Romanian soap opera with a scent of oil

Starting next year, Romania should have a new royalties system, on condition that the new bill is adopted in Parliament by the end of this year. As the end of 2016 is marked by a parliamentary election and a new executive at Victoria Palace, it’s hard to tell if the current parliamentarians will find the time to deal with this bill. On the other hand, it’s possible that the new executive and the new parliamentary majority will have another vision on taxing the oil companies. It’s all speculation for the time being.
The change in the Royalties law is a subject that is beginning to mirror a soap opera. The ex Ponta Government was not able to come into Parliament with a new proposal and took no accountability by prolonging the old stipulations, since the old Petrom privatization agreement expired. It seems that the new executive is not very interested either in the subject, but it has the excuse, at least in theory, that it is a transition government. Until the government, whichever it may be, will succeed in putting to paper a new bill on royalties, the market conditions will keep on changing at a very fast pace.

The oil companies’ profits pale day by day under the pressure of the low barrel price and after the Doha reunion failure, where the capping of production in order to push the quotas upwards was attempted, they will register another recoil. On the other hand, the multibillion dollar investments projects are on hold, waiting for better days, and the oil companies have started to massively cut costs. Romania was obviously not shielded from these turbulences and the financial results of oil companies in our country prove this.

Less and less money

According to the National Agency for Mineral Resources (NAMR), the Romanian state cashed in 2015 almost 10% less money from royalties than last year. The drop in cash is owed mainly to the drastic reduction in sums given by the biggest company in the sector: OMV Petrom.

In 2015, 311.6 million RON was turned in to the state from oil, almost all coming from OMV Petrom, and a year before this the oil royalty was 493 million RON. On the other hand, in this context, the decline in Romanian oil exploitation could accelerate in coming years, seeing as the reserves will be explored from greater depths, which will mean additional costs for oilmen. The question posed is an obvious one: Will exploring some wells be more profitable compared to importing? The specialists claim that these operations will no longer be profitable, and the effect will be that the state will get less money in the future from oil royalties.

Everyone is doing the math

The minimum yearly investment for stopping oil production decline is estimated at a billion euro, if the number proposed by the Romanian Petroleum Exploration and Production Companies Association (ROPEPCA) is right. In order to compensate these growing investments that companies have to make for the redevelopment of mature deposits of oil and gas, the state should reduce the tax on these deposits by way of the new bill.

Furthermore, ROPEPCA brings to the table an additional element of pressure on the executive. It’s the mono industrial areas that will be doomed to poverty if oil exploration is suspended.

Right now, the level of royalties is 3.5% for wells that produce under 10 000 tons/quarter, 5% for wells that produce between 10 000 to 20 000 tons/quarter, 7% for wells that produce between 20 000 to 100 000 tons/quarter and 13.5% for wells that produce over 100 000 tons/quarter. Now ROPEPCA is not saying exactly by how much these royalties should be reduced and the executive is still silent about this problem. But both parties do the math.

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