Romanian Law Puts Future Gas in Doubt: IOCs
Senior executives of three companies seeking to produce gas from the Romanian deepwater sector of the Black Sea made known their feelings about the new offshore regime adopted July 9.
Carlyle-owned Black Sea Oil & Gas (BSOG), OMV subsidiary OMV Petrom, and US supermajor ExxonMobil said that the law as it stood would deter investors, but stopped just short of calling it a deal-breaker.
An April 2018 report by Deloitte said investments in the Romania’s Black Sea oil and gas sector will generate revenues of over $26bn to the public budget and an additional $40bn to the country’s gross domestic product by 2040, as a result of total investments of $22.2bn. It estimated a total production of close to 170bn m³ based on a prudent scenario.
Speaking in the chamber of deputies after the law was passed earlier this week, BSOG CEO Mark Beacom said: “We’ve seen words today that we’ve never seen before. There have been many successive governments that we have been working with, we’ve been given assurances, and those [assurances] are now being broken. Two years ago our company was very close to being able to take the final investment decision [FID]. We just needed to get some of these issues resolved. I can say very clearly that what we have on the table today puts us in a much worse situation to the possibility of taking an FID than we were two years ago. I am sure that was never the intention in this parliamentary meeting.”
Last November, the European Bank for Reconstruction and Development bought a minority stake in BSOG for an undisclosed sum; it did not provide a comment to NGW.
OMV Petrom CEO Cristina Verchere, appointed early this year, said: “I think that my colleagues have commented on the fundamentals of what we have seen today, that I want to come back to the fundamentals of this: Romania sits on a huge opportunity and ability to develop its gas resources in the Black Sea, and what it does for Romania as an energy player in the region – and with that, the potential to bring billions of dollars of investment into this country. One of the key aspects of legislation to enable that is the Offshore Law. As my colleagues mentioned, what we have seen today is more detrimental to the ability to move investment forward in Romania."
The head of ExxonMobil Romania Richard Tasker said: “We saw the text after we came into the room today. We have tried our best to follow the debate and understand the issues and discussions, particularly when it comes to the fiscal regime. The assessment we have made is that this constitutes a significant increase in the level of taxation. Each investor will have to make its own decision. If my understanding is correct, the current form of the provisions will make it more difficult for the investors to make a positive FID. As I have mentioned in other meetings last week, it is critically important that investors have a stable and predictable fiscal regime for the entire life of their investment. We will take away what we have seen and try to analyse it, but this is our impression.”
As well as raising tax, the law would also oblige the producers to sell half the output in Romania, although one company told NGW July 13 that there was no restriction on the subsequent export of that half of the gas. While the law seems to go against the European Union's desire for energy security, countries are free to set their own taxes.