Romania's Untapped Hydrocarbon Potential...Why Romania Should Be Your Next Hydrocarbon Destination.

Romania played a pioneering role in developing the Oil & Gas industry. Its contribution dates back to the mid 19th century, more precisely to 1857 when Romania drilled one of the first commercial oil wells in the world, and had its capital city, Bucharest, become the first city to be illuminated by kerosene.

The industry flourished until production peaked at 300,000 bbl/day in 1978 for crude oil and 39 BCM/year in 1982 for natural gas. Since then, production has been in constant decline. As of 2018, Romania produces an average of 70,800 bbl/day of crude oil and 9.9 BCM/year of natural gas; a 75% decline from its peak production.

NAMR & The Licensing Round

In 1995, the Romanian state established The National Agency for Mineral Resources (NAMR); a central administrative authority that is mandated with regulating and supervising all upstream oil and gas activities in Romania, as well as organizing the petroleum licensing rounds and granting petroleum concessions.

NAMR held its 10th and last licensing round a decade ago, in November 2009, where 30 blocks were offered on auction.

Romania's 11th Licensing Round

In July 24th, 2019, NAMR announced the general terms of its long-anticipated 11th licensing round. This upcoming round offers 28 blocks for exploration, development and exploitation (22 onshore, 6 offshore) with block size varying from 653 km2 to 1,098 km2.

The licensing round will be officially launched once it is published in the EU Official Journal. Only then, data packages will be made available to interested entities. The licensing round is expected to be held sometime in 2020.

Romania and the BRUA pipeline

Romania has the largest proven oil reserves and the second largest gas reserves in Eastern Europe. However; most of its oil & gas fields are mature and experiencing continuous production decline. Despite this decline, the European Union approved in 2017 the funding of a regional gas pipeline connecting Bulgaria, Romania, Hungary and Austria (named BRUA - the initial letter of each participating country). The pipeline will connect the Black Sea to a gas compression facility located in Baumgarten, Austria. The facility acts as a regional hub, and would be supplied with 4.4 BCM/year of natural gas given that eastern European countries, most notably Romania, boost their natural gas production. The pipeline will reduce Europe's dependence on Russian natural gas supplies, thus contributing to Europe's energy security.

in the 2000', several disputes broke between Russia and Ukraine over gas pricing, which led Russia cutting its gas supply to Europe. As a result, Eastern European countries suffered significant gas shortages during winter seasons.

Romania's Untapped Hydrocarbon Potential

Most of Romania's oil and gas fields have been in operation for more than 25 years and little has been made to form a better understanding of Romania's subsurface structures and geology. This leaves Romania with a great unexplored hydrocarbon potential in both land and offshore.

Offshore (Black Sea)

Romania's first offshore drilling took place in 1975, when well Ovidiu-1 was drilled to a total depth of 5,006 meters in 84 meters water depth. In 1979, Romania made its first commercial shallow-water discovery in the Lebada oilfield, but it is not until 1987 when offshore production began from the field.

In 2012, Romania made its first deep-water discovery. Well Domino-1 hit a massive play in the Neptun block with a reserve estimate of 84 BCM. The discovery is considered the largest to date in the Black Sea. In addition, various studies estimate the Black Sea's untapped reserves of natural gas to range between 170 and 200 BCM.

Deep-Onshore

More than 90% of Romania's hydrocarbon production comes from mature onshore fields, which are considered relatively shallow reservoirs. While no major investments were made to explore Romania's deep-onshore basins, it is believed that deep onshore could have a reserve potential larger than the combined reserves discovered in the Black Sea. For instance, Romgaz (the state controlled gas producer) made its largest onshore discovery in three decades after testing formations at a depth of 5,000 meters. The discovery was made at the Caragele gas field in Buzau county with reserve estimate of 27 BCM.

According to the Romanian Petroleum Exploration and Production Companies Association (ROPEPCA), the Romanian Onshore Oil & Gas sector requires USD 1.1 billion per year to maintain current production rates.

Controversial Offshore Law

In 2018, the Romanian parliament passed a law which introduces a new fiscal regime for offshore production. Despite a recent amendment, offshore oil & gas companies refrained from moving forward with Final Investment Decisions (FID) on several offshore developments, stating that proposed fiscal terms makes Romania's Black Sea investment costly and less attractive.

The law imposes a progressive windfall tax on revenues from offshore production, as well as a domestic supply requirement, where half of offshore gas production must be sold in the domestic market at a regulated price.

It is worth mentioning that Offshore developments are considered a strong economic driver for Romania's economy. It is estimated that over USD 22 billion will be invested in Romania offshore oil & gas projects in the period 2018-2040. (USD 15.7 billion in CAPEX, and USD 6.5 billion in OPEX) as per an independent study prepared by Deloitte on April 2018. Thus, It is expected that additional amendments will improve the draft law, given that several entities and associations, such as ExxonMobil, OMV Petrom, ROPEPCA and RBSTA are engaged in the discussion.

Final Words

Romania's has a considerable untapped potential of oil & gas reserves in both offshore and deep-onshore. While little has been made to explore new frontiers and structures, it is believed that the 11th licensing round will offer opportunities for Oil & Gas companies of all sizes to tap into new hydrocarbon deposits, as there are 28 concessions to be auctioned, with 22 onshore, and 6 offshore. The largest concession is located in Transylvania, the historical natural gas deposit in Romania that is still in production to date.

Abbreviations:

BBL : Barrels

BCM : Billion cubic meters

CAPEX : Capital Expenditures

EU : European Union

FID : Final Investment Decision

NAMR: National Agency for Mineral Resources

OPEX : Operating Expenditures

RBSTA : Romanian Black Sea Titleholders Association

ROPEPCA : Romanian Association of Exploration and Petroleum Producing