All posts by Nicholas S Hammond

Romania. Oil and Gas Law – Exploration and Production

Having large oil and natural gas reserves, Romania is one of the least fossil fuel energy dependent member of the European Union and the only significant producer of hydrocarbons in South Eastern Europe.

In 2015, according to BP estimates, Romania had proven oil reserves of 100 million tons, while the natural gas reserves amounted to 100 billion cubic meters (without taking into consideration the significant potential of the Black Sea, estimated to enter production by 2020). As per BP statistical data, in 2015 Romania had a daily oil production of 84 thousand barrels and a yearly natural gas production of 10,3 billion cubic meters.

Currently, the activities related to the oil and natural gas sector are regulated by Law No. 238/2004 (Petroleum Law) and Government Resolution No. 2075/2004, approving the implementation rules of the Petroleum Law. These pieces of legislation fully transpose the provisions of Directive 94/22/EC relating to the conditions for granting and using authorisations for the prospecting, exploration and production of hydrocarbons.

The competent authority in relation to the upstream (oil and gas) activity in Romania is the National Agency for Mineral Resources (A.N.R.M.), which is organized and operates as a specialized structure of the central public administration, with legal personality and subordinated to the Government and coordinated by the Prime Minister.

The Romanian Constitution along with the petroleum legislation deems that all oil and natural gas reserves are the exclusive property of the Romanian State. Therefore, as a prerequisite condition for developing these resources, a private investor is required to acquire a concession right over the State-owned resources, whereby it is granted the right to perform petroleum operations within a defined surface area (known as a petroleum block).

To take advantage of this the investor has the option to either (i) execute a contract with A.N.R.M., as the representative of the Romanian State, under a document described as a “petroleum agreement” or (ii) negotiate a transfer of the existing concession held by an existing petroleum operator.

As regards option (i), the petroleum agreement is concluded by the private investor/operator who has been designated as the successful bidder during the public procurement rocesss whereby bids are requested for the concession of petroleum operations (“concession rounds”). Therefore, the private investor is required to attend the tendering process organized by A.N.R.M.

The concession right granted by a petroleum agreement has the advantage of being exclusive. Therefore, the title holder of the respective petroleum agreement is the sole person entitled to conduct the petroleum operations within the limits the the petroleum block/s awarded to him. The petroleum agreements are concluded for up to thirty (30) years, with the possibility of an extension for another fifteen (15) years.

By comparison, option (ii) implies that the investor directly negotiates with an existing petroleum operator for the transfer of the existing concession right held by the latter to the prospective new investor. This option has the advantage that the parties can decide upon such transfer at any given moment, without being required to comply with the terms and deadlines set out and implied in the public procurement procedure.

However, this transfer is conditional upon the receipt of a prior written approval from A.N.R.M and only then will there be a valid transfer of the rights and obligations. The authority only grants such approval to private investors who have the know-how, technical capabilities and financial means required to perform the operations as agreed under the terms of the original existing petroleum agreement.

In addition to the above, the petroleum legislation provides for the possibility that a private investor can perform exploration operations alone, based upon a “prospecting permit”, again issued by A.N.R.M. This Prospecting Permit is valid for three years. One issue is that such a permit is not exclusive, meaning that there can e several holders of a prospecting permit who may conduct exploration operations in the same petroleum block. Nonetheless, exploration carried out based on a prospecting permit has the advantage of allowing investigations and prospecting being undertaken before requiring anactual investment decision, prior to the applying for and obtaining an actual petroleum agreement. The risk is there however that the investor may not be the successful winner in any tendering and public procurement process.

From the commencement of production, the oil and gas operators will be liable to the State for royalties, computed as a varying percentage of the value of the gross production extracted from each well. Such value is established by A.N.R.M. against a reference price, based on production levels indicated by the operator.

According to recent statements made by the Romanian officials, in 2017 new oil and gas fields are expected to be put up for public tendering. An estimated 28 petroleum blocks for the exploration and production activities of oil and natural gas (both onshore and offshore) are expected to become available through the public procurement process.

In addition, the Romanian Government intends to revisit the petroleum legislation so as to facilitate the access by the upstream operators to the petroleum blocks. Moreover, a new National Energy Strategy for Romania is pending approval.

Another recent positive development is regarding the elimination, as of January 1st 2017, of the tax on the value of ‘special constructions’ (the so-called pillar tax) which had affected the industry since its enforcement in 2014. This makes the investments more attractive. There are also expected further changes regarding the fiscal system which currently applies to oil and gas operations.

All the above shows that Romania continues to be a possible attractive area for oil exploration and extraction. It is hoped that the next round will be such that the extraction of these energy sources together with alternative energy will continue to mean that Romania will continue to have a lower energy import bill than her surrounding neighbours.

Irina Zamfir
Nicholas S Hammond
Office@Hammond-minciu.com