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What should the government do to ensure the success of the current bidding round?


What should the government do to ensure the success of the current bidding round?

With the new long-awaited licencing round announced in Romania many questions and discussions arise. Globuc spoke to the President of Romanian Petroleum Exploration and Production Companies Association (ROPEPCA) – Saniya Melnicenco to see what this would actually mean for the Romanian upstream sector.

In Romania, the long-anticipated 11th concession round was announced for the exploration, development and production operations of 22 onshore and 6 offshore blocks within Romania’s territorial waters of the Black Sea. This latest round has especially been long-awaited by the upstream investors, as it opens up the sector to the new players and enhances its development.

What do you expect from the new onshore bidding round in Romania?

The 11th licensing round for petroleum exploration blocks has been announced at a national level at the end of July and was long time expected by the oil and gas companies already present in Romania and abroad since the previous round took place 10 years ago.

The round represents an opportunity to put our country back on the investors’ map and to discover Romania’s under-explored potential, especially in the deep onshore.

As it was stated last year by Government representatives in the public space, it is expected for Romania’s deep onshore potential to be higher than the already made discovery in the Black Sea.

Nevertheless, we believe that the round may represent a possibility for Romania’s economic development and for the diversification of the energy market, under condition of attracting new investment and entrance of more players in the sector. It can be a new breath for contractors and service providers, supporting titleholders’ activity, consequently bringing more business growth horizontally and creating new workplaces.

Romania needs more investors, big and small, more know-how and new technologies, attracting and retaining talents and highly qualified specialists into its own industry.

The state budget and the communities will be the first beneficiaries of new oil and gas projects. Every euro invested in oil and gas reflects in the national GDP, with a multiplication factor of 3.2.

However, for this round to be more successful than the previous exercise and to maintain a long-term investment climate, urgent stimulative measures need to be taken, having in mind the current operational context.

What should the government & regulatory institutions do to ensure the success of the current round?

Without the right measures, Romania risks remaining non-competitive and unattractive compared to other countries in the region. Several aspects need to be considered when investing in the petroleum industry, from both a national and global perspective. When it comes to stability and regulation, there is certainly a need for improvement in Romania, especially since in recent years more decisions have been made with negative effects on the industry.

The challenges faced by an investor in our industry are related to the three important components of the exploration strategy: accessibility of geological data, application of technologies and capital allocation.

The regime of classified data puts the Romanian projects in the disadvantaged situation of under-funding and isolation from the globalised and digitally connected world. Also, bringing high performance technologies is closely linked to the existence of some qualified and experienced personnel in the field, assuming a considerable financial effort.

The allocation of capital to exploration projects follows an adequate legislative and fiscal framework, as well as a reasonable rate of investment recovery, provided by the mechanisms of a functioning market.

Therefore, the vision for positive measures should revolve around three key elements: a predictable and stable regulatory and fiscal environment, modernisation of the relevant legislation to create more efficiency in operations and functional market mechanisms. In order for the energy sector to become truly competitive and diversified, functional market mechanisms and measures for the real protection of vulnerable consumers must be integrated. It is also necessary to stimulate the production activity by updating the legislation for streamlining petroleum operations, removing bureaucratic barriers and modernising the data regime.

ROPEPCA, in collaboration with state authorities and other market players, has developed a balanced proposal to amend the governing act for petroleum operations in Romania, the Petroleum Law, in a way that will bring it up to date.

Our expectation is that the Romanian authorities will shift views in a positive way: according to the draft Energy Strategy, is intended to stimulate long-term investments in the field of oil production, the document showing the importance of hydrocarbons in the entire energy picture for the next 30 years.

In the same time, the infamous Government Emergency Ordinance 114/2018, which has capped the price of gas for the producer and introduced a new contribution of 2% of the turnover, which has been in effect for 4 months, generated negative consequences in the market, such as the artificial increase of the unregulated price and the reduction of investments. Last week, the aforementioned provisions were called to be repealed by the Romanian Parliament.

This would be an important step forward and it is our expectation that more measures for incentivizing investment and creating a functional, well-balanced market will be taken in the near future. Such measures will have a significant impact on the national economy, new investments can be attracted, production would  increase and ensure the security of consumer supply

How does Romania score in comparison to the other Black Sea countries in terms of opportunities for onshore producers?

In Romania, hydrocarbons account for 68% of the primary energy resources. In 2017, the crude oil production covered almost 32% of the demand, while the domestic natural gas production, resulted only from onshore deposits, covered 90% of the demand.

Despite the very good situation in terms of energy independence, Romania still has a great unexplored potential. Currently, approx. 400 oil and natural gas deposits are being exploited in the country. Most of these deposits are mature, with an operating life of over 25-30 years. In order to achieve increased production and a better understanding of Romania’s under-explored subsurface, large investments are necessary.

Since Romania did not offer new exploration blocks for 10 years, countries with a much lower geological potential have managed to attract investors over the past five years. We are talking about Hungary, Slovakia, Croatia, and now there are opportunities in Ukraine and Turkey.

In terms of the fiscal and regulatory framework in which the industry operates and which represent a prerequisite for the decision of entering the market, Romania still has room for improvement. Unpredictability of regulation represents an important concern for investors, as well as the rigid data regime and complex permitting process.

In this context, our association decided to step in and to raise awareness of the authorities about the need for improvement and proposed functional solutions for the industry.

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