 (No. 51/2007 and No. 113/2009) (Hydrocarbons Regulations), which transpose Directive 94/22/EC into domestic law.
Types of Licenses:
The Republic maintains the sovereign rights over its resources while it can grant authorisations to Oil Companies for Prospection, Exploration and Exploitation.
A prospection licence is granted for a period not exceeding one year and it involves all activities related to locating hydrocarbons other than drilling.
An exploration licence involves any appropriate method for exploration including drilling and may be renewed for up to two terms, each term not exceeding two years, following an application submitted to the Cyprus Council of Ministers, Upon each renewal of an authorization for exploration, the holder relinquishes at least 25% of the initial surface of the area that was included in the authorization.
When a hydrocarbons discovery is made, an exploitation licence is granted for a period of 25 years which may be renewed for an additional period of ten years, after another application to the Council of Ministers.
The above authorisations are subject to different provisions including but not limited to the requirement fOR consent of the Minister for any transfer of authorisation rights, abandonment requirements and maintenance requirements.
Process of Application:
Applications are accepted after the publication regarding the commencement of a licensing round in the Official Gazette of the Republic and/or the Official Journal of the European Union at least 90 days before the closing date for applications.
The first licensing round was announced on 15 February 2007 and resulted in the granting of both an exploration licence and an exploitation licence for Block number 12 to Noble Energy International.
The discovery of hydrocarbons with an estimated gross resource range of 5–8 trillion cubic feet in Block 12 of the Cypriot EEZ opened up the prospects and motivated the government to initiate a second licensing round in the beginning of 2012 with twelve more offshore blocks made available for bids. The second licensing round received a strong and increased interest from a number of worldwide companies and consortiums and it resulted after negotiations to the award of exploration licenses for five Blocks.
On 24 January 2013, the Republic of Cyprus signed contracts granting the exploration licences for Blocks 2, 3 and 9 in a Consortium led by the Italian ENI and the South Korean KOGAS. On 6 February 2013, the contracts for the granting of licenses for the exploration of blocks 10 and 11 were signed with French TOTAL.
Transparency and non-discrimination are safeguarded through the selection process with different mechanisms specified by the EU. However, it is vital to mention that the State retains the right to make access to these activities and exercise their discretion taking into account considerations of national security, public safety, public health, security of transport, protection of the environment, protection of biological resources, the planned management of hydrocarbon resources or to the payment of a financial contribution or a contribution in hydrocarbons.
Typically, a contract is to be concluded between the Government and the successful candidate that seeks authorisation for the license award to be effective. For this purpose the Ministry of Commerce, Industry and Tourism (MCIT) has published a “Model Exploration and Production Sharing Contract” for this purpose in 2007, with an updated version in February 2012. The Contract would be subject to negotiations but the general structure including the terms would be the ones of the Model Production Sharing Contract.
In 2008 the Energy Service prepared the Strategic Environmental Assessment (SEA) concerning the Hydrocarbon activities in the EEZ of Cyprus, in accordance with the provisions of the Assessment of Impact on the Environment from Certain Plans and/or Programmes Law, which is harmonized with Directive 2001/42/EC. The licensees are bound to follow and comply with the results and recommendations of this assessment, which seeks to “identify, describe and evaluate the likely significant environmental effects of implementing hydrocarbon exploration and exploitation activities”. Thus the applicants should include a brief note stating the activities of exploring hydrocarbons and their effects on the environment including ways to handle them.
An article from Ms. Marina Theodorou, LLM in Oil and Gas, Litigation.