Uncertainties on the oil and gas markets Companies’ profits and investments hit by low oil prices
- Written by Adrian Stoica
The steep fall in oil and gas prices have cut the companies’ investing appetite. From the first half of this year the major players and not only have announced consistent cuts of the investment budgets and thousands of layoffs worldwide. The shock wave caused by these decisions has hit quickly the subcontracting companies as well, and Romania is no exception.
ExxonMobil keeps its position in Romania
US company ExxonMobil’s profit from exploration and production fell by 74% to USD 2 billion, and revenues went down by a third, to USD 74.11 billion. Subsequent to these results, in the second quarter the company has reduced the capital expenditures for major projects by 20%, targeting mainly the oil rigs and the LNG terminals. However, as regards Romania, company officials have announced that drillings will continue on the Neptun offshore block.
Schlumberger, further job cuts worldwide
The world’s largest provider of oil services, Schlumberger, has announced in April this year that it would operate at least 11,000 layoffs after the company’s profit fell by 30% in the first quarter. This is the second cut in jobs operated by the company this year, after the one in January when 9,000 employees were made redundant. These measures, however, did not affect the company’s subsidiary in Romania. Recently, CEO Paal Kibsgaard said during a meeting with investors that a new downsizing is envisaged, given the context of low oil prices. In addition, he noted that the return to the company’s previous level of activity most likely would not take place earlier than 2017.
OMV to refocus
OMV announced that it will publish in February next year a new strategy. The decision was taken due to the negative impact of the low price of crude oil. So far, the Austrian oil group decided to reduce the capital expenditures by 38% to EUR 600 million in the third quarter this year. The number of employees fell to 24,470 from 26,783 people. Recently the group has announced that it will record special costs of around EUR 1 billion, which will be reflected on the value of its oil deposits and equipment, following the decline of oil prices.
OMV Petrom cuts investment
In such circumstances, OMV Petrom has decided to cut investments, the level being consistent. According to the latest financial results made public in early November in the first nine months of this year the investments have decreased by 33.1% to RON 2.997 billion. According to the company officials estimates, the price of Brent crude oil will reach USD 55 per barrel in 2016 and USD 70 per barrel in 2017, while in 2019 the level could reach USD 85 per barrel.
“OMV Petrom has revised estimates of the oil price, both on the short and long term. Estimates for the price of Brent crude oil stands currently at USD 55/barrel for 2016, at USD 70/barrel for 2017, at USD 80/barrel for 2018 and at USD 85/barrel as of 2019. The revision of these estimates has led to the registration of a depreciation adjustment of RON 786 million in Q3 2015 for the Upstream segment, mainly in relation to the production-related assets,” a company release reads.
Romgaz, budget revised downwards
In late October, the management of Romgaz approved the downward rectification of the budget of revenues and expenses. In a report submitted to the Bucharest Stock Exchange, the company officials state that “the figures in the revised budget consider the drop in gas demand at national level, significantly lower against the forecasted revenues and expenses in the budget approved by Government by H.G. 329/2015, consider the adjustment made in the Black Sea projects (Rapsodia Block), who have not had the expected results and the adjustment (uncertain situation) of the bad debts from Electrocentrale Bucharest and Galati Electrocentrale”. This decision came after the company had already reduced its investments by 10% from the first half of the year. The national producer of natural gas estimates a decrease of the net profit this year due to lower consumption and due to the abandonment of some exploration projects.
In H1, Romgaz shareholders approved a budget of revenues and expenses with total revenues of RON 4.63 billion and a gross profit of RON 1.85 billion. Overall planned expenditures were of RON 2.7 billion, while expenditures for investments were of RON 1.3 billion. The current difficult situation on the gas market is revealed also by the results posted by Romgaz in the first nine months of the year. Thus, the company reported in Q3 of this year a turnover of RON 698 million, down by 8.2%, while the net profit fell by 14% to RON 208.7 million. Overall, at the end of the first nine months of the year, the company sales fell by 10.8% to RON 2.93 billion, while the net profit recorded a fall of 12.4% to RON 975.3 million.
Layoffs from Dafora Medias
Dafora Medias services company, which recently has asked for insolvency procedures, recorded losses of almost RON 93 million in the first half of this year, against a profit of RON 4.9 million in the same period last year. Subsequent to these results, the company has operated layoffs, so that the number of employees has decreased by 44% from 562 to 316 people. However, the company has reported negative results at the end of the third quarter, losses of RON 95.767 million. The insolvency was motivated by the company’s management by the decision of some customers to withdraw from the Romanian market or to give up certain investment projects. Moreover, Dafora is not the only oil services company that asked for insolvency procedures due to the oil services market implosion. On this list we can add Foraj Sonde Scăieni and Foraj Sonde Ernei.
Rompetrol Well Services goes on the red
For Rompetrol Well Services, the oil services division of KazMunayGas, the situation is not too good, company officials acknowledging that the fall of oil prices has affected the company’s activity. This is seen also from the results reported after the first nine months of the year, as the company recorded losses of RON 1.43 million, against a profit of RON 12.635 million reported in late September 2014. As regards the turnover, it fell by 40% to RON 38.626 million.
Prospecţiuni Bucharest – restructuring process
Due to the blockage on the market, the traditional Romanian company specialized in geological and geophysical exploration, Prospecţiuni Bucharest, was also forced to operate the restructuring of all departments, with cuts in the field of spending and to look for new markets. The changes made to the company’s cost structure provide savings of around EUR 6.5 million annually. Even so, Prospecţiuni has reported losses in H1 for the first time in the last 10 years.
Dependent on OMV Petrom
Foraj Sonde Craiova has lowered the number of employees by 19% through the first half of the year, from 622 to 504 people, while the turnover has decreased by over 21% to RON 81.82 million, while profits fell by a quarter. The reason is the same. Large companies, especially OMV Petrom, one of the most important customers of Foraj Sonde Craiova, has prioritized its investment projects, giving up those ones with lower added value.
Foraj Sonde Videle has also reported at the end of H1 a lower net profit by 38%, and the prospect is not encouraging. “The largest beneficiary of the company is OMV Petrom, on which the company is dependent. For the next years, the issuer cannot estimate the volume of OMV Petrom investments. A disturbing factor was the sharp decline in oil prices, with the risk that the volume of investments in exploration operations to decline,” reads the document from Foraj Sonde Videle, drawn up in view of listing on the AeRO platform with the Bucharest Stock Exchange.
Transgaz Medias – profit above expectations
Transgaz Medias is one of the few companies in the industry which have managed to improve their financial results this year. According to reports submitted to BVB, Transgaz has increased both the revenues and the net profit. The nine-month balance sheet shows the national gas carrier’s revenues have reached RON 1.25 billion, against RON 1.22 billion in the same period last year. Although the money cashed in was by RON 5 million lower than the budgeted level, the low costs, below those estimated by the revenues and expenditures budget have led to a net profit of RON 384.32 million, by 3% higher than the RON 374.03 million obtained in the first nine months of last year.
Conpet Ploieşti, results on the increase
On the background of larger oil quantities transported and due to higher transport tariffs by 21%, Conpet Ploieşti managed to increase its net profit by 8.5% in the first nine months of the year to RON 52.01 million. The quantities of imported crude oil transported by Conpet increased by 22.3% in this period, up to 2.36 million tons, while the quantities of domestic crude oil transported fell by 1.6% to 2.93 million tons. The company’s turnover increased slightly by 1.3% to RON 285.66 million, although the revenues from the transport of oil from domestic production fell by 1.9% to RON 232.6 million and the revenues from the transport of imported crude oil increased by 18.2% to RON 51.2 million.