The document summarizes taxation regimes for the oil and gas industry in Romania. It discusses that Romania uses a concessionary tax system, where taxes are based on both revenue and profits. It notes that Romania currently uses a revenue-based royalty system but is considering a new mixed system that includes supplemental profit taxes. The document also provides an overview of production levels and forecasts for Romania's oil and gas industry, and discusses characteristics that attract investors like tax stability and competitiveness.

1. Taxation regime for oil &
gas industry in Romania
www.pwc.com
Andreea Mitirita
Tax & Legal Services Director
PwC Romania

2. PwC
Agenda
2
24 March 2017Taxation regimes for oil & gas industry
Overview of tax systems applicable
in upstream (oil and gas industry)
Specific conditions of oil and gas
industry in Romania

3. PwC
Overview of tax systems applicable in
upstream (oil and gas industry)
Taxation regimes for oil & gas industry
3
24 March 2017

4. PwC
Of the three types of fiscal regimes applicable, in OECD
countries the dominant one is Concessionary
(including Romania)
Concessionary (CC)
1
Production sharing
agreement (PSA)
2
Service Contracts (SC)
3
CC
PSA/ SC
SC
PSA
CC / PSA
CC / SC
* Countries indicated in grey were not analysed
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24 March 2017Taxation regimes for oil & gas industry
CC / PSA/ SC

5. PwC
Characteristics of concession type systems
Tax base System Description Profit linkage
Revenue
Flat rate
o Single royalty rate
o Discourages investments in marginal fields
(with small productions/difficult conditions)
Minimum
Sliding scale
o Production- based – dependent on the
volume of production per field
o Price – based – dependent on the prices of
oil and gas
Medium to
High
Profit
Flat rate -
supplementary
o Supplementary tax on profit, additional to
regular corporate income tax, with
deductions for different types of fields
High
R-Factor
o Royalty / hydrocarbon tax rates increase
when ratio between cumulative revenues
and costs of project is higher than defined
thresholds
Maximum
Mixed
(revenue
and profit)
o Tax on both revenue and profit, based on a
combination of the 4 systems from above.
Medium to
Maximum
Beyond the pure financial analysis, the use of each system must also take into consideration
the complexities of implementation.
Where
Romania is
5
24 March 2017Taxation regimes for oil & gas industry
Where
Romania
might be

6. PwC
Issues considered System based on revenue System based on profit
The impact on state revenues Certainty of revenue
State revenues are not certain, due to
the fact that they depend on the profit
obtained from fields exploitation
Time record of revenue Since the start of production Later, after making profit
Challenge of implementing Reduced efforts for monitoring
High administrative efforts for
monitoring and control, because usually
it involves determining profitability.
Tax system based on revenue versus based on profit
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24 March 2017Taxation regimes for oil & gas industry

7. PwC
Specific conditions of oil and gas
industry in Romania
Taxation regimes for oil & gas industry
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24 March 2017

8. PwC
In Romania conventional deposits have a high
maturity and a natural decline accentuated
Natural decline of oil
production is about
10% per year
To compensate the
natural decline, major
investments are needed
in production
capacities
Source: BP Energy Statistical Yearbook 2016
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24 March 2017Taxation regimes for oil & gas industry
0.00
20.00
40.00
60.00
80.00
100.00
120.00
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Evolution of oil production
(Mbbl / year)
104
114
53
31
37
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Evolution of natural gas production
(bcm/year)
10
23
33
28
11

9. PwC
Romania Gas production trends & forecasts
Source: BMI Romania Oil and Gas report – Q2 2017
9
24 March 2017Taxation regimes for oil & gas industry
9.9 9.9 9.7 9.4 9.1 8.8
13.1
14.6 14.8 14.4 14
0
2
4
6
8
10
12
14
16
2016e 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
Dry natural gas production, bcm
Black Sea discoveries:
OMV & Exxon Mobile
• Domino Project in the Neptune
block ;
• Estimated volume 42-84 bcm;
Investment decision: 2019 ;
• Estimated production: 2021;
Lukoil
• Lira -1 discovery in Trident block
• Estimated production 30 bcm;
• Investment decision: 2016 (up to this date
no new info) ;
• Postponement reason: waiting for a fully
liberalised market
New licensing round:
• potentially 2017
• NAMR – 11th tender expected for:
o 28 onshore blocks
o 8 offshore Black Sea blocks

10. PwC
Tax principles
Taxation regimes for oil & gas industry
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24 March 2017
Stability and predictability
Flexibility and progressiveness
Competitiveness
Neutrality
Certainty of taxation
Efficient administration

11. PwC
Taxation regimes for oil & gas industry
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24 March 2017
Royalty
(per field)
Production sliding scale
(for oil in ‘000 tonnes / quarter;
for gas in mn cm / quarter)
Production sliding scale on an annualised
basis1
(for oil in ‘000 tonnes / year;
for gas in mn cm / year)
Oil
3.5% - 13.5%
Range 1: Small fields <10 – 3.5%
Range 2: Small fields 10-20 – 5.0%
Range 3: Medium 20-100 – 7.0%
Range 4: Large >100 – 13.5%
<40 – 3.5%
40-80 – 5.0%
80-400 – 7.0%
>400 – 13.5%
Gas 3.5% - 13.0%
Range 1: <10 – 3.5%
Range 2: 10-50 – 7.5%
Range 3: 50-200 – 9.0%
Range 4:>200 – 13.0%
<40 – 3.5%
40-200 – 7.5%
200-800 – 9.0%
>800 – 13.0%
Romania - Revenue based royalties*
*no differentiated rates for onshore vs offshore
Payable by 25th of the month following the quarter
Royalties rates were introduced in 2002 and were not amended since
A tax system should be stable and predictable

12. PwC 12
24 March 2017Taxation regimes for oil & gas industry
Supplementary tax on
supplementary revenues* from
liberalization of prices for natural gas, with:
• Allowances for investments, capped at 30%
• Deduction of royalties paid
* Introduced as of 1 February 2013 **Introduced as of 1 February 2013 *** Introduced as of 1 January 2014
and abolished as of January 2017
These are transitional taxes until the upstream fiscal regime enters into force.
Tax on revenue from
crude oil**
0.5%
Tax on special
construction***
1.5%/
1%
60%
A tax system should be stable and predictable

13. PwC
Taxation regimes for oil & gas industry
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24 March 2017
Romania considers a new tax system for the upstream
industry
A mixed system based on revenue and profits
Royalty rates potentially adjusted and differentiated for
onshore and offshore
Supplementary tax on profits (with allowances)
A tax system should be flexible and progressive

14. PwC
Taxation regimes for oil & gas industry
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24 March 2017
16%
CIT rate
No ring fencing rules
Deductions for
provisions &
reserves
Specific depreciation
rules for upstream
Royalties deducted
for corporate tax
purposes
A tax system should be competitive – Corporate
Income Tax features

15. PwC
Taxation regimes for oil & gas industry
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24 March 2017
Joint venture
agreements
Exemption of
reinvested profit
R&D allowances
Tax consolidation
allowed only for
PEs of foreign
companies
Tax on capital gains
from disposal of
right over natural
resources
IFRS and RAS for
accounting
purposesLosses can be
carried forward for
7 years
A tax system should be competitive - Corporate
Income Tax features

16. PwC
Taxation regimes for oil & gas industry
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24 March 2017
A new tax system should not negatively impact ongoing
investments
Viability of projects should be protected
• Ring fencing rules for upstream activities
• Rules for determining the tax base
Tax provisions should be clear and transparent
The tax system should be easy to administer
A tax system should be neutral, certain and easy
to administer

17. PwC
What attracts investors?
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24 March 2017Taxation regimes for oil & gas industry
Privatisation
New concessions
Transfer of concessions
Cooperation with authorities
Gas price liberalisation
Infrastructure
• 2004: OMV Petrom;
• 2013: Romgaz - listed on the stock exchange (BVB, LSE);
• Tender rounds for new concessions;
• New potential round in 2017;
• Farm in, Farm out, Joint Venture agreements;
• Enhanced production contracts;
• Open consultation with market players, both with the regulator
(NAMR, NAER) and tax authorities (Ministry of Finance, NAFA);
• The Romanian Government negotiated a calendar for the gradual
liberalisation (despite EU restrictions);
• Undeveloped infrastructure, however investments are envisaged.
Tax system
• Concession agreements (royalty rates);
• Stability clause;

18. PwC
Thank you!
Andreea Mitiriţă
Director, Tax and Legal Services
PwC Romania
Tel.: +40.21.225.3727
+40. 0722.942.017
E-mail: andreea.mitirita@ro.pwc.com

19. Thank you!
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