Turkish Petroleum mulls partnerships for multi-billion Black Sea gas project

Ercan Ersoy February 08, 2021

(Bloomberg) --Turkey’s state-owned oil and gas company is considering partnerships and plans to raise funding this year to carry out work on the biggest natural gas discovery in the Black Sea, according to people with knowledge of the matter.

Turkish Petroleum Corp. has made preliminary contact with several international oil firms, including some of the majors, to jointly produce gas from the offshore field, said the people, who asked not to be identified because deliberations are confidential. The negotiations may not result in any ventures and the Ankara-based company may still go it alone, they said.

The necessary capital investment to produce the gas and deliver it onshore is estimated to be around $3.2 billion, one of the people said. Turkish Petroleum, also known as TPAO, was allocated 13.4 billion liras ($1.9 billion) from the government’s 2021 budget. It isn’t clear how much of that will be earmarked for the Black Sea gas project.

TPAO and Turkey’s Energy Ministry didn’t respond to emailed requests for comments.

The project to develop the Sakarya field will see gas extracted from wells about 175 kilometers (109 miles) off Turkey’s Zonguldak coast. These could produce more than eight times the country’s demand and end its reliance on imports.

President Recep Tayyip Erdogan imposed an ambitious 2023 deadline to start production, when Turkey is scheduled to hold general elections.

An added complication for the Turkish company is the threat of sanctions over Turkey’s intermittent seismic work in disputed waters in the eastern Mediterranean Sea.

Wary of punitive action by the European Union and possibly others, Turkey has recently brought energy affiliates based overseas back into its jurisdiction. It has also made a point of using state-owned vessels for exploration and production activities offshore.

Supply Contracts

The project is pushing ahead as long-term supply contracts, accounting for a third of gas imports, expire this year. Most of the others end in 2025. This means policy makers won’t need to renew all the deals, enabling them to secure better terms for those that are extended.

Existing oil-indexed contracts usually have take-or-pay clauses that result in Turkey paying more for its imports than most European countries.

TPAO, owned by Turkey’s sovereign wealth fund, has partnerships for oil and gas projects with companies including BP Plc and State Oil Co. of Azerbaijan in the Caspian Sea, Russia, Iraq and Afghanistan.

Prior to the discovery -- made by a TPAO-owned vessel -- Turkey had drilled six exploration wells in the Black Sea over the past 16 years with the help of international companies including Royal Dutch Shell Plc and Exxon Mobil Corp.

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