VARINIA RADU

RVR ENERGY

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ROMANIA UPSTREAM CONFERENCE AND FIRST

EASTERN EUROPEN HSE FORUM

MARCH, 2012, BUCHAREST

Aspects of the environmental regulatory framework impacting

upstream oil and gas industry

The energy Trilema

� World Energy council defines energy sustainability based on 3 dimensions: energy security, social equity and environmental impact mitigation.

� Energy impact mitigation is measured by

- Energy intensity

- Emissions intensity

- Effects on water air and water

- Efficiency of electricity production

Upstream relevant legislation

� Main laws regulating the upstream activity are:

� Petroleum Law

� Gas law

Typically, the concession agreements make refference only to the Emergency Governmental Ordinance no.195/2005 regarding environmental protection and risk management.

Still, there are other relevant national and European regulation with impact on the industry activity.

Natural Protected areas – Natura 2000

Network “Natura 2000” is the European Union's main instrument for nature conservationin the Member States. Main features: :�is a network of designated areas within the European Union in which vulnerable species and habitats are preserved in the entire continent.�based on two EU Directives generically called “Birds Directive” and “Habitats Directive”, directives transposed into national legislation by Expeditious Government Ordinance no. 57/2007 on the status of natural protected areas, conservation of natural habitats, flora and fauna. �Currently, Natura 2000 network consisting of Special Conservation Areas (SCAs) designated to protect endangered species and habitats, listed in the Annexes of the Habitats Directive and Special Protection Areas for Birds (SPAs) designated for the protection of wild birds under the Birds Directive covers approximately 20% of the European Union territory. It should be mentioned that until the ratification of the special conservation areas, these areas proposed for Natura 2000 network are labelled as Sites of Community Importance. �Sites of Community Importance and Special Protection Areas included in the Natura 2000 network covers 17% of Romania's surface. List of sites included in the Natura 2000 network was sent to the European Commission which will approve it until 2010. Subsequently, authorities in Romania will need to develop management plans for each Natura 2000 site, plans which will include specific measures to be complied with for conservation of habitats and protected species.

Natura 2000 II

� Due to extremely valuable natural capital holds by Romania (two bio-regions new for ecological network, large and viable populations of large carnivores, unmanned habitats etc.) and taking into account the fact that our country conserves a much higher biodiversity compared with other European Union member states, Romania's contribution to Natura 2000 network is significantly.

� The main objective of the European network of protected areas Natura 2000 -designated under the Birds Directive respectively Habitats Directive - is that these areas to ensure long-term "favourable conservation status” of species per each site in part that has been designated.

� Although the term "favourable conservation status" is not well defined, Romania should report regularly to the European Community on this fulfilment of this objective.

� The only objective and quantitative indicator of the status of a species in a given area is the number of the population respectively the change of the number of populations. It is therefore essential that the impact of investments on those species for the area which was designated as Natura 2000 site to be fully assessed by the scientific methods. In most cases the impact can be minimized or substantially reduced by careful selection and proper implementation of mitigation methods of impact.

Biographical regions

Biogeographical Regions of Romaniahttp://natura2000.mmediu.ro/situri/17/Alpina.html

Protected Habitats Natura 2000http://www.ibis-tours.ro/birding romania.php

Main protective regimes

� 1. Zones with strict protection

� 2.Zones with integral protection

� 3.Buffer zones ( 2 types: zones of sustainable conservation and zones of sustainable management)

� 4.Zones for human sustainable development

Any extracting activity is prohibited in the protected areas, with the exception of the zones of human activity sustainable development, upon 2 conditions:

- The possibility to be included in the park management plan and

- To represent a traditional activity

Methodology for exploration/production activity

� For any large projects exceeding 50 mil. Euro in the areas of human activity sustainable development it is required to obtain the Natura 2000 approval, ehich confirms the integration of the aspects regarding the natural habitat protection in the process;

� Compensations and restoration funds are required as well.

Offshore safety rules and regulations

� EU offshore oil and gas industry has not been immune to accidents, like Piper Alpha and Kielland in the North Sea

� After Deepwater Horizon experience Europe is more concerned and interested in improving the safety and environmental regulations on 5 main areas:

- Through licensing procedures

- Improved controls by public authorities

- Addressing gaps in applicable legislation

- Reinforced EU disaster response

- International cooperation to promote offshore safety and response capabilities worldwide.

EU Proposal

� Currently, more than 90% of the oil and over 60% of gas producedin EU and Norway is coming from offshore operations.

� In the EU waters there are over 1000 offshore active rigs.� On 27 October 2011, the EC proposed a new law which will ensure

that European offshore oil and gas production will respect the world's highest safety, health and environmental standards everywhere in the EU.

� The new draft regulation sets clear rules that cover the whole lifecycle of all exploration and production activities from design to the final removal of an oil or gas installation.

� Industry has to evolve and periodically improve standards, new technologies, apply best know how, under the control of the national regulatory authorities.

� Prerogatives given to NAMR.

EU Proposal II

� The situation across EU is very diverse and the local legislation doesn’t cover various relevant aspects of the sectors or provides minimum criteria.

� The EC proposes a more uniform and coherent legal framework for offshore E&P, which ensures a wide application of state-of-the-art practices.

� Key requirements for the license should include:(1)Presentation of a full “safety case” and associated health and safety

documentation for each operation, detailing the provisions for dealing with critical events including response to serious accidents

(2) Demonstration of strong technical and financial capacity to handle consequences of an unforeseen event, including participation in an insurance scheme or risk coverage instrument.

� Ex ante mandatory planning for emergencies before beginning exploration or production, companies will have to prepare a report of serious danger to the facilities, which should include a risk assessment and plan of intervention in cases of emergency. These reports will be submitted to NAMR, which will approve it, if deemed appropriate.

� Transparency- Citizens must have access to comparable information on industry performance standards and national authorities activities. This information will be published on websites of the authorities.

� Liability and indemnities- oil and gas companies will be fully responsible for environmental damage caused to the protected marine species and habitats. With regards to water damage, geographical area will be extended to cover all EU marine waters, including the exclusive economic zone (up to about 370 km from the coast) and continental shelf over which the coastal authorities exercise jurisdiction.

� With regard to water damage, the current EU liability for environmental damage is restricted to the territorial waters (about 22 km offshore).

Unconformities

� EU product safety legislation ( Dir. 2006/42/EC) applies in general to equipment in offshore oil and gas facilities, but excludes from its scope mobile offshore drilling units (MODU)and equipment.

� MODU are considered as seagoing vessels and are subject to rules in the International Maritime Organization Code. ( which doesn’t include either requirements and procedures for equipment used for drilling wells.

� EC proposed amendments to the Environmental Liability Directive to cover environmental damage to all marine waters as defined in the Marine Strategy Framework Directive.

� The applicability of the Waste Framework Directive to oil spills will be addressed.

� Calls for precaution and review of the operations, but the decision to suspend any offshore activity is left at discretion of the Member states.

� Other relevant legislation: Directive 92/91/EEC concerning the minimum requirement for improving the safety and health protection of workers in the mineral extracting industries though drilling.

Outlook

� The ultimate aim is to have a global system regulating targets, standards and benchmarks of safety and sustainability in the offshore E&P.

� EU-OPEC Ministerial meetings to endorse a global initiative;

� Since the EU states regulatory regime varies a lot, further action is needed to ensure best practices; Romania has been actively participating in the elaboration of the new regulations, through NAMR and Ministry of Environment.

CCS Directive

� The CCS Directive

� The key provisions of the CCS Directive are: � a CCS storage permitting regime administered by Member States

but overseen by the Commission; � a regime for permitted operators to pass long-term liability for

leakage from storage sites to the licensing Member State provided certain hand-over criteria are met;

� the inclusion of CCS in the EU ETS; � the amendment of existing EU regulations which currently prohibit

or inhibit CCS; and � whilst stopping short of compulsory CCS for new power plants,

there are requirements on all new combustion plants in the EU built without CCS to have space for CCS equipment and to have carried out studies into the availability of storage sites and the feasibility of "retro-fitting" capture equipment.

Permitting regime

� The CCS Directive's main scope is the establishment of a new framework for storage of carbon dioxide.

� two types of permit: an exploration permit which lasts for two years (with the option to renew once for a further maximum of two years) and under which the permit holder may seek suitable geological formations in the permit area; and a storage permit for the development and utilisation of geological formations as storage sites for carbon dioxide.

� The CCS Directive provides in general terms for storage operators and carbon dioxide pipeline operators to afford access to their assets on a non-discriminatory basis. Since the capture and transport of carbon dioxide are largely regulated by pre-existing provisions which manage the risks associated with these phases of the process, no new regime is proposed for these activities.

� Capture will be regulated under the Integrated Pollution Prevention and Control Directive while carbon dioxide transportation will be regulated in the same way as natural gas transportation.

Other provisions

� The CCS Directive includes provisions to impose liability for damage resulting from any failure of permanent containment of carbon dioxide, both in terms of damage to the local environment and damage to the climate. As regards the local environment, it applies the Environmental Liability Directive (2004/35/EC) to carbon dioxide storage to ensure the prevention and remedy of any such damage by an operator. Liability for climate damage as a result of leakage will be covered by the proposed inclusion of geological storage in the revised EU ETS Directive so that EU ETS allowances will need to be surrendered for leaked emissions.

Romania

� CCS Directive was adopted in 2009 and transposed into national law through Government Ordinance 64/2011.

� CCS Directives brings changes to the legal framework but also to the institutional level- NAMR will have extended competences: selection of sites, compliance check, reporting and notification to the EC, third party access to storage sites, approval of transfer of responsibility, etc.

� For oil and gas activity- allows companies to use CC for techological injection to achieve better recovery factor (EOR and EGR), or use CC as cushion gas for UGS operators.

Trends in environemtnal policy

� Increase of “hard law”- mandatory, at

International level: UN projects, EU Directives, climate change policies, anticorruption, etc.

Domestic level: environmental protected areas legislation, health and safety regulations, liability increase, decommissioning procedures.

� Expansion of “soft law”- voluntary, non legal HSE norms and standards with potential to become compliance requirements: ISO standards, industry best practices, guidelines, initiatives, CSR campaigns, financial institutions lending requirements.

Conclusions

� For energy businesses to invest in new technologies, infrastructure, and products while managing risk, they need clear and stable policy signals from governments.

� Companies need to ensure a transparent communication with all stakeholders, to avoid disputes and misunderstanding regarding technologies used, to maintain a responsible and sustainable business while protecting habitats and biodiversity.

� To drill or not to drill? Better get informed in advance.

HSE

THANK YOU!