INA-MOL could replace Shell in Bosnian exploration project

By bne IntelliNews October 12, 2015

Denitsa Mukova in Sofia and Carmen Ionescu in Bucharest -

 

A consortium comprising Croatian oil and gas company INA and Hungary’s MOL is interested in replacing Royal Dutch Shell in an oil and gas exploration project in the Bosnian Federation, according to the entity’s Prime Minister Fadil Novalic.

A deal with the consortium could result in investments of between $300mn and $400mn and help Bosnia, one of Europe’s poorest countries, become a local leader on the energy market despite the failed attempt to secure an investment from Shell. The reports that MOL and INA, which is 49% owned by the Hungarian company, are considering a joint investment in Bosnia also indicate an improvement in the relationship between the two companies.

Shell signed a memorandum of understanding with the government of Bosnia’s Muslim-Croat Federation back in November 2011. However, on October 1, the federation’s government said that Shell has decided it would not try to secure a concession for oil and gas exploration in Bosnia because of an internal portfolio review and in the light of the current oil and gas environment.

It had appeared that Bosnia would lose the chance to develop its oil and gas resources, and miss out on expected investments by Shell of at least $300mn. However, it now seems that an alternative investor could step in, as confirmed by Novalic.

“INA-MOL have already informed us about their interest on the exploration,” Novalic was quoted as saying by Banka.hr on October 9.

MOL, which is part of Budapest-based MOL, has already expanded in the Balkans, operating in Romania, Serbia and Slovakia, in addition to the investment in Croatia’s INA.

The fact that MOL and INA are considering a new joint investment indicates that the Hungarian company is not planning to sell its Croatian assets. MOL had threatened several times to exit INA following long disputes with the Croatian government over INA’s management.

Previously the Croatian media had quoted unnamed sources as saying that MOL wants INA to withdraw from an exploration project in the Croatian sector of the Adriatic. The company had been awarded two licenses for the project, but falling oil prices would make the investment unprofitable. A consortium of Marathon Oil and OMV, which had been granted seven licenses for the same project, has already decided to not sign the license contract with Croatia.

MOL and INA have been in a long dispute over INA’s management rights. The row resulted in both sides filing arbitration suits against each other, bribery charges for MOL's chairman and CEO Zsolt Hernadi, and the imprisonment of former Croatian Prime Minister Ivo Sanader for accepting a €10mn bribe from Hernadi in order to help MOL obtain management control over INA during the privatisation process.

A recent decision of Croatia’s Constitutional Court to annul the Sanader verdict is expected to affect the Croatian government’s struggle to obtain a change in the management agreement. Still, Croatia seems determined to proceed with the arbitration against MOL.

MOL’s group chief executive officer Jozsef Molnar said in January the Hungarian company was in talks with potential buyers for its stake in INA. In an interview with Austrian newspaper Wirtschaftsblatt, Molnar said MOL's main aim was to reach an agreement with the Croatian government and remain a strategic investor in the Croatian company. However, MOL will sell its stake in INA if hostilities persist, he added. According to previous media reports, Polish state-controlled oil refiner PKN Orlen and Russia’s Rosneft and Gazpromneft have shown interest in MOL’s stake in INA.

Bosnia hopes to attract up to BAM940mn (€480.6mn) in foreign direct investments in 2015, with some 73% of them into the energy sector. The sector is expected to remain the main focus of foreign investors in 2016 and 2017.

In the smaller of Bosnia’s two entities, the Serb Republic, another big oil exploration project is already under development. In May 2013 Jadran-Naftagas, a joint venture between Serbian energy firm NIS, which controlled by Russia’s Gazprom Neft, and Russia’s NeftegazInCor, started drilling the Obudovac well. Two years earlier, the company signed a 28-year concession contract with the Serb Republic for exploration and production of crude oil and gas on its territory. Under the terms of the deal, Jadran-Naftagas has to invest $229mn over the period.

In February this year, NIS confirmed commercial stocks of oil in the well and in June the Samac municipality, where the well is located, announced that the oil can be exploited.

Despite this investment, Bosnia is being criticized for the lack of coherent strategies and regulatory systems in the fields of oil and gas and electricity. Bosnia has substantial water and coal resources, but depends on imports of oil and gas, which it imports from Russia. The Serb Republic would have been one of the beneficiaries of the planned South Stream pipeline, which was abandoned in December 2014.

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