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    Romania’s upstream reassurances [NGW Magazine]


After decades of declining gas production, the country is looking at a new round – but it has rattled investors with its rocky and random regulations. [NGW Magazine Volume 4, Issue 17]

by: Joe Murphy

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NGW News Alert, Top Stories, Europe, Premium, NGW Magazine Articles, Volume 4, Issue 17, Exploration & Production, Political, Regulation, Romania

Romania’s upstream reassurances [NGW Magazine]

Romania is preparing for its first oil and gas licensing round in nearly a decade, as it looks to spur another wave of investment in exploration. Recent reforms in regulation and taxation dismissed by the oil and gas industry as stifling could sap interest, however. Furthermore, Romania will be facing stiff competition for investment from other Black Sea countries also inviting bids for acreage this year.

The National Agency for Mineral Resources (NAMR) published the tender in Romania’s official gazette on July 24. It is seeking investors for 22 onshore and six offshore blocks ranging from 700 to 1,100 km2 in size – its first offering since 2010. The contest will be launched once its terms are published in the EU’s official gazette. When exactly this will happen is unclear, however. It had been anticipated within days of the tender’s announcement in Romania.

Operators will be given 120 days to file applications, and then 15 days to negotiate contracts once results are revealed. Negotiations will last no longer than nine months. 

A long history

Romania is one of Europe’s oldest oil and gas producers, but output has been in decline for much of the last 50 years. Oil extraction peaked back in 1976 at 500,000 b/day, while gas production reached its pinnacle in 1983. Today, the industry is far smaller in size, producing around 80,000 b/day of crude and 10.3bn m3/yr of gas.

The discovery of a series of large gas discoveries in the Black Sea over the past decade has led to hopes these trends can be reversed, however. The biggest of these finds is Neptun Deep, where ExxonMobil and the Romanian unit of Austria’s OMV, OMV Petrom, are targeting 84bn m3 of gas. Another major project is Midia, a 10bn m3 resource that Black Sea Oil & Gas, a private-equity vehicle backed by Carlyle and minority owned by the European Bank of Reconstruction & Development, is developing.

There are a number of reasons why investors may want to commit to Romania. The country has a large proven resource base, assessed by BP at more than 100bn m3 of gas and 600mn barrels of crude. Thanks to its long history as a producer, it also has an extensive pipeline system and other well-developed other infrastructure, as well as a flourishing services industry.

Producers also have a ready market available for their oil and gas. Oil can be sold to local refineries, helping Romania wean itself off imports, while gas can be sold to a number of neighbouring countries eager to secure alternatives to Russian supplies.

Yet the government has also put in place some unintentional deterrents, with fiscal and regulatory uncertainty cited as key reasons why authorities have been taking five years to prepare the upcoming licensing contest.

Making matters worse, Bucharest late last year imposed caps on domestic gas prices, restrictions on exports and a 2% turnover tax on gas and electricity firms.

These measures were quick to draw flak from existing oil and gas operators in Romania. Carlyle Group threatened to exit the country, while OMV Petrom delayed taking a final investment decision (FID) at Neptun Deep. The industry’s vocal opposition to the measures risks undermining interest in new licences.


Romania appears to have recognised the damage it has done to its investment climate through these new policies. Parliament’s industries and services committee voted in late August to repeal the legislation on gas price caps and turnover tax. A bill will still need to go through into law before the policies are removed, but the move has already been welcomed by the industry.

Romania’s upstream lobby, the Romanian Petroleum Exploration and Production Companies Association (Ropepca), said the repeal was “an obvious and stringent necessity.”

“It represents a first step toward a return to normality and the rehabilitation of investor confidence in Romania as a destination for energy project,” Ropepca said in a statement.

Though only in effect for a few months, Ropepca said the measures had “disrupted the functioning of the gas market, leading to an artificial increase in the unregulated price and affecting the economic viability of exploration and production projects.”

Provided Romania follows through on rescinding the legislation, the odds of a successful licensing round should improve. As for existing projects, Carlyle group took an FID on Midia’s $400mn development in February, even after saying it would delay the approval until the policies were removed.

Black Sea Oil & Gas (BSOG) CEO Mark Beacom told NGW that the work schedule for the current year included completion of detailed engineering, the start of platform fabrication and civil construction at a treatment plant, and the purchase of long-lead items. After infrastructure work is completed, first gas should come in the first quarter of 2021.

The fate of Neptun Deep is still up in the air, however. After spending $1.5bn preparing the asset, OMV Petrom has repeatedly postponed taking an FID because of the new policies.

A company spokesperson said Romania still needed to do more at its end before it could greenlight development.

“The fundamental prerequisites for the scale of investment required for Neptun Deep – competitive terms, a predictable and stable investment climate and a liberalised gas market – are still needed to be put in place,” the representative told NGW. “We remain keen to see the Black Sea developed, as it is an opportunity for OMV Petrom, and also for Romania.”

These problems will have a knock-on effect on Romania’s plans to scale up exports, which include the construction of pipelines into central Europe and Moldova.

Also disconcerting, recent local media reports claim ExxonMobil is looking to withdraw from the project as part of its broader plan to focus more on US tight oil production. The US major did not respond to a request to verify these rumours and the OMV Petrom spokesperson also refused to comment.

While the government is taking steps in the right direction to restore investors’ trust, the licensing round is unlikely to be as successful as Romania’s previous contest, while the government’s punitive measures remain in force. In 2010, Bucharest secured developers for 20 of the 30 onshore and offshore blocks it offered.

This is especially true given that Bulgaria, Croatia and Bulgaria are also currently looking for oil and gas investors this year. Though these markets are more high-risk in geological terms, they also offer more attractive fiscal regimes at present.

OMV Petrom will nevertheless take part in the Romanian round, the representative said, targeting selected licences “which we believe will add value to our resources and reserves base and where we can find synergies with our existing business activities.”

But BSOG is more apprehensive, saying it will “be investigating the 11th concession round for new offshore licences but will also be looking for resolution of outstanding fiscal and gas marketing related issues before making any commitment.”