June 4, 2014 / 11:23 AM / 5 years ago

Romania promises fairer tax for oil and gas extraction

* New system to have different taxes for onshore, offshore

* Romania kept royalties unchanged for a decade

* New tax system will not affect current contracts

By Luiza Ilie

BUCHAREST, June 4 (Reuters) - Romania will introduce a new royalty tax system to reflect the difference in costs between onshore and offshore extraction of oil and gas, but the new levies will not affect current contracts, Prime Minister Victor Ponta said on Wednesday.

Companies currently pay royalties ranging from 3 to 13.5 percent of production for oil and gas, depending on the amount extracted. Officials are working on a new system that will likely be finalised after a November presidential election.

Romania is the EU’s second-poorest state but has its own energy resources, including gas and coal. Analysts say relatively low royalties prevent it from making the most of what it has.

Bucharest has had extensive talks with the International Monetary Fund to revamp its royalty system while taking care not to make investment prohibitively expensive, Finance Minister Ioana Petrescu said in April.

“On a European and global level, one cannot have the same royalty tax for offshore and onshore because there are huge differences in investment and profit,” Ponta told reporters on the sidelines of an energy seminar.

“We are working on a differentiated system what will keep offshore exploitations profitable,” he said, adding “the law and international practice are very clear, one cannot enforce a new law for old agreements or ... we would lose resulting lawsuits.”

Romania has left royalties unchanged for the last 10 years, a condition it agreed to under the 2004 privatisation of oil and gas group Petrom, now owned by Austria’s OMV.

The head of its national agency for mineral resources, ANRM, said on Wednesday some of the current concessions and licenses would expire in the next 5-7 years.

Gheorghe Dutu said the new taxes would take into account onshore, offshore and deep offshore extraction, for which taxes would need to be low enough to be attractive for investors.

“One option is to overtax the profit for strong fields, but we are still working on the system,” Dutu said.

Mariana Gheorghe, Petrom’s chief executive, said none of the company’s production licenses will expire in the short term.

She added the firm has invested some 10 billion euros ($13.62 billion) in the last decade in its onshore operations, and was looking forward to deep offshore possibilities.

Petrom jointly owns a deep water well with ExxonMobil in the Black Sea. Operated by ExxonMobil, the Domino-1 well is the first deep water exploration well in Romanian waters and is located in the Neptun Block, 170 km (106 miles) offshore. ($1 = 0.7342 Euros) (Editing by Matthias Williams and William Hardy)

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