Upon request of the Oil and Gas Employers’ Federation (OGEF), Deloitte performed a study where they analyzed the actual royalties and similar taxes as a percentage of revenues observed in exploration and production of oil and gas (”upstream”) in Europe.
Quote OGEF: “During the public talks on fiscal system on Oil & Gas, there were some opinions that the system in Romania should be in-line with European average level. We wanted to see what the level of this European average is and how it can be calculated, taking into account differences between countries in terms of production level and structure, as well as their fiscal systems. Some countries have systems based on profit others on revenues, some offer fiscal incentives etc; for example, in Great Britain fiscal incentives are granted for marginal fields while in Poland wells with low productivity are exempted from royalties. Therefore, all these fiscal systems had to be brought to a common denominator”.
Effective tax rate vs nominal rates
According to Deloitte analysis, as fiscal regime for oil companies differs from one country to another depending on the level and structure of hydrocarbon production, on energy strategy and other factors, comparing nominal tax rates would have been irrelevant. Using publicly available information, Deloitte calculated the actual royalties and similar taxes as percentage of upstream companies’ revenues (being a common denominator). Thus, Romania has a rate of approximately 13.9%, while the European average comes to only 12.2%. If the Groningen field is excluded from this European average (the largest gas field in Europe and the tenth largest in the world), this average drops to 9.6%.
Well productivity correlated with averages
The study also reveals the correlation of well productivity to actual royalties incurred. Thus, countries with low productivity have a lower Royalty and similar taxes level than countries with high productivity. With a production of less than 40 boe/well/day, Romania is one of the countries with low productivity, together with Poland, France, Bulgaria, Lithuania or Turkey. The average effective special tax rate for these countries is 6.9% vs. 13.9% in Romania. The study has been performed based on public information valid for 2013, except for the cases where more recent information was available; in 2013 the average Brent price for crude was 109 USD/bbl. For the calculation of the average for upstream in Romania, the following were taken into account, besides royalties: constructions tax, tax on crude from domestic production, additional revenues tax following the deregulation of gas prices, and the tax on exploitation of natural resources, other than gas.