World Petroleum Congress: Albania lures oil investors through incentives

Tirana Times
By Tirana Times July 10, 2017 16:36

World Petroleum Congress: Albania lures oil investors through incentives

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  • "We have every opportunity, we have unexplored oil and gas reserves that can potentially make us a new oil frontier, miles away from the Middle East heat," says Prime Minister Rama

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TIRANA, July 10 – Prime Minister Edi Rama has called on the world’s leading oil companies to consider investment in Albania’s largely unexplored oil and gas resources, which he says make the Balkan country a new oil frontier only miles away from the Middle East.

The appeal came in Istanbul on Monday as the newly re-elected Prime Minister addressed the 22th World Petroleum Congress, a major meeting of the international oil and gas industry. It also comes as international oil prices are poorly progressing following the mid-2014 slump, curbing investment plans.

“We are situated in one of Europe’s largest onshore oilfields with 220 million barrels of proven oil reserves. There has been an increase in oil production and blocks as well as refining capacity,” Rama said, adding that the presence of British-Dutch oil giant Shell and the discovery of gas sources are encouraging for Albania.

“We have every opportunity, we have unexplored oil and gas reserves that can potentially make us a new oil frontier, miles away from the Middle East heat,” said Rama.

Albania is home to Patoz-Marinza heavy oilfield, which since mid-2016 is being developed by China’s Geo Jade following its acquisition of Canada-based Bankers Petroleum. The C$575 million (€392 mln) purchase came 12 years after the Canada-based company had been developing Patos-Marinza under a 25-year concession contract with the Albanian government.

Located in southwestern Albania, the Patos-Marinza oilfield initially discovered in 1927 is the largest onshore oilfield in continental Europe, holding approximately 5.4 billion barrels of original oil in place. Prime Minister Rama said Albania has as a clear strategy to offer legal protection and fiscal incentives for any investments in the petroleum sector.

“Our wider petroleum strategy focuses on diversification of petroleum energy resources, the increase of crude oil production, auction of free oil and gas blocs based on competitive procedures, increase of refining capacities, increase of storage capacity and restructuring of the petrol stations and the integration of the Albanian energy sector’s legal framework with regional and EU energy markets,” he said as quoted by Turkey’s state-run Anadolu news agency.

Albania’s strategic geographical position has also received a boost with the Trans Adriatic Pipeline project bringing Caspian gas to Europe, turning the country into a key regional energy player. The pipeline’s Albania section is already in its peak construction stage, being the biggest foreign direct investment, and a good opportunity to diversify energy sources.

“Our strategy is focused on the successful completion of TAP, we will be a support to the EU and will extend through the Adriatic-Ionian branch a second Albania-Kosovo-Serbia branch,” said Rama.

The Prime Minister also affirmed the government’s intention to privatize the country’s state-run Albpetrol oil company, which is currently involved in only a small portion of production due to the overwhelming majority of oil well operated by private companies under concession contracts.

However, the poor progress of international oil prices and non-optimistic prospects for the next few years remains a barrier to attract new investors.

Crude Oil Brent prices currently stand at about $45 a barrel, up from a 12-year low of $30 a barrel in early 2016, but yet less than half of the peak level of more than $110 in mid-2014 just before the slump.

The slump in oil prices and their slow recovery is delaying contract negotiations with the Royal Dutch Shell and a subsidiary of Israeli-based Delek Group, over two oil exploration blocks they won in an international tender back in mid-2015, energy ministry officials said earlier this year.

Albania currently has 13 free onshore and offshore oil and gas block which are scheduled for concession deals.

Foreign investors engaged in oil and gas exploration in Albania are exempted from the 20 percent VAT, can have their exploration stage extended from 5 to 7 years and engage in production from 25 to 30 years.  Studies show Albania’s oil and gas reserves are estimated at 400 million tonnes, of which around 10 percent easily extractable.

The slump in commodity prices since mid-2014 has severely affected Albania’s oil and mining industry, producing the country’s second largest exports, paralyzing investment and cutting staff with a negative impact on the country’s economy.

Domestic oil production dropped for the second year in a row following the mid-2014 slump in international oil prices, freezing new investment and employment and with a negative impact on the country’s poorly diversified exports.

Data published by the energy ministry shows domestic oil production, overwhelmingly dominated by foreign companies operating under concession contracts, was down by 18 percent to slightly above 1 million metric tons, equal to about 7.3 million barrels of oil for the whole of 2016.

Canada-based Bankers Petroleum, the country’s largest oil producer which in mid-2016 was fully acquired by a Chinese consortium, accounted for 95 percent of total domestic production for several consecutive years now.

Albania’s oil production peaked in 2014 just before the mid-year slump in international prices when the Bankers Petroleum-led domestic production hit a 35-year high of 1.36 million metric tons.

Albania’s highest oil production dates back to 1974 when the then-communist country produced 2.25 million metric tons equal to about 38,408 barrels of oil per day in an industry that involved 34 state-run enterprises and employed about 25,000 people.

State-run Albpetrol company which currently runs only 5 percent of the oil wells produced about 51,000 metric tons of oil in 2016. Albpetrol was the main producer until 2006 when companies operating under concession contracts overtook the traditional state-run producer.

Under the current concession contracts, oil companies pay the 50 percent profit tax only after covering costs, a situation which authorities say has allowed foreign concessionaires to pay only a 10 percent mining royalty and no profit tax at all, resulting in tax disputes.

 

Tirana Times
By Tirana Times July 10, 2017 16:36