Requirements for establishing a viable offshore industry
Stability for the existing offshore petroleum agreements
Offshore resource developments have much longer project lead-times compared to similar onshore developments (from the start of seismic activities until the start of production). Therefore, these projects are more exposed to changes in the business environment and the legal framework in Romania than onshore developments.
Fiscal stabilization clauses are a common concept in the oil and gas industry and implemented by governments around the world
Over 80 governments recognize 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 governments have introduced new or revised fiscal regimes, but maintained existing terms for current titleholders, include Brazil, Canada, Croatia, Greece, Ireland, New Zealand and the U.S. Read more: Fiscal Stabilization in Oil and Gas Contracts – The Oxford Institute for Energy Studies Romania applies stability principle and existing offshore petroleum agreements benefit from: Petroleum Law no. 134/1995 provides that: Article 13, para. (5); Article 42 Petroleum Law no. 238/2004 provides that: Article 31 para. (2); Article 61 para. (1) Government Emergency Ordinance no. 160/1999 approved by Law no. 399/2001 Article 1; Article 2, whose provisions are relevant for concession agreements concluded during the period this Ordinance was applicable. Furthermore, the titleholders of offshore petroleum agreements benefit from stability clauses included in the individual petroleum agreement.
Sanctity of contracts
Sanctity of contracts is a fundamental principle for the global business community, which requires all parties to respect all the terms of a contract throughout the life of that contract. Royalties/Upstream taxes can be changed only with respect to future concessions, unless individual Addenda to individual Concession Agreements are signed with each Titleholder. Increasing taxes after significant exploration investments have been made would be a punitive measure and seriously affect Romania’s attractiveness to oil and gas investors. Already over $2 billion have been invested in the past 15 years in exploration activities alone, and over $1 billion in fields currently in exploitation.
Legal and contractual fiscal stability for offshore oil and gas concessions is essential for investor confidence and will be critical to titleholders’ decision on whether to proceed with final investment decision.
E.g.: typical investments prior to first production from offshore deepwater developments, such as those in the Romanian sector of the Black Sea, range from 3 to 4 billion Euros. Stabilization clauses cover entire period of a concession agreement. Lifecycle of an offshore concession agreement: 10-15 years exploration; 3-5 years development (construction of infrastructure) remaining time for production. No revenues until production. The ability of the titleholders to be able to rely on both the validity and stability of the existing contractual terms at the time initial investment decisions were made are essential for investors confidence as potential Black Sea investments are considered.
Stability and predictability
Maintaining a stable investment climate and following EU energy policies throughout the lifetime of oil and gas projects is important to creating a stable, competitive gas market.
Open commercial agreement negotiations
Investors need to be free to negotiate commercial arrangement with parties of their choice and have a high degree of comfort that the legislative framework in Romania will allow this in the future. Regulatory intervention can distort investment incentives. Additionally:
- Prices should be deregulated and freely negotiated between market parties with pricing mechanism based on supply and demand. This allows Romanian production to compete with international suppliersand supports trade, investment and economic windfall back to Romania.
- Unrestricted import, export and trade is required by the EU single energy market legislation and allows oil and gas companies to balance supply and demand needs in Romania without the risk of impacting production.
Creating integrated cross border connections
Better cross-border connections will foster more domestic production and support the evolution of a more competitive Romanian gas market. As a result, we will see:
- Interconnectivity Means Security of Supply: Better physical and commercial cross-border interconnectivity of the Romanian national gas pipeline system with the systems of its European neighbors will;
- Enable the development and marketing of all economically producible national gas resources. Without this secure access to a sufficiently sized gas market, producers and potential investors would be exposed to the risk that they cannot fully market the resource, potentially resulting in no new major offshore investments;
- Significantly improve security of supply for Romanian consumers because it not only enables increased production in the country but also allows suppliers and consumers in Romania to access the vast supplies available in the wider EU gas market; and
- Increase the competitiveness of the Romanian gas market due as more gas suppliers will compete for the best offers to Romanian consumers.
Energy assistance programs
Prices should be fully deregulated and freely negotiated between market parties. This supports trade, investment and economic production. However, many governments have energy assistance programs to help vulnerable customers. RBSTA supports the Romanian government’s effort to implement such a program based on EU practices and policies.
Digitalization of the oil and gas industry
Globally, the oil and gas industry is increasingly leveraging digitalized data management processes to continue to drive down the costs associated with finding, developing and managing the efficient production of hydrocarbons. As a mature onshore Oil and Gas producing country Romania, and its domestic Oil and Gas industry, could see great benefit from the digitization of processes and data. Despite the significantly smaller number of licenses, wells and producing facilities in the offshore segment compared to the onshore segment, there is still a potential for significant digitization efficiencies offshore, especially if new developments can include digitization in their development strategies from the start. RBSTA encourages therefore the enabling of digitization within the Romanian Oil & Gas industry in a manner consistent with current global trends and emerging practices to ensure that Romania’s international competitive position, as an Oil & Gas producing country, is not eroded due to lack of development in this area. In order to be cost effective digitization solutions typically leverage major shared processing facilities (“clouds”) often physically located in a different country from the specific petroleum operations. With data processing occurring outside company and national boundaries the regulatory and legislative framework must permit such movement of data in order for a country’s operations to benefit from digitization. In this context RBSTA wants to highlight the importance of declassifying data and information from the oil industry and is keen to work with relevant authorities in order to enable declassification of data in a manner which preserves the confidentiality of the data.