We’ve been holding on to this nugget for some time, waiting for one of the last pieces of the puzzle to near position. Now it’s time: Bosnia and Herzegovina has untapped oil and gas potential that stands to be better than that of Albania, the largest producer in the region. One supergiant is already here, very quietly, and the cat is about to be let out the bag—but we’re letting you in on it before that happens. Timing is everything.
There’s a lot of background to this, most of it’s complicated and political—a lot of which is too long and complex to include here—but Oilprice.com’s intelligence services can fill in the blanks for anyone who is interested beyond what we bring you here.
This is the short list of what you need to know:
• Shell has the exclusive right to continue where Amoco left off, and depending on exploration success, the first well could be in late 2013 or early 2014, with exploitation by 2015
• Albania is the regional leader in oil production, with Patos-Marinza oilfield one of the biggest onshore fields in Europe (original oil in place is around 7.5 billion barrels); but Bosnia may have even greater potential with a similar investment pattern
• What we’re waiting for now is final approval of draft oil and gas legislation by parliament, which is expected right after the summer break
The Condensed…
We’ve been holding on to this nugget for some time, waiting for one of the last pieces of the puzzle to near position. Now it’s time: Bosnia and Herzegovina has untapped oil and gas potential that stands to be better than that of Albania, the largest producer in the region. One supergiant is already here, very quietly, and the cat is about to be let out the bag—but we’re letting you in on it before that happens. Timing is everything.
There’s a lot of background to this, most of it’s complicated and political—a lot of which is too long and complex to include here—but Oilprice.com’s intelligence services can fill in the blanks for anyone who is interested beyond what we bring you here.
This is the short list of what you need to know:
• Shell has the exclusive right to continue where Amoco left off, and depending on exploration success, the first well could be in late 2013 or early 2014, with exploitation by 2015
• Albania is the regional leader in oil production, with Patos-Marinza oilfield one of the biggest onshore fields in Europe (original oil in place is around 7.5 billion barrels); but Bosnia may have even greater potential with a similar investment pattern
• What we’re waiting for now is final approval of draft oil and gas legislation by parliament, which is expected right after the summer break
The Condensed Version
Before war broke out in Bosnia-Herzegovina in 1992, Amoco had conducted extensive research on Bosnia’s oil reserves, which indicate that the country has greater potential than its neighbors, including Albania, which is currently the leading Balkan oil producer.
Amoco’s research was sidelined with the outbreak of war. It has remained sidelined due to the misperception that Bosnia is a risky investment environment. This perception is based on a lack of experience in post-war Bosnia and a general and widespread lack of knowledge of the country’s cultural, ethnic and political structure.
Recent developments such as Bosnian parliament’s preparations beginning in October 2012 for the passage of a new oil bill and efforts by Shell to continue where Amoco left off have re-opened this issue.
Our sources in parliament say the new oil and gas legislation will be passed either before the summer break or shortly upon the resumption of fall sessions.
The rights for research and exploration of hydrocarbons in Bosnia and Herzegovina were owned by state-owned EnergoInvest until 2018. However, the Federation government striped EnergoInvest of these rights and granted them to Shell.
Most of the land in question is owned by the government, but privately owned land is subject to expropriation.
Our sources say that for the tender process, they will ask for a bank guarantee of $100 million USD. We are not sure yet how much it will be to get into the data room.
Recent Developments
2011: Bosnia-Herzegovina and the Shell Exploration & Production Company signed an MOU governing the geological exploration of a 26,000-kilometer area of land for 2 years. In accordance with the agreement, the Federation Entity (see Annex 1 for political layout) of BiH will provide Shell with the necessary equipment and expertise for the exploration project. The Federation government also agreed to hand over all information in the possession of the Bureau of Geology and the state-owned EnergoInvest company related to research undertaken prior to the outbreak of war in BiH in 1992. Also in accordance with the agreement, Shell agreed to conduct a “digitized geological and geophysical review of the data, as well as the structural reconstruction of the tectonic crown.”
2012: In late October 2012, Federation of BiH authorities announced preparations to send a new oil bill to parliament, which would pave the way for a favorable investment atmosphere for foreign oil companies. The bill is a direct response to Shell’s recent research progress and its projection that it could begin production by 2015. Our assessment is that this bill will be passed through parliament relatively quickly and without the usual ethnic bickering. (The entity of Republika Srpska already has the necessary oil legislation in place).
Key issues that will be resolved via this legislation:
• The bill will resolve the issue of authority over granting oil and gas concessions. Presently, the Federation’s 10 Cantons have the authority to grant concessions. The new oil bill would give this authority to the Federation, which would ease a major bureaucratic hurdle and increase transparency.
• The bill will also resolve the issue of frontiers between the Federation entity and the Republika Srpska entity. The new law will regulate oil exploration and exploitation on the entity frontiers and prevent eventual jurisdiction and ownership disputes.
Research/Exploration
According to EnergoInvest-Amoco research summaries, 15 exploration wells have shown reserves of 50 million tons of oil in the northeast of the country at a depth of 3-5,000 meters. This territory covers Bosanski Brod, Brcko, Bijelina, Zvornik and Tuzla (12,000 square meters)—enough to meet domestic oil needs for 30 years.
Other estimates from local experts (including the dean of the Faculty of Technology and Mining in Tuzla) hold that several locations in northern and southern BiH could hold as much as 500 million tons of oil at a depth of between 4-6,000 meters. (EnergoInvest says this estimate may be exaggerated)
Estimates by Area
Northern Bosnia
• Research conducted so far shows the largest potential in this area, where Amoco and EnergoInvest have already explored and where Shell is continuing this
• Amoco’s research shows a 350-million-barrel potential reserve in this area, with commercial value to be determined after the first 4-8,000 meter wells are drilled
• Serbian-Russian-owned Jadran-Naftagas began geological research in Republika Srpska (BiH’s Serb-dominated entity) in late 2011, performing seismic exploration in the northern region from Novi Grad to Doboj in central Bosnia
• Jadran-Naftagas (a subsidiary of NIS and Neftegazinkor, created by Gazprom Neft in 2010) started a 3D seismic survey in 2011, and plans to start production in 2014
Southern Bosnia
• Potential reserves in the mountainous limestone area of Herzegovina (unexplored, with local experts estimating 500 million barrels of reserves here—again, probably exaggerated)
Politics/Geopolitics
Geopolitically, Bosnia’s Serb-dominated entity of Republika Srpska allies itself with Russia, while the Bosniak- and Bosnian Croat-dominated Federation Entity steers clear of Russia and is pushing for European Union membership (for the whole country). Bosnia’s EU membership is difficult as long as its state institutions remain hostage to entity institutions. Republika Srpska fights any strengthening of state institutions, which would mean less autonomy for the Bosnian Serb entity. It finds subtle support from Russia in this endeavor, and is hoping to be a part of Russia’s (Gazprom) South Stream Pipeline project.
• The entity government of the Serb-dominated Republika Srpska sold Amoco’s research to the Russians during the war
• There are believed to be 15 crates of research by Amoco that disappeared during the war
• As Amoco’s partner, EnergoInvest had access to this research, but does not have the full original documentation, nor does it possess copies in their entirety (It has only the research for the Federation Entity, not for Republika Srpska)
• The full research documents were stored in the Bosanski Brod Refinery during the war. This became Bosnian Serb territory after the war and the Bosnian Serbs sold the refinery to the Russians (the Amoco research was likely part of the deal)
Political Structure
Bosnia is divided into two separate political entities and one “administrative district”.
• Republika Srpska: Republika Srpska, in the country’s north, is dominated by Bosnian Serbs
• Federation: The Federation entity is dominated by Bosniaks and Bosnian Croats
• Brcko District: This separate administrative district is multi-ethnic and straddles territory in both the Federation and Republika Srpska. It has less autonomy than the entity governments
Importantly, oil and gas resources belong to the entities and not the state of Bosnia-Herzegovina. Any concessions must be granted by the entity governments of Republika Srpska and the Federation. The Federation is divided into 10 Cantons. Presently, these cantons have control over oil and gas resources on their territory. The new oil bill that will be presented to parliament gives the Federation entity power over oil and gas resources and removes this power from the cantonal governments.
Bosnia-Herzegovina has processing capacity in two refineries, large stock tanks, and a modern sales network with a number of gas stations. The infrastructure provides a framework for favorable exploration results.
Aside from South Stream pipeline plans, we’ve also got the pending TransAdriatic Pipeline (TAP).
In April 2011, Trans Adriatic Pipeline AG and BH-Gas (Bosnia) signed an MOUC to explore opportunities for developing natural gas markets and enhancing supply diversity in South East Europe. The TAP, led by Norway’s Statoil, will traverse Greece, Albania and Italy to bring Caspian gas to Europe, with reverse-flow capabilities.
Contact us for more information.
