BUCHAREST, (Reuters) – After years of stalling legislation was approved Wednesday by Romanian legislators to lower taxes on future offshore gas income. This is in hopes that it will encourage investment in the Black Sea for its large reserves. While Europe is facing an energy crisis due to war in Ukraine and Russia, experts believe Romania can in the long-term challenge Russian Gazprom’s dominance in eastern and central Europe. This will allow it diversify its gas supplies, and potentially bring in billions of dollars in revenue.

OMV Petrom is majority owned by OMV Austria. OMV and other gas producers spent over 15 years and billions of money preparing for the tap of Romania’s estimated 200 million cubic metres of gas. Exxon (NYSE 🙂 was forced to leave the European Union due to a 4 year old prohibitive gas tax. The new legislation that lowers tax and eliminates export restrictions will be a key to restoring projects to life.

Razvan Nicolescu, an independent consultant who was formerly energy minister, stated that “this whole legislative project which took unforgivably lengthy is finally an acceptable compromise for both sides.” The development of these projects is a loss for investors.

OMV Petrom delayed until 2023 its final investment decision for the Neptun Deep deepwater site, where 1.5-3 trillion cubic yards of gas was discovered. The first gas might be produced by Romgaz state gas producer, which could happen as early as 2026.

Black Sea Oil & Gas (BSOG), controlled by private equity firm Carlyle Group (NASDAQ:) LP has moved ahead with plans to obtain an estimated 10 million cubic meters of natural gas, despite assurances from the government that offshore taxes would be reduced. The company will begin production in June.

Both firms declined to comment on the matter until it becomes law. According to the industry association, although it was an improvement, there are still areas that could be improved.

ENERGY SECURITY

New law establishes progressive taxes of 15% to 70% for additional income based on gas prices above 85 lei (18.08 USD) per MWh. Investors can deduct investment costs up to 40%.

The agreement also eliminates gas export restrictions and ensures that the tax system will remain unchanged for the duration. This is a sign of investor stability.

Analysts stated that the last-minute change allows the government temporarily to place price caps and sales restrictions on heating and household gas to meet emergency needs. However, this erodes the stability provisions.

“We ensure Romania’s energy security as the government has the ability to intervene anytime in order to redirect the gas to Romanian market in an event of energy crisis,” Energy Minister Virgil Popescu stated to legislators.

According to an industry association study, PwC found that Romania’s offshore gas production tax rate was 51% in 2021. This is roughly ten-fold higher than the European average.

Although the new law might encourage further gas exploration, the state’s mineral resources agency, which hasn’t sold off any new concessions in twelve years, has repeatedly deferred plans to tender 28, including six offshore, 28 more perimeters.

Onshore perimeters of greater than 3000 metres will be subject to the same rules. Romgaz will then be able to tap its Caragele oil field. Romgaz recently announced its greatest find in over three decades.