New Drilling Could Put ATP Oil & Gas Way Ahead
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It was just a few months ago when Noble Energy (NYSE: NBL) announced its discovery of large gas reserves in the Tamar and Leviathan fields off the coast of Israel. It also mentioned how it would like to connect its oil fields off Israeli coast to the 12th block of the Exclusive Economic Zone, located off the coast of Cyprus. I had suspected that Turkey would not keep quiet in the wake of these developments. In 1974, Turkey had invaded and annexed a portion of Cyprus and called the northern part of Cyprus its own. This is a situation that has been deemed foul by most international organizations.
Turkey, however, would have none of it, and claims the entire island for itself. In fact, it already runs a government in the northern region of the Cypriot island, and calls it Turkish Republic of North Cyprus (TRNC). I had believed that the Israeli oil fields would encourage Hezbollah and the Lebanese government to saber-rattle and speak of war, or fire a rocket or two into Israeli territory. That didn't happen.
However, Turkey is enraged at the idea of all the world's major companies landing in Nicosia to sign deals with the legitimate and internationally recognized government of Cyprus. The Shimshon well in the Levant Basin of offshore Israel has been targeted by Houston-based ATP Oil & Gas (NASDAQOTH: ATPAQ.PK), which recently announced that it will begin drilling. The region is expected to hold more than 35 trillion cubic feet of oil, and would make ATP superbly rich. Israelis of course are delighted with this prospect and have promised all kinds of support to ATP's oil exploration activities.
Something tells me that this support also includes military and navy protection to these oil drilling ships. These oil drilling ships may come under attack from Turkey and Lebanon, and it is quite possible that both these countries begin a diplomatic campaign against oil exploration in the Mediterranean. To rub salt into Turkish wounds, many Israeli companies bid for Cypriot gas licenses. Turkey has threatened participating companies to act with 'common sense' and not indulge in misadventures with Cyprus. They have threatened that none of the companies that deal with Cypriot government would be allowed to utilize Turkish territories for logistics, oil exploration or business purposes.
In short, any company that would bid in Cyprus would effectively be banned from doing business in or with Turkey. Naturally, this has scared away several Russian, Chinese and French companies. Israelis are not the kind of people to be sacred of Turkey and have continued to stick around in Cyprus. Israeli companies also have the advantage of linking gas fields off the coast of Cyprus and off the coast of Israel with pipelines that span hundreds of miles. Cyprus needs these pipelines desperately in order to transport gas and oil to the rest of Europe. It is something to possess oil and is something else to transport and sell it to other countries. With Turkey blackmailing everyone involved, it would be impossible for Cyprus to transport oil to Europe without the assistance of Israel.
I am more interested in observing how ATP behaves in these circumstances. The company announced profits last financial year and is expected to grow significantly thanks to its oil discovery of the coast of Israel. It fact, ATP has begun drilling in the aforementioned Shimshon well. Usually, people tend to concentrate on ATP's activities in the Gulf of Mexico. Most of us forget that it has huge operations outside American territory as well, and that includes eastern Mediterranean. It also competes with Noble Energy, which until now was the sole player in the eastern Mediterranean. I believe this is a very good move indeed as the kind of cooperation that Israelis have offered to ATP can ensure that it makes a lot of money off these deals.
With years of experience in offshore drilling, ATP will certainly turn these oil fields into money making factories. Competitors like Chevron (NYSE: CVX), who is busy in Brazil, Australia and Japan will need to consider ATP's revenues as well, as it seems to be very promising in the next few months. The only impediment could come in the form of Turkish threats which I believe are mostly empty. Even if Turkey can cause harm in the form of denying doing business with companies that maintain a relationship with Cyprus, the damage can do minimal harm. With the backing of Israel and most NATO nations, ATP and other companies that are involved in drilling in Cypriot and Israeli maritime territories can expect to remain safe and unharmed.
ATP does not have much to worry about anyway. It has the support of Israel in the form of navy and logistics, and it also has the support of NATO countries in the form of administrative treaties. Turkey may pose problems to not only ATP but also Noble, BHP Billiton and Royal Dutch Shell, which are all involved in the region in one way or another. When all companies are going to be affected by Turkey's irrational policies, one need not particularly be apprehensive about ATP's future. The Shimshon well will help ATP to consolidate its Mediterranean interests while its Gulf of Mexico projects continue to make profits. Investors would gain from keeping a watch on ATP's plans and projects as I think this is one company that has an optimistic future in 2013.
As for Turkey, it would help it better to lay claims in a diplomatic manner with the U.N., instead of flexing its muscles and hampering oil exploration activities. Turkey is going to experience significant public and business image issues if it continues to intimidate its neighbors in the quest of becoming a regional power.
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