Croatia Courts Foreign Offshore Investment

American Association of Petroleum Geologists (AAPG)

The Croatian Hydrocarbons Agency used AAPG’s Annual Convention and Exhibition (ACE) in Houston last month as an opportunity to formally announce that the country’s first offshore license round opened April 2 of this year.

Alen Leveric, Croatia’s deputy minister of economy, personally made the announcement before a packed audience in the auditorium of the International Pavilion of the ACE Exhibit Hall.

He said the license round is a component of the Republic of Croatia’s broader effort to attract foreign investment to the country through a series of new legislative proposals, including the 2013 creation of the Croatian Hydrocarbons Agency, as well as Croatia’s recent membership with NATO and the European Union.

“Joining NATO and the EU means security and stability for investors that come to Croatia,” said Leveric.

He emphasized that most of the infrastructure already exists in Croatia to develop and transport oil and gas, and the prior bureaucratic hurdles were the only significant impediments to exploiting the countries hydrocarbon resources.

“We put special emphasis on encouraging and strengthening the upstream hydrocarbon sector as one of the priorities of the government of Croatia,” he said.

“Now, everything else is up to you,” Leveric added, addressing industry members in attendance.

The country has almost 37,000 square kilometers (about 14,000 square miles) of continental shelf on offer, divided into 29 exploration blocks ranging from 1,000 to 1,600 square kilometers.

Leveric said it’s too early to definitively quantify resource expectations, except to say that the potential is “huge.”

Croatia’s Ministry of the Economy contracted Spectrum ASA to acquire multi-client 2D seismic data, focusing on underexplored areas covering approximately 14,700 kilometers of long offset data with a 5-square-kilometer grid.

Spectrum completed its survey in late January and it extends to both the northern and southern parts of the Croatian Adriatic Sea and the survey grid connects with Spectrum’s reprocessed seismic data covering the Italian Adriatic.  

Within the Northwest Peri-Apenninic Foredeep, four main reservoirs have been identified: Messinian-Upper Pliocene transgressive sand and gravel reservoirs, unconformably resting on a Miocene substratum; sandy beds in the thick turbiditic Pliocene formations in the eastern Po Plain Upper; Pliocene-Pleistocene sands in the Adriatic Homocline; and sandy intercalations in the Pliocene-Pleistocene clay formations.

The main types of hydrocarbon accumulations that have been found in the South Adriatic-Durres Basin are as follow: Cretaceous-Mid Eocene shelf edge and platform carbonates; Oligocene, Lower Pliocene turbidites, Miocene sands; Pleistocene shallow marine sands; and middle Triassic sandstones.

Several plays have been identified in the northern area: Asti group of plays, typically with combined stratigraphic-structural traps (Upper Pliocene-Pleistocene), of which most fields are located in the North Adriatic offshore; Porto Garibaldi group of plays, typically with combined stratigraphic-structural traps (Lower-Upper Pliocene), some of the major fields of which are in the eastern Po Plain and in the adjacent North Adriatic offshore; and the Morro d’Oro Stratigraphic-Structural Play, several fields of which are anticline and stratigraphic traps in the Adriatic Arc onshore and offshore.

Exploration offshore Croatia started in the northern Adriatic in 1968 with the acquisition of 2D seismic data. The most recent discovery was made in 2008 with the Monte Della Crescia gas discovery in the Italian sector.

Leveric explained that the Croatian upstream sector’s fiscal terms are comprised of seven main parameters: an exploration area fee, an exploitation area fee, a signature bonus, a 10-percent royalty, a production bonus, an administration fee, and then, once production commences, revenue will be calculated according to a production-sharing model as opposed to a royalties model.

Under the production-sharing model, contractors’ quarterly profits will be according to the “R-Factor,” which will be calculated by dividing the contractor’s cumulative net revenue by the amount of cumulative capital expenditures.

If the R-Factor is greater than 2, the contractor’s profit share is 60 percent, 70 percent if it’s less than 2 but greater than 1.5, 80 percent if it’s greater than 1 and less than 1.5, and 90 percent is it’s less than 1.

“Your terms aren’t competitive—not with that R-Factor,” said one member of the audience who identified himself as an independent oil and gas developer operating out of the Bakken shale play of North Dakota. He said his state and federal taxes are much less in North Dakota than they would be if he were to operate offshore Croatia, according to the terms outlined by the Croatian government.

“We are in Europe, not North Dakota,” rebutted Leveric.

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