Oil giant Shell awaits final test results on Albania billion dollar investment plans

Tirana Times
By Tirana Times June 14, 2018 10:32

Oil giant Shell awaits final test results on Albania billion dollar investment plans

Story Highlights

  • Shell's apparent investment could also save Albania's FDI prospects as TAP and the Devoll hydropower plant, the two major energy-related projects that drove FDI and economic growth for the past four years, are set to complete their investment stage by the end of this year, leaving a huge FDI gap of €200 million starting next year

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TIRANA, June 3 – Albania expects good news from Shell’s oil exploration operations in the country by the end of this year and is hopeful the British-Dutch multinational oil giant will soon engage in oil production that could give a boost to Albania’s oil industry and much-needed foreign direct investment at a time when two major energy-related projects are set to complete their investment stage.

Albania’s Prime Minister Edi Rama is optimistic Shell, which has been engaged in Albania oil exploration since 2012, will open up a great perspective for the country’s economy over the next decade.

“The approval of the exploration and oil production agreement on Block 4 where global giant Shell plans to invest $42 million is a major decision for the country’s future. The investment paves the way for a great commitment, a more systematic involvement by Shell in the oil sector considering the fact that next autumn we expect the confirmation and are hopeful of a positive answer on a great discovery of a huge amount of light crude oil and gas which would then open up a great perspective for the country’s economy over the next decade,” Prime Minister Edi Rama said this week.

Earlier this year, Albania concluded an oil exploration contract with Shell that will see the oil giant invest another $42.5 million over the next seven years in southern Albania, making it one of the few big Western investors with a presence in Albania. In case of oil discovery in Block 4, the development/production contract will be valid for 25 years with an option of renewal, says the energy ministry.

Albania is one of the few countries where Shell did not suspend its oil exploration operations following the mid-2014 slump in oil prices.

The oil giant has included Albania on its map of more than a century of key discoveries thanks to its early 2013 Shpirag 2 well discovery in excess of 800 million of oil and flowing at rates of 800 to 1,300 barrels of oil per day.

The Albanian government says the contract with Shell is the first in the oil sector that enables the country to earn a portion from the first oil production in addition to the mining royalty.

The oil industry produces Albania’s second largest exports and employs more than 3,000 people, but what the Albanian government gets from exports is only a 10 percent royalty tax as no company currently pays the controversial 50 percent corporate income rate, which under current contracts, concessionaires start paying once they meet investment costs.

Most oil extracted in Albania is exported as crude, making it a low value added product and a portion of it goes to a local refiner which has changed hands several times following its failed 2008 privatization, going bankrupt and closing down several times.

Shell’s apparent investment could also save Albania’s FDI prospects as TAP and the Devoll hydropower plant, the two major energy-related projects that drove FDI and economic growth for the past four years, are set to complete their investment stage by the end of this year, leaving a huge FDI gap of €200 million starting next year.

Residents of the Molisht and Mbreshtan villages in Berat are the lucky ones, with apparent production making them eligible to rent for the lands they own and new employment opportunities although oil operations could hamper their agriculture farms and negatively affect the quality of environment.

Rohan D’Souza, Shell’s Albania director, has told local media the company is drilling a new oil well whose positive test results by the end of this year could pave the way for huge investment estimated at multiple billions of dollars in the development stage by building the production and support infrastructure.

The company is however, unclear about the tax policy that Albania authorities will pursue, saying that its contract allows it to operate under a special tax framework while tax authorities don’t recognize that.

Albania produced 956,000 metric tons of crude oil in 2017, down about 10 percent compared to 2016 and about 30 percent less compared to the peak 2014 production of 1.36 million metric tons just before oil prices embarked on a downward trend, according to data published by state-run Albpetrol oil company.

Canada-based Bankers Petroleum, the country’s largest oil producer which in mid-2016 was fully acquired by China’s Geo Jade, accounted for the overwhelming majority of 90 percent of total domestic production.

Brent crude oil prices have currently recovered to $76.7 a barrel, up from as low as $30 a barrel in early 2016, riving investment in Albania’s oil industry.

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.

Tirana Times
By Tirana Times June 14, 2018 10:32