Royalties collected by the Romanian state for the exploitation of hydrocarbon resources (oil and gas) last year climbed to RON 1.06bn, by 30% higher than the level recorded in the previous year, according to information provided by the National Agency for Mineral Resources. The increase comes especially from the gas sector, where the amount of royalties paid increased by 50%, from RON 579mln to RON 798mln. In terms of oil, the amounts paid remained relatively constant, RON 260mln in 2017 compared to RON 218mln in 2016. The top five gas royalty payers in terms of value are Petrom, Romgaz, Mazarine Energy, Amromco Energy and Stratum Energy. Although separate data have been requested for each company, NAMR has not provided them.
The top five oil royalty payers are Petrom, Stratum Energy, Hunt Oil Company of Romania, Romgaz and Amromco. Notably, the amounts collected for gas are three times higher than those for oil, evidence that Romania's oil production, mostly covered by Petrom, is of small sizes. The slight increase in the amount collected from royalties is due to higher prices of Brent oil, the reference for Romania, which increased from USD 43.55/bbl in 2016 to USD 54.25/bbl last year.
The royalty calculation formula weights production to international prices. Petrom representatives mentioned, on the occasion of presenting the report for 2017, that oil production drops continuously. In 2017 it fell by 4%, after another decline by 2.5% in 2016, and the estimates for 2018 show another drop by 4%. Oil production has been falling for a decade, as the fields are depleted. Investments in exploration and production are made, but most fields in Romania are mature. "Managing the decline around 4%, compared to last year, without including the portfolio optimization initiatives", "Portfolio optimization: continuously focusing on the most profitable barrels, other 50-60 fields following to be sold", Petrom CEO Mariana Gheorghe said. As the local production fell, imports went up, currently two thirds of consumption being ensured from abroad, mainly Kazakhstan and Russia.
Gas prices increased
As far as natural gas is concerned, the massive increase in royalties collected is not due to a larger production. In fact, the adjustment was marginal, almost 11 billion cubic meters in 2017, compared to 10.01 billion cubic meters in 2016. But what changed in the calculation formula was the price. Until last year, the price was determined by NAMR based on a complicated formula that took into account both the regulated price (the market of household consumers was liberalized in April 2017), as well as the market price. But last year the price of gas went up 50%, from RON 60/MWh in summer to RON 90 or even RON 100/MWh in the cold season. The increase was also reflected in the amounts paid as royalties.
What changes in royalties
The current system for the taxation of oil and gas production hasn't been changed since 2004, only now being in process of being changed. Initially, it had to be redesigned in 2014 by Victor Ponta Government, which delayed the decision, the new form taking shape only in 2017. The new royalty system applied to hydrocarbon resources exploited on the territory of Romania was published on the website of the Ministry of Economy on 13 November 2017, being in public debate since then. On 8 March 2018, the interministerial group for the analysis of the Law on royalties was met, the stakeholders making proposals. It is the last stage before the vote, in the plenary of the two parliamentary Chambers. In fact, the new form, at least for gas and oil extracted from the onshore blocks, is the same as the old form.
Thus, the tax rates, set as percentage of production value, remain the same. 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 10 million cubic meters/quarter, 7.5% for fields producing between 10 and 50 million cubic meters/quarter, 9% for fields producing between 50 and 200 million cubic meters per quarter and 13% for fields producing over 200 million cubic meters/quarter.
In turn, certain changes were made for offshore exploitations, in the Black Sea, the new tax system imposing fixed and variable rates, but this tax system will apply strictly for the new concessions. The current concessions, such as those of Exxon - Petrom, LukOil and Carlyle Group, will maintain the same royalties from the moment of receiving the concessions. Also, a novelty is the deadline for paying the royalties, which will be monthly and not quarterly as so far. As far as oil is concerned, the Ministry of Economy proposes a fixed rate of 8% for the entire volume extracted and a variable rate: 4.5% for amounts between 100 and 150,000 tons per quarter, 5% for amounts between 150,000 and 200,000 tons, and 5.5% for amounts extracted of over 200,000 tons. As far as offshore gas is concerned, the fixed rate, applied to the entire volume, is 10% for the entire volume extracted, 2% for quarterly amounts of 200-250 million cubic meters, 2.5% for 250–300 million cubic meters and 3% for over 300 million cubic meters.