OMV Petrom Risks Losing Business Unless Exploration Licenses Renewed In September

05.19.2011 By Andrei Circhelan

Oil and gas company OMV on Thursday said it may face adverse conditions in Romania and its sales might decrease if mineral resources regulator ANRM fails to renew OMV Petrom's (SNP.RO) exploration licenses.

"Most of Petrom's exploration licenses are set to expire in September 2011. The renewal of such licenses is imperative for Petrom's business," Austrian OMV said in a prospectus for a share capital increase by up to EUR900 million.

The document adds that an agreement had been reached with local authorities regarding the licenses, but "the issue has recently become a matter of discussion at government level. Should the licenses not be renewed or should their renewal be delayed beyond their expiration date or subject to conditions unfavorable to Petrom, this would have a material adverse effect on Petrom's and the Group's business, results of operations and financial condition.

ANRM president Alexandru Patruti could not be reached for comments.

The group added it is exposed to changes in taxes and tariffs imposed on its operations.

"The Group is exposed to changes in fiscal regimes relating to royalties and taxes imposed on crude oil and gas production such as the expiration of the fiscal stability agreement in Romania in 2014," the prospectus notes.

The document also shows that, as opposed to western European standards, legislative, economic and political risks are greater in Romania, and relations between the private sector and the Government are deteriorated by bureaucratic inefficiency, lack of transparency and corruption.

"Bureaucracy, corruption, deficiencies of the legal system, economic contraction and wide-ranging competencies of audit agencies may adversely affect the Group's operations in Romania," the document reads.

OMV took over the majority stake in Petrom in 2004.