Romanian Government to keep current royalties levels for existing oil and gas concessions

The new royalties’ law the Romanian Government is currently working on will apply only for new oil and gas concessions, and not to the old ones, prime minister Victor Ponta said on Wednesday, June 4. This means that OMV Petrom, which is the largest oil and gas company in Romania, will not see a significant increase in royalties starting 2015, as the company operates mainly on old concessions. Up until now, the Romanian authorities said they couldn’t increase royalties for OMV Petrom, due to a 10 year constant royalty regime which is set in the privatization contract that Romania signed with Austrian group OMV in 2004. This 10 year period expires at the end of this year, and a change in royalty regime was expected starting next year. “In the privatization law there was a 10 year term in which the state was bound not to change conditions. This term expires this year. The new royalty law can apply to any new concession made after its adoption. The international law and practice is very clear, including for Romania. You can’t apply a new law to old contracts,” Ponta said, according to Digi24 news station. Romania now collects among the lowest royalties in the world for oil and gas extraction. The rate varies between 3.5 percent and 13.5 percent, with an average of about 7 percent of the total production value. Last year, Romania collected EUR 227 million in royalties for oil and gas, mainly from OMV Petrom and Romgaz, according to data from the National Agency for Mineral Resources (ANRM). OMV Petrom extracts both oil and gas from Romania, while Romgaz only extracts natural gas. OMV Petrom posted a net profit of EUR 1.09 billion for 2013, the largest ever recorded by a Romanian company. Romgaz had a net profit of EUR 225 million. Andrei Chirileasa, andrei@romania-insider.com