Petrom Investor Presentation Andreas Matje, CFO of Petrom June 2014
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2 Investor presentation Petrom at a glance
Petrom is an operationally integrated oil & gas player 2013 FIGURES Exploration and Production Refining and Marketing Romania 4 mn toe/yr crude oil and NGL 5.2 bcm/yr gas 707 mn boe proven reserves (~11 yrs of current production) Oil: Supplies 100% of oil for Petrobrazi Petrobrazi refinery (4.2 mn t/yr capacity) 3.6 mn t marketing sales 785 filling stations (Romania, Bulgaria, Serbia, Moldova) Kazakhstan 0.4 mn toe/yr crude oil and NGL 0.1 bcm/yr gas 21 mn boe proven reserves Gas: Supplies 100% of gas for Brazi Gas and Power Gas sales 4.9 bcm/yr (up to 40% of Romanian demand) Brazi gas-fired power plant (860 MW) Dorobantu wind park (45 MW) 3 Investor presentation
Petrom is the leading industrial company in Romania 2013 FIGURES 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 Largest investor Over EUR 1bn capex spent per year since privatization Largest contributor to state budget EUR ~2.3bn in 2013 (~11% share of non-consolidated budget) 1 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 4 Investor presentation
Petrom has transformed from an inefficient state-owned company into a high-performing private company From... To... Impact Corporate governance & Culture State company mindset Bureaucracy State interference in commercial decisions Professional organization Two-tier management system Blue chip on BSE Code 1 A strategy incorporating sustainability Transparency and performance mindset Turnaround & Operational efficiency Large non-core businesses Declining production and aging underinvested assets Lack of management systems Focus on oil & gas core Stable production at 171kboed with lower costs (~USD15/boe) Modern technology, facilities and management systems ROACE 2 19% HSSE 3 Lack of monitoring systems Low safety awareness Limited HSSE trainings Security Management Plans > 1.5 day/employee HSSE trainings Safety Day LTIR 4 0.33 1 Bucharest Stock Exchange Code of Governance in adherence to OECD standards 2 ROACE as of 2013 3 HSSE: Health, safety, security and environment 5 Investor presentation 4 Lost time injury rate for 2013 compared with 1.11 in 2004
Petrom has benefited from an improved capital market environment Free float increased in 2013 18.99% 51.01% 20.64% 9.36% OMV*: Austria s largest listed industrial company and integrated international oil and gas company Property Fund: listed fund, ~90% of AUM invested in the energy sector State holding, but no golden share Free float increased from 6.62% to 9.36% today Share price appreciated by 9.7% YoY in 2013 Index Jan 2009 = 100 300 200 100 0 2009 2010 2011 2012 2013 BET BET-NG Brent Petrom Other 2013 highlights Petrom shares trading turnover: +40% y/y Total Shareholders Return**: 16% Institutional investors: +12.4% y/y to more than 500 *Shareholder since Dec 2004; ** Dividend yield plus share price increase in gross values (2013 vs 2012) 6 Investor presentation
Financial performance in 2013 Clean CCS EBIT 2013 vs. 2012 in RON mn 5,855 6,015 (4)% Exploration & Production First annual increase in hydrocarbon production in Romania since privatization Continued focus on cost reduction Unfavorable FX effects and higher depreciation expenses 5,754 359 31 (289) 2012 E&P G&P 5,542 (53)% 374 167 >11x (68) 2013 R&M C&O and Consolidation Gas & Power Weaker gas and power demand Depressed electricity prices Refining & Marketing Significantly higher refinery utilization rate Strong marketing performance 7 Investor presentation
Evolution of financial indicators Solid financial basis for growth and sustainable performance Operating cash flows, RON bn ROACE, % 2.7 4.6 6.4 7.2 8.0 5.2 10.7 17.3 16.5 19.0 2009 10 11 12 2013 2009 10 11 12 2013 Capex Operating / CFO cash ratio flows / Capex ratio, % Gearing ratio, % 65 95 134 146 151 16 12 9 7 1 2009 10 11 12 2013 2009 10 11 12 2013 8 Investor presentation
9 Investor presentation Business environment
Macroeconomic environment Romania s resilient economy continues to recover Romania GDP continues to recover GDP growth rate, % Current Account deficit, % of GDP 10 7.9 6.3 7.3 5 4.2 0-5 -4.2-6.6-10 -8.6-10.4-11.6-15 -13.4 3.5 2.3 0.6-1.1-1.1-4.4-4.5-3.9 2005 06 07 08 09 10 11 12 2013f 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 Source: IMF, WEO Database Oct 2013, NBR for GDP 2005-2012, INS estimates for 2013 * SOE = State Owned Enterprise 10 Investor presentation
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 Oil Gas 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 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 11 Investor presentation
Gas price liberalization on track Planned gas price liberalization steps 1 Non-households Households RON/MWh 120 119 RON/MWh 120 119 89.4 45.7 +96% 45.7 51.8 +13% 0 13 14 15 16 17 18 19 0 13 14 15 16 17 18 19 1 Roadmap approved by Government decision for the increase of regulated gas prices during 2013-2014, deadlines stipulated in the Energy Law 12 Investor presentation
13 Investor presentation Petrom Strategy 2021
PETROM STRATEGY AS OF 2012 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 E&P G&P R&M C B A 2012 Sustain performance 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 2014 Enhance mid-term value Increase ultimate oil and gas recovery Explore, appraise and start to develop 1 Neptun (Black Sea deepwater) Explore deeper and frontier hydrocarbons Optimize across commodities and leverage fair market conditions 2016 Enhance value of integrated downstream (e.g. operating model) Optimize R&M portfolio Position for long-term growth Explore additional opportunities in the neighboring Black Sea Explore unconventional opportunities 2021+ 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 Explore partnership opportunities 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 1 Development subject to confirmation of commercial viability 2 Updated 14 Investor presentation
15 Investor presentation Business overview
Health Safety Security and Environment (HSSE) Safer operations E&P LTIR 1 Romania Significantly improved in 2013 1.6 0.8 0.0 1.11 0.70 > 50% reduction 0.63 0.53 0.60 0.48 Fatality rate in Romania reduced by 80% since 2008 Petrom LTIR substantially improved 2 (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) 2008 09 10 11 12 2013 1 Lost time injury rate (employees and contractors) 2 LTIR for Petrom Group, excluding Kazakhstan 16 Investor presentation
Exploration & Production Petrom footprint is concentrated in Romania 2013 FIGURES Exploration and production concessions Key facts 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% RRR 1 at 48% (2012: 61%) Reserves mn boe, eoy Proved Proved and probable Kazakhstan Petrom entered Kazakhstan in 1998 Romania 707 977 Production in 2013: 11.2 kboe/d Kazakhstan 21 48 Total 728 1,025 1 Reserve replacement rate (3-year average) 17 Investor presentation
Exploration & Production First year of increased production in Romania, while containing production costs 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 Group production, kboe/d 4.6 192.5 5.7 6.3 9.9 188.5 180.8 173.9 12.0 173.7 Kazakhstan Romania 12.2 11.2 170.5 171.4 2007 08 09 10 11 12 2013 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 production costs, USD/boe 18.0 16.8 16.1 15.9 14.6 14.9 2007 08 09 10 11 12 15.0 2013 18 Investor presentation
Mid-term production FRD projects to unlock growth potential FRDs aim at maximizing ultimate recovery EOR/ IOR (water, steam, polymer injection) Additional drillings and workovers Modernizing operations Suplac Bulbuceni Development Phoenix Madulari Tazlau Burcioaia Videle G2 Independenta Oprisenesti Istria Lebada East 11 FRDs in development phase 2P reserves of 100 mn boe Peak production: 17 kboe/d Investments: EUR 550 mn 1 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 12 FRDs in appraisal phase 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 19 Investor presentation 1 Cumulated FRDs; forward investments; data as of end-2013
Black Sea exploration and production Strong position in Black Sea for future growth Romania Neptun Deep OMV Petrom (50%), ExxonMobil (Operator 50%) Domino discovery in 2012 3D seismic completed (~6,000 km 2 ); 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 Ukraine Skifska OMV Petrom part of the consortium led by ExxonMobil PSA negotiations on hold 20 Investor presentation
Black Sea exploration First exploration well in Neptun Deep highly successful Progress 3D seismic survey (~6,000 km 2 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 Specifications Ocean Endeavor drilling rig 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) 21 Investor presentation
Gas & Power Lower contribution due to challenging gas and power markets Gas sales, bcm 15 13.1 13.8 10 14.2 Other* Petrom gas sales 13.6 12.5 Total gas consumption in Romania down by 8% in 2013 Petrom consolidated gas sales slightly higher than in 2012 Gas 5 0 4.8 4.9 5.1 4.8 4.9 Gas price liberalization positive effects reflected in E&P 2009 10 11 12 2013 Power 3.0 1.5 0.0 Petrom net output TWh 262 221 0.3 Peakload 275 217 1.7 Power price RON/MWh 400 197 Baseload 156 2.9 200 0 Domestic electricity consumption decreased by 5% (production down 2%) Power prices down by 28% Brazi covered 5% of domestic power production in 2013 2011 2012 2013 22 Investor presentation *Other domestic producers and imports
Refining & Marketing Good operational performance with high refinery utilization rate 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 Clean CCS EBIT, RON mn 500 250 0-250 -500-750 (675) (104) 152 31 374 2009 10 11 12 2013 Petrobrazi refinery utilization increased; fuel & loss on a downward trend Petrobrazi utilization,% Fuel & loss, % 20 15 10 5 67 13 70 13 79 11 73 11 90 10 100 50 0 2009 10 11 12 2013 23 Investor presentation
24 Investor presentation Financial performance: Q1/14 results
Q1/14 overview Clean CCS EBIT, RON mn -6% 1,579 1,477 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 1,417 1,372 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 E&P G&P R&M Co&O Cons (15) 52 (29) Q1/13 155 (10) 39 75 Q1/14 2 Strong marketing result due to stringent cost management 25 Investor presentation
Economic environment Average Urals price in USD/bbl (left scale) Average RON/USD (right/scale) Domestic gas price in Romania (for households) Domestic gas price in Romania (for non-households) Average import gas price in Romania Indicator refining margin (USD/bbl) Oil price (USD/bbl) and FX (RON/USD) Gas prices (USD/MWh) 1 Indicator refining margin (USD/bbl) 115 3.6 45 39.8 39.8 2 110 3.27 3.29 109 3.2 30 0-0.88 107 20.9 21.9-2 -2.41 105 2.8 15 15.2 15.4-4 100 2.4 0-6 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 1 Import gas prices represent ANRE assumptions 26 Investor presentation
Results in Q1/14 Clean CCS net income attributable to stockholders (RON mn) 1,328 Q1/13-19% 1,080 Q1/14 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)% Minorities (0.43) 1.45 n.m. Net income attributable to stockholders 1 1,075 1,330 (19)% EPS (RON) 0.0190 0.0235 (19)% Clean EBIT 2 1,472 1,623 (9)% Clean CCS EBIT 2 1,477 1,579 (6)% Clean CCS net income 1,080 1,328 (19)% attributable to stockholders 1,2 Clean CCS EPS (RON) 2 0.0191 0.0234 (19)% 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 27 Investor presentation
CAPEX and EBITD Q1/14 (RON mn) Key investment projects for Q1/14 2,284 1,249 1,987 E&P: drilling, workover activities & sub-surface operations and surface facilities, field re-development initiatives as well as investments related to Totea Deep project E&P R&M G&P C&O Cons 1,084 155 0 9 209 2 77 9 R&M: Petrobrazi refinery modernization, 3+3 terminals strategy 1, efficiency projects and environmental compliance projects CAPEX EBITD 28 Investor presentation 1 3+3 terminals strategy = streamlining the storage network to 6 terminals: 3 greenfield and 3 revamped
29 Investor presentation Management agenda 2014
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 30 Investor presentation
31 Petrom Group Q&A