Sand Hill Petroleum B.V., (SHPBV) is a Dutch company, owned by our primary investor which is Warburg Pincus, a New York based private equity firm, and by various independent shareholders. Via its Hungarian subsidiary OGD Central Kft. (OGD), SHPBV started work in Hungary, in the Pannonian Basin, where OGD acquired some acreage with the goal of searching for under-explored gas reserves. Success came early and within a matter of two years OGD were producing and generating income.
Can you provide a brief introduction to Sand Hill Petroleum, particularly since your inroad into Romania?
When SHPBV decided to explore outside the borders of Hungary, Romania was chosen because of its very large resource base, with great potential despite the country’s long history in this industry. Sand Hill Petroleum Romania (SHPR) is a wholly-owned subsidiary of SHPBV and is now a Titleholder of two concession agreements in the Western part of Romania. We found this area particularly attractive because it is geologically an extension of the Pannonian Basin. We hold 70% of EX-1 Voivozi and 80% of EX-5 Adea, with the remainders held by Panfora, also a Titleholder of the two blocks. We are the Operator for both blocks and we are deploying our expertise in the same way we did in Hungary, but with the belief that there are even larger reserves to be discovered.
As a relative newcomer to Romania, what is your experience of the business climate, in terms of transparency and ease of doing business?
When companies such as SHPBV decide to enter a new country a number of different issues are taken into consideration, including the economics of the specific project and the political risk. We have found a professional and generally cooperative bureaucracy in both NAMR and ANRE which oversee our industry. Unfortunately, there has been some deterioration in the fiscal/legislative environment since our arrival in 2017, of which the recent GEO 114 is an example. It has created problems for the industry along with other regulatory measures. Another example, is the benchmark price for royalties that are imposed on gas sales. For the past year or so, the Baumgarten benchmark, which usually trades higher than the price companies can sell gas for in Romania, has been imposed. This can significantly increase the royalty rate paid to the government on produced gas volumes, thereby lowering the value of the project overall. We are hopeful that as the government matures and develops confidence that the major players in the industry are looking for win-win solutions, an industry-friendly legislative environment will emerge.
For exploration companies one challenge is always land access as we need to cover large contiguous blocks with seismic surveys. The Petroleum Law grants these access rights but an involved and lengthy process is required to exercise these rights. In our EX-1 block for example, we estimate that we’ll interact with as many as 3000 different land owners or lessees. We must knock on every door to obtain their agreement. This is a challenge, but we are committed to the work so the net result of this challenging process is that it takes longer to accomplish some tasks than we had originally planned. Having said that, we do feel that we’ve accomplished a significant work program in a short time frame relative to our peer companies. Also, an unintended positive consequence of this tedious process is that we get to know the communities in which we work and take that opportunity to educate them about our work and listen to their concerns about the impact of our work.
As you can imagine, the contractors working in the Romanian oil and gas business are extremely professional and experienced. They are of the same level as you would find around the world – as you would expect as many of them work internationally. All of the necessary specialists and equipment are available here to successfully complete our work and we have found the prices very competitive relative to other markets in the world where we have worked.
Modern technology is allowing us to reach previously inaccessible reserves – what are Sand Hill’s capabilities in this respect?
We are using advanced 3D seismic acquisition and processing technology, which is not a new concept but it is very new to Romania. This technology coupled with a highly experienced team has given us an edge and allowed us to gather a valuable subset of data that is showing very positive early results.
When 3D technology was introduced into the US industry, some geologic basins experienced a renaissance in gas production. Among the best results was an actual doubling of production and reserves. The 3D allows us to find previously hidden conventional deposits of gas that were previously too small or in unusual traps that could not be seen on 2D seismic. We hope that the Pannonian Basin in Romania will prove to be one of these ‘better’ basins.
What is your message for investors that are interested in the Romanian market?
We want the industry to be attractive and we welcome new players in the market because that helps build the industry and makes access to goods and services easier. The resources are here, now it is only a matter of the Government realizing how to woo other investors and instill a sense of predictability and stability. Romania has been a leader and producer of oil and gas since the earliest days of the industry and we plan to work hard to ensure that continues.
