Good, Bad Signs from Croatia's First Offshore License Round
Hydrocarbon exploration in the Adriatic Sea could soon gain momentum, as the 1st Offshore License Round in Croatia registered the interest of six companies, with reports indicating that Italy’s ENI, Austria’s OMV and US-based Marathon Oil are three of them.
Comparing the Croatian round with the one off the coasts of the United Kingdom, it is clear that the stakes are quite different. The Adriatic Sea is not the North Sea. However, the alleged participation of ENI and OMV indicates that top-notch technologies could be soon deployed in the area.
ENI recently made the headlines for its strong discovery results. In this field, the Milan-based company is probably the top performer amongst the 20 largest companies in the world.
At the same time, OMV is trying to play its cards to enlarge its international portfolio, betting on research and development projects.
It comes as no surprise that the two companies could pave the way to a renewed interest in the Adriatic Sea.
“We are satisfied with the submitted bids. We are talking about serious companies with great experience which use the most modern technology and meet the most challenging environmental standards“, Ivan Vrdoljak, Croatian Minister of the Economy, commented earlier this week.
Alongside OMV and ENI, Croatia-based INA can add its positive contribution. According to Lilit Cota, Director of Exploration Projects of INA, the company’s main asset resides in its knowledge of the geology. Their success ratio in the Northern Adriatic is indeed close to 70%.
The last company to be named by local newspaper is Medoil, which previously put projects forward for exploration and production off the coasts of Italy and Greece.
CROATIAN GAS INDUSTRY: SOME PROBLEMS
Despite some good reasons to be enthusiastic about the results, it is clear that the process is in its early stages: the six companies expressed interest for 15 of the 29 exploration blocks available to the applicants.
Moreover, Edison does not appear in the ‘leaked’ list of companies that allegedly expressed interest, and this would not be a positive sign. It is not clear whether this decision has to do with Edison’s internal financial available resources, whether the Italian company is the sixth in the list or whether the eventual decision has to do with the company’s assessment of the area. The last option would be a negative warning.
Other “bad news” for the gas industry stems from the fact that the six companies are likely to be more interested in oil plays. Gas resources might simply be a secondary target. That is why companies are likely to focus on the southern part of Croatia’s Adriatic, where the seabed is deeper.
“Our decision on which Blocks to bid for is going to be based on many elements and criteria, but definitely we would be more interested in pursuing oil plays in the area,” INA’s Cota told Natural Gas Europe earlier this year.
WHAT IS THE FINAL AIM?
The final decision of the Government on bidders is expected in mid-December. National authorities see the signing of Production Sharing Agreements in the first quarter of 2015.
Apart from good and bad signals, it seems clear that the intention of the Adriatic country is to decrease its energy dependence. In this sense, the license round makes complete sense. Zagreb wants to promote indigenous sources and the combination of onshore and offshore production is likely to lead the country to self-sufficiency.
"Croatia currently covers about 65% of its annual gas consumption of 2,7 billion cubic metres from its own fields offshore and onshore. It hopes to be able to meet the entire local demand from the domestic wells following the new exploration efforts," Tomislav Cerovec, spokesman of the Ministry of Economy, told Natural Gas Europe on Tuesday.
Accordingly, the country is also stepping up efforts to increase onshore production. It is currently running an international tender for oil and gas exploration, which expires on February 17.
In this sense, it is clear that Croatia is walking in the right direction. It could soon become a regional hub, and an example for neighbours. In order to reach this goal, though, the country has first to solve its problems with MOL, finding a way out of the mounting politicisation that could end up choking INA and, more generally, Zagreb’s attempts to increase its clout in the region. A deadlock over INA could make it harder for Croatia to attract $2.5 billion investment it expects over the next five years for indigenous exploration activities.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci