Southeastern Europe Energy Advisory

This week we are focusing on some potential opportunities opening up in an area that gets little attention and largely flies under the oil and gas radar.

Croatia to offer up offshore Adriatic blocks

Croatia, which joined the European Union in July, is preparing to publish tenders for offshore oil and gas exploration in the central and southern Adriatic Sea in the second quarter of this year, with the first drilling permits likely to be awarded in 2015. The government plans to open the data room in February for interested companies.

Norway’s Spectrum just completed a five-month seismic survey of 15,000 kilometers of long-offset 2D data. According to Spectrum, the survey shows that Croatia’s deposits could be similar to those in neighboring Italy, which has more than 1,100 offshore wells. More specifically, the Italian region of the Adriatic has about 180 drilling platforms, while the Croatian region, which is believed to be equally prospective with the same geological structures, has only 14.

“It has proven hydrocarbon systems, moderate water depths, existing infrastructure, underexplored open acreage – and all in close proximity to major energy markets. Early results from processed data already indicate new, untested hydrocarbon systems and plays,” Spectrum noted.

So far, some 20 companies have expressed interest in the first round of licensing, including Exxon Mobil, Total, Marathon Oil and Italy’s Eni, which have signed preliminary agreements to acquire Adriatic seismic imagery from Spectrum.

There are 17 gas fields so far discovered in the North Adriatic, and 58 oil and gas fields that we know about mostly in the North Croatia Pannonian Basin.

There is an interesting development concerning Croatia’s INA energy, which operates upstream and downstream segments, and its majority shareholder, Hungarian MOL, which holds close to 50%, while the Croatian government holds just under 45%. This could skew the playing field a bit as the two are at odds over management and investment issues. We understand that MOL is considering selling its stake in INA back to Croatia or to a third party if those talks fail. The key problem is the fact that MOL has full management rights in INA in accordance with a 2009 deal, and INA is seeking to have that deal cancelled in connection with an ongoing corruption scandal involved former Croatian prime minister Ivo Sanader.

In May 2013, the Croatian government adopted a bill on hydrocarbon exploration and exploitation to facilitate the opening of the market to foreign companies.

Montenegro: 13 coastal blocks up for tender

Montenegro is set to launch a tender next month for 13 blocks covering over 3,000 square kilometers off its coast. According to government sources, some 26 companies have expressed preliminary interest, including Germany’s Wintershall and US companies Exxon Mobil, Hess and Anadarko. Others include Norway’s Statoil, the British subsidiary of Japan’s Jx Nippon, French Total, Croatia’s INA, Italy’s Eni, Serbia’s Nis and Russia’s Novatek, among others.

Montenegro divided its 13 blocks out in mid-2012, and also at that time defined a fiscal framework.

Chevron was the lead player when this area was first explored back in the 1970s and 80s, and new technology could unlock what was at the time commercially unviable.

We could run into some territorial problems here because these blocks are on the border between Croatia and Montenegro and remain ill-defined.

Montenegro has no access to natural gas sources and it has not yet developed its gas infrastructure and market. For that reason, the country is highly motivated to establish a connection to the natural gas regional system.

For more geological information on Montenegro’s oil and gas blocks, please contact OP Tactical.

Bosnia Reminder

As we have noted at length in previous issues of Oil & Energy Insider, Bosnia and Herzegovina is likewise preparing to open its data room, though here Royal Dutch Shell has the inside track and will have dibs on the best blocks. As we noted in an earlier executive report, Bosnia’s Federation parliament adopted the necessary oil legislation in September 2013 to hold its first license auction. Shell has an MOU with the Federation dating back to 2011 and will likely be the sole recipient of the first concessions. Negotiations for this should begin in late February, and we will be monitoring their progress closely. Depending on the number of drilling sites, we’re looking at an initial investment by Shell of between $300 million and $500 million.

Other Developments in the Region
•    At least four companies have placed bids to buy assets of Montenegro's Kombinat Aluminijuma Podgorica (KAP) aluminum plant, the country’s top exporter that declared bankruptcy in October 2013.

•    Canadian Bankers Petroleum, the largest fuel investor in Albania—and the company that is largely single-handedly responsible for the country’s record-high production--is being attacked by the government and the beleaguered state-run refinery company, Albpetrol, on dubious charges of distributing “illegal fuel”.

•    Bulgaria is eyeing LNG imports from Qatar to diversify from Balkan supplies, and at the same time is seeking Qatari investment in a major LNG terminal project in Greece, which will diversify supply source to Balkan countries. Right now, Bulgaria’s only supplier is Russia. Bulgaria has just completed an interconnector with Romania and later this year plans to finish an interconnector with Greece, while another interconnector with Serbia is underway and talks are progressing for an interconnector with Turkey.

For more information on these opportunities, and how to get a foothold in these areas, contact our intelligence wing, OP Tactical for information on our Land Packages program, which sets E&P companies up with the necessary gatekeepers, power brokers, potential partners and local expertise.  D-Day for both of these opportunities is just around the corner in February.