Shell Exploration Co, part of oil major Royal Dutch Shell, is pulling out of oil exploration in Bosnia worth up to $700 million, citing a changed energy environment, a letter from the company and seen by Reuters showed on Sept. 30.

In 2011, Shell and the government of Bosnia's autonomous Bosniak-Croat Federation signed a memorandum of understanding (MOU) aimed at reaching a deal on a petroleum license.

The memorandum was extended in 2013 and 2014 to enable the parties potentially to negotiate the license but "such negotiations have not started and the MOU expires on Nov. 4", Shell said in a notice to the government.

Shell said it would not seek to extend the deal further "following an internal portfolio review and in the light of the current oil and gas environment".

Earlier this week, Shell abandoned its Arctic search for oil after failing to find enough crude.

Its investment in Bosnia was due to range between $300 million and $700 million, depending on the number of drilling sites, the government had said earlier. Company spokeswoman Jeanette Hamster declined to provide additional comment.

Stipo Buljan, secretary at the federation's energy ministry, said the government would debate Shell's letter.

The ministry had called a series of tenders seeking consultants to help it with the process of awarding a license to Shell but failed to attract a favourable bid.

It had agreed on a preliminary basis to award Shell a concession in the Dinaridi area, stretching from the town of Bihac in the west to the Adriatic town of Neum in the south.

Experts say that southern deposits, located at a depth of 4,000 to 8,000 metres, could contain up to 500 million tonnes of oil reserves, while northern deposits are estimated at 70 million tonnes.

Shell said its decision was based on a global portfolio review and not on the potential of the area.

Before the 1992-95 Bosnian war, U.S. and British researchers identified several potential oilfields in the Balkan country.