Annual Report 2016 Annual Report 2016 Contents OMV Petrom Group – at a glance Company 2 Highligths 12 Statement of the Chief Executive Officer 14 OMV Petrom objectives and strategy 20 Sustainability / non-financial statement 26 OMV Petrom shares 29 Business environment Business segments 32 Upstream 38 Downstream Oil 41 Downstream Gas Report of the governing bodies 44 Report of the Supervisory Board 49 Consolidated Directors’ report 60 Corporate governance report 71 Corporate governance statement 83 Declaration of the management 84 Abbreviations and definitions Consolidated financial statements and notes 88 Independent auditor‘s report 97 Consolidated statement of financial position 99 Consolidated income statement 100 Consolidated statement of comprehensive income 101 Consolidated statement of changes in equity 102 Consolidated statement of cash flows 104 Notes to the consolidated financial statements 185 Consolidated report on payments to governments OMV Petrom Group in figures 2016 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. OMV Petrom Group – at a glance 2014 2015 2016 Sales (RON mn) 1 21,541 18,145 16,247 EBITD (RON mn) 8,145 6,231 4,933 EBIT (RON mn) 3,338 (530) 1,469 Net income / (loss) attributable to stockholders (RON mn) 2 2,103 (676) 1,043 Clean CCS EBITD (RON mn) 3 8,596 6,493 5,093 Clean CCS EBIT (RON mn) 3 5,202 2,522 1,694 Clean CCS net income / (loss) attributable to stockholders (RON mn) 2, 3 3,764 1,801 1,162 Balance sheet total (RON mn) 43,125 41,118 41,414 Total equity (RON mn) 27,005 25,688 26,706 Net debt / (cash) (RON mn) 890 1,286 (237) Cash flow from operating activities (RON mn) 6,830 5,283 4,454 Capital expenditure (RON mn) 6,239 3,895 2,575 Free cash flow (RON mn) 1,172 329 1,559 ROACE (%) 7.6 (2.2) 4.1 Clean CCS ROACE (%) 3 13.6 6.5 4.5 Equity ratio (%) 63 62 64 Gearing (%) 3 5 n.m. EPS (RON/share) 0.0371 (0.0119) 0.0184 Clean CCS EPS (RON/share) 3 0.0665 0.0318 0.0205 Dividend (RON/share) 0.0112 0 0.015 4 Payout ratio (%) 30 0 81 4 Total proved reserves as of December 31 (mn boe) 690 647 606 Total hydrocarbon production (mn boe) 65.82 65.19 63.74 thereof crude oil and NGL production (mn bbl) 30.94 30.43 29.15 thereof natural gas production (bcm) 5.34 5.32 5.29 Gas sales volumes (TWh) 47.7 51.4 50.4 thereof to third parties 44.3 45.2 43.9 Net electrical output (TWh) 1.3 2.7 2.9 Petrobrazi refinery utilization rate (%)5 89 88 89 Total refined product sales (mn t) 4.81 5.03 4.93 thereof retail sales (mn t) 6 2.37 2.53 2.56 Number of filling stations 780 788 783 Employees as of December 31 16,948 16,038 14,769 LTIR per one million hours worked for own employees 0.47 0.23 0.25 7 1 Sales excluding petroleum excise tax 2 After deducting net result attributable to non-controlling interests 3 Clean CCS figures exclude special items and inventory holding effects (current cost of supply – CCS effects) resulting from Downstream Oil. 4 Dividend subject to GMS approval on April 25, 2017 5 After the finalization of the Petrobrazi refinery modernization, the opportunity was taken to demonstrate the maximum throughput based on a timeframe of the best 30 consecutive days. As a result, the annual refining capacity has been updated from 4.2 mn t to 4.5 mn t as of 2015; previously reported figures for 2014 were not adjusted accordingly. 6 Retail sales volumes include sales via Group’s filling stations in Romania, Bulgaria, Serbia and Moldova. Figures also reflected wholesales in Moldova until end-2015, when reporting changed; historical figures were not adjusted accordingly. 7 Indicator under EY audit – might suffer modifications. OMV Petrom is the largest integrated oil and gas group in Southeastern Europe and the leading industrial company in Romania. The company is organized in three operationally integrated business segments – Upstream, Downstream Oil and Downstream Gas. In Upstream, OMV Petrom is present in Romania and Kazakhstan. The Downstream Oil portfolio comprises the 4.5 mn t/y capacity Petrobrazi refinery, which can process OMV Petrom’s entire Romanian equity crude oil, as well as a 783 filling station network operated via two brands, Petrom and OMV, located in Romania, Moldova, Bulgaria and Serbia. The Downstream Gas segment is the company’s sole gas marketing channel. The Downstream Gas portfolio comprises the 860 MW gas fired power plant Brazi and the 45 MW wind park Dorobanțu. Upstream Downstream Oil Downstream Gas Onshore oil Onshore Offshore natural gas oil & gas Petrobrazi Filling Brazi gas-fired Dorobanțu refinery stations power plant wind park KZ MD RO RS BG Company 2 Highligths 12 Statement of the Chief Executive Officer 14 OMV Petrom objectives and strategy 20 Sustainability / non-financial statement 26 OMV Petrom shares 29 Business environment Highligths Forty years of offshore excellence 3D seismic data was acquired for the Lebăda In 2016, OMV Petrom celebrated 40 years of East structure in 1983. A further batch of offshore activities in the Romanian part of the 3D seismic data acquisition was initiated in Black Sea and 30 years since first production 2005. Covering an area of 645 square km, the was achieved. Currently, the Black Sea is the additional data provided a new assessment second most important production area in of the near-field opportunities and led to the Romania, after the Oltenia region. discovery in 2007 of the Delta field. In addition to 3D seismic data acquisition, other new In 1976, the jack-up rig Gloria launched technologies were adopted, supporting real- drilling operations in the Black Sea, laying the time tracking of geological and geophysical foundations of Petromar (currently Asset X data. The newly implemented technologies were Petromar), a production area that delivered in crucial for drilling of the well Delta 6, the longest Petromar 2016 around 18% of the entire OMV Petrom of the field, with a horizontal movement of over supplies ~1/5 domestic production (~8% of the oil production 3,000 meters, down to a depth of 4,800 meters. of our domestic and ~26% of natural gas production). The annual Delta field was put into production in only two production oil and gas production coming from the Black years, the shortest time frame in Petromar’s Sea is sufficient to heat 1 mn households for a history. year or to fill 4.4 mn cars. The current infrastructure comprises: seven The implementation, for the first time in offshore platforms, hundreds of kilometers of Europe, of the three-phase tracers (compatible pipelines, 78 active wells, three helicopters and with water, oil and gas) in the stimulation of two support vessels operating 365 days/year. the wells from the Lebăda West field, can be considered a great achievement in Petromar‘s It all started with the exploration of the Western recent history. Tracers are environmentally section of the Romanian continental shelf, friendly chemicals that can be pumped in the based on 2D seismic data acquisition from well together with the stimulation liquid in order 1969 that identified 12 geological structures. to track its efficiency and to allocate water, oil Following the analyses, the first wildcat well and gas production to individual ports of the was drilled, Well 1 East Ovidiu. Although it did well. not lead to an economically viable discovery, it still remains the deepest Romanian offshore The implementation of the Lebăda Est Non- well (5,006 meters). After another dry-hole was Associated Gas Compression (LENAG) drilled in the Midia structure, the Gloria rig was project in Q2/16 represents another step in moved in 1979 to a location closer to the shore, the development of Asset X Petromar. With where it drilled a wildcat well that led to the first this project we aimed to optimize exploitation offshore commercial discovery, the Lebăda East by upgrading the existing gas compression field. Together with four other fields discovered system and ancillary facilities and delivering afterwards – Lebăda West (1984), Sinoe (1988), non-associated gas compression to minimize Pescăruș (1999) and Delta (2007) – Lebăda reservoir pressure decline. We completed the East is today part of the XVIII Istria block. In first stage of execution in November 2015 this block, OMV Petrom performs exploration, and finalized the remaining upgrades, which development and exploitation activities. included the upgrade of the non-associated gas Pescăruș – first In 2003, the Pescăruș field came on stream compression system, in Q2/16. unmanned and in 2008 Petromar had its first unmanned By carrying out this essential step, Asset X has production production platform, designed to be remotely reached an important milestone enabling it to platform operated from a control room on the central maximize production, reduce production decline platform. Pescăruș can be considered an and achieve more than 1,050 days without LTI example of best practice in terms of unmanned (Lost Time Injuries), the longest in Petromar’s production platforms. history. 2 Highligths OMV Petrom Annual Report 2016 | Company Following four decades of successful offshore The future of Petromar is shaped by the new activities, our business continuity faces several development and exploration projects that are threats, that are currently addressed under the currently in their early stages.