TIRANA, June 27 – Albania is renegotiating a contract with oil giant Shell that will impose a limit on the company’s cost recovery in its Albania operations so that the government can collect more in taxes.
Shell Upstream Albania, a wholly-owned subsidiary of the giant Royal Dutch Shell, bought a 25 percent stake from Canada-based Petromans Energy for US$45 million earlier this year, becoming the sole shareholder in the Albanian oil exploration and production operations that the joint venture had been engaged since 2012.
The deal means, Shell currently engaged in major oil exploration projects in southern Albania, will have to pay a portion in profit tax when it starts producing oil. 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.
“For the first time we are putting a cap on expenditure, guaranteeing the Albanian government to get income from the first barrel of oil, unlike what has happened until now when the government got too little apart from royalties even after many years of operations,” said Energy Minister Damian Gjiknuri at the launch of a new Shell oil well drilling in Berat region, southern Albania.
Shell is planning to invest USD 72 million in the Shpirag 3 oil well, an appraisal well to the Shpirag-2 discovery in Berat, in the next one and a half years, the government says.
The energy minister said the fact that Shell did not suspend its Albania operations after the slump in oil prices in mid-2014 shows there’s huge interest in Albania and expectations remain high.
The government says it is also drafting a new oil exploration and production law which will provide investors with increased guarantees.
Prime Minister Edi Rama described Shell’s presence in Albania as clear message that Albania is an open and safe country to invest.
“Shell’s presence is clear testimony for those who want to invest in Albania and not rob or trick the Albanian people,” said Rama.
Reacting to the Prime Minister’s statements, the opposition Democratic Party hailed Shell’s Albania investments but said the high tax policy and deteriorating business climate were driving away big investors such as Bankers Petroleum.
The Albanian oil industry, one of the country’s top exporters, has recently lost a key player, Canada-based Bankers Petroleum, which is about to finalize a C$575 million (€392 mln) sale deal with China’s Geo Jade.
The surprise announcement of Bankers’ sale last March came as the country’s biggest oil producer was facing tough times after more than a decade of operations in Albania due to a sharp cut in international oil prices and tax and environmental disputes with the Albanian government.
The Royal Dutch Shell entered into a joint venture with Petromanas in February 2012 when it acquired a 50 percent stake in exchange for payments and costs of up to US$50 mln. In June 2013, Shell acquired an additional 25 percent stake into Blocks 2-3.
Back in 2015, the Dutch-Canadian joint venture was announced the winner of Block 4, an oil exploration block onshore Albania in an international tender. Block 4, which spans approximately 560,000 gross acres (874 sq miles), is located southeast of the current production sharing contract comprising Blocks 2-3. Contract negotiations with the Albanian government continue.
Navitas Petroleum, a subsidiary of Israeli-based Delek Group was also announced the winner of Dumre block in central Albania.
The sharp cut in international oil prices since mid-2014 has significantly affected investments in oil exploration and production with some of the key operators announcing deals to sell their Albania operations.
Prospects for the remainder of the year appear more optimistic as oil prices have currently recovered to $50 a barrel.
