H1 2016 RESULTS: FALLING PROFIT FOR THE MAJOR PLAYERS IN THE INDUSTRY
- Written by Lavinia Iancu
For the major players in the oil and gas industry operating in Romania, the first half of 2016 was less favourable than the previous year. Recently the results of the first six months have been released showing, most of them, falling turnovers and profits, let alone the investments, also on a downward trend due to the business results hit by the low crude oil prices. The investors, in their turn, are not very pleased with the results reported by major companies in the field for the period under review.
Since the beginning of 2015, the operators faced an unfavourable market environment generated by the declining crude oil prices, which led to the cancellation, postponement or continuation of projects, however on a lower budget, in parallel with efforts to build capital running/continuing of new programmes for modernization/upgrading, etc. In the case of integrated companies, the balance was somewhat unbiased by the results of the Downstream segment, although in this sector decreasing results were recorded as compared to the previous similar period, despite growing demand.
FORECASTS FOR 2016: AT USD 40/BARREL, OMV PETROM WILL REGISTER PROFIT
Focus on financial discipline
OMV Petrom, for example, responded to market pressure with measures of cost optimization and investments prioritization, which meant a reduction in the capital expenditure (CAPEX) by 35%. Thus, the financial discipline imposed an 11% decrease in production costs in the Upstream, which resulted in a positive operating result of RON 561 million (EBIT), despite the fall in the international prices, and a net profit of RON 405 million in the first half, down by 61% against the same period last year. Noteworthy is the company’s performance in terms of achieving a neutral cash flow, i.e. financing investments from own sources. Sales, excluding excise duties on petroleum products, fell by approximately 18% from RON 8,811 million in H1 2015 to RON 7,192 million in H1 2016, while clean CCA EBIT decreased by 49% from RON 1,251 million in H1 2015 to RON 638 million in H1 2016.
Upstream segment - control of production decline and costs
Due to past investments, the company managed to register an output decline of only 3% as compared to H1 2015, the average value of production reaching 176 kbep/day, against 182 kbep/day in 2015 and against 181 kbep/day in H1 2014.
The continuous efforts to cut production costs at group level materialized by achieving a production cost of USD 12.17/bbl in H1 2016 against USD 13.7/bbl in H1 2015 and USD 17.9/barrel in H1 2014, which means a decrease in production costs by 11% in the first months of 2016 against the corresponding period in 2015 and by 32% as compared to H1 2014.
Investments were adjusted to the new context, after prioritizing the projects they registered a 45% decrease as compared to H1 2015. The investments in the Upstream amounted to almost EUR 1 billion (some 80 % of overall investments), the main directions aiming the completion of the two drilling campaigns in the Neptun Deep block in Q1 2016, ten redevelopment projects of FRD deposits, the completion of three FRD projects in the Black Sea shallow water blocks with a total budget of EUR 200 million.
Downstream Oil - growing demand, lower refining margins
According to company estimates, the Romanian market registered in the first six months of the year a higher demand by 5.6% as compared to the previous period (H1 2015). The sales of gasoline and diesel fuel increased by 6.1%, above the market average, but the refining margins were down by 14% against the same period last year. The Petrobrazi refinery planned overhaul, including the projects implementation, amounting to EUR 40.5 million, impacted on the total sales of petroleum products, down 7.9%. The utilization rate reached 81%, the energy consumption being below 10%.
Downstream Gas – capitalizing the integrated business model
Gas demand fell by 8%, due to higher temperatures and limited demand for petrochemicals, while imports increased. The gas sales decreased by 9%, on one hand due to the falling demand, on the other due to the decrease in deposit volumes available in early 2016 and to the growing consumption of CECC Brazi.
The CECC Brazi net electricity production grew by 145%, from 0.4 TWh in H1 2015 to 0.9 TWh in H1 2016.
Outlook for the current year
The company’s estimation for the whole year: lower refining margin in the second half against the first half; decline in gas demand and increased pressure on prices due to increased competition and competitive imports; stable demand for electricity and increased average margins; rising fuel demand due to lower prices and increased competition; CAPEX expected to be around EUR 0.7 billion, about 20% down yoy, with approximately 85% dedicated to Upstream; decline in production within 4% guidance compared to 2015. The company will also continue its steps for cost effectiveness to meet the challenges coming from the low oil price, estimated at an average level of USD 40/barrel (Brent).
Based on the first quarter outlook, OMV Petrom expects (at an average price of Brent crude oil of USD 40/barrel) to register profit in 2016.
ROMGAZ ACHIEVEMENTS, AFFECTED BY THE FALLING DEMAND FOR NATURAL GAS AND BY THE INCREASING COMPETITION FROM IMPORTED GAS
Compared to the similar period of the last year, the Romgaz operational and financial performances for H1 2016 were influenced mainly by the decrease of natural gas demand on the Romanian market by approximately 6%.
Net profit, in amount of RON 615.3 million, is in line with the budget forecast (+0.65%) although lower than in the similar period of 2015 (-19.74%).
The intensive exploration activities carried out deep onshore have led to the largest hydrocarbon discovery of the latest 30 years of about 25-27 billion cubic metres and have maintained the financial indicators at a very good margin: EBIT (40.1%) and EBITDA (54.8%).
“The gas sales were significantly influenced by weather conditions, by the decreased gas demand in the key sectors, by the uncertain regulatory framework related to minimum gas stocks,” the company’s release further informs.
Revenues from electricity production have increased by 56.9%, namely by RON 45 million. Other operating income including late payment penalties increased by RON 42 million. As a result of the company’s trading policy there were no overdue accounts receivables during H1 2016 related to deliveries, with influence on costs and implicitly on the company’s profit.
The external audit of Romgaz natural gas reserves and of contingent resources was performed in H1 2016 by the American company DeGolyer&MacNaughton, resulting in a final Report sent to Romgaz on June 30, 2016.
The results included in the Report confirm the evaluation of the natural gas resources and of the reserves conducted by Romgaz by December 31, 2015 and concurrently confirm the annual reserves replacement ratio, which during 2013-2015 was on average of 83%, higher than the target of 70%.
Relevant financial results
Total income is lower by RON 330.8 million, down by 14.8%, while total expenses were reduced by 10.4%. “The evolution shows the warm weather, the decrease of natural gas demand in key sectors, especially in the chemical fertiliser sector, the decrease of the gas demand for the minimum gas stocks for winter 2016-2017 as a result of a uncertain and incoherent regulatory framework and the increased competition of imported gas caused by the significant gas price drop in Europe,” the Romgaz report reads.
Although the net profit, EBIT and EBITDA, are lower as compared to H1 2015, the financial indicator ratios as compared the to the revenue, do not record significant deviations and are highly favourable: 33.3%, 40.1% and 54.8% (as compared to 34.3%, 41.5% and 54.80%, respectively during H1 2015), confirming the high profitability of the company.
EPS (earnings per share) is RON 1.60/share, by 19.78% lower against H1 2015. The net profit reached RON 615.3 million, down by 19.74% against H1 2015, while the turnover was of RON 1,849.9 million, also lower as compared to H1 2015 by 17.23%.
Natural gas production was in the parameters expected when preparing the programme for 2016, the achieved level representing 90.32% of the planned one. Romgaz produced 2,197 million cubic metres of natural gas during the first half of 2016, by 580 million cubic metres (20.9%) less than the gas produced in the same period of the previous year. The production recorded in the analysed period is lower due to the challenges the company had to face, namely: the gentle winter leading to lower natural gas consumption during the first quarter; the decrease of demand in the key sectors, caused by the international price drop (especially in the chemical fertiliser sector, where the gas consumption dropped by 49% as compared to last year) and by the strong competition in the electricity generation sector; the decrease of gas demand for the minimum gas stocks for winter 2016-2017, as a result of the uncertain and incoherent regulatory framework (third parties injected in Romgaz storages in H1 2016 some 489 million cubic meters; by 103 million cubic metres lower than in H1 2015, namely by approximately 17% less); a relatively large gas stock belonging to Romgaz at the end of winter 2015-2016 (the storage stock was of 795.8 million cubic metres out of which the Romgaz stock was of 723 million cubic metres, representing 92%); the high competition from the import gas caused by the significant gas price drop in Europe (as compared to H1 2015, the gas import increased in H1 2016 by 230%, namely by 179 million cubic metres).
Out of the 148 commercial deposits operated by Medias and Targu-Mures branches, in the Transylvanian basin, Moldavia, Muntenia and Oltenia, a share of about 80% of the Romgaz total gas output is given by 30 mature deposits in an advanced depletion state, having an exploitation length of more than 30 years.
Investment plan achieved in a 50% share
Romgaz has planned investments amounting to RON 1,020 million in 2016, of which the programme for H1 was of RON 444 million, completed in a share of 51.39%, i.e. RON 228.19 million. The investments were financed by own sources.
At the end of H1 2016 the Romgaz shares were quoted at RON 25.1, by 31% below the closing price on June 30, 2015.
TRANSGAZ TRANSPORTED LESS NATURAL GAS AND COLLECTED LOWER PROFIT
The Transgaz businesses also were not at their best in the first six months of the year. The operator of the natural gas national transmission system registered in the first half a net profit of RON 281,767 thousand, down by 12% as compared to the same period in 2015, when it reached RON 321,557 thousand, due to the fall in the volume of the transported natural gas by 9%, down from 6,480,291 thousand cubic meters in the H1 2015 to 5,873,039 thousand cubic metres in H1 2016. The turnover fell by 0.71% against H1 2015, from RON 820,382 thousand to RON 814,535 thousand.
Operational revenues, before the construction operations, according to IFRIC12 (International Financial Reporting Standards adopted by the European Union) recorded in H1 2016 exceeded by 5% the achievements in H1 2015, up by RON 44,349 thousand. Operational expenditures before the construction operations, according to IFRIC12, increased by 20% in H1 2016 against H1 2015, being higher by RON 92,839 thousand. Financial expenditures fell by RON 553 thousand due to differences in currency exchange expenditures.
The gross profit in H1 2016 amounted to RON 336,810 thousand against RON 387,596 thousand in H1 2015, down by 13%, by RON 50,786 thousand respectively.
KMGI TO CONTINUE UPWARD TREND AND DOUBLE OPERATING PROFIT
There are still some exceptions and one of them is the KMG International (KMGI) Group. During the first half of 2016, KMGI continued to improve its operating performances and financial results, following the outstanding performances reached in 2015 – historical records, in over 18 years after its incorporation.
“Investments exceeding USD 1.6 billion achieved by the Group and its sole shareholder – KazMunayGas since 2007 and until present, a new business strategy adopted in 2013, financial sustainability, improvement and development of its core operations, the focus on quality and innovation, all of these supported the positive progress of the Group and its member companies. We manufacture in Romania, most of our employees are from Romania, we export from Romania in over 20 countries and together we managed to build in Romania a platform supporting and consolidating the energetic security of Romania, of the Black Sea region, and also of the Central and Eastern Europe,” Azamat Zhangulov, senior vice-president of KMG International Group, said.
During the first half of this year, the Group achieved a gross turnover of approximately USD 3.2 billion and an operating result (EBITDA) of USD 104.6 million, a 28% increase compared to the levels achieved during the same period of 2015. At the same time, Rompetrol Rafinare – the Group’s core asset in Romania, achieved a consolidated gross turnover of USD 1.7 billion and EBITDA amounting to USD 90 million, more than 18% higher than levels achieved in January – June 2015.
Supported by influences of factors independent from the Group’s and member companies’ activities – progress of international quotations for raw materials and finished products, refining margins, RON/USD exchange rate, KMGI managed to double its operating profit up to a level of USD 33 million in the first half of 2016. The investments paid by the Group in the first half of the year amounted to USD 65.5 million and envisaged the maintenance works of the refinery, the continuation of the modernization program for Rompetrol stations, as well as the construction of new stations in Romania.
Financial results were driven, during the first half, by operating performances, such as the 5% increase of raw material quantities processed in its manufacturing units, the 16% increase of sales of oil products in Romania and also the 16% increase of sales of fuels through subsidiaries in Bulgaria, Moldova and Georgia.
“A key-role in reaching these performances is represented by the continuation of the program launched in 2013 for transforming the Group’s activities and relevant operations, the total value of the benefits generated by the implementation of projects for the improvement of financial and operating indicators amounting to USD 15.8 million. These envisaged an enhancement of efficiency within Petromidia refinery and an increase in the sale of oil products in Romania, process automation to cut down and prevent losses, as well as the creation of an integrated centre for support functions,” Azamat Zhangulov added.
In the first half of the year, the Petromidia Navodari refinery increased by 4% the total quantity of processed raw matter (2.79 million tons) and obtained a historical record in raw matter processing – 15,340 tons/day (+3.8%), against the background of an improvement of the mechanical availability, from 96.1% to 96.9%, and of the reduction in the processing cost by 1% and in the energy performance by 3.4%.
The volume of oil products commercialized domestically by the Group amounted to 1.26 million tons (+16%), of which over 67% were represented by fuels distributed by Rompetrol Downstream through Rompetrol stations and also wholesales to partners. At the end of June, the company operated domestically a network of 716 fuel sale points, six warehouses, 230 LPG fuelling points and 9,000 gas cylinder sale points.
At regional level, the Group reached a level of oil product deliveries of app. 1.49 million tons to its subsidiaries and traditional partners. The operating result (EBITDA) of the trading activities performed by the Group during the first half of the year amounted to USD 11.4 million (+24%), in the context of a total volume of 8.3 million tons of raw matters and oil products. The exports through KMG Trading of the oil products produced by the Petromidia refinery represented approximately 10% of the total quantity.
During the first half of 2016, KMG International continued to be a major tax payer to Romania’s national budget, the level of amounts paid for various taxes and duties exceeding USD 608 million. Since 2007 and until now, the Group’s contribution exceeded USD 11.2 billion.
MOL ROMANIA RETAIL SALES UP 16%
MOL Group’s retail sales volumes in Romania (including fuels, LPG and lubricants) rose 16% in H1, to 311 kt, thanks to the favourable macro environment, the company said in the half-year report.
Diesel sales volumes increased 16% vs. the first half of 2015, to 223 kt, while gasoline sales jumped 13%, to 78 kt.
“We already see the benefits of our previous retail acquisitions in the Czech Republic, Slovakia and Romania. Following the recent acquisition in Slovenia I am happy to report that recently we closed the acquisition of Eni’s downstream business in Hungary. With this transaction we now have more than 2,000 service stations, serving daily more than 1 million customers in Central Eastern Europe, further cementing MOL Group’s leading role in the region,” said József Simola, Chief Financial Officer, MOL Group.
In the second quarter of 2016 vs. the corresponding interval of last year, diesel sales increased 14%, to 119 kt, and gasoline volumes rose 11%, to 42 kt.
On a Group level, MOL retail sales volumes rose 12% in H1, to 1,941 kt, at a similar pace with the April-June period. MOL Group estimates that motor fuel demand rose 5%, on average, in the ten CEE countries where it has retail operations.
CONPET – HIGHER PROFIT, LOWER EXPENSES
The profit of the national transmission system operator of oil and petroleum products continued to grow in the first half of the year, reaching RON 37 million against RON 35.1 million in the similar period of 2015. The profit growth comes following the cuts in expenditure, although revenues declined as compared to last year. The largest decrease is due to amortisation expenses, down from RON 24.2 million in H1 2015 to RON 20.3 million in H1 2016.
The total transported quantity increased by 1.2% to 3,458 thousand tons (of which 53.6% of the quantities were transported in the country and the rest from imports), while the operating income decreased by 0.5% to RON 202.3 million.
Total revenues from transport in the first half fell by 0.4% as compared to the same previous period to RON 186.6 million. The operating profit (EBIT) increased by 11.5% as compared to the value recorded in the first half of 2015 due to the increased quantities shipped and to the decrease of total operating expenses by RON 5.4 million.
In H1 2016, as compared to H1 2015, performance indicators registered values higher than envisaged by the annual targets in the management plan. Thus, EBITDA grew by 7.6% mainly due to the increase in operating profit; the declining share of operating expenses in the turnover by 4.4% was influenced by the cut of operating expenses by 3.3%.
Conpet ranks 16th in the Top 25 issuers by market capitalization.
OIL TERMINAL REPORTS HIGHER TURNOVER AND PROFIT
Oil Terminal recorded a net profit of RON 14,558,228 in the first half of the year, up by RON 4,267,647 as compared to the similar period of 2015, and an operating profit of RON 4,595,717 in H1 2016 against RON 5,824,186 in H1 2015, according to the unaudited data reported by the company.
The turnover in H1 2016 was of RON 78,628,030, up by RON 14,272,141 as compared to H1 2015. At the end of the first semester of the current year the adjustments on the ongoing impairment of assets were cancelled, recording revenues from adjustments on impairment of property and concomitantly expenses related to discontinued investment amounted to RON 1,133,979, the quoted document reads.
As the informal meeting of the OPEC member states (scheduled to take place in Algeria on September 26-28) is approaching, the oil companies’ hopes towards some rebalancing of the oil market rekindle. OPEC official sources said that, on this occasion, a freeze in global crude oil production will be discussed, if prices fall further. Incidentally, Mohammad bin Saleh al-Sada, Minister of Energy of Qatar and OPEC President, said recently that he expects a higher demand for crude oil in the third and fourth quarters of 2016, which could lead to price increases in the last part of this year.