Largest Romanian oil&gas group’s profits tank on lower oil prices, asset impairments

Largest Romanian oil and gas group OMV Petrom reduced its sales by 11% last year, to EUR 4.85 billion, on lower oil and fuel prices. The company’s net profit dropped by 56%, to EUR 473 million, from more than EUR 1 billion in 2013, according to OMV Petrom’s preliminary results posted on Thursday, February 19. The group registered a EUR 170 million impairment of its Brazi power plant, which had a significant impact on its final results. The group’s clean net income, which excludes one-off items, was EUR 847 million, 23% lower than in 2013. However, the steep decline in international oil prices pose the biggest threat on OMV Petrom’s financials. As a consequence, the company announced it will reduce its investment plan this year and work more on optimizing its costs, due to the unfavorable market environment. “In light of the volatile and potentially prolonged weaker market fundamentals, we are scaling back our investment plans for 2015 and have intensified cost optimization programs whilst maintaining our potential growth projects in the Black Sea,” said Mariana Gheorghe, CEO of OMV Petrom. She added: “In 2015, we expect public consultations on the fiscal and regulatory environment to continue, as announced by the authorities, and we aim for a stable, predictable and investment-friendly framework, which is a key precondition for future investments.” Lower oil prices hit OMV Petrom’s most profitable segment The Exploration&Production segment (E&P) also known as upstream, has been OMV Petrom’s most profitable sector in recent years, due to high oil prices. Last year, the group severely felt the drop in oil prices, although it managed to stabilize its overall hydrocarbon production in Romania and benefited from higher gas prices in Romania. The group’s total hydrocarbon production was 65.8 million boe (barrels of oil equivalent), 1% lower than in 2013. The crude oil production declined by 4%, to 30.94 million barrels, while the group’s average realized price for crude oil went down by 11%, to USD 86.7/bbl. The decline in oil prices was even steeper in the fourth quarter when OMV Petrom sold its crude oil for an average price of USD 64.25/bbl, 34% lower than in the same period of 2013. The company’s operational profit (EBIT) on the E&P segment thus went down by 71% in the fourth quarter, compared to Q4 2013, to EUR 83 million. For the full year, the EBIT on the E&P segment was down by 29%, to EUR 885 million. Gas&Power hit by impairments The Gas&Power (G&P) segment had the weakest results last year, as OMV Petrom had to review its estimated for the Brazi gas power plant. The company registered a EUR 170 million impairment of this investment, due to worsened conditions on the local electricity market. The group’s electricity output went down by 54% last year, to 1.32 TWh, as electricity prices also declined. “In G&P, business challenges persisted due to lower gas market demand and negative spark spreads that led to a deteriorated result of the Brazi power plant,” said OMV Petrom’s CEO. Gas sales also declined by 9%, to 4.42 billion cubic meters, but the sale price for gas increased on the local market.