Mariana Gheorghe, OMV Petrom: 'More than 80 percent of our future investments will go into exploration and production'
With investments amounting to more than EUR 9 billion on the local market between 2005 and 2012, OMV Petrom, the largest oil and gas group in South Eastern Europe, plans to keep up the pace of business by investing between EUR 800 million and EUR 1.2 billion per year in the next two to three years.
Mariana Gheorghe, the CEO of the company since 2006, tells The Diplomat-Bucharest what is left for OMV Petrom to capitalize on and what are the most important sectors targeted by the company.
How does the Romanian energy sector - the oil & gas market in particular - stand compared to other international markets the Austrian OMV Group operates in?
The OMV Group operates in 18 countries with its upstream activities, but Romania is of high strategic importance, as it is one of OMV's core markets. We are convinced of the great potential of the Romanian energy sector and the fact that we have invested and we plan to continue to invest significant amounts shows our confidence in this potential. Our investments have amounted to more than EUR 1 billion per year for the last eight years and we intend to maintain the same high level of investments to ensure Romania's security of supply, assuming an investment-friendly environment.
We are determined to consolidate and develop the business on the long term and the fact that we are part of the OMV Group helps us very much with regards to financial resources as well as expertise in all business segments.
In the second half of 2004, OMV purchased a 51 percent stake in Petrom. What has the company's trajectory been since then, especially this year, and how do you think 2013 will end?
At the moment of privatization, Petrom entered a profound and complex process of transformation. The company's performance can be seen from year to year and compared to the year of privatization, it is clear that we've come a long way.
2013 brought another important step in the achievement of OMV Petrom's objectives for sustainable growth. We are continuing our main projects, always bearing in mind our main strategic directions, focusing on securing energy for Romania. In exploration and production, we have committed to achieve operational excellence and we are following through by investments in field redevelopment projects - which are mature fields that still have potential - and by continuing our efforts to stabilize production and even to increase it for the first time since the privatization, albeit marginally.
We have entered new partnerships and achieved encouraging results from those we have formed over recent years. One of our most important projects, exploration in the Black Sea, is going as planned, with a new drilling campaign expected to start in the middle of next year.
The Brazi power plant which we inaugurated last year has come to play an important role on the electricity market, while the complex process of modernizing the Petrobrazi refinery is getting closer to completion.
This is why I can say that 2013 has been a good year so far, with encouraging results. The fact that we had an increase in the annual production in Romania, for the first time since privatization, makes us optimistic about the 2013 results. Our plans are to continue the field redevelopment projects as well as the drilling campaign in the Neptun block. The optimization of operations at the Brazi power plant is also in our sights, along with the Petrobrazi refinery modernization program.
As you already mentioned, last year, OMV Petrom cut the ribbon on its EUR 530 million gas power plant in Brazi, in line with its 2021 investment strategy. What other investments have you made lately, or are you about to make, in order to increase the company's efficiency?
OMV Petrom's investment sum is unprecedented in Romania, as we are the largest private investor in the country. It is enough to say that a company with significant debts and losses has turned into the largest contributor to the state budget. This tells us a lot about the transformation of OMV Petrom and how it could not have been possible without a significant sum of investments which targeted not only all business segments, but also the people that support all our activities.
Approximately EUR 9 billion was invested between 2005 and 2012, meaning about 90 percent of OMV Petrom's profit, and let me name just a few of the major projects that have made OMV Petrom the successful company that it is now.
After decades of intensive exploitation, we managed to largely mitigate the natural decline of domestic production. Operating mature fields is very challenging and requires great efforts, but with modern infrastructure and new technologies OMV Petrom is not only committed to an ambitious objective, that is to stabilize production, but is also moving towards new frontiers, with exploration in areas that have never been explored before. The Domino-1 well in the Neptun block in the Black Sea was the first deepwater well in Romania. In exploration alone, jointly with ExxonMobil, we plan to invest EUR 1 billion.
The power plant in Brazi is another important milestone in OMV Petrom's growth and, together with the Dorobantu wind park, puts the company among the most important players in the electricity market. Our integrated business model is completed by a modernized refinery able to process 100 percent of domestic crude, a modernization that requires total investments of EUR 600 million, and by the largest filling station network, which was brought up to European standards.
As mentioned, we invest in people and in the communities we operate in. In 2012 alone, we invested EUR 2.5 million in the community, focusing on community development, education and entrepreneurship, through our CSR initiatives. In terms of our people, we put great value in developing and improving skills, and in 2012 we invested approximately EUR 7 million in training.
I would like to stress that all these investment directions are going to be continued in the coming years.
Back to the Neptun block in the Black Sea, where you are carrying out your exploration activities. OMV Petrom discovered, in partnership with the American giant ExxonMobil, gas reserves in the Black Sea estimated to stand at between 42 and 84 billion cubic meters - three to six times Romania's annual consumption. You have already touched on several aspects, but give us further details regarding the current status of the drilling procedure.
Since the beginning of last year, when we announced, along with ExxonMobil, the discovery in the Neptun block, deepwater Romania, progress has been made. However, further acquisition and interpretation of data, including appraisal drilling and well testing, is needed to confirm the size of the resource and whether it is commercially feasible. Only after that can a decision be taken to proceed to a development phase.
In June this year, along with ExxonMobil, we successfully completed the acquisition of an extensive 3D seismic survey at the Neptun Deep Block, covering more than 6,000 square kilometers. This is the largest 3D seismic survey conducted in the Black Sea so far. The two companies expect to invest up to USD 1 billion in the exploration program, which comprises the 3D survey now completed and further exploration and appraisal drilling. We expect the drilling campaign to start in the middle of next year.
What are the company's most important business aims in the coming years?
As I previously mentioned, in 2012 we announced our revised strategy for the coming years based on a comprehensive analysis of the energy sector in Romania and taking into account the international and regional development of the sector.
OMV Petrom's objective is to continue to be the leading integrated oil and gas company in the region, with a sustainable performance to support the growth of the upstream sector in the Black Sea region. In order to achieve this objective, we plan to invest EUR 800,000 million-EUR 1.2 billion per year in the next two to three years, out of which more than 80 percent will be directed into exploration and production, provided that we benefit from a sound market environment and an investment-friendly regulatory and fiscal framework.
Therefore, OMV Petrom's strategic directions in exploration and production are the maximization of portfolio and positioning for growth, meaning the stabilization of conventional production, optimization of the existing portfolio through partnerships with specialized international companies and the exploration, assessment and development of offshore opportunities in the Black Sea region.
For our gas and power operations we have decided to focus on the commercial activity of the Brazi power plant and increasing gas sales while for refining and marketing we aim to modernize and increase the efficiency of the Petrobrazi refinery while modernizing the fuel terminal network.
Last year, the company's net profit increased by 5 percent on the previous year, while in the first nine months of 2013 it grew by 27 percent on the same period of 2012. How do you think the 2013 figure will stand?
If you look at the operational and financial results we announced for the first nine months of 2013, you can see an improvement of OMV Petrom's performance which is the result of the investments, strict cost management and operational excellence initiatives of the last few years.
In terms of the market environment, for 2013, we expect an average Brent oil price above USD 100/bbl [barrel], while for our product markets - gas, power, fuels - we expect downward trends.
However, all these factors are quite volatile. Therefore, we cannot provide any figures for the moment. The results for 2013 will be announced in February 2014.
OMV Petrom is the largest oil and gas group in South Eastern Europe, with activities in exploration and production, gas and power, and refining and marketing. As of the end of 2012, the group had proven oil and gas reserves of around 775 million boe in Romania and Kazakhstan, of which 750 million boe were in Romania. OMV Petrom is present in the distribution market of oil products in Romania, the Republic of Moldova, Bulgaria and Serbia, through a network of approximately 800 filling stations, operated under two brands, Petrom and OMV. The company operates an 860 MW gas-fired power plant in Brazi and a 45 MW wind park in Dorobantu. In 2012, the group's turnover was EUR 5.891 billion, with EBIT (earnings before interest and taxes) of EUR 1.27 billion. OMV Petrom's net profit increased by 27 percent in the first nine months of 2013, to EUR 831.6 million, while sales fell by 5 percent to EUR 4.117 billion. OMV, Austria's largest listed industrial company, holds a 51.01 percent share in OMV Petrom.