Bloomberg News

Romania Plans to Diversify Oil and Gas Field Royalties

June 04, 2014

Romania plans to differentiate royalties from oil and gas production at the country’s onshore and offshore fields to stimulate investment, Prime Minister Victor Ponta said.

The Bucharest-based government and energy companies including OMV Petrom SA and Exxon Mobil Corp (XOM:US) are in talks on a framework that would apply to all new field concessions, Ponta told reporters in Bucharest today.

“We can’t have the same level of royalties for onshore and offshore resources, because there are huge differences in investments and profitability,” Ponta said. “The idea is to find a differentiated system, and we are working with World Bank experts to design such a system that would also allow offshore production to remain profitable.”

Romania plans to increase royalties from a current level of between 3 percent and 13.5 percent of oil and gas produced and bring fees closer to those in other European Union countries to boost state revenue and fund investments. The country is betting on new gas discoveries in the Black Sea, following exploration by Exxon and Petrom, to secure energy independence by 2020, according to Energy Minister Razvan Nicolescu.

Exxon and Petrom started looking for oil and gas off Romania’s Black Sea coast and have been conducting drilling operations of the Domino-1 well in the Neptun block since end 2011. OMV AG (OMV), Petrom’s majority owner, made a preliminary estimate for Domino-1 in 2012 of gas accumulation ranging from 1.5 trillion to 3 trillion cubic feet (42 to 84 billion cubic meters).

High Investment

“We support the idea of differentiated royalties because we have fields with very specific situations, especially the deep water ones in the the Black Sea, which require high investment,” Mariana Gheorghe, Petrom’s Chief Executive Officer, said today.

Ponta also said Romania must explore and exploit its unconventional gas resources while protecting the environment.

Chevron Corp. (CVX:US) is currently exploring for shale gas and is facing protests in the eastern village of Pungesti against using hydraulic fracturing, or fracking. The process involves blasting rock with water, sand and chemicals to open up fissures. Concerns among environmental groups, regulators and landowners that fracking may contaminate water have led France and Bulgaria to ban the practice.

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Michael Winfrey


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