SNGN ROMGAZ SA

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SNGN Romgaz : TRANSCRIPT CONFERENCE CALL Q1

05/18/2022 | 01:32am

CONFERENCE CALL

FOR THE DISCUSSION OF THE Q1 2022 FINANCIAL RESULTS

of ROMGAZ Group

May 16, 2022

PARTICIPANTS:

Razvan POPESCU

Chief Financial Officer

Rasu Moldovan

Energy Trade Director

Marius VEZA

Accounting Department Director

Paunescu Octavian

Exploration-Appraisal Director

Ion FOIDAS

Production Department Director

Daniel CORNEA

Head of Investment Project Management

Gabriela TRANBITAS

Head of Financial Reporting & Accounting

Methodologies Department

Mircea Faur

Head of Electricity Market Development

The Investor Relations Team

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Mr. Razvan POPESCU, CFO:

INTRODUCTION TO THE CONFERENCE CALL

for the discussion of the Q1 2022 Results

Good afternoon ladies and gentlemen,

Thank you for joining our conference call to discuss the economic and financial results of the Q1 2022.

We released the Quarterly Report of Romgaz Group at the end of last week, and this includes the presentation of our economic and financial performance, and the Consolidated Condensed Interim Financial Statements.

Also, a presentation of the group activities is available on our website, in the "Investors" Section.

I would like to emphasize some aspects regarding the gas market environment, and also to highlight the group's operational and financial performance.

A. Let me start with some aspects regarding the market context that have impacted the first quarter of this year, including the latest regulatory changes:

  • According to our assessments, natural gas consumption in Romania decreased by 11% year-on-year; nevertheless, imported gas volumes recorded an increase during this period, and accounted for 22% of total consumption, compared to around 18% in Q1 2021. Still Romania enjoys a low degree of dependency on gas imports compared to other European countries.
  • Wholesale Average Weighted Gas Prices on the Romanian Commodities Exchange (Spot & Forward & Balancing Markets) continued their steep upward trend, with an average price higher over 5 times y/y in Q1 2022 compared to the same period of 2021; these prices are considered as of the month of delivery for transactions concluded on this market segment.
  • On the Central European Gas Hub, the reference price followed a similar trend in Q1: higher over 5 times y/y compared to the same period of 2021 according to data provided by the Romanian Agency for Mineral Resources.

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  • Regarding the gas sector regulation, during Q1 2022 the Gas Release Program was still in force; please recall that according to ANRE's Orders no 143 / 2020 and 4/2022, large gas producers had the obligation to offer 40% of the previous year' gas production on centralized markets, with a discount of at least 5% from the previous 60-days average price for the standardized products.

It is important to be mentioned the fact that the GRP is no longer in force starting with April 1st, 2022, as the government issued the Emergency Ordinance no 27 / 2022.

So, starting with Q2 2022 and until the end of Q1 2023, the Ordinance enforces capped prices for some categories of consumers, at the level of gas and electricity producers and final suppliers. Also, gas volumes sold at regulated prices are exempted from the windfall tax, and gas royalties will be computed computed at these prices instead of CEGH.

B. Regarding the operational and financial performance recorded by Romgaz Group in the first 3 months of 2022, we can point out the following aspects:

  1. Natural gas production was reported at 1.31 billion of cm, with a marginal adjustment of 0.3% compared to the same period of 2021, but slightly above our annual budget.
    We continued our efficient measures to support production development, and here I could mention only a few specific activities, such as: optimization of gas field production, extension of rehabilitation projects of the main mature gas fields, execution of workover operations in inactive or low productivity wells, completion of investment works to extend the production infrastructure and connection of new wells to this infrastructure.
    With respect to the investments in our gas production facilities in Q1 2022:
    • we completed works for surface facilities to stream into production 4 wells, and are in progress with surface facilities for 6 wells;
    • we performed recompletion, reactivation and repairs for a total number of 46 wells.
  2. We continue to hold a significant position on the Romanian gas market: according to our estimates, we achieved a market share of 36% of total gas delivered in Romania - impacted by higher imported volumes, but we improved our position to 46% in terms of consumption covered from domestic gas.
  3. Regarding gas sales to third parties, volumes decreased by 16.7% y/y in Q1, as a result of lower gas consumption in Romania, as I mentioned earlier.
  4. Nevertheless, "Total Revenues from the Gas Sold" in Q1 increased to RON 3.44 billion - over 3 times higher compared to the same period of the previous year,

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and at a historical height - due to a significant increase in our average realised gas selling price, that overcompensated for the volumes sold.

    1. "Revenues from Electricity" added RON 321 million - almost 8 times higher y/y - as a result of a higher production and favourable prices in the gas market.
    2. "Revenues from Storage Services" increased by 11% year-on-year to RON 88 million, mainly due to higher revenues from capacity reservation and injection services.
    3. Overall in Q1 2022, we succeeded to record Total Revenues of RON 3.93 billion, almost 3 times higher year-on-year - at a quarterly record height for the Group
    4. On the expenses side, the main 2 taxes included in the "Other expenses" category in the P&L increased substantially: the "Windfall profit tax" has increased approximately 11 times, and the "Petroleum and UGS royalties" increased over 5 times year-on-year.
      Jointly, these 2 taxes accounted for almost 60% of Total Revenues and represented an expense of 2.3 billion RON in Q1/2022, compared to only 0.2 billion RON in Q1/2021.
    5. Bottom line, we reported a record-high Net Profit of around RON 980 million, higher by 111% compared to the same period of 2021.

    10.Profitability rates continue to be strong in Q1 as well, although unfavourably impacted by the higher tax expenses: we recorded an EBITDA margin of 31.2%, an EBIT margin of 29.0% and a Net profit margin of 25.0%.

  1. On the capex side, ROMGAZ Group invested a total amount of RON 108 million in Q1/2022, focused 31% on geological exploration, 67% in equipment upgrade, and the 2% balance in the storage and electricity segments.
  2. Regarding the strategic development of our company, I would like to mention that latest achievements are in line with the "Development Strategy for 2021-
    2030" that received green light from our shareholders on November 4, 2021.
  • Please note that our strategy includes as important objectives:
    o development of onshore blocks under concession, concession of new perimeters and exploitation of offshore gas in the Black Sea, and an overall annual decline of the natural gas production below 2.5%;
    o production of sustainable energy;
    o a minimum 10% reduction of carbon, methane and other gas emissions.

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SNGN Romgaz SA published this content on 18 May 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 May 2022 05:31:06 UTC.

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