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Annual Report 2017 Contents

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Annual Report 2017 Contents Hydrocarbons’ journey Company 30 OMV Petrom at a glance 32 Statement and farewell note from the Chief Executive Officer 34 OMV Petrom on capital markets 38 OMV Petrom Strategy 2021+ 43 Business environment 46 Business segments’ operational performance 46 Upstream 50 Downstream Oil 53 Downstream Gas Report of the governing bodies 56 Report of the Supervisory Board 60 Consolidated Directors’ report 72 Corporate governance report 84 Corporate governance statement 96 Declaration of the management 97 Abbreviations and definitions Consolidated financial statements and notes 100 Independent auditor‘s report 111 Consolidated statement of financial position 113 Consolidated income statement 114 Consolidated statement of comprehensive income 115 Consolidated statement of changes in equity 116 Consolidated statement of cash flows 118 Notes to the consolidated financial statements 209 Consolidated report on payments to governments OMV Petrom Group in figues 2017 Note: In this report, “the Company”, “OMV Petrom”, “OMV Petrom Group” and “the Group” are sometimes used for convenience where references are made to OMV Petrom S.A. and its subsidiaries in general. The financials presented in the report are audited and represent OMV Petrom Group’s consolidated results prepared according to IFRS; all the figures refer to OMV Petrom Group unless otherwise stated. Figures may not add up due to rounding differences. Starting 2017, OMV Petrom’s Consolidated Income Statement has been restructured in line with industry best practice to comprehensively reflect the operations of the Group and enhance transparency for the users of the financial statements. For comparability reasons, figures of the prior year have been reclassified according to the new structure. Further information can be found on in the section “Notes to the income statement” on pages 62-64. Hydrocarbons' journey 4 Preparing for the journey: Oil & Gas Exploration 8 Hydrocarbons start their journey: Oil & Gas Production 14 A mandatory halt along the way: Oil & Gas Treatment 18 Taking the Downstream road: Oil Refining 22 Reaching the destination: Sales Activities Oil & Gas Oil & Gas Oil & Gas Treatment Production Exploration Downstream Oil Refining Storage Transportation & Distribution Downstream Gas Power Production Simplified representation of OMV Petrom's business model and value chain. Mobility Upstream Heating Constructions Agriculture Chemicals Plastics Sales Activities Steel Pharma Hospitality Sales Activities Lighting Preparing for the journey: Oil & Gas Exploration A journey along OMV Petrom’s value chain starts with a quest under the surface of the Earth Exploring for oil and gas resources is a fascinating activity involving a high degree of uncertainty. To locate geological traps containing hydrocarbon accumulations, OMV Petrom experts take an interdisciplinary approach and use a variety of techniques and sophisticated technologies to construct a subsurface geological model as accurately as possible. This allows us to feel confident about the evidence and extent of an oil and gas accumulation before starting preparations to drill an exploration well. If the exploration well finds oil and gas, further appraisal wells can be drilled, and production testing undergone to establish if the reservoir is economically viable. Padina Nord – OMV Petrom’s geological concept successfully implemented in the JV with Hunt Oil Romania has a rich oil-related history. In 2017, it celebrated 160 years of being the first country in the world to establish industrial-scale oil production. In 1857, Bucharest was the first city in the world to use clean-burning kerosene lamps for its public lighting. Romanian engineers were leading lights in developing vital extraction and refining technology, including valve designs, blowout preventers, and lifting mechanisms, all concepts which can still be seen in today’s high- tech operations. Since the oil industry’s early days, thousands of wells have been drilled across the country, yet significant exploration potential still exists deeper underground. An example is the eastern area of Romania, where the first hydrocarbon discovery was brought on stream more than fifty years ago. In such an old oil and gas province, some might believe that it is pointless to explore for hydrocarbons nowadays. In 2014, however, OMV Petrom and Hunt Oil Company of Romania (Hunt Oil) made a significant oil and gas discovery in this area. The story started when the joint venture (JV) of OMV Petrom and Hunt Oil (operator) drilled the first exploration well. The well discovered a new hydrocarbon accumulation close to the historical fields – oil in the carbonate reservoirs and gas in the sandstones. This discovery was made possible by using the latest technological methods for subsurface imagistic investigation, together with state-of-the-art processing techniques as well as improved technologies for geochemical, mineralogical, and biostratigraphic analyses of the rocks and fluids. Following successful well testing, the JV partners decided to start experimental production with the purpose of collecting sufficient data required to enable the decision to move forward with field development. In 2015, more than 250 km2 of 3D seismic activities across the interest area were recorded. In parallel with exploration drilling and seismic data acquisition activities, the OMV Petrom and Hunt Oil partnership placed an important focus on its social responsibility towards local 6 Hydrocarbons’ journey communities. Several projects were implemented achieved, thereby allowing the new discovery’s for this purpose. They provided general “first gas production” to be fast-tracked. awareness training on health, safety, and social In June 2017, the JV partners considered the topics, but also specific insights into the oil and testing program completed. The well performance gas industry. ranks the well among the top wells in OMV Petrom’s portfolio, thereby proving just how In 2016, the necessary surface facilities successful this venture has been. and pipeline to tie-in into the national gas transportation system were built. Considering the The partners invested a total of approximately proximity to the existing fields, the tie-in with the EUR 17 mn in the project area from 2014 to already existing gas infrastructure was quickly 2017. Hydrocarbons’ journey 7 Hydrocarbons start their journey: Oil & Gas Production The quest continues as we witness how hydrocarbons are brought to the surface If the hydrocarbon discovery is deemed economically viable, our team proceeds with field development and production. During this process, the project is matured from the concept stage to design and then to execution. A number of production wells are drilled while the necessary infrastructure, including platforms, pipelines, and processing plants, is built. This is a very lengthy stage in the life of the field and involves vast amounts of investments. These very much depend, among other things, on the characteristics of the reservoir, such as its location, onshore or offshore, depth, as well as type of the hydrocarbons and the production methods used. Surface production facilities optimization (SPFO): an integrated approach for a rejuvenated surface facilities landscape OMV Petrom is a company with a long tradition modernize operations using state-of-the-art in the oil and gas industry and has gone technologies. through major transformations over the years. To maintain competitiveness and ensure safe Modern operating approaches and working conditions and the integrity of aging sophisticated control methods drive the best production facilities, significant investments performance of existing surface facilities. have been made – even in the most This is especially important when dealing challenging environments – to develop and with mature fields. With this in mind, the 10 Hydrocarbons’ journey SPFO program was initiated in 2014. At that point in time, the SPFO program’s novelty was to approach the entire architecture of Upstream production facilities – by thinking, planning, and implementing projects in a consolidated and standardized manner. This program translates into measures to optimize production facilities, simplify operations, and reduce footprint. More specifically, this includes the: Replacement of aged equipment with more efficient options in terms of energy consumption, materials, repairs, and lower emissions; Integration of automated equipment in the SCADA (Supervisory Control And Data Acquisition) system for monitoring and optimizing the production process; Standard reporting and alarm management systems; Bypassing of old production parks while diverting production to nearby modernized and optimized facilities. Since the beginning of the program, OMV Petrom has optimized more than 100 facilities (parks, compressor stations, boiler stations, and treatment and injection facilities) and in addition 4,800 wells have been fully automated to enable the integration with modernized facilities and efficient modern operations. The program has many different benefits, allowing the company to reduce costs and therefore stay competitive within the oil and gas industry benchmark. In addition, measures taken as part of the SPFO program have resulted in significantly reduced operational and process safety risks in line with the company’s HSSE focus. Hydrocarbons’ journey 11 Independența Oil Field: strategic technology deployment as a driver of the field’s highest oil production The Independența
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