The reported existence of oil and natural gas reserves off the coast of Cyprus has prompted the Republic of Cyprus to introduce modern legislation to regulate the oil and gas sectors and to claim the Exclusive Economic Zone of the island in accordance with the United Nations Law of the Sea Convention.
In this respect, the Contiguous Zone Law of 2004 and the Exclusive Economic Zone Law of 2004 have been adopted.
The Republic of Cyprus has jurisdiction within its exclusive economic zone over, inter alia, the exploration and exploitation of all natural resources, the waters, the sea bed and the sub-sea bed as well as the production of energy.
Bilateral agreements
A bilateral agreement between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the Exclusive Economic Zone was ratified in 2003.
In May 2006, Cyprus and Egypt signed an agreement on the joint development of hydrocarbon sources straddling the demarcation line which separates the exclusive economic zones of the two countries. This agreement demonstrates the Cyprus government’s determination to fully utilize its natural resources.
It is the intention of the Republic of Cyprus to enter into similar bilateral agreements to those concluded with Egypt with all neighbouring countries.
Prospecting, exploration and production
Cyprus has adopted a new law entitled the Hydrocarbons (Prospection, Exploration and Production) Law of 2004 in compliance with EC Directive 94/22.
Hydrocarbons are defined as ’…any kind of petroleum in solid, liquid or gas form … as well as any kind of minerals or substances that are extracted with them’.
The law sets out criteria for assessing applications for licences to prospect for, explore and extract hydrocarbons in Cyprus’s territory including its exclusive economic zone. These criteria may include:
- the technical and financial abilities of the applicant;
- the methods envisaged by the applicant to carry out the activities specified in the licence;
- the economic benefits that the applicant offers in order to acquire the licence; and
- the behaviour demonstrated by the applicant within the framework of a previous licence.
Merchant shipping
The Cyprus Department of Merchant Shipping has adopted a new policy for registration of vessels under the Cyprus flag. This is set out in Circular 15/2005 which includes detailed provisions as to the conditions for registration of:
- cargo vessels of any type (including oil tankers, LNG carriers and LPG carriers);
- ocean going tugs; and
- auxiliary vessels, research ships and mobile offshore drilling units.
In a further development, the Merchant Shipping (Double Hull or Equivalent Design Requirements for Single Hull Oil Tankers) Law of 2004 has been introduced to implement EC Regulation 417/2002 on the accelerated phasing-in of double hull oil tankers.
Investment Opportunities
Cyprus has both the infrastructure and the tax incentives to become a leading player in the offshore oil and gas industry.
Apart from the prospects arising from the exploitation and utilization of the natural reserves located in the seabed off Cyprus, significant further investment opportunities will arise as Cyprus shifts to the use of more environmentally friendly fuel such as gas.
To meet future energy requirements, a new energy centre is planned under a BOT (Build-Operate-Transfer) or a BOO (Build-Own-Operate) arrangement that will consist of a petroleum products storage terminal for security and operational stocks, including LNG, as well as an LNG receiving and re-gasification terminal.
Finally, the extremely favourable tonnage tax system offered to ship-owners, the advantage of flying the flag of an EU Member State and the recent inclusion of the Cyprus flag in the White List of the Paris MOU make Cyprus an ideal jurisdiction for the establishment of shipping companies and the registration of vessels.
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.
