Albania to auction 13 blocks for oil exploration

Albania plans to auction off 13 oil exploration blocks, including one offshore, to oil majors and other foreign companies after a significant discovery has attracted strong interest, a government minister said.

The government previously negotiated contracts one-on-one with foreign oil companies and has now changed its strategy because of “much higher interest over the last months from big international firms”, Energy and Mining Minister Damian Gjiknuri told Reuters on Tuesday.

Royal Dutch Shell and Petromanas Energy Inc said in November they had found good quality oil and gas in test flows from their first well in Shpirag, in southern Albania, and continue drilling to determine the capacity of the reservoir.

“Some reputable companies have expressed interest about specific areas in Albania, probably influenced by the latest discoveries of Shell-Petromanas,” Gjiknuri said in an interview.

“What should a government do when it has various requests for the same block? It is only normal for the government to favour auctions to get the best possible offers,” he added.

Shell, which owns 75 percent of the joint venture, said the results were encouraging and supported “the potential of this oil play in Albania”.

Gjiknuri would not name the foreign companies that have approached Albania since the Socialist-led coalition government took power last September, soon after the botched privatisation of the state-owned Albpetrol oil company.

“They are oil majors and also second-level companies but much more powerful than most companies that have come to Albania, including from beyond the (Atlantic) ocean,” he said.

The government is still discussing the timetable for the auctions or whether to hold separate auctions for selected areas, while the oil and gas law needs to be changed, Gjiknuri said.

The Dumre block in central Albania, sandwiched between two blocks under contract to Petromanas, is drawing strong interest and is likely to be the first to go under the hammer, he said.

The auctions will ensure that the blocks end up with companies that have the financial and technical capacity to invest and develop them, he said.

Some oil blocks in Albania had fallen into the “wrong hands”, Gjiknuri said, citing data that production-sharing contracts with some foreign partners have failed to produce as much from a well as cash-strapped Albpetrol was able to do on its own.

Albania’s crude output amounted to more than 1.2 million tonnes in 2013, including 1.06 million by Canada’s Bankers Petroleum, 87,063 tonnes from Canada’s Stream Oil and 37,406 tonnes by Albpetrol on its own. Three foreign firms produced the rest.

The National Agency of Natural Resources is in the process of recruiting a law firm to advise on its existing contracts. Gjiknuri said this was the logical course of action when a contract had problems but declined to name any specific case.

The government is also mulling whether to restructure Albpetrol to form a partnership with a foreign company, to sell it off entirely or to upgrade its technical ability to monitor the contracts and development of the oil sector, he said.

Reuters, 06.05.2014