All discussions on Romanian O&G industry begin with aknowledgements on the long and strong history this industry has. However, the future of the onshore O&G sector seems to be endangered, more and more, every year. The prices on the international markets, the characteristics of the local geology, the uprising of electricity as a convenient replacement for hydrocarbons, the lack of perspective from the Romanian authorities in regards to the industry – these are all reasons of concern for the companies operating in the field. We have addressed most of these issues in a dialogue we had with a genuine oil man from Texas, Mark Wagley, ROPEPCA President in 2017. From this position, but also as an experienced professional, Mr. Wagley has a good overview on the Romanian O&G industry current status and mid-term perspectives.

Dear Mark Wagley, there are three issues the global onshore O&G industry is facing in recent years: 1. progressive fiscal terms imposed by host states, 2. harder, costlier and riskier access to reserves and 3. financial problems. Which of these is of most importance in regard to Romania and what is your approach, as ROPEPCA, on addressing these issues, and with what results in the past two years?

ROPEPCA has communicated to the Romanian Government our positions on all these issues. In the last few years we have been recognized as a legitimate dialog partner and continue to be available to discuss issues which affect our industry and the associated impact. The recent U.S. Department of State Report on the Investment Climate for Romania stated that “judicial, legislative, fiscal and regulatory unpredictability continue to complicate the business environment; additionally the parliament often fails to consult with stakeholders before passing economic legislation and that the arbitrary passage of ill-conceived revenue measures can serve as a disincentive to U.S. and multinational investment. “ Unfortunately the so called “temporary taxes” such as the tax on special construction and the windfall profit tax on natural gas have raised the government take to 15% of revenues, which is far in excess of the European average of 9.3%. These taxes are in direct contradiction to the stability provision from the petroleum law that ensures investors can make responsible investment decisions.

ROPEPCA has recommended amending the Petroleum Law no. 238/2004 in order to address the current practical administrative and legal challenges generated by either lack of certain provisions or by the contradictory interpretation of the law by various stakeholders, hence such necessary amendments would incentivize investment and lead to further unlock of hydrocarbon reserves in Romania. Petroleum operations are in the national public interest for energy security and our proposed amendments seek to modernize Romania’s archaic laws regarding petroleum extraction. The current law provides for the right to access the petroleum blocks for conducting the operations, with a fair and prior compensation to land owners, however in practice the existing land registries are not updated, and often times the operators have to spend a lot of time and money to address the situations where the land owners are not known or impossible to be contacted or they express unjustified denial or disproportionate financial compensations for operators to access their lands. As stated by the law, all the underground hydrocarbon resources belong to the state, and every title holder of a petroleum concession enters into such agreements with a representation that the Government and the oil companies are acting under a common goal of finding and producing such resources. Under the Romanian concession model, the oil company bears the entire financial and operational risk when undertaking the necessary investments and operations in completing the work, whereas in other countries, the host government shares the risk and rewards with the investors. Given this, we consider very important that the underlying legal, regulatory and financial framework should be clear in its application, stable and adapted to the current local and international realities and best practices. Hence, our proposed amendment addresses the land access issue in a format that benefits the state, adequately compensates the landowner and recognizes that this access is in the national public interest.

This observation is supported by the fact that the proposed amendments in terms of land access made by ROPEPCA have been undertaken and included in a very recent piece of legislation- the proposal on necessary measures to implement development project in Romania Gas Transmission System pipeline transport corridor Bulgaria – Romania – Hungary – Austria.

In public space, for most politicians and influencers in the media, the oil and gas industry is perceived as a rich and powerful industry. How do you see the current situation as it is perceived by the ROPEPCA member companies?

Our industry must do a better job of communicating to the public the impact we have on society. Our industry is not opposed to alternative forms of energy and we support an “all of the above approach” but the latest figures from the IEA reveal that fossil fuels comprise 81% of the energy mix for the world and this is unlikely to change significantly going forward. Oil and gas powered the 20th century development and will provide the bulk of energy the in 21st century. It is a capital intensive industry where very large sums of money are invested and that creates the perception of wealth, but the reality is net profit margins in our industry are actually some of the lowest. You must go all the way back to 1934 to see fewer wells drilled in North America than is currently forecast for 2016. According to IHS, conventional discoveries outside of North America are at a record low since 1952. Without additional investment Romania’s oil production will be exhausted in 12 years and gas production in 9 years. A minimum of EUR 1bn/ year is required to maintain production at the same level. It should also be noted that according to KPMG’s report on the “Impact of the onshore upstream oil and gas industry on the Romanian economy” that EUR 1bn invested in the oil and gas sector creates or maintains 45,900 jobs, brings to the state budget EUR 1 bn in taxes and has an impact in GPD of EUR 3.2 bn. The industry is currently experiencing one of the most challenging down cycles in recent history and host governments would be well advised to recognize this and consider incentives and avoid killing the goose that laid the golden egg.

For some years now, Romanian authorities are struggling to decide on a new fiscal regime for the industry. There is a delay which impairs on the investment decisions and on the operational activities. Where do you see to be the problem? Which is the main point of disagreement between the state and the companies?

Capital favors predictable and stable fiscal regimes and any increase in government take applicable to current concessions altering the conditions existing at the time of initial investment decision undermines investor confidence and is punitive to the companies that have taken the risk and invested. Our industry by nature is high risk due to complex geology and wild swings in the price of our commodity and we accept this. If there is added unforeseen and impossible to evaluate risk due to fiscal uncertainty in a host country it changes the overall risk profile and businesses will re-evaluate their strategy. Capital has wheels. An investor will always seek the highest risk adjusted returns.

ROPEPCA has been consistent in expressing its point of view every time it was given the chance in public consultations on all aspects incidental in our activity, which we consider to be a healthy exercise with a valuable learning upside, and we trust that our observations and objective data from the grassroots operational side will be factored into the decision process of the Government measures in respect to the industry.

In terms of new discoveries, Romania has very few significant achievements in recent years. What is that the E&P companies can do in order to improve their performances, in such a context?

E&P companies can improve their performance if the investment climate is stable, predictable, transparent and access to opportunities are abundant. The Petroleum law should be amended as mentioned earlier and the 11th bid round should be rolled out immediately under current fiscal terms with a strong stability provision. It would be a lot of fun to witness Romania’s transformation if those two straightforward things would be accomplished.

Most of the companies in ROPEPCA are foreign based or part of international groups, with good access to financing and up-to-date technologies. How are these two advantages put to work in Romania?

Romania has an excellent petroleum system. Although Romania is a relatively mature petroleum province, considerable exploration potential exists in difficult to explore areas and/or for deep objectives. For these challenging areas and targets, little exploration has been done in the past. For most technical challenges in Romania, international operators can appeal to analog situations in other countries of operation. Seismic acquisition techniques and equipment used to effectively acquire 3D data in the Canadian Rockies or Peruvian Andes can be used to acquire data within many areas of the Carpathians, where little or only poor quality seismic data currently exists. Similarly, seismic processing algorithms and work flows proven successful for analogous data types can be (and has been) used for Romanian seismic data. Drilling technology and knowledge obtained internationally for drilling deep and over-pressured wells in tectonically unstable geological provinces can be critical for exploring in difficult areas in Romania.

Advanced technology has often been tested in Romania by research institutes, but has not been applied during mainstream exploration. Geochemical techniques for source rock identification and basin modeling including appetite fission track analysis, fluid inclusion studies, and Re-Os Isotope analysis have been successfully tested in Romania, but are not widely used. International companies often have a breadth of experience that enables them to identify where such techniques will add value and are typically willing to apply appropriate technology on an ongoing basis.

Economic “fit for purpose” development strategies and facilities is another area where international operators can add value to the development of otherwise uneconomic oil accumulations. As mentioned, the proven petroleum systems in Romania are relatively mature and oil discoveries are typically modest. Development designs in mature petroleum provinces such as the USA and Canada may be applied to Romania. Alongside the experience in increasing the recovery factor in complex or mature reservoirs, cost reductions through unmanned facilities, facility hubs and “fit for purpose” capacity and equipment play an important role, often enabling the development of modest discoveries that would otherwise be stranded resources.

Good, sustainable businesses are built on functional relationship between the company, the authorities and the community. Which line of this triangle needs improvements in order for the onshore Upstream industry to have a more powerful growth and a better future in Romania?

All lines of the triangle need improvement. The companies need to build relationships in the communities in which we operate and educate our stakeholders on the benefits of oil and gas extraction in the local economies in the long run, the local and central authorities need to work together in order to sustain the common benefits and to create an environment that accommodates local community needs as well as incentivize investment, for a win-win result.

Mr. Mark Wagley, you are also general manager of Hunt Oil Company of Romania, with responsibilities in Eastern Europe, too. Can you mention some of the main differences you identified in Romania, when compared to other countries in terms of onshore exploration and production?

Romania has many parallels with my home state of Texas. Both are blessed with abundant natural resources, have a dynamic well educated workforce and are positioned to become net energy exporters. The State of Texas has created 40% of all jobs in the US in the past 10 years. The simple reason is a fiscal regime that is attractive, predictable, stable and a very limited amount of bureaucracy.

U.S. Senator Lisa Murkowski recently commented that “we are at a rare moment where we can plan ahead to meet our future needs, without facing a supply or price related emergency. Yet, we are not taking advantage of it. By choosing not to produce here, we are telling other countries-some of them rather nefarious-that we would rather buy from them. And we are giving away the jobs, the revenues, the growth and the security that would come with that energy development.” Her apropos comment fits Romania as well. Let’s keep the jobs and revenue in Romania and provide for a safe, secure and reliable energy supply.

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The full version of this article can be read in printed edition of energynomics.ro Magazine, issued in September 2016.

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