Romania’s OMV Petrom returns to profit, pays dividends, aims for regional expansion

OMV Petrom, the biggest oil and gas group in Romania, controlled by Austria’s OMV, recorded a RON 1.04 billion (EUR 232 million) net profit in 2016, after posting EUR 152 million losses in 2015. The group’s Executive Board proposed a RON 0.015 dividend per share, which would result in a dividend payout ratio of over 80% of the net profit, the highest since the company’s privatization, in 2004. The total dividends amount to EUR 189 million, representing 55% of the free cash flow generated in 2016. OMV Petrom also announced that it has updated the long-term strategy and aims for regional expansion. The group’s operational results for 2016 continued the downtrend in recent years, due to the low oil prices. In the Upstream segment, the crude oil production went down by 4% and the natural gas production was also slightly lower compared to 2015. In Downstream, the total sales of refined products went down by 2% despite a 1% increase in retail sales. Gas sales to third parties went down 3%. However, the electricity sales increased by 10%. Consolidated sales for 2016 decreased by 10% compared to 2015, to RON 16.25 billion (EUR 3.61 billion), largely due to lower petroleum products sales, following a further decline in oil prices and slightly lower quantities sold, as well as reduced gas sales, according to the group’s financial report. These negative effects were partially offset by higher sales of electricity. Downstream Oil represented 72% of total consolidated sales, Downstream Gas accounted for 25%, and Upstream for approximately 3%. The group’s operational profit EBIT for the year 2016 was positive at RON 1.47 billion (EUR 327 million), compared to RON 530 million (EUR 119 million) losses in 2015, when impairments of producing assets in the Upstream segment were recorded, following reduced oil price assumptions. Excluding these impairments and other special items, which amounted to over EUR 600 million, the clean EBIT was 33% lower compared to 2015, at RON 1.69 billion (EUR 377 million), two-thirds of which came from the Downstream segment. OMV Petrom reduced its capital expenditure (CAPEX) by a third in 2016, to RON 2.6 billion (EUR 573 million), and cut its headcount by 8%, to 14,769 employees, according to the financial report. “In 2016, the market environment remained volatile and challenging, which translated into a decrease of Clean CCS EBIT, offsetting the benefits of our continued cost discipline. Cost savings of around RON 500 million were achieved at Group level. In Upstream, we further reduced production costs, which more than compensated for the production decline impact, but could not fully offset the lower prices effect,” said Mariana Gheorghe, OMV Petrom CEO. “Based on the preliminary results and strong free cash flow achieved in 2016, the Executive Board proposes a dividend of RON 0.015 per share for the 2016 financial year. The final dividend proposal to be submitted to the approval of April 2017 General Meeting of Shareholders will be subject to the approval of the Supervisory Board,” she added. Should the Supervisory Board maintain this dividend proposal, the dividend yield would be higher than 5%, given that the OMV Petrom shares were trading on the Bucharest Stock Exchange at around RON 0.288, on Thursday morning, February 16. The shares are up almost 10% year to date (YTD) and 33% in the last 12 months (YOY). The group’s market share currently stands at EUR 3.6 billion, some 15 times its 2016 net profit. OMV Petrom also announced its updated strategy for the next four-five years (2021+), which will focus on three key pillars: enhancing the competitiveness of its existing portfolio, developing growth opportunities, and regional expansion. The group aims to reach a reserve replacement rate of 100% by 2021. One of its most important pillars for growth is the Neptun Deep gas exploration project in the Black Sea, which it runs together with American group ExxonMobil. A decision on the commercial exploitation of this perimeter will be made in 2018. As for regional expansion, OMV Petrom will look for Upstream and Downstream gas opportunities to complement its portfolio. It will look for selective investments in the Western Black Sea and the Caspian Sea and for ways to diversify its gas sales channels.