OMV Petrom CEO cautions over energy consumption malaise, rising investment costs

Newsroom 08/09/2014 | 12:32

Mariana Gheorghe, CEO of Austrian oil and gas company OMV Petrom, said the local energy market has been grappling with falling consumption in the past five years, while investment costs for developing new fields have increased.

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Gheorghe commented that the costs of exploration and production of new oil and gas fields have overshot initial estimates by 25 percent across the global industry. Energy analysts say that companies have to venture into dangerous fields with higher investment risks, such as the Arctic, to find fresh resources.

In the meantime, one of the biggest challenges for the company is the ongoing reduction of energy consumption by households and industry, partially underpinned by increasing energy efficiency.

“We have seen market drops in all the products we are operating with: in retail fuels, of 2 percent (e.n. reduction) after five years of reduction, in gas of 5 percent and in electricity of 2 percent. If they were limited to a single year, they would not be that dramatic, but we are looking at the evolution after five years, in each of which we have had these drops,” said Gheorghe last week, during the launch of Deloitte’s Central Europe Top 500 report.

The energy company came 19th in the 2014 edition, down one spot from last year. The report ranks the largest 500 companies in Central and Eastern Europe by revenues.

The CEO stated that the local gas market has fallen from around 17-18 bcm in 2006, when she took the helm at the energy company, to 12.5 bcm in 2013.

“This year, with the drop we have seen I think we will go below this level. This change in demand is dramatic. In addition, also in the field of natural gas we see the geopolitical impact and the shale gas revolution affecting the price of gas,” added Gheorghe.

OMV Petrom saw its profits tumble by 57 percent to RON 1.9 billion (EUR 432 million) in the first semester against the same period last year, while sales fell 7 percent to RON 10.7 billion (EUR 2.4 billion). The company said weak demand for oil and gas and the increasing tax burden for this sector triggered the sharp fall in profits.

“Fuel demand might pick up, but we believe the possible growth in electricity and other sectors will be offset by efforts that both industry and the public, consumers in general, are making towards energy efficiency,” commented Gheorghe on the outlook for the energy sector.

Offshore gas requires massive investments

The CEO said the company was ready to invest over EUR 1 billion annually in the years to come to find new hydrocarbon resources, provided that the fiscal framework is stable, adding to the EUR 10 billion already spent in the last nine years.

OMV Petrom has also ventured into the Black Sea region to find new resources in partnership with US oil major ExxonMobil. The joint venture found a gas deposit off the Romanian coast in 2012 estimated to contain around 42-84 bcm of gas, and is currently assessing the commercial value of the discovery.

President Traian Basescu estimated last week that the two companies would need to put up USD 4-5 billion to extract this gas if additional evaluations of the field confirm their find, according to Reuters newswire.

Basescu said the offshore gas would help cover both Romania’s consumption and that of the neighboring Republic of Moldova by 2018-2019.

Ovidiu Posirca

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