An overview on royalties and similar taxes Oil and gas upstream sector across Europe. April 2018

Transcription

1 An overview on royalties and similar taxes Oil and gas upstream sector across Europe April 218

2 Contents Background and methodology 3 Executive summary 6 General overview of Romania and other European countries 8 Graphical view of oil & gas royalties and similar taxes 16 Oil & gas production summary 2 Country snapshots 23 Fiscal regime changes 51 Limitations and acknowledgements 54 References and resources 57 Conversion table For more information, contact Deloitte Romania 2

3 Background and methodology 218. For more information, contact Deloitte Romania 3

4 Background and methodology Asociația Română a Companiilor de Explorare și Producție Petrolieră ( ROPEPCA ) has requested us to conduct an analysis with respect to the level of royalties and similar taxes applicable to the oil & gas upstream sector in Europe, as at 31 December. This analysis has taken into account the position of the European countries for the purpose of establishing a comprehensive and comparative overview of the fiscal environment and the related market conditions in relation to the upstream oil and gas industry. Furthermore, most European countries have a specific tax regime for oil & gas industry, which includes either royalties and / or other specific taxes, or an increased corporate income tax rates for operators activating in this sector. The report should be considered within the limitation that every country has a different tax regime. The effective royalties and similar specific taxes may differ from nominal rates. These are driven by national priorities and market reality. We have performed an analysis regarding the effective tax rates in different European countries based on the information available as at 31 December, except where explained otherwise. The computation of the effective tax rate for each country had in view the value of the royalties and specific upstream taxes paid by the main players divided by the revenues obtained from the production and sale of oil & gas, for which public information was available For more information, contact Deloitte Romania 4

5 Background and methodology (cont d) Given that in most countries operators present the relevant data in a combined manner (i.e., figures including both oil and gas), the study also presents the effective tax rates for oil & gas upstream activities in each country. For Romania, as one of the main players in the industry is primarily producing gas, we were able to distinguish between the effective tax rate for gas and oil activities. The results of this study may be read in conjunction with our previous reports - Observation on royalties and similar taxes an updated overview. Oil and gas upstream in Europe issued in February and September 215, covering 213 and, together with our latest report An overview on royalties and similar taxes - Oil and gas upstream sector across Europe issued in March 217, covering For more information, contact Deloitte Romania 5

6 Executive summary 218. For more information, contact Deloitte Romania 6

7 Executive summary Yet again, proved itself as a challenging year for the oil and gas industry, as the financial results were impacted by the continued low price environment. However, both the oil and gas prices recovered significantly at the end of the year, as compared to the beginning of. In countries with a specific taxation regime adapted to market prices (e.g., taxation on profits), for example Denmark, Norway, Netherlands, the continuing decrease of prices led to a lower effective tax rate. Moreover, some of the countries responded to these market conditions by relaxing their fiscal regimes in relation to the oil and gas specific taxes (e.g., Denmark, Hungary and the United Kingdom). Despite the overall descending trend among other European countries (the average rate for royalty and specific taxes in the European upstream sector being reduced to 8.8% in, compared to 9.8% in 215), the effective tax rate in the Romanian upstream sector has further increased to 17.4% in (as compared to 16.9% in 215). This is mainly due to increased share of gas which has a higher taxation level compared to oil. Similar to 215, the computation of the supplementary tax for gas was not correlated with the actual prices on the gas market. There are also other European countries with a slight increase in the effective tax rate, derived either from fixed components (e.g., in France, a fixed tax per tone), or from an increase of nominal tax level (e.g., Poland) For more information, contact Deloitte Romania 7

8 General overview of Romania and other European countries 218. For more information, contact Deloitte Romania 8

9 General overview of Romania and other European countries General outline over Romania The Romanian onshore upstream oil and gas sector is very mature after more than 15 years of activity and it may be characterized as follows: In Romania there are over 4 oil & gas fields and more than 13, producing wells, however it has one of the lowest rates of production per well among all European Countries; The oil and gas fields are very fragmented and identification of new reserves often requires drilling at very deep horizons. Moreover, approximately 21% of crude oil production is obtained using enhanced oil recovery techniques and heavy oil represents more than 35% of oil production. Therefore, massive investments are required to improve extraction technologies (increase of reservoir pressure, deep drilling etc.) and increase recovery factor from mature fields in order to cover the national demand; Significant amounts (i.e., approx. EUR 3.7 billion during the period - ) are spent annually by the onshore upstream oil and gas exploration and production sector in Romania, in order to bring new wells into production or to invest in the existing technology and to increase the recovery rates of mature oil and gas fields; The investments performed should be directly linked with the existing level of employment in the sector. According to EU Energy Statistics, the upstream oil and gas sector in Romania has the largest number of direct employees among the EU countries (more than 23 thousands direct employees out of 77 thousands employees in all EU countries). It covers a wide range of blue-collar professionals, but also engineers, earth scientists, environmental, health and safety specialists, lawyers, IT specialists, accountants. Moreover, studies show that investments in the oil and gas sector generate a significant number of indirect jobs; Last but not least, the upstream oil and gas industry brings an important contribution in the Romanian economy, in terms of taxes paid to the State Budget, as well as the impact that it has on other sectors covering oil refining and electricity, heat production etc For more information, contact Deloitte Romania 9

10 General overview of Romania and other European countries General outline over Romania Based on our computations, the effective royalty and similar tax rate increased from 16.9% in 215 to 17.4% in and decreased in 217 to 13.9%, mainly due to the elimination of the construction tax, starting with January 217. The effective tax rate was computed as an average between the observable royalty and similar taxes paid (oil and gas royalties, supplementary taxes* and construction tax**), reported to the revenues obtained by the main Romanian players - SNGN Romgaz SA (21.2% - effective tax rate in and 18.9% in 217) and OMV Petrom SA (15.9% - effective tax rate in and 11.6% in 217). We noted that the effective tax rate for the upstream gas activity is much higher than the effective tax rate for the upstream oil activity (i.e., in 21.2% effective tax rate for Romgaz, which primarily produces gas, in comparison to 15.9% effective tax rate for OMV Petrom SA that has a combined production of oil and gas). The difference between the effective tax rate for the upstream gas activity and upstream oil activity is mainly driven by the supplementary tax on gas. Despite the decrease of the nominal rate from 1.5% to 1% for construction tax starting with 215, which was also prolonged in, the higher overall effective tax rate for the oil and gas upstream activity in is mainly the result of: the increased share of gas which has a higher taxation level compared to oil; The extension of 6% gas supplementary tax applicability, which maintains the high taxation level; the discrepancy between the threshold used for computing the gas supplementary tax (72 lei / MWh) with the realized gas prices that oscillated below this threshold; Although the effective tax rate in 217 decreased with 3.5% compared to, State Budget revenues from the two main upstream players remained approx. the same (1.6 vs. 1.7 billion lei). *Supplementary taxes include a tax of 6% applied to additional revenues resulted from the deregulation of natural gas prices and a tax of.5% applied to revenues resulted from the crude oil exploitation **Corporate income tax was not included For more information, contact Deloitte Romania 1

11 General overview of Romania and other European countries General overview of other European countries An arithmetical average for the other European producing countries was also computed, resulting in an effective tax rate of 8.8% or 6.9% (by excluding the Groeningen field). Thus, a slightly decrease of the effective tax rate at European level can be observed as compared to 215 (9.8%, respectively 7.9% without the Groeningen field). The average observable royalties and similar taxes as of compared to 215 for certain European countries are presented below. Norway The average observable royalty and similar tax rate decreased from 13.9% in 215 to 7.3% in. Although production increased, the price continued to decline in, leading to lower income as compared to 215 and thus, challenging the profitability of the oil and gas industry. Denmark The average observable royalty and similar tax rate was of 3.1 % in, by comparison to 9.2% in 215. The difference resulted from a production decrease of approx. 13% in, connected also with a lower profitability mainly due to lower oil prices For more information, contact Deloitte Romania 11

12 General overview of Romania and other European countries General overview of the European countries Hungary The average observable royalty and similar tax rate decreased from 18.1% in 215 to 16.5% in due to the continuous decrease in crude oil prices, which in return led to a decrease of the revenues. This decrease of effective tax rate is mainly due to lower applicable royalty nominal rates which are linked to a significant extent to crude oil prices. Poland The average observable royalty and similar tax rate increased from.9% (215) to 3.5% in. Such increase resulted from the growth of the mineral fees applicable to the oil & gas production. Greece The average observable royalty and similar tax rate increased from nil to 2.3% due to higher production levels that led to an increase of the applicable royalty rates. Netherlands The average observable royalty and similar tax rate in relation to small fields increased from 2.8% in 215 to 3.6% in. The Groeningen area recorded a further decrease as compared to last year, from 6.8% in 215 to 51.9% in. Such decrease may be correlated to the decision of the Minister of Economic Affairs to further decrease the production within the Groeningen field due to multiple recent earthquakes within the area. Other main factor contributing to this decrease is the lower profitability due to decline in oil prices. Ireland The average observable royalty and similar tax rate dramatically decreased from 4.5% in 215 to.1% in, due to start of Corrib field production, which is not subject to royalties and does not trigger corporate income tax in For more information, contact Deloitte Romania 12

13 General overview of Romania and other European countries General overview of the European countries Germany The average observable royalty and similar tax rate decreased from 14.5% (215) to 11.7% for the main German exploitation areas (Niedersachsen and Schleswig Holstein regions). A slightly decrease was also recorded in Germany s other lands from 2.5% in 215 to 2.1% in, due to the lower revenues obtained as a consequence of the continuous lower crude oil price, as well as the lower royalties and similar taxes paid to the German Government. Albania The average observable royalty and similar tax rate slightly decreased from 14% in 215 to 13.7% in the first semester of, mainly due to the specifics of the royalty regime which tends to decrease the effective tax rate over time. Due to the limited publicly available information, we were only able to compute the effective tax rate based on the information available as of 3 June For more information, contact Deloitte Romania 13

14 General overview of Romania and other European countries General overview of the European countries Spain The average observable royalty and similar tax rate of 1.4% from, includes mainly royalties that entered into force starting with January. The decrease of the effective tax rate was directly influenced by a decrease of the profitability due to decline of oil prices. Italy The average observable royalty and similar tax rate decreased to 7.9% by comparison to 8.7% in 215, due to a higher share of small fields in the total production. Austria The average observable royalty and similar tax rate increased to 18.4% by comparison to 16.9% in 215. United Kingdom Similar to 215 (-1.1%), the average observable royalty and similar tax rate had a negative value for (-1.6%), being influenced by the following factors: elimination of the petroleum revenue tax (PRT), starting with 1 January and reimbursement of the paid PRT towards operators; decrease of the supplementary charge (SC) from 2% in 215 to 1% in ; increase with 4% of the corporation tax repayments, reflecting the higher amount of losses that were carried back, in particular decommissioning losses; significant investments performed in both existing developments and new projects, resulting in continuing high levels of expenditure. Serbia The average observable royalty and similar tax rate for remained the same compared to 215, respectively 2.9% For more information, contact Deloitte Romania 14

15 General overview of Romania and other European countries General overview of the European countries Lithuania The average observable royalty and similar tax rate slightly increased from 13.4% in 215 to 13.8% in. France The average observable royalty and similar tax rate increased to 11% by comparison to 9.6% in 215, considering the method of computing the royalties, as fixed amount per tone. *** Regarding Czech Republic, Slovakia and Slovenia, we included only the nominal tax rates for oil and gas companies, as no public information was available to compute an effective tax rate. Due to lack of public information, we have considered the average observable royalty and similar tax rate similar to 215 for Bulgaria, given that no major tax amendments were implemented for For more information, contact Deloitte Romania 15

16 Graphical view of oil and gas royalties and similar taxes 218. For more information, contact Deloitte Romania 16

17 Average rate for royalties and specific taxes in the upstream sector 16.9% 17.4% 15% 13.9% 11.6% 9.1% 7.5% 6.9% 9.8% 8.8% Romania Rest of Europe (except for Netherlands Groeningen*) Rest of Europe Region Romania 15% 16.9% 17.4% 13.9% Rest of Europe (except for Netherlands Groeningen) 9.1% 7.5% 6.9% N/A Rest of Europe 11.6% 9.8% 8.8% N/A * 218. Netherlands For more information, Groeningencontact is a giant Deloitte natural Romaniagas field, the largest in Europe, the tenth-largest in the world and as a result, it has a separate fiscal regime. In order to preserve the reserves present in the Groeningen field, the Dutch Ministry decided to promote the exploitation of the Netherland's small fields by granting fiscal incentives specific for them. 17

18 Graphical split of the Romanian oil and gas taxes and royalties as percentage of the effective tax rate % 2.2% 8.2% Royalties Supplementary taxes 6.4% 3% 8% 6.2% 7.7% Construction tax Oil and gas taxes and royalties as percentage of the effective tax rate: Royalties* 8.2% 8% 7.7% Supplementary taxes** 6.5% 6.4% 6.2% Construction tax*** 2.2% 3% N/A * During the period mentioned above ( ), royalties are computed based on the value of production of oil and gas by applying a rate between 3.5% % for oil and 3.5% - 13% for natural gas; for more information please consult the country snapshot for Romania. ** Supplementary taxes during the period mentioned above ( ), include a tax of 6% applied to additional revenues resulted from the deregulation of natural gas prices and a tax of.5% applied to revenues resulted from the crude oil exploitation. *** Construction tax of 1% is applied to the gross book value of the structures owned by taxpayers (e.g. gas and oil wells, piping networks). However, starting with 217 this tax was abrogated, leading to an overall decrease of the effective royalty and similar tax rate For more information, contact Deloitte Romania 18

19 Observable oil and gas royalties and similar taxes across Europe % 6.9% Effective rate (215) Effective rate () Effective rate (217) Average rest of Europe () Average rest of Europe, except for Netherlands Groeningen () * Netherlands Groeningen is a giant natural gas field, the largest in Europe, the tenth-largest in the world and as a result, it has a separate fiscal regime. In order to preserve the reserves present in the Groeningen field, the Dutch Ministry decided to promote the exploitation of the Netherland's small fields by granting fiscal incentives specific for them For more information, contact Deloitte Romania 19

20 Oil & Gas production summary 218. For more information, contact Deloitte Romania 2

21 Oil & Gas production summary profile per country - No. Country Oil & gas reserves (mn. boe) Oil reserves (mn. boe) Gas reserves (mn. boe) Gas reserves (bcm) Total production (mn. boe / year) Oil production (mn. boe / year) Gas production (mn. boe / year) Gas production (bcm / year) oil & gas / field (boe / day) oil & gas / well (boe / day) 1 Romania 1, Greece * 1, Norway 18, , , ,856. 1, , , Hungary * N/A N/A 5 Germany Schleswig- Holstein and Lower Saxony , , Other fields Netherlands , Groningen , ,843. 4, , Small fields , Irland Poland * Year of first production 2nd half of 19th century 2nd half of 2th century 2nd half of 2th century First half of 2th century 2nd half of 19th century 2nd half of 19th century 2nd half of 2th century First half of 2th century 2nd half of 2th century 2nd half of 19th century *Gas production for For more information, contact Deloitte Romania 21

22 Oil & Gas production summary profile per country - No. Country *Gas production for 215 Oil & gas reserves (mn. boe) Oil reserves (mn. boe) Gas reserves (mn. boe) Gas reserves (bcm) Total production (mn. boe / year) Oil production (mn. boe / year) Gas production (mn. boe / year) Gas production (bcm / year) oil & gas / field (boe / day) oil & gas / well (boe / day) 9 Albania * 2,329.7 N/A 1 United Kingdom 4,46.7 2, , , Denmark , Austria Italy Serbia France * N/A 16 Spain N/A 17 Lithuania Bulgaria N/A N/A 19 Czech Republic * N/A N/A 2 Slovakia * N/A N/A 21 Slovenia N/A N/A Year of first production First half of 2th century 2nd half of 19th century 2nd half of 2th century First half of 2th century 2nd half of 19th century First half of 2th century First half of 2th century 2nd half of 2th century 2nd half of 2th century 2nd half of 2th century First half of 2th century First half of 2th century First half of 2th century 218. For more information, contact Deloitte Romania 22

23 Country snapshots 218. For more information, contact Deloitte Romania 23

24 Country snapshot Romania Oil & Gas royalties and similar taxes Royalties are computed as a percentage applied to the value of gross extracted production, as follows: Oil (th tons/ quarter) Type Gross production Royalty rate Gas (mn cubic meters /quarter) < 1 between 1 2 between 2 1 > 1 < 1 between 1 5 between 5 2 > 2 3.5% 5% 7% 13.5% 3.5% 7.5% 9% 13% Other similar taxes to royalties apply to upstream oil & gas players in Romania, including: Supplementary tax of 6% applied to additional revenues resulted from the deregulation of natural gas prices;* Supplementary tax of.5% applied to revenues resulted from the crude oil exploitation applicable until 31 December 218; * An increase of tax rate to 8% for the revenues above 85 lei/ MWh. Construction tax of 1% is applied to structures owned by taxpayers (e.g. gas and oil wells, piping networks)**; ** The construction tax was abrogated starting with 217 Starting with February 218, the reference price used to determine gas royalties, will take into consideration the average price of the previous month set by the Central European Gas Hub (CEGH hub, Baumgarten, Austria). This is the day-ahead price and not the price of long term contracts, being very volatile according to the market conditions, temperature, accidents, etc. Moreover, this price includes also the transport tariff and the entry cost for the CEGH hub. Day Ahead prices in general do not reflect the Romanian gas market practices which are mainly based on long-term contracts which are not subject to such volatilities as Day Ahead prices. Also, transport and entry tariffs into the Austrian gas system will further increase reference prices artificially. As royalties are computed based on the maximum between realized sale price and reference price, if CEGH hub price will be higher than the realized sale price, the effective gas taxation will increase For more information, contact Deloitte Romania 24

25 Country snapshot Romania (continued) Oil & gas production/ year and reserves,, Mn boe Oil Source: EIA, Romanian Energy Regulatory Authority 64.7 Gas 663. Reserves Oil & gas evolution, (Thousand Barrels per Day) 2 of Crude Oil, NGPL and other liquids 1 Company Avg. production/ field (boe/ day) Avg. production/ well (boe/ day) OMV Petrom Romgaz Source: OMV Annual Report, Romgaz Annual Report 5 of Dry Natural Gas Source: EIA 218. For more information, contact Deloitte Romania 25

26 Country snapshot Greece Oil & Gas royalties and similar taxes For existing producing fields, the production sliding scale royalty rates are included in concession agreements as follows: (barrels / day) < 2,5 % Between 2,51 5, 3% Between 5,1 1, 6% > 1,1 1% Royalty rates Oil & gas production/ year and reserves,, Mn boe 1, 6,2 1,16,3 Reserves Source: EIA *Gas production for 215 Oil Gas* Avg. production/ field (boe/day) Avg. production/ well (boe/day) 1,8 162 Source: Energean Oil & Gas The royalty rates from the new concession agreements are calculated depending on the value of the R-factor (cumulated gross inflows divided by cumulated total outflows), generally as follows: R-factor value Royalty rates <.5 Negotiable, but not less than 4% Between.5-1 Negotiable Between Negotiable Between Negotiable > 2 Negotiable, but not less than 2% Royalty payments are deductible from a corporate income tax perspective. Oil & gas evolution, (Thousand Barrels per Day) of Crude Oil, NGPL and other liquids of Dry Natural Gas 218. For more information, contact Deloitte Romania 26 Source: EIA

27 Country snapshot Norway Oil & Gas royalties and similar taxes The Norwegian upstream petroleum taxation system includes a special tax on extraordinary profits, as presented in the table below: Type of tax Special petroleum tax Royalties Uplift for investments Other incentives also include: no royalties due; Tax rates 53% / 54% starting with 1 st January 217, applicable on profits None 22% / 21.6% starting with 1 st January 217 companies that do not have any taxable income may carry forward losses and uplift to subsequent years, with interest; companies may get a refund from authorities of the tax value of exploration costs for each tax year loss; deductions are allowed for all relevant costs, including costs associated with exploration, research and development, financing, operations and decommissioning; consolidation between fields is allowed; This means that losses from one field, or exploration costs, can be written off against the company's income from operations elsewhere on the Norwegian shelf; to shield normal returns from the special tax, an extra deduction is allowed in the special tax base, called uplift (as shown in the table above). Oil & gas production/ year and reserves,, Mn boe 11,674 6, Oil Gas 734 Source: EIA (reserves), Norwegian Petroleum Directorate (production) Producing fields No North Sea 65 Norwegian Sea 17 Barents Sea 2 Source: Norwegian Petroleum Directorate Oil & gas evolution, (Thousands Barrels per Day) 4, 2, 4, 2, No of fields 84 offshore only Average prod. / field (boe / day) No of online / operational wells Reserves of Crude Oil, NGPL and other liquids of Dry Natural Gas Average prod. / well (boe / day) 47, ,319 3, For more information, contact Deloitte Romania 27 Source: EIA

28 Country snapshot Hungary Oil & Gas royalties and similar taxes The rate of mining royalty for exploitation of hydrocarbons depends primarily on the date of entering the hydrocarbon field affected by exploitation into normal production, as well as on the quantity of exploited hydrocarbon from the field. Type Royalties based on production Before January 1 st Oil 16 % of the value generated after the amount of crude oil exploited entered into normal production Royalties based on production After January 1 st 12% - if production < 5 k tones/annually 2% - if production between 5 2 k tones/annually 3% - if production > 2 k tones/annually The rates of mining royalty (from the table presented on the left) for hydrocarbons are influenced by the world market price of crude oil. Should the monthly average of the stock-exchange listing price for Brent crude oil reaches or exceeds 8 USD/bbl price or 9 USD/bbl, the rate of mining royalty shall rise by 3% or 6%. 8% for natural gas with high inert gas content; 2% royalty for hydrocarbons of non-conventional origin and exploitable with special procedure; % for production obtained based on enhanced production techniques; 19% minimum royalty in bidding round; 16% minimum royalty in and 217 bidding rounds; Gas 16 % of the value generated after the amount of natural gas exploited into normal production, from fields entering production between - royalty rate based on complex formula depending on gas price and adjustments coefficients but minimum 12%, for gas generated from fields entered into production before 12% - if production < 3 mn m 3 /annually 2% - if production between 3 5 mn m 3 /annually 3% - if production > 5 mn m 3 /annually 218. For more information, contact Deloitte Romania 28

29 Country snapshot Hungary (continued) Oil & gas production/ year and reserves,, Mn boe Oil Source: EIA * Gas production for Gas* Reserves Oil & gas evolution, (Thousands Barrels per Day) of Crude Oil, NGPL and other liquids of Dry Natural Gas 5 Source: EIA 218. For more information, contact Deloitte Romania 29

30 Country snapshot Germany Oil & Gas royalties and similar taxes Royalties can vary depending on the production and the geographical position of the field between a rate ranging from % - 4%. The royalty rates applicable for the main producing fields are presented in the table below: Type / Location Schleswig- Holstein From a corporate income tax perspective, royalties can be deducted from the taxable base. Incentives Lower Saxony and Schleswig-Holstein: Royalty payable is reduced due to allowing costs for gathering, processing and transportation of oil and gas, including up to18% general and administrative costs; Incentives Lower Saxony: Lower Saxony % royalty for certain fields with difficult conditions (eg. very mature, that requires redevelopment) and small fields; 5% reduction in royalty for redevelopment of abandoned fields/different production horizons; Bayern Oil 21% - 4% % / 9% / 18% % Gas 18% (producing fields) or 4% (new fields) 7.5% - 3% 5% Incentives Lower Saxony: Fields with production <4,5 m3 gas/hour: 4% reduction in royalty; Wells producing from reservoir with <.6 md permeability: 75% reduction on royalty for gas for the first 5 years of production; Oil wells > 4, m depth 5% royalty reduction; Oil wells using tertiary procedures 5% royalty reduction. Oil & gas production/ year and reserves,, Mn boe Land Schleswig- Holstein and Lower Saxony Reserves Mn. Boe Oil Yearly production Mn. Boe 15.4 Source: EIA (reserves), Authorities report (production) Reserves Mn. boe Gas Yearly production Mn. Boe 51.6 Other lands For more information, contact Deloitte Romania Source: EIA 3

31 Country snapshot Germany (continued) (continued) No of fields Average production / field (boe/day) No of wells Average production / well (boe/day) TOTAL 127 1, , Schleswig-Holstein and Lower Saxony 17 1, , Oil & gas evolution, (Thousands Barrels per Day) of Crude Oil, NGPL and other liquids Other Source: Authorities report of Dry Natural Gas Source: EIA 218. For more information, contact Deloitte Romania 31

32 Country snapshot Netherlands Oil & Gas royalties and similar taxes The royalty regime is based on the provisions of the licenses by applying specific rates to the value of the onshore production*, as follows: Units yearly Gas (mcm) Oil (th cm) % % % 2% 6 1,199 3% 3% 1,2 1,999 4% 4% 2, 3,999 5% 5% 4, 7,999 6% 6% > 8, 7% 7% Other similar taxes apply to oil and gas players in the Netherlands directly to the license holder, such as: State Profit Share (SPS) at a rate of 5% is imposed against holders / co-holders of a production license on profits that can be directly and indirectly attributed to the extraction of hydrocarbons (the ring fence). The SPS is computed in a manner similar to the corporate income tax, but with (most) expenses increased by an additional 1%. In order to prevent corporate income tax and SPS from accumulating, a notionally computed value (i.e., creditable amount ) can be credited against SPS. However, a credit with CIT due is applicable and SPS is deductible at the calculation of CIT, which results in an effective SPS rate of ~25% from profits. Exploration fully deductible when incurred for SPS 25% allowance for SPS for investment in marginal gas fields Oil & gas production/ year,, Mn boe 183 Source: NLOG 7 Groningen 135 Small fields Oil & gas reserves/ year,, Mn boe 141 4,786 Gas Oil * The royalty for the offshore production of oil and gas is %. Royalty rates increase by 25% if oil price is higher than $25/bbl and with 1% in absence of State participation For more information, contact Deloitte Romania 32 Source: EIA Oil Gas

33 Country snapshot Netherlands (continued) (continued) Average production/ day/ field,, Mn boe/ day 51,598 2,69 2,683 2,69 1,143 No. of wells OIL GAS TOTAL TOTAL ,81 Groningen Other Oil & gas evolution, (Thousands Barrels per Day) of Crude Oil, NGPL and other liquids 15 Source: NLOG Groningen Small fields Gas TOTAL Oil 1 5 Average production/ day/ well,, Mn boe/ day 1, of Dry Natural Gas Groningen Small fields TOTAL 7 Source: NLOG Gas Oil Number of wells/ fields with production in No. of fields OIL GAS TOTAL TOTAL Groningen Other For more information, contact Deloitte Romania Source: EIA 33

34 Country snapshot Ireland Oil & Gas royalties and similar taxes The taxes applicable in the oil and gas sector in Ireland include: the profit resource rent tax ( PRRT ) applies to licenses granted between January 27 and June, and mainly depends on the profitability of the fields, varying between 5% - 15%; it is used in reference to the profit ratio achieved on the specific field (cumulative after-tax profits divided by the cumulative level of capital investment); PRRT is non-deductible for corporate income tax purposes. petroleum production tax ( PPT ) applies to exploration licenses after June and is computed based on the net profit of each field; a minimum payment of 5% applied to gross field revenue less transportation expenditure is required; PPT is deductible for corporate income tax purposes; PRRT is not applicable to licences subject to PPT regime. More information is presented under the below tables: Exploration and investment costs are 1% deductible when incurred for PRRT and PPT; 25% corporate income tax applies to upstream operations, which is higher compared to general corporate income tax rate applicable in Ireland of 12.5%; No royalty or supplementary profit tax is applicable to licenses granted between 1987 and 27; For licenses granted before 1987 a 12.5% royalty on wellhead basis is applicable. Profit ratio Tax rate < 1.5 % PRRT % % > % R-factor Tax rate PPT < 1.5 % 1.5 1% Pro-rated 4.5 4% 218. For more information, contact Deloitte Romania 34

35 Country snapshot Ireland (continued) Oil & gas production/ year and reserves,, Mn boe Oil 17.7 Gas Reserves Oil & gas evolution, (Thousand Barrels per Day) of Crude Oil, NGPL and other liquids 2 1 Source: EIA, Sustainable Energy Authority of Ireland, Energy in Ireland Report, 217 Gas production in Ireland increased dramatically in to 2,473 ktoe. This is the highest natural gas production level ever recorded in Ireland. This high level of production from the Corrib field is expected to taper off significantly in the next couple of years. 5 of Dry Natural Gas Avg. production/ field (boe/day) Avg. production/ well (boe/day) Source: Kinsale Energy website, Integrated Petroleum Affairs System Source: EIA 218. For more information, contact Deloitte Romania 35

36 Country snapshot Poland Oil & Gas royalties and similar taxes The tax regime applicable in the oil and gas sector is based on fixed fee royalties, depending on the gross production: Type Extraction quantity Royalty fee (PLN) High-methane natural gas (thousand m3) Natural gas remaining (thousand m3) Crude oil (tonnes) > 2,5 24 < 2, > 2,5 2 < 2, > 1, 5 < 1, New regime applicable starting, effective as of 22: Royalty payable starting 22: Crude oil offshore and shale oil 3%, conventional onshore 6%, Natural gas: offshore and unconventional 1.5%- conventional onshore 3%. Wells producing in a month less than 8 tons of crude oil and respectively less than 11 MWh are exempt from royalty; Special hydrocarbon tax payable starting with profits from 22, while R-factor starts to be calculated from : tax rate (sliding-scale) depends on the R-Factor, i.e. R<1.5: %; 1.5<R<2: 12.5%-25% (linearly); R>2: 25% (obligation to pay this special tax effective from January 1, 22); Exploration and investments fully deductible when incurred for special hydrocarbon tax. Oil & gas production/ year and reserves,, Mn boe Source: EIA 218. For more information, contact Deloitte Romania 36 Source: EIA Oil *Gas production for Gas* PGNIG is the major oil & gas Company from Poland producing approx. 75% from the total production of Poland for ), and is used as a reference for Poland. No of producing wells Poland operated by PGNIG is ~ 2. Avg. production/ field (boe/day) Oil & gas evolution, (Thousand Barrels per Day) Reserves Avg. production/ well (boe/day) Source: PGNIG Annual Report, PGNIG Corporate Presentation 217 of Crude Oil, NGPL and other liquids of Dry Natural Gas

37 Country snapshot Albania Oil & Gas royalties and similar taxes Royalties are computed based on the Petroleum Agreement with Albpetrol and include the following: royalty based on Albpetrol's pre-existing production ("PEP") gross overriding royalty ("ORR") on new production royalty tax ("RT") on net production Oil & gas production/ year and reserves,, Mn boe Oil Source: EIA *Gas production for 215 Gas* Reserves The rates are as follows: Type of tax PEP Royalty / Tax rate Rate is computed based on the preexisting production* ORR 1% RT 1% Additionally profit share is applicable depending on PSA terms. Albania has very low natural gas production and remains unconnected to regional gas networks. The Trans-Adriatic Pipeline (TAP), construction of which is underway and scheduled to finish in 219, is expected to play a major role in developing Albania's energy market and facilitating the government's objective of becoming a gas hub in the Western Balkans. Oil & gas evolution, (Thousand Barrels per Day) 4 2 of Crude Oil, NGPL and other liquids 5 of Dry Natural Gas *In, the PEP royalty rate was of 3% For more information, contact Deloitte Romania 37 Source: EIA

38 Country snapshot United Kingdom Oil & Gas royalties and similar taxes Hydrocarbon tax rate: 3% - Ring Fence Corporation Tax (RFCT) 1% first year allowances for virtually or capital expenditure; 1% - Supplementary Charge (SC) rate - additional charge on a company s ring fence profits reduced rate applicable from 1 January ; % - Petroleum Revenue Tax (PRT) applied to fields that were approved before 16 March 1993 reduced rate applicable from 1 January ; Main incentives 1% R&D allowances for corporation tax and SC purposes, for exploration and appraisal expenditure incurred before a field is considered as commercial; A company may elect to receive a taxable pre-tax credit of 49% for ring-fence companies, or 11% for non ring fence companies for R&D expenditures incurred on or after 1 April 213. Field allowances apply also for small or new, technically challenging fields (e.g., ultra heavy oil fields). Starting from 215, a basin wide investment allowance, in respect of investment expenditure incurred on or after 1 April 215 is also applicable at the level of 62.5% of qualifying expenditure, for offshore fields, reducing SC base. Onshore allowance of 75% of capital expenditure incurred on projects after 5 December 213, reducing SC base. Reimbursement of tax value of decommissioning costs. Oil & gas production/ year and reserves,, Mn boe 3, 2, 1, 2,755 1, Source: EIA 218. For more information, contact Deloitte Romania 38 2, 1, Oil Source: EIA (reserves), Oil and Gas Authority (production) Avg. production/ field (boe/day) Source: Oil and Gas Authority, Deloitte calculations Gas Oil & gas evolution, (Million Barrels per Day) of Crude Oil, NGPL and other liquids of Dry Natural Gas Reserves Avg. production/ well (boe/day) 5,

39 Country snapshot Denmark Oil & Gas royalties and similar taxes Nominal hydrocarbon tax (HCT) levied on profits from exploration and extraction of oil and gas 52% and effective tax rate 39% as corporate income tax is deductible from HCT base. Corporate income tax 25% - applicable for oil and gas companies (reduced to 22% for companies activating in other industries). The 25% should be deducted when computing the hydrocarbon tax, resulting in an effective tax rate of 64%. 3% uplift for investments performed (5% in a period of six years) may be deducted when computing the HCT. *Not applicable for lease payments, interest, production and administration expenses. In order to encourage the re-development of mature offshore fields were enacted at the end of 217 the following main incentives, that companies can opt to apply for eligible investments: increase of uplift to 6.5% per year (39% in total instead of 3%); depreciation at 2% declining base per year (instead of 15%); depreciation when costs are incurred instead of commissioning; If companies opt to apply these incentives and oil price exceeds trigger prices of 75$/bbl and 85$/bbl, the incentives are repaid based on a windfall tax with a rate of 5%/1% applied on profits. These trigger prices are indexed annually with 2%. 25% uplift per year over a ten year period may be deducted when computing the HCT, for licenses granted prior to (applicable under the old hydrocarbon tax regime). Exploration costs are deductible when incurred or capitalized for tax purposes. If capitalized, such costs benefit of 3% uplift and should be depreciated over a period of 5 years, at an annual 2% depreciation rate, from the year of when oil is firstly obtained. Tax losses may be carried forward indefinitely, except the hydrocarbon tax losses realized before 22 which may only be carried forward for 15 years For more information, contact Deloitte Romania 39

40 Country snapshot Denmark (continued) Oil & gas production/ year and reserves,, Mn boe 371 2,755 Oil Source: EIA (reserves), Danish Energy Agency (production) Gas 1, Reserves Oil & gas evolution, (Million Barrels per Day) of Crude Oil, NGPL and other liquids 4 2 Avg. production/ field (boe/day) Avg. production/ well (boe/day) 11, Source: Danish Energy Agency, Deloitte calculations Note: In terms of average production per well, it was calculated considering the total number of production wells as disclosed by the DEA (461 wells, might include also water injection and gas injection wells as split is not available) 2 1 of Dry Natural Gas Source: EIA 218. For more information, contact Deloitte Romania 4

41 Country snapshot Austria Oil & Gas royalties and similar taxes The royalty rates are the following: Hydrocarbon Rate Calculation base Liquid 15% < 46 / ton 15% - 2% > 46 < 67 / ton 2% >67 / ton Gaseous 19% < 5,1 / TJ 19% - 22% > 5,1 < 8,2 / TJ 22% > 8,2 / TJ Technological upstream gas consumption is exempt from royalty. Oil & gas production/ year and reserves,, Mn boe Reserves Oil Gas Source: EIA (reserves), Authorities report Österreichisches Montan-Handbuch 217 (production) Avg. production/ field (boe/day) Avg. production/ well (boe/day) Source: Authorities report Österreichisches Montan-Handbuch 217, Deloitte calculations Oil & gas evolution, (Million Barrels per Day) of Crude Oil, NGPL and other liquids of Dry Natural Gas For more information, contact Deloitte Romania Source: EIA 41

42 Country snapshot Italy Oil & Gas royalties and similar taxes Royalties for oil & gas industry applied generally within a range between % and 1%, depending if the concession is on shore or offshore and depending also on the production level. A summary of royalties is shown in the table below: Royalty rate* Additional rate Oil Onshore 7% 3% Oil prices reduction fund Offshore 4% 3% Safety and environmental share Exempted production <2, tons/year < 5, tons/year Gas Onshore 7% 3% < 25 million cubic meters Offshore 1% < 8 million cubic meters *Not applicable for production dispersed, burned or re-injected into a well Main incentives - % royalty rate applies to production per field not exceeding: 2, tons oil and 25 million cubic meters gas / year offshore production; 5, tons and 8 million cubic meters gas / year onshore production. Robin Hood Tax - a surcharge tax levied on oil and gas and other energy with revenues exceeding 3 million and a taxable income exceeding 3, in the previous tax year, was declared unconstitutional in 215 and abolished. Local tax on real estate -.76% applied to the cadastral value, revalued for certain multiples established by the law. Starting with, For oil and gas companies, the cadastral value should be determined net of any movable equipment fixed to them and pipelines. In, ENI, one of the major industry players from Italy, borne approx. 7% from the total amount of royalties on oil & gas paid towards the Spanish State Budget. Oil & gas production/ year and reserves,, Mn boe Oil 37.8 Gas Reserves Source: Directorate-General for Safety of Mining and Energy Activities, Databook 217 Report Activity (production), EIA (reserves) Avg. production/ field (boe/day) Avg. production/ well (boe/day) Source: Directorate-General for Safety of Mining and Energy Activities, Databook 217 Report Activity 218. For more information, contact Deloitte Romania 42

43 Country snapshot Italy (continued) (continued) Oil & gas evolution, (Thousand Barrels per Day) Indicator Onshore Offshore 15 of Crude Oil, NGPL and other liquids Oil 81% 19% 1 Gas 29% 71% Total no. of wells Gas Oil No. of exploration licenses No. of exploitation licenses Source: Directorate-General for Safety of Mining and Energy Activities, Databook 217 Report Activity of Dry Natural Gas Source: EIA 218. For more information, contact Deloitte Romania 43

44 Country snapshot Serbia Oil & Gas royalties and similar taxes The applicable fees for mineral resources development are presented in the table below: Type Amount/rate Applicability Exploitation fee 7% Applicable for revenue from sale & use Concession fee Agreed between the parties Depending on the type of mineral source, type of activity etc. Indicative oil & gas royalty and related taxes that can be observed derived from NIS Financial Statements as at December 31,. Based on the agreement signed between Serbia and Russian Federation, the exploitation fee applicable for NIS is reduced to 3%. Oil & gas production/ year and reserves,, Mn boe Oil Source: EIA, Index Mundi 4 2 No. of oil and gas fields Avg. production/ field (boe/ day) Gas 3.7 No. of exploited oil wells Oil & gas evolution, (Thousand Barrels per Day) No. of exploited oil wells Reserves Avg. production/ well (boe/day) Source: Nis Annual Report, Nis website of Crude Oil, NGPL and other liquids 2 of Dry Natural Gas For more information, contact Deloitte Romania Source: EIA 44

45 Country snapshot France Oil & Gas royalties and similar taxes Royalties rates in France cover two components as follows: RCDM - royalties levied on production and not subject to changes in commodity prices; R31 - royalties computed as percentage of sales. The level of R31, is presented below: Crude oil, per annual production (tons): Royalty rate* Royalty rate former productions** <5, % 8% 5, to 1, 6% 2% 1, to 3, 9% 3% > 3, 12% 3% Oil & gas production/ year and reserves,, Mn boe Source: EIA Oil *Gas production for 215 Gas* Reserves The largest oil producers in France is represented by Vermilion, with a 75% share of the domestic industry. Oil & gas evolution, (Thousand Barrels per Day) 1 5 of Crude Oil, NGPL and other liquids * Applicable for new productions wells. ** Applicable for wells older than 198. Gas, per annual production (million cubic meters) 1 5 of Dry Natural Gas Royalty rate* less 3 % more 3 5% (3% for former productions) Source: EIA 218. For more information, contact Deloitte Romania 45

46 Country snapshot Spain Oil & Gas royalties and similar taxes Royalty rates are computed based on the value of oil, gas and condensates extracted. The value of the extraction is calculated by applying the reference price approved by the Government (this price is determined by the average price of the product based on prices in the most representative markets), to the total volume of the product extracted. Starting with, the royalties rates applicable, depending on annual production level and type of exploitation, are the following: Hydrocarbon Oil (barrels) Gas (m3) Volume extracted Corporate income surtax 5% Onshore Tax Rate < 365, 2% 1% 365,1-3,65, 6% 5% > 3,65, 8% 7% < 32,85, 3% 1%* 1% 32,85,-164,25, 4% 3%* 3% > 164,25, 5% 4%* 4% *Tax rate applicable for unconventional onshore gas extraction. Offshore Specific charges for research and extraction activities -1% tax on production value payable towards the land owners, where the exploitation takes place. Oil & gas production/ year and reserves,, Mn boe Reserves Oil Source: EIA, Cores Statistics Gas All of Spain s main oil fields are situated offshore. Oil & gas evolution, (Thousand Barrels per Day) No. of Oil fields Source: Cores Statistics No. of Gas fields of Crude Oil, NGPL and other liquids of Dry Natural Gas Avg. production/ field (boe/day) For more information, contact Deloitte Romania Source: EIA 46

47 Country snapshot Lithuania Oil & Gas royalties and similar taxes The tax on petroleum and natural gas resources is comprised of the base rate of tax and the compensatory rate of tax on petroleum and natural gas resources. Base rates of tax on petroleum and natural gas resources Onshore basis (Th.tons/year) Offshore basis (Th.tons/year) < 1 < 1 2% % % % *2% - applicable for extractions prior to 1 July 23 Tax rate % % % > 15 > 7 16% Compensatory tax rate of 9% is applicable for the prospected and explored areas with State funds. Starting with, the following tax rates also apply for environmental purposes: Tax for conventional hydrocarbons 12% Tax for unconventional hydrocarbons - 1% for the first 3 years (until 22) and 15% thereafter. Oil & gas production/ year and reserves,, Mn boe Oil Source: Tethys Oil Annual Repot, Index Mundi 1 5 Avg. production/ field (boe/day) Gas.. Oil & gas evolution, (Thousand Barrels per Day) Reserves Avg. production/ well (boe/day) Source: Lithuania Geological Survey, European Association of Geoscientists and Engineers of Crude Oil, NGPL and other liquids 218. For more information, contact Deloitte Romania 47 Source: EIA