Cyprus: Hydrocarbon And The Geostrategic Significance Of Cyprus: Financial And Political Aspects

Last Updated: 8 March 2012
Article by Georgia Papa

The recent developments in the shores of Cyprus have attracted the attention of foreign governments, leading energy companies and naturally the attention of international media. The intensive interest that is shown towards Cyprus is justified when considering that another element has been added to the already very competitive strategic position of Cyprus: the discovery of natural gas. Located between Europe, Africa and Asia, the small island of Cyprus has always played an important role in history. Very often referred to as a 'bridge' or 'situated at a crossroad', Cyprus is persistently considered as the route to many trade and industry empires. The island's unique location and the recent advances in the energy sector, if treated suitably can result in major positive effects for both Cyprus and its neighbors.

In late 2011, the Noble Energy Company announced the discovery of 5-7 Tcf of natural gas in Block 12 of the Exclusive Economic Zone of Cyprus. The importance of this discovery is further enhanced by the fact that these are the estimated results from one single Block, whereas drilling in the other remaining 12 Blocks is expected to reveal the existence of additional natural gas deposits and even the existence of oil. The discovery is estimated to worth billions and it is expected to fulfill the electricity needs of the Republic of Cyprus for the next 210 years.

With the second licensing round being already launched, the competition among energy companies is expected to be rigorous in bidding for the remaining 12 Blocks. The attraction of energy companies is estimated to result in the increase of financial investments in the island. These financial investments will require infrastructure, maintenance, support services, financing and banking, and such demands will result in job creation and eventually in the stabilization of the economic environment of the Republic of Cyprus.

The joint exploitation of the region with neighboring countries such as Israel, Lebanon and Egypt, and the cooperation with the abovementioned countries in joint energy projects, will facilitate the exploitation procedure especially in situations where the natural gas or petroleum fields fall across the line separating Exclusive Economic Zones. Cyprus is enthusiastically supporting this prospective cooperation and Framework Agreements are at present being negotiated with Israel and Egypt, while negotiations with Lebanon are expected to be initiated soon.

Licensing procedure for Oil and Gas Prospection, Exploration and Exploitation

The second licensing round for the remaining blocks has been launched and the invitation for all interested parties has been published in the Official Journal of the European Union. The Republic of Cyprus invites all interested persons to apply for hydrocarbon exploration licenses and subsequent hydrocarbon exploitation licenses in the Exclusive Economic Zones of Cyprus. All applications must be submitted within 90 days starting from 11.2.2012 (date of publication in the Official Journal of the European Union) and applications submitted after the deadline has passed will not be taken into consideration.

In 2007, the Government of Cyprus introduced a new oil and gas law fully harmonized with the EU Directive 94/22/EC. This new law, 'Hydrocarbons (Prospection, Exploration and Exploitation) Law', in combination with the 'Hydrocarbons (Prospection, Exploration and Exploitation) Regulations' of 2007 and 2009 form the legal framework which regulates the granting of licenses for the prospection, exploration and exploitation of natural gas.

Submission of Applications and Evaluation of Applications

In order for the applicants to be able to submit their applications, invitations for submitting applications must be published both in the Official Gazette of the Republic and the Official Journal of the European Union by the Council of Ministers. The applicants may then send their applications to the Ministry of Commerce, Industry and Tourism which together with an Advisory Committee evaluate such applications.

According to the 2007 Law there are certain criteria that have to be considered when evaluating the applications. These criteria regard national security and public interest; the technical and economic capacity of the applicant; the proposal presented by applicant demonstrating how the applicant will carry out the activities specified in the license; the price which the applicant is ready to pay in order to acquire the license; and any lack of competence and dependability shown by the applicant in undertakings under a previous license.

The 2007 Law also established safeguards concerning the granting of licenses by imposing specific conditions and requirements that have to be fulfilled. Therefore, licenses for prospection, exploration and exploitation of natural gas may be granted subject to conditions in order to guarantee:

  • The correct execution of the activities allowed by the license;
  • The monetary payment or payment in hydrocarbons;
  • National security, public safety and public health;
  • Protection of the environment
  • Protection of biological and mineral recourses and of national treasures possessing artistic, historic or archaeological value;
  • The safety of transport, installations and workers;
  • The management of hydrocarbons;
  • The need to secure revenues to the Republic.

The above mentioned conditions are imposed in a way so as not to discriminate between applicants. The owner of a license is granted the right to prospect explore and exploit hydrocarbons in the section for which the license is granted subject to any conditions or requirements. The license is initially granted for a time period not exceeding three years and can be renewed up to two periods, each period not exceeding two years.

All licenses will have the form of a model production sharing contract whose particular terms and conditions will be agreed upon by the relevant parties. Once the contract is finalized and the parties mutually agree on its terms and conditions, the contract is sent to the Council of Ministers for consent and for surrendering the relevant license.

Information submitted by the Applicant

When submitting an application for a prospection license, such application must include the following information:

  • The name, address and nationality of the applicant;
  • The applicant's place of incorporation;
  • The method of financing the prospecting activities; and
  • The applicant's prior practice on hydrocarbon prospection.

An application for an exploration license must contain the above information requested by prospection licenses but it must additionally include information concerning the relationship of the applicant with its parent company (if applicable) and its relationship with affiliated persons. And if such parent- subsidiary relationship is in place, the application must also include annual reports, audited balance sheets , profit and loss statements for the past three years, and any other reports which the applicant and its parent company may have filed to the competent authority for capital market and dealings with securities, during the past three years;

Finally, exploitation licenses must include the particular information stated below:

  • The portrayal of the area or areas for which an application has been made ;
  • A thorough description of the planned exploration program;
  • Commitment to minimum assurances concerning work and expenditure throughout the exploration period;
  • The impact which the exploration activities are expected to have on the environment and the actions that the exploration work program plans to perform in order to deal with it;
  • Plans regarding the training and employment of nationals of the Republic;
  • Plans for financial consideration and/or sharing production between the applicant and the Government of the Republic;
  • Any agreement between any persons relating to the method of financing the hydrocarbons operations; and
  • Any other information as may be required by the Minister.

Supplementary shipping legislation

Circular 15/2005 of the Department of Merchant Shipping includes regulations relating to the prospection, exploration and exploitation of natural gas.

Mobile Offshore Drilling Units

The Circular deals with the treatment of Mobile Offshore Drilling Units (MODU) which are defined as '' those vessels capable of being engaged in drilling operations for the exploration for or exploitation of recourses beneath the sea-bed, such as liquid or gaseous hydrocarbons, sulphur or salt.''

The only requirement for registration under the Cypriot flag is that such a vessel may not exceed 25 years of age. However, a vessel over 25 years of age may be registered given that they undertake an entry inspection with a satisfactory outcome and where required, it must be managed by a Cyprus or other EU shipmanagement company.

Research Ships

Research ships are also covered by this Circular and they are defined as '' those vessels having on board scientific instruments and other equipment and used exclusively for scientific research purposes. ''

The requirements for registration under the Cypriot flag that apply for Mobile Offshore Drilling Units also apply to research vessels as well.

Cargo Vessels and Ocean Tug Boats

Cargo Vessels and Tug Boats not exceeding 20 years of age may be registered provided that they undergo a successful entry assessment, which concluded in success.

Vessels over 20 years of age but not exceeding 23 years of age may be registered if they undergo a successful entry assessment, which concluded in success. Additionally, where it is required by law, vessels falling in this category should comply with the ISM Code, they should be managed by a ship company having its principal place of management in the EU.

Vessels over 23 years cannot be admitted to the Cyprus Ship Registry.

-A vessel of a gross tonnage less than 100 and younger than 20 years old may register without any extra requirements.

Vessels of a gross tonnage less than 100 and over 20 years of age but not exceeding 23 year may be registered if they undergo an entry assessment, which concluded in success.


In late 2011 a major discovery of natural gas was made in Block 12 by Noble Energy and the present data demonstrate that there are additional deposits in the other Blocks whereas it is highly probable that there are also oil deposits in the designated area. The second licensing round has now begun and the enthusiasm of energy companies, of the government and of citizens is more than justified. Cyprus has committed to move forward in the sector of energy always in line with international and EU law and with respect to its neighboring countries. The discovery of natural gas will almost certainly mark the island's course in history and restructure its strategic significance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions