Romanian Oil Industry Strives for a Comeback
Foreign oil companies drilling deep test sites
BUCHAREST, ROMANIA — ROMANIA'S oil and gas industry has been in decline for a long, long time.
Perhaps the world's first major commercial oil producer, Romania still has the largest reserves in Eastern Europe. But the massive oil fields near Ploiesti and Bacau -- seized by Hitler to run his war machine, bombed mercilessly by the Allies, and exploited to fund former dictator Nicolae Ceausescu's mad prestige projects -- are clearly running dry. Oil production has slumped by 53 percent since 1975, forcing Romania to spend an ever-increasing share of its hard-currency earnings on energy imports. Such imports -- much of it crude oil -- now comprise two-thirds of total imports.
''It's necessary to spend far too much of our export earnings on raw materials like energy,'' says Romanian economist Ilie Serbanescu. ''There's never enough money remaining to import needed technology and modern equipment.''
But there are high hopes that newly commenced exploration work may give the oil and gas industry a new lease on life, improving the country's economic prospects. Three major Western oil companies -- the British-Dutch giant Shell, Chicago-based Amoco Corporation, and Britain's Enterprise Oil -- are each engaged in drilling test wells at sites in Transylvania, the eastern Carpathians, and the Black Sea respectively, in an effort to locate deep new reserves of oil and natural gas.
''We're looking for significant fields,'' says Michael Adams, president and residential manager for Amoco Romania. ''We're a big company and it's going to have to be something more than average size-field to justify our setting up an operation here.''
If significant reserves are found, a single production operation would likely cost hundreds of millions of dollars, and possibly as high as $1 billion -- as much as has been invested by all foreign companies operating in post-Communist Romania to date.
''This would be an enormous boost for the Romanian economy,'' says Miron Bojinca, a Romanian Development Agency petroleum expert. ''It will probably be several years before we know what's out there.''
Petrom, the Romanian state oil and gas company, has been searching for new reserves for years, but lacks the modern exploration and drilling equipment required to explore deep reserves on the six blocks it retains. The World Bank has provided some modernization funds to the company. And in March Petrom signed a production-sharing agreement with Dublin-based Marine and Mercantile Securities by which the Irish company will invest $17 million to bring modern technology, surveys, and drilling equipment to bear on one of Petrom's exploration blocks.
Amoco, Shell, and Enterprise earned the right to explore respective blocks during a 1992 licensing round. Under their separate agreements with the Romanian state, the companies are believed to hold 25-year licensing rights on exploration and production of crude oil and natural gas on the sites they hold. But an undisclosed proportion of any production must be shared with the Romanian state.
Ten remaining exploration tracts are to open to bidders this fall. Proposed changes to the current petroleum law have the Western companies concerned.
''The draft law we've seen has clauses dealing with the revocation of licensing rights which are extremely vague and cause for concern,'' Mr. Adams says. ''If this law is put into place it may make us look hard at whether or not we want to participate in the next bidding round.''
Romania's production of refined petroleum products like gasoline and fuel oil -- which represent a significant proportion of hard-currency exports -- has also been in decline for many years. Mr. Ceausescu invested billions in the 1970s building massive refineries capable of refining more than 34 million tons of crude oil a year. Current domestic production of oil is now less than 7 million tons. The refineries are now operating at less than 50 percent of capacity due to an inability to acquire sufficient foreign crude, poor management, and outdated or poorly maintained equipment.
Government officials are seeking partners to invest in modernization of the country's 11 refinery parks at a cost of possibly as much as $250 million each.
It's a typical theme in Romania. Vital maintenance and investment in industry, housing, public services, and basic infrastructure were deferred during Ceausescu's drive to pay off the country's national debt. The debt was repaid, but at a terrible cost.