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Upstream sector in Romania

Government plans to prohibit the increase in royalties for petroleum companies with offshore concessions in the Black Sea

imaginePetroleum companies with offshore oil and gas concessions in Romania, in the Black Sea, in progress, will have the same regime of royalties valid on the date of signing the petroleum concession agreements, throughout their performance, according to a draft law prepared by the Government. Moreover, the draft contains a provision according to which the regime of royalties applied to offshore oil and gas concessions in the Black Sea, in force on the date of entry into force of the law, cannot become in any way more burdensome for the holding companies than the one provided by the petroleum concession agreements.

"(1) Title holders of petroleum agreements subject to this law benefit, throughout the performance of the petroleum agreement, from the royalty level, percentage rates of petroleum royalty and gross production thresholds related to these rates, existing on the date of signing the petroleum agreement.

(2) The regime of royalties applicable to title holders of petroleum agreements regarding offshore petroleum blocks in progress at the time of entry into force of this law shall not become, in any way, more onerous than the one set out in paragraph (1).

(3) The National Agency for Mineral Resources NAMR - Ed.) shall conclude addenda to the petroleum agreements regarding the offshore petroleum blocks in progress on the date of entry into force of this law to reflect the provisions of this article at contractual level" - the government text reads.

The draft mentions that "In the event where a title holder is a party to a petroleum agreement that relates to both onshore and offshore petroleum blocks or is the holder of one/several petroleum agreement(s) pertaining to both onshore petroleum blocks and offshore petroleum blocks, the provisions of this law apply only to petroleum operations carried out in relation to the offshore petroleum blocks".

Companies holding petroleum concession agreements for offshore oil and gas blocks are OMV Petrom, alone and in partnership with ExxonMobil, the consortium Lukoil-PanAtlantic Petroleum- Romgaz, Black Sea Oil&Gas and Petromar Resources. The most important offshore petroleum agreement, the one signed with OMV Petrom and ExxonMobil for the Neptun Deep block, is valid until 2030.

In May, former PM Sorin Grindeanu said that the new law on royalties was being prepared and that the draft would be ready that quarter and put up for public debate, which did not happen. The former Economy Minister and the current Prime Minister, Mihai Tudose, said the same thing, adding that the new law would establish different regimes of royalties for onshore and offshore petroleum exploitations, as investments in offshore are much larger and the fields - more difficult to access.

The same month, NAMR launched for public debate a draft for changing the formula for calculating royalties due to the state by gas producers, by changing the reference price of gas at which the percentage rates of royalty provided for in the Petroleum Law are applied, price not updated since 2008. If the change considered by the Agency is adopted and the domestic gas production maintains at levels comparable to the current ones, it would lead to a significant increase in the amounts due to the state by petroleum companies.

Royalties currently in force, provided by both the Petroleum Law of 2004 and the petroleum agreements signed with the profile companies, are percentages of the gross value of production extracted. For oil, they amount to 3.5% for fields producing less than 10,000 tons/quarter, 5% for fields producing between 10,000 and 20,000 tons/quarter, 7% for fields producing between 20,000 and 100,000 tons/quarter, 13.5% for fields producing over 100,000 tons/quarter. For natural gas, royalties amount to 3.5% for fields producing less than 1mln cu m/quarter, 7.5% for fields producing between 1 and 5mln cu m/quarter, 9% for fields producing between 5mln and 20mln cu m per quarter and 13% for fields producing over 20mln cu m/quarter. Last year, the state budget collected from petroleum royalties the total amount of RON 1.067bn, by over 16% lower than the revenues from 2015, due to lower selling prices on the oil and gas markets.

The discussion on Government's legal possibility to increase royalties for the concession agreements in force above the levels provided by those agreements dates back in 2014. The prime minister at the time, Victor Ponta, said a new law on royalties couldn't be applied retrospectively, meaning that it could target only petroleum agreements signed after its entry into force. Moreover, the Petroleum Law currently in force states that "Provisions of the petroleum agreement will remain valid throughout its duration, unless legal provisions are adopted in favor of the petroleum agreement holder".

The Government approved in January a note on drawing up a legal act to systematize royalties in the field of mineral resources, in conditions in which the Government program based on which the Executive received the vote of confidence of the Parliament provides for a supplementary charge of at least 20% on profits obtained from the extraction of natural resources, to the extent in which these resources are not processed in Romania. Ponta Government has negotiated in 2015 with the International Monetary Fund (IMF) the introduction of a new tax, amounting to 35%, on the profit recorded by oil and gas companies exclusively from their upstream activities. The draft was taken over by Ciolos Government, but hasn't been adopted.

The draft legal act provided that the state would apply to oil and gas producers a supplementary charge, called "petroleum tax", of 35% on the upstream profit, with an additional deduction of 15% for new investments, and would cancel the incentives granted in 1999, which currently allow these companies not to pay tax on oil and gas or customs fees for exports. The draft stipulated that the new system would be applied gradually, first for oil and gas and only subsequently for mineral resources, and will be maintained for a period of 20 years, double compared to the period of current royalties.

 

Source: profit.ro

 

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