February 4, 2008

Daily Reviews State of Montenegro’s Oil, Gas Fields

Text of report by Montenegrin newspaper Monitor website on 11 January

["Wha the Blue Zone Holds"]

The story about Montenegro becoming a second Kuwait, which had almost been forgotten, came to the fore again recently during a parliamentary debate about the proposed Law on the Sea. The opposition demand that Montenegro establish a sea border with Croatia as soon as possible in order to avoid any potential argument over oil finds near Prevlaka, in the so-called Blue Zone, reminded many of decades of oil prospecting in that part of the Adriatic. The story also came to the surface following the government announcement in the summer that it was issuing a tender for undersea oil and gas prospecting off the Montenegrin coast.


Prospecting for undersea oil and gas off Montenegro started in 1970, when Jugopetrol from Kotor concluded a deal with the US Butte Gas and Oil Company. The deal covered prospecting of the region from the border with Albania to Prevlaka. All the prospecting work was carried out by the joint Jugopetrol Adriatic enterprise. Its first director was Danilo Grba, the man who created the business policy, and the coordinator of the prospecting was Tihomir Dragasevic, a professor at the Belgrade Faculty of Technology. John Boreta, who was originally from Kotor, was the main financial backer of the prospecting work.

The Butte Gas and Oil Company later handed over prospecting to the Chevron company from San Francisco, which had more luck. Chevron's platform, 13 kms south of Prevlaka, saw a gush of oil in the mid-1980's. This was the first appearance of oil on the surface of the Adriatic Sea in the former Yugoslavia.

Experts assessed the oil as being of high quality, as much as 20 times better than oil from Vojvodina, but its exploitation was too costly since it lay at a depth of 5,000 metres. They concluded: "This is a good find for the future."

The prospecting was carefully watched by inspectors from the SDB [State Security Service]. One of them remembers it well: "The Montenegrin authorities at the time paid great attention to finding oil. The day after the oil was found, Montenegrin President Veljko Mijatovic landed on the Peknors platform. For a long while I kept two bottles of newly-found 'Montenegrin' oil on my desk as a curiosity."

When Chevron's contract with Jugopetrol ran out, another US oil company, Mobil from Dallas, expressed interest in prospecting. But although the contract was lined up to be signed, it fell through after the US State Department warned that the FRY was a risky country for capital investments. But despite the political crisis and economic sanctions at the time, there was no let up in interest for oil prospecting in the Montenegrin region. Prospecting was carried on by the Occidentale company from the United States and Medusa and Remco from Britain.

Kuwait in Adriatic

Seven years ago the Montenegrin media carried reports from London's Sunday Times about the discovery of a large oil field in the Montenegrin sector of the Adriatic. The paper reported that the oil and gas reserves were sufficient to fulfil the needs of the whole of the Balkans and part of Italy! These optimistic assessments were also published by the Remco company on its website: it said the fields held 3-5 billion barrels of oil and gas. The reaction of the public in Montenegro was controversial. Some saw Montenegro as Kuwait, while others said that this was just propaganda put out by Montenegrin President Milo Djukanovic with the aim of showing that Montenegro could survive economically without Serbia.

Sources in Kotor's Jugopetrol said that sources of oil did indeed exist, but warned that "too much dust" has been generated over this in the press.

The Greek company Hellenic Petroleum later got involved in prospecting, but in summer 2006 the Montenegrin Government abolished its concession on oil and gas prospecting, work worth several hundred million euros. Dissatisfied with Hellenic Petroleum's prospecting, the government decided to form a commission to carry out a comprehensive analysis of all oil and gas prospecting carried out on the Montenegrin littoral.

"There is data indicating that prospecting should continue, and the Government has ambitious plans connected with this," Montenegrin Deputy Prime Minister Vujica Lazovic explained a few months ago.

The potential oil reserves in Montenegro amount to about 7 billion barrels, with 425 billion cubic metres of natural gas. This is according to estimates published by foreign experts last August in their Strategy for the Development of Montenegro's Power Industry Until 2025.

Border Oil

The oil find near Prevlaka has been precisely marked, and it is only after the permanent sea border with Croatia is delineated that the proportion falling to Montenegro will be known.

One of the key people involved in oil prospecting near Prevlaka over the years explains for Monitor:

"The undersea border between Montenegro and Croatia was defined by rulings by the Federal Government of the Socialist Federal Republic of Yugoslavia, which granted oil and gas prospecting rights to Jugopetrol in Kotor, which was the state oil company of Montenegro, for the prospecting region defined in rulings as the Montenegrin Undersea Region.

"This means that it was then defined and accepted by the then Socialist Republic of Croatia and its national company, INA Naftaplin. On the basis of this 'Montenegrin Undersea,' Jugopetrol concluded a number of contracts with foreign and local oil companies, and in all of these the region is described as the 'Undersea of Montenegro.'"

If Montenegro loses even one metre of this region, he says, then Montenegro would be the only republic in the former Yugoslavia to remain without part of its territory after the break up of the former Yugoslavia.

He notes that the basic provisions of the Dayton Agreement stipulate that present-day Montenegro should retain the territory of the former Socialist Republic of Montenegro, which includes the area under the sea.

The undersea area of the Socialist Republic of Montenegro amounted to 9,000 square kilometres, and documentation concerning this has been archived. This means that the undersea area of Montenegro today should remain the same, says our source.

Of course, the Croatian side, too, has its view of the border, and the final outcome will depend on peoples' ability to advance their arguments and on the good will shown by the two sides in listening to each other.


During the debate in the Montenegrin Parliament on the proposed Law on the Sea, the Group for Changes made a few critical remarks about the document. One of the Group's deputies, Emin Durakovic, told our paper that the proposal did not provide a precise definition of the status of the Bay of Kotor, or of the line of the territorial sea in accordance with the Temporary Demarcation Protocol for Prevlaka.

"We believe that the proposed legal provisions, which define the starting line for the territorial sea, that is to say the line that closes the internal sea waters, mean a considerable reduction in the area of Montenegro's internal sea waters as compared to the Protocol that has been signed on the temporary regime for Prevlaka," says Durakovic.

During their meeting in Zagreb last year Filip Vujanovic and Stipe Mesic agreed the following: "The border of Montenegro and Croatia at the Prevlaka peninsula has been defined by a temporary agreement that functions perfectly well, and there is no need to aggravate the issue."

In the meantime oil prospecting has been carried out at Prevlaka, which suggests that instead of a temporary solution a permanent agreement should be reached.

"We must know the value of our sea and where our state borders are taking us," the opposition warned the governing coalition during the debate on the Proposed Law on the Sea.

The value of the sea included the fate of the oil finds by Prevlaka.

Start off Buljarica

The first oil prospecting in Montenegro started in 1951. Five big shafts more than 3,000 metres deep were started off Buljarica, not far from the shore. The prospecting was soon cut short, but the broader public was never told why. Further prospecting was started in the Crmnica region, about 20 kms off the Adriatic coast, in 1990, but that too was stopped.

The costs of the prospecting carried out in Montenegro since 1973 is put at 100 million euros.

It is estimated that by 2025 oil consumption in Montenegro will increase by 40-60 per cent compared to the figure in 2003.

Originally published by Monitor website, Podgorica, in Serbian 11 Jan 08.

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