Public Position papers

ARCOMN opinion final offshore law oct 2018

Over the last 2 years the offshore industry, represented by RBSTA, has participated in consultation with the Romanian State represented by all relevant governmental ministries; national agencies and authorities and parliamentary committees on the offshore regulatory framework.

RBSTA’s activities have been limited to sharing the key issues and risks, related to the industry as well as international best practices, but also providing assessments of the impacts of the proposed legislation on the industry and potential new investments offshore Romania.

Consistent messages throughout have been the importance of competitive and stable fiscal terms, a clear regulatory framework and the rights to freely market any production.

The vote in the Chamber of Deputies on October 24, 2018 marks the completion of the Parliamentary re-examination process with a new law that impacts stability, introduces new taxes and stipulates certain conditions on how production may be marketed.

RBSTA now expects that, once the final approved version will become available, each industry participant will need to evaluate the impact of the law in its entirety on their respective businesses and the viability of any offshore investment opportunities.

The Romanian Black Sea Titleholders Association (RBSTA) is the only association dedicated to the exploration and development of Romania’s Black Sea hydrocarbons resources. RBSTA is formed by titleholders of concessions offshore Romania. Current titleholders (in alphabetic order) of the Romanian Black Sea concessions represented in the Association are: Black Sea Oil & Gas S.R.L.; ExxonMobil Exploration and Production Romania Limited; Gas Plus International B.V.; Lukoil Overseas Atash B.V.; OMV Petrom S.A.; Petro Ventures Resources S.R.L.; S.N.G.N. Romgaz S.A.

Over $2 billion were invested in the last 10 years in exploration activities only. The development of production facilities for the new projects involve additional investments of several billion dollars.

Differentiation fiscal framework onshore vs offshore – international practice

European and international practice differentiation between offshore and onshore upstream oil and gas taxation

The present summary includes a detailed presentation of the following key points:

1. Differentiation between offshore and onshore taxation is common in international practice, including EU countries;

2. Romania’s royalty system generates higher effective royalty rates for the offshore compared to the onshore, as production thresholds for royalty purposes do not reflect the specific nature of offshore production.


1. Differentiation between onshore and offshore taxation – international and EU perspective

International upstream oil and gas fiscal systems are tailored to reflect the specific economics and challenges of each resource type.

Countries having both offshore and onshore upstream oil and gas sectors often provide different fiscal terms (e.g. differentiation in royalty rates, different terms for upstream specific taxes, production sharing arrangements with specific provisions).

The following EU countries that have both offshore and onshore upstream oil and gas activities have differentiated fiscal regimes for onshore and offshore:


United Kingdom

  • No property taxes applicable for offshore assets while property taxes are applicable for onshore oil and gas assets.



  • No royalties are applicable for offshore fields while royalties are due for onshore fields (up to 7% and increasing in certain conditions) with production above defined levels;

  • 25% investment allowance, which is an additional deduction, is applicable for marginal offshore fields;

  • No property taxes applicable for offshore assets.



  • The increased royalty rates in Schleswig Holstein do not apply to the only offshore producing field (‘’Deutsche Nordsee A6/B4“) for which stability of royalties exists.



  • Higher production thresholds for royalties/production taxes applicable to offshore fields as follows:

    • 0% royalty for annual gas field production up to 80 mn. m3 for offshore compared to 25 mn. m3 for onshore;

    • 0% royalty for annual crude oil field production up to 50 thousand tons for offshore compared to 20 thousand tons for onshore;

  • 7% royalty rate for offshore oil production compared to 10% for onshore oil production;

  • No local tax applied on profits for offshore activities outside territorial sea, while a 3.9% rate on profits for onshore oil and gas;

  • No property taxes applicable to offshore assets outside territorial sea.



The rates of production tax applicable for offshore fields are lower compared to conventional onshore fields as follows:

  • Natural gas: 1.5% of production value in offshore compared to 3% for onshore (for gas fields with higher permeability and porosity);

  • Crude oil: 3% of production value in offshore compared to 6% for onshore (for oil fields with higher permeability and porosity).



  • Lower production tax rates for offshore fields compared to onshore fields.


2. Romania’s royalty system generates higher royalty rates for offshore compared to onshore

Unlike international practice in jurisdictions with production volume sliding scale royalties, where generally either offshore royalty rates are lower compared to onshore for a defined production volume or production volumes for offshore are higher compared to onshore for a defined royalty rate, (e.g. Spain, Italy, Algeria, Vietnam, Thailand, Colombia), as typically offshore projects require larger volumes for economic exploitation compared to onshore projects, Romania’s oil and gas royalty rates and production thresholds, however, are not differentiated between offshore and onshore.


This aspect of Romania’s royalty system, due to the high production rates for offshore developments, results in current and estimated future offshore gas production being subject, almost without exception, to the maximum royalty of 13% of production value, while the onshore industry, due to significantly lower average production rates, generates an average effective royalty rate of 7% of production value, according to the public information presented by Romania’s largest onshore producers, Romgaz and OMV Petrom.

RBSTA stance on regarding central market obligation (CMO)

The obligation to trade in a pre-established manner, exclusively on OPCOM natural gas trading platform, is a commercially restrictive policy and introduces a discriminatory regime between the natural gas marketing rules for domestic production and the rules applicable to gas imports because foreign producers will have the right to conclude bilateral contracts directly negotiated with large consumers in Romania, while domestic gas producers will not be allowed to conclude such contracts.


Moreover, the projects for the development of natural gas resources involving significant initial financial commitments are also based on the possibility of concluding long-term bilateral sales contracts. Such contracts are concluded before the development investment is made and often commit the producers to supply natural gas to buyer(s) at the beginning of production. This type of contracts cannot be traded through centralized platforms.


In summary RBSTA believes that government interventions and obligations for market participants to trade in a prescribed manner such as the central market obligation will have unintended and detrimental consequences for potential new offshore investments in the Black Sea.


Additionally RBSTA expects that extending and expanding the existing central market obligation (CMO) will continue to be an ineffective measure to address the stated objectives, namely establishing more economic efficiency and price transparency in the gas market.


Specifically for the gas market, the establishment of a virtual trading point offering appropriate tradable products to further develop market liquidity, and improved cross border interconnections between regional hubs are required to increase the number of potential Buyers and Sellers in Romania and thereby facilitate competition and market depth, along with increasing supply diversity and thereby reducing the dependence on individual suppliers.