Romania’s current royalty rates range between 3.5% and 13% (averaging between 7% and 8%), and this number is likely to increase in 2015.
Established in 2004, the country set its royalty terms with a 10-year stability agreement that will expire at yearend. According to consulting firm GlobalData, changes in the country’s fiscal regime will raise average royalties to at least 10% for the medium term of a new framework that will be introduced at the start of 2015.
The firm said the Romanian government will establish different rates for onshore and offshore fields. “This will allow the country to raise its take from onshore production, while at the same time offering an attractive climate for exploration in the Black Sea, where costs are high particularly for deepwater areas,” said Will Scargill, upstream fiscal analyst at GlobalData.
The government also may apply specific rates for unconventional operations to provide incentives for shale exploration in Romania.
Oil and gas windfall taxes established in 2013 will expire at yearend. The reduction in revenue could lead policymakers to enact permanent taxes on oil and gas production the report said. The country is midway through a deficit-reduction program, which is considered as a possible motive for increased taxation.
Cargill added, “Corporate income tax in Romania is significantly lower than in many countries.” From an investment standpoint, increased taxes on profit is preferred over an increase in royalties. “These changes will lessen the attractiveness of Romania’s upstream fiscal regime in the medium term, the negative impact on the sector’s investment climate is expected to be limited,” Cargill said.
Contact Tayvis Dunnahoe at email@example.com.