OMV Petrom, oil and gas market outlook

Even if the first four months of this year have passed, it may not be without interest to see what the prospects for oil and gas market in Romania are, as they emerge from an analysis of OMV Petrom and from this company’s targets in 2015. Bucharest managers expect the 2015 average price of Brent crude oil to record an average of USD 50-60 per barrel, while the Brent-Urals differential is expected to remain relatively small.

OMV-Petrom-oil-and-gasAs regards natural gas and electricity market as well as the regulatory framework, they are going through a period of constant changes that could negatively affect the company’s financial and operational results. “In 2015 we don’t expect the natural gas demand in Romania to recover, which will increase competition and further pressure on margins,” reads the OMV Petrom analysis. The regulated prices of natural gas and the need for import for the non-household sector were eliminated from January 2015 while the price of regulated domestic gas paid by the household consumers in the first half of 2015 was set to RON 53.3/MWh (EUR 12/MWh), being unchanged since July 1, 2014. The same price applies to the domestically produced gas volumes that Romanian producers are required to provide to the heating sector (only for the quantities used to produce heat for household consumers). In addition, manufacturers and suppliers must sell about one third of the domestically produced gas to the free market through centralized platforms in Romania, which proved to be a challenge for them in 2014. OMV Petrom representatives argue that “the demand on the electricity market is expected to remain relatively stable and the prices to remain under pressure. In 2015, it is estimated that refining margins will decline from recent highs, following the persistence of refining overcapacity on the local and European markets. Following the oil price decrease, it is expected that lower prices will boost demand for petroleum products within the context of increased competition.”

The package of fiscal measures introduced in February 2013, which imposed additional taxation of oil and gas producers was extended for the entire 2015. In addition, the tax on the gross amount of special constructions was reduced to 1% from 1.5% in 2014. Company officials expect public consultation this year regarding the taxation system for the upstream segment, which is expected to be applied starting 2016, according to authorities’ public statements.

Lower investments this year

For OMV Petrom Group the current investment programme is estimated to EUR 0.8-1.1 billion in 2015, of which approximately 85% will be dedicated to E&P projects. The enhancement of cost optimization programmes in all business segments is also envisaged in order to get prepared for a market environment with a low price of oil for an extended period of time.

The Exploration and Production segment will continue the operational excellence initiatives, with focus on efficiency, taking into account the operating environment. Operational activities will focus on the execution of some 1,200 capital repairs works and on the drilling of up to 70 new wells, depending on the market and tax environment evolution. Redevelopment projects will be prioritized based on the added value, while the projects in development/execution will be slowed down, and the evaluation projects will be redesigned or reduced.

Situation of partnerships with foreign companies

The partnership with Repsol provides the drilling of two exploration wells, which is already ongoing, while other two sites are expected to be prospected. In partnership with Hunt Oil, the Padina Nord discovery will enter the next phase as the development options are under consideration. Finally, within the partnership with ExxonMobil for Neptun Deep, the drilling operations for Pelican South-1 exploration well is ongoing, the drilling at Domino-2 was completed, this year being expected the continuation of the exploration and appraisal drilling. The results obtained from wells Domino-2 and Pelican South-1, together with data from additional exploration wells will be used to assess the potential of the entire deposit. Abroad, in Kazakhstan the implementing of the water injection plan at TOC and Komsomolskoe deposits will continue in order to maintain the pressure within the deposits and to slow down the natural decline of production; the completion is planned for the first half of 2015.

Strict cost management

In the Gas and Energy sector, the gas value chain is to be optimized in an integrated manner in order to lively counter the market challenges and to maximize the generated value. It is estimated that electricity business margins will continue to be under pressure, which can lead to a negative result of this activity in 2015. In this context, the focus will be on strict cost management, on portfolio optimization and on getting hold of market opportunities by harnessing the operational flexibility of the Brazi power plant.

“As regards the Refining and Marketing operations, we will continue to benefit from the successful completion of the modernization of Petrobrazi refinery all along the entire value chain. In addition, the refinery will continue to improve energy efficiency. The optimization program for the petroleum storage terminals will continue with reconstruction works on the Cluj terminal, expected to be completed by the end of 2015,” OMV Petrom representatives conclude. As a corollary to the above said, the company will continue strict cost management measures and operational optimization.

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