After much political wrangling, Romania’s ‘offshore law’ came into force after its publication in the official gazette on November 14. The final law offers updated terms and development of existing major gas discoveries still appears likely, but the relatively uncompetitive fiscal regime may hinder new exploration.
Major gas developments still appear likely to go ahead despite the imposition of the new tax. The 1.5 trillion cubic feet (Tcf) Domino field, owned by ExxonMobil and OMV, and the 0.3 Tcf Midia Gas Development, operated by Carlyle Group-backed Black Sea Oil & Gas, are currently awaiting FID (Financial Investment Decision). It had been expected that Domino would receive FID in Q4 2018, but OMV recently announced that this would be delayed as they evaluate the effect of the new law. Despite the delay, both projects still appear to generate attractive returns under the new terms, with internal rates of return estimated at 20.6% for Domino and 15.1% for Midia (at a gas price of US$5.84/mcf). Moreover, Domino appears competitive within ExxonMobil’s portfolio of potential new development opportunities. It outperforms most other pre-FID offshore gas developments and offers similar rates of return to all but the most attractive potential offshore oil developments.
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The effects of the new law may be more pronounced when it comes to attracting new exploration investment. While development projects at fields that have already been discovered in Romania may still go ahead, Romania’s fiscal regime is now one of the least attractive in the Black Sea for gas. The country’s mooted 11th bid round, subject to ongoing delays, is expected to include unlicensed offshore acreage. However, with neighbouring Bulgaria and Ukraine offering significantly more attractive terms, Romania’s offshore exploration opportunities may appear less competitive. The offshore law added additional regulatory requirements, including a 50% domestic supply obligation for gas and a requirement for 25% of workers to be Romanian citizens. These, along with additional uncertainty created by proposals to cap gas prices, may further limit investor interest.
Black Sea gas discounted state take comparison
| Source: Upstream Economics, GlobalData Oil and Gas © GlobalData |
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