Petrom
Investor Presentation
Andreas Matje, CFO of Petrom
June 2014
1 Investor presentation
Disclaimer
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2 Investor presentation
Petrom at a glance
3 Investor presentation
Petrom is an operationally integrated oil & gas player
Oil: Supplies 100% of
oil for Petrobrazi
Romania
Kazakhstan
Exploration and
Production Refining and Marketing
Gas and Power Gas: Supplies 100%
of gas for Brazi
► 4 mn toe/yr crude oil and NGL
► 5.2 bcm/yr gas
► 707 mn boe proven reserves
(~11 yrs of current production)
► 0.4 mn toe/yr crude oil and NGL
► 0.1 bcm/yr gas
► 21 mn boe proven reserves
► Gas sales 4.9 bcm/yr (up to
40% of Romanian demand)
► Brazi gas-fired power plant
(860 MW)
► Dorobantu wind park (45 MW)
► Petrobrazi refinery
(4.2 mn t/yr capacity)
► 3.6 mn t marketing sales
► 785 filling stations (Romania,
Bulgaria, Serbia, Moldova)
2013 FIGURES
4 Investor presentation
Petrom is the leading industrial company in Romania
1 Equivalent share of state budget income in 2013e (non consolidated); Include: profit tax, royalties, employer social
contributions, excises incl. custom duties, VAT, employee related taxes, other direct and indirect taxes, dividends paid to state
Largest private employer
~20,000 direct employees and
more than 60,000 indirect jobs
Main energy supplier
Accounts for ~40% of oil, gas
and fuel supply, and up to
10% of power generation
capacity in Romania
EUR ~2.3bn in 2013 (~11%
share of non-consolidated
budget)1
Largest investor
2013 FIGURES
Over EUR 1bn capex spent
per year since privatization
Largest contributor to
state budget
5 Investor presentation
Petrom has transformed from an inefficient state-owned company
into a high-performing private company
HSSE3
LTIR4 0.33
Turnaround &
Operational
efficiency ROACE2 19%
Corporate
governance &
Culture
Transparency
and
performance
mindset
From... To... Impact
1 Bucharest Stock Exchange Code of Governance in adherence to OECD standards 2 ROACE as of 2013 3 HSSE: Health, safety, security and environment
► ‘State company mindset’
► Bureaucracy
► State interference in
commercial decisions
► Professional organization
► Two-tier management system
► Blue chip on BSE Code1
► A strategy incorporating
sustainability
► Focus on oil & gas core
► Stable production at 171kboed
with lower costs (~USD15/boe)
► Modern technology, facilities
and management systems
► Large non-core businesses
► Declining production and
aging underinvested assets
► Lack of management systems
► Security Management Plans
► > 1.5 day/employee HSSE
trainings
► Safety Day
► Lack of monitoring systems
► Low safety awareness
► Limited HSSE trainings
4 Lost time injury rate for 2013
compared with 1.11 in 2004
6 Investor presentation
Petrom has benefited from an improved capital market environment
Free float increased in 2013
Share price appreciated by 9.7% YoY in 2013
Index Jan 2009 = 100
9.36%
18.99%
20.64% 51.01%
OMV*: Austria’s largest listed industrial company and
integrated international oil and gas company
Free float increased from 6.62% to 9.36% today
Property Fund: listed fund, ~90% of AUM invested
in the energy sector
State holding, but no golden share
Other 2013 highlights
*Shareholder since Dec 2004; ** Dividend yield plus share price increase in gross values (2013 vs 2012)
0
100
200
300
2009 2010 2011 2012 2013
BET
BET-NG
Brent
Petrom
► Petrom shares trading turnover: +40% y/y
► Total Shareholders Return**: 16%
► Institutional investors: +12.4% y/y to more
than 500
7 Investor presentation
Financial performance in 2013
Exploration & Production
► First annual increase in hydrocarbon
production in Romania since privatization
► Continued focus on cost reduction
► Unfavorable FX effects and higher
depreciation expenses
Gas & Power
► Weaker gas and power demand
► Depressed electricity prices
Refining & Marketing
► Significantly higher refinery utilization rate
► Strong marketing performance
(4)%
(53)%
Clean CCS EBIT 2013 vs. 2012
in RON mn
>11x
2012
5,855
(289)
31 359
5,754
C&O and Consolidation R&M G&P E&P
167
5,542
2013
6,015
(68) 374
8 Investor presentation
Evolution of financial indicators
Solid financial basis for growth and sustainable performance
Operating cash flows, RON bn
Gearing ratio, %
2009
2.7
2013
8.0
12
7.2
11
6.4
10
4.6
1
79
12
16
2009 12 10 11 2013
Capex / CFO ratio
151146134
9565
11 2009 10 12 2013
Operating cash flows / Capex ratio, %
ROACE, %
2009 10 11 12 2013
19.0 16.5 17.3
10.7
5.2
9 Investor presentation
Business environment
10 Investor presentation
Macroeconomic environment
Romania’s resilient economy continues to recover
Romania GDP continues to recover
-15
-10
-5
0
5
10
06
-10.4
7.9
2005
-8.6
4.2
10
-4.4
-1.1
09
-4.2
-6.6
08
-11.6
7.3
07
-13.4
6.3
12 2013f
-1.1
3.5
-4.5 -3.9
0.6
11
2.3
Source: IMF, WEO Database Oct 2013, NBR for GDP 2005-2012, INS estimates for 2013 * SOE = State Owned Enterprise
► EU member since January 2007
► Country ratings: investment
grade Moody’s (Baa3), Fitch
(BBB-) and S&P (BBB-)
► FX: in 2013 RON was relatively
stable against EUR (+1%) but
rose against USD by 4%; in
Q1/14 RON depreciated by 3%
against EUR and appreciated by
1% against USD
► CPI annual inflation: 2013
average at 4%, 1.3% at year-end;
2.8% (end-March)
► IMF support: a 2-year
precautionary agreement
approved in September 2013
► SOEs* privatization momentum
Current Account deficit, % of GDP GDP growth rate, %
11 Investor presentation
Oil
Gas
Power
Regulatory environment
An investment-friendly environment is required to fully unlock growth
in the energy sector
Progress made Remaining challenges
Oil market is fully liberalized
Gas liberalization path: Energy
Law* stipulates deadlines for price
liberalization
Third Energy Package largely
transposed in the Energy Law
Stable and investment-friendly
fiscal & regulatory framework
Power market roadmap for
phasing out of regulated electricity
quantities part of Energy Law
Renewables support scheme
initially beneficial
► Renewables support scheme
Secondary legislation not fully
defined
► Coal power plants
EU environmental standards to be
implemented
► Demand and competition
* Law no. 123/ 2012
12 Investor presentation
Gas price liberalization on track
Planned gas price liberalization steps1
1 Roadmap approved by Government decision for the increase of regulated gas prices during 2013-2014,
deadlines stipulated in the Energy Law
119120
0
19 18 17 16 15 14 13
RON/MWh
+96%
119
0
120
19 18 17 16 15 14 13
RON/MWh
+13%
Non-households Households
89.4
45.7 45.7
51.8
13 Investor presentation
Petrom Strategy 2021
14 Investor presentation
We aim to remain the leading regional, integrated oil and gas
company with sustainable performance to support potential upstream
growth in the neighboring Black Sea region
1 Development subject to confirmation of commercial viability 2 Updated
2021+
Position for long-term growth Enhance mid-term value
2016
Sustain performance
2014
B
A
2012
C
People. Develop a performance-based organizational
culture and skill pool to achieve business growth and
operational excellence
Resourcefulness. Develop a sustainability culture for efficient use of
natural resources, high safety and environmental standards and
share value with stakeholders for common long-term growth
E&P
G&P
R&M
Stabilize production through
field redevelopment, drilling,
workovers
Continue with operational
excellence
Optimize E&P portfolio
through partnerships
Bring Brazi CCPP on stream
Enhance value of equity gas
by strengthening gas sales
Modernize/improve efficiency
of Petrobrazi refinery
Revamp fuel storage
network
► Increase ultimate oil and gas
recovery
► Explore, appraise and start to
develop1 Neptun (Black Sea
deepwater)
► Explore deeper and
frontier hydrocarbons
► Explore additional opportunities
in the neighboring Black Sea
► Explore unconventional
opportunities
► Explore infrastructure needs
related to equity gas (Black Sea)2
► Explore development of a potential
Gas Hub, incl. from the perspective
of capitalizing on new discoveries
► Optimize across commodities
and leverage fair market conditions
► Enhance value of integrated
downstream (e.g. operating model)
► Optimize R&M portfolio
► Explore partnership
opportunities
PETROM STRATEGY AS OF 2012
15 Investor presentation
Business overview
16 Investor presentation
Health Safety Security and Environment (HSSE)
Safer operations
Fatality rate in Romania reduced by 80%
since 2008
Petrom LTIR substantially improved2 (0.33
in 2013 better than international benchmark)
People more intensively trained in HSSE,
which has become part of our corporate DNA
(mindset and lean processes)
E&P LTIR1 Romania Significantly improved in 2013
0.48
0.600.53
0.63
1.11
0.0
0.8
1.6
’11 ’10 ’09
0.70
2008
> 50% reduction
2013 ’12
1 Lost time injury rate (employees and contractors) 2 LTIR for Petrom Group, excluding Kazakhstan
17 Investor presentation
Key facts Exploration and production concessions
Proved mn boe, eoy
Romania
Kazakhstan
Total
707
21
728
2013 FIGURES
Exploration & Production
Petrom footprint is concentrated in Romania
Romania
► Existing blocks/fields: 10 assets with 239
commercial oil and gas fields (~45/55%
oil/gas mix) and ~9,000 operated wells
► Exploration licenses for 9 onshore and 3
offshore blocks
► Recovery factor: oil ~25%; gas ~49%
► RRR1 at 48% (2012: 61%)
Kazakhstan
► Petrom entered Kazakhstan in 1998
► Production in 2013: 11.2 kboe/d
1Reserve replacement rate (3-year average)
Reserves Proved and
probable
977
48
1,025
18 Investor presentation
Group production, kboe/d
Exploration & Production
First year of increased production in Romania,
while containing production costs
2013
171.4
11.2
12
170.5
12.2
11
173.7
12.0
10
173.9
9.9
09
180.8
6.3
08
188.5
5.7
2007
192.5
4.6 ► Production was stabilized by
accelerating workovers and drilling,
deploying state-of-the-art technologies
and partnerships
► Production enhancement contracts
(PEC) for small fields with partners
Romania production costs, USD/boe
18.0
2007
16.8
2013
15.0
12
14.9
11
15.9
10
16.1
09
14.6
08
► Operational excellence for mature field
operations being deployed throughout
assets to contain production costs
► Examples:
► - Modernization of facilities and equipment
► - Reduced mean time between well interventions
► - Automation of metering points skids, parks,
wells and data acquisition
Romania
Kazakhstan
19 Investor presentation
Mid-term production
FRD projects to unlock growth potential
Development
11 FRDs in development phase
12 FRDs in appraisal phase
FRDs aim at maximizing ultimate recovery
► EOR/ IOR (water, steam, polymer injection)
► Additional drillings and workovers
► Modernizing operations
► 2P reserves of 100 mn boe
► Peak production: 17 kboe/d
► Investments: EUR 550 mn1
Examples:
► Suplac: In-situ combustion and cyclic steam
injection ► Drilling of up to 87 new wells and
modernization of the facilities until 2016 ► Ensures 10% of the total oil production of
Petrom in Romania ► Independenta: Identify and develop the
underdeveloped areas
► Cumulative potential production of 200-250 mn
boe, coming on stream 2014-2017
Examples:
► Bustuchin: drilling additional wells and upgrading surface facilities
► Phoenix: infill drilling and water injection
1 Cumulated FRDs; forward investments; data as of end-2013
Suplac
Independenta
Tazlau
Lebada
East
Istria
Burcioaia
Oprisenesti
Phoenix
Bulbuceni
Madulari
Videle G2
20 Investor presentation
Black Sea exploration and production
Strong position in Black Sea for future growth
Ukraine
Romania
Neptun Deep
► OMV Petrom (50%), ExxonMobil (Operator 50%)
► Domino discovery in 2012
► 3D seismic completed (~6,000 km2 ); processing
seismic
Neptun Shallow (100% operatorship)
► 3D seismic completed; 3D seismic data processing
is ongoing
XV Midia Block
► OMV Petrom (42.5%), ExxonMobil (Operator
42.5%)
► Transfer of the 85% participation to ExxonMobil and
OMV Petrom approved by the Government
Skifska
► OMV Petrom part of the consortium led by
ExxonMobil
► PSA negotiations on hold
21 Investor presentation
Black Sea exploration
First exploration well in Neptun Deep highly successful
Specifications
► Domino-1: first deep water
(~930 m) exploration well, total depth >3,000 m
below sea level
► Gas discovery: preliminary estimated resources
1.5-3 tcf (42-84bcm; 250-500mnboe)
Progress
► 3D seismic survey (~6,000 km2 operated by
CGG Veritas) completed in Q2/13
► Processing of 3D seismic data is ongoing
► Following seismic data interpretation, a new
drilling campaign is anticipated to start around
mid-2014
► Ocean Endeavor drilling rig currently being
prepared for Black Sea operations
Ocean Endeavor drilling rig
22 Investor presentation
Gas
Power
Gas & Power
Lower contribution due to challenging gas and power markets
Petrom net output
TWh
Power price
RON/MWh
197 275 262
221
0
200
400 3.0
1.5
0.0
2013
156
2.9
2012
217
1.7
2011
0.3
Gas sales, bcm
4.94.85.14.94.8
0
5
10
15
2013
12.5
12
13.6
11
14.2
10
13.8
2009
13.1
Baseload Peakload
Petrom gas sales
Other*
*Other domestic producers and imports
► Total gas consumption in
Romania down by 8% in 2013
► Petrom consolidated gas sales
slightly higher than in 2012
► Gas price liberalization positive
effects reflected in E&P
► Domestic electricity
consumption decreased by 5%
(production down 2%)
► Power prices down by 28%
► Brazi covered 5% of domestic
power production in 2013
23 Investor presentation
Refining & Marketing
Good operational performance with high refinery utilization rate
374
31152
(104)
(675)-750
-500
-250
0
250
500
11 10 2009 12 2013
Clean CCS EBIT, RON mn
Petrobrazi refinery utilization increased; fuel & loss
on a downward trend
9073797067
1011111313
0
50
100
5
10
15
20
2013 11 12 10 2009
Refining & Marketing positively contributes to
Petrom results
► Strong operating profit despite margin
pressure
► Highest Petrobrazi refinery utilization
rate since privatisation
► Incremental improvements in product
yield structure
► Increased energy efficiency
► Retail volumes constant in Romania,
despite competitive market
► Focused cost management Petrobrazi utilization,% Fuel & loss, %
24 Investor presentation
Financial performance: Q1/14 results
25 Investor presentation
Q1/14 overview
Clean CCS EBIT, RON mn
(15)
2
Q1/14
1,477
(10) 75
39
1,372
Q1/13
1,579
(29) 52
155
1,417
-6%
Production at 181.8 kboe/d RON 1% stronger vs. USD and 3% weaker vs.
EUR Average Urals crude prices of USD 107.42/bbl Gas sales volumes of 13.47 TWh (1.25 bcm) Net electrical output of 0.58 TWh Deteriorated refining margins due to lower product
cracks Strong marketing result due to stringent cost
management
Cons
Co&O
R&M
G&P
E&P
26 Investor presentation
Economic environment
109
3.27 3.29
100
105
110
115
2.4
2.8
3.2
3.6
Q1/14
107
Q4/13 Q3/13 Q2/13 Q1/13
Average RON/USD (right/scale)
Average Urals price in USD/bbl (left scale)
15.415.2
21.920.9
39.839.8
0
15
30
45
Q4/13 Q3/13 Q2/13 Q1/13 Q1/14
-6
-4
-2
0
2
Q2/13 Q1/13
-0.88
Q3/13 Q1/14
-2.41
Q4/13
Indicator refining margin (USD/bbl)
1 Import gas prices represent ANRE assumptions
Oil price (USD/bbl) and FX (RON/USD) Gas prices (USD/MWh)1 Indicator refining margin (USD/bbl)
Average import gas price in Romania
Domestic gas price in Romania (for non-households)
Domestic gas price in Romania (for households)
27 Investor presentation
Results in Q1/14
1,080
1,328
-19%
Q1/14 Q1/13
Clean CCS net income attribu-table to stockholders (RON mn)
Figures in this and the following tables may not add up due to rounding differences 1 After deducting net income attributable to non-controlling interests 2 Adjusted for exceptional, non-recurring items; clean CCS figures exclude special items and inventory holding effects (CCS effects) resulting from
R&M
in RON mn Q1/14 Q1/13 ∆
EBIT 1,472 1,582 (7)%
Financial result (132) 2 n.m.
Taxes (265) (252) 5%
Effective tax rate 20% 16% 24%
Net income 1,075 1,332 (19)%
Net income attributable to
stockholders1 1,075 1,330 (19)%
EPS (RON) 0.0190 0.0235 (19)%
Clean EBIT2 1,472 1,623 (9)%
Clean CCS EBIT2 1,477 1,579 (6)%
Clean CCS net income
attributable to stockholders1,2 1,080 1,328 (19)%
Clean CCS EPS (RON)2 0.0191 0.0234 (19)%
Minorities (0.43) 1.45 n.m.
28 Investor presentation
CAPEX and EBITD
20999155
2
EBITD
2,284
77 0
1,987
CAPEX
1,249
1,084
Cons
C&O
G&P
R&M
E&P
Q1/14 (RON mn) Key investment projects for Q1/14
► E&P: drilling, workover activities &
sub-surface operations and surface
facilities, field re-development
initiatives as well as investments
related to Totea Deep project
► R&M: Petrobrazi refinery
modernization, 3+3 terminals
strategy1, efficiency projects and
environmental compliance projects
1 3+3 terminals strategy = streamlining the storage network
to 6 terminals: 3 greenfield and 3 revamped
29 Investor presentation
Management agenda 2014
30 Investor presentation
Management agenda 2014
► Maintain production stabilization
► Exploration activity in the Black Sea
► Finalize Petrobrazi modernization
► Continue dialogue with authorities on
taxation and regulatory frameworks;
impact on investments
► Address gas and power market
challenges
► Shareholders return
31 | Petrom Group
Q&A