SNGN ROMGAZ SA

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SNGN Romgaz : Transcript Conference Call - November 2021

11/16/2021 | 09:18am

CONFERENCE CALL

FOR THE DISCUSSION OF THE 9M/Q3 2021 RESULTS

of ROMGAZ Group

November 15, 2021

PARTICIPANTS:

Razvan POPESCU

Chief Financial Officer

Radu MOLDOVAN

Energy Trade Director

Ion FOIDAS

Production Department Director

Ovidiu PINCA

Exploration-Appraisal Director

Daniel CORNEA

Head of Investment Project Management

Gabriela TRANBITAS

Head of Financial Reporting & Accounting

Methodologies Department

The Investor Relations Team

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Mr. Razvan POPESCU, CFO:

INTRODUCTION TO THE CONFERENCE CALL

for the discussion of the 9M/Q3 2021 Results - Nov 15, 2021

Good afternoon ladies and gentlemen,

Thank you for joining our conference call to discuss the results recorded by Romgaz Group in the first 9 Months / Q3 2021.

We released the Quarterly Report on Friday, and this includes the presentation of our economic performance and the IFRS Interim Consolidated Financial Statements.

Also, an overall presentation of the group is available on our website.

In the beginning we present some highlights regarding the gas market environment in the first 9 months of 2021 compared to the previous year:

  • We estimate that total natural gas consumption in Romania marginally increased by 3% in the first 9 months, while in Q3 alone - gas consumption recorded a decrease of 14%, according to our assessments.
  • Monthly Average of Wholesale Gas Prices on the Romanian Commodities Exchange (Spot & Forward Markets) recorded a bottom in October 2020, and afterwards followed a steep upward trend; these prices are considered as of the month of delivery.
  • On the Central European Gas Hub, the average reference price followed a more accelerated increase in 2021: almost 3 times in the first 9 Months, and over 5 times in Q3 alone compared to the similar periods of 2020.
  • Regarding the gas sector regulation, please be adviced that prices of gas sold by domestic producers to households were capped at the maximum value of 68 RON/MWh until June 30, 2020.
    Starting with July 1st 2020, gas prices have been fully liberalized both for producers and suppliers, with some restrictions enforced by the Gas Release Program through the regulator's Orders no 143 and 144 / 2020.
    Accordingly, large gas producers have the obligation to offer 40% of the previous year gas production (less own and technological consumption) on the centralized markets, with a discount of at least 5% from the previous 60-days average price of the standardized products. The program is applicable until the end of 2022.

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For the first 9 months of 2021, we can emphasise the following key operational and financial performance achieved by Romgaz Group:

  • We succeeded to increase our Gas Production by 15.9% year-on-year, to 3.71 bcm.
    The good performance is mainly due to: works to optimize wells operation, continuous and extended rehabilitation programmes in main mature reservoirs, workover operations at low-flow or inactive wells, and completion of investments to develop the production infrastructure and connect new wells to this infrastructure.
  • Our market share in total gas deliveries in Romania climbed to 45.8% according to our estimates, higher by 8% compared to the same period of 2020
  • On the sales side, Traded Gas Volumes improved by over 26% to 3.76 bcm - close to the 2019 pre-pandemic level, and at the highest level recorded in the past years
  • Consequently, "Total Revenues from gas sold (including resales)" were up by 26%, also due to an active commercial strategy and strong portfolio of clients
  • "Revenues from Storage Services" declined by 30% on lower revenues from capacity reservation and injection activities in the period
  • "Revenues from Electricity" increased by 27.5% year-on-year, based on the favourable gas value chain policy conducted by Romgaz, on the supportive electricity market demand and on pricing as well
  • Overall, we recorded "Total Revenues" of 3.50 billion RON, up by almost 20% compared to 2020
  • Regarding expenses, we can mention the negative impact of "Gas & UGS royalties" that increased significantly 2.6 times year-on-year - mainly as a result of high reference prices on CEGH; Also, the "Windfall profit tax" rose by 9% in the period on higher volumes sold
  • We recorded a Net Profit of 1.16 billion RON in the first 9 months - which exceeded by almost 23% the level reported in the previous year
  • We also maintained all profitability margins at strong levels: EBITDA margin at 51.7%, EBIT margin at 37.5% and Net profit margin at over 33%.

In Q3 alone, results were significant - helped by our favourable commercial strategy and improved pricing in the market, so we can highlight the following performance:

  • Natural gas production was higher by almost 25% to 1.19 bcm
  • Volume of Gas Traded rose by 34% year-on-year, at the highest Q3 level recorded after our listing on the Bucharest Stock Exchange

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  • Total Revenues were up 72% year-on-year, mainly due to "Total Gas Revenues" which increased by 85% - and also helped by "Revenues from Electricity" generated by the old power plant
  • Positively, we reported EBITDA almost double to 622 million RON, and Net Profit of 395 million RON - which is 2.8 times higher compared to 2020
  • All profitability rates recorded an increase - so we can mention EBITDA margin of almost 50% and Net Profit margin - up to 31.7%
  • All these significant results were achieved in spite of the negative impact from Royalties and Windfall Profit Tax that jointly were higher 3.5 times compared to 2020.

Regarding capex, we invested 349 million RON in the first 9 months, which accounted for 54% of the budgeted amount. We provided additional details in our Quarterly Report.

There are also highly important events that occurred or are planned in Q4 this year, and which are in the investors' attention:

  • In October, the Gov't approved the extension of exploration programme for 8 blocks
    - by 6 years (2021-2027) - as negotiated with ANRM (the National Agency for Mineral Resources)
  • We issued the new "SNGN Romgaz Strategy for 2021-2030" - which received green light from our shareholders on November 4.
    The main strategic objectives are to: develop portfolio of resources - both onshore and offshore - focused on mitigating the climate changes effects, to produce electricity with low CO2 emissions, to use renewable energy sources, and digital transformation of the company. The Strategy is available on our website.
  • In line with our strategic objective to strengthen our gas resources portfolio, we are in advanced stage to acquire 50% of the rights and obligations for petroleum exploration, development and production in XIX Neptun Deep Block - from Exxon Mobile E&P Romania Ltd. The transaction cost is planned to be partially financed through 325 million EUR bank loans.
    Both an Extraordinary and an Ordinary General Meeting of Shareholders are called on December 9, to approve the acquisition and the related bank loans.
    As we have previously announced, we expect to finalize the transaction in Q1 2022, after obtaining all required approvals and meeting all terms mentioned in the sale- purchase agreement.

With this, we would like to close our presentation and thank you for your attention!

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SNGN Romgaz SA published this content on 16 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2021 14:16:09 UTC.

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