PETROM on the move in 2006 Annual Report WorldReginfo - 64ae9d3f-76dd-42b4-826a-0a51349d814b Operational results 2004 2005 2006 Total production, mn boe 81.31 77.95 73.06 Crude oil and NLG production, mn tons 5.46 5.21 4.78 Natural gas production, bn cm 6.44 6.19 5.92 Crude oil processed, mn tons 6.42 6.40 6.86 Capacity utilization, % 83 80 86 Petroleum products sales, mn tons 5.02 5.05 5.46 Number of operating filling stations1 588 553 489 Number of employees 50,010 43,546 32,837 Financial results 2004 2005 2006 Turnover, mn lei 8,688 10,760 13,078 EBITDA, mn lei 114 2,775 3,596 EBIT, mn lei (581) 1,884 2,777 Net income, mn lei (974) 1,416 2,285 Operating Cash flow, mn lei 1,856 2,771 2,957 Investments, mn lei 1,303 1,117 2,937 ROACE, % n/a 22 21 1 The number of filling stations reported in 2004 Annual Report included non-operating filling stations as well (24 in 2004) WorldReginfo - 64ae9d3f-76dd-42b4-826a-0a51349d814b PETROM WorldReginfo - 64ae9d3f-76dd-42b4-826a-0a51349d814b WorldReginfo - 64ae9d3f-76dd-42b4-826a-0a51349d814b Content Statement of the President of the Board of Directors 4 Statement of the Chief Executive Officer 5 Board of Directors 6 Managing Committee 7 Our Strategy in Action 9 Petrom’s Participations 15 Directors’ Report 17 Shares and Bonds 19 Human Resources 25 Petrom Organization Chart 0 Health, Safety and Environment 1 Petrom and the Community 9 Risk Management 4 IT 45 Macroeconomic Environment 47 Exploration and Production 51 Refining and Marketing 61 Gas 71 Doljchim 74 Analysis of the Financial Condition 75 Subsequent Events 80 Outlook 2007 81 Glossary 84 Independent Auditors’ Report 87 WorldReginfo - 64ae9d3f-76dd-42b4-826a-0a51349d814b Statement of the President of the Board of Directors Dear shareholders, Ladies and Gentlemen, The efficiency gains have further contributed to improve the profitability of the company, but we need to continue those efforts during 2007 as well. Our various initiatives The year 2006 was an important year for Petrom, with Petrom such as centralization of the Exploration and Production, Finance and Marketing will continuing with the many initiatives it had started in 2005 and streamline decision processes and the first results can already be seen. which have already shown significant improvements in the performance of the company. Petrom has continued with various initiatives to help those in need and will implement new standards in the Corporate Social Responsibility policy, described I would wish to thank the employees and the management of the company for in more detail in the Annual Report. Like in 2005, Petrom significantly contributed their dedicated contribution to the company. I am personally convinced that the to the State Budget by paying 5.2 bn lei in taxes, duties and contribution, which track we are following will lead Petrom not only in the short term but also in the meant about 700 mn lei more than in the preceding year, thus remaining the long term to become a more professional, efficient and better company which will biggest taxpayer in Romania. Petrom invested EUR 8 mn in 2006. remain a significant contributor to the Romanian economy and society. With its ambitious investment program for the next few years in excess of EUR During the year 2006 Petrom and OMV were exposed for reasons beyond our bn, Petrom will not only significantly improve its operations and efficiency but will control to a highly critical press and political environment in Romania. also be a very important factor for the economy and the industry of Romania. Let me assure you once more on this occasion as I have done already several times The excellent results for 2006 coupled with the confidence of the investors in the during the course of the last few months that Petrom’s privatization was not only future of the company have significantly improved the value of the company since a competitive process but also one handled in a very professional and transparent its privatization. The company will propose for 2006 a dividend to its shareholder manner, being closely followed by various international institutions such as the which is nearly 40 % above 2005, namely at 0.0179 lei/share. European Union and the International Monetary Fund. This reflects a pay-out ratio of approx. 44% and is on the higher end of all its Petrom’s Privatization Contract has been in the meantime published on the website regional competitors. Petrom is looking confidently ahead into the year 2007 as it of the Ministry of Economy and Commerce and the substantial economic terms of has a clear strategy and business plan to follow. I am personally convinced that we the transaction have been published already in 2004 with Law nr. 555. will succeed in achieving our targets. Coming back to our oil business, it can be noted that the external conditions in the Wolfgang Ruttenstorfer oil markets were very favourable and hence Petrom results reflect this tendency. While oil prices were higher than in 2005, refining margins were, unfortunately, somewhat poorer, but the net effect on the company’s business was nevertheless 4 positive. WorldReginfo - 64ae9d3f-76dd-42b4-826a-0a51349d814b Statement of the Chief Executive Officer Dear shareholders, Ladies and Gentlemen, stations network expanded with 178 premium sites. The company’s international development builds on Russia and the Caspian Sea Region which became core After almost two years of being a member of the Board of regions for exploration and production. We allocated a budget of USD 190 mn Directors of Petrom, starting with June 2006, I have become the to be invested in the development of the Komsomolskoe field in Kazakhstan and Chief Executive Officer of this large company. This investiture we have entered the exploration and production market of Russia through the meant a big challenge for me, a challenge I received with pride acquisition of 8 exploration licenses and one exploration and production license. as I wish to turn Petrom into not only the largest but also the Thus we consolidated our position in order to achieve a production level of 70,000 most successful Romanian company. For the way in which I was welcomed and boe/day in the Caspian Region and Russia until 2010. supported by the great team of this company, I would like to thank all its employees and management. 2006 is the second year in a row in which the company shows a strong performance. This proves our responsible approach, the consistency of our strategy and our 2006 was a remarkable year for Petrom. The projects we implemented focused determination to reach our objectives. mostly on modernization, efficiency and profitability increase and on international expansion. The experience of a strategic investor such as OMV helped us implement We committed ourselves to becoming the leading oil and gas company in South rapidly and with excellent results restructuring, centralization and efficiency Eastern Europe, to investing in abating the effects of the natural decline and in increase projects in all of our Business Units. We have attached great importance stabilizing production in Romania. We want to become not only a role model for to compliance programs in terms of aligning to international business principles the business community but also a responsible “citizen” of the community we are and practices, to quality and efficiency standards required by the European market. living in. None of these objectives can be achieved without the essential contribution The Service Center Petrom Solutions and the introduction of the most important of the most important resource, the people. We invested in our employees’ enterprise resource planning system, SAP, are just two of the projects that will development and we will continue to constantly roll out such programs. lead to efficiency increase and cost reduction. The year 2006 was a landmark with regards to company reorganization, which is on track. The results of 2006 clearly show that we have taken important steps to achieve the objectives set out in our strategy for 2010. We are already on a road that allows us While immediately after privatization, our actions focused on the correct evaluation to look with great confidence towards the years to come. I would like to thank you and reorganization of all the processes and projects of the company, the key word all for the trust you showed us this year. for 2006 was “investments”. We have increased investments by 16% compared to last year and we will continue doing so at a similarly high pace, in order to secure Mariana Gheorghe the sustainable development of the company and thus bring our contribution to securing the energy supply for Romania. Even from the beginning of the year we strengthened our position in the region by taking over OMV operations in Romania, Bulgaria and Serbia. Petrom’s filling 5 WorldReginfo - 64ae9d3f-76dd-42b4-826a-0a51349d814b Board of Directors The Board of Directors represents the interests of the Company and of its Kevin Bortz - Member shareholders and is responsible for the overall management of the company. Director of Natural Resources Team within EBRD Elected at the GMS on April 25, 2006 Its main objectives are to increase the shareholders value, to ensure the transparency in the company activities and to raise the efficiency and profitability Gheorghe Ionescu - Member of the company. Representative of the Ministry of Economy and Commerce. He is counselor at IATSA Pitesti Wolfgang Ruttenstorfer - President Elected at the GMS on April 25, 2006 CEO and Chairman of the OMV Executive Board Elected at the GMS on January 11, 2005 Victor - Paul Dobre – Member Secretary of State for the Relation with Prefectures, Ministry of Administration and Gerhard Roiss – Vice-President Interior Deputy Chairman of OMV Executive Board and responsible for the Refining and Elected at the GMS on November 22, 2005 Marketing including Petrochemicals Elected at the GMS on January 11, 2005 Dorinel Mihai Mucea – Member Deputy Head of the Romanian Privatization Agency (OPSPI), representing the David C.