Draft contracts on oil and gas exploration and production in offshore of Montenegro presented

Podgorica, Montenegro (28 March 2016) -- At the press conference held earlier today, Acting Director of Montenegro's Hydrocarbons Directorate Vladan Dubljević presented the Draft contracts on oil and gas exploration and production in the offshore of Montenegro.

The state of Montenegro and the selected concessionaires, the Italian oil company ENI (50%) and Russian energy company Navatek (50%), will sign the Contract on Hydrocarbon Production Concession defining the relations between the two parties. The concessionaires will also sign two more contracts - on joint operations and on accounting records, which will be integrated into the Contract on Hydrocarbon Production Concession, Mr Dubljević explained. He added that the Contract on Hydrocarbon Production Concession is not a commercial contract, as it does not include financial aspects, which had been stipulated by the law.

The awarded area is 1.1228km2 long and includes four blocks in the Adriatic. The entire process covered by the contracts implies a research phase, with two exploration periods of four plus three years, and the production phase of 20 years, Mr Dubljević noted.

The unconditional bank guarantee for the performance of the mandatory working programme (two exploration periods, respectively) has been issued on 100% of the value of the work. The value of the guarantee for the first research period for both companies is EUR 85 million.

The governing law for the contracts is the Montenegrin law, and the governing law for potential arbitrary proceedings in Vienna is the Montenegrin law as well, Mr Dubljević stated, adding that the contracts have no stabilisation clauses and that they have been standardised and will be applied in all cases of awarding concessions for oil and gas exploitation and production.

Montenegro will collect revenues from taxes and fees on oil and gas production, he stressed.

“The state will start to collect revenues from the companies once they start to make profit, and more they produce the higher fee rate for produced oil and gas they will have to pay,” he explained.

The benefits of this project are multiple and the state will collect from perspective oil and gas production companies from 62 to 68 percent of their net profits, Mr Dubljević noted.

In addition, there are direct revenues, such as the compensation for the area amounting to EUR 300 per km2 (revenue of the budget), a 5-12% fee on produced oil (depending on the volume of production), as well as 2%-gas production fee (the budget revenues), a 54%-tax on the net profit of the companies, of which 85% goes to the oil fund and 15% to the budget, as well as a 9%-tax on dividends, which is also the budget revenue.

With regard to environmental protection, the contracts and other regulations, among other things, prescribes for mandatory compliance with the relevant environment legislation, Mr Vladan Dubljević concluded.