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OMV Petrom (BSE: SNP) posted the biggest profit in company’s history


Petrom Group: results for Q4 and January – December 2012

Mariana Gheorghe, CEO of OMV Petrom S.A.: “After a recent period of volatile crude prices and macroeconomic uncertainty, 2012 was a year of relative stability, with strong operational and financial performance for Petrom. This was the result of the preceding years of high capital investments in our core business and a focus on operational excellence. On the operating side, we largely offset the natural decline of hydrocarbon production and pursued exploration opportunities, started commercial operations at Brazi power plant and achieved incremental improvements of our refinery yield structure. The preliminary estimates of the first deepwater exploration well we drilled early 2012 in joint venture with ExxonMobil indicate a gas discovery. We also initiated the largest 3D seismic program in the Romanian sector of the Black Sea, in both deep and shallow waters. In 2013, our efforts will continue to focus on operational excellence, stabilize production volumes and capitalize growth opportunities via exploration works and exploration license acquisitions. To this end, one of our top priorities is the discussion with authorities to define a long-term, stable and reasonable fiscal and regulatory framework, prerequisite for the high, longterm investments required by the oil and gas industry.”

Business segments

Exploration and Production (E&P)

Fourth quarter 2012 (Q4/12) vs. fourth quarter 2011 (Q4/11)

  • Group hydrocarbon production broadly stable, despite lower oil volumes in Romania
  • Production costs in USD/boe stable helped by stronger USD against RON
  • Black Sea: largest 3D seismic campaigns initiated in shallow and deep-water sectors of the Neptun Block, leading to higher exploration expenses

In Q4/12, the crude price environment was stable as the average Urals crude price was flat compared to the Q4/11 level, at USD 109.32/bbl. The average realized crude price increased by 1% to USD 93.61/bbl. Clean EBIT decreased by 14% compared to Q4/11 to RON 1,329 mn, mainly due to higher exploration expenses partly counterbalanced by a favorable FX rate (stronger USD against RON). The result from hedging had a lower negative impact of RON (84) mn, compared to RON (95) mn in Q4/11. Reported EBIT shows a 12% decrease against Q4/11 level and also reflects net special charges of RON (48) mn mainly in relation to a community project. Group production costs in USD/boe remained stable compared to Q4/11 helped by the positive FX effects, which compensated for the slightly lower production volumes and higher production costs in local currency. In Romania, production costs in USD/boe decreased by 2% compared to Q4/11, reaching USD 14.95/boe. When expressed in RON terms, production costs in Romania increased by 6% to RON 52.21/boe (Q4/11: RON 49.17/boe), mainly driven by higher personnel expenses following the finalization of the collective labor agreement negotiations in Q2/12. Exploration expenditures amounted to RON 194 mn, 34% higher compared to Q4/11, due to seismic campaigns initiated in Q4/12 and the drilling of three onshore wells. Exploration expenses of RON 159 mn were four times higher compared to Q4/11 on the back of higher seismic activity. In December 2012, Petrom started the largest 3D seismic study in the deepwater sector of the Neptun block, operated in joint venture with ExxonMobil. The six-month study covers approximately 6,000 km 2 . A separate 3D seismic campaign started in the shallow water sector of the Neptun block, conducted on an area of 1,600 km2 .

In Q4/12, the drilling program comprised 34 new wells in Romania, compared to 48 new wells in Q4/11. Group oil, gas and NGL production amounted to 16.8 mn boe in Q4/12, 1% lower compared to Q4/11. In Romania, total oil, gas and NGL production decreased by 2% to 15.7 mn boe due to natural decline in some key fields. Domestic crude oil production was 7.1 mn bbl, 3% below the Q4/11 level, mainly triggered by lower volumes in the Suplac and Videle fields. Domestic gas production reached 8.6 mn boe, almost unchanged compared to Q4/11, as the decline in the Bulbuceni, Radinesti and Mamu fields was compensated by the incremental production in the Totea field. In Kazakhstan, oil and gas production went up by 3% compared to the same period of 2011, at 1.1 mn boe. Sales volumes advanced by 1% compared to Q4/11.

Fourth quarter 2012 (Q4/12) vs. third quarter 2012 (Q3/12)

Compared to Q3/12, clean EBIT decreased by 5%, mainly due to unfavorable FX rate (weaker USD against RON) and higher exploration expenses. The hedging result came in at RON (84) mn, broadly in line with Q3/12. Reported EBIT decreased by 1%, reflecting special items of RON (48) mn (Q3/12 included special charges of RON (116) mn). Group oil, gas and NGL production in Q4/12 was 1% above the Q3/12 level due to higher production volumes in both Romania and Kazakhstan. Group production costs in USD/boe increased by 6%, driven by unfavorable FX effects and higher nominal production costs in local currency. In Romania, production costs expressed in USD/boe were 5% higher compared to Q3/12, negatively affected by a 4% weaker USD against RON. When expressed in RON/boe, domestic production costs slightly went up by 1% to 52.21 RON/boe, mainly due to provision for obsolete materials. Group sales volumes increased by 1% compared to the Q3/12 level, in line with hydrocarbon production.

January – December 2012 vs. January – December 2011

Average Urals crude prices increased by 1% compared to 2011 to reach USD 110.76/bbl. The average Group realized crude price stood at USD 94.00/bbl, 1% higher than in 2011. Clean EBIT went up by 6% compared to 2011 to RON 5,754 mn driven by favorable FX effects (stronger USD against RON) and higher oil prices. The impact of hedging on EBIT amounted to RON (394) mn, against RON (404) mn in 2011. Reported EBIT reached RON 5,467 mn, 4% higher than 2011, reflecting higher special charges amounting to RON (287) mn, mainly relating to a community project (Q4/12), a legal case in Kazakhstan for uncollected receivables (Q3/12) and restructuring charges (Q2/12). Group production costs in USD/boe decreased by 5% against 2011 to USD 15.37/boe driven by a favorable FX rate. Production costs in Romania expressed in USD/boe decreased by 6% to USD 14.91/boe as USD strenghtened by 14% against RON. Domestic production costs in RON terms increased by 7% to RON 51.76/boe, mainly due to higher personnel expenses and costs of materials. Exploration expenditures increased by 21% compared to 2011, amounting to RON 530 mn driven by increased seismic campaigns and onshore wells drilling. In 2012, exploration expenses accounted for RON 328 mn, down 22% compared to the 2011 level, which was affected by the Kultuk exploration license impairment in Kazakhstan and the write-off of eight unsuccessful wells in Romania. Group oil, gas and NGL production in 2012 totaled 66.9 mn boe, 1% below the 2011 level. In Romania, total oil, gas and NGL production decreased to 62.4 mn boe, 2% lower compared to the previous year. Domestic crude oil production was 28.7 mn bbl, 2% lower than in 2011, as the new drilling and workover programs could not fully offset the effects of harsh winter conditions at the beginning of the year and natural decline. Domestic gas production reached 33.7 mn boe, 1% lower compared to 2011. Oil and gas production in Kazakhstan increased by 3% to 4.5 mn boe. Group sales volumes decreased by 1% compared to 2011, in line with production. As of December 31, 2012, Petrom Group’s total proved oil and gas reserves amounted to 775 mn boe (Romania: 750 mn boe), while proved and probable oil and gas reserves amounted to 1,091 mn boe (Romania: 1,039 mn boe). The Group’s three-year average reserve replacement rate stood at 61% in 2012 (2011: 70%), while in Romania it stood at 61% (2011: 71%). For the single year 2012, the Group’s rate was 44% (2011: 70%), while the reserve replacement rate in Romania was 42% (2011 rate stood at 70%, mainly as a result of reservoir studies performed).

Gas and Power (G&P)

Fourth quarter 2012 (Q4/12) vs. fourth quarter 2011 (Q4/11)

  • EBIT increased due to contribution of power business and the optimization of cost
  • management
  • Good operational performance of gas business as better terms for gas sales largely offset
  • lower volumes
  • First full quarter with Brazi power plant in operation, covering approximately 5% of Romania’s electricity production in Q4/12

Estimated natural gas consumption in Romania decreased by 6% in Q4/12 as compared to the same period of the previous year, due to lower industry demand and warmer weather. Petrom’s consolidated gas sales volumes decreased by 11%, but the margins remained favorable. The deviation from the market has to be considered in conjunction with a slightly higher import quota in Q4/12, compared to the previous year and the fact that Petrom sold predominantly domestic gas. Clean EBIT generated by the G&P business in Q4/12 increased compared to Q4/11, thanks to a positive contribution of the power business and the optimization of cost management. Albeit the contribution to EBIT was slightly below Q4/11, the gas business had a good operational performance, as the negative impact of lower volumes was largely offset by the better terms for gas sales. The domestic gas price recognized by ANRE remained unchanged at RON 495/1,000 cbm (or the equivalent RON 45.71/MWh). The actual import price published retrospectively by ANRE for October and November 2012 (latest available data) averaged USD 409/1,000 cbm (or the equivalent of RON 136.21 /MWh). In Q4/12, the average import quota set by ANRE for the non-household sector stood at 33% (with a maximum of 35% in December), slightly higher compared to 31.5% in Q4/11. After starting commercial operations in August 2012, Q4/12 was the first full quarter of operations at our Brazi power plant. The Brazi power plant delivers electricity on a commercial basis to the national grid, depending on the power market and observing the regulatory environment in Romania. In Q4/12, the total net electrical output of Brazi was 0.75 TWh, of which 45% was sold on the regulated market. In Q4/12, Brazi power plant covered approximately 5% of Romania’s electricity production. In Q4/12, the net electrical output of Dorobantu reached 0.02 TWh, for which Petrom received 44,183 green certificates, 34% more compared to Q4/11. According to preliminary data published by OPCOM, the electricity prices on the Romanian day ahead market averaged RON 196/MWh for base load and RON 258/MWh for peak load in Q4/12. Petrom continued the closure process of Doljchim and made further progress with the dismantling and decontamination of the plant in compliance with European environmental and safety standards.

Fourth quarter 2012 (Q4/12) vs. third quarter 2012 (Q3/12)

Compared to Q3/12, clean EBIT increased by 130%, mainly driven by the positive contribution of the gas business. Petrom’s consolidated gas sales volumes seasonally increased by 56%, whereas the estimated Romanian total consumption increased by 108% supported by a higher import quota. The net electrical output of the Dorobantu wind park seasonally increased by 16% as compared to Q3/12, which led to a 16% increase in the number of green certificates received by Petrom. The net electrical output of the Brazi power plant was 4% lower than in Q3/12 due to extended repair works performed by the national grid operator, in its switchyard as well as some scheduled preventative maintenance works at one gas turbine.

January – December 2012 vs. January – December 2011

In 2012, Petrom’s consolidated gas sales were slightly lower than in 2011, in line with estimated total gas consumption in Romania, which decreased by 4% due to overall lower market demand. At the end of 2012, the total volume of natural gas in storage owned by Petrom amounted to 398 mn cbm compared to 406 mn cbm at the end of 2011. Clean EBIT generated by the G&P business significantly increased as compared to 2011, driven by better terms for domestic gas sales, contribution of the power business (Dorobantu wind park and Brazi power plant, which started commercial operations in Q4/11, respectively in August 2012), as well as by the optimization of cost management. In 2012, the total net electrical output of Brazi power plant was 1.58 TWh (including the commissioning phase). Since its start of commercial operations in August 2012, Brazi covered approximately 6% of Romania’s electricity production over the same period. From September 2012 onwards, the Brazi power plant has been supplied only with equity gas. The Dorobantu wind park generated net electrical output of 0.09 TWh for which Petrom received 182,784 green certificates. The estimated Romanian gross electricity production decreased by 5% in 2012 versus 2011, while the estimated consumption increased by 0.2%, thus turning Romania from a net exporter into a net importer of electricity. According to preliminary data published by OPCOM, the electricity prices on the Romanian day ahead market averaged RON 217/MWh for base load and RON 275/MWh for peak load in 2012.

Refining and Marketing (R&M)

Fourth quarter 2012 (Q4/12) vs. fourth quarter 2011 (Q4/11)

  • Higher R&M result driven by good operational performance
  • Refining margin indicator improved, driven by higher product cracks, while refinery utilization rate increased to 93%
  • Marketing business affected by high international price environment, with impact on
  • marketing volumes, mainly commercial

Clean CCS EBIT increased by 29% compared to Q4/11 to RON 80 mn, mainly due to better refining margins and incremental improvements in yield structure. Net special charges were RON (63) mn mainly related to the impairment of marketing assets in the Republic of Moldova, while Q4/11 net special charges stood at RON (550) mn reflecting provisions for the fine imposed by the Competition Council. Decreasing crude oil and product quotations over the last three months of 2012 led to inventory losses (CCS effects) of RON (34) mn. The indicator refining margin improved to USD (2.51)/bbl in Q4/12 mainly due to higher product quotations for gasoline and LPG, partially offset by a slightly higher crude price in comparison to Q4/11. The clean CCS refining result contributed positively, being overall supported by incremental yield structure improvements after the scheduled six-week shutdown in the Petrobrazi refinery in Q2/12. Total quantity of refining input in Q4/12 was slightly higher compared to the level recorded in Q4/11. Total refining output in Q4/12 was 7% higher compared to Q4/11 as a result of higher exports from own production, compensating for the logistics restrictions on export in Q3/12. Total refined product sales also increased by 1% on higher exports. The refinery utilization rate stood at 93%, compared with 83% in the same period of last year. The higher utilization rate also reflected the nameplate capacity adjustment to 4.2 mn t/y after the modernization of the crude vacuum distillation unit performed in Q2/12 (previously 4.5 mn t/y). Clean marketing EBIT was lower compared to Q4/11, mainly triggered by a 12% decrease in sales volumes on the back of a persisting unfavorable market environment. Group retail sales amounted to 65% of total group marketing sales, higher than in Q4/11 (when it represented 58%) due to the steep decrease in commercial sales. Compared to Q4/11, group retail sales shrank by 2%, in line with the retail market development. Commercial sales fell by 27% compared with Q4/11, with a decrease in all products except for LPG, as a result of sales portfolio performance optimization in the challenging environment.

Fourth quarter 2012 (Q4/12) vs. third quarter 2012 (Q3/12)

Clean CCS EBIT came in significantly lower compared to Q3/12, mainly driven by lower margins in Refining. As the refinery gradually increased activity after the Q2/12 planned shutdown, Petrobrazi utilization improved and led to 44% higher refining output compared to the previous quarter. The indicator refining margin went down to USD (2.51)/bbl from USD (0.46)/bbl in Q3/12, mainly due to lower cracks for gasoline compared with the previous quarter, partially offset by a lower crude price. The marketing business result increased compared to the previous quarter as margin improvement fully compensated for seasonally lower retail volumes.

January – December 2012 vs. January – December 2011

Clean CCS EBIT was 79% below 2011 due to the weak economic environment which negatively affected the marketing result. Both margins and volumes dropped, as a result of the lower demand in Q1/12 due to extreme bad weather conditions, as well as a challenging price environment. Net special charges amounted to RON (63) mn, significantly improved compared with 2011, which was burdened by a provision for the Competition Council fine. The indicator refining margin improved compared with 2011 as higher gasoline and middle distillates cracks were only partially offset by the slightly higher crude prices. The utilization rate at the Petrobrazi refinery stood at 73% compared to 79% in 2011 due to the scheduled refinery shut-down and lower demand in Q1/12. Total marketing sales volumes decreased by 6% compared to 2011, broadly in line with the market demand in our operating region. In retail, Group sales volumes were 2% lower, mostly due to harsh winter conditions and demand burdened by the high oil price environment. The commercial sales volume came in 13% lower than in 2011, a negative trend reflected in all products. The clean marketing result decreased significantly compared to 2011 due to the difficult market environment, negatively affecting both retail margins and volumes.

Read the full report here

Source: www.bvb.ro