Shell drops Bosnian exploration plans

By bne IntelliNews October 1, 2015

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Royal Dutch Shell has decided not to seek a concession for oil and gas exploration in Bosnia and Herzegovina, the government of Bosnia’s Muslim-Croat Federation confirmed on October 1.

The potential deal would have secured an investment of between $300mn and $700mn in exploration work depending on the number of drilling sites. The investment would have helped Bosnia, one of Europe’s poorest countries, become a local leader on the energy market.

“On September 22, 2015, oil company Shell Exploration Company provided a notification it does not want to use the option for extension of the memorandum of understanding due to an internal portfolio review and in the light of the current oil and gas environment, not due to estimations on the prospects of Bosnia’s Federation," the government’s statement read.

The memorandum, which expires on November 4, was signed back in November 2011 and has been extended twice. Under the original text of the memorandum, had Shell discovered oil and gas reserves it should have started exploiting them in 2015. When contacted by bne IntelliNews, Shell declined to comment on the reports that it was not planning to extend the memorandum again.

The federation had expected that the contract with Shell would be signed by the end of 2014. The Dinaridi area that Shell was expected to exploit is thought to contain up to 500mn tonnes of oil reserves, according to Reuters.

In October last year, the Bosnian Federation launched a new attempt to find a consultant to lead future negotiations with Shell on its behalf, but failed to select a company. Two other tenders had previously been cancelled.

Earlier this week Shell said it would abandon its search for Arctic oil off Alaska.

Bosnia hopes to attract up to BAM940mn (€480.6mn) in foreign direct investments in 2015, with some 73% of them in 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 is 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 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.

Hydropower plants produce nearly half of all electricity in Bosnia. According to the latest available statistics office data, in January-August the country’s gross electricity production was down 4.5% y/y to 6,314GWh, including 2,417GWh generated by hydropower plants and 3,897GWh produced by thermal power plants.

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