While Turkey may be at the crossroads of civilisations, it is in a hydrocarbons cul-de-sac. The country is surrounded on all sides by significant oil and gas deposits that all stop short of Turkish frontiers. The bountiful Zagros fold and thrust belt, which extends from the Arabian Peninsula up through Mesopotamia, ends at the Turkish-Iraqi border. A few hundred miles away is the super giant Kirkuk oil field.

To Turkey’s east are Azerbaijan’s massive oil and gas fields. To the west, in the Aegean and Ionian Seas, are an estimated 26bn barrels of oil in Greek waters. To the south, large gas deposits have been found offshore in Cyprus, Lebanon and Israel. In the north, Black Sea neighbours have had some promising results, but the search has failed to yield commercial hydrocarbons in Turkish territorial waters.

This is despite the best efforts of international oil companies such as BP and Brazil’s deepwater experts Petrobras. To date, the cost of exploration activities has reached $4bn and is rising.

Domestic Interest

State-run Turkish Petroleum Corporation (TP) has not abandoned all hope in the Black Sea. In early 2014 the company was reportedly in talks with US major ExxonMobil, Bulgaria’s Magyar Olaj and Vienna-based OMV on continued exploration efforts, Besim Şişman, CEO and chairman of the board of TP, told Reuters. ExxonMobil and Chevron already have existing exploration agreements with TP. “In terms of Turkey’s oil and natural gas potential, the areas to be most hopeful about are offshore, primarily in the Black Sea and the Mediterranean, and it is possible to include the Aegean as well,” Necdet Pamir, an instructor in energy policy at Bilkent University and former vice-president of TP, the state oil company, told OBG.

“When comparing the Black Sea to the Mediterranean and the Aegean, an important factor is the resolution of the question of ‘exclusive economic zones’ among littoral states, which is important because it indicates that there are no disputes over sovereignty, meaning less political risk for companies considering investing in our country,” he said.

The discovery of associate gas, albeit modest amounts, offshore from the Black Sea town of Akç akoca is a concrete indicator of the presence of hydrocarbons, Pamir said. “However, we have to accept that conditions like the deepwater environment and high sulphur content increase the costs of investment.”

Production & Reserves

Turkish hydrocarbons production is less than 700,000 barrels of oil equivalent per day, and proven reserves are 270m barrels of oil and 218bn cu feet of natural gas. Conventional explorers continue the search on dry land. In October 2013 Turkish energy company Arp Petrol was awarded a four-year licence to search for oil near the Syrian border. Arp’s thinking is that there is potential for oil migration or an extension from nearby Syrian formations just over the border, where there are many producing wells.

In addition to a seismic campaign, Arp says it is also looking at 30 plugged and abandoned wells that, although were claimed to be dry, were undeveloped most likely due to the now dormant armed conflict with the Kurdistan Workers Party that has taken more than 40,000 lives since erupting in 1984.

TP also made a discovery at its Çalışkan-1 well in Şirnak province. The company hit oil at 2800 metres that it says is the same gravity as Kurdish oil across the border. This lends credence to Arp’s theory that there may be similar formations on the Turkish side.

Turkish Petroleum Overseas Company (TPOC), a TP subsidiary, has been exploring in Libya since 2000. The company’s drilling campaign scored a strike rate of seven out of 11 wells, but operations have been low-key since political upheaval there in 2011. TPOC is currently prequalifying service companies for an exploration drilling campaign in the Murzuq Basin onshore block.

In Iraq, TP was awarded a contract to develop the Barda field in a consortium with Gazprom and Korea Gas Corporation, has an 11.25% stake in the Missan oilfield development project, a 40% share in the Siba gas field development project with Kuwait Energy and a 50% operator share in the Mansuriya gas field development project with Kuwait Energy.

Other overseas operations include a limited and controversial seismic survey of Turkish territorial waters around Cyprus in November 2014 in an attempt to bag some of the large gas reserves found off the southern part of the island. TP began onshore drilling in Cyprus’ Turkish-held north in 2012 amid a row with Greek Cypriots, who had made vast discoveries offshore. But newspapers later reported the search had been abandoned after the 3000-metre-deep Türkyurdu-1 yielded no results.

Shale Gas

Enter shale, the game-changing, unconventional oil-and-gas formation that has turned around the energy fortunes of the US and other unlikely places across the globe where substantial conventional resources are absent. In Turkey shale gas, which is found trapped in sedimentary rock formations, could finally make six decades of oil and gas exploration bear substantial fruit, perhaps enough to partly mitigate the 18.5m tonnes of oil and 47bn cu metres of gas that Turkey imports every year, the main culprits behind an annual energy import bill that totalled $55bn for 2014.

Large shale gas deposits have been discovered in Turkey’s north-west Thrace Basin and in the southeast of the county. At the end of 2013 Royal Dutch Shell and TP spudded their first shale gas well in Turkey at the Sanbuğday-1 gas field formation near Diyarbakır in the south-east, estimated to contain up to 6bn cu metres of gas.

Shell is also contracted to drill five wells in the nearby Dadaş shale formation. When combined with the Hamitabat shale formation in Thrace and a few deposits in Central Anatolia, these finds could mean Turkey has shale gas deposits of 13trn cu metres, of which 1.8trn are technically recoverable, Ismail Bahtı- yar, chairman of the Turkish Association of Petroleum Geologists, told Bloomberg.

This would be enough to meet Turkey’s gas supply needs for 14 years and help offset the massive gas import bill form Iran and Russia, according to the government’s Investment Support and Promotion Agency. ExxonMobil has also expressed interest in the south-east region. This all bodes well after a number of conventional oil wells drilled in the southeast region came up dry in 2013.

Legal Framework

Turkey’s new Petroleum Law came into force in June 2013 and could be the key to unlocking potential reserves by the private sector. The legislation replaced a law enacted in 1954 before concerted exploration activities began. Its objectives are to attract foreign investment into a sector that has been dominated by the state monopoly, TP, by doing away with the company’s preferential rights to exploration and production.

TP will no longer be defined as the de facto national oil company in charge of exploring and drilling for reserves. It will not be automatically awarded licences when terms expire, without putting them up for auction. The new law simplifies the licensing process, restricts the application process to 60 days and reduces the country into just two geographical licensing areas – onshore and offshore.

The new law brings Turkey in closer step with EU regulations as part of a drawn-out accession process. The new legal framework provides companies with tax breaks and incentives on earnings and equipment imports, which will increase the level of technology used to develop fields. It also eases existing restrictions on hiring foreign workers, permits licence mergers with adjacent operators, allows for the construction of pipelines, extends licence periods from four to five years for onshore and from eight to nine years in territorial waters, and, importantly, lifts restrictions on the repatriation of capital.

The legislation also aims to solve a problem seen across Turkey’s energy industry, namely the trading of operating licences as commodities by companies that have no intention of developing the resource. “The new law seeks to prevent companies acquiring licences solely for the potential to sell on without making an investment in exploration activities,” according to international law firm King & Spalding.

Applicants must hold collateral bonds worth 1% for offshore and 2% for onshore of the financial investment outlined in their bids, it said. The intention is to restrict applicants to only those with the financial and technical capability to develop blocks.

The upshot of the new petroleum law is to finally throw the market open to participation by foreign as well as domestic entities to search for oil and gas in Turkey while the state retains sovereign rights over the land and resources themselves. Operators no longer have to partner with TP for every offshore licence, meaning international majors may return. With Turkey’s growing demand for energy, every barrel of oil discovered is a step in the right direction.