As oil prices plummet, several of the companies once eager to explore the eastern Adriatic’s oil and gas potential have either scaled back their drilling plans or put them on hold, though others – including Shell and Romgaz – are keeping faith.

Developing their offshore resources was seen as a priority for the governments of Albania, Croatia and Montenegro, with Bosnia & Herzegovina also looking to exploit its onshore deposits. This would provide more energy security as well as attract large-scale investors to the region’s relatively small economies. However, with the oil price now below $40 a barrel, investors in the Adriatic and other oil-producing regions are reconsidering their plans.

“Exploration in the eastern Adriatic is at an extremely early stage... The impact the current low oil price is having in the Adriatic is on exploration rather than development,” says Heather Forgan, senior research analyst, Continental and Mediterranean Europe at Wood Mackenzie. “The companies that bid for exploration licences did so when oil was more like $100 per barrel. Since then, companies have cut exploration budgets in response to the plunge in prices.”

Canada-based Petromanas announced on February 1 that it was quitting the region altogether as it struck a deal to sell its Albanian assets to Shell – its partner in an offshore production sharing agreement – for $45mn. TransAtlantic Petroleum has also announced plans to sell its Albanian operations, in line with its business model of focussing on low cost, high return assets.

Other companies remain in the region but have scaled back their plans. Albania’s largest foreign investor, Bankers Petroleum, announced in December that its activity in 2016 would focus on its advanced oil recovery programme and managing existing production, though it would start drilling new horizontal wells in the second half of the year. The programme was based on an average annual Brent price of $46.25 a barrel. An industry source told bne IntelliNews that the company had “cut back dramatically”, though drilling activity is expected to pick up slightly in the second half of the year.

Bankers has also been involved in a $75mn tax dispute with the Albanian government, but on February 24 announced that international arbitration had been suspended and the two parties signed an agreement for a binding third-party audit to resolve the dispute.

“Offshore developments in the general worldwide are becoming marginal at the current low oil prices, and the Adriatic will be no different,” says Sarah McLean, rigs specialist at IHS Global Insight. “In addition, costs for working off Albania will be higher due to its remoteness from current oil industry hubs... We currently have no open demand for the region for the foreseeable future.”

This will make it harder to attract new investors to the region, as the Albanian government acknowledged when plans for a new attempt at privatising Albpetrol were put on hold in 2015, with Energy Minister Damian Gjiknuri citing a fall in investor interest against the backdrop of the low oil prices.

The company has, however, been included in the Ministry of Economic Development’s draft privatisation plan for 2016, albeit with a target price of just $95mn – well below the prices offered in 2012 when the company was put up for sale in a murky process that was later cancelled.

Aside from low oil prices, there is also some uncertainty over government policy, especially in Croatia.

The newly appointed government in Zagreb has launched a radical review of the country’s energy policy, which includes plans for a moratorium on offshore exploration work, local media reported in January. This is part of ambitions for a greener energy policy that also calls for a halt to the construction of new thermal power plants and more investment in renewables. Previous governments faced pressure from environmental groups over the environmental threat posed by offshore drilling, and the consequences of a spill for the country’s large, crucial tourism sector.

Staying power

Despite this, international companies continue to eye the region. There is speculation that Shell could be interested in Bankers, following its Petromanas deal earlier this year. And while Shell decided not to move forward with exploration work in Bosnia, other companies including an INA-MOL tie-up and Australia’s Key Petroleum are reportedly considering the project.

“The industry is made of very different companies with very different priorities and outlooks. Time horizon, risk appetite, available capital and alternative opportunities are just some of the factors we see as investment drivers,” says Forgan. “We have seen Shell expand its position in Albania, Eni take acreage in Croatia and Montenegro, and further afield, BG bought in to the Aphrodite field in Cyprus. It is clear that all of these companies see an attractive investment opportunity in the region.”

Romania’s Romgaz is also interested in potential projects in Croatia and Macedonia as well as the Caspian and Black Sea areas, Mediafax reported in February. The company’s reserves are becoming depleted and exploration work at the Romanian offshore Rhapsodia block was recently dropped.

Meanwhile, Montenegro is moving ahead with plans to develop its offshore resources, with Economy Minister Vladimir Karavic announcing on February 4 that it has decided to award a 30-year concession to Italy’s Eni and Russia’s Novatek. The consortium is expected to start work this year, Karavic said.