Petrom’s profit increased 27% in the first nine months – RON 3.66bn

Q3/13 vs Q3/12:

• Clean CCS EBIT increased 22%, mainly driven by higher realized oil price and strong cost management
• Daily production in Romania advanced slightly, supported by workovers, intensive drilling and field redevelopment activities
• Investments in E&P increased 37% vs Q3/12, in line with our Group strategy to spend around 80% of CAPEX in E&P
• Black Sea: seismic data processing ongoing; drilling activities to be resumed next year
• Lower contribution from downstream, reflecting challenging market environment

Mariana Gheorghe, CEO of OMV Petrom S.A.: “In the third quarter we continued to deliver a solid performance, benefiting from a favorable crude price environment and cost optimization. In E&P, over the first nine months of 2013, we managed to achieve the first year-on-year production stabilization at Group level since privatization, as a result of continuous investments. Exploration offshore is progressing and, in joint venture with ExxonMobil, we aim to resume drilling in the Neptun block around mid-2014. G&P performance reflected the challenging market environment with subdued demand and low electricity prices, while in R&M, refining margins remained under pressure. Going forward, we will maintain our focus on delivering on our operational excellence initiatives and investment program. These initiatives remain essential prerequisites for a sustainable performance and cash flow generation that will support our ambitious investment program in the Black Sea in the coming years, in an investment-friendly taxation and regulatory environment.”

Exploration and Production (E&P)

Third quarter 2013 (Q3/13) vs. third quarter 2012 (Q3/12)

• Clean EBIT increase supported by higher realized crude price and strict cost management
• Group hydrocarbon production slightly increased driven by higher production volumes in Romania, as a result of significant investment efforts
• In Romania, production costs in RON terms dropped by 7%; at Group level, OPEX in USD/boe
• increased 2% mainly due to stronger RON against USD

In Q3/13, the crude price environment remained supportive, as the average Urals crude price slightly increased to USD 110.63/bbl. Average realized crude prices increased by 8% to USD 98.10/bbl as no hedges were concluded in 2013, while Q3/12 reflected hedging losses of RON (83) mn. Clean EBIT increased by 10% compared to Q3/12 to RON 1,544 mn, mainly due to higher oil and gas sales and lower production costs, which counterbalanced unfavorable FX rate effects (USD weaker against RON) and higher depreciation. Reported EBIT increased by 19%, reflecting lower special items compared with Q3/12. Group production costs in USD/boe increased by 2% compared to Q3/12, mainly due to negative FX effects (USD 7% weaker against RON), despite lower nominal production costs and higher production volumes. In Romania, production costs in USD/boe were stable, reaching USD 14.24/boe. When expressed in RON terms, production costs in Romania decreased by 7% to RON 47.78/boe, triggered by strict cost management and higher production volumes. Exploration expenditures increased by 40%, amounting to RON 108 mn, mainly due to higher capitalized drilling expenditures. Exploration expenses were 23% higher in Q3/13, related mostly to the relinquishment of some exploration blocks. In Q3/13, the drilling program comprised 48 new wells in Romania (Q3/12: 31 new wells). Group daily hydrocarbon production was 182.4 kboe (of which 171.2 kboe in Romania) and total production stood at 16.8 mn boe, slightly above Q3/12. In Romania, total oil and gas production increased by 0.7% to 15.75 mn boe, supported by workovers, drilling and field redevelopment activities. Domestic crude oil production was 7.23 mn bbl, slightly above Q3/12. Domestic gas production reached 8.5 mn boe, 0.9% above Q3/12, mainly supported by the good results of the offshore workover campaigns in the Istria block. In Kazakhstan, oil and gas production amounted to 1.03 mn boe, which is 6.7% lower compared to the same period of 2012, following technical constraints in the TOC fields. Sales volumes increased by 2% compared to Q3/12 mainly due to higher sales for all products in Romania.

Third quarter 2013 (Q3/13) vs. second quarter 2013 (Q2/13)

Clean EBIT increased by 18% compared with the Q2/13 level, mainly due to higher oil and NGL sales and higher gas prices, which offset higher depreciation and royalties. Reported EBIT stood almost at the same level with Clean EBIT. Group production costs in USD/boe increased by 4%, mainly driven by higher service costs. In Romania, production costs expressed in USD/boe increased by 1% and, when expressed in RON/boe, domestic production costs advanced by 1% compared to the Q2/13 level, to RON 47.78/boe. Exploration expenditures increased by 55% while exploration expenses advanced by 6%, the latter mainly relating to the relinquishment of some exploration blocks in Q3/13. Total daily production was slightly below Q2/13, mainly due to workover jobs in the Totea field, slightly compensated by production increase in Kazakhstan. Group sales volumes increased by 3% compared to the Q2/13 level, driven by higher oil and NGL sales and higher sales from stock.

Gas and Power (G&P)

Third quarter 2013 (Q3/13) vs. third quarter 2012 (Q3/12)

• Clean EBIT impacted by lower contribution of both gas and power businesses
• Gas sales volumes increased by 22%, however on lower margins as the upside from gas price liberalization is reflected in E&P
• Brazi power plant net electrical output of 0.76 TWh, covering around 6% of national electricity consumption, but electricity prices dropped 28%

Clean EBIT significantly decreased compared to Q3/12, reflecting the lower contribution of the gas business, as the upside from gas price liberalization is reflected in E&P starting February 2013. Additionally, the power business was negatively affected by adverse market conditions. Estimated natural gas consumption in Romania decreased by 11% in Q3/13 as compared to the same period of the previous year, while Petrom gas sales volumes increased by 22% due to higher demand for domestic gas coming from large wholesalers and supported by the slight increase in Petrom domestic gas production. At the end of Q3/13, the total volume of natural gas stored by Petrom amounted to 279 mn cbm compared to 556 mn cbm at the end of Q3/12, reflecting higher domestic gas demand in Q3/13. In Q3/13, the regulated domestic gas price was RON 63.4/MWh for the non-household sector and RON 48.5/MWh for households, while the estimated average import gas price based on ANRE assumptions was USD 405/1,000 cbm (or the equivalent of RON 129/MWh). The average import quota set by ANRE for the non-household sector was 20% in Q3/13, lower compared to an average of 26% in Q3/12. Estimated Romanian gross electricity production decreased by approximately 3% versus Q3/12, while national electricity demand decreased by over 6%; the surplus output was exported. Increased production from hydro and renewable sources, compared to the same quarter of last year, contributed to the 28% decrease in Romanian day ahead market prices, which averaged RON 173/MWh for base load and RON 215/MWh for peak load, according to preliminary data published by OPCOM. With a net availability of over 96% and a net electrical output of 0.76 TWh (3% lower compared to Q3/12), the Brazi power plant covered around 6% of Romania’s estimated electricity consumption, delivering 0.42 TWh on the regulated market. In Q3/13, the Dorobantu wind park, with a net availability of over 94%, delivered a net electrical output of 0.02 TWh (10% lower than in Q3/12), for which Petrom received approximately 12,600 green certificates. Pursuant to Government Emergency Ordinance no. 57/2013, adopted in July 2013, Law no. 220/2008 regarding the support system for renewable power was amended. As such, starting July 1, 2013, the allocation of one (out of two) green certificates for each MWh of hydropower or wind power produced (or two certificates for photovoltaic power) is postponed until March 31, 2017. The secondary legislation on this topic still needs to be defined.

Third quarter 2013 (Q3/13) vs. second quarter 2013 (Q2/13)

Compared to Q2/13, Clean EBIT slightly improved helped by strict management of receivables. Petrom gas sales volumes decreased by 2%, while estimated Romanian gas consumption was 15% lower. The net electrical output of the Brazi power plant significantly improved against Q2/13, reflecting the one month planned shutdown in Q2/13 and the more favorable market conditions in Q3/13. The stable demand and a slight increase in electricity output, with a lower contribution from hydro and wind compensated by coal and gas sources, triggered a spot market price increase of around 40% compared to the previous quarter. The net electrical output of the Dorobantu wind park seasonally decreased by 21% as compared to Q2/13. The new regulatory provisions mentioned above, together with the lower output, led to a 71% decrease in the number of green certificates received by Dorobantu wind park.

Refining and Marketing (R&M)

Third quarter 2013 (Q3/13) vs. third quarter 2012 (Q3/12)

• R&M clean CCS EBIT burdened by weak refining margins due to lower cracks, in a high crude price environment
• Refinery utilization improved to 90%
• Marketing business reflected oil price environment, lower commercial sales and stable retail volumes

Clean CCS EBIT decreased to RON 141 mn mainly due to depressed refining margins, only partially offset by stringent cost management. Despite higher crude quotations, the negative market outlook at the end of the period led to inventory losses (CCS effects) of RON 5 mn which, combined with special charges of RON 25 mn, generated a reported EBIT of RON 111 mn. The indicator refining margin was USD (4.31)/ bbl, lower compared to the Q3/12 level of USD (0.46)/bbl. The overall refining margin level deteriorated due to the higher cost of crude and lower spreads for oil products, other than propylene and LPG. The total quantity of refining input in Q3/13 was higher than in Q3/12, when the refinery was gradually restarted after the 6-week shutdown in Q2/12. Total refined product sales increased by 13%, triggered by higher exports. Total group marketing sales volumes in Q3/13 were 5% below the Q3/12 level. Group retail sales, which amounted to 68% of total group marketing sales, are 1% below the level of Q3/12 sales volumes. Commercial sales dropped by 13% compared to the same quarter last year, due to sales portfolio optimization in the context of the current economic environment, with lower volumes for all products other than jet and gasoline and also due to Petrom LPG divestment in January 2013. At the end of September 2013, the total number of filling stations operated within Petrom Group shows a decrease of 14 units compared to Q3/12, mainly as a result of retail network optimization in the Republic of Moldova.

Third quarter 2013 (Q3/13) vs. second quarter 2013 (Q2/13)

Clean CCS EBIT increased by 17% compared to Q2/13 due to a stronger contribution from the marketing segment, which reflected the seasonally higher sales volumes (driving season). The indicator refining margin decreased to USD (4.31)/ bbl in Q3/13 from USD (1.62)/ bbl in Q2/13, mainly due to lower product cracks and a higher Urals crude price. The Petrobrazi utilization rate remained high, reflecting the ongoing optimization, market demand and stock management. (OMV Petrom communique, November 8, Bucharest Stock Exchange)