THE PRESIDENT OF THE NATIONAL AGENCY FOR MINERAL RESOURCES (ANRM), GHEORGHE DUŢU: "The new royalties will also be negotiated for the oil perimeters which are currently being exploited"

Reporter: What is the stage of the negotiations for setting the new levels of the royalties, which is set to come into effect next year?

Gheorghe Duţu: We are at the stage of the process for the revision of the royalties. We want to create a system of royalties, which would ensure a good collection to the state budget, as well as make our country more attractive for the investments in the exploration and exploitation of the natural resources, which are expensive. If the new royalties system sets higher prices, we run the risk of no longer attracting investors, and being left without partners with which to explore and exploit the resources. I think that we should set a system by which to find the balance between the state's interest of getting higher revenues to the state budget and the interest of the investors, who ask for conditions which are as attractive as possible for this kind of operations. We have ordered a study for the setting of the new royalties system and we have information about the level of these taxes all over the world, Europe included, naturally.

I want to mention that the operators are in fact analyzing the fiscal package pertaining to the exploration and the exploitation of the natural resources. This package contains, aside from royalties, all the taxes pertaining to this activity. So, this fiscal package must be designed in such a way as to allow that balance which I told you about to exist.

Reporter: What will happen to the royalties for hydrocarbons for the operators which already have concession contracts for several years and which are already conducting exploitations?

Gheorghe Duţu: We will negotiate a new royalty system with these operators. They are open to do this as well.

Reporter: Do you think we've had the lowest royalties for crude oil in Europe?

Gheorghe Duţu: I wouldn't say that they were the lowest. There are countries where the royalty is zero because they want to attract very big financial and technological resources. Going back to the fiscal package I was telling you about: every state runs its own numbers on a fiscal package, meaning that it calculates how much it gets from royalties, how much it gets from payroll taxes, and how much from ancillary activities, etc. Let's not forget that any investment, whether it is about exploration or exploitation of the hydrocarbons in new areas, or at great depths, involves several hundred million Euros. That money enters Romania. Royalties currently range between 3.5% and 13.5%, depending on the mined volumes. It is a level that isn't too high, nor too low. I think that this fiscal package for explorations and exploitations in the hydrocarbon segment can still be hiked.

Reporter: What can you tell us about this future fiscal package?

Gheorghe Duţu: We feel that it is time where a quota of those royalties should go to the local communities. We want to introduce this provision because the whole exploration and exploitation activity uses the infrastructure of local communities. All of the disruptive elements, vehicles, equipment, exploration and exploitation technologies operate in the area of activity of the local communities. That is why I feel that we will have to grant them a quota of those royalties or of this fiscal package, so that the communities would be incentivized through this process.

Reporter: Prime Minister Victor Ponta said that the hike of the oil royalties starting with 2014 is being negotiated. The delegated minister for Energy, Constantin Niţă, said that a system of royalties depending on the location of the explorations and exploitations should be devised, because the ones being conducted off-shore at great depth are more costly than the standard, on-shore ones. Have you reached a conclusion on that matter?

Gheorghe Duţu: Of course we are taking into account these aspects as well. We will need to make a balanced differentiation between exploitations in the off-shore and the on-shore areas. In the future, we will probably set different royalties for shale gas.

Reporter: Are the exploration and exploitation costs for shale gas higher or lower than the conventional ones?

Gheorghe Duţu: We are in the process of evaluating those costs. We can't come up with numbers yet. Our plan is that, starting in autumn, we want to finish this process of evaluation, so we can speak to the operators about the new royalty system. US data shows that the exploitation of shale gas is cheaper because it is done through a typical bore hole, from which several horizontal bore holes go off. Going in a radial manner, such a bore hole can replace 15-20 bore holes. So, starting off on this consideration, it is possible that the exploration of shale gas could be less costly than that of conventional natural gas. The US estimates show that the costs of the exploitation of unconventional natural gas are 40-50% lower than the standard ones.

Reporter: So the new royalty system and the related fiscal package will be discussed and negotiated with the operators in autumn?

Gheorghe Duţu: Yes.

Reporter: Isn't it a bit late?

Gheorghe Duţu: No, because our deadline is to complete the negotiations in 2014. The deadline is also included in the agreement with the International Monetary Fund. We are going through a complex analysis, so that we have a balanced royalty system.

Reporter: What will happen to royalties for the exploitation of gold, copper, and other non-ferrous metals?

Gheorghe Duţu: We are considering all the royalties, for all the resources, not just for crude oil, which is now the center of attention. It's just that I would like to point out something in that regard: we are already close to the royalties which are in effect in Europe and globally. There are no major differences when it comes to non-ferrous metals.

Reporter: So the talks will focus on hydrocarbons?

Gheorghe Duţu: Let's not forget that hydrocarbon royalties account for about 82-85% of the total royalties earned from the exploitation of resources on a national level.

Reporter: Will the ANRM hold call for tenders for the exploration and exploitation of perimeters this year?

Gheorghe Duţu: We have already begun on this segment, as well as the preparation of the documentation for round 11 of the call for tenders, and by November we will complete it and then organize the selection procedures. We intend to hold a call for tenders for 8 off-shore oil perimeters and 28 on-shore perimeters. This is a package which I think will be very interesting for the major operators.

Reporter: Will those who will win the call for tenders for these new perimeters fall under the new royalties system?

Gheorghe Duţu: Of course.

Reporter: How is the ANRM approaching the issue of shale gas?

Gheorghe Duţu: I think that Romania can't afford not to take under consideration the potential of shale gas. We know that the current resources of gas and oil are declining and that we will eventually need to replace them with something. There is a potential which we can feel and it is rather significant. The exploration procedures and exploitation can be done according to the current Oil Law, they have a transparent route in obtaining all the permits until the conclusion of the oil agreement. We make no distinction between shale gas and conventional gas.

Reporter: But is such a distinction between the two necessary?

Gheorghe Duţu: No, it isn't. We haven't found that kind of distinction in legislation across the world, either.

Reporter: Essentially, for an operator to explore and to exploit the shale gas it needs to participate in a call for tenders held by the ANRM?

Gheorghe Duţu: Absolutely.

Reporter: When did Chevron win the concessions?

Gheorghe Duţu: Some of the perimeters where Chevron operates are from the 9th round of calls for tenders, some from the 10th round.

Reporter: And did it ask specifically for the concessions for the exploration and exploitation of shale gas?

Gheorghe Duţu: Nobody asked for concessions especially for shale gas. We manage all this activity from the works schedule. The ANRM approves every stage of the works program, and the moment this program is approved, it permanently knows what procedures and technologies are applied.

Reporter: If an operator has leased some oil perimeters and it finds that they have potential for shale gas do they need to be authorized by the ANRM for exploration and production?

Gheorghe Duţu: The authorization procedure is complex. Let's not forget that the entities that issue authorizations exist in several ministries. The Ministry of the Environment issues permits for compliance with the environmental legislation and when it comes to that we know that we have a very well developed legislation, in my opinion, and managed very well so that no violations of the law are possible. Also, the operators need to get the local authorizations and permits, including the building permit from the county councils. Therefore, it is a procedure which covers lots and lots of aspects and it protects the environment and the population.

The exploration phase involves studies similar to the conventional natural gas.

Reporter: In the west of the country there are many towns which claim that shale gas exploration is being conducted in perimeters lease for the exploitation of conventional hydrocarbons. What is the situation?

Gheorghe Duţu: For the western area, we actually have in the addenda to the contracts a phrase which very explicitly states that hydraulic fracturing and other elements pertaining to the technologies for non-conventional gas are forbidden. The operations in question are just operations dealing with the exploration of conventional oil and gas resources.

Reporter: Aside from Chevron, what companies have asked for licenses for the exploration of shale gas?

Gheorghe Duţu: We have no further requests. From my point of view, we need to be more flexible in the exploration of conventional gas and non-conventional gas in order to know what reserves we have available. If these reserves are not attractive for commercial exploitation, then all the heated discussions around shale gas are pointless. If we have significant reserves, which are commercially exploitable, then they need to be evaluated, and we need to devise a strategy for that area.

Reporter: Do we need a special law for shale gas?

Gheorghe Duţu: No. We just need to upgrade the technology, which has significantly evolved lately, when it comes to environmental protection.

Reporter: What does hydraulic fracturing involve and why are there specialists saying that the soil can't be contaminated?

Gheorghe Duţu: For shale gas, a classic drilling is performed. Shale gas are found at depths of more than 2,500 meters, and well reinforced and protected pits are used, which can withstand the injection of the solution at a very high pressure. The pits are made of reinforced concrete. The horizontal bore holes get to the very high depths, where we have those rocks with low porosity, and in order to release the gas, those rocks need to be stimulated, in other words, they are fractured using a fluid which contains water, sand and additives. Additives don't currently exceed 0.4% of this solution, and the actual fracturing doesn't take years, but one hour per unit. If we have 10 or 20 units per one horizontal bore hole, it can take 20 hours, and then the gas is being released over the course of several years. The concrete envelope for the pits is designed to withstand very high pressures. Thus, the injected solution does not reach the phreatic layer. The solution is then recovered and purified.

Reporter: Do we need to have a political decision for exploiting shale gas or not?

Gheorghe Duţu: The government should publicly announce their strategy in this sector. It is clear that we can't afford not to consider the existence of this resource. We know what is currently happening and the turmoil that exists in the energy sector. Ensuring energy for the functioning of our entire economic and social activity is a priority sector. We can't ignore a resource which can ensure our energy independence.

Reporter: What exactly are the estimated resources for shale gas?

Gheorghe Duţu: For now, there is lots of data and there are estimates made by certain agencies and specialized foreign companies. We don't venture to present data, because we do not have many explorations yet. For now, what we can say is only that we have a high potential, but we will only say that after the exploration phase.

Reporter: Which regions have shale gas reserves?

Gheorghe Duţu: For now, we have shale gas reserves in the areas of Dobrogea and Moldova, as well as in the southern area of the country.

Reporter: Are there many closed down non-ferrous metal mines?

Gheorghe Duţu: We have about 180 mines and quarries which are being subjected to closing down procedures. But we also have functional locations. Depending on the level of interest of private companies we are open to reactivating the areas with potential.

Reporter: What is happening with the project to exploit the gold of Roşia Montană?

Gheorghe Duţu: From my point of view I think that the procedure will end on a positive note. The ANRM is part of the Technical Commission for the Issuing of the Authorization.

Reporter: We have in Romania an inventor who has patented a technology for extracting gold without using cyanide. Has anybody studied this technology, is it feasible, can it be applied in Roşia Montană?

Gheorghe Duţu: We know about this invention, but for now it is not suitable for major exploitations. There is a very well prepared system for the cyanide-based technology, meaning that the environment is well protected in the major exploitations. The technology is very well handled so that it doesn't cause any negative effects.

Reporter: What is the total amount of royalties which the state collected last year?

Gheorghe Duţu: Last year, we collected 1.5 billion lei from royalties, 10% more than in 2011. The royalties earnings of the state budget have been growing constantly over the last few years.

Reporter: Thank you!