Albania: “Changes To Hydrocarbons Law To Enhance Operations In The Upstream Sector”

Albania is the largest exporter of crude oil in the Energy Community and is home to the largest onshore oil field in Europe (i.e. Patos Marinza). A number of foreign investors have already entered this market, yet regulation of the upstream sector is based on old and not comprehensive legislation from 1993 (amended several times), which does not reflect the latest development of the sector related to exploration and production of hydrocarbons in Albania.

In respect to this oil and gas sector, regulatory and policy developments have long been underway and discussed with relevant stakeholders as part of the overall state energy strategy. However, new amendments to the existing law no. 7746 / 1993 “On Hydrocarbons” (exploration and production), as amended (the “Hydrocarbons Law“) have only been adopted on 2 Feb 2017, striving to regulate the activity of exploration and production of hydrocarbons in Albania.

The governmental objective introduced in these latest amendments, is to negotiate the terms of the Petroleum Agreements in the oil industry [the most common type of which used in Albania is a Production Sharing Agreement (“PSA“)] in a fair, transparent and competitive manner, to protect Albanian natural resources (inland and offshore) which are state owned, by guaranteeing the country’ national security, in line with the principles of Directive 94/22/EC of the European Parliament and of the Council “On the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons”. Based on this principles, the execution of new PSAs or share transfers in existing Petroleum Agreements can be rejected by the relevant authorities in case there is any indication of Albanian national security infringement.

Whilst the right of explorations have remained unchanged, that means that can be conducted for a period of 5 years (subject to further extension up to the utmost period of 7 years), exclusive rights to exploit hydrocarbons now can be extended up to 5 years in maximum following the initial period of 25 years. Appraisal period has been definitely separated from the exploration period.

New changes give the possibility to contractor to benefit from fiscal stability clauses, up to 12 years from production of hydrocarbons, by keeping tax liabilities at same level during the 12 years’ period.

Along with the Natural Agency for Natural Resources (“AKBN“) which was created back in 2006 to deal, inter alia, with hydrocarbon activities on behalf of the Albanian state and operating as a specialized institution dealing with the negotiations of the PSA, the monitoring of petroleum activities and policy-making, the new legislative amendments aim to establish a new authority in charge of all technical consultancy services, scientifically speaking. The Scientific Hydrocarbon Institute will be responsible for conducting all studies, analysis, providing consultancy services and acting as a technical opponent of proposed projects in this sector, monitoring the implementation of relevant production sharing agreements during the exploration and development of hydrocarbons in Albania, on behalf of relevant state authorities (not only in the hydrocarbon sector but also in relation to the refining, transport and trade of hydrocarbons and its by-products). In light of above changes, the competences of AKBN will be revisited and a new agency responsible for hydrocarbons (currently operating as a department of the AKBN) will be in charge of some of competences performed currently by AKBN.

While this amendments have been introduced to facilitate incoming foreign direct investment in the hydrocarbon sector, it remains to be seen whether the new rules and newly established structures will contribute to promote more exploration opportunities in Albania during 2017.

February 15, 2017

by AEA in News

Pennine signs Velca Block PSA, anticipates into Albania’s energy industry.

“Pennine” is pleased to announce that it has signed a Production Sharing Agreement (“PSA”) with Albpetrol Sh.A (“Albpetrol”) for the exploration and development of the Velca Block in Albania.

The finalized PSA contains a license agreement signed by Pennine, Albania’s Ministry of Energy and Industry, and Albpetrol, the country’s state-owned energy firm, for a six(6)-year exploratory lease-convertible to a 25-year production lease, upon discovery of oil and/or natural gas accumulations.

“This is a very exciting day for Pennine. Albania has a long history of oil and gas development dating back nearly a century, and Pennine is excited to bring its expertise to this region” says Chief Executive Officer N. Desmond Smith.

“Albania has mature energy infrastructure, established legislation and regulations, and a recent history of significant foreign investment for the development of its energy sector,” adds Mr. Smith. “We look forward to working in the Republic of Albania, providing value to Pennine shareholders, and bringing prosperity to the people of Albania.”

Pennine intends to initiate a Technical Report in the next 60 days, and with existing data, identify potential drilling targets within the Velca Block.

Pennine is currently working with industry experts from Albpetrol and the Ministry of Energy and Industry in an advisory committee, with Pennine acting as operator.

“Our understanding and experience with Albania has enabled us to develop a partnership with the Albanian government and Albpetrol through a new production sharing agreement. We believe this agreement provides a balanced risk-and-reward contract for the exploration and development of the Velca Block-and, we hope, many other opportunities in Albania,” says Pennine chairman Richard Wadsworth, who led Bankers Petroleum Ltd. in re-developing the Patos Marinza oilfield as its president from 2004 through 2008.

“We look forward to a seamless integration of Pennine into Albania’s oil and gas exploration and development landscape.”

The PSA consists of an Exploration Phase and a Drilling Phase. Under the Exploration Phase, Pennine and Albpetrol will conduct an examination of all currently existing geological, geophysical and well data on the Velca Block, and conduct any processing or re-processing of data to select drilling targets. The Drilling Phase will consist of a commitment to drill a minimum of two (2) wells, to a minimum depth of 2,500 metres.

Pennine will recover all exploration and development costs from 90% of the net operating revenue, after the state’s 10% royalty tax, then subject to an R-factor revenue sharing with Albpetrol, ranging from 2% to 15% of net operating revenue, depending on the multiple of cost recovery to the project. After payout of all costs, the interest in the revenue stream is shared, with 50% earmarked for the Albania Ministry of Energy and Industry and 50% for the participants of the PSA (a 100% working interest before payout and a 50% working interest after payout).

Main terms and conditions of the Velca Block PSA were signed in February 2016. Pennine and Albpetrol agreed in April 2016 to the terms of the PSA and submitted the document to Albania’s Ministry of Energy and Industry for approval. Pennine reviewed the License Agreement, an integral component of the PSA, in December 2016.

In connection with this transaction, Pennine will pay a finder’s fee to an arm’s-length entity through the issuance of up to 7,000,000 common shares subject to TSX Venture Exchange policy.