Interview Artur Stratan: I don’t think the amendment/repeal of the Offshore Law will take place before the transfer to Romgaz from Exxon (episode IV)

·      Black Sea gas: The development project will take more than expected and I believe the first gas cannot be produced before 2028.

·      In addition to Romgaz’s obligation to purchase ExxonMobil’s stake of 50%, the obligations of payment for the development of the project will add in the following years, which will empty Romgaz’s treasury with several billion dollars, which it will no longer be able to borrow and which it will have to generate from own production from onshore fields, in full production decline. The Romanian state can forget about the concept of dividends from Romgaz in the following years.

·      Romania does not have a lot to work to the reduction of carbon emissions, because we produce much less than most European countries.

·      Electric vehicles in Romania will start to have a secure future primarily when their prices are lower than those of conventional cars with internal combustion engines.

In the fourth episode of the interview with Mr. Artur Stratan, we talked about Black Sea gas, the future of electric vehicles and the reduction of carbon emissions.  We recall that, in the third episode, we discussed about the Green Deal and implications for Romania, about the Energy Strategy and the NRRP. In the second episode of the interview, Mr. Artur Stratan talked about the current crisis in the energy market in Romania and the solutions in his opinion, and, in the first episode, Mr. Stratan talked about the global energy crisis, as well as about the oil price evolution.   

Reporter: When do you believe we can exploit Black Sea gas? What is your take on the takeover by Romgaz of Exxon’s stake in the Black Sea project?

Artur Stratan: If the following government manages to amend or even repeal the Offshore Law, then the OMV Petrom - ExxonMobil consortium will finally be able to make the final investment decision (FID) and start works to develop the offshore gas field(s).

According to the initial plan, this year we should have started producing this Black Sea gas. The development of the project would have taken 4-5 years if it had started several years ago. The “patriotism” of some was the one that sabotaged our national interest and this is why we are currently in this crisis situation. Failure to understand the industry, the operating mode and framework, has led to tensed situations that blocked the continuation of the project. The rules are recognized at international level and we wanted to reinvent the wheel. Our politicians never understood that a company like ExxonMobil can never afford to accept before the whole world a renegotiation of concession agreement after the completion of the exploration phase at full own risk together with the partner, OMV Petrom, after investing USD 1.5bn and after declaring the existence of a commercial gas reserve. If it had accepted this situation, then a wave of renegotiations would have been triggered around the world and its exposure would have been huge. The refusal to negotiate is related to defending a principle and not at all to commercial reasons. Romania’s intention to increase its benefits from this project had to be declared from the exploration phase and it should have been invested at that moment as own-risk investment. Only then would it be entitled to demand another sharing of benefits. And as this very simple principle was not understood by anyone, it persevered in this idea which eventually led to the stopping of the project.

Another aspect that wasn’t fully understood is that a benefit in favor of the state of 20% or 30% out of 100% is way more and much earlier obtained than 70% out of 0% over a few years.

The state intention to obtain ExxonMobil’s interest and transfer it to Romgaz is obvious. As it can be very well read between the lines in the media, I don’t think the amendment or repeal of the Offshore Law will take place before the transfer to Romgaz. If the Offshore Law is amended or repealed before the transfer, we could have the surprise that ExxonMobil will remain in the project and I don’t think the Romanian state wants this.

We lose anyway a world-class partner, which could have contributed from a technological point of view in many ways, which at the moment we only read in specialized magazines beautifully colored and with pictures about pioneering technologies, which in our country still have no equivalent in the Romanian language.

The project will move forward, but much harder, and with much higher associated risks. Operation of the project by ExxonMobil would have come with a much-improved risk matrix. In the desired formula, risks will be much higher and exposure to financial and environmental damage is huge.

For this reason, the development project will take more than expected and I believe the first gas cannot be produced before 2028. In addition to Romgaz’s obligation to purchase ExxonMobil’s stake of 50%, the obligations of payment for the development of the project will add in the following years, which will empty Romgaz’s treasury with several billion dollars, which it will no longer be able to borrow and which it will have to generate from own production from onshore fields, in full production decline. The Romanian state can forget about the concept of dividends from Romgaz in the following years.

Anyway, the window of opportunity for Black Sea gas exploitation has started to narrow.

Reporter: How do you see the future of electric vehicles in Romania? What should Romanian authorities do to increase production of electric vehicles in Romania?

Artur Stratan: Electric vehicles in Romania will start to have a secure future primarily when their prices are lower than those of conventional cars with internal combustion engines. Then they will have an even bigger future when car battery technology will produce smaller, lighter batteries that will ensure a range of over 500-600 km. For now, the electric car is ideal for city traffic, but it creates problems when traveling long distances. With a little courage you can get from Bucharest to Mangalia with an electric car.

Then, the charging capacity in filling stations (which will soon be able to finally be called outlets or electro-stations) should be increased. Those who own today an electric car know that there are charging issues, either at home or at the office. And charging is not cheap either, at the current energy prices.

The irony is that if there is a power outage on the highway, we can call a mobile unit with an electric generator based on gasoline or diesel. The more the electric car fleet grows, the more we will need alternative charging solutions for these cars.

However, I believe that the electric car in its current technological form is only a transitional stage. I hope we will be able to see electric cars equipped with nuclear batteries/cells, based on the model of the batteries used by NASA rovers on Mars. Of course, any type of alternative battery will have to provide safety in operation and a higher range.

Reporter: When do you think Romania manages to reach the zero emission targets?

Artur Stratan: Romania does not have a lot to work to the reduction of carbon emissions, because we produce much less than most European countries. The transition period to zero emissions depends on the wisdom of future governments and the real desire to replace coal-fired power generation units with all-green ones. The new energy sources will have to be sustainable in any type of weather and in any season. Then, the population will have to afford the transition from gas-fired power plants to others based on another energy source.

While I see as feasible the full replacement of coal in 2040, I don’t see the full replacement of natural gas with other forms of energy before 2060, and I don’t think gas will disappear entirely. With all the CO2 allowances that will be imposed and with all the increased costs of use and operation, gas will continue to be used, but at a much smaller scale. The small scale will result in very small costs of natural gas and therefore there will be a temptation to use an abundant and cheap resource. Don’t forget that natural gas, unlike oil, can only be stored underground with limited capacity and that in fact it must be consumed in continuous flow. A much lower consumption of gas in Europe will first create a redirection of exports to Asia and later a collapse of the fields in Siberia. Only then the geopolitical and geostrategic vector of natural gas will have been annihilated.

Mr. Stratan is a result-oriented manager and a leader of the upstream oil industry, with an experience of more than 34 years in various positions in Central and Eastern Europe, South Asia and the CIS countries, with a broad spectrum of activity in the E&P sector, doubled by experience in management activities, petroleum operations, coordination, commercial, business development and complex negotiations. Above all, he values personal and business integrity and has accumulated a substantial volume of knowledge and know-how in upstream business, being involved in multiple critical domestic and international negotiations, which have been successfully concluded, and have become long-term strategic and beneficial partnerships and alliances between the stakeholders involved.

During 2014-2018 he acted as president and member of the Management Committee of the Romanian Petroleum Exploration and Production Companies Association (ROPEPCA) and was deeply involved in negotiations and critical discussions with industry agencies, authorities, state and governmental institutions and with all stakeholders in the Romanian petroleum industry, regarding taxes, tax regime, petroleum legislation, laws and regulations, rules and standards.

Since 2018, he has been operating in the upstream and energy sectors, providing consulting services for business and commercial development activities.

Interview given to the publication Financialintelligence.ro.

Translation from Romanian by Romaniascout.