GEO ExPro

Turkey Moves Forward

Turkey revises 60-year-old law in a bid to attract investment for exploration
This article appeared in Vol. 10, No. 2 - 2014

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Despite a lack of domestic production, Turkey remains pivotal for the international gas market as the country is the meeting point for Russian and Middle Eastern resources. It is a hub for key pipelines, notably the Blue Stream gas pipeline from Russia, the Baku-Tbilisi-Ceyhan oil pipeline from Azerbaijan and the Kirkuk-Ceyhan oil pipeline from Iraq.

Largely in response to recent large gas discoveries in nearby Cyprus and Israel, the Turkish government plans to increase exploration in its territorial waters with a view to increasing domestic production and reducing the country’s dependence on imports of oil and gas. It also has plans to exploit any potential shale gas opportunities. To this end, in June 2013 Turkey’s parliament passed a new petroleum code that replaces the 1954 law, understandably criticised as being out of date and failing to encourage investment. The new law embraces virtually all aspects of upstream from applications to production, including gas storage, and marks the end of the Turkish Petroleum Corporation (TPAO) hegemony, through which the state company had right of first refusal on any acreage award and compulsory partnership with any foreign operator. The Turkish Chamber of Petroleum Engineers issued a critical statement regarding this law prior to its acceptance in parliament.

The new legislation has removed the old system that separated the country into 18 different geographical regions and has replaced it with a much simpler onshore and offshore regime, with the latter sub-divided into territorial and non-territorial waters. The preferential rights of TPAO have been removed; it will now compete in future licensing rounds on the same terms as other companies, thereby levelling the playing field for foreign investors. Analysts believe the change also paves the way for TPAO to be privatised.

The Turkish government has also made the permit and licensing regime more attractive. Companies can now be issued with a ‘search permit’ to collect geological and geophysical data, and organisations holding these permits will be allowed to sell the data collected under the permit to interested parties for a period of eight years. Exploration licences can be granted for up to 560 km2 for onshore and territorial waters and 10,000 km2 for non-territorial waters. The Turkish government has also increased the duration of a licence. Onshore licences are now granted for five years (rather than four) and eight years (rather than six) for territorial waters. These licences can be extended by two and three years respectively. 

The new Petroleum Law requires an applicant for an exploration licence to provide a bond equal to 2% of the financial commitment in the work plan in the licence application. A reduced rate of 1% applies to offshore exploration where the financial investment is expected to be higher. The requirement to post a bond is intended to ensure that only investors with the requisite financial and technical capability apply for exploration licences. There are also fiscal incentives for investors as the new law lowers the ceiling for income tax from 55% to 40%. In addition, companies are exempt from customs duty, levies and stamp tax for equipment imported and supplied locally. The government’s share in oil and gas payable as a royalty (in cash or in kind) remains unchanged at 12.5%. No new applications for exploration licence shall be accepted by the General Directorate within the first year commencing on the date the Law came into force. In other words, new exploration licence applications will need to be filed starting from 11 June 2014.

The new Petroleum Law is intended to bring Turkey’s petroleum regulation in line with European Union laws in order to help facilitate Turkey’s accession as the country is a candidate for full membership, although discussions have been stalled for three years over numerous concerns about democracy and human rights.

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