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Before the Second World War, Romania used its onshore reserves to become Europe’s largest oil producer. The US air force mounted one of its mostly costly war missions to damage the industry, with only moderate effect.

Since then, the global bloom of the industry has made this statistic a distant memory. In 2018, the country maintained a steady production of 208,000 barrels per day, according to the US Energy Information Administration. This places it 59th in the world.

Romania’s processing capacity stands out in Eastern Europe

However, Romania still has one of the largest processing capacities in Eastern Europe. Its nine refineries operate below their capacity of 450,000 barrels per day, giving room for expansion in its domestic industry.

Romania faces onto the Black Sea, where oil and gas reserves have proved lucrative for other countries. It controls the second smallest portion of the inland sea, with access to slightly under 30,000km². Its largest land border faces Ukraine, and the discovery of offshore oil caused a peaceful territorial dispute between the countries. In 2011, the countries settled this in international court.

The majority of the Black Sea coastline belongs to Turkey, which has pushed forward with offshore development since the discovery of the Sakarya gas field. Romania has proven access to 200 billion cubic metres of gas in its offshore reserves, the fifth-largest gas reserves in Europe.

Despite this, most of Romania’s reserves remain ready for development, but idle. Companies have waited for the right time, and now their patience seems to have run out.

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By GlobalData

Significant oil and gas discoveries in Romania have sat on hold for years

The Neptun Deep field, operated by ExxonMobil and equally owned with OMV Petrom is both a source of potential, and a source of regret. 

Petrom estimates the companies spent more than $1.5bn on exploration and appraisal in the block. Two drilling campaigns proved the existence of a gas reservoir, the second campaign finished in 2016, and in 2017 the companies started preparations for a final investment decision.

In late 2018, the Romanian Government introduced its new “Offshore Law” package. This included a windfall tax scaling up to 70% of revenues. The industry hated the laws, and the project has idled ever since. OMV Petrom’s website says it “continue[s] to evaluate the technical and commercial viability of the project”.

In early 2020, ExxonMobil announced its intent to sell its stake in the block. The Romanian energy minister said that Romgaz, its state-controlled extraction business, plans to purchase the stake. But at the time of writing, ExxonMobil still holds the stake.

Neptun Deep holds Romania’s largest reserve, significantly larger than the next two largest fields. Between them, these three form the majority of the Romanian offshore industry. Behind Neptun Deep and Trident, the Midia Development is the only one of the three to have its final investment decision made. Operated by Black Sea Oil and Gas, construction work began in 2019.

Even then, Black Sea Oil and Gas remains uncomfortable operating in Romania. CEO Mark Beacon told Agerpres: “For Black Sea projects to take off, it is absolutely necessary that all the legislation that is hostile to the investors in offshore oil fields, adopted in 2018, disappears completely.”

Lukoil wants to sell up its stakes in Romanian waters

Russian giant Lukoil began exploration in the Trident block in 2012, which it owned a 88% stake in, its first activities in an EU member state. Romanian state-owned operator Romgaz holds the remaining stake. In 2015, the companies discovered 30 billion cubic metres of gas in the reserve. At the time, they shared the block with PanAtlantic, but the company has since sold its stake.

In November, Lukoil declared its intention to do the same. It told Romgaz executives it would sell its stakes in Romanian waters, without stating a reason. Romgaz then told this to reporters, as Lukoil did not announce this to the public. Its reluctance to keep the stake could come down to an exploration well drilled in Q1 2020. This well was expected to prove a continuation of the reservoir but came back dry.

The Romanian Government plans reductions in Offshore Law and taxes

In 2018, Romania introduced offshore laws including a ‘windfall tax’. This means operators pay tax based on the revenue gained above benchmark prices set in 2012. This tax increases gradually between 15% and 70%, and has deterred a lot of investment in the area.

Companies such as Petrom and ExxonMobil have also described regulations as hostile to their ongoing operations in the area.

The country relies on oil and gas for approximately 18% of its power generation, but much of this comes from abroad. This comes with a cost. Mihai Nicut of states that imported gas costs approximately $600 per 1,000m³, compared to $150 for domestic production.

Despite this, Prime Minister Ludovic Orban has defended the need for imports, and the installation of new pipelines. In September 2020, he told the website: “We have a higher extraction capacity than we have consumption. The only period when consumption can rise above production is in winter, but even then we have solutions. We have underground storage, but not enough time has been spent on increasing our extraction capacity during the winter. Because of this, we need imports.”

In the same interview, Orban talked up the benefits of increasing access to gas imports. He said this would mean “Romanian producers must become more efficient to meet the competition”.

Since then, the government has started reassessing the Offshore Law. Elections have disrupted the process, but the government remains confident of a win. It has proposed raising the threshold for the windfall tax, meaning a lower overall tax rate. The new level remains unclear, but the government hopes the move will be enough to lure investment back to the area.

OMV CEO Rainer Seele announced the company would likely make a favourable final investment decision if oil and gas taxation laws became more favourable to operators.

Before the elections, the government promised to facilitate the first gas deliveries from the Neptun Deep field before 2025.