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Government prepares to guarantee unchanged royalty regime throughout offshore concession contracts

de Razvan Diaconu 11.9.2017

The Government is trying to speed up the implementation of the offshore oil operations.

There is a bill at SGG that assures companies having oil and gas concessions in the Black Sea that they will have the same royalty regime established at the time of signing the perimeter concession agreements throughout the duration of the contract.

Additionally, the draft also contains the explicit provision that the royalty regime applicable to the holders of agreements for offshore oil perimeter that are under way at the date when this law entries into force will not, in any form whatsoever, become more onerous than the one established in the agreements for oil concession.

Tudose government did not regard the onshore operations with the same understanding, as the extra excise on fuels has been reintroduced on August 30, in two steps, as of 15 September and 1st of October.

The decision has been preceded by warnings from Prime Minister Tudose who warned that this over-charging should not be reflected in the final pump price of the fuel. However, if the fuel price increases, then, warned Mihai Tudose, the Government will rethink the level of royalties.

Companies that have petroleum concession agreements for offshore perimeters are OMV Petrom, alone and in partnership with ExxonMobil, Lukoil-PanAtlantic Petroleum-Romgaz consortium, Black Sea Oil & Gas and Petromar Resources.

The most important offshore oil deal signed with OMV Petrom and ExxonMobil for the Neptun Deep perimeter is valid until 2030.

The draft also states that companies that have offshore oil and gas concessions in Romania in the Black Sea perimeter will be able to carry out works only with the opinion of the Armed Forces General Staff and a prior notification to the Maritime Hydrographic Directorate of the Ministry of National Defence.

SMG’s opinion is mandatory for placing new facilities, such as installations needed for the exploration, production, treatment, taking and delivery of the oil, pipelines, marine platforms or communications infrastructure.

The same opinion will be required for digging, testing, equipping for production, ensuring the safety, preserving, abandoning, dismantling and decommissioning the wells, as well as for offshore geotechnical drilling.

Substance of royalty issue

A preferential treatment applied to offshore oil companies is a strategic decision, less of an economic nature: the presence of the American giant Exxon in the Black Sea is a further guarantee in the defence field.

In terms of onshore exploitation, Romania has a problem with the pump price formation as the analysis of cursdeguvernare.ro shows that Romania is leading by far in the top of regional fuel prices, not because taxes are too high but because the mark-up is exaggerated.

The country with a similar economy as Romania in terms of size, structure and level of development, Poland, has chosen to equalize the gas and diesel pump prices, whereas it charges an excise duty almost 20% higher than Romania on petrol and 2% lower on diesel.

And that in the context of prices about 10% lower than in Romania for both types of fuel.

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