Croatia’s offshore upstream sector: Largely underexplored with potential for substantial oil and gas discoveries?
Current offshore hydrocarbons exploration and production activities are being carried out at three gas fields in the area of the Northern Adriatic. But the Croatian upstream sector is being put into focus with the government’s plan to substantially expand oil and gas exploration and production activities in Croatia.
In 2013 and 2014, a completely new hydrocarbon regulatory and fiscal framework was introduced in Croatia. On 2 April 2014, the Croatian Government launched the country’s first international offshore licence round for the exploration of 29 blocks in the Adriatic Sea, covering ca 37,000 km². The first production sharing agreements (PSA) are expected to be signed in March 2015.1
While the recent government actions are primarily aimed to boost investment in Croatia’s upstream gas and oil sector, there are serious concerns among environmental NGOs and the public that the offshore drilling plans in the Adriatic pose a significant threat to the marine environment and coastal economies, as well as to human health.
Current Croatia’s offshore regulatory framework
At present, there are various pieces of primary and secondary legislation applicable to the oil and gas operations. The Mining Act (Zakon o rudarstvu; ZR)2, put into effect on 18 May 2013, provides a legal framework for the exploration and production of mineral resources in general. The Hydrocarbons Exploration and Production Act (Zakon o istraživanju i eksploataciji; ZIEU),3 put into effect on 30 July 2013, primarily governs the exploration and production of hydrocarbons.
The Croatian Ministry of Economy (Ministarstvo gospodarstva; MINGO) and the Croatian Hydrocarbons Agency (Agencija za ugljikovodike; AZU), put into operation in February 2014, are the main state administration authorities competent for the organisation and supervision of hydrocarbons exploration and production activities.
As a rule, the safety and protection of human health and property, and the protection of nature and the environment, must be paramount in offshore operations. The Ordinance on the main Technical Requirements on Safety and Security of Offshore Exploration and Production of Hydrocarbons in the Republic of Croatia (Pravilnik o bitnim tehničkim zahtjevima, sigurnosti i zaštiti pri istraživanju i eksploataciji ugljikovodika iz podmorja Republike Hrvatske)4 sets out special minimum requirements applicable to offshore oil and gas operations.
As regards environmental protection, in addition to the measures enshrined in Croatian laws, rules and regulations, and EU regulations, a whole set of specific measures will have to be implemented in the course of offshore oil and gas operations to prevent and reduce pollution in case of accident and to achieve a high level of environmental protection.5
Key changes required by the EU Offshore Safety Directive
Following the Deepwater Horizon oil spill in the Gulf of Mexico in April 2010, a new EU Offshore Safety Directive (OSD)6 came into effect on 18 July 2013. The OSD established an EU-wide safety and liability regime aimed at “reducing as far as possible the occurrence of major accidents relating to offshore oil and gas operations and limiting their consequences”. So the highest safety standards will have to be followed at every oil and gas platform across Europe.
Apart from Croatia’s offshore safety and environmental measures described above, further changes are necessary to the Croatian legislation. In particular, Croatia must fully comply with the new regulatory requirements in relation to (i) safety and environmental considerations relating to licencing, (ii) extension of environmental liability to cover all waters within continental shelf of the Member States, (iii) increased reporting requirements, (iv) appointment of the competent authority to be responsible for regulatory functions and clear separation from any of the regulatory functions relating to the economic development of the offshore natural resources, licencing and revenue management, (iv) financial liability of licence holders for environmental damage, (v) operations outside the EU, etc.
Implications for the offshore business in Croatia
Since Croatia has until 19 July 2015 to transpose the OSD’s requirements into national law, the implementation of the OSD will have implications on the responsibilities and liability of offshore operators and licence holders in Croatia. Operators of planned offshore gas and oil installations and operations in Croatia will have to comply with new national legislation by 19 July 2016. However, existing installations will have until 19 July 2018 to comply with the new regulatory requirements.
Finally, it is still unclear whether additional regulatory requirements to be imposed on both operators and authorities to meet the OSD’s requirements will reduce day-to-day risks of offshore oil and gas accidents.
Although Croatia has until 19 July 2015 to transpose the OSD's requirements into national law, it remains to be seen whether the introduction of implementing legislation will indeed sufficiently protect Croatia's coastal and marine environment in light of upcoming offshore oil and gas operations in the Adriatic Sea.
1The closing date for tender submission is 3 November 2014. Further information on the offshore licence round is available at: http://www.azu.hr/1st-offshore-license-round.
2Official Gazette nos. 56⁄13 and 14/14.
3Official Gazette nos. 94⁄13 and 14/14.
4Official Gazette no. 52⁄10.
5See, to that effect, Annex 2 of the Tender Guidance to apply for 1st Croatian offshore licensing round for licenses for the exploration and production of hydrocarbons available at: http://www.azu.hr/1st-offshore-license-round.
6Directive 2013/30/EU of the European Parliament and of the Council of 12 June 2013 on safety of offshore oil and gas operations and amending Directive 2004/35/EC (OJ L 178, 28.6.2013, p. 66 – 106).