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OMV Petrom’s Q1 net profits plunged by 43%, decision on Neptun offshore project postponed

The net profit of Romanian oil and gas company OMV Petrom fall by 43 per cent in the first quarter of 2020 compared to the same period last year to 653 million lei (135 million euros) according to the company’s recently published financial statement.

OMV Petrom’s consolidated sales revenues rose by 12 per cent to 6 billion lei (1.24 billion euros) largely supported by higher sales volumes of natural gas, which was partially compensated by lower commodity prices and lower sales volumes of electricity.

However, the operating income plunged by 36 per cent driven by unfavourable market environment, as the lower prices and the start of the COVID-19 crisis had a negative impact on the Group’s performance.

Responding to the pandemic situation OMV Petrom took targeted measures to safeguard the Group’s financial strength by reducing its CAPEX guidance for 2020 by 30 per cent and cutting its year-on-year E&A and operational costs for 2020 cut by around 320 million lei (66 million euros).

The financial report takes note of a 21 per cent decrease of Clean CCS Operating Result in the first three months to 975 million lei (200 million euros). This was mainly driven by the negative evolution in Upstream, where operating results were down by 81 per cent due to lower oil and gas prices and higher depreciation, which was partly compensated by a positive contribution from downstream where the group’s operating result rose 75 per cent on the year, reflecting significantly higher downstream oil results.

In the market outlook for 2020, OMV Petrom expects significantly lower demand for oil and gas products compared to 2019 with average Brent oil price around 40 dollars per barrel and refining margins above 5 dollars per barrel.

The report also mentions regulatory risk and increased legislative volatility which has a significant influence on the overall business environment. It highlights that Romanian authorities postponed the decision to change the offshore law, which is intended to take place through a parliamentary process.

Company CEO Christina Verchere announced at a press conference on Wednesday, that OMV Petrom wants to continue the Neptun Deep project, but legislative changes are needed to ensure stability, fiscal competitiveness and the right to a free gas market.

Mrs Verchere encouraged the Romanian authorities to take steps in this regard and move quickly especially given that the environment has changed a lot in the past months.

“Before COVID-19 the context had changed, but now it’s changing even more, for that there are key issues related to the competitiveness of the gas market in Europe and the possibility of attracting money and investment in a difficult global context. This means that we must move quickly. Time is not on our side,” she said.

She also emphasised that the oil and gas industry can be a significant contributor to the country’s economic recovery, especially in the medium and long term. Ms Verchere named three priority areas where the company wants to move ahead. “

We need to return to the liberalized gas market, which is planned for this summer. We have been in dialogue and we have supported this program, so as to improve the liquidity of the gas market. At the same time, we want to have a mechanism to support vulnerable consumers, ” she stated.

The second focus area is additional taxation. According to OMV Petrom, the Romanian tax system is not competitive in terms of Investments in the gas sector.

Finally, the company CEO urged the amendment of the offshore law.

“We have a huge opportunity with Neptune Deep and the Black Sea, it’s about private investment, not about money from the public sector and, therefore, the Romanian authorities must put this topic on the agenda in order to go further,” Mrs Verchere stressed.

Reiner Seele, CEO of Austria’s OMV Group, who owns a 51.01 per cent stake in OMV Petrom said that following the decision of the American group ExxonMobil to sell its 50 per cent stake in the Neptun project the final investment decision in the Black Sea Neptune project is almost certain not to be taken this year, but only in 2021.

“We have to wait for the outcome of this transaction, if everything happens on time, then we can make the final investment decision next year,” said Mr Seele.

The Romanian parliament passed the offshore law in October 2018, the introduction of legislative changes regarding the taxation of offshore energy projects has been widely criticised for potentially alienating foreign investors.

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