In a country with a significant number of mature fields and few discoveries made and/or developed in the last years, the Romanian National Authority for Mineral Resources has recently launched a public call for tender for the concession of 28 exploration, development and exploitation petroleum blocks, both onshore and offshore (Licensing Round XI/2019). The list of the petroleum blocks has not yet been published in the Official Journal of the European Union, but such publication should occur soon. The list of petroleum blocks is available in the Romanian Official Gazette. Offers can be submitted by any legal entity, Romanian or foreign, within 120 business days from the date when the tender notice is published in the Official Journal of the European Union and the petroleum concession agreements are expected to be signed within 9 months from the date the negotiations started. Pursuant to Romanian law, the concession agreements will enter into force only after approval by Government Decision, which is sometimes a lengthy process.
Although a new licensing round is welcome, as the country clearly needs to revive investments in the oil & gas sector, the launching of the licensing round comes as a surprise given that there are still key issues to be fixed in the regulatory framework. The statement is valid at both ends of the investment spectrum.
Since the last licensing round (Licensing Round X/2009), the state has given multiple signals that it would like to change the royalties and taxes regime applicable to petroleum agreements. Some of them already resulted in additional taxation, i.e., the windfall tax regulated through a Government Ordinance enacted in 2013, which had a material impact on the overall taxation of oil & gas companies for the additional revenues derived from gas sales following the deregulation of gas prices in the market. Although initially the Government regulated the windfall tax as a temporary measure, it was subsequently extended and finally became permanent through a Law issued in 2018. Others were only drafts made available for public consultation; as an example we would refer to the draft Royalties Law, which was supposed to be a centralizing piece of legislation for all royalties in the natural resources sector and which, inter alia, intended to establish differentiated royalty regimes for onshore and offshore petroleum blocks. Additionally, the draft Royalties Law also provided a new method for determining the reference price used for the calculation of the petroleum royalties, with potentially adverse consequences on the overall amount of royalties to be paid by the titleholders of petroleum agreements.
At the other end of the investment chain, oil & gas companies have strived to preserve their existing rights regarding stability of royalties & taxes and improve the general legal framework applicable to petroleum operations. There were several attempts to amend and restate the Petroleum Law, which is the general law for both onshore and offshore oil & gas operations. These efforts were not yet finalized, although there are important matters that need to be addressed in order to improve the general framework for carrying out petroleum operations, such as management of information regarding oil & gas resources, access rights on land, timeline for approving petroleum concession agreement through Government Decision, flexibility to amend the petroleum concession agreements, etc.
As regards the offshore sector in particular, it should be noted that the purported stability of the royalties and taxes regulated under Art. 18 of the Offshore Law enacted last year does not apply to the petroleum agreements that will be entered into following this Licensing Round XI. This leaves new titleholders of offshore petroleum agreements without any provisions regarding the stability of the fiscal regime applicable to them. It would be reasonably expected that the dialogue between the state and offshore oil & gas companies will continue, with a view to providing both existing and future offshore titleholders appropriate stability of the royalties and taxation regime throughout the entire duration of their concession agreements.
In light of the above, Licensing Round XI will test the risk appetite of oil & gas companies. To look on the bright side, all options remain open, at least in theory, and new regulations can strike a balance between the legitimate expectations and vested rights of oil & gas companies and the state’s position, in a field where investments are only possible based on a long-term, trusted relationship between the state and the investors.