August 2017 - The Romanian Government has published the first draft of a proposed law on measures for implementing petroleum operations by holders of offshore oil and gas concessions (the “Draft Law”) (Romanian version available here). This version of the Draft Law currently awaits the opinion of the various ministries involved in the legislative process and of other bodies, such as the Legislative Council.
Following its adoption by the Government, the Draft Law would be sent to Parliament and debated upon by its two chambers. Therefore, important changes could be brought and a considerable amount of time may pass before the President enacts the initiative.
Despite being only a preliminary version, the Draft Law hints at strategic changes contemplated by the Romanian state with regard to offshore oil and gas concessions.
Context and main provisions of the Draft Law
The statement of reasons for the Draft Law mentions that the applicable rules for oil and gas extraction in the Black Sea must be revisited in order to ensure lower production and transportation costs. At the same time, some of the main players holding offshore concessions have announced recently that the drop in oil prices has forced them to postpone planned investments in oil and gas extraction in the Black Sea region.
As such, the Draft Law should offer comfort and cost predictability to offshore concession holders throughout the entire term of their concession agreements and, therefore, incentivise them to continue making the necessary investments in the Black Sea.
Freezing royalties – the highlight of the Draft Law is the freezing of royalties for the entire period of an offshore oil concession agreement. More specifically, it is provided that oil concession holders will benefit from the royalty levels, quotas and related gross production thresholds in place at the signing date of the oil concession agreement until the end of such an agreement.
Regarding on-going agreements, the Draft Law provides that the royalty levels applicable to on-going offshore concession agreements when the Draft Law enters into force cannot become more burdensome than the levels in place when the agreements were signed. The National Agency for Mineral Resources (“NAMR”) is entrusted with concluding additional acts to on-going offshore concession agreements in order to reflect these legal provisions.
Specific permitting rules for offshore operations and oil well related works – the Draft Law establishes a separate authorisation procedure from the general rules on obtaining building permits. As such, offshore operations would require a permit from the Ministry of Energy, whereas oil well related works would need an approval of the NAMR.
Additional land-use rights – the provisions of the Draft Law regarding the land-use rights of concession holders complement the existing framework under Law no. 238/2004 regulating the upstream oil and gas sector. The Draft Law provides that on state property (either public or private), concession holders enjoy a broad range of rights concerning the use of land. These include the right of way and access for vehicles, machinery and any other equipment used in oil and gas operations. Additionally, the Draft Law provides details pertaining to the related compensation scheme for the performance of such rights.
Particular employment provisions – a special regime for employees involved in offshore prospection, exploration and production of hydrocarbons is contemplated, given the specific requirements of the activity. This includes details such as the weekly maximum amount of working hours, the formula used to calculate the payment of additional work and provisions on rest periods and work organisation.
The Draft Law also introduces fines between RON 1,000 (approx. EUR 220) and RON 100,000 (approx. EUR 22,000) in case of breaches of the obligations provided therein.
The Romanian Government is looking to tackle the current deterrents that concession holders face in relation to offshore investments. However, the current political climate remains unpredictable. Although there is a contemplated freeze of royalties as mentioned above, changes on the tax applicable to upstream profits are also being discussed, which may lead to an overall increase of the tax burden. Further developments of the Draft Law, as well as complementary legislation will remain extremely relevant to follow.