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Oil exploration in the Croatian Adriatic.

Q: What is about to happen on oil and gas exploration front in Croatian Adriatic?

A: It is actually not only Adriatic Sea, but Croatia is readying itself for first of many licensing rounds for petroleum activities. Croatian Parliament passed umbrella legal framework, the Act on exploration of hydrocarbons last year. Agency for hydrocarbons which will provide technical support in all petroleum activates was formed at the beginning of the year to administer all the procedures. The government appointed expert committee to oversee the tendering, and is expected to launch first offshore hydrocarbons licensing round for the Adriatic in early April. Expectation is that the Government will solemnly present the tender, blocks offered for licensing and preliminary prospects on oil and gas reserves on a conference in Houston, TX early in April this year. After that onshore licensing rounds are expected to take place around the middle of the year and in this fall.

Q: How will tender procedure look like?

A: There are total of 29 exploration blocks for which bids will be allowed. They all span areas from 1000 to 1600 km2 per block. Nine of the blocks are in North Adriatic while 20 of the blocks are in mid and south Adriatic in deeper waters. The companies will be able to bid for one or more blocks. Exploration activities can take as long as five years with up to two 6-month extensions possible. If there is a commercial discovery claimed, the license is automatically converted into a production concession valid for 30 years (however including the exploration period). Government will immediately enter into an agreement with the licensee; either a production sharing agreement or a tax-royalty agreement (or a combination thereof), which will be evident from the tender documents once published.

Q: Are there any information on potentials of finding oil and gas, and what is the interest of investors so far?

A: Data room has been open in the Agency for hydrocarbons on March 10th. The data includes all data from INA research in previous decades but also 2D data collected by Spectrum last year. The initial data shows some potential for finding oil and gas in Adriatic. For example, on Italian side of Adriatic there are 180 oil and gas wells while on Croatian side there are only 15. This fact is indicative of potential for exploration, however nothing is certain in this world until an actual well is drilled. The initial interest of investors is immense, and there are inquiries from the world’s biggest oil companies from US, Russia, EU etc. It should however be noted that the tender process is expected to move very formally and in local language. Therefore, the local consultancy community will play big part, and there are not a lot of local advisors knowledgeable of the industry. Therefore, even the biggest companies can slip on formalities in their bids for the most desire blocks, and anything is possible. Tender will be open for six months, therefore there is plenty of time to approach the bid seriously. We can expect first outcome sometime this Fall.

About finances

Q: How will revenue from oil and gas production be divided?

A: The financial model is not yet disclose, it surely will be in the tender documents, but according to some preliminary information issued by the Agency, the investor will get (or, if you like, keep) 46% of revenue from produced oil and 40% of revenue from produced gas.

And finnaly our message to potential bidders is

Keep in mind that Croatian offshore licensing round overlaps with the Montenegrin, and there is some space for cost optimization there. However, do note that Croatia is an EU-member country, which surely brings some advantages (and some disadvantages) into the investment decision-making progress.

More info about Oil and Gas exploration in Adriatic: