Legislative Climate

A stable investment and legislative climate is critical to encourage resource developments

Offshore projects have a long investment cycle, are typically planned out more than a decade in advance, and require significant upfront financial investment by the companies developing the project – it can take 10 to 15 years before production can begin. As with any complex and capital intensive projects, a stable investment and legislative climate is critical to encourage resource developments. The stability and predictability of Romania’s legislative environment and fiscal regime, over the lifetime of oil and gas projects are pre-requisites to successfully unlock Romania’s offshore energy resources.

Over 80 governments around the world acknowledge the need for stable fiscal terms, especially for the oil and gas industry, and have fiscal stabilization clauses embedded in their legal and/or contractual framework. Recent examples where national governments have introduced a new or revised fiscal regime, but maintained existing terms for current titleholders, include Brazil, Canada, Croatia, Greece, Ireland, New Zealand and the U.S.
Why do we need an established and clear legislative climate?

Exploration for offshore oil and gas resources in the deep waters of the Black Sea requires upfront investments of several hundred millions of dollars. If successful, potential subsequent field developments typically require additional billions of dollars to drill production wells and build the required infrastructure.

Offshore resource developments have much longer project lead times from the start of seismic activities until the start of production, typically require complex commercial arrangements and are thus more exposed to changes in the business environment.

The fiscal terms, including the royalty rates on produced volumes and the corporate tax regime, have a crucial impact on the economic viability of such investments. Oil and gas resource development projects compete for capital funding on a global scale. A country’s fiscal terms can attract these investments or discourage them.

The government take (royalties, taxes, etc.) from the fiscal terms should reflect the significant financial risks oil and gas companies take to explore, develop, and produce the resources and appropriately balance such risks with potential rewards for those companies. The significant investments require multiple partners to manage the financial risk to explore and produce the resources. International oil companies’ involvement are critical to project success as they typically have the financial strength and project expertise to successfully oversee such large projects.

Investors make decisions to explore for oil and gas resources and potentially proceed with a development project based on the country’s existing fiscal terms in the law at that time, and based on the terms of the concession or equivalent agreements with the government. Investors then expect that the government will not unilaterally alter the law or fiscal terms that adversely impacts their projects and that the all terms of the agreements will be honored.

Oil and gas resource development projects and the local communities benefit from a stable regulatory environment that is practical, efficiently managed, and effectively coordinated between government authorities. It is important that regulators are empowered and skilled in their subject areas to fairly oversee projects and hold the industry to high safety and environmental practices.