Croatian multinational oil company INA Group’s operations in the first quarter of 2020 have witnessed unprecedented market dynamics, particularly during the end of the quarter.
The outbreak of the COVID-19 pandemic, coupled with the disagreement within the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), have led to a parallel supply and demand shock on global oil markets which resulted with a massive drop in oil and gas prices which was reflected in the result of INA.
“The start of 2020 has been a challenging one for INA, starting with the cyber-attack and continuing with the outbreak of COVID-19 pandemic,” commented Sándor Fasimon, President of the Management Board of INA. “It is a period for oil industry experts to be commented for years to come. Lack of consensus in OPEC+ on one side and the outbreak of COVID-19 on the other side have led to market dynamics not seen even by the most experienced O&G market professionals. Prices for crude oil have surged to levels that challenge even the strongest oil companies.”
Nevertheless, core operations and market supply were not interrupted and the business continuity was ensured.
CCS EBITDA of INA Group remained positive in the first quarter at 433 million Croatian Kuna (57 million euros) but declined by 14 per cent compared to the first quarter of 2019. However, the reported result turned negative, primarily due to inventory revaluation driven by the mentioned external environment. Simplified Free Cash Flow was positive at 238 million Croatian Kuna (31 million euros) emphasising the impact of the external environment on the overall result.
Exploration and Production revenues of 820 million Croatian Kuna (around 1 billion euro), 15 per cent lower than the same period last year, were mainly driven by 12 per cent lower hydrocarbon prices and the natural decline in production, primarily Croatian natural gas volumes. Still, the segment EBITDA amounted to 424 million Croatian Kuna (55 million euros).
Refining and Marketing including Consumer Services and Retail CCS EBITDA excluding special items amounted to negative 15 million Croatian Kuna (1.9 million euro) in the first quarter, while the reported EBITDA, hit by the external drivers, was negative in the amount of 943 million Croatian Kuna (1.2 billion euro). Consumer Services sale quantities were down only by 3 per cent in the first quarter, as the bigger drop in demand triggered by the COVID-19 pandemic measures occurred at the end of the reporting period. Due to pandemic restrictions that are mainly implemented in the second quarter, the continuation of the negative trend in the coming period is expected.
“Ongoing challenges such as natural production decline and overcapacity of Refining, are now even more emphasised,” continued Mr Fasimon. “Despite its commitment to a vertically integrated model, Exploration and Production remains main cash generator of INA and with the product prices on historically low levels and no quick recovery in sight, crisis management has become a must-have for all energy companies. INA is no exemption and must quickly react to the new environment.”
CAPEX was significantly lower in the first three months of 2020, compared to the same period last year due to the fact that a major turnaround in the Rijeka Refinery in 2019 boosted investments last year.
Net gearing amounted to 21.4 per cent with net debt standing at 2.8 million Croatian Kuna (3.6 million euros) at the end of the first quarter.
Due to the severe macroeconomic consequences of the coronavirus pandemic, a comprehensive review of operational expenditure has been carried out in order to preserve cash flow. Also, some of the planned capital spendings will be adjusted until the economic lockdown caused by emergency measures remains in place.