Contributed by CMS.
1. SUMMARY
The last decade did not bring major opportunities for new country entrants, since 2010 when the last bid round for petroleum exploration rights was organized by the state. The market is dominated by the largest producers, Romgaz and OMV Petrom, followed by a number of small-medium independents. Some of the notable exits from the market are Chevron, Repsol, and more recently announced, Exxon Mobil. In terms of significant legislative changes relevant for the oil and gas industry, we note the enactment of Law no. 256/2018 (the Offshore Law), implementing the EU Offshore Safety Directive aimed at providing minimum requirements for preventing major offshore petroleum operations related accidents. The law regulates offshore oil & gas projects in the Romanian waters of the Black Sea and makes significant changes to existing laws on protective provisions for archaeological sites, historically protected areas, and coastal areas. The law sets royalties at levels roughly equal to onshore production (up to 13.5%) and introduces a special windfall tax regime applicable to supplementary revenues generated from the production and sale of natural gas.
Important initiatives are conducted for the European gas transmission and interconnectivity.
Transgaz’s project from 2019 for a 100-kilometer pipeline, aims to ensure the interconnection of the transmission system in Romania and Serbia and is designed to take over the natural gas from the BRUA pipeline (the Bulgaria–Romania–Hungary–Austria Corridor). Romania also finalized in November 2020 the first phase of the BRUA project, a pipeline from Podisor to Recas of approximately 479 kilometers and several compression stations, aimed to diversify the routes of transport for natural gas from the Caspian Sea region to CEE, to facilitate the marketing of natural gas discovered in the Black Sea on the European market, and to enable bi-directional physical flows and interconnection between Bulgaria and Hungary. BRUA, phase two, consists of a 50-kilometer pipeline from Recas to Horia to extend the natural gas transmission capacity from Romania to Hungary up to 4.4 billion cubic meters/year. The initial deadline for completing this structure was 2022, the costs being estimated at EUR 68.8 million. This came very close to a standstill due to the global economy caused by restrictive measures taken by governments in relation to the COVID-19 pandemic.
In February 2021, the contract for the execution of the Black Sea - Podisor natural gas transmission pipeline has been awarded to the Turkish company Kalyon Insaat Sanayi ve Ticaret Anonim Sirketi, the pipeline through which Romania intends to transport in the national and European network the natural gas extracted from the Black Sea. According to Transgaz, the pipeline will have 308 kilometers. This project has been included since 2015 in a list of projects of common interest adopted by the European Commission. These are projects that “significantly contribute to the integration of the energy market” necessary for energy infrastructure corridors with a cross-border impact.
2. OVERVIEW OF THE COUNTRY’S OIL & GAS SECTOR
2.1. Legal framework – a brief outline of your jurisdiction’s oil & gas sector
The legal framework of the petroleum industry from Romania is comprehensive and is based on the concession type petroleum rights, whereas the market uses standard type agreements for transactional and commercial purposes, customary to the international practice. However, Law No. 238/2004 (Petroleum Law) main framework dates to 2004 and needs to be modernized and updated to meet the industry’s commercial and legal requirements. The mineral and the oil and gas resources located on the territory, in the subsoil as well as on the continental shelf on the Romanian Black Sea economic zone, constitute public property of the Romanian state.
Petroleum operations, exploration, and production, including the public property goods necessary to conduct these operations are subject to concession agreements, respectively through petroleum agreements by the competent authority (the National Agency for Mineral Resources – NAMR), to Romanian or foreign legal entities, following public tendering procedures. The petroleum agreement is concluded between the NAMR, as a representative of the state, and the private legal entity or group of companies who have the required know-how, technical capabilities, and financial means for performing the tendered petroleum operations and that are awarded the public tender. The agreements enter into force after they are approved through governmental decisions.
The petroleum agreement is a royalty-based contract. The Petroleum Law provides for scaled royalties based on gross production. For crude oil, the royalty ranges from 3.5% to 13.5%. For natural gas, the royalty ranges from 3.5% to 13%. The royalty is payable for each commercial field. The commerciality of the field is approved by the NAMR. Production is allowed based on priorly approved reserves by the NAMR.
Furthermore, the Romanian Government enacted in 2020 the Government Emergency Ordinance 27/2020 (GEO), which amends the Petroleum Law and transposes art. 2 para. (2) of the 94/22/EC Directive on the conditions for granting and using authorizations for the prospecting, exploration, and production of hydrocarbons. Specifically, the GEO empowers the National Agency for Mineral Resources to refuse – on grounds of national security – the awarding of a petroleum concession agreement to any non-EU entity or to a company controlled by such an entity. Compared to past regulations that made farm-out deals conditional to the NAMR’s approval only, the GEO allows for any transfers of rights and obligations related to a petroleum concession agreement to be deemed null and void without government approval.
With regard to transportation, oil and gas transport pipelines (from the point of upstream collectors) are public property. The transport of oil and gas is considered a service of public interest and strategic importance. Its regulation follows the provisions of Regulation (EC) 715/2009 on conditions for access to the natural gas transmission networks. Operation of transport infrastructure is permitted under concessions granted by the state, based on petroleum agreements. In 2020, the Government published a new strategy document for 2020-2030, with a strategic environmental analysis done by the Ministry of Environment. This came on top of the National Energy-Climate Plan (NECP) 2021-2030, approved by the government in 2020, as required by the new Energy Governance Directive of the EU. Currently, the Parliament’s agenda includes legislative changes to unblock investments in the Black Sea area which could help Romania to have “energy security” from 2026.
2.2. Domestic oil & gas production and imports/exports
The main pieces of legislation governing oil and gas exploration and production are the Electricity and Natural Gas Law No. 123/2012 and the Petroleum Law which implements the Directive 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration, and production of hydrocarbons. Another important legislation adopted is the Offshore Law on certain measures necessary for the implementation of petroleum operations by offshore block license holders.
Romania is considered a mature oil and gas producer, ranked 59th as the largest supplier of oil and gas in the world, the fifth-largest oil supplier in the EU, and the second-largest gas supplier in the EU. According to a study provided by PwC, Romania has the potential to rise to the top due to the development of the Black Sea reserves.
The country is home to well-established oil service companies and has large oil fields with a refining capacity of 321,920 barrels/day, which is higher than needed for its domestic market. Recent developments in the Black Sea offer positive growth potential for gas and possibly oil. In Romania, the oil reserves are about 600 million barrels, and in 2020 the national production was 72,000 barrels per day.
In the first ten months of 2021, Romania’s oil production was over 2.67 million tons, down by 116,300 tons (-4.2%) compared to the same period in 2020. At the same time, the production of usable natural gas, in the case of Romania, amounted to 7.42 billion cubic meters (+25.9 million cubic meters, respectively +0.3%), according to data provided by the National Institute of Statistics.
Romania imported oil and natural gas in the first 10 months of 2021, amounting to 2.83 billion EUR, up to 52.6% compared to the same period last year, according to data centralized by the National Institute of Statistics. On the other hand, exports in the mentioned period amounted to EUR 168 million, increasing by 741.7%. However, Romania registered a deficit of EUR 2.66 billion for this category of products.
The internal transport of natural gas is ensured through 13,430 kilometers of pipelines and connections of gas supply. The international transport of natural gas is carried out through two pipelines in the direction of Ukraine-Romania-Bulgaria-Turkey-Greece.
2.3. Foreign investment and participation
There are no specific legal limitations as regards the acquisition of an interest in a gas utility of private nature. However, the assets which are part of the distribution network may not be subject to a transfer, considering that the distribution network is of public interest.
A foreign company that is awarded a petroleum concession has an obligation to set up a branch or a subsidiary in Romania within 90 days from the effective date of the petroleum agreement. Operators under petroleum agreements for exploration and production, importers, and, under certain conditions, companies that process or transport crude oil, gasoline, diesel, or liquid ethane are authorized to sell and trade (including export) such products.
The performance of petroleum operations rests with the operator, a legal entity appointed by the NAMR as such, following the existence of an operatorship certificate The operator may be appointed either the titleholder itself or a third legal entity certified as an operator by the NAMR. The operatorship certificate states the technical, manpower, and financial capabilities of the respective entity which is required to have at least one employee individually certified by the NAMR.
2.4. Protection of investment
Romania signed the European Energy Charter on December 17, 1991, the Energy Charter Treaty in 1994, and the International Energy Charter in 2015. Moreover, Romania is one of the signatories of the Paris Protocol to the United Nations Framework Convention on Climate Change 2015 (Paris Agreement) and has ratified the Paris Agreement by Law No 57/2017.
The introduction of the European Green Deal and the policy around Taxonomy clearly impacted the activity of important actors in the energy arena and the need to reshape their investment strategy in the following decades has been acknowledged by multiple companies. Several multinational energy companies have assimilated the wave of changes and implemented the sustainability agenda in their business strategy. At the same time, they announced their intention to invest in clean energy projects at the local level.
The oil and gas companies have been slow in shifting focus from traditional activities, but we see more their plans including investments in new technologies which are synergic with their core business, such as geothermal, hydrogen, CCS, but also most of them have done some steps towards integrating into their portfolio electricity generation capacities, both CCGT as well as renewables.
3. EXPLORATION OF OIL & GAS
3.1. Granting of oil & gas exploration rights
The relevant Romanian oil and gas laws and regulations are:
i. The Petroleum Law, as further amended and supplemented. Under the Petroleum Law the definition of “petroleum” covers both oil and gas;
ii. Methodological Norms for the Application of Petroleum Law (“Norms”);
iii. Technical instructions, and other regulations issued by the National Agency for Mineral Resources;
iv. The Electricity and Natural Gas Law;
v. Natural Gas Permitting and Licensing Regulations;
vi. Natural Gas Network Code, and other regulations issued by the Romanian Energy Regulatory Authority.
The NAMR acts not only as a regulatory authority but is also a party to the concession agreements. It manages the petroleum resources, it has the power to issue mandatory norms, rules, and technical instructions for the application of the Petroleum Law, it approves the work programs, drilling of exploration wells, well conservation and abandonment, re-entry, field commerciality, development plans, annual production plans, and assignments, it certifies the technical competence of individuals or legal entities conducting petroleum operations, including operators under concession agreements.
Complementary to the responsibilities of the ANRM, there is a second regulatory authority, the Romanian Energy Regulatory Authority (ANRE), with the role of enforcing secondary legislation applicable in the natural gas sector (such as the issuance of licenses and authorizations, including those required for the production of natural gas), drafting of technical requirements related to natural gas production and supply activities or the organization, coordination, and supervision of the natural gas market.
According to the Ministry of Foreign Affairs, Romania’s initiatives in the field of energy security are:
i. The use of domestic production and the diversification of imports and transport routes for hydrocarbons on Romania’s territory;
ii. The promotion of cross-border interconnection projects in the natural gas and electricity sectors, such as those between Romania and Hungary (Arad-Szeged), Romania and Bulgaria (Giurgiu-Ruse and Kardam-Negru Voda), Romania and Serbia (Resita-Pancevo), Romania and Moldova (Iasi-Ungheni-Chisinau), and finally, Romania and Ukraine (Isaccea-Orlovka);
iii. Support for the implementation of major energy infrastructure projects in the region related to the Southern Gas Corridor (Trans-Anatolian/TANAP and Trans-Adriatic Pipelines/TAP);
iv.Support for the European Union initiatives on energy policy reform;
v. Further continue the dialogue with the external partners in order to facilitate, promote, and identify new opportunities, with a special accent on the consolidation of the transatlantic energy partnership with the United States and the extension of the national nuclear program.
vi. In terms of concrete initiatives deemed to offer investment opportunities in the exploration of oil and gas, in July 2019, the state initiated the eleventh bid round, which included 28 blocks, both onshore and offshore. However, the process has been since stalled and the bidding was not initiated so far.
Given the most recent development related to the natural gas crisis in terms of dependency on imports as well as high prices impact on the economy and the affordability for the end consumers, as well as the latest indications of EU announcing a shift in policy envisaging a set of strategic measures deemed to accelerate the energy independence for the EU block, the production of natural gas within EU countries becomes of strategic importance. Due to this aspect coming at the forefront of the energy strategy, it is expected that Romania will come up with measures to foster investments in natural gas exploration and production.
3.2. Foreign exploration
Investors gain access to petroleum resources by petroleum concession. The initial term of the concession may be of up to 30 years, and it may be extended for a period of up to 15 years. The concessions for the exploration and production of petroleum resources are awarded through competitive tenders organized by the NAMR. The Petroleum Law explicitly provides the categories of petroleum agreements that may be concluded for the exploration, development, and production of petroleum, respectively:
i. petroleum agreements for exploration/development/production;
ii. petroleum agreements for development/production;
iii. petroleum agreements for production.
The regulator can also grant, on request, non-exclusive exploration permits for up to three years.
According to Petroleum Law, the transfer of the rights and obligations to an area of a block covered by a concession agreement is possible. Thus, the titleholder can transfer:
i. a quota of its rights and obligations under the concession agreement with regard to the entire block;
ii. a quota of its rights and obligations under the concession agreement with regard to a petroleum area;
iii. all rights and obligations under the concession agreement with regard to a petroleum area.
Petroleum operations cannot be performed on land where historical, cultural, religious monuments or archaeological sites, natural reservations, sanitary security areas are located, or next to areas of hydro-geological protection of water sources. Petroleum operations can only be performed for reservoirs that are authorized for exploitation by the regulator.
In terms of the transfer of petroleum rights, some important legal developments have been introduced February 2020, via the GEO, which amends the Petroleum Law and transposes art. 2 para. (2) of 94/22/EC Directive on the conditions for granting and using authorizations for the prospecting, exploration, and production of hydrocarbons.
Specifically, the GEO empowers the NAMR to refuse – on grounds of national security - the awarding of a petroleum concession agreement to any non-EU entity or to a company controlled by such an entity. The GEO goes beyond awarding circumstances by enabling NAMR to use national security considerations to unilaterally terminate ongoing concession agreements. Compared to past regulations that made farm-out deals conditional to the NAMR’s approval only, the GEO allows for any transfers of rights and obligations related to a petroleum concession agreement to be deemed null and void without government approval. Furthermore, any change of control by a petroleum concession holder must be reported to the NAMR and may lead to a concession agreement amendment, termination, or approval by the government based on the NAMR’s recommendation.
3.3. Stages of the exploration process
The commencement of petroleum operations is conditional to the NAMR’s approval in writing, subject to the titleholder being able to evidence himself as holder of various additional permits, authorizations, and approvals required by other legislation (e.g. approvals issued by the Environmental Agency).
Similarly, the drilling is pre-approved by the NAMR following submission of the well technical project by the titleholder/operator. The NAMR approves the drilling by referencing the drilling period and any other obligations which may be incumbent to the titleholder.
The right to perform (preliminary) exploration operations only may be granted through a separate prospecting permit. This permit is issued directly by the NAMR, following a 30 days term during which the NAMR evaluates the request made by any local or foreign entity. The permit is not granted following a competitive bidding round, it has a maximum term of three years (no extension allowed), and is nonexclusive. The prospecting permit holder may request the NAMR to initiate the public bid for granting the exploration rights in the respective block, either during the validity period of the permit or 60 days upon submission of the final work report to the NAMR.
3.4. Obligatory state participation
The Petroleum Law provides that the underground petroleum resources are the public property of the state. The concession owners have the right to dispose of the oil and gas produced in the perimeters under concession. However, the law is silent whit regard to the transfer of petroleum resources to the titleholders but in practice, this issue is solved by including in the agreement’s clauses which provide that the transfer of the petroleum resources to the titleholders takes place at the wellhead.
See Section 2.1. for how the state benefits from foreign participation in the oil & gas sector.
All data and information regarding petroleum resources are considered as the property of the State. The companies carrying out petroleum operations may use the relevant data and information for the duration of their operations. The transfer to third parties of data and information regarding petroleum resources must be approved by the NAMR.
3.5. Risks to be considered
As a rule, the petroleum operations are performed by the titleholder at its own cost and risk. According to Romanian legislation, the titleholder is held liable for damages caused to third parties, hence customary insurances are used for third party damages, for health and safety, and for technical failures related to operations. The liability under the concession agreement follows the principles of Romanian contract law, while under environmental laws the principle of “polluter pays” applies. From the operational perspective, other practical risks to be considered are potential opposition from landowners to enter into contracts granting access or superficies rights to the titleholder, for carrying out petroleum operations. Although not very common, this can be a risk factor causing delays in execution of the petroleum operations.
Other notable risks include the legislation on climate change and more restrictive rules on gashouse emissions, shortage of rigs, especially for certain types of wells, limited local insurance providers, or inadequate insurance policies. At the same time, for smaller producers, there may be a risk related to reliance on third parties’ transportation networks and processing facilities.
4. PRODUCTION OF OIL & GAS
4.1. Granting of oil & gas production rights
Similar to what was described in Section 3.1., production can be carried out based on petroleum rights under a petroleum agreement, concluded by a titleholder with the NAMR, approved by the Government. As a specificity of the local industry, the last twenty years have been dominated by small operators which acquired petroleum rights for production from mature fields, which have been relinquished beforehand and the state has put them back on the market. The production can be carried out with the observance of the secondary legislation issued by the NAMR, based on certified reserves, for the duration of the economic life of such reserves. The production period can be extended if additional reserves are found and the NAMR has approved an amended study for newly found certified reserves,
4.2. Foreign production
All legal rights pertaining to petroleum exploration and production are granted in the same unique manner, as described in Section 3.2., based on a concession contract, equally for exploration and production rights. The legal status of the rights and the transfer conditions are identical to the exploration rights.
4.3. Stages of the production process
The stages are prospecting permit, exploration, experimental production, development (includes appraisal), and production (exploitation).
The appraisal prospecting permits can be obtained by any interested party for a period of time of up to three years. Such prospecting permits are non-exclusive, meaning that the same block can be appraised by more than one company during the same period of time.
Generally, the Petroleum Law explicitly provides the categories of petroleum agreements which may be concluded for the exploration, development, and production of petroleum (definition comprising both oil and gas resources), respectively: (i) petroleum agreements for exploration/ development/production; (ii) petroleum agreements for development/production.
As an exploration well can be drilled within both types of blocks (development/production or exploration/development/production blocks), the first step after drilling such a well is to apply for and obtain an experimental production approval from the NAMR.
Depending on the results of the tests, the titleholder may choose to enter experimental production in accordance with NAMR Order 1/2006 for the approval of the technical instructions regarding the change of the regime of the wells and the approval of the execution of experimental production petroleum operations. The experimental approval shall be approved by the NAMR upon submitting the technical documentation for a period of one year, with the possibility of extension for another six months.
According to NAMR Order 101/1997 for the approval of the technical instructions on the evaluation, classification, confirmation of the geological resources and petroleum reserves and the framework content of the studies of evaluation of the geological resources and petroleum reserves, at the end of the experimental production, the titleholder may decide to produce the well (definitive exploitation of the well) or to drill one more additional – technical documentation is required in every case. A technical study shall be prepared by the titleholder and a NAMR technical committee shall decide on the way forward for commercial deposits evaluation and on the classification, confirmation of the geological resources, and petroleum reserves.
In the case of a newly discovered structure, not declared as a commercial deposit, with a single deposit (exploitation objective) identified, on which the experimental exploitation was carried out and whose result does not justify development operations, the well may be put into definitive exploitation, with the recorded production and payment of the petroleum royalty.
According to NAMR Order 43/1998 for the approval of the technical instructions regarding the content of the technical documentation for setting up the petroleum development – exploitation blocks, at the end of the experimental production, the titleholder may decide, together with the NAMR, to establish and delineate a development – exploitation production block. Such a block shall be carved out the exploration block.
After the experimental production period of time, the titleholder shall put together resources and reserves study to be submitted to the NAMR for confirmation. The resources and reserves study shall comprise also the production of the respective deposit. The newly discovered deposit can be produced through one well, or, if technically needed, the titleholder may propose to the NAMR the drilling of other wells for the proper production of the deposit.
The deposit shall be carved out of the block and a production period of time shall be approved by the NAMR, in accordance with the production solution proposed by the titleholder.
Usually, the petroleum exploration/ development/ production concession agreements are concluded between the titleholder – the “successful bidder of the bid round that has proven the technical and financial capacity to perform the petroleum operations” – and the NAMR. The afore-mentioned concession agreement is usually concluded for a period of up to 30 years with the possibility of extension with another 15 years and enters into force upon Government ratification. However, the exploration period of time cannot exceed 10 years.
In terms of expenditure obligations, the budget is linked to the mandatory work program for the bid round winner, to the proposed work program subject to the NAMR’s approval for prospecting permits, and to the proposed annual work program for the development/production concession agreements.
4.4. Obligatory state participation
Under the current set up for concession petroleum rights, the state does not take direct ownership in the production of oil and gas, which, by virtue of the law, becomes the property of the concessionaire, once produced, subject to the applicable royalty and taxation regime.
Hence, the states benefits, indirectly, from collecting the applicable levies, such as :
i. Overall government take
Overall government the take for onshore oil-producing companies amounts to:
16% corporate tax rate + up to 13.5% of oil royalties + 5% of withholding tax applicable to dividends + 0.5% of additional tax + up to RON 15 (approximately EUR 3) multiplied by the surface area affected by drilling and excavation activities
ii. Direct taxes and duties
a) Corporate income tax:
16% on the difference between income realized from any source and expenses incurred for business purposes (i.e. profit and loss account elements), decreased by non-taxable income and increased by non-deductible expenses.
b) Royalties
Oil extraction – from 3.5% to 13.5% on revenues derived from this activity, depending on the quantity of gross oil produced quarterly;
Gas extraction – from 3.5% to 13% on revenues derived from this activity, depending on the quantity of gross natural gas produced quarterly;
Transportation/transit of oil – 10 % on revenues derived from this activity;
Underground storage of natural gas – 3% on revenues derived from this activity.
c) Withholding tax:
5% on dividends;
16% for other types of income;
50% tax rate applicable for the amounts paid to a resident of a state with which Romania does not have a binding legal instrument securing an exchange of information, to the extent that such payments result from artificial transactions.
d) Other taxes:
A 60% or 80% tax shall be charged on the supplementary revenues derived by natural gas producers and distributors (including their subsidiaries and/or companies that are part of the same economic interest group), from the deregulation of natural gas prices in case of supplies to final consumers (60% of the additional income for prices up to and equal to 85 lei/megawatt hour and for the prices that exceed 85 lei/megawatt hour, a percentage of 80% shall be applied to the additional income obtained from the difference between 85 lei/megawatt hour and the charged price);
Onshore oil-producing companies are taxed an 0.5% additional tax on their revenues;
Offshore gas production are taxed between 15% to 70% applying to the additional income obtained from the sale of natural gas extracted from offshore perimeters, after deducting the investments in the upstream segment;
Duty for issuing the drilling and excavation authorizations needed for research and prospecting of land for oil and gas wells is up to RON 15 (approximately EUR 3) multiplied by the surface area affected by drilling and excavation activities.
There are no legal restrictions as regards the export of crude oil and natural gas. However, in the last years, Romania exported very limited quantities of crude oil (being a net crude oil importer). As regards natural gas, until recently, the lack of physical infrastructure prevented Romania from exporting any natural gas, however, that is no longer the case
4.5.Risks to be considered
See Section 3.5.
5. TERMINATION OF PRODUCTION OF OIL & GAS
5.1. Abandonment and decommissioning
The abandonment and decommissioning obligations are enshrined in the Petroleum Law, as well as provided for in more detail under each perimeter Concession Agreement. In technical terms, the abandonment of wells is regulated under the secondary framework and it is defined by NAMR Order 8/2011 as all activities executed within the well in order to protect all impacted geological strata as well as the surface works carried out for the recovery and rehabilitation of the environment.
A well may be abandoned in one of the following cases:
i. relinquishment of the concession by the titleholder;
ii. drilling works can no longer be performed because of technical, geological, or economic reasons;
iii. the well can’t be reconditioned because of technical reasons;
iv. the well flows are lower than the economic exploitation limit established for that particular field;
public utility reasons;
v.the well depleted the reserves of all strata known as being productive;
vi. the titleholder cannot use the well for other purposes.
The abandonment of wells is requested by the titleholders of the petroleum concession rights on the basis of a technical project for each well. The abandonment of wells is subject to the NAMR’s approval and obtaining required authorizations and permits for the abandonment works. The works are made in accordance with technical projects submitted to the NAMR and are monitored by independent specialists or experts certified by the NAMR for such technical competencies.
5.2. Environmental and HSE consideration
The right to perform any type of petroleum operations is allowed under the petroleum agreement concluded with the NAMR, whilst the performance of petroleum operations without holding a valid permit or outside a petroleum agreement represents a criminal offense.
The commencement of petroleum operations is conditional to the NAMR’s approval, subject to the titleholder being able to prove that it holds the required permits, authorizations, and approvals required by other legislation (e.g. approvals issued by the Environmental Agency).
Similarly, the drilling is pre-approved by the NAMR following submission of the well technical project by the titleholder/operator. The NAMR approves the drilling by referencing the drilling period and any other obligations which may be incumbent to the titleholder.
After obtaining the NAMR approval for drilling the well, the titleholder has the obligation to drill it during the drilling period approved by the NAMR.
After the completion of the drilling works, the titleholder, depending on the results of the well may decide to:
i. Conserve the well – means all the works performed in the well that have the purpose of making it safe until the technical, technological, and economic conditions necessary for the exploitation of the oil fields or the underground deposits of natural gas are realized;
ii. Abandon the well – means the works executed in the well for the protection of all the geological formations crossed, as well as the surface works executed for the purpose of environmental restoration and rehabilitation;
iii. Lifting the abandonment regime/conservation – means the decision to change the status of the well from the abandonment/conservation towards re-entering the well with the aim to perform works/operations deemed to reactivate/activate the well production.
Abandonment of wells, according to NAMR Order no. 8/2011, is required when: the drilling works can no longer be continued for technical, geological, or economic reasons; the well has depleted reserves from all layers known to be productive and/or has all possible collectors saturated; the well can no longer be put back into production for technical reasons; the flows of the wells have fallen below the limit of economic exploitation established for the deposit; the public utility requires such a decision; the titleholder can no longer use the well for other purposes; the titleholder renounces the concession. The abandonment of the well shall be done in two steps and requires proof regarding the execution of the environmental restoration works, approved by the environmental authority. NAMR Order no. 8/2011 provides technical instructions on the specific format and content of the underlying documentation for the abandonment request.
6. SAFETY OF OIL & GAS EXPLORATION AND PRODUCTION
6.1. International treaties to which the jurisdiction is a party
See Section 2.4.
6.2. Offshore Safety Directive
The OSD was implemented in Romania by Law no. 165/2016 regarding the safety of offshore petroleum operations. Its provisions are also comprised and enforced via Law no 256/2018 regarding the implementations of certain measures for offshore petroleum operations (the Offshore Law).
The Offshore Law transposing Directive 2013/30/EU of the European Parliament and of the Council of June 12, 2013, on the safety of offshore oil and gas operations and amending Directive 2004/35/EC, contains provisions aiming to establish the minimum requirements necessary to prevent major accidents and to limit the consequences of such accidents involving oil operations in the Black Sea areas under Romanian jurisdiction, determined according to the principles of international law and international conventions to which Romania has acceded, in accordance with Law 17/1990 on the legal regime of the inland maritime waters, the territorial sea, the contiguous zone, and the exclusive economic zone of Romania, republished.
Moreover, Romania has set up a governmental body called Regulatory Competent Authority for Offshore Petroleum Operations in the Black Sea (ACROPO), in charge of the implementation of the OSD provisions.
7. IMPORT, EXPORT, AND SALES OF OIL & GAS
7.1. Import and Export of oil & gas
Offshore producers are required by the Offshore Law to trade at least 50% of Black Sea gas production on the Romanian commodity markets (OPCOM and BRM). Law no. 123/2012 on electricity and natural gas contains an obligation that requires all onshore or offshore producers and suppliers of natural gas to offer minimum quantities of natural gas on the Romanian centralized wholesale exchanges, as follows:
i. between July 1, 2020, and December 31, 2022, all participants to the natural gas market (except producers whose annual production realized in the previous year exceeds 3 million megawatt hours), which contract the sale of natural gas on the wholesale market during a calendar year, are obliged to sell on an annual basis a certain quantity of natural gas (currently 40% pursuant to ANRE regulations) on the Romanian centralized wholesale exchanges;
ii. between July 1, 2020, and December 31, 2022, natural gas producers whose annual production realized in the previous year exceeds 3 million megawatt hours, are obliged to sell on an annual basis 40% of the natural gas they produced in the previous year, on the Romanian centralized wholesale exchanges, in accordance with the provisions of secondary legislation;
iii. correlative to the above gas offering obligations, between July 1, 2020, and December 31, 2022, all participants to the natural gas market contracting the purchase of natural gas on the wholesale market during a calendar year are obliged to purchase on annual basis minimum quantities of natural gas on the centralized wholesale exchanges, in accordance with the provisions of secondary legislation.
7.2. Transportation
The National Petroleum Transportation System is the public property of the state. The systems for the transportation of oil and gas are operated by two state-owned companies, Conpet for crude oil, and Transgaz for natural gas. The National Petroleum Transportation System has approximately 13,000 kilometers of pipelines and it includes five interconnections. Transgaz initiated in 2019 a project for a 100-kilometer pipeline ensuring the interconnection of the transmission system in Romania and Serbia, being designed to take over the natural gas from the BRUA pipeline (Bulgaria–Romania–Hungary–Austria Corridor). The above operators have the obligation to provide equal access to the interested parties. The Petroleum Law, and the Electricity and Natural Gas Law specify the cases in which the operators may deny access to the transportation systems.
A Building Permit (BP) is required for any kind of construction including for temporary construction works. Necessary documents for securing a BP:
i. Title over the land (ownership right, right to use the land, superficies rights, etc);
ii. Urbanisation Certificate (UC);
iii. The approvals indicated by the UC; and
iv. Technical project for the construction work.
The UC is the administrative act establishing the legal, economic, and technical regime of the construction and detailing which approvals are required to be obtained before applying for the BP. The UC typically provides for specific approvals to be obtained on a case by case basis, from various authorities, such as the local city hall, the water authority, the forest authority, etc.
Typically, after having submitted all required documents, the BP should be issued within 30 days. The BP is valid for an initial period of 24 months, which can be extended for one time only with another 12 months.
Regarding the construction of natural gas transportation pipelines or associated infrastructure, the following rights and limitations are imposed in regards to the lands and other assets in the public or private property:
i. the right of use for the execution of works required for the development of transportation pipelines or associated infrastructure, as well as for the normal operation of the infrastructure by conducting repair, maintenance works, and necessary interventions;
ii. underground, aboveground, or aerial right of way for the installation of grids, pipelines, lines, or other equipment and for access to their location;
iii. the right to obtain the restraint or cessation of several activities that might endanger individuals and assets;
iv. the right of access to public utilities.
7.3. Land rights
The right to use the land necessary for the performance of the petroleum operations may be acquired by the following means :
i. purchasing the land and, if applicable, the buildings located on such land;
ii. swap of land, accompanied by the reconstruction of the buildings on the newly granted land, if any, at the expense of the holder benefitting from the released land;
iii. land lease;
iv. concession of land from the state;
v. concluding a partnership agreement between the owner of the land and the titleholder of the petroleum agreement.
Similar means are available for the construction of natural gas transportation pipelines or associated infrastructure.
The Romanian Law on Gas Pipelines refers to some measures necessary for the implementation of projects of national importance in the field of natural gas and has been developed, in part, to facilitate the construction of the BRUA pipeline. The law was adopted by the Chamber of Deputies (the decision-making chamber of the Parliament Romania) on September 20, 2016, and was promulgated by the President of Romania on October 19, 2016.
Law no. 185/2016 (the BRUA Law) was published in the Official Gazette and entered into force on October 25, 2016. In the law, “pipeline” is defined as “upstream supply pipeline, transport pipeline natural gas located in Romania, which is the subject of the project of national importance, including surface installations and all related facilities consisting of power supplies with overhead and/or underground installation, access roads, water supply, sewerage, and fibre optics.”
The general provisions of the law include the following:
Articles 3 and 4 contain several derogations from a number of existing laws to address the issue of access to land:
i. any forest land that is public property of the state can be occupied, free of charge;
ii. for the execution of construction works, without paying the value of the growth as determined by the exploitation of the wood mass before the age of technical exploitability;
iii. the owner’s agreement for privately owned forest land is obtained by signing a document certifying the approval of temporary employment for execution construction works. Upon completion of the works, compensation equal to “rent and the value of the loss of growth caused by the exploitation of the wood mass before age of technical exploitability” shall be paid;
iv. if the owner’s consent is not obtained because the latter is unknown or does not present a valid title, the land can be occupied without agreement;
v. at distances less than 50 meters from the forest edge, it is not necessary to obtain the approval of the structure territorial public authority responsible for forestry;
vi. taking out of the agricultural circuit of the respective land shall be done by the effect of the BRUA law, on the basis of a Government decision approving the list of relevant agricultural lands, without being conditioned by obtaining the approval/approvals from the agricultural bodies or from the landowner, etc.
Article 5 of the BRUA Law sets out the procedure applicable to the construction works and regulates the issuance of other permits, permits, and authorizations, such as: In the case of construction works related to projects of national importance in the field of natural gas, for the exercise of the rights of use and easement over the buildings, the initiator of the project will pay:
i. compensation for the landowners in exchange for the limitations brought to the right of use as a result of the performance of the works;
ii. compensations for the damages caused to the landowners or to the owners of activities affected by the exercise of the right of servitude;
In the case of surface facilities, for the exercise of the right of use, the initiator of the project pays to the landowners, starting with the date of completion of the works, an annual indemnity/royalty, etc.
7.4. Access and integration
See Section 7.2.
For natural gas, the access of the producers to the natural national transport system (NTS) is done through upstream pipelines that are connected to NTS, based on a setting-up authorization and an operating license granted by the ANRE.
The access to NTS is made on a regulated basis, through standard contracts for capacity reservation and for transport services and, respectively, connection to the system. Access is organized via virtual trading points or physical trading points assigned to each user.
Categories of network users. According to the information provided by Transgaz, the following applicants may connect to the NTS:
i. the holders of the gas distribution public service concession arrangement for performing their contractual obligations incurred as such;
ii. the LNG terminal operators;
iii. the underground gas storage operators;
iv. the new industrial clients (the client which connects for the first time to a system);
v. economic operators, holders of the distribution license;
vi. gas producers;
vii. other clients who may not be provided the requested flow from the natural gas distribution system in the conceded zone delimited where the connection will be achieved.
The Crude Oil National Transport System (CONTS) is the ensemble of interconnected major pipelines, providing the collection of the crude oil from the extraction sites or import crude and their routing from the sites they have been delivered by the producers/importers towards the processing units.
The concessionaire of the CONTS, CONPET S.A., is legally bound to provide to all applicants – authorized legal persons, free access to the system’s available throughput, under equal conditions, in a non-discriminatory and transparent manner.
CONTS is currently 3,800 kilometers in length and is being divided into four major sub-systems. The system’s transport throughput is approximately 27.5 million tons/year.
The transport of crude are standard transport contracts approved by the NAMR.
The activity is regulated and is carried out on the basis of gas transport tariffs approved by the ANRE and crude oil transport tariffs approved by the NAMR. The Electricity and Natural Gas Law gives the right to the concessionaire to demand the reduction or cease of activities of third parties in the vicinity of the gas installation, which could endanger the operation of the gas installations and equipment.
There are legal provisions in place issued by the NAMR with respect to the safety and security zones marginal to the oil and gas infrastructure/pipeline route, as well as governmental regulations pertaining to the conditions by which certain constructions can be located in the vicinity of such infrastructure.
7.5. Gas transmission and distribution
The National Gas Transmission Company, TRANSGAZ S.A., established based on Governmental Decision no. 334/28 April 2000, is the Romanian legal person operating as a trading joint-stock company, under the Romanian legislation and its by-laws. Therefore, Transgaz is a state-controlled natural gas transport operator, and it operates the NTS.
For gas distribution, the legal regime of concession contracts of the public utility service applies, based on the procedures for granting concessions, provided by the Government Decision no. 209/03.04.2019 published in the Official Gazette, Part I, no. 284 of April 15, 2019. The concession contract for the public utility service for natural gas distribution is awarded through open public tender procedures, which can be organized by the local public administration authorities from the administrative-territorial units or an association of multiple units, through a representative.
Both natural gas distribution and transport activities are regulated by the ANRE and are performed on the basis of individually regulated tariffs for each operator.
8. TRADING
8.1. Trading license
In Romania, the gas trader notion per se was first introduced in the Energy Law on July 19, 2018. According to the Energy Law, the natural gas trader is a licensed natural or legal person who buys and sells natural gas exclusively on the wholesale natural gas market.
However, gas trading was allowed under the supply license prior to the enactment of the aforementioned amendments to the Energy Law. These amendments also provide that entities holding gas supply licenses can trade gas on the wholesale market without the need to obtain a separate trading license.
The competent authority for issuing gas trading licenses is the ANRE, therefore any interested party may apply for a trading license.
The obligations specific for the gas trader, under a license/decision issued by the ANRE confirming the right to undertake gas trading activities in Romania, is the one provided by the Energy Law as main obligations of the gas trader, as follows:
i. to conduct sale/purchase activities exclusively on the wholesale natural gas market according to the legal provisions in force, based on commercial contracts concluded in a transparent, non-discriminatory manner, and under competitive conditions, import/export contracts, in full compliance with the rules of the applicable to natural gas trading activities according to ANRE regulations;
ii. Not to use unfair or misleading business practices;
iii. To ensure the reporting of the data regarding the activity performed regarding the sale/purchase of natural gas in accordance with the legal provisions in force;
iv. To ensure the natural gas deliveries are in compliance with the conditions imposed by the licenses, contractual clauses, and regulations in force;
v. To send the ANRE reports according to the regulations in force;
vi. If the respective company carries out other activities on the natural gas market, the latter is obliged to ensure the accounting separation according to regulations of the ANRE;
vii. To comply with the regulations and conditions established by the license granted by the ANRE;
viii. To trade the natural gas according to the provisions of the Energy Law.
8.2. Products
There are various types of natural gas sales, such as Bilateral gas sales agreements, import/export agreements, as well as trading on the dedicated commodity platforms, such as the Romanian Commodities Exchange (BRM), Romanian gas and electricity market operator (OPCOM), Humintrade SRL, and Tradex Platform SRL, which offer standardized products for various periods, on various markets, such as the ones below:
The BRM offers the following Wholesale Natural Gas Markets:
- GasForward Market. On this market medium and long term contracts that fall under the Centralized Market Regulation can be traded;
Approved products that can be traded within this market through an RCE standard, pre-agreed, EFET, or other proposed contract are:
- Week
- Month
- Quarter
- Semester
- Warm season
- Cold season
- Calendar year
- Gas year
- GasForward under Central Counterparty regime. On this market medium and long term contracts that fall under the Centralized Market Regulation can be traded;
The following products are approved and available for trading on this market:
- Week
- Month
- Quarter
- Semester
- Warm season
- Cold season
- Calendar year
- Gas year
SPOT market. On the SPOT market, you can trade short-term contracts, which fall under the Regulation for Centralized Natural Gas markets.
Products that can be traded within this market are the following:
- Day Ahead (D+1)
- Intra-Day (D)
Balancing Market. The Romanian commodities exchange operates as a third party that organizes and administers the Natural Gas Balancing Market in partnership with S.N.T.G.N. Transgaz S.A.
Within this market, you can trade a quantity of Natural Gas within the daily limit communicated by TSO for Gas day D-1.
Products that can be traded within this market are:
- Imbalance D-1
The BRM also offers The Retail Natural Gas Market
Within the Retail Natural Gas Market, tenders take place. Such tenders are initiated by final customers.
The traded product on the Retail Natural Gas Market is exclusively natural gas consumed by initiating customers for non-commercial purposes (self-consumption).
Customers that hold a valid natural gas supply license issued by the ANRE and who wish to initiate buying and selling orders through the Romanian Commodities Exchange have the wholesale markets available.
Given the above, we can conclude that the BRM offers short-term standardized products, medium and long term standardized products (standard products that will be traded based on standard sale-purchase contracts, standard products to be traded under standard EFET contracts/pre-agreed contracts, etc.), long-term flexible products.
Another important trading platform is OPCOM, which offers several short-term standardized products markets, such as the Day Ahead Market for Natural Gas (DAM-NG, on which daily natural gas transactions are performed, with delivery on the day following the trading day and the Intra-day Natural Gas Market.
OPCOM also offers standard products to be traded on the basis of standard sales contracts, standard products to be traded on the basis of standard EFET contracts/pre-approved contracts, standard products to be traded on the basis of the sale-purchase contracts proposed by the initiating participant of the trading order and long-term flexible products (for delivery periods of at least 12 months).
9. COMPETITION
9.1. Authorities
The Romanian Competition Council (RCC) is the authority responsible in Romania for the regulation of competition aspects. Since 2011, the RCC has had an internal guidance paper with prioritization criteria for ex officio investigations. It uses a range of criteria including impact on consumers, strategic significance, as well as risks and resources involved, to decide whether an investigation should be started.
9.2. Anti-competitive actions
Article 16 of Law no. 21/1996 (the Competition Law) establishes the RCC as an independent government authority with legal personality. The infringements for which fines may be inflicted under article 55 of the Competition Law comprise:
i. agreements between undertakings, decisions by associations of undertakings, and concerted practices which may affect trade on the Romanian market, as well as between member states and which have as their object or effect the prevention, restriction, or distortion of competition within the Romanian and/or the European market;
ii. the failure to notify a merger or implementing a merger against the specific conditions imposed by the Competition Law or one that was declared incompatible with competition rules by the RCC;
iii. the failure to comply with a certain obligation, condition, or measure imposed through a decision taken in accordance with the Competition Law.
The amount of the fine is set between 0.5% (or, in certain cases, 0.2%) and 10% of the total turnover of the undertaking concerned in the previous financial year. The fining policy is thus based on the principle that some infringements cause more harm than others, which is why individualization is required for each case.
The duration of investigations has repeatedly been a cause for concern. While it does not use formal deadlines in antitrust cases, the RCC has set the goal to conclude new antitrust investigations within two years and to expeditiously finalize investigations that are already older than three years.
10. STABILITY CLAUSE AND DISPUTE RESOLUTION
10.1. Stability clause
According to the principle of stability established by the Petroleum Law, the terms of the petroleum agreement remain in effect for the duration of the agreement, save for the enactment of legal provisions that are more favorable to the titleholder.
However, the law provides that the parties can amend the petroleum agreement by mutual agreement in case of occurrence of unforeseen circumstances. The petroleum agreements usually include stabilization clauses in line with the provisions of the Petroleum Law.
10.2. Compulsory dispute resolution procedure
As a general principle, any dispute arising in relation to petroleum agreements, concerning the exploration, development, and production of oil and natural gas resources should be settled amicably between the parties within 30 days. In case a settlement may not be reached, then the parties are entitled to commence proceedings in front of the domestic courts. However, in case there is a foreign element involved in the dispute, the parties may choose to settle their dispute in front of an international court of arbitration.
The disputes regarding the transportation, processing, or storage of natural gas, downstream oil infrastructure, development, or distribution of natural gas or oil, should also be settled amicably. In case the parties do not reach an agreement, the disputes shall be settled either by arbitration, as agreed by the parties, or by the Romanian courts of law.
10.3. International treaty protection
Romania ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on September 13, 1961, and made a commercial reservation and a reciprocity reservation. In addition, with regard to awards made in the territory of non-contracting states, Romania applies the convention only to the extent to which those states grant reciprocal treatment.
As a rule, no special difficulty occurs in the litigation or enforcement of judgments or awards, against governmental authorities or state organs because the state authorities do not enjoy any immunity in this respect.
Romanian law provides for the protection of investments realised by direct investment (setting up a Romanian company) or a portfolio investment (aquisition on capital markets). The protection is granted to both Romanian and foreign individuals or companies. The guarantees are: equitable treatment, protection against direct or indirect expropriation, right to convert earnings in other currencies, etc. However, the Romanian law does not provide for a separate, effective recourse if any of these guarantees are not observed. The law simply refers to disputes being resolved by national courts or according to International Center for Settlement of Investor Disputes (ICSID) or UNCITRAL arbitration.
International protection of investments
ICSID convention
Romania is a party to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (also referred to as the Washington Convention). Under this convention Romania concluded Bilateral Investment Treaties with more than 100 countries. Each bilateral investment treaty provides for a larger or smaller degree of protection, but most of these include protection of both direct and indirect investments by foreign investors, a guarantee of equitable treatment and protection against both direct or indirect expropriation of the investment. A list of the countries that have entered BITs with Romania cand be found at the following link:Database of Bilateral Investment Treaties | ICSID (worldbank.org) .
Recently, the European Court of Justice found an arbitration clause in an international investment agreement between two European Union member states incompatible with EU law. This landmark ruling has serious consequences for investment arbitration clauses in investment treaties concluded by EU member states.
Moreover, Romanian parliament has decided in 2017 to terminate all its Bilateral investment treaties with EU countries. The termination process is a long term process but puts at jeopardy all the existing intra-EU treaties. Since 2017 Romania has effectively terminated its BITs with Denmark, Sweden, Poland, Finland and UK (5 out of the 22 to be terminated in the future).
Energy Charter Treaty
Foreign investments in the field of Energy in Romania are also protected by the Energy Charter Treaty, to which there are currently 53 signatories. The ECT also provides for fair and equitable treatment to investors and warrants protection of their investments. However, on 2 September 2021, the Court of Justice of the European Union ruled that intra-EU arbitrations based on the Energy Charter Treaty violate EU law.
The most significant claims were competition law disputes between foreign companies and the state regarding privatization agreements and procedures in the oil sector.
One of the most renowned cases in the oil and gas is the Chevron versus the Romanian State case, at ICC, from 2018, whereby Chevrom Petroleum Company was oblidged to pay damages of USD 73, 450,000 to the National Agency for Mineral Resources (ANRM) following the annulment of three oil concession agreements without complying with the financial obligations under the Petroleum Law.
