Petrom seeks external financing to pour oil on troubled waters

With investment plans worth RON 7 billion (EUR 1.6 billion), OMV Petrom, majority controlled by Austrian oil company OMV, has outlined its strategy for the coming years: to focus on new exploration capacities in Romania and Kazakhstan and exit Russia, play safe using risk covering instruments and continue investing in energy projects.

Dana Ciuraru

OMV Petrom seems to have a bullet-proof cost-efficiency plan: optimized cash flow management, ensuring external financing and accessing risk covering instruments in view of the volatile oil price, activity restructuring and project prioritization. Going even further, the company is looking to adjust its refining capacity in Romania and to exit the petrochemical market by selling the petrochemical division of Arpechim.

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Moreover, in April this year the company’s general assembly approved the delegation, for a period of one year, of the competences regarding a share capital increase of up to 50 percent of the subscribed capital, or a maximum RON 2.8 billion. This means that the Economy Ministry, which controls a 20.64 percent stake, will have to come up with a couple of hundreds of millions euro. The OMV Petrom decision has started vehement reactions among Romanian authorities. Tudor Serban, state secretary with the Economy Ministry advised Petrom to consult the state on the topic of capital increase. Furthermore, Mihai David, Hidroelectrica GM stated that “Petrom could help even more the local economy by increasing the royalty, not by keeping 100-120 jobs. Let’s not transform Romania in an OMV republic.” Considering the current economic situation in Romania, authorities take into account selling part of its package share in Petrom on the Stock Exchange.

OMV Petrom considers Russian exit

OMV Petrom has announced that exploration and production (E&P) activity will focus on securing long-term oil and gas supply and developing activities in the Caspian Region. According to OMV Petrom information, the company plans to invest in E&P RON 3.5 billion,  about 50 percent of the total investment budget.

In Romania, the optimization of oil and gas production will be achieved through partnerships with other operators in selected fields.

The key projects aim to re-develop six-eight major fields, to finalize infrastructure modernization projects in three-five fields, and to de-bottleneck the gas system and install gas compressors. Also, following the first deepwater exploration drilling scheduled for 2012, the company wants to complete the deepwater offshore appraisal and start development by 2015.

In Kazakhstan, the focus will be on increasing production from the Komsomolskoe field (this year) and starting production at the Kultuk field. In Russia OMV Petrom controls 74.9 percent in Ring Oil Holding & Trading which explores eight perimeters in the Saratov region and two in the Komi zone.

“In August 2009 we registered our first exploration success in Russia. However, we are currently considering the possibility of selling our exploration portfolio here, through the evaluation of the future costs in the context of current priorities,” OMV Petrom officials told BR.

E&P: Facts and figures

Proven oil and gas reserves of Petrom Group of approximately 0.85 billion boe

 Replacement reserves rate in Romania of 70 percent (73 percent at group level)

Crude oil and condensate production in 2009: 4.39 million tons

Gas production in 2009: 5.27 billion cm

Exploration of Neptun bloc, Romania, in partnership with ExxonMobil

New gas processing unit at Midia, Romania

Production started at Komsomolskoe, Kazakhstan

Fuel sales under pressure

The oil and gas company plans to modernize the Petrobrazi refinery in order to be able to process 100 percent domestic crude. The modernization process is aimed at reducing the energy loss to 10 percent (from 14 percent in 2004), increasing the yield structure of diesel and aviation fuel to approximately 45 percent (from 30 percent in 2004) and reducing heavy fuel to approximately 7 percent (from 15 percent in 2004). Moreover, the company intends to increase annual throughput per filling station to approximately 5.2 million liters (from 4.9 million in 2009). It will focus on the Petrom and OMV brands, with the PetromV filling stations being re-branded, some of them as OMV and others as Petrom.

“The level of sales and margins in marketing activity is expected to remain under pressure. We will continue to focus on optimizing operations, increasing efficiency and adapting the portfolio to market conditions,” OMV Petrom representatives told BR.

R&M: Facts and figures

Petrobrazi refinery capacity to be adjusted to 4.2 million tons/year

Investments of EUR 750 million (2010-2014)

Crude processed in 2009: 5,161 million tons

Refinery utilization rate: 65 percent

No. of filling stations in Romania: 546

Petrom networks abroad: Moldova – 113 filling stations (Petrom), Bulgaria – 96 and Serbia – 59 (OMV)

Total marketing sales in 2009: 4,823 thousand tons

Gas exports targeted

In the gas business, one of the main objectives concerns the domestic gas price convergence to imported gas prices. The company also aims to expand gas marketing into neighboring countries. However, this relies on connecting the Romanian transport system to the European one. Petrom is also considering the appraisal of locations in order to enter the gas storage business, which should also support the Nabucco project.

In order to position itself as an important power supplier, Petrom aims to reach a market share of up to 10 percent through the enlargement of its portfolio in this activity. The company has already taken the first steps in this market with the start of construction of the Brazi power plant. In the context of growing electricity demand, Petrom is investing in a modern power plant – a greenfield project.

G&P: Facts and figures

In 2009, Petrom’s consolidated gas sales amounted to 4.8 billion cm, 37 percent of Romania’s gas consumption volume in 2009; Petrom’s gas production represents around 50 percent of Romania’s domestic production

The most important power project: construction of a gas fired power plant (860 MW) at Brazi, an investment of around EUR 500 million

Electrical power delivery in the national grid by the end of 2011

Important player in the power sector in Romania (8 percent of the power produced in Romania in 2011)