Romanian courts decide in favor of the oil operators

Varinia Radu – Partner CMS România
Ramona Dulamea – Senior Associate CMS România
Daniela Popescu – Senior Associate CMS România

In a country with a history of almost 160 years of petroleum industry where petroleum operations have been carried out during various political and legal regimes, without being a controversial topic, neither by legal nor by social nature, the access to the petroleum blocks, in general and, in particular, to the land necessary to access the underground resources, have generated in the last years a new challenge for this industry’s operators. In addition to the technical and financial risks related to the oil and gas exploration industry, the more recent problem regarding the access to the petroleum blocks has raised the risk of projects with respect to the uncertainty of the commencement and development of the petroleum operations according to a pre-set schedule, as well as the concessionaires commitments to the Romanian state while incurring additional costs generated by the law suits to access the petroleum blocks, as opposed to relying on the customary ways of amicable direct negotiation.

In a context where, although expressly permitted by the Law no. 238/2004, petroleum law (named as follows “Petroleum Law”), the access of the titleholders of petroleum agreements (“Petroleum Agreements”) on the private property land with the scope to conduct petroleum operations, is almost impossible in the absence of an agreement with the land owner, recently the judicial practice has started to express opinions in favor of the titleholders. Therefore, the article 7 from the Petroleum Law establishes a legal servitude right over the petroleum perimeters, other than those declared of public utility, necessary for the exploration and exploitation operations as well as for any related field activities necessary in the process of exploration and exploitation, whereas the exercise of the servitude right is made against the payment of an annual rent.

Even though the legislator established this legal servitude right, frequently, in the last 3-4 years in practice and in the context of public space debates related to the insufficient or incorrectly understanding over the exploitation of shale gas, the landowners denied access to the titleholders on the blocks intending to conduct petroleum operations, claiming that the exercise of the servitude right of the titleholders represents an expropriation of the landowner.

Local realities as well as the fiscal contributions to the state budget from this industry reflect a significant decrease of the petroleum activities. There has been a decrease of activity right from the start of the exploration phase even for the very early and necessary works before the actual drilling exploration works, such as, temporary works, without negative environmental impact as the acquisition of seismic data through geophysical prospecting.

The reactions which the operators had encountered among owners are the most diverse, from the categorical refusal to answer to the legal notification sent by the petroleum company, to the disguise of a subjective and unfounded refusal by demanding a disproportional rent compared to the similar price offered in case of such rents, or to the accusations that the intention of the operators is to in conduct specific shale gas intrusive methods. In some cases local referendums were organized with the aim to prohibit any petroleum operations, of any kind. Therefore, the petroleum operations have come to be governed by decisions of the local councils, obviously contrary to the government decisions that approved the petroleum agreements.

The operators have addressed and requested the support of the National Agency for Mineral Resources in order to ascertain the objective impossibility to carry out the investments as planned; there are plenty of cases where the petroleum operations are blocked for reasons independent of the titleholders’ will and power, since they have dully attempted to exercise their right to access the lands as provided by the Petroleum Law.

Some petroleum companies, as a result of having exhausted all the available legal rights to access the lands through amicable understandings chose to fight further for their rights in the courts of justice, as a last resort solution, preparing themselves with patience, money and the risk of a mass campaign against hundreds of land owners, despite always having available as alternative the termination of the petroleum agreements and the abandonment of the projects.

Recently, through a judgment of the Timiș Tribunal, the court ruled that, far from being identified as expropriation, the legal servitude established by the art. 7 from the Petroleum Law represent a permitted limitation of the right of property, being in line with the Constitution and with the Additional Protocol no. 1 of the European Court of Human Rights.

A continuous and sustained effort, for over 3 years

The Court considered that the property right of a person may be limited by the right of the state to establish legal norms in order to use an asset of public interest, provided that the right shall not be affected in its substance. The right to property is granted by the Constitution, but its content and its limits are established by law.

In this respect, the legislator understood to provide to the titleholders an efficient way to achieve the purpose for which the petroleum agreements were concluded, by limiting the property right, offering the titleholders the access on the land, for a well-defined purpose, for a limited period of time, by paying an amount of money which serves as a compensation to the owner for the temporary lack of use of such affected lands.

After a continuous and sustained effort, over the course of three years, based on the assessment of the legal evidence, including specialized expertise, the request of some of the titleholders was favorably resolved, thus the servitude right provided by the Petroleum Law was also confirmed in the court of law.

Consequently, the access of the titleholder on the lands necessary to conduct petroleum operations represents a right which has to be respected by the landowners, the titleholders being able to invoke this right to access the lands whenever needed to carrying out petroleum operations variable in time, being of short term such as geological prospecting in order to acquire seismic data or longer term or permanent such as drilling of wells and of the surface technological installations.

The importance of this legal precedent is overwhelming, so far an important part of the obligations assumed by the titleholders were impossible to be executed considering the objective obstacle of the impossibility to access the land. Although a pioneering solution, which involved a long journey and required consistent arguments, the success of such court decision represents the premise for all titleholders to be able to lawfully access the petroleum blocks and stands as a precedent for the uniform interpretation of the legal provisions, which may be invoked in support of the rights of the titleholders, as established by the Petroleum Law.

Moreover, we can hope that the courts will be able to appreciate also vis-a-vis the legitimacy of such claims formulated as preliminary injunction requests, motivated by the urgency nature of the obligations to conduct the operations within a set timeframe.

The exercise of some of the real rights over the lands affected by the oil and gas production facilities or those necessary for the commencement of the operations is determined by a major public interest, namely the sovereign right of the state to exploit its natural resources The interpretations where the establishing of some real rights over the lands would be contrary to the private or public interest are dismissive (Constitutional Court, dec. nr. 986/2011, Official Gazette no. 706/2011), so that the legislator is fully competent to establish and clarify in the future the conditions regarding the exercise of the attributes of the property right, in light of the national interest associated with the exploitation of the natural resources.

The issuance of legislative provisions to establish a clear and quick access mechanism to the lands while respecting the principle of fair and prior compensation for the land owners would send a positive signal to investors. In the recent worldwide oil price crisis, this industry’s capital competes under more sever conditions than before, therefore we are witnessing regulatory policies adjustments from some states which are willing to support this industry by creating legal and fiscal measures to encourage the petroleum companies to continue the ongoing projects and even to attract additional investments. It is known the fact that Romania is an intensively explored and exploited geological region in the past, such that operators understand that the opportunities can be limited, that they may need to accept an additional cost generated by the acquisition of modern technology and therefore a longer time+frame for the project implementation is needed.

These realities are way more challenging in the context of a complex regulatory regime which requires also a significant period of time in order to obtain all the permits, authorizations and approvals needed at central and local level. Therefore, any other cause of delay affecting the operations, considering the investment appetite has significantly decreased in the actual market conditions, has big chances to radically change the sustainability of a project. The additional deterioration of the climate for conducting the operations will harm the local market, causing the withdrawal of some investors which could significantly contribute to the Romanian energy security in medium and long term, also negatively affecting the domestic suppliers of services and equipment producers.

The interpretation of the courts of justice in favor of the titleholders represents a confirmation of their rights, but for the promptly implementation of legal procedures, which in practice triggers the start of petroleum operations, an amendment to the Petroleum Law to tackle this matter it is necessary, appropriate and long-awaited by the industry.

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This article can be read in printed edition of energynomics.ro Magazine, issued in May 2016.

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