Annual Report
2018
Contents
Who we are
The energy for a better life
An integrated energy company
Our business model
Why invest in OMV Petrom
From sound performance to attractive returns
Partner for Romania
1
2
3
4
5
6
Company
Statement of the Chief Executive Officer
OMV Petrom on the capital markets
OMV Petrom Strategy
Business environment
Business segments’ operational performance
Upstream
Downstream Oil
Downstream Gas
Report of the governing bodies
Report of the Supervisory Board
Directors’ report
Corporate governance report
Corporate governance statement
Declaration of the management
Abbreviations and definitions
Consolidated financial statements and notes
Independent auditor‘s report
Consolidated statement of financial position
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
8
10
14
18
21
21
26
29
32
36
48
59
71
72
76
86
88
89
90
92
94
187
Consolidated report on payments to governments
OMV Petrom Group in figures
Note: In this report, “the company”, “OMV Petrom”, “OMV Petrom Group” and “the Group” are sometimes used
for convenience where references are made to OMV Petrom S.A. and its subsidiaries in general. The financials
presented in the report are audited and represent OMV Petrom Group’s consolidated results prepared according to
IFRS; all the figures refer to OMV Petrom Group unless otherwise stated. Figures may not add up due to rounding
differences.
Starting January 2017, OMV Petrom’s Consolidated Income Statement has been restructured in line with industry
best practice in order to better reflect the operations of the Group and enhance transparency for the users of the
financial statements. For more information, please see OMV Petrom’s Investor News published on April 6, 2017,
which can be found on the company’s website www.omvpetrom.com, section Investors › Investor News.
The energy for a better life
OMV Petrom Annual Report 2018 | Who we are
Every single day, OMV Petrom makes people's lives better.
Every single day, OMV Petrom produces and supplies the energy
for millions of people - for their comfort, their need for mobility or
the passion to travel.
Energy is part of our lives: fuel is the basis for mobility, gas is
used for heating homes, and electricity powers the household
appliances that make our lives easier. Behind all this stands the
energy of OMV Petrom.
OMV Petrom leverages on industry’s expertise in Romania,
one of the first oil producing countries in the world. At the same
time, the company successfully applies innovation and technical
know-how to contribute to improving the quality of life.
We produce energy in all its forms: fuels, gas and electricity.
Safely. Securely. Responsibly.
Today and tomorrow.
The energy for a better life 1
An integrated energy company
OMV Petrom is the largest energy company in
Southeastern Europe.
The company is active along the entire energy
value chain: from exploration and production of
oil and gas, to refining and fuels distribution, and
further on to power generation and marketing of
gas and power.
The company is organized into three operationally
integrated business segments – Upstream,
Downstream Oil, Downstream Gas. OMV
Petrom’s integrated business model provides
financial resilience due to synergies and natural
hedging against oil price volatility.
In Upstream, OMV Petrom is present in Romania
and Kazakhstan.
Our expertise varies from deep onshore
exploration to mature fields and shallow offshore
production.
In 2018, our portfolio consisted of 532 mn boe
proved (1P) reserves and around 58 mn boe
hydrocarbon production (thereof 3.7 mn tons of
crude oil and natural gas liquids and 4.8 bn cubic
meters of natural gas).
In Downstream Oil, we operate the Petrobrazi
refinery, which has a capacity of 4.5 mn tons
per year and can process OMV Petrom’s entire
Romanian equity crude oil.
We are present on the oil products retail market
through a network of 794 filling stations located in
Romania, Moldova, Bulgaria, and Serbia. These
filling stations are operated under two brands:
Petrom and OMV. In 2018, the Downstream Oil
segment recorded 5.0 mn tons of refined product
sales, of which 2.7 mn tons were retail sales.
In Downstream Gas, we are engaged in electricity
production, and gas and power sales.
We operate the Brazi gas fired power plant, which
has a capacity of 860 MWh.
In 2018, the Downstream Gas segment recorded
gas sales volumes of 47.3 TWh (thereof 38.9 TWh
to third parties), the equivalent of 4.4 bcm, and
generated 3.8 TWh of electricity.
Every day, millions of people and thousands of
businesses in Romania and in the region use our
energy.
OMV Petrom’s fuels and energy products enable
mobility, provide heat for living and working, and
form the basis for a variety of plastics and high-
end petrochemical products used daily.
OMV Petrom has a long tradition of sustainable
and responsible behavior in delivering energy with
the purpose of improving people’s lives.
Sustainability for OMV Petrom means creating
long-term value for our customers and
shareholders, while being an innovative company
and an employer of choice.
We conduct our business in a responsible way,
respecting the environment and adding value to
the societies in which we operate.
2 An integrated energy company
Our business model
OMV Petrom Annual Report 2018 | Who we are
Our business model 3
Why invest in OMV Petrom
OMV Petrom is the largest energy company in
Southeastern Europe and the largest Romanian
company listed on the Bucharest Stock Exchange,
with a market capitalization of EUR 3.6 bn at the
end of 2018.
been an enormous amount of change to get the
best out of our assets, align ourselves with best
practice and industry trends and be leaders in the
way we develop our people.
18.35% of OMV Petrom’s capital is free float
traded as shares on the Bucharest Stock
Exchange and as GDRs on the London Stock
Exchange.
The company has a leading position in the fuels
and natural gas markets in Romania and an
important contribution to the country’s security of
electricity supply.
OMV Petrom’s success is based on its integrated
business model, on operational excellence and on
financial discipline, which are key in generating
sustainable growth and attractive returns for our
shareholders.
OMV Petrom also benefits from the expertise
and international exposure of OMV, the
majority shareholder with 51.01% of shares, an
internationally active energy company based in
Austria.
Since its privatization 14 years ago, OMV
Petrom’s story has been about transformation,
restructuring and modernization. There has
During this period, OMV Petrom has provided
a stable base for Romania’s economy as a
reliable energy supplier, a major employer, and a
significant contributor to the state budget.
Creating value for its customers by enhancing
their satisfaction and experience has been
one of the company’s prime objectives. Also,
OMV Petrom considers its responsibilities to its
employees and the environment to be a priority.
To this end, the company has worked hard to
lower the lost time injury rate and to consistently
reduce its greenhouse gas emissions and water
intensity.
The company confers great importance upon
the principles of good corporate governance
considering corporate governance a key element
underpinning the sustainable growth of the
business and also the enhancement of long-term
value for shareholders. To remain competitive in a
changing world, OMV Petrom constantly develops
and updates its corporate governance practices,
so that it can meet new demands and future
opportunities.
After years of hard work that paid off, OMV
Petrom has consolidated its position in the oil
and gas market and has turned into an efficient
business. We have come a long way during these
years and our ambition is to go much further. We
are proud of the strong and sound foundation
we have built, which allows us to further create
sustainable value for our stakeholders.
OMV Petrom is committed to deliver a competitive
shareholder return throughout the business cycle,
including paying a progressive dividend. We aim
to increase our dividend each year or at least
maintain it at the previous year’s level, in line with
the financial performance and investment needs,
considering the long term financial health of the
company.
4 Why invest in OMV Petrom
From sound performance to attractive returns
OMV Petrom Annual Report 2018 | Who we are
Clean CCS Operating
Result1
(In 2017: RON 3.3 bn)
Clean ccs Net Income
Attributable To
Stockholders1,2,3
(In 2017: RON 2.5 bn)
Net Income Attributable
To Stockholders2
(In 2017: RON 2.5 bn)
RON
4.8 bn
RON
3.7 bn
RON
4.1 bn
Cash Flow from Operating
Activities
(In 2017: RON 6.0 bn)
Capital Expenditure
(In 2017: RON 3.0 bn)
Total Dividends
(In 2017: RON 1.1 bn)
RON
7.4 bn
RON
4.3 bn
RON
1.5 bn4
Free Cash Flow After
Dividends
(In 2017: RON 2.7 bn)
RON
2.0 bn
Payout Ratio
(In 2017: 45%)
38%4
Clean CCS ROACE1,3
(In 2017: 9.8%)
Dividend Per Share
(In 2017: RON 0.020)
14.3%
Dividend Yield5
(In 2017: 7%)
9%
RON
0.0274
Total Shareholder
Return6
(In 2017: 15.3%)
11.5%
All values refer to 2018, unless otherwise stated.
1 Adjusted for exceptional, non-recurring items; Clean CCS (current cost of supply) figures exclude special items and inventory holding effects (CCS effects)
resulting from Downstream Oil; starting with 2017, special items include temporary effects from commodity hedging (in order to mitigate Income Statement
volatility);
2 After deducting net result attributable to non-controlling interests;
3 Excludes additional special income from a legal dispute reflected in the financial result;
4 Dividend subject to GMS approval on April 19, 2019;
5 Calculated with the share prices at the end of the previous year;
6 Calculated with previous year DPS.
From sound performance to attractive returns 5
Partner for Romania
We are the largest private investor in Romania, the largest energy company, the biggest taxpayer
and one of top 3 private employers. We are aware of the important role we play in the economy and
responsible behaviour is deeply embedded in our company's culture.
We provide the energy
for a better life for
23million people
14.5billion euro
invested during
2005-2018
S we employ over
B
13,000
O
J
people
3
million cars
can be supplied
annually with
fuels produced
at Petrobrazi
refinery
27.8billion euro
taxes and
state budget
contributions
paid during
2005-2018
E
R
O
M
N
A
H
T
52
MILLION EURO IN
SUSTAINABILITY PROJECTS
DURING 2007-2018
Technology is embedded
in our strategy
Safety iS our
top priority
10 million euro donated for
the first pediatric oncology
hospital in Romania
6 Partner for Romania
Company
8
10
Statement of the Chief Executive Officer
OMV Petrom on the capital markets
14
OMV Petrom Strategy
18
21
21
26
29
Business environment
Business segments’ operational performance
Upstream
Downstream Oil
Downstream Gas
Statement of the Chief Executive Officer
Sector fundamentals
remained largely
supportive; domestic
regulatory and fiscal
environment became
more challenging
Cash outflow for
investments at RON
4.3 bn, 74% higher vs.
2017
Dear Shareholders,
Being at the helm of OMV Petrom since May
2018, I can look back at a truly eventful year. I am
very grateful to all my Board member colleagues
and everybody at OMV Petrom for the warm
welcome and great support during the year.
In terms of the external environment, sector
fundamentals remained largely supportive
with commodity prices continuing their upward
trend, partially offset by refining margins moving
downwards. Romania's economic growth
slowed down in 2018, to 4.1% from 7.0% a year
earlier, but the pace of economic expansion
remained one of the highest in the EU. Domestic
consumption continued to be the main engine of
growth, supported by public sector and minimum
wage increases in excess of productivity gains,
but to a lesser extent than in 2017. Against this
backdrop, we were faced with a challenging
domestic regulatory and fiscal environment,
impacted, starting from Q4/18, by the gas price
cap introduced via the Emergency Government
Ordinance no. 114, and by the supplemental
taxation stipulated in the Offshore Law.
For the full year 2018, we delivered an excellent
performance, with Operating Result of RON 5.2
bn supported by ongoing cost optimization and
by reversal of impairments. The operating cash
flow reached RON 7.4 bn. We delivered on our
promise to increase CAPEX, with cash outflow
for investments being up by 74% yoy, to RON
4.3 bn. We also paid higher dividends of RON
1.1 bn for the financial year 2017, an increase
of 33% compared to the previous year. Our free
cash flow after dividends reached RON 2 bn. In
addition, our balance sheet remained solid with
cash reserves of RON 5.6 bn at the end of 2018,
which puts us in a strong position to finance our
strategic projects and offer an attractive dividend
to our shareholders going forward.
Looking at each business segment, in Upstream
we benefited from better realized prices and lower
total production costs, lower depreciation and
exploration expenses, on aggregate offsetting
the impact of production decline. As a result, the
8 Statement of the Chief Executive Officer
Clean Operating Result almost doubled compared
to 2017. We made progress towards simplifying
our footprint by signing the transfer of another
nine marginal fields to Mazarine Energy, on top of
the 19 fields which had already been transferred
in 2017. We drilled 110 new wells and sidetracks,
performed around 1,000 workovers and we
brought our currently top producing oil well
into production following a successful offshore
campaign.
In Downstream Oil, we invested in the following
major projects: the Petrobrazi refinery turnaround
(a EUR 45 mn financial effort that allows us
to enter an extended four-year cycle between
turnarounds), the Polyfuel project and the fuel
storage modernization. The Clean CCS Operating
Result reflected our very good sales performance,
partly compensating the impact of the refinery
turnaround in Q2/18, and the lower refining
margins.
The Downstream Gas result significantly
increased, reflecting the optimization of products
and clients, as well as the improved performance
of the power business, supported by higher
availability of the Brazi power plant.
Based on the results and strong free cash
flow, the Executive Board proposed a gross
OMV Petrom Annual Report 2018 | Company
We are targeting the
further expansion of
our partnership with
Auchan
2019 CAPEX resized
at RON 3.7 bn, down
14% yoy
dividend of RON 0.027/share for the 2018
financial year, up 35% from the previous year
and representing a 38% payout ratio. The
proposal was approved by the Supervisory
Board and is subject to approval by the GMS
on April 19, 2019.
Our free float remained at 18.35% during the
past financial year. The stock price and trading
volumes had developed positively until the
beginning of November, the maximum share
price of the year being 38% higher than the
2017 closing price. The Emergency Government
Ordinance no. 114 was approved in December,
causing OMV Petrom’s share price to decline
abruptly, as did the entire Bucharest Stock
Exchange. Nevertheless, OMV Petrom’s share
price finished the year on an upward trend, at
RON 0.2990, and outperformed the BET index
by 9.3 percentage points. The total shareholder
return (including the dividend of RON 0.02/
share for the 2017 financial year) was 11.5%.
Stock liquidity improved in 2018, with average
daily traded value at RON 4.02 mn (EUR 0.86
mn), up 52.2% yoy in RON terms (excluding
the accelerated book building transaction in
September 2017).
We also made further progress towards the
implementation of our strategic objectives. In
2018, we continued to enhance competitiveness
across all business segments. In the Upstream
segment, we continued the streamlining of
our producing assets portfolio, modernized an
additional 20 facilities, improved the Mean Time
Between Failures (MTBF) indicator in Romania
to 700 days, and ramped up drilling activity to
maximize economic recovery. In Downstream
Oil, we completed or advanced with several
key projects that allow us to increase refinery
flexibility, while maintaining a fuel and loss ratio
below 9%. In Downstream Gas, we focused on
capturing the highest integrated operational value,
and generated the highest net electrical output
since the Brazi power plant started operations
in 2012, capitalizing on the favorable market
conditions. Under the second strategic pillar –
developing growth options – the assessment
of the commercial and economic viability of the
Neptun Deep project continued. In Downstream
Oil, we completed the mechanical works for the
Polyfuel plant. We also finalized the pilot phase
of MyAuchan convenience stores in 15 Petrom
branded filling stations, and we are targeting the
further expansion of the partnership. As for the
third strategic pillar – regional expansion – we
continued the assessment of growth opportunities
in selected core regions.
Looking ahead to 2019, we aim to maintain the
production decline to approximately 5% compared
to 2018, excluding portfolio optimization. We
remain strongly committed to develop our key
growth project, Neptun Deep; thus we will
continue the dialogue with the authorities to
understand the way forward, to have all key
requirements in place (regulatory framework,
fiscal stability, competitive terms, liberalized gas
market and key infrastructure). Over the last two
years we have been ramping up investments and
our plan was to continue this. However, in the
recent period, we have seen higher fiscal and
legislative volatility. The need to understand the
investment climate has caused us to revisit our
investment plans in terms of size and pace. As
such, we plan CAPEX of around RON 3.7 bn for
2019, reduced by 14% yoy. For the 2019-2021
period, we are committed to achieving a positive
free cash flow after dividends, maintaining
a strong balance sheet, and continuing to
offer an attractive progressive dividend to our
shareholders.
Let me take the opportunity to thank all our
shareholders, other stakeholders and employees
for your trust and continuing support over the past
year and ensure you that we take our greatest
effort to enhance OMV Petrom’s value as well
as the overall contribution to the countries we
operate in.
Christina Verchere
Statement of the Chief Executive Officer 9
OMV Petrom on the capital markets
Shareholder structure
At the end of 2018, OMV Petrom S.A. had the
following shareholding structure: 51.0105% –
OMV Aktiengesellschaft, 20.6389% – Romanian
State (via the Ministry of Energy), and 9.9985%
– Fondul Proprietatea S.A. The remaining
18.3521% represents the free float, traded as
shares within the Premium category of the BSE
and as GDRs within the Standard category on
the main market of the LSE. At the end of 2018,
510 legal entities from Romania and abroad held
89.5% of the free float shares or 16.4% of OMV
Petrom share capital, with the remainder (10.5%
of the free float or 1.9% of capital) being held by
around 455,000 private individuals.
Fondul
Proprietatea
9.99%
OMV 51.01%
Romanian State
20.64%
52.6%
Free float
18.35%
Free float
18.35%
5.7%
4.1%
5.9%
10.5%
16.6%
4.6%
RO
HUN
UK + IRL
US
Rest of Europe
Rest of World
Retail
A higher share of
our free float held by
Romanian institutional
shareholders
The share price ranged
between RON 0.28
and RON 0.3955
An analysis of our shareholder structure, as at the
end of 2018, shows that 52.6% of the free float
was held by Romanian institutional shareholders
(2017: 48.1%), 10.5% by retail investors (2017:
11.4%), 5.7% were Hungarian institutional
investors (2017: 6.9%), 4.1% were from the UK
and Ireland (2017: 5.0%), 5.9% were from the
USA (GDR component included in this category)
(2017: 5.2%), 16.6% were from other European
countries (2017: 17.6%), and 4.6% were from rest
of the world (2017: 5.7%).
Shares
During 2018, OMV Petrom share price and trading
volumes were significantly influenced by news
related to sector regulations, such as the Offshore
Law (approved in the Parliament in October) and
the Government Emergency Ordinance no. 114
(issued in December). On December 19, 2018,
the share price declined by 13%, which was the
year’s largest daily depreciation. Furthermore,
on December 21, 2018, the OMV Petrom share
price reached the lowest level for trades on the
Regular market, RON 0.2800.
On the ex-dividend date May 24, the share price
corrected by 5.7%, less than the equivalent of
2017 dividend per share of RON 0.02. The share
price did not recover by the end of the month, in
the context of domestic uncertainties regarding
the Pillar II private pension funds and international
pressures on the oil price. Consequently, the
OMV Petrom share price declined by 10.7% mom
in May, while the BET index decreased by 7.3%
mom.
With the exceptions above, the stock price and
trading volumes had largely a positive evolution
until the beginning of November. The maximum
share price in the year of RON 0.3955 was
reached on November 7 and the highest
daily traded volume of 141.3 mn shares was
registered on November 9.
The 2018 average OMV Petrom share price for
trades on the Regular market was RON 0.3351,
11.3% higher than the 2017 figure of RON 0.3011,
while the average Brent oil price increase was of
32% yoy. The average daily traded volume was
10 OMV Petrom on the capital markets
OMV Petrom Annual Report 2018 | Company
11.8 mn shares (8.8 mn in 2017 including Deal
trades, but excluding the ABB transaction), up
33.7% yoy, while the average daily traded value
was RON 4.02 mn, up 52.2% yoy in RON terms.
The 2018 average traded value in EUR terms was
EUR 0.86 mn.
Domestic indices were more volatile in 2018
than in 2017. The BET index closed the year in
negative territory, decreasing by 4.8% yoy, mostly
due to its 14.8% mom decline in December, the
highest in the European emerging markets region.
The BET TR (total return BET) appreciated 4.3%
yoy in 2018, saved by the high dividend yields
offered mostly by the majority state owned energy
companies. The BET-NG index (comprising
stocks in the energy and utilities sectors) in which
OMV Petrom S.A. has a weight of around 30%,
decreased by 7.4% yoy. The BET-BK index
(designed as a benchmark for asset managers
and institutional investors) declined by 11.6% yoy.
Outperforming the BET index by 9.3 pp, the OMV
Petrom share price managed to end the year with
an upward trend, at RON 0.2990, 4.5% higher
yoy. The total shareholder return (including the
dividend of RON 0.02/share for the 2017 financial
year) was 11.5%.
OMV Petrom share
price outperformed
the BET index by 9.3
pp. Total shareholder
return at 11.5%
OMV Petrom share price (SNP) and BET performance 2018
29 December 2017 = 100
24-May-18; Ex dividend
date;
RON 0.3210
7-Nov-18; Highest share
price of the year;
RON 0.3955
25-Oct-18; Offshore
Law approved;
RON 0.3760
19-Dec-18; EGO 114
announced;
RON 0.3020
21-Dec-18; Lowest share
price of the year;
RON 0.2800
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
SNP
BET
150
140
130
120
110
100
90
80
Dec-17
OMV Petrom S.A. market capitalization at the
end of 2018 was RON 16.9 bn or EUR 3.63 bn,
accounting for around 12% of the total market
capitalization of the companies listed on the BSE
and for 24% of the capitalization of the BET index
(representing the 15 most liquid blue-chip stocks
listed on the BSE).
OMV Petrom S.A. share symbols
ISIN
Bucharest Stock Exchange
Bloomberg
Reuters
ROSNPPACNOR9
SNP
SNP RO
ROSNP.BX
OMV Petrom on the capital markets 11
At a glance
Number of shares (mn)
Market capitalization (RON mn) 1
Market capitalization (EUR mn) 1
Year’s high (RON)
Year’s low (RON)
Year end (RON)
EPS (RON/share)
Dividend per share (RON)
Dividend yield (%) 1
Payout ratio (%) 3
2018
56,644.1
16,937
3,631
0.3955
0.2800
0.2990
0.0720
0.027 2
9.0
38
2017
56,644.1
16,200
3,477
0.3365
0.2775
0.2860
0.0440
0.020
7.0
45
∆ (%)
0
5
4
18
1
5
64
35
29
(18)
1 Calculated based on the closing share price as of the last trading day of the respective year;
2 Dividend subject to GMS approval on April 19, 2019;
3 Computed based on the Group’s net profit attributable to stockholders of the parent.
Global Depositary Receipts (GDR)
The GDR price on the last day of trading in
2018 was USD 11.30, translating into a 3.2% yoy
increase. In 2018, the GDR price ranged between
a USD 10.95 low (on January 2) and a USD 14.40
high (on October 24).
In total, 751,171 GDRs were traded in 2018, up
141.7% yoy, while the daily average number of
GDRs was 2,969, up 142.6% yoy.
The highest monthly trading volume and value
was reached in August (211,963 GDRs, worth
of USD 2.57 mn), while the lowest in March (no
trades). The total value of GDRs traded in 2018
was USD 9.5 mn, significantly up yoy (181.3%).
9,039 GDRs were issued and 839,409 GDRs
were cancelled in 2018 (net cancellations
830,370 GDRs). The number of GDRs
outstanding at the end of each month ranged
between 1,051,092 (in January) and 237,922
(in December). The latter figure represents
9.5% of the GDRs issued in the October 2016
Secondary Public Offering and 0.3% of the free
float.
In 2018, most of the indices on both the
European and US exchanges had a downward
trend: the DAX decreased by 18.3%, FTSE 100
by 12.5%, STOXX Europe 600 by 10.2%, while
the FTSE Global Energy Index, comprising the
world’s largest oil and gas companies, decreased
by 17.1%. Dow Jones Industrial average fared
better, with only a 5.6% yoy decline, while
STOXX Europe 600/Oil & Gas closed flat yoy.
Value of GDRs traded
significantly higher yoy
OMV Petrom S.A. GDR symbols
London Stock Exchange Regulation S
ISIN Regulation S GDR
London Stock Exchange Rule 144A
ISIN Rule 144A GDR
PETB
US67102R3049
PETR
US67102R2058
12 OMV Petrom on the capital markets
Own shares
At the end of 2018, OMV Petrom S.A. held a total
number of 204,776 own shares, representing
0.0004% of issued share capital. In 2018, OMV
Petrom did not buy back or cancel any Treasury
shares.
Investor Relations activities
During 2018, the Company’s top management
and the Investor Relations (IR) team had an
active presence on the local and foreign capital
markets, via attending analyst and investor
conferences and non-deal road shows, locally
as well as across Europe and North America.
The high level of accessibility for investors and
analysts was maintained also through regularly
organized meetings and conference calls.
Furthermore, OMV Petrom IR improved
interaction with financial market participants by
continuing its quarterly mini-surveys aimed at
identifying analysts’ perception of the Company
in terms of its strengths, weaknesses, and areas
of misunderstanding. The quarterly Trading
Update of Key Performance Indicators (KPIs)
also proved a key tool for analysts and investors
in the early understanding of OMV Petrom’s key
trends. As part of the quarterly reporting package,
OMV Petrom continued publishing a Factsheet
as well as the Questions and Answers section
of the quarterly conference calls on its corporate
website: www.omvpetrom.com.
In the interest of transparency and timeliness,
all company reports, releases, and important
information for shareholders, analysts, and
investors are promptly disseminated on the
BSE and LSE websites and also posted in the
Investors section on the Company’s website.
Analyst coverage of OMV Petrom shares
The research coverage by sell-side analysts
remained constant. BT Capital Partners and
Renaissance Capital initiated coverage, while
two local brokerage houses (IEBA Trust and
BRD Groupe SG) ceased their coverage on OMV
Petrom.
At the end of 2018, OMV Petrom stock was
OMV Petrom Annual Report 2018 | Company
Analysts' median TP
higher 22% yoy
Gross DPS proposal
at RON 0.027/share
offers an attractive
yield of 9%
covered by eight analysts, of whom six (or 75%)
had “Buy” or equivalent ratings (end of 2017:
75%), and of whom two (or 25%) had “Hold” or
equivalent ratings (end 2017: 25%). There were
no analysts with “Sell” ratings. The median
target price (TP) according to analyst consensus
estimates was RON 0.4420 (translating into a
47.8% upside potential compared to the share
price of RON 0.2990 on the last day of trading in
the year). This compares to a median TP of RON
0.3625 as at end 2017.
Dividends
The Supervisory Board has approved the
Executive Board’s proposal to the Ordinary GMS
to distribute a gross dividend per share of RON
0.027 for the year 2018. This translates into a
total cash outflow of RON 1,529 mn, a payout
ratio of 38% of the Group’s 2018 net profit
attributable to stockholders of the parent (2017:
45%), or 49% of the Group’s 2018 free cash flow
(2017: 32%), which is in line with the current
dividend policy of a progressive dividend. The
2018 dividend proposal is subject to the approval
of the forthcoming Ordinary GMS on April 19,
2019.
Dividend policy
In April 2018, we amended our dividend policy.
OMV Petrom is committed to deliver a competitive
shareholder return throughout the business cycle,
including paying a progressive dividend. We aim
to increase our dividend each year or at least
maintain it at the previous year’s level, in line with
the financial performance and investment needs,
considering the long term financial health of the
Company.
OMV Petrom on the capital markets 13
OMV Petrom Strategy
OMV Petrom continues its journey to long-term
success, being responsible for producing and
delivering the energy for a better life for millions of
people. We remain committed to delivering on our
promises, strengthening our position as a leading
integrated regional player, with the underlying
ambition of offering an attractive return to
our shareholders. We will achieve this by
sustainably exploring opportunities in Romania,
steadily pursuing regional growth, and constantly
enhancing our offer and customer experience.
Good progress in implementing our strategy was
achieved in 2018.
Enhancing
competitiveness
Developing
growth options
2018 highlights
Intensive drilling campaign
Continuous optimization of the
producing portofolio
Increased operational efficiency
Successful Petrobrazi turnaround
Investments 42% higher yoy 1
Progressing Neptun Deep
project
Polyfuel project in refinery
Auchan partnership in retail
Higher througput per filling
station
Strong performance
and attractive return
14.3% Clean CCS
ROACE
EUR 430 mn FCF
after dividends
35% yoy dividend
growth 2
11.5% total
shareholder return
Regional
expansion
Assessment of growth
opportunities in selected core
regions
1 Calculation based on EUR figures;
2 Dividend subject to GMS on April 19, 2019.
The first multilateral
horizontal offshore
well added as top oil
producer in 2018
Our relentless efforts to enhance the
competitiveness of our existing portfolio led us
to remarkable results in all business divisions in
2018. Pursuing the value-over-volume approach
in all our areas of activity, driving competitive
advantage, becoming a more agile and efficient
organization, and being attractive to business
partners were the priorities of the company.
The strategic priorities for Upstream remain
maximizing profitable recovery and
streamlining the portfolio. To extend the lifetime
of the oil and gas reservoirs and ensure the
security of the energy supply, drilling activities
were intensified and technological, innovative
solutions were tested and applied by our experts.
110 new wells and sidetracks were drilled, 59%
higher yoy, including deep and complex, high
impact exploration wells. We have successfully
completed the shallow offshore drilling campaign,
adding the first multilateral horizontal offshore
well as top oil producer to our portfolio. An
investment of approximately EUR 30 mn translated
into a significant contribution to production of
approximately 1,300 boe/day on average for 2018.
The gas well 4317 Mamu, drilled to a depth of
14 OMV Petrom Strategy
OMV Petrom Annual Report 2018 | Company
approximately 4,400 meters, started production
in Q4/18 and added more than 1,200 boe/day to
the daily average production. The drilling results,
together with the implemented enhanced recovery
techniques, such as water and polymer injection,
will help reach the strategic targets of ultimate
recovery rates of 28% for oil and 55% for gas.
Our portfolio optimization program advanced in
2018 with the agreement for the transfer of nine
marginal fields to Mazarine Energy Romania as
part of the second divestment round. These fields
are located in the Moinești Zemeș region and
represent less than 1% of OMV Petrom’s current
production. The transfer of these fields became
effective as of March 1, 2019. The portfolio
optimization program continues with the target of
further 40 – 50 marginal fields to be divested. This
will lead to the simplification of our operational
footprint, enabling us to concentrate our efforts on
the fields which generate most value.
Our commitment to operational excellence
in Upstream remains the main driver for the
implementation of projects, resulting in EUR 31 mn
savings in 2018. The Energy Efficiency program, a
sustainable contributor to decreasing greenhouse
gas emissions, accounted for substantial cost
reductions last year. The insourcing of special
services such as the slickline, sand control and
packers activities, and the acquisition of Rig 200,
a high performance 200 metric tons rig, the largest
in our heavy workover fleet, will ensure major
savings as well. The Total Productive Maintenance
concept, for which implementation started in
2018, will result in multi-milion euro savings and a
positive evolution of surface equipment reliability
indicators. After reaching the targeted goal of
more than 600 days Mean Time Between Failures
(MTBF) in 2017, the key success factors enabling
this result were monitored and further improved,
thus leading to a record of 700 days MTBF at
the end of 2018, directly linked to lower well
intervention costs. All these projects have been
developed to sustainably support a competitive
cost base.
At the end of 2018, approximately 70% of our
production surface facilities were modernized /
automated and 5,000 oil, gas and injection wells
were automated, representing more than 50% of
our active wells portfolio. Our target is to reach an
automation level of around 90% for both wells and
facilities by 2025.
OMV Petrom’s main performance milestone in
Downstream Oil was the execution of the 45-day
Petrobrazi refinery turnaround, a EUR 45 mn
project covering modernization and maintenance
works. This marked the beginning of a four-year
cycle between turnarounds, an achievement
which secures important benefits in terms of costs
generated by the shutdown / restart of the refinery
and the disruption in production. 5,000 workers
were involved in the activities, 3,720 pipes and
9,300 pieces of instrumentation equipment were
inspected, and 2 million man-hours were recorded
without any significant incidents and lost time
injuries.
Maintaining cost discipline, implementing
digital technologies, and developing energy
efficiency projects were our focus areas for
2018 in Downstream Oil as well. The results
achieved position us as a competitive refining
business in the region and underpin our efforts
to further improve our operational performance
to international benchmarks. In this context, we
reached an 85% utilization rate reflecting the
turnaround, and maintained the fuel and loss ratio
below 9% in 2018.
As regards the fuel storage network, we achieved
mechanical completion at our Arad terminal at
the end of the year, with the target to ensure the
depot’s operational start in the first half of 2019.
Consequently, with the modernization of the last
depot, we will ensure a higher efficiency level
of supply with six depots. Furthermore, we are
working to maximize availability and increase
flexibility across the supply chain.
In Downstream Gas, consolidating our leading
position on the Romanian gas market remains
our strategic long-term goal, while we continue
to be an important player on the Romanian
electricity market. As such, in 2018, we achieved
47.3 TWh gas sales volumes and 3.8 TWh net
Petrobrazi refinery
turnaround completed
on time and on budget
Arad terminal
modernization close to
completion at year end
OMV Petrom Strategy 15
electrical output. Gas and electricity sale is part
of our core business; to complement our product
offer, we made progress on creating a services
portfolio to bring additional value to our customers.
By providing energy solutions, we increase the
competitiveness of our offer. Currently, we are
assessing opportunities in the new environment
created by the latest fiscal and regulatory changes
without deviating from the value over volume
approach to ensure strong and sustainable
operations.
Regarding the second strategic pillar – developing
growth options – the assessment of the
commercial and economic viability of the Neptun
Deep project continued. All pre-requisites –
regulatory framework, fiscal stability, competitive
terms, liberalized gas market and key infrastructure
– have to be in place to enable the development
of any gas investment of Neptun Deep scale. If
commercially viable, the Neptun Deep project will
be a key contributor to our RRR target.
The construction of the Polyfuel plant in the
Petrobrazi refinery has progressed as expected.
Mechanical works are completed and the unit
will be operational in March 2019. The plant,
an investment of approximately EUR 65 mn,
represents the first of its kind for the OMV
Group and will employ a state-of-the-art and
environmentally friendly technology. Alongside a
more flexible refinery production structure, this
project will enable an increased output of high-
demand and high-value products by converting
up to 50,000 tons/year of LPG into diesel and
gasoline.
In the retail business, maximizing sales and
enhancing customer experience are our strategic
goals. Thus, in 2018, we continued to execute
our dual brand strategy in Romania. For the
Petrom brand, our objective is to consolidate our
“value for money” positioning. The partnership
with Auchan Retail Romania that started in 2017
continued throughout 2018, with 15 convenience
stores running under the myAuchan brand, as
a pilot project. We are looking to extend this
partnership in the future, following the encouraging
results of the pilot. In addition, consumer incentive
promotions have been successfully implemented
to attract a greater number of younger drivers to
our filling stations. In 2018, we also celebrated
together with our customers Romania’s 100 years
Grand Union Anniversary.
Under the OMV brand, with its “high quality
leader” positioning, we offer a comprehensive
range of high-quality products and services.
With the launch of OMV MaxxMotion, we have
developed high-performance, high-quality
fuels, which have enabled us to achieve market
leadership. In 2018, we continued to focus on
communicating the unique benefits of OMV
MaxxMotion Performance Fuels: prolonging the life
of the engine and, at the same time, maximizing
its performance. Furthermore, we continued to
improve our non-oil offer, building on the VIVA
experience through gastro and coffee novelties.
The throughput per filling station of 5.03 mn
liters in Romania in 2018, an increase from 4.95
mn liters in 2017, stands as a testimony of our
progress in this area.
In Upstream, the assessment of regional
expansion opportunities in the areas of interest
continued in 2018. This will be a source of
inorganic growth for the company and will
strengthen OMV Petrom’s position among
international oil and gas industry players in our
region.
In Downstream Gas, we maintain our strategic
direction of becoming a regional player. This
heavily depends on a Final Invesment Decision for
the Neptun Deep project.
The progress of our strategy’s implementation
is measured by the financial targets we have
established. EUR 922 mn were spent as CAPEX,
EUR 248 mn were distributed to our shareholders
as dividends, EUR 430 mn was the free cash flow
after dividends, and 14.3% Clean CCS ROACE
was reached at the end of the year.
The three strategic enablers - People and
Organizational Culture, Sustainability, and
Technology and Innovation - support the
The Polyfuel plant to
lead to a more flexible
refinery production
structure
Clean CCS ROACE up
4.5 pp yoy to 14.3%
16 OMV Petrom Strategy
OMV Petrom Annual Report 2018 | Company
implementation of the strategy and ensure the
long-term success of the company.
With team spirit, accountability, passion,
pioneering spirit and performance, we achieve our
objectives in order to build a successful future.
Our priorities for the People and Organizational
Culture enabler are: inspiring leaders – building
high performing diverse teams, performance-
focused and principle-led behavior, organizational
agility and excellence, and a great place to work
for employees.
We focus on conducting business responsibly,
efficiently and in an innovative way. Making the
business even more profitable and sustainable
is our goal for the future. We are committed to
creating long-term value for the company and our
stakeholders, while respecting the environment,
supporting the communities in which we operate,
and striving to support the UN sustainable
development goals. HSSE, carbon efficiency,
employees, business principles and social
responsibility, as well as innovation are our pillars
of the Sustainability enabler.
The ambitious objectives set in our strategy can
only be achieved through the company’s support
for a culture of innovation, the development of
employees’ digital skills, and the successful
implementation of advanced technologies. The
Technology and Innovation strategic enabler
has the following priorities: make existing
business more competitive, develop growth
options, and create a more agile and efficient
organization.
Technology and
Innovation - a key
enabler
Our path to long-term succes
Solid Foundation
Vision
Clear Strategy
Defined
Execution Plan
Deliver
Sustainable Value
Creation
Integrated
business
model
delivers value
through the
cycle
Strong
track record
of capital
management
Strong cash
generation
Provider of
sustainable
access to
energy for
everyday
modern life
Capitalizing
on OMV
Petrom’s
existing
assets and
skills
Enhance
competitiveness
of existing
portfolio
Develop growth
options
Expand the
regional footprint
Sustainability of
reserves base
Operational
efficiency
Value chain
Customer
experience
Enabled by:
People and
Organizational
Culture
Sustainability
Technology and
Innovation
Attractive
shareholder
return
Improved
profitability
Strong
balance sheet
Readiness for
new world of
energy
OMV Petrom Strategy 17
Business environment
Global macroeconomic and sector trends
The world economy advanced by 3.7% in 2018,
marginally down from the previous year. Growth
in advanced economies decelerated to 2.3%,
reflecting a persistent decline from the above-
trend levels. A notable exception has been the US
economy, which recorded strong growth in 2018,
expanding by 2.9%, largely supported by the pro-
cyclical fiscal stimulus. In Japan, economic growth
stood at 0.9%, less than half the rate recorded
in 2017, mainly due to the impact of natural
disasters and extreme weather conditions. Growth
in the Euro area dropped to 1.8% from 2.4%
a year ago, as negative effects coming from a
slowdown in external demand were compounded
by several country - and sector - specific
factors. Feeble domestic private consumption
and weakening industrial production, triggered
by the introduction of revised auto emission
standards, lowered Germany’s economic growth
to 1.5%. Other large Eurozone economies
such as Italy and France were both impacted
by lower domestic demand, increasing by only
1% and 1.5% respectively. In the UK, persisting
uncertainty over the Brexit deal pushed down
economic growth to 1.4% in 2018, the lowest
rate since the financial crisis. Overall, the global
trade momentum decelerated in the second half
of 2018 as trade tensions between the USA and
China maintained high uncertainty levels. While
the postponement of additional tariff increases
by the two countries sent a positive signal at the
end of 2018, the tariffs in place already had a
negative impact on China’s economic growth.
Global financial conditions remained, largely,
accommodative despite policy rate raises in
countries such as the USA, Russia, Mexico or
Indonesia. At the end of the year, the European
Central Bank ended its net asset purchases,
which provided ample liquidity to banks and the
economy, but it pledged that monetary policy will
remain supportive of economic growth in the near
future.
Consumer price inflation in advanced economies
continued its ascending trend, rising to 2%
in 2018. Annual inflation in the OECD area
slowed down markedly in the last quarter of
the year, reaching 2.4%, as moderate wage
growth continued to keep subdued inflationary
expectations. Easing energy prices in the last
months of the year helped to push down energy
price inflation in a large number of economies.
In the USA, annual inflation nudged further up to
2.4% partly as a consequence of the introduction
of tariffs. Eurozone headline inflation rose
marginally to 1.7% amid high levels of capacity
utilization and a mild increase in labour cost
pressures.
In 2018, total global oil demand rose by 1.3%
compared to 2017 to 99.2 mn bbl/d. In absolute
volume terms, the largest increase, by almost
0.9 mn bbl/d, came from Asia, followed by
the Americas with 0.5 mn bbl/d. Oil demand
growth in Europe remained stagnant, impacted
by German diesel demand, which fell due to
concerns about pollution and the falling resale
value of diesel vehicles. The new European Union
(EU) certification requirements, introduced in
September, led to a drop in car sales towards the
end of the year in several EU countries. Total oil
demand rose in both China and India, by 3.8%
and 4.7% respectively, led by increased volumes
of LPG, naphtha and diesel oil. Global oil supply
stood at 99.9 mn bbl/d, a hefty 2.5% increase
compared to 2017, driven to a large extent by the
significant increase in the US shale oil production.
These gains propelled the US oil production to
a record 10.88 mn bbl/d and helped it become
the world’s top oil producer in 2018. The existing
global oversupply triggered a renewed response
from OPEC and other major oil producers, led by
Russia, which, in December, agreed once again
to cut oil production by 1.2 mn bbl/d. As during
the previous agreements, Saudi Arabia bore the
brunt of the production cut, while Iran, along with
Venezuela and Libya, were exempt from the deal.
Oil prices gained steadily in the first three
quarters of 2018 due to strong compliance by the
members of the Vienna Agreement, a relatively
strong oil demand growth and the reintroduction
of sanctions for Iran. In the last quarter of the
year however, oil prices dropped abruptly, as US
production growth soared, supplies from OPEC
and Russia returned to the market and fears of a
retrenchment in global economic growth started
to build up. The net long positions in Brent crude
futures dropped throughout the year by some
Euro area growth
slowed down due to
country - and sector -
specific factors
Oil prices dropped
abruptly in Q4/18
18 Business environment
OMV Petrom Annual Report 2018 | Company
400 mn bbl to around 180 mn bbl at the end of
2018. Overall, however, the average Brent oil price
continued to recover in 2018, increasing by 31.6%
yoy to USD 71.3/bbl. In 2018 the average Urals
price was USD 70.1/bbl, 31.7% higher compared
to 2017. The average spread between Brent and
Urals oil prices increased by 24.7% yoy at USD
1.2/bbl.
Romania - macroeconomic and sector trends
Official preliminary estimates showed that
Romania’s GDP rose by 4.1% in 2018, lower
than the beginning of the year benchmark
government projection of 5.5%. Although growth
remained robust, when compared to that of the
other economies in the EU, the falling pace of
private consumption impinged negatively on the
overall growth figure. Broadly, the composition of
economic expansion is expected to be fairly stable,
with agriculture’s contribution to economic growth
likely to be higher than in 2017. Households’
purchasing power continued to climb in 2018 as
average annual real wages increased by 8.4%,
with nominal wage gains outpacing inflation by
a large margin once again. A tight labor market,
increased skill mismatches, and an additional
boost in the minimum wage levels continued to
push up nominal wages. Wages in the public
sector, in particular, maintained their rapid pace of
growth, preserving the wide differential between
them and the level prevailing for the average
economy. In 2018, consumer confidence improved
marginally, before starting to deteriorate towards
the end of the year.
After the robust performance recorded in 2017,
annual industrial production growth slowed
down to an estimated 3.5% in 2018, which
was in line with the industry trends observed
across Europe’s largest economies. Once again,
manufacturing was the main driver of growth,
while the contribution of mining and quarrying was
more muted. Despite the increase in households’
purchasing power, the demand for new dwellings
continued to fall in 2018. Overall, the volume of
activity across the construction sector dropped by
2.5% as the sector’s recovery kept dragging on.
The diminished pace of private consumption
growth failed to stem the deepening of the trade
balance deficit. Import growth continued to outpace
export growth, widening the trade deficit by 17%
compared to 2017, to the equivalent of -8% of
GDP. As a consequence, the current account
deficit widened even further, to the equivalent of
-5% of GDP, from -3.3% a year before, increasing
the need for additional financing. Net foreign
direct investments were marginally higher in
2018, reaching EUR 4.9 bn, a more substantial
expansion of these being discouraged by the
heightened fiscal and legislative uncertainty.
The fiscal policy became more unpredictable in
2018. At the end of December, the Government
issued an emergency ordinance (EGO no. 114),
which envisaged a range of measures that alter
the domestic free price mechanisms in both
energy and financial markets. Specifically, the
emergency ordinance put a cap on domestic gas
and regulates power prices, while introducing an
additional financial contribution for companies
operating in the energy sector. Another measure
was the introduction of a bank assets tax, linked to
the level of ROBOR. Apart from being the highest
tax of this kind in Europe, its mechanism negatively
impacts the functioning of the domestic monetary
policy. On a cash basis, the budget deficit was kept
just under the Maastricht criteria of -3% of GDP.
Yet this performance was achieved by postponing
some government spending. The net budget deficit
for December 2018 amounted to -0.1% of GDP
when the average figure for the last four years, for
the same month, was -1.9% of GDP.
At the end of 2018, annual average Consumer
Price Inflation (CPI) reached 3.3%, as lower
oil prices helped push down inflation in the last
quarter of the year. In 2018, monetary policy
became slightly more restrictive, with benchmark
interest rate rising to 2.5% from 1.75% at the end
of 2017.
The monthly volatility in the RON/EUR exchange
rate fell to its lowest level in 2018. On average,
the RON fell against the EUR by 1.9%, but rose
against the USD by 2.8%.
In 2018, the growth rate of Romania’s energy
supply continued to increase, albeit at a slower
pace when compared to 2017. It went up by
Current account deficit
widened at -5% of
GDP
Emergency
Government Ordinance
no. 114 introduced
measures impacting
several sectors
Business environment 19
0.9%, to 34.6 mn toe due to the increase in
imports.
The total supply of oil, gas, and power was
higher, but that for coal and oil-related products
fell compared to 2017. Domestic production for
both oil and gas fell marginally by -1.4% and
-0.5% respectively. Oil imports increased by
6.6%, or 0.5 mn toe, while gas imports rose by
27% or 0.25 mn toe.
20 Business environment
Business segments’ operational performance
OMV Petrom Annual Report 2018 | Company
Upstream
At a glance 1
Segment sales (RON mn) 2
Operating Result (RON mn) 3
Special items (RON mn)
Clean Operating Result (RON mn)
Operating Result before depreciation (RON mn)
Capital expenditures (RON mn)
Exploration expenditure (RON mn)
Total Group production (mn boe)
thereof in Romania (mn boe)
Sales volumes (mn boe)
Production costs (OPEX in USD/boe)
Proved reserves as of December 31 (mn boe)
thereof in Romania (mn boe)
2018
9,742
3,531
306
3,224
5,606
3,150
466
58.30
55.82
54.3
11.18
532
509
2017
8,217
1,661
(13)
1,674
4,323
2,435
235
61.18
58.63
57.8
10.90
566
542
∆ (%)
19
113
n.m.
93
30
29
98
(5)
(5)
(6)
3
(6)
(6)
1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 36-47;
2 Including inter-segment sales;
3 Excluding intersegmental profit elimination.
HSSE is our first priority
On our journey towards HSSE Vision “Zero Harm –
No Losses”, we have been able to record a second
consecutive year with no work related fatalities in
Romania.
Tragically, in Kazakhstan one employee and two
contractors lost their lives in a single event, while
performing a well operation. We took immediate
action and implemented measures to prevent such
an incident from occurring again.
The Lost-Time Injury Rate (LTIR) (employees and
contractors combined) stood at 0.48, above the
international benchmark.
everyone understands and demonstrates his/her
HSSE responsibility as a core value.
Romanian Upstream operations
Exploration
2018 was an active year, with focus on drilling high
impact, complex and deep (>4,000 m) exploration
wells (such as 6600 Băicoi and 4461 Totea South).
A significant event of the year was the take-over
of Repsol’s interest in all four joint operating
agreements in October 2018.
On December 21, 2018 the Romanian Government
granted the extension of the exploration licenses
for Block XIX Neptun (Black Sea, Offshore).
We are committed to achieving a sustainable
culture of safety, where it is common to proactively
identify hazards and at-risk behaviors in work
places and to exchange information openly and
without fear. Improvement of Safety Culture aims
to increase organizational, environmental and
individual characteristic performance factors
influencing behavior at work in a way in which
In 2018, seven exploration wells were drilled in
our portfolio. Five wells were operated by OMV
Petrom. The status of these wells at the end of
2018 was as follows:
two wells in experimental production;
one well in testing phase;
one well suspended and waiting for testing;
three wells plugged and abandoned.
Focus on high impact,
complex and deep
exploration wells
Upstream 21
Offshore production at
17.4% of Romanian
hydrocarbon
production
Production
At the end of 2018, OMV Petrom operated
208 commercial oil and gas fields in Romania.
Production from these fields amounted to a daily
average quantity of 152.9 kboe/d, compared to
160.6 kboe/d in 2017. In August 2017, 19 marginal
fields with a production of around 0.5 kboe/d (2017
average) were transferred to Mazarine Energy
Romania under a business transfer agreement.
In Romania, OMV Petrom produced 3.4 mn t
of crude oil and NGL and 4.78 bcm of natural
gas, the equivalent of 55.82 mn boe total oil and
gas. Offshore production accounted for 17.4%
from total hydrocarbons production in Romania
(6.3% of the crude oil and NGL production and
26.1% of natural gas production). Events affecting
production included the planned maintenance
at offshore gas compressors (Lebăda Est Non
Associated Gas) in the mid of the year and at
Hurezani facilities in the fourth quarter. The largest
gas field, Totea Deep, continued its decline in
2018.
Crude oil production based on enhanced oil
recovery techniques accounted for 26% of total
domestic oil production. Heavy oil, representing
crude oil with density greater than 900 kg/m3,
accounted for more than 36% of total production of
crude oil and NGL.
In 2018, the average crude oil production was 67.3
kboe/d as compared to 68.5 kboe/d in 2017.
Average gas production was 85.6 kboe/d, below
the level of 92.2 kboe/d achieved in 2017. The
internal gas consumption for upstream domestic
operations accounted for 10.8% of total gas
production.
In 2018, we completed another successful shallow
offshore drilling campaign, thereby adding the first
multilateral horizontal offshore well to our portfolio
as top oil producer, partially compensating for the
natural decline.
Agreement with
Mazarine Energy
Romania for transfer of
nine fields signed
In line with OMV Petrom’s focus on the most
profitable barrels, the portfolio optimization
continued as planned; on September 28, 2018,
an agreement was signed with Mazarine Energy
Romania for the transfer of nine fields. The
22 Upstream
transfer of these fields became effective as of
March 1, 2019.
Key projects
In 2018, drilling activities were sustained at a high
level, with an average of 13 drilling rigs active in
OMV Petrom’s operated licenses. In line with our
strategy to support the increase of the Reserves
Replacement Rate (RRR), a total of 110 new wells
and sidetracks were drilled by the end of 2018,
which is 59% higher compared with the previous
year. These activities included the drilling of deep
and complex, high impact exploration wells, as
well as some wells with high impact on production.
During 2018, OMV Petrom further invested in the
redevelopment of mature fields in Romania in
order to maximize the value of the current fields
portfolio, to improve the recovery rate and to
stabilize production levels.
As part of OMV Petrom’s Strategy 2021+,
selected FRDs continue to play a role in unlocking
additional resources. Therefore, at the end of the
year, four projects in the assessment phase were
aimed at identifying the optimum development
options for the subsequent phases.
In addition, by using new state-of-the-art reservoir
modeling techniques, efforts are focused on
bringing new candidates into the development
funnel and thus creating new opportunities with
the potential of contributing additional reserves.
The following projects are highlights of our Field
Development / Redevelopment program:
Central Hydrocarbon Dewpointing
installation (CHD) Hurezani
CHD Hurezani Project has as main scope the
installation of a Low Temperature Separation (LTS)
unit of 6 mn Scm/d, a condensate fiscal delivery
system and a 20" Gas pipeline gathering all the
gas in the area to feed the Hurezani Treatment
Hub (12 km).
The 20” Gas pipeline was executed and
successfully started up in October, along with the
related facilities installed in Panel Hurezani. All
required inlet and outlet tie-ins of the new LTS
unit to the existing plant, as well as tie-ins into
OMV Petrom Annual Report 2018 | Company
the existing utilities system, were successfully
executed. By performing these works during
the October shutdown, the feeding system
has been prepared to handle all production
maneuvers required for the LTS start-up, with no
further production deferment. At the end of the
year, overall project progress was around 90%.
Commissioning and testing works remaining to be
executed will be performed in early 2019, aiming
at a start-up in the first half of 2019.
FRD Burcioaia and Safety Upgrade Mădulari
The facilities in Burcioaia and Mădulari treat
around 7% of OMV Petrom’s gas production in
Romania. While FRD Burcioaia became fully
operational towards the end of 2018, the Mădulari
plant was successfully restarted and is treating the
production from the area; the plant is expected to
be fully operational in 2019.
FRD Independența Phase 1
Independența is a mature oil field that has been
in production since 1959 and remains one of the
most important fields in OMV Petrom’s portfolio.
The purpose of FRD Independența is to increase
oil production by drilling in previously undeveloped
areas with high potential of oil accumulations. The
project, consisting of drilling new horizontal wells,
construction and modernization of gathering and
metering points as well as a pipeline, became
operational in mid-2018. FRD Independența had
an important impact on the field production in
2017 and 2018, contributing with up to 20% to the
overall field production.
FRD Suplac Phase 2 and Suplac Key
Infrastructure projects
In 2018, the Suplac Produced Water Treatment
Plant was finalized. The plant has a capacity
of 8,000 m3/day and the treatment process
comprises physical, chemical and biological
stages. As a last step, it also uses an activated
carbon filtration system before discharge is
released into the Barcău river, in compliance
with legally required specifications. In the first
year of operation, process efficiency exceeded
expectations.
Many of the FRD Suplac Phase 2 activities (wells
tie-ins), which were put on hold between 2014 and
2016, could successfully be restarted and have
made significant progress in 2018.
Construction works have started for other two
major projects in Suplac area, namely “Revamp
Tankfarm Suplac” and “Revamp Drinking Water
Suplac”, projects focused on improving safety,
integrity and energy consumption.
Offshore Rejuvenation Program
The Offshore Rejuvenation Program for Asset
X completed key process safety and integrity
projects in 2018. Some of the projects include:
installation and commissioning of new offshore
cranes in compliance with EU regulations, fitting
of all offshore installations with fully automated fire
and gas detection systems, successful completion
of two major upgrades to the existing offshore
cranes, finalizing of riser protection project to
ensure integrity. The program ensures compliance
with the new Offshore Safety Directive that came
into force in 2018. The program was setup in
2015 and will continue until 2023 to address key
process safety and integrity risks in our offshore
assets; over 50% of the actions have been
addressed and closed out.
Production Enhancement Contracts (PECs)
and Joint Ventures (JVs)
Since July 2010, in order to execute its strategy
of optimizing the portfolio of existing assets,
OMV Petrom has entered into partnerships
with international companies for production
enhancement. The partnerships with
PetroSantander and Expert Petroleum are
governed by Production Enhancement Contracts
(PECs) referred to as PEC Timiș, PEC Turnu and
PEC Țicleni, covering 24 mature fields in total.
The PECs stipulate that the contractors will take
over and finance the operations and, together with
OMV Petrom, commit to the future developments
of the fields that have been handed over, in order
to maximize production while improving efficiency.
OMV Petrom remains the sole titleholder of
the concession contracts and the owner of the
hydrocarbon production and of the existing assets,
as well as of the rights and obligations under the
relevant petroleum concession as defined by the
Petroleum Act.
In 2018, the total annual production of the PECs
Offshore Rejuvenation
Program to continue
until 2023
Upstream 23
2018 production from
PECs at 7.4 kboe/d
was 7.4 kboe/d (2017: 6.9 kboe/d), of which PEC
Țicleni, PEC Turnu and PEC Timiș contributed 3.7
kboe/d, 1.1 kboe/d, and 2.5 kboe/d respectively.
Petrom, 50% Hunt Oil), we recorded a total
production of 1.4 kboe/d (OMV Petrom share) in
2018.
In PEC Timiș, a new well was drilled and
completed and 18 workovers were executed during
the year. The partner invested approximately EUR 7
mn in the PEC Timiș area, mainly in the workovers
and the new well drilled in the Pordeanu field.
The total production recorded by PECs and joint
operations in 2018 was 8.8 kboe/d (2017: 8.2
kboe/d), representing 5% of the total OMV Petrom
domestic production.
In PEC Turnu, the partner successfully continued
the implementation of cost reduction initiatives
started in previous years.
In PEC Țicleni, four new wells were drilled and 47
workovers were executed. The partner invested
in developing projects in the PEC area, mainly in
workovers and new wells.
In the partnership with Hunt Oil (50% OMV
International Upstream operations
In Kazakhstan, OMV Petrom holds development
and production licenses for the TOC oil fields
(Tasbulat, Aktas and Turkmenoi) as well as for the
oil field Komsomolskoe. In 2018, the average oil
and gas production in Kazakhstan was 6.8 kboe/d
(2017: 7.0 kboe/d). Production was significantly
affected by the lack of well intervention crews
following the incident in the first part of the year and
well workover services at some of the key wells in
Komsomolskoe.
Production in 2018
Oil and NGL
Natural gas
Romania
Kazakhstan
OMV Petrom Group
mn t
3.42
0.28
3.70
mn bbl
24.58
2.20
26.78
bcm
4.78
0.05
4.83
mn boe
31.24
0.28
31.52
Proved reserves as of December 31, 2018
Romania
Kazakhstan
OMV Petrom Group
Oil and NGL
mn t
42.2
2.7
44.9
mn bbl
303.5
20.9
324.4
Natural gas
bcf
mn boe
1,110.9
205.7
13.8
2.3
1,124.7
208.0
Total
mn boe
55.82
2.49
58.30
Total
mn boe
509.2
23.2
532.4
24 Upstream
OMV Petrom Annual Report 2018 | Company
Reserve Replacement Rate (RRR)
As of December 31, 2018, the total proved oil
and gas reserves in the OMV Petrom Group’s
portfolio amounted to 532 mn boe (of which
509 mn boe in Romania), while the proved and
probable oil and gas reserves amounted to
810 mn boe (of which 766 mn boe in Romania).
For the single year 2018, the Group’s RRR was
42% (2017: 34%), while in Romania it increased
to 40% (2017: 33%). The Group’s three-year
average RRR increased to 38% in 2018 (2017:
34%), while in Romania it increased to 34%
(2017: 29%).
The OMV Petrom Group was able to keep its
RRR at around 40% in the last three years,
mainly due to adjustments, favourable drilling and
workover results and diversification of recovery
techniques and field appraisals.
An external reserves audit for 2017 was
performed by De Golyer & Mac Naughton. The
auditor’s estimates were in material agreement
with OMV Petrom’s reserves assessment
External audit
confirmed internal
assessment of 2017
reserves
OMV Petrom Group (1Y) Reserves
Replacement Rate
(%)
100
80
60
40
20
0
70
73
67 68
38 35
44
42
42
31
33
36 34
06 07
08 09
10
11
12
13
14
15
16
17
18
Upstream 25
Downstream
Downstream Oil
At a glance 1
Segment sales (RON mn) 2
Operating Result (RON mn) 3
Special items (RON mn)
CCS effects (RON mn)
Clean CCS Operating Result (RON mn) 4
Operating Result before depreciation (RON mn)
Capital expenditure (RON mn)
Refinery utilization rate (%)
Crude oil processed (kt) 5
Total refined product sales (kt)
thereof: Gasoline (kt)
Diesel (kt)
Kerosene/Jet fuel (kt)
2018
17,208
1,385
9
42
1,335
2,068
1,112
85
3,788
4,987
1,208
2,494
275
2017
14,550
1,681
44
104
1,533
2,352
446
93
4,152
5,073
1,249
2,434
279
∆ (%)
18
(18)
(80)
(60)
(13)
(12)
149
(9)
(9)
(2)
(3)
2
(1)
Residual products (kt)
thereof: Retail sales volumes (kt) 6
1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 36-47;
2 Including inter-segment sales;
3 Excluding intersegmental profit elimination;
4 Adjusted for exceptional, non-recurring items; clean CCS figures exclude special items and inventory holding effects (current cost of supply – CCS – effects)
2,743
2,703
267
276
(3)
1
resulting from Downstream Oil;
5 Including NGL;
6 Retail sales volumes refer to sales via Group’s filling stations in Romania, Bulgaria, Serbia and Moldova.
HSSE is our first priority
In Downstream Oil, we continued to focus on
improving the HSSE performance, by rolling out
several programs throughout the organization
(campaigns such as: “Be Smart, Be Safe”,
“Take Safety and Security Home” and “Hazard
Awareness Campaign”).
margin was USD 6.28/bbl, lower by USD 1.47/
bbl than in 2017, as a result of the higher cost of
crude oil.
The refinery utilization rate was lower yoy (85%
in 2018 compared to 93% in 2017), impacted by
the six-week planned turnaround in Q2/18.
The LTIR (employees and contractors combined)
in Downstream Oil was 0.08, better than the
international benchmark.
The continued focus on operational and energy
efficiency allowed us to maintain the fuel and loss
indicator below 9%, similar to the previous year.
Operational performance
The operational performance and energy
efficiency of the Petrobrazi refinery remained at
competitive levels.
Refining margin
significantly down yoy
In 2018, the OMV Petrom indicator refining
26 Downstream Oil
OMV Petrom Annual Report 2018 | Company
Production (kt)
Gasoline
Diesel
Kerosene/Jet fuel
Residual products
LPG total
Petroleum coke
Other
TOTAL
2018
1,151
1,582
111
206
189
248
267
2017
1,215
1,761
143
203
222
268
321
∆ (%)
(5)
(10)
(22)
1
(15)
(7)
(17)
3,754
4,132
(9)
OMV Petrom Group’s total refined product sales
amounted to 4,987 kt in 2018, representing a 2%
decline compared to 2017, mainly reflecting the
decrease in non-retail sales.
Group retail sales were 1% higher than in 2017,
reaching 2,743 kt, as a result of a positive trend
in the domestic market demand, despite the
competition’s network growth. In Romania, retail
sales reached 2,283 kt in 2018, 2% higher than in
2017. Therefore, in 2018, the average throughput
per station in Romania increased to 5.03 mn liters
(2017: 4.95 mn liters), driving the overall increase
of this indicator at the Group level to 4.28 mn
liters (2017: 4.26 mn liters).
Retail market share i in the operating region
was slightly above the 2017 level, growing to
34%, thereby reflecting improved efficiency
and portfolio optimization, despite increased
competition.
Within the OMV-branded filling stations, we
continued to provide our customers with best-
in-class fuels, products and services, combined
with a diversified offer (e.g. money transfer, car
insurance, utilities payments, postal services).
as the “value for money” leader, through strategic
partnerships and programs that generate
additional benefits and increase customer loyalty.
We continued the pilot phase of the cooperation
with the retailer Auchan, consisting of 15
MyAuchan convenience stores opened in Petrom
filling stations in 2017 and at the beginning of
2018. Following the encouraging results of the
pilot phase, at the beginning of 2019 we signed
a Memorandum of Understanding with Auchan
Retail Romania to discuss further expansion
of this partnership, pending final approval from
the Competition Council. As the next step, we
target the completion of the roll out agreement.
Furthermore, we continued the partnership with
Subway in Romania and KFC in Serbia.
As a result of these measures, together with
sustained customer incentive programs, the non-
oil business contribution continued to support
the increased retail performance yoy. In 2018,
the total non-oil business turnover at Group level
increased by 9% compared to the previous year,
driven by the improved performance and benefits
of the shop-in-shop ii concept, by the diversified
offer in the restaurant area, and by our strategic
partnerships.
In the Petrom-branded filling stations, our efforts
were aimed at consolidating the brand positioning
In 2018, in the non-retail distribution channel,
OMV Petrom continued to focus on strengthening
i OMV Petrom’s estimates based on preliminary data available; OMV Petrom retail market share is calculated by dividing retail sales (Gasoline + Diesel) by
the total retail market (Gasoline + Diesel);
ii Space rented to partners within the shop area of a filling station.
Non-oil business
turnover increased by
9% yoy
Downstream Oil 27
business-to-business activities and maximizing
value from its product portfolio by taking
advantage of market opportunities, targeting
new customers and customizing the offers based
on a market segmentation approach. However,
as a result of lower product availability due to
the refinery turnaround, Group non-retail sales
decreased by 5% compared to 2017. In Romania,
non-retail sales were 1,166 kt, 1% below the
previous year’s level.
OMV Petrom fuel prices have a dynamic
evolution based on international fuel quotations,
namely Platts Mediterranean, as well as on
market competition. In addition, prices are
influenced by the fiscal policy and exchange rate.
As the volatility of quotations is extremely high
and an immediate reflection in product prices
would make the market unstable, OMV Petrom
fuel prices only reflect the trend, not the highs or
lows.
The filling stations network operated within the
OMV Petrom Group at the end of 2018 comprised
a total of 794 filling stations, eight units higher
than in 2017, as a result of new opportunities.
Eight new filling
stations added in 2018
Number of filling stations per country at the end of period
Romania
Moldova
Bulgaria
Serbia
Total
2018
558
82
93
61
794
2017
555
79
91
61
786
∆
3
3
2
0
8
28 Downstream Oil
OMV Petrom Annual Report 2018 | Company
Downstream Gas
At a glance 1
Segment sales (RON mn) 2
Operating Result (RON mn) 3
Special items (RON mn)
Clean Operating Result (RON mn)
Operating Result before depreciation (RON mn)
Capital expenditure (RON mn)
Gas sales volumes (TWh)
thereof to third parties (TWh)
Net electrical output (TWh)
2018
5,079
286
(73)
360
378
26
47.3
38.9
3.8
2017
4,737
86
(134)
220
315
87
51.4
45.3
2.7
∆ (%)
7
232
45
64
20
(70)
(8)
(14)
41
1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 36-47;
2 Including inter-segment sales;
3 Excluding intersegmental profit elimination.
HSSE is our first priority
Downstream Gas HSSE performance continued
to be excellent in 2018. The health and safety of
our employees and contractors is always our top
priority and we are proud that no work-related
incidents or lost-time injuries were recorded during
the year.
Operational performance
According to our estimates, national gas
consumption remained stable compared to 2017
and was covered by lower domestic production
and higher imports. The gas volumes traded on the
Romanian centralized market totaled around 69
TWh (with delivery until end-2019), at an average
price of RON 92/MWh iii.
OMV Petrom’s total gas sales volumes decreased
to 47.3 TWh in 2018, by 8% yoy, mainly due to
lower equity production. We concluded significant
sale transactions on the centralized markets, with
a total volume of 13.8 TWh of gas contracted for
deliveries until end-2019, at an average price in
line with market prices. At the end of 2018, OMV
Petrom had 1.9 TWh of gas in storage.
During 2018, we made progress with delivering on
the strategy direction of consolidating our leading
position on the Romanian gas market. As such,
we maintained our focus on providing the best
energy solutions to our clients while building up
long-term relationships. We currently have a broad
portfolio of end-customers, ranging from leading
industrial players (the largest producer of fertilizers,
the leader of the steel industry in Romania, the
biggest Romanian refinery, tire manufacturers, heat
and power producers, etc.) to medium-sized and
small consumers (cement, construction materials,
furniture, machinery and equipment, non-steel
metals, paper and pulp, food and beverage,
commercial, bakeries, services, etc.). As a result
of better understanding our customers’ different
needs and continuously providing the best-suited
solution, we have increased our sales to end-
customers.
On the power market, as per currently available
data from the grid operator, national electricity
consumption slightly increased to 61 TWh in
2018 (2017: 60 TWh), while national electricity
production had a similar trend reaching almost 64
TWh (2017: 63 TWh); net exports were lower than
in 2017. In terms of the power generation mix in
2018, the significantly higher power production
from hydro sources compensated the lower
production from coal and renewable sources.
iii Data regarding Romanian centralized markets represent OMV Petrom’s estimates based on available public information. The gas price for such
transactions refers to various products in terms of storage costs, flexibility and timing.
We increased our
sales to end-customers
Electricity production
and consumption
increased by around
1 TWh yoy in 2018
Downstream Gas 29
Brazi power plant
accounted for 6% of
the national electricity
production
The OPCOM spot base load power prices were
relatively stable yoy, averaging RON 216/MWh in
2018 (2017: RON 220/MWh).
2018 was an important year for our power
business, with the Brazi power plant having
generated the highest net electrical output since
the start of its operations in 2012. With 92%
availability, the plant was able to capitalize on
the favorable market conditions and generated
a net electrical output of 3.8 TWh. We supplied
the wholesale market, while also enlarging our
retail customer portfolio. As such, the Brazi plant
had an important contribution to Romania’s
security of supply, providing approximately 6%
of the national electricity production (2017: 4%),
while also being an important player on the
power balancing market. Also, another important
highlight of the year was the successful finalization
of the negotiations with the insurers on the claims
related to the Brazi power plant incidents occurred
in 2016 and 2017, for which OMV Petrom booked
revenues of RON 243 mn (thereof RON 161 mn in
2017 and RON 82 mn in 2018).
30 Downstream Gas
OMV Petrom Annual Report 2018 | Company
Report of the governing bodies
32
36
Report of the Supervisory Board
Directors’ report
48
Corporate governance report
59
71
Corporate governance statement
Declaration of the management
Business segments’ operational performance 31
Report of the Supervisory Board
Transparency and accountability towards our
shareholders is a well-established and deeply
entrenched practice that has been implemented
in the Company. Hence, the Supervisory
Board continued to devote close attention to
the Company’s strategic focus and business
performance in all areas of activity during 2018.
The following report provides an overview of the
Supervisory Board’s main points of interest during
the year under review. In addition to this report, the
shareholders, as well as other stakeholders, may
access relevant information about the Company
and the Supervisory Board by:
visiting the Company’s website,
www.omvpetrom.com, where various
information about the Company and relevant
contact details are available;
reading the other sections of the Company’s
Annual Report;
contacting the Company directly –
shareholders, investors and equity analysts can
address their requests to the Investor Relations
department;
asking questions at the GMS, concerning the
items to be debated during such meetings.
Composition of the Supervisory Board
The Supervisory Board consists of nine members
who were elected by the Ordinary GMS, in
accordance with the provisions of Company Law
and the Articles of Association. The Supervisory
Board’s current mandate started on April 28, 2017
and expires on April 28, 2021. The CVs of the
current Supervisory Board members are available
on the Company’s corporate website and are also
included in the Corporate Governance Report.
At the beginning of 2018, the Supervisory Board
consisted of the following members: Rainer Seele
(President), Reinhard Florey (Deputy President),
Manfred Leitner, Johann Pleininger, Daniel
Turnheim, Jochen Weise, Sevil Shhaideh, Radu-
Spiridon Cojocaru and Joseph Bernhard Mark
Mobius.
Following Johann Pleininger’s waiver of his
mandate as member of the Supervisory Board,
Christopher Veit was appointed by the Ordinary
GMS, as of April 26, 2018, as member of the
Supervisory Board. Moreover, the Ordinary GMS
held on April 26, 2018, appointed Sevil Shhaideh
(interim member of the Supervisory Board as of
October 26, 2017) as member of the Supervisory
Board until April 28, 2021, following the waiver
of Mihai Busuioc’s mandate as member of the
Supervisory Board.
At the end of 2018, the Supervisory Board
therefore had the following composition: Rainer
Seele (President), Reinhard Florey (Deputy
President), Manfred Leitner, Christopher Veit,
Daniel Turnheim, Jochen Weise, Sevil Shhaideh,
Radu-Spiridon Cojocaru and Joseph Bernhard
Mark Mobius.
Independence
Upon appointing each Supervisory Board
member, the Company conducts an independence
evaluation based on the independence criteria
provided by the Corporate Governance Code
of the Bucharest Stock Exchange (which are
substantially similar to those provided by the
Company Law). The independence evaluation
consists of an individual personal assessment
carried out by the relevant Supervisory Board
member, and is then followed by an external
assessment.
Moreover, for the purpose of preparing this report,
the Company reconfirmed with all Supervisory
Board members their independent or non-
independent status as of December 31, 2018.
Following this evaluation, it resulted that the
following Supervisory Board members met during
2018 all the independence criteria stipulated
by the Corporate Governance Code, namely:
Jochen Weise, Radu-Spiridon Cojocaru and
Sevil Shhaideh. In addition, starting 2019, also
Joseph Bernhard Mark Mobius meets all the
independence criteria stipulated by the Corporate
Governance Code.
Information on the independency of the
Supervisory Board members is included also on
the Company’s corporate website.
Supervisory Board works
In 2018, the Supervisory Board thoroughly
reviewed the position and prospects of the
Company and accomplished its functions
according to the relevant laws, the Articles of
Association, the applicable Corporate Governance
Code and the relevant internal regulations. The
Supervisory Board coordinated with the Executive
Supervisory Board
current mandate until
April 2021
One new Supervisory
Board member
32 Report of the Supervisory Board
Board on important management matters,
monitored the latter’s work and was involved in
the Company’s key decisions, always following a
comprehensive analysis.
During the year under review, the Supervisory
Board members met six times in person.
Moreover, for specific and particularly urgent
matters and projects arising between the
scheduled meetings, the Supervisory Board
submitted its approval in writing by circulation,
without an actual meeting being held, on two other
occasions. All members of the Supervisory Board
attended, in person or by telephone or video
conference, the vast majority of the meetings
of the Supervisory Board in 2018. The average
participation rate was over 95%. On five occasions
some of the Supervisory Board members were
represented by other Supervisory Board members
in meetings.
In line with the Collective Labor Agreement,
invitations to attend the Supervisory Board
meetings were extended to trade union
representatives and the meeting agenda and
related documents were provided in a timely
manner in that respect.
During the meetings, the Executive Board duly
provided detailed information, both verbally and
in writing, on issues of fundamental importance
for the Company, including its financial position,
business strategy, planned investments and
risk management. Based on the reports of
the Executive Board, the Supervisory Board
discussed all significant matters for OMV Petrom
in the plenary meetings. The frequency of both
plenary and committee meetings has facilitated an
intensive dialogue between the Executive Board
and Supervisory Board.
Besides the usual items, proposals and materials
that were discussed and submitted for approval
of the Ordinary GMS in April 2018, Supervisory
Board’s main focus during 2018 was, amongst
others, the development and investments of the
Company.
Also, in order to give to the shareholders comfort
of a more stable, predictable and attractive
OMV Petrom Annual Report 2018 | Report of the governing bodies
dividend, the Supervisory Board approved on April
4, 2018 a new dividend policy.
New dividend policy
approved
In terms of governing bodies, the Supervisory
Board was focused on the strategic management
of the Company and also on approving changes in
the membership of the Executive Board.
During 2018 the Executive Board periodically
updated the Supervisory Board on the status of
the Neptun Deep Project.
In addition, the President of the Executive Board
regularly informed the Supervisory Board on the
developments of the Company’s business.
Moreover, during 2018 the Executive Board also
periodically informed the Supervisory Board about
the status of the process for the second share
capital increase of OMV Petrom by incorporating
the value of plots of land received in administration
and/or use from the Romanian State for which
OMV Petrom obtained / is in the process of
obtaining the land ownership certificates.
As provided by OMV Petrom’s Privatization
Agreement and by Law 555/2004 regarding the
privatization of SNP Petrom S.A., OMV Petrom is
required to perform the second land share capital
increase by incorporating the value of all such
land plots after all land ownership certificates have
been obtained. Likewise, the Executive Board also
provided information to the Supervisory Board on
the constant cooperation between the Company
and the Romanian State via Ministry of Energy
to clarify the pending issues in order to proceed
with the implementation of the second land share
capital increase.
Self-evaluation of the Supervisory Board
The Company has a Supervisory Board Self-
Evaluation Guideline in place that provides
the purpose, criteria and frequency of such an
evaluation. The aim of this self-evaluation is to
assess and, if necessary, to improve both the
efficiency and the effectiveness of the Supervisory
Board’s activities, as well as to ensure that the
Supervisory Board can fulfil its responsibilities
towards shareholders and other stakeholders.
Based on this Supervisory Board Self-Evaluation
Guideline, the Supervisory Board underwent a
self-evaluation process for the business year
2018, under the guidance of the President of the
Report of the Supervisory Board 33
Three out of the four
Audit Committee
members are
independent
Presidential and Nomination Committee.
In terms of experience, expertise, qualification,
diversity, number of members and presence, the
Supervisory Board considers the composition
of the Supervisory Board to be satisfactory.
Supervisory Board members also value the
good collaboration with the Executive Board, the
organization and conducting of the Supervisory
Board meetings and the quality of the documents
provided for such meetings.
Audit Committee
The Audit Committee is a consultative committee
consisting of Supervisory Board members who
assist the Supervisory Board on topics such as
financial reporting, external auditing, internal
auditing, internal controls and risk management,
as well as compliance, conduct and conflicts of
interest.
At the end of 2018, as well as at the date of this
report, the Audit Committee was composed of four
members, namely Reinhard Florey (President),
Jochen Weise (Deputy President - independent),
Sevil Shhaideh (member - independent) and
Radu-Spiridon Cojocaru (member - independent).
The CVs of the current Audit Committee members
are available on the Company’s corporate
website and are also included in the Corporate
Governance Report.
In 2018, the Audit Committee met three times,
on which occasions it reviewed and prepared
the adoption of the annual financial statements,
reviewed the reports on payments to governments,
endorsed the Executive Board’s proposal
regarding the allocation of the profits as well as
the proposal regarding the distribution of dividends
for the financial year 2017 and recommended
to the Supervisory Board and to the GMS the
reappointment of Ernst & Young Assurance
Services SRL (EY) as independent financial
auditor.
In addition, the Audit Committee supervised
and evaluated the efficiency of OMV Petrom’s
internal control and risk management system,
the adequacy of risk management and internal
control reports, and the responsiveness and
effectiveness of management to deal with failings
or weaknesses identified during internal control
activities.
Moreover, the Audit Committee focused on
assessing the effectiveness and scope of
the internal audit function, on monitoring the
application of statutory and generally accepted
standards of internal audit as well as on evaluating
the reports of the internal audit activity, including
the internal audit plan for 2019.
In addition, in 2018 it examined and reviewed,
before their submission to the Supervisory Board
for approval, related party transactions that
exceeded or were expected to exceed 5% of the
Company’s net assets in the previous financial
year.
Independent financial auditor
EY was OMV Petrom Group’s independent auditor
in 2018. Based on the recommendations of the
Audit Committee, a proposal for the reappointment
of EY as OMV Petrom Group’s independent
financial auditor will be submitted for approval
to the next Ordinary GMS to be held on April 19,
2019.
Annual financial statements
OMV Petrom prepares Group consolidated
financial statements in accordance with
International Financial Reporting Standards (IFRS)
as endorsed by the European Union, presented
within this Annual Report.
Separate financial statements of the Company
for the year ended December 31, 2018 are
also prepared in accordance with IFRS, as the
Ministry of Finance Order no. 2844/2016 stipulates
that Romanian listed companies must prepare
separate financial statements in accordance with
IFRS as endorsed by the European Union, starting
with the year ended December 31, 2012.
EY audited the 2018 financial statements, read the
annual report and has not identified information
which is not consistent in all material respects
with the information presented in the financial
statements, and issued an unqualified audit
opinion.
The financial statements and audit reports for
the year ended December 31, 2018, as well
as the Executive Board proposal to distribute
34 Report of the Supervisory Board
dividends of RON 0.027 per share (corresponding
to a payout ratio of 38% based on the Group’s
2018 net profit attributable to stockholders of the
parent) were presented to the Supervisory Board
for examination in a timely manner. EY attended
the relevant meeting of the Audit Committee
convened to review the financial statements.
The Audit Committee discussed the financial
statements with the independent financial auditor
and examined them carefully. Moreover, the Audit
Committee reported to the Supervisory Board on
its examination and recommended the approval
of the annual separate and consolidated financial
statements, including the management reports
for the year ended December 31, 2018 and the
Executive Board proposal for allocation of the
profit, including distribution of dividends.
The separate and consolidated financial
statements were approved in the Supervisory
Board meeting of March 14, 2019 in line with
the Audit Committee’s recommendation and will
further be submitted for approval in the Ordinary
GMS to be held on April 19, 2019.
Furthermore, following the review by the Audit
Committee, the Supervisory Board has reviewed
and approved the reports on payments to
governments for the year 2018, prepared in
accordance with Chapter 8 of the Annex 1 Ministry
of Finance Order no. 2844/2016 for approval of
Accounting Regulations according to International
Financial Reporting Standards, transposing
Chapter 10 of the Accounting Directive (2013/34/
EU) of the European Parliament and of the
Council.
Corporate Governance
The Supervisory Board also approved the 2018
Directors’ Report which includes the Corporate
Governance Report.
We thank our shareholders for their confidence
in OMV Petrom. The Company continued its
successful operational path of development in
2018 despite the difficulties caused by the effects
of the volatile regulatory environment.
To this end, the Supervisory Board members
would like to express their appreciation to the
Executive Board, managers, employees and trade
union representatives for their commitment and
hard work during the entire year. They successfully
OMV Petrom Annual Report 2018 | Report of the governing bodies
met the challenges of a demanding 2018 and
achieved excellent results. We would also like to
show our appreciation to the clients and business
partners of OMV Petrom. Thanks to the sound
operational performance and financial position, the
Supervisory Board is confident that the Company
is best positioned to surmount further challenges
ahead, take advantage of new opportunities and
unlock its full potential in the years to come.
Bucharest, March 14, 2019
Dividend proposal of
RON 0.027/share, 35%
higher yoy
Rainer Seele
President of the Supervisory Board
Report of the Supervisory Board 35
Directors’ report
From left to right: Stefan Waldner (Chief Financial Officer - EB Member); Franck Neel (EB Member - Downstream Gas);
Christina Verchere (Chief Executive Officer - President of EB); Radu Căprău (EB Member - Downstream Oil); Peter
Zeilinger (EB Member - Upstream).
OMV Petrom Group financials (RON mn)
Sales revenues
Operating Result
Net income
Net income attributable to stockholders
Cash flow from operating activities
Capital expenditures
Employees at the end of period
2018
22,523
5,213
4,078
4,078
7,385
4,289
2017
19,435
3,270
2,489
2,491
5,954
2,969
13,201
13,790
∆ (%)
16
59
64
64
24
44
(4)
In 2018, the Group reported consolidated sales
of RON 22,523 mn, 16% higher compared to
2017, driven by higher commodity prices and
electricity sales volumes, partially offset by lower
sales volumes of gas and petroleum products.
Clean CCS Operating Result, in amount of RON
4,804 mn, higher by 47% yoy, is stated after
eliminating net special income of RON 223 mn
and inventory holding gains of RON 186 mn. The
net result was a profit of RON 4,078 mn in 2018
(2017: RON 2,489 mn).
Operating Result up
59% yoy
The Group’s Operating Result for the year
2018 increased by 59% to RON 5,213 mn (2017:
RON 3,270 mn), supported mainly by higher
commodity prices and ongoing cost optimization.
The return on average capital employed iv
(ROACE) reached a value of 15.6% (2017:
9.9%), while Clean CCS ROACE increased to
iv For definitions of these ratios please refer to pages 72-74, section “Abbreviations and definitions”.
36 Directors’ report
OMV Petrom Annual Report 2018 | Report of the governing bodies
14.3% at the end of 2018, from 9.8% at the end
of 2017.
Cash flow from operating activities amounted
to RON 7,385 mn, 24% above the 2017 level,
reflecting the significantly higher operating result
supported by the favorable commodity price
developments and cost optimization.
Capital expenditure amounted to RON 4,289 mn
in 2018 and was 44% higher than in 2017.
Based on a strong cash balance at December 31,
2018, OMV Petrom Group reported a net cash
position of RON 4,891 mn at the end of 2018, up
from RON 2,897 mn at the end of 2017.
CAPEX at RON 4.3 bn,
44% up yoy
Operating Result
Operating Result (RON mn)
Upstream 1
Downstream
thereof Downstream Oil
thereof Downstream Gas
Corporate and Other
Consolidation: elimination of intercompany profits
OMV Petrom Group Operating Result
1 Excluding intersegmental profit elimination shown in the line “Consolidation”.
2018
3,531
1,672
1,385
286
(106)
116
5,213
2017
1,661
1,768
1,681
86
(76)
(82)
3,270
∆ %
113
(5)
(18)
232
(39)
n.m.
59
In Upstream, Operating Result amounted to
RON 3,531 mn, driven by higher oil and gas
prices and lower total production costs and
exploration expenses. Exploration expenses
decreased to RON 174 mn in 2018 (2017:
RON 308 mn) as a result of lower write-offs.
Group production cost was USD 11.18/boe,
3% higher compared to the 2017 level, mainly
due to unfavorable FX development and lower
production available for sale, partly offset by
lower personnel costs and services expenses.
Production cost in Romania was USD 11.38/boe,
4% higher versus 2017; in RON terms it increased
by 2% to RON 44.83/boe. Upstream Operating
Result in 2018 also reflected special items of
RON 306 mn (2017: special charges of RON (13)
mn), driven mainly by a reversal of a previously
recorded impairment and personnel restructuring,
while both periods included reassessments of
receivables and provisions.
In Downstream Oil, Operating Result came
in at RON 1,385 mn (2017: RON 1,681 mn),
reflecting the impact of the Petrobrazi six-week
full-site planned turnaround in Q2/18 and lower
refining margins, which offset the higher retail
contribution. In 2018, the OMV Petrom indicator
refining margin decreased versus 2017 by USD
1.47/bbl to USD 6.28/bbl, as a result of higher
cost of crude oil. The refinery utilization rate
was 85%, impacted by the six-week planned
turnaround (2017: 93%). Downstream Oil
Operating Result reflected also a net gain from
special items of RON 9 mn (2017: RON 44 mn),
and CCS inventory holding gains of RON 42 mn
(2017: RON 104 mn).
In Downstream Gas, Operating Result
increased to RON 286 mn (2017: RON 86 mn)
reflecting the optimization of products and clients,
as well as the improved performance of the
power business supported by higher availability
of the Brazi power plant. The insurance revenues
booked in 2018 in connection with the Brazi
power plant incidents occurred in 2017 amounted
to RON 82 mn (2017: RON 161 mn). Downstream
Gas Operating Result reflected also special
charges of RON (73) mn mainly from the valuation
Refinery utilization rate
at 85%, impacted by
the six-week planned
turnaround
RON 82 mn insurance
revenues booked in
2018
Directors’ report 37
of electricity forward contracts, while 2017 reflected
net special items of RON (134) mn mainly due to
impairments.
Operating Result in the Corporate and Other
(Co&O) segment was RON (106) mn (2017: RON
(76) mn).
Special items and CCS effect
Special items and CCS effect (in RON mn)
Clean CCS Operating Result
Special items
thereof personnel and restructuring
thereof unscheduled depreciation and write-ups
thereof other
CCS effect: Inventory holding gains/(losses)
OMV Petrom Group Operating Result Group
2018
4,804
223
(71)
423
(130)
186
5,213
2017
3,273
(105)
(2)
(132)
29
102
3,270
∆ %
47
n.m.
n.m.
n.m.
n.m.
82
59
RON 223 mn
special items mainly
reflect reversal of
an impairment in
Upstream
The disclosure of Special items is considered
appropriate in order to facilitate the analysis of
the ordinary business performance. To reflect
comparable figures, certain items affecting the
result are added back or deducted. They are
being disclosed separately. These items can
be divided into three categories: personnel and
restructuring, unscheduled depreciation and write-
ups and other.
Furthermore, to enable effective performance
management in an environment of volatile prices
and comparability with peers, the Current Cost of
Supply (CCS) effect is eliminated from the result.
The CCS effect, also called inventory holding
gains or losses, represents the difference between
the cost of sales calculated using the current cost
of supply and the cost of sales calculated using
the weighted average method after adjusting for
any changes in valuation allowances, in case the
net realizable value of the inventory is lower than
its cost. In volatile energy markets, measurement
of the costs of petroleum products sold based on
historical values (e.g. weighted average cost) can
have a distorting effect on the reported results.
This performance measurement enhances the
transparency of the results and is commonly
used in the oil industry. OMV Petrom, therefore,
published this measurement in addition to the
Operating Result determined according to IFRS.
38 Directors’ report
OMV Petrom Annual Report 2018 | Report of the governing bodies
Notes to the income statement
Summarized consolidated income statement (RON mn)
Sales revenues
Other operating income
Net income from equity-accounted investments
Total revenues and other income
Purchases (net of inventory variation)
Production and operating expenses
Production and similar taxes
Depreciation, amortization and impairment charges
Selling, distribution and administrative expenses
Exploration expenses
Other operating expenses
Operating result
Net financial result
Taxes on income
Net income
Less net income attributable to non-controlling interests
Net income attributable to stockholders of the parent
2018
22,523
672
10
23,205
(8,040)
(3,140)
(1,241)
(3,180)
(1,977)
(174)
(239)
5,213
(299)
(836)
4,078
(0)
4,078
2017
19,435
364
8
19,807
(6,698)
(3,162)
(929)
(3,345)
(1,971)
(308)
(123)
3,270
(366)
(415)
2,489
(2)
2,491
∆ %
16
85
14
17
(20)
1
(33)
5
0
43
(94)
59
18
(101)
64
79
64
OMV Petrom is an integrated oil and gas company.
The hydrocarbons produced by the Upstream
segment are processed and marketed mainly by
the Downstream business. Compared to 2017,
consolidated sales revenues increased by 16% to
RON 22,523 mn, driven by higher commodity prices
and electricity sales volumes, partially offset by
lower sales volumes of gas and petroleum products.
After the elimination of intra-group transactions of
RON 9,215 mn, the contribution of the Upstream
segment representing sales to third parties was
RON 528 mn or about 2% of the Group’s total
sales revenues (2017: RON 458 mn). Sales to
external customers in the Downstream Oil segment
amounted to RON 17,075 mn or 76% of total
consolidated sales (2017: RON 14,470 mn). After
elimination of intra-group sales, the Downstream
Gas segment’s contribution was RON 4,884 mn or
approximately 22% of total sales (2017: RON 4,473
mn).
Sales to external customers are split by
geographical areas on the basis of where the
risks and benefits are transferred to the customer.
Romania and Central and Eastern Europe represent
the Group’s most important geographical markets.
Sales in Romania were in an amount of RON 19,112
mn or 85% of the Group’s total sales (2017: RON
16,103 mn, 83% of total sales) and sales in the rest
of Central and Eastern Europe were RON 3,382 mn
or 15% of Group sales (2017: RON 3,308 mn).
Other operating income of RON 672 mn in 2018
include a RON 430 mn reversal of a previously
recorded impairment in Upstream.
Purchases (net of inventory variation) which
include costs of goods and materials employed
amounted to RON 8,040 mn and increased by
20% versus 2017 mainly as a result of lower own
products availability due to the refinery turnaround,
and increases in quotations.
Production and operating expenses were fairly
flat compared to 2017, reaching RON 3,140 mn.
Exploration expenses decreased to RON 174 mn
(2017: RON 308 mn), mainly due to lower write-offs.
Other operating expenses increased by 94% to
RON 239 mn, compared to the 2017 value of RON
85% of Group sales in
Romania
Directors’ report 39
123 mn, mainly due to the higher positive impact
from a partial reversal in 2017 of a provision related
to litigations with employees, following the outcome
of court decisions.
The net financial result improved to RON (299)
mn from RON (366) mn in 2017, reflecting mainly
higher interest income on bank deposits.
Taxes on income were in the amount of RON
(836) mn (2017: RON (415) mn), mainly driven by
the higher profit generated during 2018.
Capital expenditure (CAPEX)
OMV Petrom Group Capital expenditure (RON mn)
Upstream
Downstream
thereof Downstream Oil
thereof Downstream Gas
Corporate and Others
Total capital expenditure
+/- Other adjustments 1
- Investments in financial assets
Additions according to statement of non-current assets
(intangible and tangible assets)
+/- Non-cash changes 2
Cash outflow due to investments in intangible and tangible
assets
+ Net inflow from sale/investment in subsidiaries, non-current
assets and other financial assets
2018
3,150
1,138
1,112
26
1
4,289
54
(9)
4,334
(7)
2017
2,435
533
446
87
2
2,969
(82)
-
2,887
(280)
4,327
2,607
(67)
(160)
∆ (%)
29
114
149
(70)
(41)
44
n.m.
n.m.
50
98
66
58
Net cash used for investing activities
1 Capital expenditure is adjusted for capitalized decommissioning costs, exploration wells that have not found proved reserves and other additions which by
4,261
2,446
74
definition are not considered as capital expenditures;
2 Additions are adjusted for items that did not affect cash flows during the period (including acquisitions through financial leasing, reassessment of
decommissioning provisions) and changes of liabilities for investments.
CAPEX increase
reflect increased
drilling in Upstream
and various projects in
Downstream Oil
Capital expenditure increased by 44% to RON
4,289 mn (2017: RON 2,969 mn).
Investments in Upstream activities amounted
to RON 3,150 mn and represented 73% of total
Group CAPEX for 2018, being 29% higher than
in 2017, as a result of intensified drilling and
workover activities.
Exploration expenditures increased to RON
466 mn (2017: RON 235 mn) as a result of the
increased drilling activities in deep onshore
exploration wells.
Downstream investments amounted to RON
1,138 mn (2017: RON 533 mn). Downstream Oil
investments amounted to RON 1,112 mn (2017:
RON 446 mn), mainly comprising investments
directed to the Petrobrazi refinery turnaround,
tie-in projects and the Polyfuel growth project.
In Downstream Gas, investments were mainly
in relation to the planned shutdown of the Brazi
power plant and the acquisition of a back-up
transformer.
40 Directors’ report
OMV Petrom Annual Report 2018 | Report of the governing bodies
Statement of financial position
Summarized consolidated statement of financial position (RON mn)
2018
2017
Provisions for decommissioning and restoration obligations
5,993
7,275
5
n.m.
%
(1)
0
17
(5)
(7)
23
3
11
33
4
10
(19)
(6)
(50)
(18)
(20)
n.m.
8
9
(19)
n.m.
7
4
33,549
29,808
58
2,249
1,433
10,235
2,152
1,674
129
6,281
33,727
29,755
50
2,377
1,545
8,332
2,083
1,513
4,731
43,784
42,059
31,368
28,421
6,867
8,509
211
282
225
559
361
20
5,549
3,050
267
103
451
0
5,129
2,805
329
0
2,128
1,995
43,784
42,059
Assets
Non-current assets
Intangible assets and property, plant and equipment
Investments in associated companies
Other non-current assets
Deferred tax assets
Current assets
Inventories
Trade receivables
Assets held for sale
Other current assets
Total assets
Equity and liabilities
Total equity
Non-current liabilities
Provisions for pensions and similar obligations
Interest-bearing debts
Provisions and other liabilities
Deferred tax liabilities
Current liabilities
Trade payables
Interest-bearing debts
Liabilities associated with assets held for sale
Provisions and other liabilities
Total equity and liabilities
Compared to December 31, 2017, total assets
increased by RON 1,725 mn, to RON 43,784
mn, mainly driven by a higher cash and cash
equivalents position. Additions to intangible
assets and property, plant and equipment
amounted to RON 4,334 mn (2017: RON 2,887
mn).
The increase in total equity by RON 2,947 mn
was the result of the net profit generated in the
current year, partially offset by the dividends
distributed for the 2017 financial year in a gross
amount of RON 1,133 mn.
The net decrease in interest-bearing debts
(both long- and short-term) by RON 338 mn was
mainly related to repayments of loans in 2018.
The Group’s liabilities other than interest
bearing debts (both long- and short-term)
decreased by RON 884 mn, mainly due to
reassessment of provisions, partially offset by
the increase of trade payables and liabilities
associated with assets held for sale.
OMV Petrom Group reached a net cash position
of RON 4,891 mn (2017: RON 2,897 mn).
Net cash close to
RON 5 bn
Directors’ report 41
Cash flow
Summarized consolidated cash-flow statement (RON mn)
Sources of funds
Cash flow from operating activities
Cash flow from investing activities
Free cash flow
Cash flow from financing activities
Effect of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Free cash flow after dividends
2018
7,353
7,385
(4,261)
3,125
(1,495)
1
1,630
3,979
5,609
2,002
2017
6,153
5,954
(2,446)
3,508
(1,524)
(1)
1,983
1,996
3,979
2,666
In 2018, the inflow of funds from profit before tax,
adjusted for non-cash items such as depreciation
and impairments, net change of provisions and
other non-cash adjustments, as well as net
interest and income tax paid was RON 7,353
mn (2017: RON 6,153 mn), while changes in net
working capital generated a cash inflow of RON
32 mn (2017: outflow of RON 199 mn). Cash flow
from operating activities increased by RON
1,431 mn compared to 2017, reaching RON 7,385
mn, reflecting the significantly higher operating
result supported by favorable commodity price
developments and cost optimization.
In 2018, the cash outflow from investing
activities amounted to RON 4,261 mn (2017:
RON 2,446 mn) mainly related to payments for
investments in intangible assets and property,
plant and equipment, largely in the Upstream
segment.
Cash flow from financing activities reflected
an outflow of funds amounting to RON 1,495 mn
(2017: RON 1,524 mn), mainly arising from the
payment of dividends of RON 1,123 mn and the
repayment of loans.
Free cash flow (defined as cash flow from
operating activities less cash flow from investing
activities) showed an inflow of funds of RON 3,125
mn (2017: RON 3,508 mn). Free cash flow less
dividend payments resulted in a cash inflow of
RON 2,002 mn (2017: RON 2,666 mn).
Risk management
As per the Corporate Governance Code, OMV
Petrom’s Supervisory Board’s role is to adopt strict
rules and obtain assurances, via its specialized
Audit Committee, that the Company has an
effective risk management system in force.
OMV Petrom’s Executive Board is continuously
executing oversight and steers the Company’s risk
management system through close involvement
in the risk management process and its
development.
To assess the risks associated with OMV Petrom’s
strategy pillars and mid-term operations, the
Executive Board has empowered a dedicated Risk
Management function with the objective to lead
and coordinate the Company’s risk management-
related processes.
OMV Petrom’s risk management process
enables the Company to assess whether long-
term sustainability and the mid-term liquidity are
secured, and whether the estimated impact of the
risks is within acceptable levels.
From a long-term sustainability perspective, a
strategic risk assessment process is in place,
on the one hand, to capture the executive
management’s perspective of the risk environment
across a long-time horizon and, on the other
Increase of cash
flow from operating
activities supported by
favorable commodity
prices and cost
optimization
42 Directors’ report
OMV Petrom Annual Report 2018 | Report of the governing bodies
hand, develop risk mitigation plans and monitor
implementation of defined actions. The strategic
risks refer to both externally and internally driven
risks (e.g. oil and gas market volatility, climate
change, political, regulatory, human capital,
technology and innovation). An annual strategic
risk assessment ensures a robust revalidation of
identified risks. It captures new developments or
provides updated information on the operating
environment and industry trends, and thereby
has a positive impact on the Company’s ability to
mitigate and / or protect itself against risks.
As regards mid-term liquidity, the objective of OMV
Petrom’s risk management system is to secure
its capacity to deliver positive economic value
added by managing the Company’s risks and their
potential cash flow impact within the limits of the
risk appetite. High potential single event risks as
well as long-term strategic risks are also identified,
evaluated, analyzed, and managed consistently.
Furthermore, OMV Petrom’s risk management
system is part of the corporate decision-making
process. Risks associated with new major projects
or important business initiatives are assessed
and communicated to management prior to the
approval decision, as part of the project evaluation
process.
OMV Petrom’s Enterprise-Wide Risk Management
(EWRM) system complies with the ISO 31000
Risk Management International Standard and
comprises a dedicated risk organization working
under a robust internal regulation framework with a
quantitative information technology infrastructure.
Additionally, the EWRM system actively pursues
the identification, analysis, evaluation, and
mitigation of main risks in order to manage their
effects on the Company’s cash flow up to an
acceptable level agreed as per the risk appetite.
OMV Petrom has four levels of risk management
roles in a pyramid-type risk organization. The
first (bottom) layer comprises the risk owners
represented by managers from various areas, the
second level is made up of risk coordinators who
facilitate and coordinate the risk management
process in their division, and the third layer is the
risk management function which coordinates the
entire process assisted by specialized corporate
functions (e.g. HSSE, Compliance, Legal, Finance,
Controlling). The top level is represented by
OMV Petrom’s Executive Board which steers and
approves OMV Petrom’s consolidated risk profile
in accordance with the Company’s objectives
and risk appetite. The risk management system
and its effectiveness are monitored by the Audit
Committee of the Supervisory Board via regular
reports.
The risks within OMV Petrom’s EWRM system
are organized into the following categories:
market and financial, operational, and strategic.
These categories include, among others, market,
financial, project, process, health, safety and
security, tax, compliance, personnel, legal,
regulatory, and reputational risks.
In terms of tools and techniques, OMV Petrom
follows the best international risk management
practices and uses stochastic quantitative models
to measure the potential loss associated with the
Company’s risk portfolio under a 95% confidence
level and a three-year horizon. The identified risks
are analyzed depending on their nature, taking
into consideration their causes, consequences,
historical trends, volatilities, and potential cash
flow impact.
OMV Petrom’s key financial and non-financial
exposures are commodity market price risk,
foreign exchange risk, and operational risks
in connection with low-probability, high-impact
hazards. Other risks that influence the Company’s
results are counterparty credit risk, liquidity risk,
and interest rate risk.
In regard to the market price risk, OMV Petrom
is naturally exposed to the price-driven volatility
of cash flows generated by production, refining,
and marketing activities associated with crude oil,
oil products, gas, and electricity. Market risk has
core strategic importance within OMV Petrom’s
risk profile and liquidity. The market price risks of
OMV Petrom commodities are closely analyzed,
quantified, and evaluated.
In terms of foreign exchange risk management,
OMV Petrom is essentially exposed to the volatility
Executive Board steers
and approves OMV
Petrom's consolidated
risk profile
Market price risk - core
strategic importance
Directors’ report 43
of RON against USD and EUR. The effect of
foreign exchange risk on cash flows is regularly
monitored.
Derivative financial instruments may be used for
the purposes of managing exposure to commodity
price and foreign exchange currencies upon
approval from OMV Petrom’s Executive Board in
line with the Company’s risk appetite and/or risk
assessments.
From an operational risk perspective, OMV
Petrom is an integrated company with a wide
asset base composed mainly of hydrocarbon
production and processing plants. A special
focus is given to process safety risks where OMV
Petrom’s policy is “Zero harm, No losses”. The
low-probability, high-impact risks associated with
the operational activity (e.g. blowouts, explosions,
earthquakes, etc.) are identified and incident
scenarios are developed and assessed for each
of them. Where required, mitigation plans are
developed for each specific location. Besides
emergency, crisis, and disaster recovery plans,
OMV Petrom’s policy regarding insurable risks
is to transfer the risks via insurance instruments.
These risks are closely analyzed, quantified,
and monitored by the risk organization and are
managed via detailed internal procedures.
Counterparty credit risk management refers
to the risk that a counterparty will default on its
contractual obligations resulting in financial loss
to OMV Petrom. The Group’s counterparty credit
risks are assessed, monitored and managed at
Company level using predetermined limits for
specific countries, banks, clients, and suppliers.
Based on creditworthiness and available rating
information, all counterparties are assigned
maximum permitted exposures in terms of
credit limits (amounts and maturities), and the
creditworthiness assessments and granted limits
are reviewed on a regular basis.
To assess short-term liquidity risk, the budgeted
operating and financial cash inflows and outflows
throughout OMV Petrom are monitored and
analyzed on a monthly basis in order to establish
the expected net change in liquidity. This analysis
provides the basis for financing decisions and
capital commitments. For mid-term risks, to ensure
that OMV Petrom always remains solvent and
retains the necessary financial flexibility, liquidity
reserves in the form of committed credit lines are
maintained.
OMV Petrom is inherently exposed to interest
rate risk due to its financing activities. The
volatility of EURIBOR and ROBOR may trigger
less or additional cash flow resources necessary
to finance the interest payments associated with
OMV Petrom’s debt. However, the risk and the
mentioned volatility are low.
In relation to political and regulatory risk,
the Company is in dialogue with the Romanian
authorities on topics of relevance for the industry
and monitors regulatory developments. In 2018,
we have seen several fiscal and regulatory
initiatives put in discussion and/or implemented.
This increases legislative volatility with influence
on the overall business environment. As far as
compliance risks are concerned, the Company
organizes regular training sessions and awareness
campaigns.
OMV Petrom’s consolidated risk profile is regularly
reported for the Executive Board’s endorsement
and for the information of the Supervisory Board’s
Audit Committee.
In 2018, OMV Petrom reassessed its strategic
risk portfolio during five dedicated meetings with
the Executive Board members. The discussions
focused on mitigating actions proposed by the
appointed risk owners and an update of the risk
developments over the recent period.
Additionally, OMV Petrom reassessed its mid-term
risk exposures, its financial resilience, and the list
of risk mitigating actions. In March and November,
the results of the reassessment were submitted
in the form of risk management reports to the
Executive Board and Supervisory Board’s Audit
Committee.
Internal control
The Group has implemented an internal control
Main operational risks
covered by insurance
44 Directors’ report
OMV Petrom Annual Report 2018 | Report of the governing bodies
system which includes activities aiming at
preventing or detecting undesirable events and
risks, such as fraud, errors, damages, non-
compliance, unauthorized transactions, and
misstatements in the financial reporting.
OMV Petrom’s internal control system covers all
areas of Group operations with the following goals:
Compliance with laws and internal regulations
Reliability of financial reporting (accuracy,
completeness, and correct disclosure)
Prevention and detection of fraud and error
Effective and efficient business operations
Internal control covers
all activity areas
OMV Petrom’s internal control system framework consists of the following elements:
Element
Description
Internal control environment
Assessment of process and
compliance risks
Risk mitigation via control
activities
Documentation and
information
Monitoring and audit
The existence of a control environment forms the basis for an effective
internal control system. Group-wide values and principles (e.g. business
ethics) and organizational measures (e.g. clear assignment of responsibility
and authority, commitment to competence, signature rules, and segregation
of duties) are defined and adhered to within this system.
Generally, all business, management and support processes are completed
within the scope of the internal control system. They are assessed to
identify risky and critical activities as well as process and compliance risk.
Control activities and measures (e.g. segregation of duties, checks,
approvals, IT access rights) are defined, implemented and performed to
mitigate significant process and compliance risks.
Related duties include the documentation of main processes and
procedures containing a description of key control activities performed.
Management and the Internal Audit department evaluate the effective
implementation of the internal control system.
OMV Petrom's successful management
and operations mean creating value for all
stakeholders and require systematically and
transparently managing the Company while
applying the best corporate governance principles.
To attain this objective, OMV Petrom has
implemented a rigorous Management System.
The Management System represents the set
of policies, processes and regulations whose
purpose is to manage and control the organization
in order to achieve its objectives through optimized
utilization of resources.
The Management System provides a structured
framework of processes and regulations and
describes what the company does, how it is
organized, how it manages its business and
who is responsible for what. It also ensures
the continuous improvement of OMV Petrom’s
competitiveness by providing appropriate methods
and tools.
The Internal Audit department assesses the
effectiveness and efficiency of the organization’s
policies, procedures, and systems which are
in place to ensure: proper identification and
management of risks, reliability and integrity of
information, compliance with laws and regulations,
safeguarding of assets, economical and efficient
use of resources, and the accomplishment of
established objectives and goals.
Internal Audit carries out regular audits of
individual Group companies and informs the
Audit Committee about the results of the audits
performed.
Directors’ report 45
The Group has an Accounting Manual that is
implemented consistently in all Group companies
to ensure the application of uniform accounting for
the same business cases. The Group Accounting
Manual is updated regularly based on changes
in International Financial Reporting Standards.
Furthermore, the organization of the Accounting
and Financial Reporting departments is set
up to achieve a high-quality financial reporting
process. Roles and responsibilities are specifically
defined and a revision process – the “four-eye
principle” – is applied to ensure the correctness
and accuracy of the financial reporting process.
The establishment of Group-wide standards for
the preparation of annual and interim financial
statements by means of the Group Accounting
Manual is also regulated by an internal corporate
guideline.
In accordance with Chapter 8 of the Ministry
of Public Finance Order no. 2844/2016 for
approval of Accounting Regulations according
to International Financial Reporting Standards,
transposing Chapter 10 of the Accounting
Directive (2013/34/EU) of the European
Parliament and of the Council, management
prepared a consolidated report on payments to
governments for the year 2018. This report will be
published together with the consolidated financial
statements of OMV Petrom for the year ended
December 31, 2018.
Subsequent events
Please refer to Note 38 in the Consolidated
Financial Statements.
Outlook 2019
For the year 2019, we expect the average Brent
oil price to be at USD 65/bbl v.
We expect the refining margins to be at a
similar level as in 2018. Also the demand for
oil products, gas and power is expected to be
broadly similar to 2018.
A stable, predictable and investment-friendly fiscal
and regulatory framework is a key requirement for
our future investments, both onshore and offshore.
At the end of 2018, the government approved
the Emergency Ordinance no. 114, thereby
introducing measures that have an impact on
several sectors. According to its provisions, for the
period from April 2019 to February 2022, the sale
price for gas from current domestic production is
capped at 68 RON/MWh and gas producers must
supply prioritarily the households’ suppliers.
The same ordinance brings changes in the
electricity sector applicable during March 2019
- February 2022, including regulated prices for
households and the obligation for power producers
to supply prioritarily the suppliers of last resort, in
order to cover households’ consumption.
Furthermore, a financial contribution of 2% is
applied to the operations of ANRE license holders
for activities in the field of electricity, electricity and
heat in cogeneration (for the electricity component)
and natural gas; the basis for this contribution will
be calculated according to ANRE regulations.
The ordinance also extends the validity of the
0.5% tax on crude oil revenues until the end of
December 2021.
We are currently assessing the impact of the
ordinance on our operations.
At the Group level, we expect to generate a
positive free cash flow after dividends. CAPEX
(including capitalized exploration and appraisal)
is currently anticipated to be around RON 3.7 bn,
of which about 75% in Upstream. This is reduced
by 14% yoy, mainly caused by the revisiting of
our investment plans in terms of size and pace,
as we need to understand the investment climate,
characterized by higher fiscal and legislative
volatility recently.
With regard to our Neptun Deep project, we note
that the current legislative environment does not
provide the necessary prerequisites for a multi-
billion investment decision. We remain keen to
see the Black Sea developed and we will continue
the dialogue with the authorities to understand the
way forward.
v The budget is based on the assumption of 70 USD/bbl for Brent oil price for 2019.
Four-eye principle
applied in the financial
reporting process
Similar demand for our
products and refining
margin expected in
2019
46 Directors’ report
OMV Petrom Annual Report 2018 | Report of the governing bodies
Following the encouraging results of the pilot
phase of 15 MyAuchan convenience stores in
Petrom branded filling stations, we are looking to
extend the partnership with Auchan.
A sustainable cost base supported by ongoing
efficiency programs is even more crucial in
the context of the current volatile regulatory
environment.
Non-financial declaration
As per the legal requirements with reference
to the disclosure of non-financial information,
the Company prepares and publishes a
separate Sustainability Report, which includes
the information required for the non-financial
declaration, describing our sustainability initiatives.
OMV Petrom’s Sustainability Report for 2018 will
be published by June 30, 2019.
OMV Petrom
will publish the
Sustainability Report
for 2018 until June 30
In Upstream, we will strive to contain the average
daily production decline at around 5% yoy,
excluding portfolio optimization. We will continue
to focus on the most profitable barrels; as such,
the transfer of nine marginal fields to Mazarine
Energy Romania became effective as of March
1, 2019, with the divestment process for further
marginal fields ongoing. We plan to drill around
100 new wells and sidetracks and maintain a
constant level of workovers yoy, while exploration
expenditures are estimated to be around RON
380 mn.
In Downstream Oil, the refinery utilization rate is
targeted at around 94%.
In Downstream Gas, we expect relatively similar
gas sales volumes and higher net electrical output
vs. 2018. A four-week planned shutdown of the
Brazi power plant will take place in Q2/19: two
weeks for full capacity and two weeks for half
capacity.
Directors’ report 47
OMV Petrom is
governed in a two-tier
system
Corporate governance report
The Company has always conferred great
importance upon the principles of good corporate
governance considering corporate governance a
key element underpinning the sustainable growth
of the business and also the enhancement of long-
term value for shareholders.
To remain competitive in a changing world, OMV
Petrom constantly develops and updates its
corporate governance practices, so that it can
meet new demands and future opportunities.
Since 2007, the Company has been governed in
a two-tier system in which the Executive Board
manages the daily business and operations of
the Company, whereas the Supervisory Board
elected by the shareholders monitors, supervises
and controls the activity of the Executive Board.
The powers and duties of the above-mentioned
bodies are stated in the Company’s Articles of
Association, available on the website (www.
omvpetrom.com) and in the relevant internal
regulations and are briefly detailed herein.
The Company is managed in an atmosphere
of openness between the Executive Board and
Supervisory Board, as well as within each of
these corporate bodies. A transparent decision-
making process, relying on clear and objective
rules, enhances shareholders’ confidence in the
Company and its management. It also contributes
to the protection of shareholders’ rights, improving
the overall performance of the Company and
providing better access to capital and risk
mitigation.
The members of the Executive Board and
Supervisory Board have always paid due attention
to their duty of care and loyalty. Hence, the
Executive Board and Supervisory Board have
passed their resolutions as required for the welfare
of the Company, primarily in consideration of the
interests of shareholders and employees.
principles, ever since then.
OMV Petrom complies with almost all of the
provisions set forth in the Corporate Governance
Code issued by the Bucharest Stock Exchange
that entered into force on January 4, 2016. More
details on the Company’s compliance status with
the principles and recommendations stipulated
under the Corporate Governance Code issued by
the Bucharest Stock Exchange are presented in
the corporate governance statement, which is a
part of this Annual Report.
General Meeting of Shareholders (GMS)
GMS organization
The GMS is the highest deliberation and
decision forum of a company. The main rules
and procedures of the GMS are laid down in the
Company’s Articles of Association and in the Rules
and Procedures of the GMS, both published on
the Company’s corporate website, as well as in the
relevant GMS convening notice.
The GMS is convened by the Executive Board
whenever this is necessary. In exceptional cases,
when the Company’s interest requires it, the
Supervisory Board may also convene the GMS.
At least 30 days before the GMS, the convening
notice is published in the Official Gazette and in
one widely-distributed newspaper in Romania
and disseminated to the Financial Supervisory
Authority and Bucharest and London Stock
Exchanges. At the same time, the convening
notice will be also made available on the
Company’s website, together with all explanatory
and supporting documents related to items
included on the relevant GMS agenda.
The GMS is usually chaired by the President of the
Supervisory Board, who may designate another
person to chair the meeting. The chairman of the
GMS designates two or more technical secretaries
to verify the fulfillment of the formalities required
by law for carrying out the GMS and for drafting
the minutes thereof.
High corporate
governance standards
since 2010
Bucharest Stock Exchange Corporate
Governance Code
The Company first adhered to the Corporate
Governance Code issued by the Bucharest Stock
Exchange in 2010 and has continued to apply its
At the first convening, the quorum requirements
are met if the shareholders representing more
than half of the share capital of the Company are
present, with decisions being validly passed with
48 Corporate governance report
OMV Petrom Annual Report 2018 | Report of the governing bodies
the affirmative vote of shareholders representing
the majority of share capital of the Company.
The same rules apply both to the Ordinary and
Extraordinary GMS. The Ordinary GMS held
at the second convening may validly decide on
the issues included on the agenda of the first
scheduled meeting, irrespective of the number
of attending shareholders, by the majority of
the votes expressed in such a meeting. For the
Extraordinary GMS held at the second convening,
the quorum and majority requirements are the
same as for the first convening. Where the
mandatory legal provisions set out otherwise, the
quorum and majority requirements shall be carried
out in accordance with such legal provisions.
financial statements;
to distribute the profit and establish the
dividends;
to elect and revoke the members of the
Supervisory Board and the financial auditor;
to establish the remuneration of the members
of the Supervisory Board and of the financial
auditor;
to assess the activity of the Executive Board
members and of the Supervisory Board
members, to evaluate their performance and to
discharge them of their liability in accordance
with the provisions of law;
to approve the income and expenditure budget
for the next financial year.
In observance of capital market regulations, the
resolutions of the GMS are disseminated to the
Bucharest and London Stock Exchanges and
the Financial Supervisory Authority within 24
hours after the event. The resolutions will also be
published on the Company’s website.
The Company actively promotes the participation
of its shareholders in the GMS. The shareholders
duly registered in the shareholders’ register
at the reference date may attend the GMS in
person or by representation, based on a general
or special proxy. Shareholders may also vote by
correspondence, prior to the GMS. The Company
makes available at the headquarters and/ or on
the Company’s website templates of such proxies
and voting bulletins for votes by correspondence.
The shareholders of the Company, regardless of
their participation held in the share capital, may
raise questions in writing or verbally regarding
the items on the agenda of the GMS. To protect
the interests of our shareholders, the answers
to the questions shall be provided by observing
the regulations applicable to special regime
information (e.g. classified information), as well as
of disclosure of commercially sensitive information
that could result in losses or a competitive
disadvantage for the Company.
GMS main duties and powers
The main duties of the Ordinary GMS are:
to discuss, approve or modify the annual
The Extraordinary GMS is entitled to decide
mainly upon:
changing the corporate form or the business
object of the Company;
increasing or reducing the share capital of the
Company;
spin-offs or mergers with other companies;
early dissolution of the Company;
converting shares from one class into another;
amendments to the Articles of Association.
Shareholders’ rights
Rights of the Company’s minority shareholders
are adequately protected according to relevant
legislation.
Shareholders have, among other rights provided
under the Company’s Articles of Association and
the laws and regulations currently in force, the
right to obtain information about the activities of
the Company, regarding the exercise of voting
rights and the voting results in the GMS.
In addition, shareholders have the right to
participate and vote in the GMS, as well as to
receive dividends. OMV Petrom observes the one
share, one vote, one dividend principle. There
are no preference shares without voting rights or
shares conferring the right to more than one vote.
Moreover, shareholders have the right to
challenge the decisions of GMS or withdraw from
the Company and request the Company acquire
their shares, in certain conditions mentioned
by the law. Likewise, one or more shareholders
holding, individually or jointly, at least 5% of the
One share, one vote,
one dividend
Corporate governance report 49
One new Supervisory
Board member in 2018
share capital, may request the calling of a GMS.
Such shareholders also have the right to add new
items to the agenda of a GMS, provided such
proposals are accompanied by a justification or a
draft resolution proposed for approval and copies
of the identification documents of the shareholders
who make the proposals.
Rights of GDR holders
As endorsed on each GDR certificate, GDR holders
have the rights set out in the terms and conditions
of the GDRs. These include the right to:
withdraw the deposited shares;
receive payment in US dollars from the GDR
depositary of an amount equal to cash dividends
or other cash distributions received by the GDR
depositary from the Company in respect of the
deposited shares, net of any applicable fees,
charges and expenses of the depositary and any
taxes withheld;
receive from the GDR depositary additional
GDRs representing additional shares received by
the GDR depositary from the Company by way
of free distribution (or if the issue of additional
GDRs is deemed by the GDR depositary not to
be reasonably practicable or to be unlawful, the
net proceeds in US dollars of the sale of such
additional shares);
request the GDR depositary to exercise
subscription or similar rights made available by
the Company to shareholders (or if such process
is deemed by the GDR depositary not to be
lawful and reasonably practicable, the right to
receive the net proceeds in US dollars of the sale
of the relevant rights or the sale of the assets
resulting from the exercise of such rights);
instruct the GDR depositary regarding the
exercise of any voting rights notified by the
Company to the GDR depositary subject to
certain conditions;
receive from the GDR depositary copies received
by the GDR depositary of notices provided by
the Company to shareholders or other material
information.
Supervisory Board
Supervisory Board members
The Supervisory Board consists of nine members
who were elected by the Ordinary GMS, in
accordance with the provisions of Company Law
and the Articles of Association. The Supervisory
Board’s current mandate started in 2017 and ends
on April 28, 2021.
At the beginning of 2018, the Supervisory Board
consisted of the following members: Rainer Seele
(President), Reinhard Florey (Deputy President),
Manfred Leitner, Johann Pleininger, Daniel
Turnheim, Jochen Weise, Sevil Shhaideh, Radu-
Spiridon Cojocaru and Joseph Bernhard Mark
Mobius.
During 2018, there was only one change in the
membership of the Supervisory Board. As of April
26, 2018, following Johann Pleininger’s waiver of
his mandate as member of the Supervisory Board,
Christopher Veit was appointed as member of the
Supervisory Board until April 28, 2021. Moreover,
the Ordinary GMS appointed Sevil Shhaideh,
interim member as of October 26, 2017, as
member of the Supervisory Board until April 28,
2021.
Herein below is the composition of the Supervisory
Board as effective at the end of 2018 as well as at
the date of this report:
Rainer Seele (1960) – President
After completing his studies at the University
of Göttingen, where he obtained a doctorate
in Chemistry, Rainer Seele joined BASF
Aktiengesellschaft, initially as a research scientist.
After working in several different functions
between 1987 and 1996, he was appointed
Head of Group Chemical Research and Head of
Planning and Controlling at the research division
of BASF Aktiengesellschaft. In 1996 he became
Head of Strategic Planning at Wintershall AG in
Kassel and in 2000 he became a member of the
Executive Board at WINGAS GmbH. Later on, in
2002, Rainer Seele was also appointed Chairman
of the Board of Executive Directors of WINGAS
GmbH, and in 2009, he became Chairman of the
Wintershall Board. Starting July 1, 2015, Rainer
Seele has been CEO and Chairman of the OMV
Aktiengesellschaft Executive Board.
Rainer Seele was first elected an OMV Petrom
50 Corporate governance report
OMV Petrom Annual Report 2018 | Report of the governing bodies
Three independent
members in the
Supervisory Board
Supervisory Board member by the Ordinary GMS
dated September 22, 2015.
Reinhard Florey (1965) – Deputy President
Reinhard Florey graduated with a degree in
Mechanical Engineering and Economics from Graz
University of Technology while also completing
his music studies at the Graz University of Fine
Arts. He then started his career in corporate and
strategy consulting. Until 2002, he worked for
McKinsey & Company, Austria, and from 2002 to
2012 he occupied different management positions
worldwide for Thyssen Krupp AG. In January
2013, Reinhard Florey joined Outokumpu OYJ,
Finland, first as Executive Vice President Strategy
and Integration, and, starting November 2013,
as CFO and Deputy CEO. Since July 1, 2016,
Reinhard Florey has been the CFO of OMV
Aktiengesellschaft.
Reinhard Florey was first elected an OMV Petrom
Supervisory Board member by the Ordinary GMS
dated April 25, 2017.
Manfred Leitner (1960)
Manfred Leitner studied commerce at the Vienna
University of Economics and Business and then
completed an Executive Program at Stanford
Graduate School of Business. He began his career
with OMV in 1985 in the Exploration & Production
division. After several years abroad as finance
manager in Tripoli, he returned to Austria in 1990
to take charge of the Controlling department in
the Exploration & Production division. In 1997,
he transferred to Refining & Marketing and took
over management responsibility for planning and
controlling. In 2003 he became Business Unit
Manager for Downstream Optimization & Supply.
Manfred Leitner has been a member of the OMV
Aktiengesellschaft Executive Board since April 1,
2011 and is responsible for Downstream (Refining
& Marketing as well as Gas & Power).
Manfred Leitner was first elected an OMV Petrom
Supervisory Board member by the Ordinary GMS
dated April 26, 2011.
Christopher Veit (1958)
Christopher Veit graduated in mechanical
engineering from Höhere Technische
Bildungsanstalt Kapfenberg and also in petroleum
engineering from Montan University Leoben. He
joined OMV Group in 1986, where he held various
executive and management positions. Since 1
January 2016, he holds the position as Senior
Vice-president of Exploration, Development &
Production within OMV Exploration & Production
GmbH.
Christopher Veit was first elected an OMV Petrom
Supervisory Board member by the Ordinary GMS
dated April 26, 2018.
Daniel Turnheim (1975)
Daniel Turnheim studied Business Administration
at the Vienna University of Economics and
Business Administration. In 2002, he joined
OMV Group where he held several management
positions. He was Executive Board member and
CFO of OMV Petrom between January 2011 and
December 2012. From January 2013 to June
2016, he was Senior Vice President of Corporate
Finance within the OMV Aktiengesellschaft. Since
July 2016 he has held the position as Senior
Vice-President of Corporate Finance & Controlling
within the OMV Aktiengesellschaft.
Daniel Turnheim was first elected an OMV Petrom
Supervisory Board member by the Ordinary GMS
dated April 25, 2017.
Sevil Shhaideh (1964) – independent vi
Sevil Shhaideh graduated from the Faculty of
Economics, Planning and Cybernetics at the
Academy of Economic Sciences from Bucharest
and earned a master’s degree in the Management
of Business Projects from the Ovidius University,
Constanta. Moreover, she is specialized in a
variety of fields such as project management,
public administration, quality management and
financial auditing. Sevil Shhaideh has 20 years
of experience as a public servant within local
public administration. Starting 2012, she held
various positions within the Government of
Romania, such as State Secretary and Minister
within the Ministry of Regional Development and
Public Administration and Vice Prime Minister
and Minister of Regional Development, Public
Administration and European Funds. Her main
responsibilities involved regional development,
European projects management and public
administration activities.
vi Independent member as per the criteria of the Bucharest Stock Exchange Corporate Governance Code, criteria which are substantially similar to those
provided by Company Law.
Corporate governance report 51
Sevil Shhaideh was first elected an OMV Petrom
Supervisory Board member by the Ordinary GMS
dated April 26, 2018.
Radu-Spiridon Cojocaru (1947) – independent vii
Radu-Spiridon Cojocaru graduated from the Faculty
of Applied Electronics, at the Politehnic Institute of
Bucharest. He is a founding member of the National
Association for Securities Market Development,
contributing from his position as member of the
Board of Directors to the establishment of specific
institutions such as the National Securities
Commission (currently the Financial Supervisory
Authority), Bucharest Stock Exchange, Central
Depositary, RASDAQ (Romanian Association of
Securities Dealers Automated Quotation).
Starting 1990, he held various positions within
the management structures of some Romanian
companies. He also held the position of Member
of the Chamber of Deputies within the Romanian
Parliament between 1996 and 2000, and was a
member of the Commission for Economic Policies,
Reform and Privatization where he contributed to
the framing of the legislation in the field, including
the budget, and to the supervision of some public
bodies under the control of Parliament. He was
a member of the presidential commission for the
Romania’s Country Program between 2016 and
2018. As of 2018, he is member of the National
Commission to prepare Romania’s entry into the
Eurozone.
Radu-Spiridon Cojocaru was first elected an OMV
Petrom Supervisory Board member by the Ordinary
GMS dated April 25, 2017.
Joseph Bernhard Mark Mobius (1936) –
independent vii, viii
Mark Mobius earned a bachelor's and master's
degrees from Boston University and a Doctor of
Philosophy (Ph. D) in Economics and Political
Science from the Massachusetts Institute of
Technology. He has spent more than 40 years
working in emerging markets all over the world.
He joined Franklin Templeton in 1987 as president
of Templeton Emerging Markets Fund, Inc. In
1999, he was appointed joint chairman of the
Global Corporate Governance Forum Investor
Responsibility Taskforce of the World Bank and
Organization for Economic Cooperation and
Development. Mark Mobius was the Executive
Chairman of Templeton Emerging Markets Group,
which directs the analysts of Franklin Templeton's
18 emerging market offices and manages the
emerging markets’ portfolios. After his departure
from Franklin Templeton in January 2018, Mark
Mobius established a new firm Mobius Capital
Partners LLP, as a Co-Founder in March 2018.
Mark Mobius was first elected an OMV Petrom
Supervisory Board member by the Ordinary GMS
dated April 29, 2010.
Jochen Weise (1956) – independent vii
Jochen Weise graduated in Law from Universities
of Bochum and Bonn, Germany. He has held
non-executive positions as a Supervisory Board
member of the Verbundnetzgas AG in Leipzig,
Germany since December 2014 and as Senior
Advisor Energy Infrastructure Investments at Allianz
Capital Partners in London since November 2010.
Previously, he was member of the Management
Board, between April 2004 and August 2010,
Executive Vice President Gas Supply & Trading,
between January 2003 to March 2004, at E.ON
Ruhrgas AG, and Director Commercial Sales at
Deutsche Shell GmbH, between April 1998 and
December 2001.
Jochen Weise was first elected an OMV Petrom
Supervisory Board member by the Ordinary GMS
dated April 25, 2017.
Main duties and powers of the Supervisory
Board
The Supervisory Board has the following main
powers:
to exercise control over the management of the
Company by the Executive Board;
to appoint and revoke the members of the
Executive Board;
to submit to the GMS a report concerning the
supervision activity undertaken;
to verify the reports of the members of the
Executive Board;
to verify the Company’s annual separate and
consolidated financial statements;
to propose to the GMS the appointment and
the revocation of the independent financial
auditor, as well as the minimum term of the audit
contract.
vii Independent member as per the criteria of the Bucharest Stock Exchange Corporate Governance Code, criteria which are substantially similar to those
provided by Company Law;
viii Joseph Bernhard Mark Mobius independence status changed from non-independent to independent starting 2019.
Mr. Mobius
independence
status changed to
independent starting
2019
52 Corporate governance report
OMV Petrom Annual Report 2018 | Report of the governing bodies
Details on the Supervisory Board works and
activities in 2018, as well as the results of the
Supervisory Board self-evaluation are included in
the Supervisory Board Report.
Supervisory Board organization
The responsibilities of the members of the
Supervisory Board, as well as the working
procedures and the approach to conflicts of
interest are governed by relevant internal
regulations.
The Supervisory Board meets whenever
necessary, but at least once every three months.
The Supervisory Board may hold meetings in
person or by telephone or video conference. At
least five of the Supervisory Board members must
be present for resolutions to be validly passed.
The decisions of the Supervisory Board shall
be validly passed by the affirmative vote of the
majority of the members present or represented
at such Supervisory Board meeting. In the event
of parity of votes, the President of the Supervisory
Board or the person empowered by him/her to
chair the meeting shall have a casting vote. In
urgent cases, the Supervisory Board may take
decisions by circulation, without an actual meeting
being held, by the majority of votes. The President
shall decide on whether issues are of an urgent
nature.
Special committees
The Supervisory Board may assign particular
issues to certain Supervisory Board members,
acting individually or as part of special committees,
and may also refer to experts to analyze certain
issues. The task of the committees is to issue
recommendations for preparing resolutions to be
passed by the Supervisory Board itself, without
preventing the entire Supervisory Board from
dealing with matters assigned to the committees.
The special committees established at the level
of the Supervisory Board are the Audit Committee
and the Presidential and Nomination Committee.
Audit Committee
The Audit Committee is currently composed of
four members, including the President of the
Supervisory Board and the Deputy President of
the Supervisory Board, appointed by decision of
the Supervisory Board from among its members.
During 2018, there were no changes in the
membership of the Audit Committee. Therefore,
at the end of 2018, as well as at the date of this
report, the Audit Committee consisted of the
following members: Reinhard Florey (President),
Jochen Weise (Deputy President – independent),
Sevil Shhaideh (member – independent) and
Radu-Spiridon Cojocaru (member – independent).
The Audit Committee’s members have adequate
qualifications relevant to the functions and
responsibilities of the Audit Committee.
Main duties and powers of the Audit
Committee
The main duties and powers of the Audit
Committee according to the Audit Committee’s
Terms of Reference focus on four main areas:
Financial reporting – to examine and review the
annual financial statements of the Company and
the proposal for the distribution of the profits
before their submission to the Supervisory
Board and subsequently to the GMS for
approval; to oversee and approve the nature
and level of non-audit services provided by the
independent financial auditor to the Company,
as well as the issuance of regulations/guidelines
with regard to such services;
External audit – to consider and make
recommendations to the Supervisory Board on
the appointment, re-appointment and removal
of independent financial auditors, subject to
approval by the shareholders;
Internal audit, internal controls and risk
management – to undertake an annual
assessment of the system of internal control;
Compliance, conduct and conflicts of interest
– to review conflicts of interests in transactions
of the Company and its subsidiaries with
related parties and examine and review, before
their submission to the Supervisory Board for
approval, related party transactions that exceed
or may be expected to exceed 5% of the
Company’s net assets in the previous financial
year.
Details on the Audit Committee works and
activities in 2018 are included in the Supervisory
Board Report.
Duties and powers of
the Audit Committee
set in its Terms of
Reference
Corporate governance report 53
Audit Committee organization
The working procedures of the Audit Committee are
stated in the Audit Committee’s Terms of Reference.
The Audit Committee meets on a regular basis, at
least three times per year, and on an extraordinary
basis if required. The Audit Committee’s meetings
are chaired by the President or, in his/her absence,
by the Deputy or by another member, by virtue of
a mandate from the President. The decisions of
the Audit Committee shall be taken by unanimous
consensus of all members of the Audit Committee.
In case unanimous consensus cannot be reached
with respect to a specific item on the agenda, that
item will be resolved upon by the Supervisory
Board without the consultative opinion of the Audit
Committee.
In urgent cases, the Audit Committee may take
decisions also by circulation, without an actual
meeting being held, with the unanimous consensus
of all members of the Audit Committee. The
President shall decide on whether issues are of an
urgent nature.
Presidential and Nomination Committee
The Presidential and Nomination Committee is
composed of four members appointed by the
Supervisory Board among its members.
During 2018, there were no changes in the
membership of the Presidential and Nomination
Committee. Therefore, at the end of 2018, as well
as at the date of this report, the Presidential and
Nomination Committee consisted of the following
four members: Rainer Seele (President), Manfred
Leitner (Deputy President), Joseph Bernhard Mark
Mobius (member) and Sevil Shhaideh (member).
The main role of the Presidential and Nomination
Committee is to be involved in the succession
planning for the Executive Board, having full
responsibility on the selection process of candidates
for appointment in the Executive Board. In addition,
the Presidential and Nomination Committee has
the right to make recommendations concerning
the proposal of candidates for appointment in the
Supervisory Board.
Executive Board
Executive Board members
The Executive Board of the Company comprises
five members, appointed by the Supervisory Board
for a mandate of four years ending on April 17,
2019.
At the beginning of 2018, the Executive Board
was composed of the following members:
Mariana Gheorghe (CEO and President), Stefan
Waldner (CFO and member), Peter Rudolf
Zeilinger (member in charge of Upstream activity),
Neil Anthony Morgan (member in charge of
Downstream Oil activity) and Lǎcrǎmioara Diaconu-
Pințea (member in charge of Downstream Gas
activity).
The Supervisory Board approved on January 9,
2018, the appointment of a new President of the
Executive Board and CEO, Christina Verchere,
following Mariana Gheorghe’s waiver of her
mandate as President of the Executive Board and
CEO of OMV Petrom. Christina Verchere took over
the position as of May 1, 2018, her appointment
being made for the remaining term of the mandate
granted to Mariana Gheorghe, until April 16, 2019.
The Supervisory Board approved on April 26, 2018
the appointment of Franck Neel as new Executive
Board member in charge of Downstream Gas
activity following Lǎcrǎmioara Diaconu-Pințea’s
waiver of her mandate. Franck Neel took over
the position as of July 1, 2018, his appointment
being made for the remaining term of the mandate
granted to Lǎcrǎmioara Diaconu-Pințea, until April
16, 2019.
Moreover, the Supervisory Board approved the
appointment of Alina-Gabriela Popa as new CFO
and member of the Executive Board of OMV
Petrom as of April 17, 2019, following Stefan
Waldner’s announcement of his unavailability for
such positions beyond the remaining term of his
mandate ending on April 16, 2019.
The Supervisory Board also approved on June
22, 2018 the appointment of Radu-Sorin Cǎprǎu
as new member of the Executive Board, in charge
of Downstream Oil activity following Neil Anthony
Morgan’s waiver of his mandate. Radu-Sorin
Cǎprǎu took over the position as of October
1, 2018, his appointment being made for the
New EB members
appointed in 2018:
CEO and EB members
for Downstream Oil
and Downstream Gas
54 Corporate governance report
OMV Petrom Annual Report 2018 | Report of the governing bodies
EB composition at the
date of the report
remaining term of the mandate granted to Neil
Anthony Morgan, until April 16, 2019.
Therefore, at the end of 2018, as well as at the
date of this report, the Executive Board has the
following composition:
Christina Verchere (1971)
Chief Executive Officer and President of the
Executive Board
Christina Verchere holds a Master degree
in Economics Science from the University of
Aberdeen, Scotland. She started her career in
1993 and has spent over 20 years with an oil
and gas supermajor, where she held numerous
leadership positions in the UK, the US, Canada
and Indonesia. From 2012 to 2014, she has been
the Regional President Canada of BP located in
Calgary and from 2014 to 2018, she has been
the Regional President of the Asia Pacific region,
located in Jakarta, Indonesia. She was appointed
Chief Executive Officer and President of the
Executive Board of OMV Petrom as of May 1,
2018.
Stefan Waldner (1977)
Chief Financial Officer
Stefan Waldner holds a master’s degree
in Social and Economic Sciences from the
Vienna University of Economics and Business
Administration and in International Management
from the Community of European Management
Schools (CEMS). He also completed various
executive training programs in the USA and
Switzerland. He started his career in management
consulting and investment banking, led the
Corporate Development and Mergers and
Acquisitions function for the OMV Group and was
CFO of OMV Petrol Ofisi between 2014 and 2017.
He joined OMV Petrom on July 1, 2017 as CFO
and member of the Executive Board.
OMV Group as well as in OMV Petrom, including
the position as OMV Petrom’s Head of Domestic
Assets from 2008 to 2011. Prior to his return to
Romania, he led the Australasia region of OMV
in Wellington as Managing Director OMV New
Zealand LTD and Director of OMV Australia PTY
Ltd. He was appointed member of the OMV
Petrom Executive Board as of April 1, 2016.
Radu-Sorin Căprău (1974)
Responsible for Downstream Oil
After graduating the Faculty of Management from
the University of Economic Studies in Brasov,
Radu Căprău started his career in the sales area,
before joining OMV in 2000 as Area Manager
for OMV Romania. Since then, he held various
management positions within OMV Group in
Romania and Bulgaria, being responsible for
Retail, Supply & Sales and Petrom Aviation.
In 2018, he was the Head of Crude Supply &
Trading within OMV Refining & Marketing GmbH
in Vienna. He was appointed member of the OMV
Petrom Executive Board as of October 1, 2018.
Franck Albert Neel (1970)
Responsible for Downstream Gas
Franck Neel studied Energy at the University of
Rouen and received an Engineer Degree and then
followed a Master of Mechanical Engineering at
Cranfield University in United Kingdom. Later on,
he earned an Executive Degree from the London
Business School. Franck Neel spent 25 years
working for the Group Engie. Thus, he started
his career at Gaz de France in the engineering
department, where he spent seven years, and
then moved to the Marketing and Sales with
different functions in different countries such as
France, Czech Republic, Hungary, Netherlands,
Italy and United Kingdom before joining OMV
Petrom. He was appointed member of the OMV
Petrom Executive Board as of July 1, 2018.
Peter Rudolf Zeilinger (1965)
Responsible for Upstream
Peter Zeilinger holds a Master of Engineering
degree in Petroleum Engineering from the
Technical University of Clausthal-Zellerfeld in
Germany. In the past, he held various international
technical and management positions within the
Main duties and powers of the Executive Board
The main powers of the Executive Board,
performed under the supervision and control of the
Supervisory Board, are:
to establish the strategy and policies regarding
the development of the Company, including the
organizational structure of the Company and the
Corporate governance report 55
operational divisions;
to submit annually for the approval of the GMS,
within four months after the end of the financial
year, the report regarding the business activity
of the Company, the financial statements for the
previous year, as well as the business activity
and budget projects of the Company for the
current year;
to conclude legal acts on behalf of and for the
account of the Company, with observance
of matters reserved to the GMS or to the
Supervisory Board;
to hire and dismiss, and to establish the
duties and responsibilities of the Company’s
personnel, in line with the Company’s overall
personnel policy;
to undertake all the measures necessary and
useful for the management of the Company,
implied by the daily management of each
division or delegated by the GMS or by the
Supervisory Board, with the exception of those
reserved to the GMS or to the Supervisory
Board through operation of law or of the Articles
of Association;
to exercise any competence delegated by the
Extraordinary GMS.
The Executive Board reports to the Supervisory
Board on a regular basis on all relevant issues
concerning the course of business, strategy
implementation, the risk profile and risk
management of the Company.
Moreover, the Executive Board ensures that
the provisions of the relevant capital markets
legislation are complied with and implemented
by the Company. Likewise, the Executive Board
ensures the implementation and operation
of accounting, risk management and internal
controlling systems which meet the requirements
of the Company.
The members of the Executive Board have the
duty to disclose immediately to the Supervisory
Board any material personal interests they may
have in transactions of the Company as well as all
other conflicts of interest. Furthermore, they have
the duty to notify other Executive Board colleagues
of such interests forthwith.
All business transactions between the Company
and the members of the Executive Board as well
as persons or companies closely related to them
must be in accordance with normal business
standards and applicable corporate regulation.
Such business transactions as well as their terms
and conditions require the prior approval of the
Supervisory Board.
Executive Board organization
The responsibilities of the Executive Board
members, as well as the working procedures and
the approach to conflicts of interest are governed
by relevant internal regulations.
The Executive Board may hold meetings in
person or by telephone or video conference. The
meetings of the Executive Board are held regularly
(at least once every two weeks, but usually every
week) and whenever necessary for the operative
management of the Company’s daily business.
The Executive Board shall have a quorum if
all members were invited and if at least three
members are personally present. The Executive
Board shall pass its resolutions by simple majority
of the votes cast. In the event of a tie, the
President shall have a casting vote. However, the
President shall endeavor in her/his best efforts to
achieve that, to the extent possible, resolutions
are passed unanimously.
Should the nature of the situation require it,
the Executive Board can pass a resolution by
circulation based on the written unanimous
agreement, without an actual meeting being
held. The President shall assess whether such
a procedure is called for. Such a procedure may
not be used for resolutions pertaining to the
annual financial statements of the Company or its
registered share capital.
In 2018, the Executive Board met 55 times in
person and passed resolutions by circulation on
7 other occasions in order to approve all matters
requiring its approval in accordance with the
Articles of Association and the Company’s internal
regulations, as well as to allow the members of
the Executive Board to be aware of all significant
matters concerning the Company and to inform
each other about all relevant issues of their
activity.
In 2018, the Executive
Board met 55 times in
person
56 Corporate governance report
OMV Petrom Annual Report 2018 | Report of the governing bodies
OMV Petrom supports
gender diversity
Women’s advancement
The Company supports gender diversity and
promotion of women in management positions
although acknowledges the gender gap in oil and
gas industry.
By being part of OMV Group, OMV Petrom has
acceded to the Group Sustainability strategy
and strives for diverse teams and specifically,
at management level, aims to increase female
representation in Senior Leadership roles to 25%
by 2025. The Company supports this through
a number of initiatives such as mentoring,
succession planning, and specific training
addressing topics like unconscious bias.
OMV Petrom has two women in the management
bodies: Christina Verchere, the CEO and
President of the Executive Board and Sevil
Shhaideh, member of the Supervisory Board.
Moreover, at the end of 2018, around 30% of
the first line directors reporting to the Executive
Board were women, whilst the percentage of
women in senior leadership roles in total (senior
vice presidents, directors, head of departments
and senior advisors) was around 23%. The
proportion of women in the OMV Petrom Group
as a whole was 22% at year end.
OMV Petrom is committed to protecting the
rights, opportunities of all employees, by
promoting parity and eliminating gender bias,
by offering learning opportunities in diversity
and by making available to all employees an
Ombudsman Department to which employees
may raise work related issues, including gender
related, namely the PetrOmbudsman.
Basic Principles of Remuneration
OMV Petrom targets to occupy a strong market
position with compensation levels designed to
be competitive in the respective labour markets,
ideally in reference to the chemical, oil and gas
business, in order to attract, motivate and retain
the best qualified talents.
To maintain long-term competitiveness, OMV
Petrom has set a performance and development
based organization and, correspondently, a
performance-based reward management system,
embedding the company’s principles of People
and Organisational Culture related Group
strategy “Foundation”.
OMV Petrom’s remuneration principles are
targeting more than just being compliant with the
legislation. The Company places people at the
core of its business, being one of the main pillars
of the Company’s success.
Remuneration packages are set to achieve
internal equity, but at the same time to remain
externally competitive with the local and
international markets in which the Company
operates and to make people feel encouraged to
create sustainable results and add value to the
business.
OMV Petrom Group uses a variety of reward
elements to strengthen its position as an
attractive employer in the oil and gas business.
The reward structure is specifically set up
for OMV Petrom and it reflects the reward
philosophy and principles of the Company.
Consistent with the objective to be a reputable
employer, the Company’s remuneration
principles utilize a balanced mix of fixed
and variable, monetary and non-monetary
components.
Remuneration of the Supervisory Board
members
The annual Ordinary GMS approves yearly
the remuneration of the Supervisory Board
members for the current year. Such remuneration
has two components: (i) the remuneration of
the Supervisory Board members, and (ii) the
additional remuneration of the members of
the Supervisory Board who are also members
of committees established at the level of the
Supervisory Board.
In addition, for the proper running of their activity,
Supervisory Board members may receive also
some benefits in kind, such as mobile device for
business and reasonable private use and liability
insurance.
Corporate governance report 57
The remuneration of OMV Petrom employees
is at competitive levels for the relevant oil and
gas industry and includes: (i) a fixed base
remuneration, paid monthly as a net salary
determined by applying to the base gross salary
the income tax quotas and social contributions,
(ii) other fixed payments, such as fixed bonuses
and special allowances according to the Collective
Labour Agreement, (iii) other statutory and non-
statutory benefits, such as private insurance,
holiday indemnity / special days off and,
depending on the assigned position, a company
car or car compensation fee and (iv) short term
(quarterly and / or annual) performance-related
components. The measures/ key performance
indicators used are based on financial and non-
financial metrics.
Remuneration of the Executive Board
members
The remuneration of the members of the
Executive Board consists of fixed remuneration,
paid monthly either in EUR or RON, based
on various contractual arrangements, and
performance related remuneration, which includes
both short and long-term elements. The measures
/ key performance indicators for the performance
related component are based on financial and
non-financial metrics.
For properly carrying out their activity, Executive
Board members receive also some benefits
in kind, such as a company car and a mobile
device for business and reasonable private use.
In addition, Executive Board members benefit
also of international health insurance and liability
insurance.
In case of unilateral termination by the Company
of their mandate agreement, Executive Board
members are entitled to six fixed gross monthly
remuneration payable according to their
management agreement with the Company.
Remuneration of other staff
The employees of OMV Petrom are employed
under local Romanian terms and conditions
and the salaries are therefore set in RON.
The employment contracts are concluded with
OMV Petrom and governed by Romanian law.
Reflecting additional responsibilities in other OMV
Petrom Group companies, there are employees
with an additional employment contract with other
entities within OMV Petrom Group.
58 Corporate governance report
Corporate governance statement ix
OMV Petrom Annual Report 2018 | Report of the governing bodies
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
Section A - Responsibilities
A.1. All companies should have
internal regulation of the Board
which includes the terms of
reference/ responsibilities for
the Board and key management
functions of the company, applying,
among others, the General
Principles of this Section.
A.2. Provisions for the management
of conflict of interest should be
included in Board regulation. In any
event, members of the Board should
notify the Board of any conflicts of
interest which have arisen or may
arise, and should refrain from taking
part in the discussion (including by
not being present where this does
not render the meeting non-quorate)
and from voting on the adoption of a
resolution on the issue which gives
rise to such conflict of interest.
Since April 2007, OMV Petrom has been
managed in a two-tier system by an
Executive Board, which manages the
daily business of the Company under the
supervision of the Supervisory Board.
The Company’s corporate governance
structure and principles, as well as the
competences and responsibilities of the
GMS, the Supervisory Board and the
Executive Board are laid down in the
Articles of Association, the Rules and
Procedures of the GMS, the internal
rules of the Supervisory Board and of the
Executive Board, and in other relevant
internal regulations.
The members of the Executive Board and
the members of the Supervisory Board
have, by law, a duty of care and a duty of
loyalty to the Company, stated not only in
the Company’s Articles of Association, but
also in other internal regulations.
Moreover, the Company has in place
internal rules on how to deal with conflicts
of interest.
A.3. The Supervisory Board should
have at least five members.
The Supervisory Board consists of nine
members elected by the Ordinary GMS,
in accordance with the provisions of
Company Law and the Company’s Articles
of Association.
ix The statement summarises the main highlights of the Bucharest Stock Exchange Corporate Governance Code’s provisions. For the full text of the Code please refer to Bucharest
Stock Exchange website www.bvb.ro.
Corporate governance statement 59
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
OMV Petrom’s governance follows a two-tier system,
with the Executive Board ensuring the management
of the Company under the control and supervision
of the Supervisory Board. The Supervisory Board
comprises nine members who are all non-executive.
Therefore, the balance between executives and non-
executives is ensured.
Upon (re)appointing each Supervisory Board
member, the Company conducts an independence
evaluation based on the independence criteria
provided by the Corporate Governance Code
(which are substantially similar to those provided by
the Company law). The independence evaluation
consists of an individual personal assessment
carried out by the relevant Supervisory Board
member and is then followed by an external
assessment to confirm the independence resulted
following such individual personal assessment, as
the case may be.
Moreover, for the purpose of preparing the Corporate
Governance Report of the Annual Report, the
Company reconfirmed with all Supervisory Board
members their independent or non-independent
status as of December 31, 2018.
Following this evaluation, it resulted that at all times
during 2018 there were three Supervisory Board
members that met all the independence criteria
provided by the Corporate Governance Code.
Starting 2019, four members of the Supervisory
Board meet all the independence criteria stipulated
by the Corporate Governance Code.
Information on the independence status of the
members of the Supervisory Board is included on
the Company’s corporate website, within the About
Us section, Supervisory Board sub-section, and in
the Supervisory Board Report.
Information on the Supervisory Board and
Executive Board members’ permanent professional
commitments and engagements, including executive
and non-executive positions in companies and not-
for-profit institutions is included in the Supervisory
Board and Executive Board members’ CVs, available
on the Company’s corporate website, within the
About Us section, Supervisory Board and Executive
Board sub-sections.
A.4. The majority of the members of
the Board should be non-executive.
Not less than two non-executive
members of the Board of Directors
or Supervisory Board should be
independent, in the case of Premium
Tier Companies. Each member
of the Supervisory Board should
submit a declaration that he/she
is independent at the moment of
his/her nomination for election or
re-election as well as when any
change in his/her status arises, by
demonstrating the ground on which
he/she is considered independent in
character and judgment.
A.5. A Board member’s other
relatively permanent professional
commitments and engagements,
including executive and non-
executive Board positions in
companies and not-for-profit
institutions, should be disclosed
to shareholders and to potential
investors before appointment and
during his/her mandate.
60 Corporate governance statement
OMV Petrom Annual Report 2018 | Report of the governing bodies
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
A.6. Any member of the Board
should submit to the Board
information on any relationship
with a shareholder who holds
either directly or indirectly, shares
representing more than 5% of all
voting rights.
A.7. The company should appoint
a Board secretary responsible for
supporting the work of the Board.
A.8. The corporate governance
statement should inform on whether
an evaluation of the Board has
taken place under the leadership
of the chairman or the nomination
committee and, if it has, summarize
key action points and changes
resulting from it. The company
should have a policy/guidance
regarding the evaluation of the Board
containing the purpose, criteria and
frequency of the evaluation process.
A.9. The corporate governance
statement should contain information
on the number of meetings of the
Board and the committees during the
past year, attendance by directors (in
person and in absentia) and a report
of the Board and committees on their
activities.
The members of the Executive Board and
the members of the Supervisory Board
have, by law, a duty of care and a duty of
loyalty to the Company, stated not only in
the Company’s Articles of Association, but
also in other internal regulations.
The Company has put in place internal
rules on how to deal with conflicts of
interest.
The Company has a General Secretary,
who supports the works of both the
Executive Board and Supervisory Board.
Based on a Supervisory Board Self-
Evaluation Guideline which provides the
purpose, criteria, and frequency of such
an evaluation, the Supervisory Board
undergoes a self-evaluation process on
a yearly basis. Initially the self-evaluation
was conducted under the leadership of the
President of the Supervisory Board. As of
June 23, 2017 this responsibility was taken
over by the President of the Presidential
and Nomination Committee.
The outcome of the Supervisory Board’s
self-evaluation for 2018 is presented in the
Supervisory Board Report.
The Company’s Executive Board meetings
are held regularly (at least once every
two weeks, but usually every week),
while the Supervisory Board meets
whenever necessary, but at least once
every three months. Details on the
number of meetings and attendance of
the meetings of the Executive Board and
the Supervisory Board, including the
Audit Committee and the Presidential and
Nomination Committee, during 2018, are
included in the Supervisory Board Report
and Corporate Governance Report.
The reports of the Supervisory Board and
Executive Board for 2018 are included
in the Annual Report and submitted for
Ordinary GMS’s approval.
Corporate governance statement 61
Provisions of the Bucharest
Stock Exchange Corporate
Governance Code
Complies
Does not
comply or
partially
complies
Comments
A.10. The corporate
governance statement
should contain information
on the precise number of the
independent members of the
Board of Directors or of the
Supervisory Board.
A.11. The Board of Premium
Tier companies should set
up a nomination committee
formed of non-executives,
which will lead the process
for Board appointments and
make recommendations to
the Board. The majority of the
members of the nomination
committee should be
independent.
Following the independence evaluation of the Supervisory
Board members, as per the independence criteria
provided by the Corporate Governance Code (which are
substantially similar with those provided by the Company
Law), it resulted that, at all time during 2018, there
were three Supervisory Board members that met all the
independence criteria. Starting 2019, four members of
the Supervisory Board meet all the independence criteria
stipulated by the Corporate Governance Code.
Information on the independence status of the members
of the Supervisory Board is included on the Company’s
corporate website, within the About Us section, Supervisory
Board sub-section, and in the Supervisory Board Report.
As stipulated in the Company’s Articles of Association
and applicable law, the Supervisory Board members are
appointed by the Ordinary GMS, based on a transparent
procedure of appointment and on the majority of votes of
the shareholders. Prior to the Ordinary GMS, their CVs are
made available for the consultation of the shareholders.
The shareholders can supplement the candidates list for
the position of member of the Supervisory Board.
In accordance with the Company’s Articles of Association,
the Executive Board members are appointed by decision of
the Supervisory Board based on the majority of votes.
On March 23, 2017, the Supervisory Board established a
Presidential and Nomination Committee composed of four
members appointed from among its members. As members
of the Supervisory Board, all members of the Presidential
and Nomination Committee are therefore non-executives.
At the end of 2018, one member of the Presidential
and Nomination Committee was independent. Starting
2019, two members of the Presidential and Nomination
Committee are independent.
The main role of the Presidential and Nomination
Committee is to be involved in the succession planning
for the Executive Board, having full responsibility on
the selection process of candidates for appointment
in the Executive Board. In addition, the Presidential
and Nomination Committee has the right to make
recommendations concerning the proposal of candidates
for appointment in the Supervisory Board.
Given the fact that the Nomination and Presidential
Committee currently has only two independent members,
the Company is only "partially compliant" with this
provision.
62 Corporate governance statement
OMV Petrom Annual Report 2018 | Report of the governing bodies
Provisions of the Bucharest Stock
Exchange Corporate Governance Code
Complies
Does not
comply or
partially
complies
Comments
Section B - Risk management and internal control system
B.1. The Board should set up an audit
committee, and at least one member
should be an independent non-executive.
The majority of members, including
the chairman, should have proven
an adequate qualification relevant to
the functions and responsibilities of
the committee. At least one member
of the audit committee should have
proven adequate auditing or accounting
experience. In the case of Premium Tier
companies, the audit committee should
be composed of at least three members
and the majority of the audit committee
should be independent.
OMV Petrom’s Supervisory Board has set up an
Audit Committee from among its members. The
members of the Audit Committee are therefore all
non-executives.
The Audit Committee is composed of four
Supervisory Board members. Based on the
independence evaluation, it resulted that at
all times during 2018, the majority of the Audit
Committee members met all independence criteria
provided by the Corporate Governance Code.
The Audit Committee includes members who have
adequate qualifications relevant to the functions
and responsibilities of the Audit Committee. In
addition, one member has also the necessary
financial, auditing and accounting expertise.
B.2. The audit committee should be
chaired by an independent non-executive
member.
As members of the Supervisory Board, all members
of the Audit Committee, including the president of
the Audit Committee, are non-executives.
Based on the independence evaluation, it resulted
that at all times during 2018, the majority of the
Audit Committee members met all independence
criteria provided by the Corporate Governance
Code.
Thus, currently the Company is only "partially
compliant" with this provision, as the president of
the Audit Committee fulfills only the condition of
being non-executive, while the condition of being
independent is not fulfilled.
Although the Company believes that the Audit
Committee’s independence and objectivity as a
whole is not impaired by the current membership
of the Audit Committee, it aims to become again
fully compliant with this provision in the future. As a
result, it is currently assessing possible alternatives.
Corporate governance statement 63
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
B.3. Among its responsibilities, the
audit committee should undertake an
annual assessment of the system of
internal control.
B.4. The assessment should
consider the effectiveness and
scope of the internal audit function,
the adequacy of risk management
and internal control reports to the
audit committee of the Board,
management’s responsiveness
and effectiveness in dealing with
identified internal control failings or
weaknesses and their submission of
relevant reports to the Board.
B.5. The audit committee should
review conflicts of interests in
transactions of the company and its
subsidiaries with related parties.
B.6. The audit committee should
evaluate the efficiency of the internal
control system and risk management
system.
B.7. The audit committee should
monitor the application of statutory
and generally accepted standards
of internal auditing. The audit
committee should receive and
evaluate the reports of the internal
audit team.
The Terms of Reference for the Audit Committee
detail the roles and functions of the Audit
Committee, which mainly consist of the following:
examining and reviewing the annual separate
and consolidated financial statements and the
proposal for profit distribution;
considering and making recommendations on
the appointment, re-appointment or removal of
the independent external financial auditor, which
is to be elected by the Ordinary GMS;
undertaking an annual assessment of the
internal control system considering the
effectiveness and scope of the internal audit
function, the adequacy of risk management and
internal control reports to the Audit Committee,
the responsiveness and effectiveness
of management to deal with identified
internal control failings or weaknesses and
their submission of relevant reports to the
Supervisory Board;
reviewing conflicts of interests in transactions of
the Company and its subsidiaries with related
parties;
evaluating the efficiency of the internal control
system and risk management system;
monitoring the application of statutory and
generally accepted standards of internal
auditing;
regularly receiving a summary of the main
findings of the audit reports, as well as other
information regarding the activities of the
Internal Audit department and evaluating the
reports of the internal audit team;
examining and reviewing, before their
submission to the Supervisory Board for
approval, related party transactions that
exceed or may be expected to exceed 5%
of the Company’s net assets in the previous
financial year, in accordance with Related Party
Transactions Policy;
overseeing and approving the nature and
level of non-audit services provided by the
independent financial auditor to the Company,
including by issuance of regulations/guidelines
regarding such services.
64 Corporate governance statement
OMV Petrom Annual Report 2018 | Report of the governing bodies
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
B.8. Whenever the Code mentions
reviews or analyses to be exercised
by the Audit Committee, these
should be followed by cyclical (at
least annual), or ad-hoc reports to be
submitted to the Board afterwards.
B.9. No shareholder may be
given undue preference over
other shareholders with regard to
transactions and agreements made
by the company with shareholders
and their related parties.
B.10. The Board should adopt a
policy ensuring that any transaction
of the company with any of the
companies with which it has close
relations, that is equal to or more
than 5% of the net assets of the
company (as stated in the latest
financial report), should be approved
by the Board following an obligatory
opinion of the audit committee and
fairly disclosed to the shareholders
and potential investors, to the extent
that such transactions fall under
the category of events subject to
disclosure requirements.
The Audit Committee submits periodic
reports to the Supervisory Board on the
specific subjects assigned to it.
The Company applies equal treatment
to all its shareholders. According to
the internal Policy on Related Party
Transactions in place within the Company,
related party transactions are considered
on their merits in accordance with the
normal industry standards, applicable laws
and corporate regulations.
The Company adopted an internal
Policy on Related Party Transactions
providing for the main principles of review,
approval and disclosure of related party
transactions, according to the applicable
regulations and the Company’s statutory
documents, including the fact that related
party transactions that exceed or may be
expected to exceed, either individually
or jointly, an annual value of 5% of the
Company’s net assets in the previous
financial year must be approved by the
Supervisory Board following the approval
of the Executive Board and based on
the review of the Audit Committee of the
respective transaction.
OMV Petrom regularly submits reports
on transactions with its related parties to
the Financial Supervisory Authority and
to the Bucharest Stock Exchange. Such
disclosure reports are reviewed by the
independent financial auditor according to
the relevant laws in force.
Corporate governance statement 65
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
B.11. The internal audits should be
carried out by a separate structural
division (internal audit department)
within the company or by retaining
an independent third-party entity.
B.12. To ensure the fulfillment of
the core functions of the internal
audit department, it should report
functionally to the Board via the
audit committee. For administrative
purposes and in the scope related to
the obligations of the management
to monitor and mitigate risks, it
should report directly to the chief
executive officer.
Section C - Fair rewards and motivation
C.1. The company should publish a
remuneration policy on its website
and include in its annual report
a remuneration statement on the
implementation of this policy during
the annual period under review.
Any essential change of the
remuneration policy should be
published on the corporate website
in a timely fashion.
Internal audits are carried out by a separate
structural department within the Company, namely
the Internal Audit department.
The Internal Audit department administratively
reports to the CEO. Still, the Internal Audit
department continues to maintain some functional
reporting to the Executive Board, meaning that
the Company only “partially complies” with this
provision.
Nonetheless, the Audit Committee is regularly
informed about the main internal audit findings and
other activities of the Internal Audit department.
Moreover, the Audit Committee approves the audit
charter (which stands for the terms of reference of
the Internal Audit department and which describes
its purpose, authority and responsibility) and
approves the annual internal audit plan. Therefore,
in our opinion, the independence and objectivity
of the internal audit function is not impaired by
this reporting structure. Likewise, the Internal
Audit Department did not encounter, in its past
experiences, cases that could be considered as
jeopardizing its independence or objectivity due to
these functional reporting lines.
The Company is currently assessing how to fully
comply with this provision in the future.
The Company does not have a remuneration
policy in place. However, although not yet
formalized, the Company has and applies,
consistently, some principles of remuneration
concerning the Supervisory Board and Executive
Board members, senior management and other
staff. Such basic principles of remuneration are
included in the Corporate Governance Report.
The development of a remuneration policy is
currently envisaged.
66 Corporate governance statement
OMV Petrom Annual Report 2018 | Report of the governing bodies
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
Section D - Building value through investors’ relations
D.1. The company should have an
Investor Relations function - indicated,
by person(s) responsible or an
organizational unit, to the general
public. In addition to information
required by legal provisions, the
company should include on its
corporate website a dedicated
Investor Relations section, both
in Romanian and English, with all
relevant information of interest for
investors, including:
D.1.1. Principal corporate regulations:
the articles of association, general
shareholders’ meeting procedures.
D.1.2. Professional CVs of the
members of its governing bodies,
Board members’ other professional
commitments, including executive
and non-executive Board positions
in companies and not-for-profit
institutions;
D.1.3. Current reports and periodic
reports (quarterly, semi-annual and
annual reports);
D.1.4. Information related to general
meetings of shareholders;
D.1.5. Information on corporate
events;
D.1.6. The name and contact data
of a person who should be able to
provide knowledgeable information on
request;
D.1.7. Corporate presentations
(e.g. IR presentations, quarterly
results presentations etc.), financial
statements (quarterly, semi-annual,
annual), auditor reports and annual
reports.
D.2. A company should have an
annual cash distribution or dividend
policy. The annual cash distribution or
dividend policy principles should be
published on the corporate website.
The Company has a special department
dedicated to investor relations that can be
contacted via e-mail at investor.relations.
petrom@petrom.com.
Likewise, OMV Petrom has a special section
of the corporate website dedicated to
Investor Relations, where the following main
information/documents are available, both in
English and Romanian:
Articles of Association – in the About
us section, Corporate Governance sub-
section;
Rules and Procedures of the GMS – in the
About us section, GMS sub-section;
Detailed professional CVs for all members
of the Executive Board and Supervisory
Board – in the About us section,
Supervisory Board and Executive Board
sub-sections;
Current reports and periodic reports – in
the Investors section, Investor News and
Publications sub-sections;
Convening notices and supporting
materials for the GMS – in the About us
section, GMS sub-section;
Financial calendar and information on
other corporate events – in the Investors
section, Financial Calendar and Events
sub-sections;
Name and contact information of a
person able to provide investors with
knowledgeable information on request – in
the Investors section, Contact sub-section;
Investor Presentations, Annual and
Interim Reports, Annual and Interim
Financial Statements, both separate
and consolidated, including also the
independent financial auditor reports, as
the case – in the Investors section, Investor
News and Publications sub-sections.
The Company’s Dividend Policy is published
on its corporate website in the Investors
section, Shares and GDRs / Dividends sub-
section as well as in the About us section,
Corporate Governance sub-section.
Corporate governance statement 67
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
D.3. A company should have adopted
a policy with respect to forecasts,
whether they are distributed or
not. Forecasts mean the quantified
conclusions of studies aimed at
determining the total impact of a list of
factors related to a future period (so
called assumptions): by nature, such
a task is based upon a high level of
uncertainty, with results sometimes
significantly differing from forecasts
initially presented. The policy should
provide for the frequency, period
envisaged, and content of forecasts.
Forecasts, if published, may only
be part of annual, semi-annual or
quarterly reports. The forecast policy
should be published on the corporate
website.
D.4. The rules of general meetings
of shareholders should not restrict
the participation of shareholders in
general meetings and the exercising
of their rights. Amendments of the
rules should take effect, at the earliest,
as of the next general meeting of
shareholders.
D.5. The independent financial
auditors should attend the
shareholders’ meetings when their
reports are presented there.
68 Corporate governance statement
The Company has a Forecast Policy which is
published on its corporate website in the About
us section, Corporate Governance sub-section.
The details regarding the organization of the
GMS are mentioned in the Company’s Articles
of Association and the Rules and Procedures
of the GMS, as well as briefly stated in the
Corporate Governance Report. Likewise, OMV
Petrom publishes convening notices for every
GMS which describe in detail the procedure to
be followed for the respective meeting. In this
manner, the Company ensures that the GMSs
are adequately conducted and well organized
while the shareholders’ rights are duly observed.
The independent financial auditors attend the
Ordinary GMS whereby the annual separate and
consolidated financial statements are submitted
for approval.
OMV Petrom Annual Report 2018 | Report of the governing bodies
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
D.6. The Board should present
to the annual general meeting of
shareholders a brief assessment of
the internal controls and significant
risk management system, as well
as opinions on issues subject to
resolution at the general meeting.
D.7. Any professional, consultant,
expert or financial analyst may
participate in the shareholders’
meeting upon prior invitation from the
Chairman of the Board. Accredited
journalists may also participate in
the general meeting of shareholders,
unless the Chairman of the Board
decides otherwise.
D.8. The quarterly and semi-annual
financial reports should include
information in both Romanian and
English regarding the key drivers
influencing the change in sales,
operating profit, net profit and other
relevant financial indicators, both on
quarter-on-quarter and year-on-year
terms.
D.9. A company should organize at
least two meetings/conference calls
with analysts and investors each year.
The information presented on these
occasions should be published in the
IR section of the company website at
the time of the meetings/conference
calls.
All matters submitted for GMS approval are
subject to the Supervisory Board’s approval
according to Company’s internal rules.
Moreover, the Annual Report submitted for
GMS approval contains a brief assessment
of the internal controls and significant risk
management system.
The Rules and Procedures of the GMS
provide for the possibility for any professional,
consultant, expert, financial analyst or
accredited journalists to participate in the GMS,
upon prior invitation from the President of the
Supervisory Board.
The quarterly and semi-annual financial reports
include information in both Romanian and
English regarding the key drivers influencing
the change in sales, operating profit, net profit
and other relevant financial indicators, both on
quarter-on-quarter and year-on-year terms.
OMV Petrom organizes one-to-one meetings
and conference calls with financial analysts,
investors, brokers and other market specialists
to present the financial elements relevant for
their investment decision.
In 2018, OMV Petrom organized four
conference calls following the publication of the
quarterly results. In addition, the Company held
one-on-one and group meetings and attended
analyst and investor conferences, organized in
Romania and abroad. For more details, please
also see the Annual Report’s section relating to
OMV Petrom on the capital markets.
The Investor Presentations were made
available at the time of the meetings /
conferences on the corporate website, in the
Investors section, Events sub-section.
Corporate governance statement 69
Provisions of the Bucharest Stock
Exchange Corporate Governance
Code
Complies
Does not
comply or
partially
complies
Comments
D.10. If a company supports
various forms of artistic and
cultural expression, sport activities,
educational or scientific activities, and
considers the resulting impact on the
innovativeness and competitiveness
of the company part of its business
mission and development strategy, it
should publish the policy guiding its
activity in this area.
OMV Petrom conducts various activities
regarding education, social and environmental
responsibility, as well as governance, supporting
the local communities in which the Company
operates.
More details may be found in the Sustainability
Report for 2018, which will be issued by the
Company by June 30, 2019, in accordance with
the legal requirements regarding the disclosure
of non-financial information.
70 Corporate governance statement
Declaration of the management
OMV Petrom Annual Report 2018 | Report of the governing bodies
We confirm to the best of our knowledge that the consolidated financial statements give a true and fair
view of the financial position of the Group as of December 31, 2018, its financial performance and cash
flows for the year then ended, in accordance with applicable accounting standards, and that the Directors‘
report gives a true and fair view of the development and performance of the business and the position of
the Group, together with a description of the principal risks and uncertainties associated with the expected
development of the Group.
Bucharest, March 14, 2019
The Executive Board
_______________________
Christina Verchere
Chief Executive Officer
President of the EB
_______________________
Stefan Waldner
Chief Financial Officer
Member of the EB
_______________________
Peter Zeilinger
Member of the EB
Upstream
_______________________
Franck Neel
Member of the EB
Downstream Gas
_______________________
Radu Căprău
Member of the EB
Downstream Oil
Declaration of the management 71
Abbreviations and definitions
ABB
ANRE
bbl
bbl/d
bcf
bcm
bn
Accelerated Book Building
Romanian Energy Regulatory Authority
barrel(s), i.e. 159 liters
bbl per day
billion cubic feet; 1 billion standard cubic meters = 35.3147 bcf for Romania or 34.7793
bcf for Kazakhstan
billion cubic meters
billion
boe, kboe
barrels of oil equivalent, thousand barrels of oil equivalent
boe/d, kboe/d
boe per day, kboe per day
BET
BSE
a free float market capitalization weighted index reflecting the performance of the most
traded 15 companies on the BSE’s regulated market
Bucharest Stock Exchange
CAPEX
Capital Expenditure
Capital employed
Equity including minorities + net debt
CCS / CCS effects /
Inventory holding gains /
(losses)
Current cost of supply
Inventory holding gains and losses represent the difference between the cost of sales
calculated using the current cost of supply and the cost of sales calculated using the
weighted average method after adjusting for any changes in valuation allowances, in case
the net realizable value of the inventory is lower than its cost.
In volatile energy markets, measurement of the costs of petroleum products sold based
on historical values (e.g. weighted average cost) can have distorting effect on reported
results (Operating Result, Net income etc.).
The amount disclosed as CCS effects represents the difference between the charge to the
income statement for inventory on a weighted average basis (adjusted for the change in
valuation allowances related to realizable value) and the charge based on the current cost
of supply.
The current cost of supply is calculated monthly using data from our refinery’s supply and
production systems at Downstream Oil level.
CEO
CFO
Chief Executive Officer
Chief Financial Officer
Clean CCS Operating
Result
Operating Result adjusted for special items and CCS effects. Group clean CCS Operating
Result is calculated by adding the clean CCS Operating Result of Downstream Oil, the
clean Operating Result of the other segments and the reported consolidation effect
adjusted for changes in valuation allowances, in case the net realizable value of the
inventory is lower than its cost.
Clean CCS net income
attributable to stockholders
Net income attributable to stockholders, adjusted for the after tax effect of special items
and CCS
Clean CCS ROACE
Clean CCS Return On Average Capital Employed = NOPAT (as a sum of current and
last three quarters) adjusted for the after tax effect of special items and CCS, divided by
average Capital Employed (on a rolling basis, as an average of last four quarters) (%)
CV
Curriculum Vitae
72 Abbreviations and definitions
EB
EGO
EU, EUR
EURIBOR
EPS
FRD
GDP
GDR
GMS
HSSE
IFRS
ISO
JV
LPG
LSE
LTIR
m, km
mn
mom
Executive Board
Emergency Government Ordinance
European Union, euro(s)
Euro Interbank Offer Rate – the reference rate for European banks in interbank loans
denominated in EUR
Earnings per share = Net income attributable to stockholders divided by weighted number
of shares
Field redevelopment
Gross Domestic Product
Global Depositary Receipts
General Meeting of Shareholders
Health, Safety, Security and Environment
International Financial Reporting Standards
International Organization for Standardization
Joint venture
Liquefied Petroleum Gas
London Stock Exchange
Lost time injury rate = This figure assists in the evaluation of the average injury frequency
with more than one day of work lost related to the working time performed
meter(s), kilometer(s)
million
month-on-month
MW; MWh
megawatt(s); megawatt hour(s)
n.m.
Net debt/(cash)
NGL
NOPAT
OPCOM
OPEC
not meaningful; the deviation is above (±) 500% or the comparison is made between
values of opposite signs
Interest bearing debts and financial lease liabilities less liquid funds (cash and cash
equivalents)
Natural Gas Liquids – it refers to condensate only
Net Operating Profit After Tax. Profit on ordinary activities after taxes plus net interest on
net borrowings, +/- result from discontinued operations, +/- tax effect of adjustments
The administrator of the Romanian electricity market
Organization of Petroleum Exporting Countries
Operating Result
The “Operating result” includes the former indicator EBIT (“Earnings Before Interest and
Taxes”) and the net result from equity-accounted investments
Operating Result before
depreciation
Former EBITD = Operating Result Before Interest, Taxes, Depreciation and amortization,
impairments and write-ups of fixed assets, including reversals
OPEX
Operating Expenses
Abbreviations and definitions 73
Q
ROACE
ROBOR
RON
RRR
S.A.
Special items
t, kt
TP
TWh
US(A)
UK
USD
yoy
quarter
Return On Average Capital Employed = NOPAT (as a sum of current and last three
quarters) divided by average Capital Employed (on a rolling basis, as an average of last
four quarters) (%)
Romanian Interbank Offer Rate – the reference rate for Romanian banks in interbank
loans denominated in RON
New Romanian leu
Reserve Replacement Rate
Romanian JSC - Joint stock company (Societate pe Acțiuni)
Special items are expenses and income reflected in the financial statements that are
disclosed separately, as they are not part of underlying ordinary business operations.
They are being disclosed separately in order to enable investors to better understand and
evaluate OMV Petrom Group’s reported financial performance.
metric tonne(s), thousand tonnes; 1t of crude oil = 7.193 bbl for Romania or 7.78 bbl for
Kazakhstan
Target Price
terawatt hour(s)
United States (of America)
United Kingdom
United States dollar(s)
year-on-year
74 Abbreviations and definitions
Consolidated financial statements
and notes
76
86
Independent auditor’s report
Consolidated statement of financial position
88
Consolidated income statement
89
90
92
94
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Independent auditor’s report
To the Shareholders of OMV Petrom S.A.
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of OMV Petrom S.A. (“the Company”) and its
subsidiaries (together referred to as “the Group”) with official head office in 22 Coralilor Street, Petrom
City, District 1, Bucharest, Romania identified by sole fiscal registration number RO1590082, which
comprise the consolidated statement of financial position as at December 31, 2018 and the consolidated
income statement, consolidated statement of comprehensive income, consolidated statement of changes
in equity and consolidated statement of cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the
consolidated financial position of the Group as at December 31, 2018, and of its consolidated financial
performance and its consolidated cash flows for the year then ended in accordance with the International
Financial Reporting Standards as endorsed by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs), Regulation (EU)
No. 537/2014 of the European Parliament and of the Council of 16 April 2014 (“Regulation (EU) No.
537/2014“) and Law 162/2017 (“Law 162/2017”). Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section
of our report. We are independent of the Group in accordance with the International Ethics Standards
Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the
ethical requirements that are relevant to the audit of the financial statements in Romania, including
Regulation (EU) No. 537/2014 and Law 162/2017 and we have fulfilled our other ethical responsibilities
in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the “Auditor’s responsibilities for the audit of
the consolidated financial statements” section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our assessment
of the risks of material misstatement of the financial statements. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion
on the accompanying consolidated financial statements.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
76 Independent auditor’s report
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
Description of each key audit matter and our procedures performed to address the matter
Key audit matter
How our audit addressed the key audit matter
Recoverability of the carrying value of
property, plant and equipment (Upstream)
The carrying value of the Upstream property, plant
and equipment amounted to RON 19,892 million
as at 31 December 2018.
Declines in crude oil and gas prices since 2014
have had a significant effect on the carrying value
of the Group’s Upstream tangible assets, as
reflected by the Upstream impairment charges
recorded in the 2015 financial statements.
Under the International Financial Reporting
Standards, an entity is required to assess whether
triggers for potential additional impairment or
reversal of impairment previously recorded exist.
The assessment of whether there is an indication
that an asset may be impaired or an impairment
may be reversed requires significant judgement.
The management established that the main risks
and consequently the potential triggering events
are estimates regarding long term Brent oil price
and life of field production volumes. A triggering
events analysis was performed in accordance
with the aforementioned indicators. An impairment
test was performed for those cash generating
units where triggers for impairment or reversal
of impairment were identified and a reversal of
impairment of RON 430 million was recorded.
The Group’s disclosures about property, plant and
equipment and related triggering events analysis,
as well as the reversal of previously recorded
impairment are included in Note 2 (Judgements,
Estimates and Assumptions), Note 7 (Property,
Plant and Equipment) and Note 20 (Other
operating income) to the financial statements.
We evaluated and tested management’s assessment
of the triggers for potential additional impairment or
reversal of impairment previously recorded, as well as
management’s assessment of the recoverability of the
carrying value of property, plant and equipment of the cash
generating unit for which triggering events were identified.
Specifically, our work included, but was not limited to, the
following procedures:
Analysed and evaluated management’s assessment
of the existence of impairment or impairment reversal
indicators (triggering events). For that purpose, we
compared the main assumptions used in the impairment
test performed in 2015 (oil prices, production volumes
and oil and gas reserves) with the current forecasts
approved as part of the Group’s mid-term planning
assumptions. Also, we checked if there are significant
downward revisions of oil and gas reserves to determine
if they represent potential impairment indicators;
Compared the future short and long-term oil and gas
prices used in the Group’s budgets to consensus
analysts’ forecasts and those adopted by other
international oil companies;
In addition, where an impairment test was carried out:
We have assessed the historical accuracy of
management’s budgets and forecasts (in terms of
production volumes and operating costs) by comparing
them to actual performance;
Compared the assumptions used within the future cash
flow models to approved budgets and business plans;
Checked the mathematical accuracy of management’s
cash flow model for determining the value-in-use and
its conformity with the requirements of the International
Financial Reporting Standards;
Involved our valuation specialist to assist us in
evaluation of key assumptions and methodology used
for the determination of the discount rate; and
Assessed the adequacy of the Group’s disclosures in
the financial statements.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
Independent auditor’s report 77
Key audit matter
How our audit addressed the key audit matter
Recoverability of intangible exploration and
evaluation (E&E) assets
The carrying value of the intangible E&E
assets amounted to RON 2,970 million at 31
December 2018.
Under IFRS 6, Exploration for and Evaluation
of Mineral Resources, exploration and
evaluation assets shall be assessed for
impairment when facts and circumstances
suggest that the carrying amount of an
exploration and evaluation asset may exceed
its recoverable amount.
The assessment of the carrying value requires
management to apply significant judgements
and estimates in assessing whether any
impairment has arisen at year end, and in
quantifying any such impairment.
The key estimates and assumptions relate
to management’s intention to proceed with a
future work program for a prospect or license,
the likelihood of license renewal, and the
success of drilling and geological analysis to
date.
The Group’s disclosures about intangible E&E
assets and related impairment testing are
included in Note 2 (Judgements, Estimates
and Assumptions), Note 6 (Intangible Assets)
and Note 23 (Cost Information) to the financial
statements.
We evaluated management’s assessment of the carrying
value of E&E assets performed with reference to the
criteria of IFRS 6 and the Group’s accounting policy.
Specifically, our work included, but was not limited to, the
following procedures:
Inquired whether the management has the intention
to carry out exploration and evaluation activity for
the main E&E projects, which included discussions
with management and review of the Executive Board
minutes of meetings where exploration plans and
strategies were discussed;
Read Executive Board minutes of meetings and
considered whether there were negative indicators
that certain projects might be unsuccessful.
Discussed with the management about the status of
the largest exploration projects;
Tested the actual versus budget analysis prepared
by management for a sample of exploration and
evaluation projects and inspected the evidence
supporting the analysis to determine if there is any
indication that certain projects might be unsuccessful;
Assessed whether the Group has the ability to finance
any planned future exploration and evaluation activity,
which included review of the Executive Board minutes
of meetings for any indications about the lack of such
ability or intention and checking that the investment
budget for the next year includes funds for main
exploration and evaluation projects;
Assessed the existence of any fields where the
Group’s right to explore is either at, or close to expiry
and reviewed management’s assessment whether
there are any risks related to renewal of the license;
Reviewed the supporting evidence where an
exploration and evaluation asset has been impaired;
and
Assessed the adequacy of the Group’s disclosures in
the financial statements.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
78 Independent auditor’s report
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
Key audit matter
How our audit addressed the key audit matter
Estimation of oil and gas reserves
Oil and gas reserves are an indicator of the
future potential of the Group’s performance.
Furthermore, they have an impact on the
financial statements as they are the basis for:
production profiles in future cash flow
estimates;
depreciation, amortization and impairment
charges for the core assets in the Upstream
segment.
The estimation of oil and gas reserves requires
significant judgement and assumptions made
by management and engineers due to the
technical uncertainty in assessing quantities.
The Group’s disclosures about estimation of
oil and gas reserves are included in Note 2
(Judgements, Estimates and Assumptions) to
the financial statements.
Our audit procedures have focused on management’s
estimation process in the determination of oil and gas
reserves. Specifically our work included, but was not
limited to, the following procedures:
Performed a detailed understanding of the Group’s
internal process and related documentation flow and
key controls associated with the oil and gas reserves
estimation process;
Tested the Group-wide key controls over the oil and
gas reserves review process;
Analysed the internal certification process for technical
and commercial specialists who are responsible for oil
and gas reserves estimation;
Assessed the competence of both management
internal and external specialists and the objectivity
and independence of external specialist, to consider
whether they were appropriately qualified to carry out
the estimation of oil and gas reserves;
Analysed the report of the management’s external
specialist on their review of Group’s estimated oil and
gas reserves as at 31 December 2017;
Tested whether significant additions or reductions
in oil and gas reserves were made in the period in
which the new information became available and in
compliance with the Group’s Reserves and Resources
Guidelines;
Tested that the updated oil and gas reserves
estimates were included appropriately in the Group’s
consideration of impairment and in accounting for
depreciation and amortization; and
Assessed the adequacy of the Group’s disclosures in
the financial statements.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
Independent auditor’s report 79
Key audit matter
How our audit addressed the key audit matter
Estimation of decommissioning and
restoration provisions and environmental
provisions
We assessed management’s annual estimation of
decommissioning and restoration provisions and
environmental provisions. Specifically our work included,
but was not limited to, the following procedures:
The total decommissioning and restoration
provision and the environmental provision
amounted to RON 6,239 million and RON 223
million respectively at 31 December 2018.
The Group’s core activities regularly lead to
obligations related to dismantling and removal,
asset retirement and soil remediation activities.
The key estimates and assumptions relate
to management’s estimates of future costs,
discount rates and inflation rates which
are used to project the decommissioning,
restoration and environmental obligations.
The Group’s disclosures about
decommissioning, restoration and
environmental obligations are included in Note
2 (Judgements, Estimates and Assumptions)
and Note 14 (Provisions) to the financial
statements.
Performed a detailed understanding of the Group’s
internal provision estimation process and the related
documentation flow and the assessment of the design
and implementation of the controls within the process;
Compared the current estimates of decommissioning,
restoration and environmental costs with the actual
costs incurred in previous periods. Where no previous
data was available, we have reconciled cost estimates
to third party evidence or the Group’s engineers’
estimates;
Discussed with the management the estimates of
allocation over time of works to be performed for
surface and subsurface decommissioning for wells;
Inspected supporting evidence for any material
revisions in cost estimates during the year;
Assessed the sensitivity analyses to understand
the potential impact of reasonable changes in
assumptions on the provisions recorded;
Involved our valuation specialists to assist us in the
analysis of discount rates and inflation rates;
Tested the mathematical accuracy of management’s
decommissioning and restoration provision and
environmental provision calculations; and
Assessed the adequacy of the Group’s disclosures in
the financial statements.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
80 Independent auditor’s report
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
Key audit matter
How our audit addressed the key audit matter
Recoverability of receivables from the
Romanian State
As part of the privatization agreement, the
Group is entitled to the reimbursement by the
Romanian State of part of wells abandonment
(decommissioning) and environmental costs
incurred to restore and clean up areas
pertaining to activities prior to privatization in
2004. Consequently, the Group has recorded
as receivable from the Romanian State the
estimated decommissioning obligations having
a net present value of RON 1,590 million as
at December 31, 2018 and the environmental
liabilities in Downstream Oil with a total net
present value of RON 171 million, as these
were existing prior to privatization of OMV
Petrom S.A.
The assessment of the recoverability of the
receivables from the Romanian State requires
management to make significant judgements
and estimates to assess the uncertainty
regarding the expenditure recoverable from
Romanian State. The assessment process
considers inter alia history of amounts claimed,
documentation process related requirements
and potential litigation or arbitration
proceedings.
The Group’s disclosures about Environmental
and Decommissioning State Receivables are
included in Note 2 (Judgements, Estimates
and Assumptions) and in Note 9 (Trade
Receivables and Other Financial Assets) to the
financial statements.
We assessed the management’s estimate regarding
recoverability of the receivables from the Romanian
State. Our work included, but was not limited to, the
following procedures:
Read the stipulations of the Annex P of the
privatisation agreement dated 23 July 2004, related to
the acquisition by OMV Aktiengesellschaft of shares
in the National Petroleum Company Petrom SA, as
approved by Law no. 555/2004. Annex P includes
stipulations related to the obligation of the seller (i.e.
Ministry of Economy and Commerce) to reimburse
the Group for historical environmental losses and
abandonment costs, provided certain conditions are
met;
Reviewed the management’s assessment of the
recoverability of the receivables from the Romanian
State, including the history of amounts claimed vs.
amounts accepted and reimbursed, and discussed the
status of the notices of claims submitted by the Group
and of the Arbitration process;
Traced the receivables for which notices of claim have
been submitted to the respective notices of claims;
Traced the receivables for which decommissioning
was performed but the notices of claim have not yet
been submitted to the respective decommissioning
costs;
Traced the receivables for which decommissioning
has not yet been performed against the respective
decommissioning provisions;
Discussed with the management the estimates of
timing of collection;
Involved our valuation specialists to assist us in the
analysis of discount rates and inflation rates;
Tested the mathematical accuracy of the calculation of
the net present value of the receivables recorded; and
Assessed the adequacy of the Group’s disclosures in
the financial statements.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
Independent auditor’s report 81
Other information
The other information comprises the Annual Report which includes the Directors’ Report and the
consolidated Report on payments to governments, but does not include the consolidated financial
statements and our auditors’ report thereon. We obtained the Annual Report, prior to the date of our
auditor’s report, and we expect to obtain the Non-Financial declaration, as part of a separate report,
after the date of our auditor’s report. Management is responsible for the other information.
Our audit opinion on the consolidated financial statements does not cover the other information and we
do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears
to be materially misstated. If, based on the work we have performed on the other information obtained
prior to the date of the auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with the International Financial Reporting Standards as endorsed by the
European Union, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Group's ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
82 Independent auditor’s report
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditors’ report. However, future events or conditions may cause the Group to cease to continue
as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
Independent auditor’s report 83
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters.
Report on Other Legal and Regulatory Requirements
Reporting on Information Other than the Consolidated Financial Statements and Our Auditors’
Report Thereon
In addition to our reporting responsibilities according to ISAs described in section “Other information”,
with respect to the Director’s Report, as included in the Annual Report, we have read the Directors’
Report and report that:
a) in the Directors’ Report we have not identified information which is not consistent, in all material
respects, with the information presented in the accompanying consolidated financial statements as at
December 31, 2018;
b) the Directors’ Report identified above includes, in all material respects, the required information
according to the provisions of the Ministry of Public Finance Order no. 2844/2016 approving the
accounting regulations compliant with the International Financial Reporting Standards, with all
subsequent modifications and clarifications, Annex 1 points 15 – 19;
c) based on our knowledge and understanding concerning the Group and its environment gained during
our audit of the consolidated financial statements as at December 31, 2018, we have not identified
information included in the Directors’ Report that contains a material misstatement of fact.
Other requirements on content of auditor’s report in compliance with Regulation (EU) No.
537/2014 of the European Parliament and of the Council
Appointment and Approval of Auditor
We were appointed as auditors of the Group by the General Meeting of Shareholders on April 26, 2018
to audit the consolidated financial statements for the financial year end December 31, 2018. Total
uninterrupted engagement period, including previous renewals (extension of the period for which we
were originally appointed) and reappointments for the statutory auditor, has lasted for 8 years covering
the financial periods end December 31, 2011 till December 31, 2018.
Consistency with Additional Report to the Audit Committee
Our audit opinion on the consolidated financial statements expressed herein is consistent with the
additional report to the Audit Committee of the Company, which we issued on February 19, 2019.
Provision of Non-audit Services
No prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No. 537/2014 of the
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
84 Independent auditor’s report
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
European Parliament and of the Council were provided by us to the Group and we remain independent
from the Group in conducting the audit.
In addition to statutory audit services and services disclosed in the notes to the consolidated financial
statements, no other services were provided by us to the Company, and its controlled undertakings.
On behalf of,
Ernst & Young Assurance Services SRL
15-17, Ion Mihalache Blvd., floor 21, Bucharest, Romania
Registered in the electronic Public Register under No. 77
Name of the Auditor/ Partner: Andreas Hadjidamianou
Registered in the Electronic Public Register under No. 3357
Bucharest, Romania
14 March 2019
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
Independent auditor’s report 85
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2018
(all amounts are expressed in million RON, unless otherwise specified)
ASSETS
Intangible assets
Property, plant and equipment
Investments in associated companies
Other financial assets
Other assets
Deferred tax assets
Non-current assets
Inventories
Trade receivables
Other financial assets
Other assets
Cash and cash equivalents
Current assets
Assets held for sale
Total assets
EQUITY AND LIABILITIES
Share capital
Reserves
Stockholders’ equity
Non-controlling interests
Total equity
Provisions for pensions and similar obligations
Interest-bearing debts
Provisions for decommissioning and restoration obligations
Other provisions
Other financial liabilities
Other liabilities
Deferred tax liabilities
Non-current liabilities
Notes December 31,
2018
December 31,
2017
6
7
8
9
10
18
11
9
9
10
12
13
14
15
14
14
16
17
18
3,058.95
2,611.13
26,749.09
27,143.50
58.29
49.62
2,165.22
2,317.15
84.11
59.94
1,433.00
1,545.35
33,548.66
33,726.69
2,151.54
1,674.23
195.19
476.14
5,609.43
10,106.53
128.95
2,082.80
1,513.03
243.96
507.83
3,979.05
8,326.67
5.43
43,784.14
42,058.79
5,664.41
5,664.41
25,703.21
22,815.26
31,367.62
28,479.67
0.48
(58.64)
31,368.10
28,421.03
211.38
281.87
224.84
558.68
5,992.95
7,274.81
190.27
155.63
14.84
20.49
274.24
160.51
16.08
-
6,867.43
8,509.16
The notes on pages 94 to 186 form part of these consolidated financial statements.
86 Consolidated statement of financial position as of December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
Trade payables
Interest-bearing debts
Income tax liabilities
Other provisions and decommissioning
Other financial liabilities
Other liabilities
Current liabilities
Liabilities associated with assets held for sale
Total equity and liabilities
Notes December 31,
2018
December 31,
2017
16
15
14
16
17
12
3,049.66
2,805.44
267.43
228.47
690.29
388.34
821.36
328.62
80.70
904.33
371.25
638.26
5,445.55
103.06
5,128.60
-
43,784.14
42,058.79
These consolidated financial statements were approved on March 14, 2019.
Christina Verchere,
Chief Executive Officer
Stefan Waldner,
Chief Financial Officer
Peter Zeilinger,
Member of the EB
Upstream
Franck Neel,
Member of the EB
Downstream Gas
Radu Căprău,
Member of the EB
Downstream Oil
Irina-Nadia Dobre,
Director Finance Department
Nicoleta-Mihaela Drumea,
Head of Financial Reporting
The notes on pages 94 to 186 form part of these consolidated financial statements.
Consolidated statement of financial position as of December 31, 2018 87
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018
(all amounts are expressed in million RON, unless otherwise specified)
Sales revenues
Other operating income
Net income from equity-accounted investments
Total revenues and other income
Purchases (net of inventory variation)
Production and operating expenses
Production and similar taxes
Depreciation, amortization and impairment charges
Selling, distribution and administrative expenses
Exploration expenses
Other operating expenses
Operating Result
Interest income
Interest expenses
Other financial income and expenses
Net financial result
Profit before tax
Taxes on income
Net income for the year
thereof attributable to stockholders of the parent
thereof attributable to non-controlling interests
Basic earnings per share (RON)
Notes
December 31,
2018
December 31,
2017
19, 28
22,523.24
19,435.08
20
21
23
22
28
24
24
25
26
27
672.10
9.51
363.57
8.36
23,204.85
19,807.01
(8,040.24)
(3,139.79)
(1,240.55)
(3,180.13)
(1,977.47)
(174.27)
(239.41)
(6,697.53)
(3,161.57)
(929.38)
(3,345.37)
(1,971.04)
(308.28)
(123.49)
5,212.99
3,270.35
162.24
(435.60)
(26.06)
(299.42)
4,913.57
(835.78)
4,077.79
4,078.10
(0.31)
0.0720
92.70
(398.76)
(60.17)
(366.23)
2,904.12
(414.81)
2,489.31
2,490.81
(1.50)
0.0440
These consolidated financial statements were approved on March 14, 2019.
Christina Verchere,
Chief Executive Officer
Stefan Waldner,
Chief Financial Officer
Peter Zeilinger,
Member of the EB
Upstream
Franck Neel,
Member of the EB
Downstream Gas
Radu Căprău,
Member of the EB
Downstream Oil
Irina-Nadia Dobre,
Director Finance Department
Nicoleta-Mihaela Drumea,
Head of Financial Reporting
The notes on pages 94 to 186 form part of these consolidated financial statements.
88 Consolidated income statement for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2018
(all amounts are expressed in million RON, unless otherwise specified)
Net income for the year
Exchange differences from translation of foreign operations
Unrealized gains on hedges
Total of items that may be reclassified ("recycled")
subsequently to the income statement
Remeasurement gains on defined benefit plans
Total of items that will not be reclassified ("recycled")
subsequently to the income statement
Income tax relating to items that may be reclassified ("recycled")
subsequently to the income statement
Income tax relating to items that will not be reclassified ("recycled")
subsequently to the income statement
Total income tax relating to components of other
comprehensive income
Other comprehensive income/ (loss) for the year, net of tax
Total comprehensive income for the year
thereof attributable to stockholders of the parent
thereof attributable to non-controlling interests
December 31,
2018
December 31,
2017
4,077.79
2,489.31
15.84
5.02
20.86
9.03
41.53
-
41.53
10.16
9.03
10.16
(12.50)
25.16
(1.46)
(1.63)
(13.96)
15.93
4,093.72
4,095.75
(2.03)
23.53
75.22
2,564.53
2,559.94
4.59
The notes on pages 94 to 186 form part of these consolidated financial statements.
Consolidated statement of comprehensive income for the year ended December 31, 2018 89
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2018
(all amounts are expressed in million RON, unless otherwise specified)
Consolidated statement of changes in equity for the year ended December 31, 2018
Share
capital
Revenue
reserves
Cash flow
hedging
reserve
Foreign
currency
translation
reserve
Other
reserves
Treasury
shares
Stockholders'
equity
Non-
controlling
interests
Total
equity
Balance at
January 1, 2018
Effect of initial
application of
new accounting
standards
(IFRS 9)
Adjusted balance
January 1, 2018
Net income/(loss)
for the year
Other
comprehensive
income/(loss) for
the year
Total
comprehensive
income/(loss) for
the year
Dividends
distribution
Change in
non-controlling
interests and other
Balance at
December 31,
2018
5,664.41
22,765.94
-
(4.93)
5,664.41
22,761.01
-
4,078.10
-
-
-
-
(126.27)
175.61
(0.02)
28,479.67
(58.64)
28,421.03
-
-
-
(4.93)
-
(4.93)
(126.27)
175.61
(0.02)
28,474.74
(58.64)
28,416.10
-
-
-
4,078.10
(0.31)
4,077.79
-
7.58
4.22
(55.60)
61.45
-
4,085.68
4.22
(55.60)
61.45
-
(1,132.88)
-
(60.71)
-
-
-
-
(9.39)
0.11
-
-
-
-
17.65
(1.72)
15.93
4,095.75
(2.03)
4,093.72
(1,132.88)
(0.08)
(1,132.96)
(69.99)
61.23
(8.76)
5,664.41
25,653.10
4.22
(191.26)
237.17
(0.02)
31,367.62
0.48
31,368.10
Note: For details on equity components, see Note 13.
The notes on pages 94 to 186 form part of these consolidated financial statements.
90 Consolidated statement of changes in equity for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
Consolidated statement of changes in equity for the year ended December 31, 2017
Share
capital
Revenue
reserves
Cash
flow
hedging
reserve
Foreign
currency
translation
reserve
Other
reserves
Treasury
shares
Stockholders'
equity
Non-
controlling
interests
Total
equity
Balance at
January 1, 2017
Net income/ (loss)
for the year
Other
comprehensive
income/(loss) for
the year
Total
comprehensive
income/(loss) for
the year
Dividends
distribution
Other increases
Balance at
December 31,
2017
5,664.41 21,116.26
-
2,490.81
-
8.53
-
2,499.34
-
-
(849.66)
-
5,664.41
22,765.94
-
-
-
-
-
-
-
Note: For details on equity components, see Note 13.
(318.95)
307.65
(0.02)
26,769.35
(63.16)
26,706.19
-
-
-
2,490.81
(1.50)
2,489.31
192.68
(132.08)
192.68
(132.08)
-
-
-
0.04
-
-
-
-
69.13
6.09
75.22
2,559.94
4.59
2,564.53
(849.66)
(0.07)
(849.73)
0.04
-
0.04
(126.27)
175.61
(0.02)
28,479.67
(58.64)
28,421.03
The notes on pages 94 to 186 form part of these consolidated financial statements.
Consolidated statement of changes in equity for the year ended December 31, 2018 91
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2018
(all amounts are expressed in million RON, unless otherwise specified)
Notes
December 31,
2018
December 31,
2017
4,913.57
2,904.12
24
24, 25
(114.17)
90.43
Profit before tax
Adjustments for:
Interest income
Interest expenses and other financial expenses
Net movement in provisions and allowances for:
- Investments
- Inventories
- Receivables
- Pensions and similar liabilities
- Decommissioning and restoration obligations
- Other provisions for risk and charges
Discounting / Write-off of receivables and other similar items
Income from associated companies
Gain on transfer of business
Net gain on disposal of Group companies and other investments
Gain on disposal of non-current assets
Depreciation, amortization and impairment, net
8
32
32
20, 22
23
Other non-cash items
Interest received
Interest and other financial costs paid
Tax on profit paid
Cash generated from operating activities before working
capital movements
Increase in inventories
Increase in receivables and other assets
Increase in liabilities
Cash flow from operating activities
(49.52)
109.87
-
(40.46)
89.98
10.70
39.60
(192.78)
154.22
(6.14)
(3.14)
(1.71)
(16.73)
3,580.35
49.09
40.59
(67.97)
(447.04)
6,153.03
(178.96)
(212.94)
193.20
1.17
(12.59)
42.19
(4.53)
46.65
(74.58)
84.86
(8.59)
-
-
(6.82)
2,872.32
42.10
108.60
(92.20)
(535.78)
7,352.63
(88.00)
(217.78)
338.23
7,385.08
5,954.33
The notes on pages 94 to 186 form part of these consolidated financial statements.
92 Consolidated statement of cash flows for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
Investments
Intangible assets and property, plant and equipment
(4,327.44)
(2,606.72)
Notes
December 31,
2018
December 31,
2017
Disposals
Proceeds in relation to non-current assets
Proceeds from transfer of business
Proceeds from sale of Group companies, net of cash disposed
Proceeds from disposal of other investments
Cash flow from investing activities
Net repayments of borrowings
Dividends paid
Decrease in non-controlling interest
Cash flow from financing activities
Effect of foreign exchange rate changes on cash and cash
equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
32
32
32
53.73
-
13.21
-
27.78
52.48
79.78
0.43
(4,260.50)
(2,446.25)
(371.45)
(1,122.80)
(1.01)
(682.29)
(842.18)
-
(1,495.26)
(1,524.47)
1.06
1,630.38
3,979.05
5,609.43
(0.56)
1,983.05
1,996.00
3,979.05
The notes on pages 94 to 186 form part of these consolidated financial statements.
Consolidated statement of cash flows for the year ended December 31, 2018 93
OMV PETROM S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018
(all amounts are expressed in million RON, unless otherwise specified)
1. LEGAL PRINCIPLES AND BASIS OF PREPARATION
OMV Petrom S.A. (22 Coralilor Street, 013329 Bucharest, Romania), has activities in Upstream,
Downstream Gas and Downstream Oil business segments and it is listed on Bucharest Stock Exchange
under “SNP” code and on London Stock Exchange under “PETB” and “PETR” codes.
Stockholders’ structure as at December 31, 2018 and 2017 was as follows:
OMV Aktiengesellschaft
Romanian State
Fondul Proprietatea S.A.
Legal entities and private individuals
Total
Percent
51.011%
20.639%
9.998%
18.352%
100.000%
As of December 31, 2018 the number of Global Depositary Receipts (GDRs) is 237,922, equivalent of
35,688,300 ordinary shares, representing 0.063% of the share capital.
As of December 31, 2017 the number of GDRs was 1,068,292, equivalent of 160,243,800 ordinary
shares, representing 0.283% of the share capital.
Statement of compliance
These consolidated financial statements have been prepared in compliance with International Financial
Reporting Standards (IFRS) as endorsed by the European Union (EU).
Romanian listed Companies such as OMV Petrom S.A. are required by Ministry of Finance Order
no. 1121/2006 to submit the consolidated financial statements prepared in accordance with IFRS as
endorsed by EU starting 2007.
The financial year corresponds to the calendar year.
Basis of preparation
The consolidated financial statements of OMV Petrom Group, hereinafter referred to also as “the
Group”, are presented in RON (“Romanian Leu”), using going concern principles. All values are
presented in millions, rounded to the nearest two decimals. The consolidated financial statements are
prepared on the historical cost basis, except for derivative financial instruments that are measured at fair
value. For financial assets and liabilities where fair value differs from carrying amounts at the reporting
date, fair values are disclosed in Note 33.
94 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
2. JUDGMENTS, ESTIMATES AND ASSUMPTIONS
Preparation of the consolidated financial statements requires management to make judgments,
estimates and assumptions that affect the amounts reported for assets, liabilities, income and expenses,
the accompanying disclosures and the disclosure of contingent liabilities. Estimates and judgments
are continuously evaluated and are based on management’s experience and other factors, including
expectation of future events that are believed to be reasonable under the circumstances. However,
uncertainty about these assumptions and estimates could result in actual outcomes that may differ from
these estimates and may require a material adjustment to the carrying amount of the assets or liabilities
affected in future periods.
Other disclosures relating to the Group’s exposure to risks and uncertainties in relation to capital
management and financial risk management and policies are included in Note 36.
Changes in estimates are accounted for prospectively.
Correction of material prior period errors is made retrospectively, through retained earnings, by restating
the comparative amounts for the prior period(s) presented in which the error occurred or if the error
occurred before the earliest prior period presented, restating the opening balances of assets, liabilities
and equity for the earliest prior period presented. Errors which are not material are corrected in the period
when they are discovered, through the income statement.
Estimates and assumptions
The key assumptions concerning the future and other key sources of uncertainty at the reporting date
that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described below. The Group based its assumptions and
estimates on parameters available when the consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments, however, may change due to market change
or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions
when they occur.
a) Oil and gas reserves
Mineral reserves (oil and gas reserves) are estimated by OMV Petrom Group’s own engineers in
accordance with international and industry agreed standards based on the availability of geological
and engineering data, reservoir performance data, drilling of new wells and commodity prices. The
estimates are audited externally every two years. Commercial reserves are determined using estimates of
hydrocarbons in place, recovery factors and future oil and gas prices.
The oil and gas assets are depreciated on a unit of production basis at a rate calculated by reference to
either total proved or proved developed reserves (please refer to Depreciation, amortization and depletion
Notes to the consolidated financial statements for the year ended December 31, 2018 95
2. JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
accounting policy below), determined as presented above. The carrying amount of oil and gas assets at
December 31, 2018 is shown in Notes 6 and 7.
The level of estimated commercial reserves is also a key determinant in assessing whether the carrying
value of any of the Group’s development and production assets should be impaired.
b) Decommissioning costs
The Group’s core activities regularly lead to obligations related to dismantling and removal, asset retirement
and soil remediation activities. These decommissioning and restoration obligations are principally of material
importance in the Upstream segment (oil and gas wells, surface facilities). At the time the obligation arises,
it is provided for in full by recognizing the present value of future decommissioning and restoration expenses
as a liability. An equivalent amount is capitalized as part of the carrying amount of long-lived assets.
Decommissioning costs will be incurred by the Group at the end of the operating life of some of the facilities
and properties.
Estimates of future restoration costs are based on current contracts concluded with suppliers, reports issued
by OMV Petrom Group engineers, as well as past experience. Downward changes in the expected future
costs or postponement in the future affect both the provision and the related asset, to the extent that there is
sufficient carrying amount, otherwise the provision is reversed to income statement.
Provisions for restoration costs require estimates of discount rates and inflation rates. These estimates have
a material effect on the amount of the provisions (see Note 14).
The ultimate decommissioning and restoration costs are uncertain and cost estimates can vary in response
to many factors including changes to relevant legal requirements, the emergence of new restoration
techniques or experience at other production sites. The expected timing and amount of expenditure can
also change, for example, in response to changes in reserves or changes in laws and regulations or their
interpretation. As a result, there could be significant adjustments to the provisions established which would
affect future results.
c) Impairment of non-financial assets
The Group assesses each asset or cash generating unit (CGU) at each reporting period to determine
whether any indication of impairment exists. When an indicator exists, a formal estimate of the recoverable
amount is made, which is considered to be the higher of the fair value less costs to sell and value in use.
Except for the assets whose carrying amount will be recovered through a sale transaction rather than
96 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
2. JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
through continuing use, for all impairment tests performed, the recoverable amount was based on value in
use. The assessments require the use of different estimates and assumptions depending on the business
such as crude oil prices, discount rates, reserves, growth rates, gross margins and spark spreads.
Impairment testing in Upstream
In 2018, based on management estimations regarding long term Brent oil price and production volumes, a
triggering events analysis was performed and an impairment test was done where triggers for impairment
or reversal of impairment were identified.
The nominal oil price assumptions and the RON/USD exchange rate used for impairment testing are
mentioned below:
Brent oil price (USD/bbl)
RON/USD exchange rate
Brent oil price (RON/bbl)
2019
70
3.96
277
2020
70
3.96
277
2021
75
3.96
297
2022
75
3.96
297
2023
75
3.96
297
The long-term price assumptions from 2024 onwards are derived from USD 75 per barrel for Brent oil
price, inflated for the remaining life of each asset.
The key valuation assumptions for the recoverable amounts of Upstream assets are the oil and natural
gas prices, production volumes and the discount rates. The production profiles were estimated based
on past experience and represent management’s best estimate of future production. The cash-flow
projections for the first five years are based on the mid-term plan and thereafter on a “life of field”
planning, and therefore cover the whole life term of the field.
Following the impairment test performed, the reversal of an impairment previously recorded amounting to
RON 430.40 million was recognized in Romania as at December 31, 2018.
The after-tax discount rate used was 9.61%. The recoverable amount was based on the value in use.
Impairment testing in Downstream
In 2018, based on management estimations regarding long term power market development in respect
of spark spreads (being the difference between the electricity prices and the cost of gas and cost of CO2
certificates) and net electrical output (being the power quantity produced), it was concluded that there are
no triggering indicators for performing an impairment test for Brazi gas-fired power plant.
Notes to the consolidated financial statements for the year ended December 31, 2018 97
2. JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
As of 31 December 2017, OMV Petrom Group performed a full impairment test in relation to the Brazi
gas-fired power plant, triggered by revised long-term market and operating assumptions, which resulted in
additional recognized impairment losses of RON 75.09 million.
d) Exploration and evaluation expenditure
The application of the Group’s accounting policy for exploration and evaluation expenditure requires
judgment in determining whether it is probable that future economic benefits are likely either from future
operation or sale or whether activities have not reached a stage which permits a reasonable assessment of
the existence of reserves. The determination of reserves and resources is itself an estimation process that
involves varying degrees of uncertainty depending on sub-classification and these estimates directly impact
the point of deferral of exploration and evaluation expenditure. The deferral policy requires management
to make certain estimates and assumptions as to future events and circumstances, in particular whether
an economically viable extraction operation can be established. Any such estimates and assumptions may
change as new information becomes available. If, after expenditure is capitalized, information becomes
available suggesting that the recovery of the expenditure is unlikely, the relevant capitalized amount is
written off in income statement in the period when the new information becomes available.
e) Recoverability of State receivable
Management is periodically assessing the recoverability of the receivable from the Romanian State, which
is recognized based on the privatization agreement. The assessment process is considering inter alia the
history of amounts claimed, documentation process related requirements, potential litigation or arbitration
proceedings.
Judgments
In the process of applying the Group’s accounting policies, the following judgments were made, particularly
with respect to the following:
a) Cash generating units
Management exercises judgment in determining the appropriate level of grouping Upstream assets into
CGUs, in particular with respect to the Upstream assets which share significant common infrastructure and
are consequently grouped into the same CGU.
98 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
2. JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
b) Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur.
The assessment of contingencies inherently involves the exercise of significant judgment and estimates of
the outcome of future events.
Notes to the consolidated financial statements for the year ended December 31, 2018 99
3. CONSOLIDATION
a) Subsidiaries
The consolidated financial statements comprise the financial statements of OMV Petrom S.A. (“OMV
Petrom” / “the Company”) and its subsidiaries (“OMV Petrom Group”) as at December 31, 2018, prepared in
accordance with consistent accounting and valuation principles. The financial statements of the subsidiaries
are prepared for the same reporting date, December 31, 2018, as those of the parent company.
Control exists when OMV Petrom is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee.
Generally, there is a presumption that a majority of voting rights result in control. To support this
presumption and when OMV Petrom has less than a majority of the voting or similar rights of an investee,
OMV Petrom considers all relevant facts and circumstances in assessing whether it has power over an
investee, including: the contractual arrangement with the other vote holders of the investee; rights arising
from other contractual arrangements as well as voting rights and potential voting rights. OMV Petrom re-
assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the elements of control.
Consolidation of a subsidiary begins when OMV Petrom obtains control over the subsidiary and ceases
when OMV Petrom loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated financial statements from the date
OMV Petrom gains control until the date OMV Petrom ceases to control the subsidiary.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies in line with those used by other members of OMV Petrom Group. All intra-group assets and
liabilities, income and expenses relating to transactions between members of the Group are eliminated in
full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction.
If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities,
non-controlling interest and other components of equity while any resultant gain or loss is recognized in
profit or loss. Any investment retained is recognized at fair value.
100 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
3. CONSOLIDATION (continued)
The number of consolidated entities is as follows:
As at January 1, 2018
Included for the first time
Deconsolidated during the year
As at December 31, 2018
Romanian companies
Foreign companies
Full consolidation
Equity method
11
-
-
11
5
6
1
-
-
1
1
-
Please refer to Note 31 for further details on Group structure.
The Company holds majority of the voting rights in all fully consolidated subsidiaries.
Non-controlling interests are not significant as of December 31, 2018 and December 31, 2017.
b) Associates
An associate is an entity over which the Group is in a position to exercise significant influence, through
participation in the financial and operating policy decisions of the investee, but has not control or joint
control over these policies. This is normally presumed to exist when OMV Petrom has 20% or more of
the voting power of the entity. The results, assets and liabilities of associates are incorporated in these
financial statements using the equity method of accounting.
Investments in associated companies are accounted for using the equity method, under which the
investment is initially recognized at cost and subsequently adjusted for the Group’s share of the profit or
loss less dividends received and the Group’s share of other comprehensive income and other movements
in equity. Goodwill relating to an associate is included in the carrying amount of the investment and is not
tested for impairment individually.
After application of the equity method, the Group determines whether it is necessary to recognize any
impairment loss with respect to Group’s investment in the associate. In case the net investment in the
associate is reduced to zero, additional losses are provided for, and a liability is recognized, only to the
extent that the Group has incurred legal or constructive obligations or made payments on behalf of the
associate.
Notes to the consolidated financial statements for the year ended December 31, 2018 101
3. CONSOLIDATION (continued)
The income statement reflects the share of the results of operations of the associate. The share of any
change in other comprehensive income (OCI) of the associate is presented as part of the Group’s OCI.
In addition, where there has been a change recognized directly in the equity of the associate, the Group
recognizes its share of the changes and discloses it in the consolidated statement of changes in equity.
The Group recognizes the dividend from an associate when the right to receive a dividend is established,
and presents separately (Note 8) the share of the results of operations of the associate corresponding to
dividends received.
The aggregate of the Group’s share of net profit or loss of an associate is shown on the face of the
consolidated income statement under operating result.
The financial statements of the associates are prepared for the same reporting period as the Group.
When the Group has transactions with an associate of the Group, unrealized profits and losses are
eliminated to the extent of the Group’s interest in the relevant associate.
c) Interests in joint arrangements
IFRS defines joint control as the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities (i.e. activities that significantly affect the returns of the
arrangement) require the unanimous consent of the parties sharing the control.
Classifying the joint arrangement as joint venture or joint operation requires the Group to assess their
rights and obligations arising from the arrangement. Specifically, the Group considers:
the structure of the joint arrangement – whether it is structured through a separate vehicle;
when the arrangement is structured through a separate vehicle, the Group also considers the rights and
obligations arising from:
the legal form of the separate vehicle;
the terms of the contractual arrangement;
other facts and circumstances, considered on a case by case basis.
As of December 31, 2018 and 2017, the Group has joint arrangements classified as joint operations.
Joint operations
A joint operation is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement.
102 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
3. CONSOLIDATION (continued)
In relation to its interests in joint operations, the Group recognises its:
assets, including its share of any assets held jointly
liabilities, including its share of any liabilities incurred jointly
revenue from the sale of its share of the output arising from the joint operation
share of the revenue from the sale of the output by the joint operation
expenses, including its share of any expenses incurred jointly.
The Group has interests in joint operations, therefore it recognizes its share of any assets held jointly and
liabilities incurred jointly, revenue from the sale of the output by the joint operation, together with its share of
the expenses incurred jointly. The Group accounts for the assets, liabilities, revenues and expenses relating
to its interest in a joint operation, line by line, in its consolidated financial statements.
The material joint arrangements where OMV Petrom is partner, as well as commitments in relation to the
joint arrangements, are presented in Note 35.
Notes to the consolidated financial statements for the year ended December 31, 2018 103
4. ACCOUNTING AND VALUATION PRINCIPLES
4.1. First-time adoption of new or revised standards
The accounting policies adopted are consistent with those of the previous financial year except for the
following amended IFRSs which have been adopted by the Group as of 1 January 2018.
The Group has initially adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts
with Customers (including clarifications) from January 1, 2018. The effects of these standards are
described in the following paragraphs.
Additionally, the Group has adopted the following amended standards with a date of initial application of
January 1, 2018:
IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments)
The Amendments provide requirements on the accounting for the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments, for share-based payment
transactions with a net settlement feature for withholding tax obligations and for modifications to the
terms and conditions of a share-based payment that changes the classification of the transaction from
cash-settled to equity-settled. These amendments were not applicable for the Group.
IAS 40: Transfers to Investment Property (Amendments)
The Amendments clarify when an entity should transfer property, including property under construction
or development into, or out of investment property. The Amendments state that a change in use occurs
when the property meets, or ceases to meet, the definition of investment property and there is evidence
of the change in use. A mere change in management’s intentions for the use of a property does not
provide evidence of a change in use. These amendments were not applicable for the Group.
IFRIC INTERPETATION 22: Foreign Currency Transactions and Advance Consideration
The Interpretation clarifies the accounting for transactions that include the receipt or payment of
advance consideration in a foreign currency. The Interpretation covers foreign currency transactions
when an entity recognizes a non-monetary asset or a non-monetary liability arising from the payment
or receipt of advance consideration before the entity recognizes the related asset, expense or income.
The Interpretation states that the date of the transaction, for the purpose of determining the exchange
rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.
If there are multiple payments or receipts in advance, then the entity must determine a date of the
transactions for each payment or receipt of advance consideration. The adoption of this interpretation
did not have a significant impact on the consolidated financial statements.
The IASB has issued the Annual Improvements to IFRSs 2014 – 2016 Cycle, which is a
collection of amendments to IFRSs.
IAS 28 Investments in Associates and Joint Ventures: The amendments clarify that the election
to measure at fair value through profit or loss an investment in an associate or a joint venture that
is held by an entity that is venture capital organization, or other qualifying entity, is available for
each investment in an associate or joint venture on an investment-by-investment basis, upon initial
recognition.
This improvement did not have a significant impact on the consolidated financial statements of the
Group.
104 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
a) IFRS 9 Financial Instruments
The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project
and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of
IFRS 9.
IFRS 9 introduces key changes to the classification and measurement of financial assets, being based
on a business model and contractual cash flows approach, and also implements a new impairment model
based on expected credit losses. In addition, changes to hedge accounting have been made with the
objective of better representing the effect of risk management activities that an entity adopts to manage
exposures.
Except for hedge accounting, IFRS 9 was applied retrospectively, using the option of simplified initial
application”. As permitted by IFRS 9, the Group did not restate the figures of the comparative period,
which continue to be reported under IAS 39. The cumulative effect arising from the transition to IFRS 9
was accounted for through an adjustment to the opening balance of the respective position in equity as at
January 1, 2018.
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost,
at fair value through other comprehensive income (FVOCI) and at fair value through profit or loss (FVTPL).
The classification is based on two criteria: the Group’s business model for managing the assets; and
whether the instruments’ contractual cash flows represent solely payments of principal and interest on the
principal amount outstanding.
As explained in the notes below, there are no significant differences between the previous measurement
categories under IAS 39 and the new measurement categories under IFRS 9 for classes of the Group’s
financial assets as at January 1, 2018.
Under IAS 39 all trade receivables were measured at amortized cost less any impairment. Upon the
application of IFRS 9, however, receivables eligible for factoring are measured at FVTPL as they are held
within a business model with an objective to sell them. Moreover, the trade receivables from arrangements
with provisional pricing are also measured at FVTPL as the contractual cash flows are not solely payments
of principal and interest on the principal amount outstanding. The adjustment to revenue reserves,
following the new classification under IFRS 9 is insignificant.
Available-for-sale financial assets in OMV Petrom Group include investments. As a general rule, IFRS 9
requires that equity instruments be measured at fair value through profit or loss. At initial recognition, the
Group may make an irrevocable election to present in other comprehensive income (OCI) subsequent
changes in the fair value of an investment in an equity instrument within the scope of IFRS 9 that is neither
held for trading nor a contingent consideration recognized by an acquirer in a business combination to
Notes to the consolidated financial statements for the year ended December 31, 2018 105
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
which IFRS 3 applies. Under IFRS 9, all equity investments are designated as measured at fair value
through OCI. There was no impact in Group’s equity from classification or measurement of equity
investments.
There is no impact on the Group’s classification and measurement of financial liabilities, as the new
requirements only affect the accounting for financial liabilities that are designated at fair value through
profit or loss. The Group does not have any such liabilities.
The new impairment model requires the recognition of impairment provisions based on forward-looking
expected credit losses (ECL), rather than only incurred credit losses, as was the case under IAS 39.
IFRS 9 requires the Group recognize an allowance for ECLs for all debt instruments not held at fair value
through profit or loss and contract assets. In general, the application of the expected credit loss model
results in earlier recognition of credit losses for the relevant items. Impairment losses are calculated
based on a three-stage model using the credit default swap, internal or external counterparty rating
and the associated probability of default. For certain financial instruments such as trade receivables,
impairment losses are assessed under a simplified approach recognizing lifetime expected credit losses.
The related impact net of tax in OMV Petrom Group’s equity upon initial application of IFRS 9 is RON
(4.93) million (see Notes 9 and 26).
Under IFRS 9, generally more hedging instruments and hedged items will qualify for hedge accounting.
As at December 31, 2017, the Group had no hedging relationships for which hedge accounting was
applied, therefore the adoption of IFRS 9 has no impact on the consolidated financial statements in
respect of hedge accounting.
b) IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaced the previous revenue recognition requirements in IFRS and applies to all revenue
arising from contracts with customers. According to the new standard, revenue is recognized to depict
the transfer of promised goods or services to a customer in an amount that reflects the consideration to
which the Group expects to be entitled in exchange for those goods or services. Revenue is recognized
when, or as, the customer obtains control of the goods or services.
The Group has adopted the new standard on January 1, 2018 using the modified retrospective
method, with the cumulated adjustment from initially applying this standard recognized in the opening
balance of retained earnings in the year of initial application. As a result, the Group has not applied the
requirements of IFRS 15 to the comparative periods presented.
Under IFRS 15 Revenue from Contracts with Customers and IFRS 15: Revenue from Contracts with
106 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
Customers (Clarifications), there are more transactions in which the Group acts in the capacity of an
agent. An agent recognizes revenue for the commission or fee earned for facilitating the transfer of goods
or services. The assessment according to the new standard is based on whether the Group controls the
specific goods or services before transferring to the customer, rather than whether it has exposure to
significant risks and rewards associated with the sale of the goods or services. Without this change due to
IFRS 15 revenues and related costs would have been higher by RON 324.75 million, without any impact
on the operating result.
In addition, there are a small number of long-term supply contracts with different prices in different periods
where the rates do not reflect the value of the goods at the time of delivery in the Group. Whereas under
IAS 18 the invoiced amount was recognized as revenue, under IFRS 15 the revenue is recognized based
on the average contractual price. Initial application of IFRS 15 does not have an impact on the Group’s
retained earnings at January 1, 2018.
The following table summarizes the impact of adopting IFRS 15 on the consolidated income statement and
consolidated comprehensive income for 2018. The impact of IFRS 15 on the consolidated statement of
financial position and the consolidated cash flow statement was not material.
Consolidated income statement and consolidated statement of comprehensive income
As
reported
Adjustments
Transactions
without adoption
of IFRS 15
22,523.24
319.51
22,842.75
Sales revenues
Other operating income
Net income from equity-accounted investments
Total revenues and other income
Purchases (net of inventory variation)
Production and operating expenses
Production and similar taxes
672.10
9.51
23,204.85
(8,040.24)
(3,139.79)
(1,240.55)
5.24
-
324.75
(88.89)
(1.49)
-
-
Depreciation, amortization and impairment charges
(3,180.13)
Selling, distribution and administrative expenses
(1,977.47)
(234.37)
Exploration expenses
Other operating expenses
Operating Result
(174.27)
(239.41)
5,212.99
-
-
-
677.34
9.51
23,529.60
(8,129.13)
(3,141.28)
(1,240.55)
(3,180.13)
(2,211.84)
(174.27)
(239.41)
5,212.99
Notes to the consolidated financial statements for the year ended December 31, 2018 107
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
Profit before tax
Taxes on income
Net income for the year
there of attributable to stockholders of the parent
thereof attributable to non-controlling interests
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
thereof attributable to stockholders of the parent
thereof attributable to non-controlling interests
As
reported
4,913.57
(835.78)
4,077.79
4,078.10
(0.31)
15.93
4,093.72
4,095.75
(2.03)
Adjustments
Transactions
without adoption
of IFRS 15
-
-
-
-
-
-
-
-
-
4,913.57
(835.78)
4,077.79
4,078.10
(0.31)
15.93
4,093.72
4,095.75
(2.03)
4.2. New or revised standards and interpretations not yet mandatory
The Group has not early adopted the following new or revised IFRSs and interpretations that have been
issued but are not yet effective. EU endorsement is still pending in some cases.
a) IFRS 16 Leases
This standard will replace IAS 17 and sets out new rules for lease accounting. The standard is effective
for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the
customer (“lessee”) and the supplier (“lessor”).
For the lessee’s accounting, IFRS 16 will eliminate the classification of leases as either operating
leases or finance leases as is required by IAS 17 and, instead, will introduce a single lessee accounting
model. Applying that model, a lessee will be required to recognize assets and liabilities for most leases
and depreciation of lease assets separately from interest on lease liabilities in the income statement.
Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17.
Lessors will continue to classify all leases using the same classification principle as in IAS 17 and
distinguish between two types of leases: operating and finance leases. IFRS 16 requires lessees and
lessors to make more extensive disclosures than under IAS 17.
The most significant impact is that the Group will recognize new assets and liabilities for its operating
108 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
leases, unless an exemption from IFRS 16 is applicable. Some commitments will be covered by the
exceptions for short-term and low-value leases. There is no significant impact expected on the existing
finance leases.
The recognition of a right-of-use asset and lease liability for the operating leases is expected to lead to
an increase in property, plant and equipment and debt of approximately RON 300 million on January 1,
2019. In the consolidated income statement, depreciation charges and interest expense will be reported
instead of lease expense. This will lead to an increase in operating result, which will be offset by higher
interest expense.
The estimated impact of the adoption of this standard is based on the assessments undertaken to date.
The actual impact may still change until the Group presents its consolidated financial statements that
include the date of initial application.
OMV Petrom Group will initially apply IFRS 16 on January 1, 2019 using the modified retrospective
approach for transition, thus not restating comparative amounts for the comparative period presented.
Instead, the Group will recognize the cumulative effect of initially applying the new standard as an
adjustment to the opening balance of retained earnings at the date of initial application.
The right-of-use assets for previous operating leases will be measured at the date of initial application at
the amount of the lease liability, adjusted by prepaid or accrued lease payments. The Group will apply
the various practical expedients for transition. The Group will for example not recognize any right-of-use
assets and lease liabilities for contracts which expire in 2019.
b) Other new or revised standards and interpretations not yet mandatory
In addition, the following standards, interpretations and amendments were issued which are not expected
to have any material effects on the Group’s financial statements:
Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in
Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and
those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or
joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a
transaction involves a business (whether it is housed in a subsidiary or not).
A partial gain or loss is recognized when a transaction involves assets that do not constitute a business,
even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective
Notes to the consolidated financial statements for the year ended December 31, 2018 109
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
date of this amendment indefinitely pending the outcome of its research project on the equity method
of accounting. The amendments have not yet been endorsed by the EU. The Group is currently
assessing the impact of adopting these amendments on the consolidated financial statements and
does not expect it to be significant.
IFRS 9: Prepayment features with negative compensation (Amendment)
The Amendment is effective for annual reporting periods beginning on or after 1 January 2019 with
earlier application permitted. The Amendment allows financial assets with prepayment features
that permit or require a party to a contract either to pay or receive reasonable compensation for
the early termination of the contract (so that, from the perspective of the holder of the asset there
may be “negative compensation”), to be measured at amortized cost or at fair value through other
comprehensive income. The Group is currently assessing the impact of adopting this amendment on
the consolidated financial statements and does not expect it to be significant.
IAS 28: Long-term Interests in Associates and Joint Ventures (Amendments)
The Amendments are effective for annual reporting periods beginning on or after 1 January 2019
with earlier application permitted. The Amendments relate to whether the measurement, in particular
impairment requirements, of long term interests in associates and joint ventures that, in substance,
form part of the “net investment” in the associate or joint venture should be governed by IFRS 9,
IAS 28 or a combination of both. The Amendments clarify that an entity applies IFRS 9 Financial
Instruments, before it applies IAS 28, to such long-term interests for which the equity method is
not applied. In applying IFRS 9, the entity does not take account of any adjustments to the carrying
amount of long- term interests that arise from applying IAS 28. These Amendments have not yet
been endorsed by the EU. The Group does not expect the impact of adopting these amendments on
the consolidated financial statements to be significant.
IFRIC interpretation 23: Uncertainty over Income Tax Treatments
The Interpretation is effective for annual periods beginning on or after 1 January 2019 with earlier
application permitted. The Interpretation addresses the accounting for income taxes when tax
treatments involve uncertainty that affects the application of IAS 12. The Interpretation provides
guidance on considering uncertain tax treatments separately or together, examination by tax
authorities, the appropriate method to reflect uncertainty and accounting for changes in facts and
circumstances. The Group is currently assessing the impact of adopting this interpretation on the
consolidated financial statements and does not expect it to be significant.
IAS 19: Plan Amendment, Curtailment or Settlement (Amendments)
The Amendments are effective for annual periods beginning on or after 1 January 2019 with earlier
application permitted. The Amendments require entities to use updated actuarial assumptions to
determine current service cost and net interest for the remainder of the annual reporting period
after a plan amendment, curtailment or settlement has occurred. The Amendments also clarify how
the accounting for a plan amendment, curtailment or settlement affects applying the asset ceiling
110 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
requirements. These Amendments have not yet been endorsed by the EU. The Group is currently
assessing the impact of adopting these amendments on the consolidated financial statements and
does not expect it to be significant.
Conceptual Framework in IFRS standards
The IASB issued the revised Conceptual Framework for Financial Reporting on 29 March 2018. The
Conceptual Framework sets out a comprehensive set of concepts for financial reporting, standard
setting, guidance for preparers in developing consistent accounting policies and assistance to others
in their efforts to understand and interpret the standards. IASB also issued a separate accompanying
document, Amendments to References to the Conceptual Framework in IFRS Standards, which sets
out the amendments to affected standards in order to update references to the revised Conceptual
Framework. Its objective is to support transition to the revised Conceptual Framework for companies
that develop accounting policies using the Conceptual Framework when no IFRS Standard
applies to a particular transaction. For preparers who develop accounting policies based on the
Conceptual Framework, it is effective for annual periods beginning on or after 1 January 2020. These
Amendments have not yet been endorsed by the EU.
IFRS 3: Business Combinations (Amendments)
The IASB issued amendments in Definition of a Business (Amendments to IFRS 3) aimed at
resolving the difficulties that arise when an entity determines whether it has acquired a business or a
group of assets. The Amendments are effective for business combinations for which the acquisition
date is in the first annual reporting period beginning on or after 1 January 2020 and to asset
acquisitions that occur on or after the beginning of that period, with earlier application permitted.
These Amendments have not yet been endorsed by the EU. The Group is currently assessing the
impact of adopting these amendments on the consolidated financial statements and does not expect
it to be significant.
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors: Definition of “material” (Amendments)
The Amendments are effective for annual periods beginning on or after 1 January 2020 with earlier
application permitted. The Amendments clarify the definition of material and how it should be applied.
The new definition states that, “Information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information
about a specific reporting entity”. In addition, the explanations accompanying the definition have
been improved. The Amendments also ensure that the definition of material is consistent across all
IFRS Standards. These Amendments have not yet been endorsed by the EU. The Group is currently
assessing the impact of adopting these amendments on the consolidated financial statements, and
does not expect it to be significant.
The IASB has issued the Annual Improvements to IFRSs 2015 – 2017 Cycle, which is a
Notes to the consolidated financial statements for the year ended December 31, 2018 111
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
collection of amendments to IFRSs. The amendments are effective for annual periods beginning
on or after 1 January 2019 with earlier application permitted. These annual improvements have
not yet been endorsed by the EU.
IFRS 3 Business Combinations and IFRS 11 Joint Arrangements: The amendments to IFRS
3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures
previously held interests in that business. The amendments to IFRS 11 clarify that when an
entity obtains joint control of a business that is a joint operation, the entity does not remeasure
previously held interests in that business.
IAS 12 Income Taxes: The amendments clarify that the income tax consequences of payments
on financial instruments classified as equity should be recognized according to where the past
transactions or events that generated distributable profits has been recognized.
IAS 23 Borrowing Costs: The amendments clarify paragraph 14 of the standard that, when a
qualifying asset is ready for its intended use or sale, and some of the specific borrowing related
to that qualifying asset remains outstanding at that point, that borrowing is to be included in the
funds that an entity borrows generally.
The Group is currently assessing the impact of adopting these annual improvements on the Group’s
consolidated financial statements, and it does not expect to be significant.
4.3. Summary of accounting and valuation principles
a) Business combinations
Business combinations are accounted for using the acquisition method. Assets and liabilities of
subsidiaries acquired are included at their fair values at the time of the acquisition.
For each business combination, the Group elects whether it measures the non-controlling interest in
the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interests, and any previous interest held,
over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets
acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether
it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews
the procedures used to measure the amounts to be recognized at the acquisition date. If the re-
assessment still results in an excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognised in income statement.
Goodwill is recognized as an asset and reviewed for impairment at least annually. All impairments
112 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
are immediately charged against income statement, and there are no subsequent reversals of
goodwill impairment.
Non-controlling interests entitle their holders to a proportionate share of the entity's net assets in the
event of liquidation. Non-controlling interests are presented separately in the consolidated statement
of comprehensive income and within equity in the consolidated statement of financial position,
separately from parent’s shareholders’ equity. Losses within a subsidiary are attributed to the non-
controlling interest even if that results in a deficit balance.
b) Pre-licence costs
Pre-licence costs are expensed in the period in which they are incurred. Pre-license prospecting is
performed in the very preliminary stage of evaluation when trying to identify areas that may potentially
contain oil and gas reserves without having physical access to the area. Related costs may include
seismic studies, magnetic measurements, satellite and aerial photographs, gravity-meter tests etc.
c) Licence acquisition costs
Exploration licence acquisition costs are capitalized in intangible assets.
Licence acquisition costs are reviewed at each reporting date to confirm that there is no indication
that the carrying amount exceeds the recoverable amount. This review includes confirming that
exploration drilling is still under way or firmly planned, or that it has been determined, or work is
under way to determine that the discovery is economically viable based on a range of technical and
commercial considerations and sufficient progress is being made on establishing development plans
and timing.
If no future activity is planned or the licence has been relinquished or has expired, the carrying value
of the licence acquisition costs is written off through income statement.
Upon recognition of proved reserves and internal approval for development, the relevant expenditure
is transferred to oil and gas assets.
d) Exploration and evaluation costs
Exploration and evaluation costs are accounted for using the successful efforts method of accounting.
Costs related to geological and geophysical activity are expensed as and when incurred. The costs
Notes to the consolidated financial statements for the year ended December 31, 2018 113
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
associated to exploration and evaluation drilling are initially capitalized as oil and gas assets with
unproved reserves pending determination of the commercial viability of the relevant properties. If
prospects are subsequently deemed to be unsuccessful on completion of evaluation, the associated
costs are included in the income statement for the year. If the prospects are deemed commercially
viable, such costs are transferred to tangible oil and gas assets upon recognition of proved reserves
and internal approval for development. The status of such prospects and related costs are reviewed
regularly by technical, commercial and executive management including review for impairment at least
once a year to confirm the continued intent to develop or otherwise extract value from the discovery.
When this is no longer the case, the costs are written off.
e) Development and production costs
Development costs including costs incurred to gain access to proved reserves and to prepare
development wells locations for drilling, to drill and equip development wells and to construct and
install production facilities, are capitalized as oil and gas assets.
Production costs, including those costs incurred to operate and maintain wells and related equipment
and facilities (including depletion, depreciation and amortization charges as described below)
and other costs of operating and maintaining those wells and related equipment and facilities, are
expensed as incurred.
f) Intangible assets and property, plant and equipment
Intangible assets acquired by the Group are stated at cost less accumulated amortization and
impairment losses.
Property, plant and equipment are recognized at cost of acquisition or construction and are presented
net of accumulated depreciation and impairment losses.
The cost of purchased property, plant and equipment is the value of the consideration given to acquire
the assets and the value of other directly attributable costs which have been incurred in bringing the
assets to their present location and condition necessary for their intended use. The cost of self-
constructed assets includes cost of direct materials, labour, overheads and other directly attributable
costs that have been incurred in bringing the assets to their present location and condition.
Depreciation and amortization is calculated on a straight-line basis, except for Upstream assets,
where depletion occurs to a large extent on a unit-of-production basis. In the consolidated income
114 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
statement, depreciation and amortization as well as impairment losses for exploration assets
are disclosed as exploration expenses, and those for other assets are reported as depreciation,
amortization and impairment charges.
Intangible assets
Goodwill
Software
Useful life (years)
Indefinite
3 - 5
Concessions, licences and other intangibles
5 - 20, or contract duration
Business-specific property, plant and equipment
Upstream Oil and gas core assets
Downstream Gas Pipelines
Downstream Gas Power plant
Downstream Oil Storage tanks and refinery facilities
Downstream Oil Pipeline systems
Downstream Oil Filling stations components
Other property, plant and equipment
Production and office buildings
Other plant and equipment
Fixtures and fittings
Unit of production method
20 - 30
8 – 30
25 – 40
20
5 – 20
20 – 50
10 – 20
5 – 10
For the application of the unit-of-production depreciation method, the Group has separated the areas
where it operates into regions. The unit-of-production factor is computed at the level of each productive
region, based on the extracted quantities and the proved reserves or proved developed reserves as
applicable.
Capitalized exploration and evaluation activities are generally not depreciated as long as they are
related to unproved reserves but tested for impairment. Once the reserves are proved and commercial
viability is established, the related assets are reclassified into tangible assets and once production
starts depreciation commences. Capitalized development costs and support equipment are generally
depreciated based on proved developed reserves/total proved reserves by applying the unit-of-
production method once production starts.
An item of property, plant and equipment and any significant part initially recognized are derecognized
Notes to the consolidated financial statements for the year ended December 31, 2018 115
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain
or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the consolidated income statement when
the asset is derecognized.
Under the successful efforts method individual mineral interests and other assets are combined to cost
centers (fields, blocks, areas), which are the basis for depreciation and impairment testing. If single wells
or other assets from a pooled depreciation base with proved reserves are abandoned, the accumulated
depreciation for the single asset might be not directly identifiable. In general, irrespective if book values
of abandoned assets are identifiable, no loss is recognized from the partial relinquishment of assets from
a pooled depreciation base as long as the remainder of the group of properties continues to produce oil
or gas. It is assumed that the abandoned or retired asset is fully amortized. The capitalized costs for the
asset are charged to the accumulated depreciation base of the cost center.
Where an asset or part of an asset, that was separately depreciated and is now written off, is replaced
and it is probable that future economic benefits associated with the item will flow to the Group, the
expenditure is capitalized. Where part of the asset replaced was not separately considered as a
component and therefore not depreciated separately, the replacement value is used to estimate the
carrying amount of the replaced asset(s) which is immediately written off.
Assets classified as held for sale are disclosed at the lower of carrying value and fair value net of any
disposal costs. Non-current assets and groups of assets are classified as held for sale if their carrying
value will be recovered principally through a sale transaction rather than through continuing use. This
classification requires that the sale must be estimated as highly probable, and that the asset must
be available for immediate disposal in its present condition. The highly probable criteria implies that
management must be committed to the sale and an active plan to locate a buyer was initiated, the
transaction should be expected to qualify for recognition as a completed sale within one year from the
date of classification (except if certain conditions are met), the asset is actively marketed at a price that
is reasonable in relation to its current fair value and that it is unlikely that significant changes will occur to
the sale plan or that the plan will be withdrawn. Property, plant and equipment and intangible assets are
not depreciated or amortized once classified as held for sale.
Impairment of intangible assets and property, plant and equipment
In accordance with IAS 36, intangible assets as well as property, plant and equipment are reviewed at
each reporting date for any indications of impairment. For intangible assets with indefinite useful lives,
impairment tests are carried out annually. This applies even if there are no indications of impairment.
Impairment tests are performed on the level of cash generating units which generate cash inflows that
are largely independent of those from other assets or groups of assets.
If any indication exists, or when annual impairment test for an asset is required, the Group estimates the
116 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
asset’s recoverable amount, being the higher of fair value less costs of disposal and its value in use.
If the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset is
considered impaired and an impairment loss is recognized to reduce the asset to its lower recoverable
amount. Impairment losses are recognized in the consolidated income statement under depreciation,
amortization and impairment charges and under exploration expenses.
If the reasons for impairment no longer apply in a subsequent period, a reversal is recognized in the
consolidated income statement. The increased carrying amount related to the reversal of an impairment
loss shall not exceed the carrying amount that would have been determined (net of amortization and
depreciation) had no impairment loss been recognized in prior years.
g) Major maintenance and repairs
The capitalized costs of regular and major inspections and overhauls are separate components of the
related asset or asset groups. The capitalized inspection and overhaul costs are amortized on a straight
line basis, or on basis of the number of service hours or produced quantities or similar, if this better reflects
the time period for the inspection interval (until the next inspection date).
Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement
assets or parts of assets, inspection costs and overhaul costs. Inspection costs associated with major
maintenance programs are capitalized and amortized over the period to the next inspection.
Cost of major remedial activities for wells workover, if successful, is also capitalized and depreciated using
the unit-of-production method.
All other day-to-day repairs and maintenance costs are expensed as incurred.
h) Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the
arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement
is dependent on the use of a specific asset or assets and whether the arrangement conveys a right to use
the asset or assets, even if that right is not explicitly specified in the arrangement.
A finance lease is defined as a lease which transfers substantially all the risks and rewards incidental to
the ownership of the related asset to the lessee. All leases which do not meet the definition of a finance
lease are classified as operating leases.
Notes to the consolidated financial statements for the year ended December 31, 2018 117
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
Non-current assets held under finance lease arrangements are capitalized at the commencement of the
lease at the lower of the present value of minimum lease payments and fair value of leased property,
and then depreciated over their expected useful life or the duration of the lease, if shorter. A liability
equivalent to the capitalized amount is recognized, and future lease payments are split into the finance
charge and the capital repayment element.
In the case of operating leases, lease payments are recognized on a straight-line basis over the lease
term.
i) Financial instruments
Non-derivative financial assets
At initial recognition, OMV Petrom Group classifies its financial assets as subsequently measured at
amortized cost, fair value through other comprehensive income (OCI) or fair value through profit or loss.
The classification depends both on the Group’s business model for managing the financial assets and
the contractual cash flow characteristics of the financial assets. The business model determines whether
cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Debt instruments are classified and measured at amortized cost if both of the following conditions are
met:
the asset is held within the business model whose objective is to hold financial assets in order to
collect contractual cash flows; and
the contractual terms of the financial asset give rise on specific dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
These assets are subsequently measured at amortized cost using the effective interest method less
any impairment losses. Interest income, impairment losses and gains or losses on derecognition
are recognized in profit or loss. The Group’s financial assets at amortised cost include mainly trade
receivables.
OMV Petrom Group recognizes allowances for expected credit losses (ECLs) for financial assets
measured at amortized costs. The ECL calculation is based on external or internal credit ratings of
the counterparty, associated probabilities of default and loss given default. External credit rating is
based mainly on reports issued by well-known rating agencies and is reflected in OMV Petrom Group
by grouping financial assets in five risk classes (risk class 1 being the lowest risk category). The
probabilities of default used for each risk class, as presented in Note 9, are based on Standard & Poor’s
average global corporate default rates. A loss given default of 45% was applied for computation of ECL
of financial assets which are not credit impaired.
118 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
ECLs are recognized in two stages:
i. Where there has not been a significant increase in the credit risk since initial recognition, credit losses
are measured at 12 month ECLs. The 12 month ECL is the credit loss which results from default events
that are possible within the next 12 months. The Group considers a financial asset to have low credit risk
when its credit risk rating is equivalent to the definition of “investment grade”.
ii. Where there has been a significant increase in the credit risk since initial recognition, a loss allowance is
required for the lifetime ECL, i.e. the expected credit losses resulting from possible default events over
the expected life of a financial asset. For this assessment, OMV Petrom Group considers all reasonable
and supportable information that is available without undue cost or effort.
Furthermore, OMV Petrom Group assumes that the credit risk on a financial asset has significantly
increased if it is more than 30 days past due. If the credit quality improves for a lifetime ECL asset, OMV
Petrom Group reverts to recognizing allowances on a 12 month ECL basis. A financial asset is considered
to be in default when the financial asset is 90 days past due unless there is reasonable and supportable
information that demonstrate that a more lagging default criterion is appropriate. A financial asset is written
off when there is no reasonable expectation that the contractual cash flows will be recovered.
For trade receivables a simplified approach is adopted, where the impairment losses are recognized at
an amount equal to lifetime expected credit losses. In case there are credit insurances or securities held
against the balances outstanding, the ECL calculation is based on the probability of default of the insurer/
securer for the insured/secured element of the outstanding balance and the remaining amount will take the
probability of default of the counterparty.
Non-derivative financial assets classified as at fair value through profit or loss include trade receivables
from sales contracts with provisional pricing because the contractual cash flows do not represent solely
payments of principal and interest on the principal amount outstanding. Furthermore, this measurement
category includes portfolios of trade receivables held with an intention to sell them. These assets are
measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.
Equity instruments may be elected irrevocably as measured at fair value through OCI if they are not held
for trading.
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of
the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards
of ownership and continues to control the transferred asset, the Group recognizes its retained interest in
the asset and an associated liability that reflects the rights and obligations that the Group has retained. If
the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the
Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the
proceeds received.
Notes to the consolidated financial statements for the year ended December 31, 2018 119
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
Financial assets are written off when there is no realistic prospect of future recovery and all collateral
has been realized or has been transferred to the Group.
Rights to payments to reimburse the Group for expenditure that it is required to settle a liability that is
recognized as a provision in accordance with IAS 37 “Provisions, Contingent liabilities and Contingent
assets” are outside the scope of IFRS 9. Expenditure recoverable from the Romanian State falls under
this category.
The classification and measurement provisions of IFRS 9 were applied retrospectively without restating
the figures of the comparative period, which continue to be reported under the previous accounting
standard for financial instruments, IAS 39. Differences between the classification and measurement
according to IFRS 9 and IAS 39 are disclosed in Notes 4.1. and 9.
Non-derivative financial liabilities
Non-derivative financial liabilities are carried at amortized cost. Long-term liabilities are discounted using
the effective interest rate method (EIR).
A financial liability (or a part of a financial liability) is removed from the statement of financial position
when it is extinguished – i.e. when the obligation specified in the contract is discharged or cancelled or
expires.
Derivative financial instruments and hedges
Derivative instruments are used to hedge risks resulting from changes in interest rates, currency
exchange rates and commodity prices. Derivative instruments are recognized at fair value. Unrealized
gains and losses are recognized as income or expense, except where hedge accounting is applied. The
Group has applied IFRS 9 requirements on hedge accounting.
At the inception of a hedge relationship, the Group formally designates and documents the hedge
relationship to which it wishes to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge.
Those derivatives qualifying and designated as hedges can be (i) a fair value hedge when hedging
exposure to changes in the fair value of a recognized asset or liability or (ii) a cash flow hedge when
hedging exposure to variability in cash flows that is attributable to a particular risk associated with a
recognized asset or liability or a highly probable forecast transaction.
For cash flow hedges, the effective part of the changes in fair value is recognized in other
comprehensive income, while the ineffective part is recognized immediately in the income statement.
120 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
Where the hedging of cash flows results in the recognition of a non-financial asset or liability, the carrying
value of that item is adjusted for the accumulated gains or losses recognized directly in OCI.
Contracts to buy or sell a non-financial item that can be settled net in cash or another financial
instrument, or by exchanging financial instruments, as if the contracts were financial instruments, are
accounted for as financial instruments and measured at fair value. Associated gains or losses are
recognized in profit or loss. However, contracts that are entered into and continue to be held for the
purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected
purchase, sale or usage requirements are not accounted for as derivative financial instruments, but
rather as executory contracts. However, even though such contracts are not financial instruments, they
may contain embedded derivatives. Embedded derivatives are accounted for separately from the host
contract when the economic characteristics and risks of the embedded derivatives are not closely related
to the economic characteristics and risks of the host contract.
j) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets
are capitalized until the assets are substantially ready for their intended use or for sale. Borrowing
costs include interest on bank short-term and long-term loans, amortization of ancillary costs incurred in
connection with the arrangement of borrowings and exchange differences arising from foreign currency
borrowings to the extent that they are regarded as an adjustment to interest costs. All other costs of
borrowing are expensed in the period in which they are incurred.
k) Government grants
Government grants – except for emission rights (see Note 4.3 m) – are recognized as deferred income
or deducted from the related asset where it is reasonable to expect that the granting conditions will be
met and that the grants will be received.
l) Inventories
Inventories are valued at the lower of cost and net realizable value. Net realizable value is the estimated
selling price in the normal course of activity less any selling expenses.
Cost of producing crude oil and gas and refined petroleum products is accounted on weighted average
basis, and includes all costs incurred in the normal course of business in bringing each product to
its present location and condition, including the appropriate proportion of depreciation, depletion and
Notes to the consolidated financial statements for the year ended December 31, 2018 121
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
amortization and overheads based on normal capacity.
Appropriate allowances are made for any obsolete or slow moving stocks based on the management’s
assessments.
m) Provisions
Provisions are made for all present obligations (legal or constructive) to third parties resulting from a past
event, when it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation and the amount of the obligation can be estimated reliably. Provision for individual
obligations is based on the best estimate of the amount necessary to settle the obligation. If the effect of
the time value of money is material, provisions are discounted using a current pre-tax rate that reflects,
where appropriate, the risks specific to the liability. Where discounting is applicable, the increase in the
provision due to the passage of time is recognized as a finance cost.
The Group’s core activities regularly lead to obligations related to dismantling and removal, asset
retirement and soil remediation obligations, more specifically consisting in:
plugging and abandoning wells;
cleaning of sludge pits;
dismantlement of production facilities;
restoration of producing areas in accordance with licence requirements and the relevant legislation.
These decommissioning and restoration obligations are mainly of material importance in the Upstream
segment (oil and gas wells, above-ground facilities). At the time the obligation arises, it is provided
for in full by recognizing as a liability the present value of future decommissioning and restoration
expenses. An equivalent amount is capitalized as part of the carrying value of related property, plant
and equipment. The obligation is calculated on the basis of best estimates. The capitalized asset is
depreciated using the unit-of-production method for upstream activities and on straight-line basis for
downstream assets.
Liabilities for environmental costs are recognized when a clean-up is probable and the associated costs
can be reliably estimated. Generally, the timing of recognition of these provisions coincides with the
commitment to a formal plan of action. The amount recognized is the best estimate of the expenditure
required. Where the liability will not be settled for a number of years, the amount recognized is the
present value of the estimated future expenditure.
Based on the privatization agreement of OMV Petrom S.A., part of OMV Petrom’s decommissioning
and environmental cost will be reimbursed by the Romanian State. The portion to be reimbursed by the
Romanian State has been presented as receivable and reassessed in order to reflect the current best
122 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
estimate of the cost at its present value, using the same discount rate as for the related provisions.
Changes in the assumptions related to decommissioning costs are dealt with prospectively, by recording
an adjustment to the provision and a corresponding adjustment to property, plant and equipment (for
Group obligation) or to the related receivable from the Romanian State (for the works to be reimbursed by
Romanian State).
The unwinding of the decommissioning provision is presented as part of the interest expenses in the
Income Statement, net of the unwinding of the related receivable from the Romanian State (for the works
to be reimbursed by Romanian State).
Changes in the assumptions related to environmental costs are dealt with prospectively, by recording
an adjustment to the provision and a corresponding adjustment in the Income Statement (for Group
obligation) or to the related receivable from the Romanian State (for the works to be reimbursed by
Romanian State).
The unwinding of the environmental provision is presented as part of the interest expenses in the
consolidated income statement, net of the unwinding of the related receivable from the Romanian State
(for the works to be reimbursed by Romanian State).
The effect of changes in discount rate and timing assumptions for the receivables from the Romanian
State, which are additional to the changes in discount rates and timing assumptions for decommissioning
costs and environmental costs, is presented in the Income Statement under interest expenses or interest
income.
Provisions for pensions and severance payments are calculated using the projected-unit-credit method,
which divides the costs of the estimated benefit entitlements over the whole period of employment and
thus takes future increases in remuneration into account. Actuarial gains/losses are recognized in full in the
period in which they occur as follows: for pensions in consolidated other comprehensive income and for
other obligations in consolidated income statement.
Provisions for voluntary and involuntary separations under restructuring programs are recognized if a
detailed plan has been approved by management prior to the consolidated statement of financial position
date, and an irrevocable commitment is thereby established. Voluntary amendments to employees’
remuneration arrangements are recognized if the respective employees have accepted the company’s
offer. Provisions for obligations under individual separation agreements are recognized at the present
value of the obligation where the amounts and dates of payment are fixed and determined.
Emission allowances received free of cost from governmental authorities (EU Emissions Trading Scheme
for greenhouse gas emissions allowances) reduce obligations for CO2 emissions and are recognized
Notes to the consolidated financial statements for the year ended December 31, 2018 123
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
based on net approach for Government Grant (i.e. zero value in accounting). Provisions are recognized
only for shortfalls. The provision for a shortfall is initially measured at the best estimation of expenditure
required to settle the obligation. The related expense is recognized as emission costs, included in
production and operating expenses. If, subsequently to the recognition of a provision, emission rights
are purchased, then an asset is only recognized for the excess of the emission rights over the CO2
emissions. Any price difference between the provision and the value of offsetting emission rights is
expensed as emission cost.
n) Taxes on income and royalties
Current tax
Current income tax is the expected tax payable or receivable on the taxable net result for the year, using
tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years. Taxable profit differs from profit as reported in the consolidated income
statement because it excludes items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
Current income tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. Management periodically evaluates
positions taken in the tax returns with respect to situations in which applicable tax regulations are subject
to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is recognized in respect of temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates
and interests in joint ventures, where the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax
credits and unused tax losses, to the extent that it is probable that future taxable profit will be available
against which the deductible temporary differences and the carry forward of unused tax credits and
unused tax losses can be utilized except:
where the deferred income tax asset relating to the deductible temporary difference arises from the
124 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
initial recognition of an asset or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates
and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is
probable that the temporary differences will reverse in the foreseeable future and taxable profit will be
available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent
that it is no longer probable that sufficient future taxable profit will be available to allow all or part of the
deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting
date and are recognized to the extent that it has become probable that future taxable profit will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized directly in other comprehensive income or equity is recognized in
consolidated other comprehensive income or equity and not in consolidated income statement.
Deferred tax assets and deferred tax liabilities at Group level are shown net, if there is a legally
enforceable right to offset and the deferred taxes relate to matters subject to the same tax jurisdiction.
Production taxes
Royalties are based on the value of oil and gas production and are included in the consolidated income
statement under production and similar taxes.
o) Revenue recognition
Revenues from contracts with customers
Revenue is generally recognized when the performance obligation is satisfied by transferring the control
over a product or a service to a customer. It is measured based on the consideration to which is expected
to be entitled based on the contract with a customer and excludes amounts collected on behalf of third
parties.
When the performance obligation is not yet satisfied, but the consideration from customers is either
received or due, OMV Petrom Group recognizes contract liabilities which are reported as other liabilities in
the consolidated statement of financial position.
When goods such as crude oil, LNG, oil products and similar goods are sold, the delivery of each quantity
Notes to the consolidated financial statements for the year ended December 31, 2018 125
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
unit normally represents a single performance obligation. Revenue is recognized when control of the
goods has transferred to the customer, which is the point in time when legal ownership as well as the
risk of loss has passed to the customer and is determined on the basis of the Incoterm agreed in the
contract with the customer. These sales are done with normal credit terms according to the industry
standard.
In the Downstream Oil retail business, revenues from the sale of petroleum products are recognized at
a point in time, when products are supplied to the customers. Depending on whether the Group acts as
a principal or as an agent for the sale of shop merchandise, revenue and costs related to such sales are
presented on a gross or net basis, in the consolidated income statement. The Group acts as principal if
it controls the goods before they are transferred to the customer. The Group has control over the goods
when it bears the inventory risk before the goods have been transferred to the customers.
A second indicator for having control of the goods before transferring them to the customer is the
Group’s ability to establish the price of goods. For sales of non-oil products, the Group considers this as
being a secondary criterion, therefore, if the Group has the ability to set the price but it does not have
inventory risk before transferring the goods to the customer, it acts as an agent in providing the goods. At
filling stations, payments are due immediately at the time of purchase.
The Group’s gas and power supply contracts include a single performance obligation which is satisfied
over the agreed delivery period. Revenue is recognized according to the consumption by the customer
and in line with the amount to which the Group has a right to invoice. In some cases, long-term gas
supply contracts contain stepped prices, in different periods, where the rates do not reflect the value
of the goods at the time of delivery. For these cases, revenue is recognized based on the average
contractual price.
In some contracts for the delivery of natural gas, the fees charged to the customer comprise a fixed
charge as well as a variable fee depending on the volumes delivered. These contracts contain only one
performance obligation which is represented by the availability of supply for the delivery of gas over a
certain period. The revenue from fixed charges and the variable fees are recognized as the amount is
invoiced to the customer. Gas and power deliveries are billed and paid on a monthly basis.
Gas storage and gas transportation contracts contain a stand-ready obligation for providing storage or
transportation services over an agreed period of time. Revenue is recognized according to the amount to
which the Group has a right to invoice for those transactions in which it acts in the capacity of principal.
These services are billed and paid on a monthly basis.
Power and gas sales are often subject to fees or tariffs for facilitating the transfer of goods and services.
When the Group does not control the services related to such fees and tariffs before are transferred to
the customer and when it is not involved in the rendering of the service nor does it control the pricing, the
Group is only an agent in providing these services.
126 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
As OMV Petrom Group applied the cumulative effect method for transition to IFRS 15, the comparative
information has not been restated and continues to be reported under the previous revenue recognition
standard IAS 18. Differences between the revenue recognition according to IFRS 15 and IAS 18 are
disclosed in Section 4.1 of this note.
As the revenues are recognized in the amount to which has a right to invoice, OMV Petrom Group
applies the practical expedient according to IFRS 15.121, in accordance with which the amount for
unsatisfied remained performance obligations need not be disclosed.
Other revenues
Other revenues include mainly realized and unrealized net results from commodity sales transactions as
well as lease and rental income.
Dividend and interest income
Dividend income from investments is recognized when the shareholder’s right to receive payment has
been established.
Interest income is accrued using the effective interest rate, which is the rate that discounts the estimated
future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
p) Cash and cash equivalents
For the purpose of the Consolidated Statement of Cash Flows, cash is considered to be cash on hand
and in operating accounts in banks. Cash equivalents represent deposits and highly liquid investments
with original maturities of less than three months.
Notes to the consolidated financial statements for the year ended December 31, 2018 127
5. FOREIGN CURRENCY TRANSLATION
a) Group companies
The consolidated financial statements are presented in RON, which is OMV Petrom S.A. functional
currency and the Group’s presentation currency. Each entity in OMV Petrom Group determines its own
functional currency, and items included in its individual financial statements are measured using that
functional currency. The functional currency of the foreign operations is generally their local currency
(which for the majority of the Group’s operations is the RON), except for Kazakhstan entities that have
USD as functional currency.
Where the functional currency differs from the Group’s presentation currency, individual financial
statements are translated using the closing rate method. Differences arising between the statement of
financial position items translated at closing and historical rates are presented as a separate item directly
in equity and in consolidated other comprehensive income. The use of average rates for translation of
income statement creates additional differences compared to the application of the closing rates in the
statement of financial position which are also recorded in equity and in consolidated other comprehensive
income. On disposal of a foreign operation, the component of consolidated other comprehensive income
and equity relating to the translation of that particular foreign operation is recognized in the consolidated
income statement.
The rates applied in translating foreign currencies to RON were as follows:
Exchange rates
US dollar (USD)
Euro (EUR)
Moldavian Leu (MDL)
Serbian Dinar (RSD)
Bulgarian Leva (BGN)
Year ended
December 31,
2018 *
Average for the
year ended
December 31, 2018
Year ended
December 31,
2017 *
Average for the
year ended
December 31, 2017
4.0736
4.6639
0.2389
0.0394
2.3847
3.9433
4.6535
0.2347
0.0394
2.3793
3.8915
4.6597
0.2283
0.0394
2.3825
4.0511
4.5681
0.2193
0.0377
2.3357
*) as communicated by National Bank of Romania
b) Transactions and balances
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional
currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency spot rates of exchange at
the reporting date. Differences arising on settlement or translation of monetary items are recognized in
consolidated income statement. Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rates at the dates of the initial transactions.
128 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
6. INTANGIBLE ASSETS
COST
Balance as at January 1, 2018
Exchange differences
Additions *
Transfers (Note 7)
Disposals **
Balance as at December 31, 2018
ACCUMULATED AMORTIZATION AND
IMPAIRMENT
Balance as at January 1, 2018
Exchange differences
Amortization
Impairment
Disposals
Balance as at December 31, 2018
CARRYING AMOUNT
As at January 1, 2018
As at December 31, 2018
Concessions,
licences and other
intangible assets
Oil and gas assets with
unproved reserves
Total
1,345.58
2,861.22
4,206.80
0.10
(4.12)
0.03
(3.17)
1,338.42
-
0.10
548.42
544.30
(0.63)
(0.60)
(121.27)
(124.44)
3,287.74
4,626.16
1,244.69
350.98
1,595.67
0.08
7.69
0.01
(3.03)
1,249.44
100.89
88.98
-
-
0.08
7.69
87.87
87.88
(121.08)
(124.11)
317.77
1,567.21
2,510.24
2,611.13
2,969.97
3,058.95
*) Include the amount of RON (7.43) million reduction in relation to the government grant receivable from the Romanian Ministry of Energy (Note 9), reflected under
category “Concessions, licenses and other intangible assets”;
**) Include the amount of RON 0.16 million representing decrease from the reassessment of decommissioning asset for exploration wells (under category "Oil and gas
assets with unproved reserves").
Oil and gas assets with unproved reserves include mainly investments in Neptun Perimeter from Black Sea.
Notes to the consolidated financial statements for the year ended December 31, 2018 129
7. PROPERTY, PLANT AND EQUIPMENT
Oil and
gas assets
Plant and
machinery
Land, land rights
and buildings,
incl. buildings
on third-party
property
Assets
under
construction
Other
fixtures
and fittings,
tools and
equipment
Total
COST
Balance as at January 1, 2018
4,665.11
40,405.99
10,142.35
1,164.08
697.98
57,075.51
Exchange differences
8.75
163.90
24.71
(12.74)
(0.84)
183.78
Additions **
Transfers *
Transfers to assets held for sale
74.26
2,629.01
28.30
(59.54)
(0.46)
(234.03)
418.10
296.81
(3.08)
26.28
32.44
(0.51)
642.26
3,789.91
(297.41)
0.60
(0.07)
(238.15)
Disposals ***
(49.70)
(1,728.52)
(300.05)
(15.04)
(46.78)
(2,140.09)
Balance as at December 31, 2018
4,726.26
41,176.81
10,578.84
1,194.51
995.14
58,671.56
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
Balance as at January 1, 2018
2,016.53
21,114.78
5,857.63
Exchange differences
Depreciation
Impairment
Transfers *
Transfers to assets held for sale
Disposals
Write-ups
7.58
146.25
23.46
186.17
1,942.32
678.12
4.80
0.66
315.85
(0.08)
(0.10)
(109.49)
4.52
(0.61)
(0.51)
(22.66)
(462.12)
(292.67)
(1.31)
(422.03)
(8.53)
886.83
(13.67)
65.07
0.97
0.03
(0.14)
(14.77)
(0.95)
56.24
29,932.01
(1.80)
161.82
-
2,871.68
11.87
338.01
-
-
(45.65)
(0.12)
0.00
(110.24)
(837.87)
(432.94)
Balance as at December 31, 2018
2,191.67
22,525.48
6,261.41
923.37
20.54
31,922.47
CARRYING AMOUNT
As at January 1, 2018
2,648.58
19,291.21
4,284.72
As at December 31, 2018
2,534.59
18,651.33
4,317.43
277.25
271.14
641.74
27,143.50
974.60
26,749.09
*) Net amount represents transfers from intangibles See Note 6;
**) Include the amount of RON 7.27 million representing additions through finance lease, mainly for equipment used for production of electricity, and were reduced
by the amount of RON 96.00 million in relation to the grant receivable from the Romanian Ministry of Energy (Note 9), reflected under the categories “Land, land
rights and buildings, incl. buildings on third-party property” (RON 1.33 million), “Plant and machinery” (RON 94.21 million), and “Other fixtures and fittings, tools and
equipment” (RON 0.46 million);
***) Includes the amount of RON 1,267.57 million representing decrease from reassessment of the decommissioning asset.
Property, plant and equipment include fixed assets acquired through finance lease with a net carrying
amount of RON 182.18 million as at December 31, 2018 (2017: RON 220.70 million).
Expenditure capitalized in the course of construction of tangible and intangible assets is RON 484.00
million (2017: RON 450.00 million).
For details on impairments see Note 23.
130 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
8. INVESTMENTS IN ASSOCIATED COMPANIES
As at December 31, 2018 and December 31, 2017 OMV Petrom Group had one associated company:
OMV Petrom Global Solutions S.R.L. with a shareholding of 25% and principal place of business in
Romania.
The associate is not material to the Group. The table below summarizes financial information for the
Group’s interest in associate (aggregated):
Carrying amount of interests in individually immaterial associates
Group’s share of:
- profit from continuing operations (Note 21)
- other comprehensive income
- dividends during the year
Total comprehensive income
2018
58.29
9.51
0.08
(0.92)
8.67
2017
49.62
8.36
(0.21)
(2.22)
5.93
Carrying amount reconciliation for immaterial associates is as follows:
Balance as at January 1, 2018
Additions
Share of total comprehensive income of associates (see above)
Disposals
Balance as at December 31, 2018
Associated companies
49.62
-
8.67
-
58.29
Notes to the consolidated financial statements for the year ended December 31, 2018 131
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS
a) Trade receivables are amounting to RON 1,674.23 million as at December 2018 (2017: RON
1,513.03 million).
The credit quality of trade receivables is presented in the table below:
Trade receivables
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
Expected credit
loss rate
Gross carrying
amount
Expected credit
loss
0.08%
0.25%
1.25%
10.33%
100.00%
265.79
439.00
893.76
76.41
242.47
1,917.43
0.11
0.14
5.51
1.11
236.33
243.20
The reconciliation of the ending impairment as at December 31, 2017, in accordance with IAS 39, to
the opening impairment as at January 1, 2018 determined in accordance with IFRS 9, as well as the
movements in impairment for trade receivables during the year are as follows:
January 1, 2018, under IAS 39
Adjustment on initial application of IFRS 9
January 1, 2018, under IFRS 9
Amounts written off
Net remeasurement of expected credit losses
Foreign exchange rate differences
December 31, 2018
Trade receivables
251.63
0.62
252.25
(7.01)
(1.58)
(0.46)
243.20
132 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS (continued)
b) Other financial assets (net of impairment)
Expenditure recoverable from Romanian State
Derivatives financial assets
Investments
Other financial assets
Total
Expenditure recoverable from Romanian State
Derivatives financial assets
Investments
Other financial assets
Total
December 31, 2018 less than 1 year
over 1 year
Liquidity term
1,760.83
50.79
0.67
548.12
2,360.41
-
1,760.83
50.24
-
144.95
195.19
0.55
0.67
403.17
2,165.22
Liquidity term
December 31, 2017 less than 1 year
over 1 year
2,020.83
7.86
1.84
530.58
2,561.11
-
7.86
-
236.10
243.96
2,020.83
-
1.84
294.48
2,317.15
Expenditure recoverable from Romanian State
As part of the privatization agreement, OMV Petrom S.A. is entitled to reimbursement by the Romanian
State of part of decommissioning and environmental costs incurred to restore and clean up areas
pertaining to activities prior to privatization in 2004. Consequently, OMV Petrom S.A. has recorded
as receivable from the Romanian State the estimated decommissioning obligations having a net
present value of RON 1,589.95 million as at December 31, 2018 (2017: RON 1,815.35 million) and the
environmental liabilities in Downstream Oil and Upstream with net present value of RON 170.88 million
(2017: RON 205.48 million), as these were existing prior to privatization of OMV Petrom S.A.
On 7 March 2017, OMV AG, as party in the privatization agreement, initiated arbitration proceedings
against the Romanian State, in accordance with the International Chamber of Commerce Rules, in
Paris, France regarding certain notices of claims unpaid by the Romanian State in relation to well
decommissioning and environmental restoration obligations amounting to RON 153.32 million. On 6
October 2017, a request to supplement the current arbitration with additional notices of claims in relation
to well decommissioning and environmental restoration obligations amounting to RON 134.34 million was
submitted to International Chamber of Commerce, in Paris, France. At the beginning of July 2018, the
Arbitral Tribunal decided that the supplementary claims submitted are admissible.
Notes to the consolidated financial statements for the year ended December 31, 2018 133
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS (continued)
Investments
The position “Investments” comprises all the investments in companies that were not consolidated, as
the Group neither has control nor significant influence over their operations, or they were considered
immaterial for the Group.
Other financial assets
On 14 September 2016, OMV Petrom signed a financing contract with the Romanian Ministry of Energy
for the first tranches of the government grant to be received for Brazi power plant investment, recorded
as other financial assets against reduction of cost of fixed assets.
On 29 September 2017 and 20 July 2018, OMV Petrom signed addendums to the financing contract
for an increase of the second tranche, respectively of the third tranche of the government grant to
be received for Brazi power plant investment. As a consequence, during 2018 the amount of RON
103.43 million was recorded as other financial assets against reduction of cost of fixed assets (Notes
6 and 7) (2017: RON 81.01 million). As of December 31, 2018 the present value of the financial asset
representing government grant to be received for Brazi power plant investment was in amount of RON
339.89 million (2017: RON 262.71 million).
As of December 31, 2018, OMV Petrom also has in balance a financial asset recognized in relation to
insurance indemnities in Power business division in amount of RON 77.27 million (2017: RON 97.61
million).
Credit quality other financial assets at amortized cost – gross carrying amount:
Expected
credit
loss rate
0.08%
0.25%
1.25%
10.33%
100.00%
12-month
ECL
Lifetime ECL
not credit
impaired
Lifetime
ECL credit
impaired
Total
127.85
2,171.92
11.77
1.86
-
2,313.40
-
-
-
-
-
-
-
127.85
70.61
2,242.53
-
-
543.53
11.77
1.86
543.53
614.14
2,927.54
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
“12-month ECL” included an amount of RON 1,763.95 million and “Lifetime ECL credit impaired”
included an amount of RON 70.61 million, related to expenditure recoverable from the Romanian State.
134 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS (continued)
Credit quality other financial assets at amortized cost – expected credit loss:
Expected
credit
loss rate
0.08%
0.25%
1.25%
10.33%
100.00%
12-month
ECL
Lifetime ECL
not credit
impaired
Lifetime
ECL credit
impaired
-
3.58
0.78
0.09
-
4.45
-
-
-
-
-
-
-
70.61
-
-
543.53
614.14
Total
-
74.19
0.78
0.09
543.53
618.59
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
“12-month ECL” included an amount of RON 3.12 million and “Lifetime ECL credit impaired” included an
amount of RON 70.61 million, related to expenditure recoverable from the Romanian State.
The movements in impairment for other financial assets at amortized cost were as follows:
12-month
ECL
Lifetime ECL not
credit impaired
Lifetime ECL
credit impaired
Total
January 1, 2018, per IAS 39
Adjustment on initial application of
IFRS 9 (see Note 4.1)
January 1, 2018, per IFRS 9
Amounts written off
Net remeasurement of expected
credit losses
Foreign exchange rate differences
December 31, 2018
0.51
4.38
4.89
0.03
(0.42)
(0.05)
4.45
-
-
-
-
-
-
-
589.85
590.36
-
4.38
589.85
594.74
(12.68)
(12.65)
36.97
-
36.55
(0.05)
614.14
618.59
“12-month ECL” included an amount of RON 3.12 million and “Lifetime ECL credit impaired” included an
amount of RON 70.61 million, related to expenditure recoverable from the Romanian State
Notes to the consolidated financial statements for the year ended December 31, 2018 135
10. OTHER ASSETS
The carrying value of other assets was as follows:
Receivable from taxes
Advance payments on fixed assets
Prepaid expenses and deferred charges
Rental and lease prepayments
Other assets
Total
Receivable from taxes
Advance payments on fixed assets
Prepaid expenses and deferred charges
Rental and lease prepayments
Other assets
Total
December 31, 2018 less than 1 year
over 1 year
Liquidity term
292.16
50.28
59.94
31.15
126.72
560.25
225.67
50.28
58.91
14.56
126.72
476.14
66.49
-
1.03
16.59
-
84.11
December 31, 2017 less than 1 year
over 1 year
Liquidity term
220.20
107.65
51.77
29.16
158.99
567.77
169.40
107.65
44.35
27.44
158.99
507.83
50.80
-
7.42
1.72
-
59.94
11. INVENTORIES
Crude oil
Natural gas
Other materials
Work in progress
Finished products
Total
December 31, 2018
December 31, 2017
425.08
90.97
219.73
142.55
1,273.21
2,151.54
331.49
86.63
225.14
103.63
1,335.91
2,082.80
The cost of materials and goods consumed during 2018 (whether used in production or re-sold) is of
RON 8,543.96 million (2017: RON 7,088.83 million).
As at December 31, 2018 and 2017 there are no inventories pledged as security for liabilities.
136 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
12. ASSETS HELD FOR SALE
Land and buildings
Plant and equipment
Assets held for sale
Provisions
Liabilities associated with assets held for sale
December 31, 2018
December 31, 2017
1.04
127.91
128.95
103.06
103.06
5.43
-
5.43
-
-
As at December 31, 2018, most of the assets and liabilities held for sale referred to Upstream segment in
relation to 9 marginal onshore fields reclassified as assets and liabilities held for sale following the signing
of a transfer agreement by OMV Petrom S.A. with Mazarine Energy Romania S.R.L. in September 2018.
The transfer of these fields became effective as of March 1, 2019.
Notes to the consolidated financial statements for the year ended December 31, 2018 137
13. STOCKHOLDERS’ EQUITY
Share capital
The share capital of OMV Petrom S.A. consists of 56,644,108,335 fully paid shares as at December 31,
2018 and December 31, 2017 with a total nominal value of RON 5,664.41 million.
Revenue reserves
Revenue reserves include retained earnings, as well as other non-distributable reserves (legal and
geological quota facility reserves, other reserves from fiscal facilities).
Geological quota included in revenue reserves is amounting to RON 5,062.84 million as at December
31, 2018 and 2017. Until December 31, 2006, OMV Petrom S.A. benefited from geological quota facility
whereby it could charge up to 35% of the market value of the volume of oil and gas extracted during the
year. This facility was recognized directly in reserves. This quota was restricted to investment purposes
and is not distributable. The quota was non-taxable.
Legal reserves included in revenue reserves are amounting to RON 1,132.88 million as at December 31,
2018 and 2017. OMV Petrom S.A. sets its legal reserve in accordance with the provisions of the Romanian
Companies Law, which requires that minimum 5% of the annual accounting profit before tax is transferred
to “legal reserve” until the balance of this reserve reaches 20% of the share capital of the Company.
Other reserves from fiscal facilities are amounting to RON 422.92 million (2017: RON 387.07 million). The
amount of RON 35.85 million was allocated to other reserves, representing fiscal facilities from reinvested
profit in the year 2018 (2017: RON 72.09 million).
At the Annual General Meeting of Shareholders held on April 26, 2018, the shareholders of OMV Petrom
S.A. approved the distribution of gross dividends in amount of RON 0.020 per share.
On March 14, 2019, the Supervisory Board endorsed the management’s proposal to distribute gross
dividends of RON 0.027 per share. The dividend proposal is subject to further approval by the Ordinary
General Meeting of Shareholders, on April 19, 2019.
Other reserves
Other reserves contain mainly reserves from business combinations in stages, land for which land
ownership certificates were obtained but was not yet included in share capital and exchange differences
on loans considered net investment in a foreign operation.
Cash flow hedging reserve
In order to protect the Group’s result and cash flows against commodity price volatility, OMV Petrom
Group uses derivative instruments for both hedging selected product sales and reducing exposure to price
risks on inventory fluctuations. Crude oil and product swaps are used to hedge the refining margin (crack
spread) which is the difference between crude oil prices and product prices.
138 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
13. STOCKHOLDERS’ EQUITY (continued)
Certain financial instruments were accounted as cash flow hedges, with the effective part of the change in
value of the derivative being accounted for in consolidated other comprehensive income. The cumulative
unrealized gain recognized in consolidated other comprehensive income, net of tax, is in amount of RON
4.22 mn as at December 31, 2018 (2017: nil). When the hedged item (underlying transaction) affects profit
and loss, the amounts previously accounted for in consolidated other comprehensive income are recycled
to profit and loss.
As at December 31, 2017, the Group had no hedging relationships for which hedge accounting was
applied.
Notes to the consolidated financial statements for the year ended December 31, 2018 139
14. PROVISIONS
January 1, 2018
thereof short-term
thereof long-term
Exchange differences
Liabilities associated with assets held
for sale
Used
Allocations/(releases)
December 31, 2018
thereof short-term
thereof long-term
Pensions
and similar
obligations
224.84
-
224.84
-
-
(10.80)
(2.66)
211.38
-
211.38
Decommissioning
and restoration
Other
provisions
Total
7,701.81
427.00
7,274.81
5.27
751.57
8,678.22
477.33
904.33
274.24
7,773.89
1.85
7.12
(103.06)
(155.82)
-
(103.06)
(167.25)
(333.87)
(1,209.57)
48.71
(1,163.52)
6,238.63
245.68
5,992.95
634.88
7,084.89
444.61
690.29
190.27
6,394.60
Provisions for pensions and similar obligations
Employees of several Group companies are entitled to receive severance payments upon termination of
employment or on reaching normal retirement age. The entitlements depend on years of service and final
compensation levels. Provisions have been set up based on actuarial calculations performed by qualified
actuaries using the following parameters: a discount rate of 4.75% (2017: 4.10%) and an estimated
average yearly salary increase of 2.61% (2017: 3.15%).
Provisions for decommissioning and restoration
Changes in provisions for decommissioning and restoration are shown in the table below. In the event
of subsequent changes in estimated restoration costs only the effect of the change in present value is
recognized in the period concerned. If the value increases, the increase is depreciated over the remaining
useful life of the asset, and if it decreases, the decrease is deducted from capitalized asset value or
recognized in the consolidated income statement, if it exceeds the carrying amount of the related asset.
Net discount rates applied for calculating of decommissioning and restoration costs are between 0.66%
and 2.11% (2017: between 0.00% and 2.25%).
The provision for decommissioning and restoration costs includes mainly obligations in respect of OMV
Petrom S.A. amounting to RON 6,113.40 million (2017: RON 7,555.77 million). There is a corresponding
receivable from the Romanian State, which is disclosed under “Other financial assets” (Note 9b).
Revisions in estimates for decommissioning and restoration provisions arise from the yearly reassessment
of the unit cost, the number of wells and other applicable items, as well as the expected timing of the
decommissioning and restoration and revision of estimated net discount rates.
140 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
14. PROVISIONS (continued)
Details on the Decommissioning and restoration obligations are as follows:
January 1
Exchange differences
Revisions in estimates
Unwinding effect
Used in current year
Transfer to liabilities associated with assets held for sale
December 31
2018
7,701.81
5.27
(1,533.30)
323.73
(155.82)
(103.06)
6,238.63
2017
8,271.45
(13.48)
(654.65)
276.33
(175.42)
(2.42)
7,701.81
The revisions in estimates impact the assets subject to decommissioning, the consolidated income
statement or the related receivable from State. The unwinding effect is included in the consolidated
income statement under the interest expenses line (Note 24) net of the unwinding effect on the related
receivable from State. The effect of changes in net discount rate or timing of the receivable from State
(which are additional to the changes in net discount rate or timing of the decommissioning costs) is
included in the consolidated income statement under interest expenses or interest income.
Impact from revision in estimates in 2018 was generated mainly by the increase of net discount rates and
lower estimated average unit costs for onshore wells and facilities in Romania.
Impact from revision in estimates in 2017 was generated mainly by the increase of net discount rates.
Notes to the consolidated financial statements for the year ended December 31, 2018 141
14. PROVISIONS (continued)
Other provisions were as follows:
December 31, 2018
Environmental provision
Other personnel provisions
Provisions for litigations
Other
Total
December 31, 2017
Environmental provision
Other personnel provisions
Provisions for litigations
Other
Total
Total
less than 1 year
over 1 year
223.03
98.47
83.53
229.85
634.88
111.63
95.47
7.87
229.64
444.61
111.40
3.00
75.66
0.21
190.27
Total
less than 1 year
over 1 year
276.86
91.88
138.88
243.95
751.57
133.80
86.40
13.41
243.72
477.33
143.06
5.48
125.47
0.23
274.24
Environmental provisions
The environmental provisions were estimated by the management based on the list of environment related
projects that must be completed by OMV Petrom Group. Provisions recorded as at December 31, 2018
and 2017 represent the best estimate of the Group’s experts for environmental matters. Environmental
provisions are mainly computed using a discount rate of 4.74% (2017: 4.10%).
OMV Petrom S.A. recorded certain environmental liabilities against receivable from the Romanian State
in Downstream Oil, as these obligations existed prior to privatization (as further explained in Note 9b
“Expenditure recoverable from Romanian State”).
Provisions for litigations
OMV Petrom Group monitors all litigations instigated against it and assesses the likelihood of losses and
the related costs using in house lawyers and external legal advisors. OMV Petrom Group has assessed
the potential liabilities with respect to ongoing cases and recorded its best estimate of likely cash outflows.
Decreases in provisions for litigations derive from favorable outcomes of cases during the period.
Emissions certificates
Directive 2003/87/EC of the European Parliament and of the European Council established a greenhouse
gas emissions trading scheme, requiring member states to draw up national plans to allocate emissions
certificates. Romania was admitted to the scheme in January 2007, when it joined the EU.
142 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
14. PROVISIONS (continued)
The only company from the Group included in this scheme is OMV Petrom S.A. Under this scheme
OMV Petrom S.A. is entitled to an allocation of 1,355,624 emission certificates for the year 2018 (2017:
1,699,556 emission certificates). During 2018 the Company received 1,685,836 emission certificates, out
of which 990,637 emission certificates representing the 2017 entitlement according to article 10c) of the
Directive and 695,199 emission certificates from 2018 entitlement according to article 10a) of the Directive.
During 2018 the Group had net other purchases of 377,791 emissions certificates (2017: other purchases
of 144,063 emissions certificates).
A shortfall in emission certificates would be provided for. Until December 31, 2018, the Group was not
short of certificates.
Notes to the consolidated financial statements for the year ended December 31, 2018 143
15. INTEREST-BEARING DEBTS
As at December 31, 2018 and December 31, 2017 OMV Petrom Group had the following loans:
Borrower
Lender
Interest-bearing debts short-term
OMV Petrom S.A.
European Bank for Reconstruction and Development (a)
OMV Petrom S.A.
European Investment Bank (b)
OMV Petrom S.A. OMV Petrom Global Solutions S.R.L. (c)
Accrued interest
Prepayments in relation with loan amounts drawn
Total interest bearing debts short-term
Borrower
Lender
Interest-bearing debts long-term
OMV Petrom S.A.
European Bank for Reconstruction and Development (a)
OMV Petrom S.A.
European Investment Bank (b)
Prepayments in relation with loan amounts drawn
Total interest-bearing debts long-term
thereof maturing after more than 1 year but not later than 5 years
thereof maturing after 5 years
Total interest-bearing debts
December
31, 2018
December
31, 2017
-
88.84
176.25
2.41
(0.07)
267.43
98.79
88.76
137.70
4.83
(1.46)
328.62
December
31, 2018
December
31, 2017
-
282.05
(0.18)
281.87
281.87
-
549.30
191.05
370.56
(2.93)
558.68
543.15
15.53
887.30
(a) For the construction of Brazi Power Plant, OMV Petrom S.A. concluded an unsecured corporate
loan agreement with European Bank for Reconstruction and Development for a maximum amount
of EUR 200.00 million. The agreement was signed on May 8, 2009 and the final maturity date being
November 10, 2020. The loan was fully repaid on May 10, 2018 and the contract was closed (2017:
RON 289.84 million, equivalent of EUR 62.20 million),
(b) For the construction of the Brazi Power Plant, OMV Petrom S.A. also concluded an unsecured loan
agreement for an amount of EUR 200.00 million with European Investment Bank. The agreement was
signed on May 8, 2009 and the final maturity date is June 15, 2023. The outstanding amount as at
December 31, 2018 was RON 370.89 million (equivalent of EUR 79.52 million) (2017: RON 459.32
million, equivalent of EUR 98.57 million).
(c) A cash pooling agreement with maturity on April 19, 2019, renewable each year, was signed between
144 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
15. INTEREST-BEARING DEBTS (continued)
OMV Petrom S.A. and OMV Petrom Global Solutions S.R.L. on April 25, 2014. The aggregated
amount of the loan is RON 220.00 million (2017: RON 180.00 million), usable in RON or any other
currency EUR, USD and GBP. Amount drawn by the Group as at December 31, 2018 was RON
176.25 million (2017: RON 137.70 million).
The OMV Petrom Group’s companies have several credit facilities signed as at December 31, 2018 as
follows:
(d) An unsecured credit facility granted by Raiffeisen Bank S.A. up to EUR 55.00 million consisting in two
subfacilities: subfacility A with maturity date prolonged to December 31, 2019 (for an amount of EUR
35.00 million) and subfacility B with maturity date prolonged to December 31, 2022 (for an amount of
EUR 20.00 million). Subfacility A can be used only in RON and only by OMV Petrom S.A. as overdraft
credit line. Subfacility B can be used in EUR, USD or RON by OMV Petrom S.A., OMV Petrom
Marketing S.R.L. and OMV Petrom Gas S.R.L. (up to the limit of EUR 20.00 million); and by OMV
Petrom Aviation S.A (up to the maximum limit of EUR 10.00 million) only for the issuance of letters of
credit and/or issuance of letters of bank guarantee. The cash portion of the credit facility was not used
as at December 31, 2018 and 2017.
(e) An unsecured Banks Consortium revolving facility amounting to EUR 1,000.00 million was contracted
by OMV Petrom SA on May 20, 2015 with 5 years maturity and with the possibility of extension for
another 2 years. Second maturity extension was done in March 2017, the final maturity being May 20,
2022. The revolving credit facility was cancelled voluntarily on November 22, 2018 (2017: no drawing
from this facility). The Banks Consortium included BRD - Groupe Société Générale S.A.; UniCredit
Bank Austria AG; UniCredit Tiriac Bank S.A. (Romania); ING Bank N.V. Amsterdam, Bucharest
Branch; Erste Group Bank AG; Banca Comerciala Romana S.A.; Intesa Sanpaolo S.p.A., Frankfurt
Branch; Banca Comerciala Intesa Sanpaolo Romania S.A.; Mizuho Bank Europe N.V. (formerly
known as Mizuho Bank Nederland N.V. and Mizuho Corporate Bank Nederland N.V.); Raiffeisen
Bank International AG; Raiffeisen Bank S.A.; BNP Paribas SA Paris - Bucharest Branch (transfer
from BNP Paribas Fortis S.A./N.V. Bruxelles - Bucharest Branch); Commerzbank Aktiengesellschaft,
Filiale Luxemburg; MUFG Bank (Europe) N.V. (formerly known as Bank of Tokyo - Mitsubishi UFJ
(Holland) N.V.); Citibank Europe Plc; Citibank Europe Plc, Dublin-Romania Branch; Deutsche Bank
Luxembourg S.A.; CA Indosuez Wealth (Europe) (former Crédit Agricole Luxembourg S.A.); Barclays
Bank Plc; Garanti Bank S.A.; OTP Bank Romania S.A.; KDB Bank Europe Ltd.
(f) An unsecured facility contracted by OMV Petrom S.A. from ING Bank N.V., that can be used in USD,
RON or EUR, up to the maximum amount of EUR 50.00 million (equivalent of RON 233.20 million), for
issuance of letters of bank guarantee and as overdraft for working capital financing. The maturity of the
credit facility was prolonged until November 20, 2022. No drawings under the overdraft were made as
at December 31, 2018 and 2017.
(g) An uncommitted and unsecured credit facility contracted by OMV Petrom S.A. from BRD – Groupe
Notes to the consolidated financial statements for the year ended December 31, 2018 145
15. INTEREST-BEARING DEBTS (continued)
Société Générale S.A. with maximum limit of EUR 90.00 million (equivalent of RON 419.75 million)
that can be used in RON, with maturity date prolonged until April 30, 2019. The facility is designated to
finance OMV Petrom’s current activity and for issuance of bank guarantees, opening letters of credit
and similar. The cash portion of the credit facility was not used as at December 31, 2018 and 2017.
(h) A committed and unsecured credit facility contracted by OMV Petrom S.A. from Banca Comerciala
Romana S.A., that can be used in USD, EUR or RON, up to a maximum amount of EUR 200.00
million (equivalent of RON 932.78 million), for issuance of letters of bank guarantee and similar and
as overdraft for working capital financing. As at December 31, 2018, the maturity for letters of bank
guarantee and similar was January 13, 2020 and for overdraft the maturity was January 11, 2019. In
January 2019, the maturity for letters of bank guarantees and similar was prolonged to January 13,
2022 and for overdraft the maturity was prolonged to January 11, 2021, with the possibility to further
extend the maturity for additional successive periods, final maturity being January 13, 2024. The cash
portion of the credit facility was not used as at December 31, 2018 and 2017.
(i) An unsecured facility contracted by OMV Serbija from Raiffeisen Banka a.d. Belgrad, with a maximum
limit of RSD 600.00 million (equivalent of RON 23.64 million) and maturity date until March 30, 2020.
The destination of the facility is for general corporate purposes financing. No drawings were made
under the overdraft facility as at December 31, 2018 and 2017.
(j) A credit facility contracted on October 02, 2014 by Tasbulat Oil Corporation LLP and Kom-Munai LLP
as Borrowers from JSK Citibank Kazakhstan, accessible to both companies up to the maximum limit
of USD 15.00 million (equivalent of RON 61.10 million) and maturity date prolonged to July 31, 2019
with extension possibility for successive periods of 12 (twelve) months, but for no more than a total 5
(five) years from the date of the agreement i.e. until October 02, 2019. The purpose of the facility is for
general corporate needs, working capital financing, letters of credit and letters of bank guarantee. The
credit facility was not used as at December 31, 2018 and 2017.
(k) An unsecured facility contracted by OMV Bulgaria OOD from Raiffeisenbank Bulgaria EAD, with a
maximum limit of BGN 24.50 million (equivalent of RON 58.43 million) and maturity date January
30, 2024 and adjusted up to a maximum limit of BGN 19.75 million. The destination of the facility
is financing current operational activities and issuance of letters of bank guarantee. There were no
drawings under the overdraft facility as at December 31, 2018 and 2017.
OMV Petrom Group’s companies have signed also facilities with several banks for issuing letters of bank
guarantee and letters of credit, as follows:
(l) An unsecured facility agreement was signed by OMV Petrom S.A. with BNP Paribas Fortis Bank
S.A./N.V. – Bucharest branch – for up to EUR 30.00 million (equivalent of RON 139.92 million), to be
utilized only for issuance of letters of bank guarantee and letters of credit, with maturity date prolonged
to March 27, 2019. Maturity is subject to possibility of further automatic extensions for successive
periods of 12 (twelve) months, but not longer than March 27, 2022.
146 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
15. INTEREST-BEARING DEBTS (continued)
(m) An unsecured credit facility received by OMV Petrom S.A. from Banca Transilvania S.A. (former
Bancpost S.A.), up to EUR 25.00 million (equivalent of RON 116.60 million), to be utilized only for
issuance of letters of bank guarantee, with maturity extended until March 31, 2020.
(n) A frame facility contracted by OMV Serbija from Raiffeisen Banka a.d. Belgrad, with a maximum limit
of EUR 2.00 million (equivalent of RON 9.33 million) and maturity date until March 31, 2023. The
destination of the facility is the issuance of letters of bank guarantee and letters of credit.
As at December 31, 2018, OMV Petrom Group is in compliance with all financial covenants stipulated by
the loan agreements.
Please refer also to Note 36 for details regarding interest rate risks of interest-bearing debt.
Notes to the consolidated financial statements for the year ended December 31, 2018 147
16. OTHER FINANCIAL LIABILITIES
Finance lease liabilities
Derivatives financial liabilities
Financial liabilities in connection with joint operations
Other financial liabilities
Total
Finance lease liabilities
Derivatives financial liabilities
Financial liabilities in connection with joint operations
Other financial liabilities
Total
December 31, 2018
less than 1 year over 1 year
169.44
163.53
3.12
207.88
543.97
36.64
132.80
163.53
3.12
185.05
388.34
-
-
22.83
155.63
December 31, 2017
less than 1 year over 1 year
194.60
56.96
38.18
242.02
531.76
42.24
56.96
38.18
233.87
371.25
152.36
-
-
8.15
160.51
Finance lease liabilities
As of December 31, 2018, OMV Petrom Group had finance leases mainly in relation with equipment for
production of electricity (Upstream segment) and a hydrogen and medium pressure steam production
plant for Petrobrazi Refinery in OMV Petrom (Downstream Oil segment).
For the hydrogen and medium pressure steam production plant (acquired in 2013) the lease period is
15 years and the total future minimum lease payments amounts to RON 126.62 million (2017: RON
138.45 million).
148 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
16. OTHER FINANCIAL LIABILITIES (continued)
A breakdown of present value of finance lease liabilities is presented below.
Obligations under finance leases
Amounts due within 1 year
Amounts due after more than 1 year but not later than 5 years
Amounts due after 5 years
Total lease obligations
Less future finance charges on finance leases
Present value of finance lease liabilities
Analyzed as follows:
Maturing within 1 year
Maturing after more than 1 year but not later than 5 years
Maturing after 5 years
December 31, 2018 December 31, 2017
42.94
79.68
102.49
225.11
(55.67)
169.44
36.64
60.60
72.20
49.68
92.56
114.75
256.99
(62.39)
194.60
42.24
71.36
81.00
Maturity profile of financial liabilities
The table below summarizes the maturity profile of the Group’s financial liabilities based on contractual
undiscounted cash flows (i.e. also including future finance charges):
< 1 year
1-5 years
> 5 years
Total
December 31, 2018
Interest-bearing debts
Trade payables
Other financial liabilities
Total
December 31, 2017
Interest-bearing debts
Trade payables
Other financial liabilities
Total
271.23
290.30
3,049.66
394.64
3,715.53
-
100.57
390.87
-
-
104.43
104.43
< 1 year
1-5 years
> 5 years
561.53
3,049.66
599.64
4,210.83
Total
917.72
338.58
2,805.44
378.69
3,522.71
563.51
15.63
-
100.67
664.18
-
2,805.44
114.79
130.42
594.15
4,317.31
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier,
or at significantly different amounts.
Notes to the consolidated financial statements for the year ended December 31, 2018 149
17. OTHER LIABILITIES
Tax liabilities
Deferred income
Social security
Contract liabilities
Other liabilities
Total
Tax liabilities
Deferred income
Social security
Other liabilities
Total
December 31, 2018 less than 1 year
over 1 year
551.11
25.04
46.08
138.86
75.11
836.20
551.11
10.20
46.08
138.86
75.11
821.36
-
14.84
-
-
-
14.84
December 31, 2017
less than 1 year
over 1 year
381.94
130.09
69.91
72.40
654.34
381.94
114.01
69.91
72.40
638.26
-
16.08
-
-
16.08
Contract liabilities
Contract liabilities include mainly contract liabilities recognized for vouchers sold to customers in
the retail business and advance payments received from customers for future deliveries of goods or
services.
The changes in contract liabilities during the year were as follows:
January 1
Revenue recognized that was included in the contract liability balance at
the beginning of the period
Increases due to cash received, excluding amounts recognized as revenue
during the period
December 31
Year 2018
135.87
(132.12)
135.11
138.86
150 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
18. DEFERRED TAX
December 31, 2018
Deferred tax assets
before allowances
Allowances Net deferred
tax assets
Deferred tax
liabilities
Tangible and intangible assets
Inventories
Receivables and other assets
Provisions for pensions and severance
payments
Other provisions
Liabilities
Tax loss carried forward
Total
Netting (same tax jurisdiction/country)
Total deferred tax, net
445.06
25.69
181.11
41.68
826.01
14.39
0.74
(20.58)
(0.26)
(40.10)
-
(15.31)
(1.90)
-
424.48
25.43
141.01
41.68
810.70
12.49
0.74
1,534.68
(78.15)
1,456.53
(23.53)
1,433.00
28.39
-
7.73
7.90
-
-
-
44.02
(23.53)
20.49
31 December 2017
Deferred tax assets
before allowances
Allowances Net deferred
tax assets
Deferred tax
liabilities
Tangible and intangible assets
364.94
(20.24)
344.70
Financial assets
Inventories
Receivables and other assets
Provisions for pensions and severance
payments
Other provisions
Liabilities
Tax loss carried forward
Total
Netting (same tax jurisdiction/country)
Total deferred tax, net
-
27.18
174.32
42.51
1,017.82
20.59
12.80
-
(0.21)
(41.73)
-
(18.62)
(2.37)
-
-
26.97
132.59
42.51
999.20
18.22
12.80
1,660.16
(83.17)
1,576.99
(31.64)
1,545.35
18.91
-
0.04
6.14
6.55
-
-
-
31.64
(31.64)
-
Notes to the consolidated financial statements for the year ended December 31, 2018 151
18. DEFERRED TAX (continued)
As at December 31, 2018, losses carry-forward for tax purposes amounted to RON 128.95 million
(2017: RON 225.94 million). Eligibility of losses for carry-forward expires as follows:
2019
2020
2021
2022
2023 / After 2022
After 2023
Total
2018
-
23.13
23.83
1.14
5.12
75.73
128.95
2017
20.01
19.52
-
12.64
173.77
-
225.94
No deferred tax asset was recognized for part of tax losses carry-forward included in the above table,
in amount of RON 125.26 million (2017: RON 161.96 million).
152 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
19. SALES REVENUES
Revenues
Revenues from contracts with customers
Revenues from other sources
Total sales revenues
2018
22,547.15
(23.91)
22,523.24
Revenues from other sources include mainly the impact from commodity sales transactions that are
within the scope of IFRS 9 Financial Instruments, as well as rental and lease revenues.
In the following table, revenue is disaggregated by products and reportable segments.
Revenues from contracts with customers
Upstream Downstream
thereof
Downstream
Oil
thereof
Downstream
Gas
Corporate
& Other
Total
Crude Oil, NGL, condensates
453.03
75.97
Natural gas, LNG and power
5.29
4,981.06
75.97
10.20
-
4,970.86
Fuels and heating oil
-
13,277.20
13,277.20
-
-
-
-
529.00
4,986.35
13,277.20
Other goods and services
62.81
3,670.09
3,668.04
2.05
21.70
3,754.60
Total
521.13
22,004.32
17,031.41
4,972.91
21.70
22,547.15
Notes to the consolidated financial statements for the year ended December 31, 2018 153
20. OTHER OPERATING INCOME
Exchange gains from operating activities
Gains on disposal of non-current assets
Write-up tangible and intangible assets
Other operating income
Total
December 31, 2018 December 31, 2017
35.98
26.73
432.94
176.45
672.10
69.95
28.19
4.71
260.72
363.57
“Write-up tangible and intangible assets” includes reversal of a previously recognized impairment for a
cash generating unit in Upstream in OMV Petrom SA, in amount of RON 430.40 million.
“Other operating income” includes insurance revenues related to the Brazi gas-fired power plant
booked in 2018, in amount of RON 81.80 million (2017: RON 160.81 million).
21. NET INCOME FROM EQUITY-ACCOUNTED INVESTMENTS
Share of net result of associated companies
Total
December 31, 2018 December 31, 2017
9.51
9.51
8.36
8.36
154 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
22. OTHER OPERATING EXPENSES
Exchange losses from operating activities
Losses on disposal of non-current assets
Net income from provisions for litigations
Other operating expenses
Total
December 31, 2018 December 31, 2017
44.02
19.91
(41.89)
217.37
239.41
39.17
138.14
(166.28)
112.46
123.49
Losses on disposals of non-current assets are lower than in 2017 when 19 marginal fields were
transferred to Mazarine Energy Romania S.R.L., generating a loss of RON 126.68 million (see Note 32 d).
In 2017 the position ”Net income from provision for litigations” included mainly a positive impact from
the partial reversal of a provisions related to litigations with employees, following the outcome of court
decisions.
Other operating expenses include an amount of RON 57.66 million (2017: RON 2.01 million) representing
restructuring expenses.
Notes to the consolidated financial statements for the year ended December 31, 2018 155
23. COST INFORMATION
For the years ended December 31, 2018 and December 31, 2017 the consolidated income statement
includes the following personnel expenses:
Wages and salaries
Other personnel expenses
Total personnel expenses
December 31, 2018
December 31, 2017
1,636.57
163.09
1,799.66
1,711.88
126.65
1,838.53
Included in the above personnel expenses is the amount of RON 33.01 million, representing Group’s
contribution to state pension plan for the year ended December 31, 2018 (2017: RON 234.21 million). In
Romania, following changes in legislation, starting with 2018 the level of Group’s contribution decreased,
while the level of employee contribution increased.
Depreciation, amortization and impairment losses net of write-ups of intangible assets and property, plant
and equipment consisted of:
Depreciation and amortization
Net impairment/ (write-ups) intangible assets and
property, plant and equipment
Total depreciation, amortization and net impairment
December 31, 2018 December 31, 2017
2,879.37
2,921.11
(7.05)
2,872.32
662.72
3,583.83
Net write-ups booked during the year ended December 31, 2018 for intangible assets and property,
plant and equipment were related to Upstream segment write-ups of RON 21.88 million (impact from
reversal of a previously recognized impairment of RON 430.40 million, partially compensated by
impairments, mainly for replaced assets, unsuccessful workovers and exploration assets), impairment
related to Downstream Oil segment in amount of RON 14.20 million, Downstream Gas segment in
amount of RON 0.62 million and Corporate segment in the amount of RON 0.01 million.
Net impairment losses booked during the year ended December 31, 2017 for intangible assets and
property, plant and equipment (including those classified as held for sale) were related to Upstream
segment in amount of RON 529.27 million (including mainly impairments for replaced assets,
unsuccessful workovers and exploration assets in Romania), to Downstream Gas segment in amount
of RON 127.24 million (including mainly impairments in relation to Brazi gas-fired power plant) and to
Downstream Oil segment in amount of RON 6.21 million.
156 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
23. COST INFORMATION (continued)
In the consolidated income statement as at December 31, 2018 the write-ups are included in other
operating income in amount RON 432.94 million (2017: RON 4.71 million) and impairment losses are
included under depreciation, amortization and impairment charges in amount of RON 300.76 million
(2017: RON 424.26 million) and under exploration expenses in amount of RON 125.13 million (2017:
RON 243.17 million). Impairment losses for 2017 included an amount of RON 3.48 million in relation to
assets held for sale, transferred to Mazarine Energy Romania S.R.L.
Rental expenses included in current period consolidated income statement are RON 233.54 million
(2017: RON 210.30 million).
Notes to the consolidated financial statements for the year ended December 31, 2018 157
24. INTEREST INCOME AND INTEREST EXPENSES
Interest income
Interest income from receivables and other
Interest income from short term bank deposits
Unwinding income for other financial assets and
positive effect of changes in discount rate and timing for
State receivable
Total interest income
Interest expenses
Interest expenses
Unwinding expenses for retirement benefits provision
Unwinding expenses for decommissioning provision,
net of the unwinding income for related State receivable
Unwinding and discounting for other items and negative
effect of changes in discount rate and timing for State
receivables
Total interest expenses
Net interest result
December 31, 2018 December 31, 2017
13.70
100.47
48.07
162.24
(59.03)
(9.21)
30.15
19.37
43.18
92.70
(79.62)
(7.26)
(257.48)
(216.60)
(109.88)
(435.60)
(273.36)
(95.28)
(398.76)
(306.06)
25. OTHER FINANCIAL INCOME AND EXPENSES
Financial income
Exchange gains from financing activities
Gains from investments and financial assets
Total financial income
Financial expenses
Exchange losses from financing activities
Losses from financial assets and securities
Other financial expenses
Total financial expenses
Other financial income and expenses
December 31, 2018 December 31, 2017
44.44
0.23
44.67
(37.58)
(1.75)
(31.40)
(70.73)
(26.06)
24.97
1.90
26.87
(56.36)
(0.43)
(30.25)
(87.04)
(60.17)
158 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
26. TAXES ON INCOME
Tax on income - current taxes
Deferred tax revenue/(expense)
Total taxes on income – revenue / (expense)
December 31, 2018 December 31, 2017
(705.37)
(130.41)
(835.78)
(406.72)
(8.09)
(414.81)
The reconciliation of net deferred tax is as follows:
Deferred tax, net January 1
Adjustments on initial application of IFRS 9
Adjusted deferred taxes January 1
Deferred tax, net December 31
Changes in deferred tax
thereof deferred tax (expense)/ revenues
in Other Comprehensive Income
thereof deferred tax revenues in the Income Statement
Reconciliation
Profit before tax
Income tax rate applicable for Parent company
Profit tax expense based on income tax rate of the Parent
Effect of differing foreign tax rates
Profit tax expense based on applicable rates
Tax effect of items that are (non-deductible) / non-taxable
Profit tax expense in the Income Statement
2018
1,545.35
0.07
1,545.42
1,412.51
(132.91)
(2.50)
(130.41)
4,913.57
16.00%
(786.17)
0.34
(785.83)
(49.95)
(835.78)
2017
1,555.79
-
1,555.79
1,545.35
(10.44)
(2.35)
(8.09)
2,904.12
16.00%
(464.66)
6.81
(457.85)
43.04
(414.81)
Notes to the consolidated financial statements for the year ended December 31, 2018 159
27. EARNINGS PER SHARE
Calculation of earnings/ (losses) per share is based on the following data:
Net profit/ (loss) attributable to stockholders of the parent
4,078.10
2,490.81
Weighted average number of shares
Earnings/ (loss) per share in RON
56,643,903,559
56,643,903,559
0.0720
0.0440
December 31, 2018 December 31, 2017
The basic and diluted earnings/ (loss) per share are the same as there are no instruments that have a
dilutive effect on earnings.
28. SEGMENT INFORMATION
OMV Petrom Group is organized into three operating business segments: Upstream (former Exploration
and Production / E&P), Downstream Gas (former Gas and Power / G&P) and Downstream Oil (former
Refining and Marketing / R&M), while management, financing activities and certain service functions are
concentrated in the Corporate & Other segment.
OMV Petrom Group’s involvement in the oil and gas industry, by its nature, exposes it to certain risks.
These include political stability, economic conditions, changes in legislation or fiscal regimes, as well as
other operating risks inherent in the industry such as the high volatility of crude prices and of the US dollar.
A variety of measures are used to manage these risks.
Apart from the integration of OMV Petrom Group’s upstream and downstream operations, and the policy
of maintaining a balanced portfolio of assets in the Upstream segment, the main instruments used are
operational in nature. There is a Group-wide environmental risk reporting system in operation, designed to
identify existing and potential obligations and to enable timely action to be taken. Insurance and taxation
are also dealt with on a Group-wide basis. Regular surveys are undertaken across OMV Petrom Group to
identify current litigation and pending court and administrative proceedings.
Business decisions of fundamental importance are made by the Executive Board of OMV Petrom S.A. The
business segments are independently managed, as each represents a strategic unit with different products
and markets.
Upstream activities consist of exploration, development and production of crude oil and natural gas and
are focused on Romania and Kazakhstan. Upstream products consisting of crude oil and natural gas are
sold mainly inside of OMV Petrom Group.
160 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
28. SEGMENT INFORMATION (continued)
Gas business unit, part of Downstream Gas segment, has the objective to focus on gas sales and on
the best use of the potential and opportunities resulting from the market liberalization. Business division
Power, part of Downstream Gas segment, mainly extends the gas value chain into a gas-fired power plant.
Downstream Oil produces and delivers gasoline, diesel and other petroleum products to its customers.
Refining division, part of Downstream Oil segment, operates one Romanian refinery, Petrobrazi.
Marketing division, part of Downstream Oil segment, delivers products to both Retail and Wholesale
customers and operates in Romania, Bulgaria, Serbia and Republic of Moldova. OMV Petrom is the main
player on the Romanian fuels market.
The key figure of operating performance for OMV Petrom Group is Operating result. In compiling the
segment results, business activities with similar characteristics have been aggregated. Intra-Group sales
and cost allocations by the parent company are determined in accordance with internal group policies.
Management is of the opinion that the transfer prices of goods and services exchanged between segments
correspond to market prices.
Operating segments:
December 31,
2018
Upstream Downstream * Downstream
Gas
Downstream
Oil
Downstream
elimination
Corpo-
rate &
Other
Total Consolida-
tion
Consoli-
dated total
Intersegment
sales
Sales with
third parties
9,214.71
234.86
195.67
132.44
(93.25)
185.00
9,634.57
(9,634.57)
-
527.74
21,958.85
4,883.78
17,075.07
-
36.65
22,523.24
-
22,523.24
Total sales
9,742.45
22,193.71
5,079.45
17,207.51
(93.25)
221.65
32,157.81
(9,634.57)
22,523.24
Operating
result
3,530.52
1,671.74
286.34
1,385.40
-
(105.63)
5,096.63
116.36
5,212.99
Total assets **
22,866.45
6,521.73
1,081.57
5,440.16
-
419.86
29,808.04
-
29,808.04
Additions in
PPE/IA ***
Depreciation
and
amortization
Impairment
losses/ write-
ups (net)
3,234.73
1,098.54
(36.31)
1,134.85
-
0.94
4,334.21
-
4,334.21
2,097.84
759.24
90.66
668.58
-
22.29
2,879.37
-
2,879.37
(21.88)
14.82
0.62
14.20
-
0.01
(7.05)
-
(7.05)
*) Sales Downstream = Sales Downstream Oil + Sales Downstream Gas – intersegmental elimination Downstream Oil and Downstream Gas;
**) Intangible assets (IA), property, plant and equipment (PPE);
***) Additions in Downstream Gas were reduced by the amount of RON 103.43 million in relation to the government grant receivable from the Romanian Ministry of Energy (Note 9).
Notes to the consolidated financial statements for the year ended December 31, 2018 161
28. SEGMENT INFORMATION (continued)
Information about geographical areas:
December 31, 2018
Sales with third parties *
Total assets **
Additions in PPE/IA
Romania
Rest of CEE Rest of world
Consolidated total
19,112.21
28,667.08
4,251.59
3,381.88
704.70
56.52
29.15
436.26
26.10
22,523.24
29,808.04
4,334.21
*) Sales are allocated per countries/regions based on the location where the risks and benefits are transferred to the customer;
**) Intangible assets (IA), property, plant and equipment (PPE).
Sales with third parties made in Rest of CEE (Central Eastern Europe) include sales made in Bulgaria
amounting to RON 1,632.87 million in 2018.
Operating segments:
December 31,
2017
Upstream Downstream * Downstream
Gas
Downstream
Oil
Down-
stream
elimination
Corpo-
rate &
Other
Total Consolida-
tion
Consoli-
dated total
Intersegment
sales
Sales with
third parties
7,758.41
232.98
264.07
80.04
(111.13)
173.29
8,164.68
(8,164.68)
-
458.30
18,943.17
4,472.97
14,470.20
-
33.61
19,435.08
-
19,435.08
Total sales
8,216.71
19,176.15
4,737.04
14,550.24
(111.13)
206.90
27,599.76
(8,164.68)
19,435.08
Operating
result
1,661.34
1,767.65
86.31
1,681.34
-
(76.25)
3,352.74
(82.39)
3,270.35
Total assets **
23,083.23
6,211.02
1,217.29
4,993.73
-
460.38
29,754.63
-
29,754.63
Additions in
PPE/IA ***
Depreciation
and
amortization
Impairment
losses (net)
2,497.70
387.62
(35.79)
423.41
-
1.59
2,886.91
-
2,886.91
2,132.61
765.93
101.33
664.60
529.27
133.45
127.24
6.21
-
-
22.57
2,921.11
-
662.72
-
-
2,921.11
662.72
*) Sales Downstream = Sales Downstream Oil + Sales Downstream Gas – intersegmental elimination Downstream Oil and Downstream Gas;
**) Intangible assets (IA), property, plant and equipment (PPE);
***) Additions in Downstream Gas were reduced by the amount of RON 81.01 million in relation to the government grant receivable from the Romanian Ministry of Energy.
162 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
28. SEGMENT INFORMATION (continued)
Information about geographical areas:
December 31, 2017
Sales with third parties *
Total assets **
Additions in PPE/IA
Romania
Rest of CEE Rest of world
Consolidated total
16,102.96
28,624.69
2,810.82
3,308.16
701.75
42.49
23.96
428.19
33.60
19,435.08
29,754.63
2,886.91
*) Sales are allocated per countries/regions based on the location where the risks and benefits are transferred to the customer;
**) Intangible assets (IA), property, plant and equipment (PPE).
Sales with third parties made in Rest of CEE (Central Eastern Europe) include sales made in Bulgaria
amounting to RON 1,593.88 million in 2017.
29. AVERAGE NUMBER OF EMPLOYEES
Total OMV Petrom Group
13,409
14,210
December 31, 2018 December 31, 2017
thereof:
OMV Petrom S.A.
Subsidiaries
12,498
911
13,322
888
The number of employees was calculated as the average of the month’s end number of employees
during the year.
30. RELATED PARTIES
The terms of the outstanding balances receivable from/payable to related parties are typically 0 to 90 days.
The balances are unsecured and will be settled in cash. There are no significant provisions for doubtful
debts relating to these balances and no significant expense recognized in the consolidated income
statement in respect of bad or doubtful debts. There are no guarantees given or paid to related parties
as at December 31, 2018 and December 31, 2017. Dividends receivable are not included in the below
balances and revenues.
Notes to the consolidated financial statements for the year ended December 31, 2018 163
30. RELATED PARTIES (continued)
During 2018, OMV Petrom Group had the following transactions with related parties (including balances as
of December 31, 2018):
Nature of transaction
Purchases Balances
payable
OMV Petrom S.A. - parent company
OMV Supply & Trading Ltd
Acquisition of petroleum products
1,008.74
141.37
OMV Petrom Global Solutions S.R.L.
Financial, IT and other services
410.80
97.64
OMV Refining & Marketing GmbH
Acquisition of petroleum products,
other materials and services
OMV Gas, Marketing & Trading GmbH
Services and other
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Aktiengesellschaft
OMV Gas & Power GmbH
Delegation of personnel and other
Delegation of personnel and other
OMV Austria Exploration & Production GmbH Various services
OMV International Oil & Gas GmbH
Delegation of personnel and other
OMV Deutschland GmbH
Total OMV Petrom S.A.
Various services
138.08
93.35
80.00
47.35
4.86
2.74
0.37
0.14
33.39
9.00
25.39
29.85
3.65
-
-
0.14
1,786.43
340.43
Nature of transaction
Purchases Balances
payable
OMV Petrom Group subsidiaries
OMV Refining & Marketing GmbH
Acquisition of petroleum products &
services
OMV Petrom Global Solutions S.R.L.
Financial, IT and other services
OMV Hungária Ásványolaj Korlátolt
Felelösségü Társaság
Acquisition of petroleum products
OMV International Services GmbH
Financial services
OMV Gas, Marketing & Trading GmbH
Services and other
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV SLOVENIJA trgovina z nafto in naftnimi
derivati, d.o.o.
Acquisition of petroleum products
OMV Gas & Power GmbH
OMV Aktiengesellschaft
Various services
Delegation of personnel and other
OMV International Oil & Gas GmbH
Delegation of personnel and other
Borealis AG
Total subsidiaries
Total OMV Petrom Group
Various services
107.69
79.09
13.35
5.67
5.09
3.41
1.88
1.38
0.12
0.01
-
17.18
18.41
0.06
69.10
0.43
1.09
-
1.38
0.11
-
0.01
217.69
2,004.12
107.77
448.20
164 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
30. RELATED PARTIES (continued)
Nature of transaction
Revenues
Balances
receivable
OMV Petrom S.A. - parent company
OMV Deutschland GmbH
Sales of propylene
366.73
63.95
OMV Refining & Marketing GmbH
Sales of petroleum products,
delegation of personnel and other
OMV Gas, Marketing & Trading GmbH
Services and other
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Petrom Global Solutions SRL
Various services
OMV Aktiengesellschaft
Delegation of personnel and other
OMV Austria Exploration & Production GmbH
Various services
Trans Gas LPG Services S.R.L.
Energy Production Enhancement S.R.L.
Borealis AG
Various services
Other services
Various services
OMV Supply & Trading Limited
Sales of petroleum products
131.94
93.65
26.28
26.23
10.45
7.09
0.06
0.03
0.03
-
1.85
6.37
4.53
3.87
2.54
7.09
0.01
-
0.01
1.03
Total OMV Petrom S.A.
662.49
91.25
Nature of transaction
Revenues
Balances
receivable
OMV Petrom Group subsidiaries
OMV Petrom Global Solutions S.R.L.
OMV Česká republika, s.r.o.
Various services
Various services
OMV Refining & Marketing GmbH
Delegation of personnel and other
Borealis AG
OMV Offshore Bulgaria GmbH
Trans Gas LPG Services SRL
OMV - International Services GmbH
OMV Aktiengesellschaft
Total subsidiaries
Total OMV Petrom Group
Various services
Various services
Various services
Other services
Delegation of personnel and other
2.00
0.80
0.62
0.11
0.06
0.02
-
(0.07)
3.54
666.03
0.18
0.10
0.09
-
0.01
-
12.53
-
12.91
104.16
Notes to the consolidated financial statements for the year ended December 31, 2018 165
30. RELATED PARTIES (continued)
During 2018, OMV Petrom Group had the following interest income and interest expenses with related
parties (including balances as of December 31, 2018 for interest payable and interest receivable):
OMV Petrom S.A. - parent company
OMV Petrom Global Solutions S.R.L.
Total OMV Petrom S.A.
Total OMV Petrom Group
Interest expense
Balances interest
payable
4.81
4.81
4.81
0.51
0.51
0.51
During 2017, OMV Petrom Group had the following transactions with related parties (including balances as
of December 31, 2017):
Nature of transaction
Purchases
Balances
payable
OMV Petrom S.A. - parent company
OMV Supply & Trading Ltd
Acquisition of petroleum products
1,065.37
OMV Petrom Global Solutions S.R.L.
Financial, IT and other services
364.97
0.97
76.61
46.96
14.99
49.94
6.72
2.24
2.29
0.93
0.00
0.00
104.32
58.55
49.57
22.35
2.28
2.23
1.83
1.62
0.07
1,673.16
201.65
OMV Refining & Marketing GmbH
Acquisition of petroleum products,
other materials and services
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Aktiengesellschaft
Delegation of personnel and other
OMV Gas, Marketing & Trading GmbH *
Services and other
OMV Gas & Power GmbH
Delegation of personnel and other
OMV International Oil & Gas GmbH
Delegation of personnel and other
OMV Austria Exploration & Production GmbH Various services
OMV Petrol Ofisi A.Ș.
OMV Solutions GmbH
Total OMV Petrom S.A.
Acquisition of petroleum products
Various services
*) During 2017 OMV Trading GmbH merged with OMV Gas, Marketing & Trading GmbH.
166 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
30. RELATED PARTIES (continued)
Nature of transaction
Purchases
Balances
payable
OMV Petrom Group subsidiaries
OMV Refining & Marketing GmbH
Acquisition of petroleum products &
services
OMV Petrom Global Solutions S.R.L.
Financial, IT and other services
OMV Hungária Ásványolaj Korlátolt Felelösségü
Társaság
Acquisition of petroleum products
OMV International Services GmbH
EconGas GmbH
Financial services
Acquisition of gas
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Petrol Ofisi A.Ș.
Acquisition of petroleum products
OMV International Oil & Gas GmbH
Delegation of personnel and other
OMV Aktiengesellschaft
Borealis AG
Total subsidiaries
Total OMV Petrom Group
Delegation of personnel and other
Various services
99.72
76.41
12.19
6.00
5.84
2.72
2.29
0.80
0.67
0.18
21.18
15.72
0.70
23.98
0.44
0.36
-
0.09
0.12
0.03
206.82
1,879.98
62.62
264.27
OMV Petrom S.A. - parent company
OMV Supply & Trading Ltd
OMV Deutschland GmbH
OMV Refining & Marketing GmbH
Nature of transaction
Revenues
Balances
receivable
Sales of petroleum products
Sales of propylene
Sales of petroleum products,
delegation of personnel and other
309.73
279.76
-
44.27
133.45
22.58
OMV Petrom Global Solutions S.R.L.
Various services
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Aktiengesellschaft
Delegation of personnel and other
OMV Hungária Ásványolaj Korlátolt Felelösségü
Társaság
Various services
OMV Austria Exploration & Production GmbH
Various services
OMV Gas & Power GmbH
Delegation of personnel and other
Trans Gas LPG Services S.R.L.
Various services
OMV Petrol Ofisi A.Ș.
Sales of petroleum products
OMV Gas, Marketing & Trading GmbH *
Services and other
Energy Production Enhancement S.R.L.
Borealis AG
Total OMV Petrom S.A.
Other services
Various services
*) During 2017 OMV Trading GmbH merged with OMV Gas, Marketing & Trading GmbH.
23.03
18.54
9.25
2.59
0.27
0.16
0.10
0.06
0.03
0.03
0.02
2.30
2.67
3.06
-
0.27
-
0.03
-
-
-
-
777.02
75.18
Notes to the consolidated financial statements for the year ended December 31, 2018 167
30. RELATED PARTIES (continued)
Nature of transaction
Revenues
Balances
receivable
OMV Petrom Group subsidiaries
EconGas Hungária
Földgázkereskedelmi Kft.
Various services
OMV Petrom Global Solutions S.R.L.
Various services
OMV International Services GmbH
Other services
OMV Refining & Marketing GmbH
Delegation of personnel and other
Borealis AG
OMV Offshore Bulgaria GmbH
Various services
Various services
OMV Aktiengesellschaft
Delegation of personnel and other
Trans Gas LPG Services S.R.L.
Various services
Total subsidiaries
Total OMV Petrom Group
2.34
1.83
1.00
0.27
0.09
0.06
0.02
0.02
5.63
-
0.15
26.73
0.08
-
0.01
-
-
26.97
782.65
102.15
During 2017, OMV Petrom Group had the following interest income and interest expenses with related
parties (including balances as of December 31, 2017 for interest payable and interest receivable):
OMV Petrom S.A. - parent company
OMV Petrom Global Solutions S.R.L.
Total OMV Petrom S.A.
Total OMV Petrom Group
Interest expense
Balances interest
payable
1.40
1.40
1.40
0.23
0.23
0.23
Loan to OMV Petrom Global Solutions S.R.L.
A loan agreement with maturity on June 15, 2019 was signed in 2014 between OMV Petrom S.A.
and OMV Petrom Global Solutions S.R.L. for a maximum limit of RON 27.00 million. There are no
outstanding amounts under this agreement as at December 31, 2018 and 2017. Relationship with OMV
Petrom Global Solutions S.R.L. also comprises the cash pooling during 2018 and 2017, included in
Note 15c).
Ultimate parent
As disclosed in Note 1, OMV Petrom S.A.’s major shareholder is OMV Aktiengesellschaft, being the
ultimate parent of the Group, with its office based at Trabrennstraße 6-8, 1020 Vienna, Austria. The
168 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
30. RELATED PARTIES (continued)
majority of OMV Aktiengesellschaft shares are held by Österreichische Beteiligungs AG (ÖBAG;
previously Österreichische Bundes- und Industriebeteiligungen GmbH (ÖBIB), Vienna, representing
the Austrian government – 31.5%) and Mubadala Petroleum and Petrochemicals Holding Company
(MPPH, Abu Dhabi – 24.9%).
The consolidated financial statements of OMV Aktiengesellschaft are prepared in accordance with
IFRS as adopted by the EU and in accordance with the supplementary accounting regulations pursuant
to Sec. 245a, Para. 1 of the Austrian Company Code (UGB) and are available on OMV’s website:
http://www.omv.com/portal/01/com/omv/OMV_Group/investors-relations/reportsandpresentations.
Key management remuneration
For 2018, the General Meeting of Shareholders approved a net remuneration for each member of the
Supervisory Board amounting to EUR 20,000 per year (2017: EUR 20,000 per year), an additional net
remuneration per meeting of EUR 4,000 for each member for the Audit Committee (2017: EUR 4,000
per meeting) and an additional net remuneration per meeting of EUR 2,000 for each member for the
newly Presidential and Nomination Committee (2017: EUR 2,000 per meeting).
At December 31, 2018 and December 31, 2017, there are no loans or advances granted by the
Group to the members of the Supervisory Board. As at December 31, 2018 and December 31 2017,
the Group does not have any obligations regarding pension payments to former members of the
Supervisory Board.
The remuneration paid to members of the Executive Board and to the directors reporting to Executive
Board members consists of a fixed monthly salary, bonuses and other benefits, including benefits in-
kind. The aggregate amount of remuneration and other benefits, including benefits in-kind, paid in 2018
to the benefit of the members of the Executive Board and of the directors reporting to Executive Board
members, collectively as a group, for their activities performed in all capacities, amounted to RON
111.14 million (2017: RON 61.42 million).
Notes to the consolidated financial statements for the year ended December 31, 2018 169
31. DIRECT AND INDIRECT INVESTMENTS OF OMV PETROM GROUP WITH
AN INTEREST OF AT LEAST 20% AS OF DECEMBER 31, 2018
Company Name
Subsidiaries (>50%)
Tasbulat Oil Corporation LLP
Petrom Moldova S.R.L.
OMV Petrom Marketing S.R.L.
OMV Petrom Gas S.R.L.
Petromed Solutions S.R.L.
OMV Petrom Aviation S.A. *
OMV Srbija DOO
OMV Bulgaria OOD
Kom Munai LLP
Trans Gas LPG Services S.R.L.
Share interest
percentage
Consolidation
treatment **
Activity
Country of
incorporation
100.00%
100.00%
100.00%
99.99%
99.99%
100.00%
99.96%
99.90%
100.00%
80.00%
FC
FC
FC
FC
FC
FC
FC
FC
FC
NC
FC
NC
Oil exploration and production in
Kazakhstan
Kazakhstan
Fuel distribution
Fuel distribution
Gas supply
Medical services
Airport services
Fuel distribution
Fuel distribution
Moldova
Romania
Romania
Romania
Romania
Serbia
Bulgaria
Oil exploration and production in
Kazakhstan
Kazakhstan
LPG transportation related
services
Exploration and production
services
Romania
Isle of Man
Services incidental to oil and gas
production
Romania
Petrom Exploration & Production Limited
99.99%
Energy Production Enhancement S.R.L.
100.00%
Associated companies (20-50%)
OMV Petrom Global Solutions S.R.L.
Brazi Oil & Anghelescu Prod Com S.R.L.
Asociația Română pentru Relația cu
Investitorii
*) 1 (one) share owned through OMV Petrom Marketing S.R.L.
**) Consolidation treatment:
25.00%
37.70%
20.00%
EM
NAE
NAE
Financial, IT and other services
Romania
Fuel distribution
Public representation
Romania
Romania
FC
EM
NC
NAE
Full consolidation
Accounted for at equity (associated company)
Not-consolidated subsidiary (companies of relative insignificance, both individually and collectively, to the consolidated financial statements)
Other investment recognized at cost (associated companies of relatively little importance to the assets and earnings of the consolidated financial statements).
During 2018, OMV Petrom acquired the remaining non-controlling interest of 5% in Kom Munai LLP, reaching shareholding of 100%.
The subsidiaries which are not consolidated have very low volumes of business; the total sales, net income/losses and equity of such companies represent less than 1% of the
consolidated totals.
170 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
32. CASH FLOW STATEMENT INFORMATION
a) Drawings and repayments of borrowings
During 2018 OMV Petrom Group has drawn borrowings amounting to RON 38.56 million (2017: RON
42.49 million) and has repaid borrowings amounting to RON 377.64 million (2017: RON 687.55 million)
and finance lease obligations amounting to RON 32.37 million (2017: RON 37.23 million).
The following table shows a reconciliation of the changes in liabilities arising from financing activities:
1 January, 2018
Repayments of borrowings
Increase in borrowings
Total cash flows relating to
financing activities
Exchange differences
Other changes
Total non-cash changes
31 December, 2018
Interest-bearing debts
Finance lease
liabilities
Total
887.30
(377.64)
38.56
(339.08)
(0.61)
1.69
1.08
194.60
1,081.90
(32.37)
(410.01)
-
38.56
(32.37)
(371.45)
(0.05)
(0.66)
7.27
7.22
8.96
8.30
549.30
169.45
718.75
b) Investments and other financial assets
During 2018, OMV Petrom Group acquired the remaining non-controlling interest of 5% in Kom Munai
LLP, reaching shareholding of 100% for which an amount of RON 1.01 mn was paid.
During 2017, OMV Petrom Group did not acquire, nor contributed to the share capital of any entity.
Notes to the consolidated financial statements for the year ended December 31, 2018 171
32. CASH FLOW STATEMENT INFORMATION (continued)
c) Disposal of Group companies
During 2018, OMV Petrom Group did not dispose of any subsidiary.
In December 2017, OMV Petrom Group sold its 99.99% interest in, as well as the loan granted to the
wind power production company OMV Petrom Wind Power S.R.L. to Transeastern Power B.V.
Net assets of disposed subsidiary at the date of disposal
Assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Inventories
Trade receivables
Other financial assets
Other assets
Cash and cash equivalents
Liabilities disposed
Provisions
Trade payables
Other liabilities
Net assets disposed
Gain/(Loss) on disposal of subsidiary
Proceeds on disposal (for shares and loan)
Net assets disposed of
Gain on disposal of subsidiary
Net cash flow from disposal of subsidiary
Proceeds on disposal
Deferred consideration
Cash disposed
Proceeds received on disposal of subsidiary, net of cash disposed
2017
12.30
78.23
1.43
0.22
3.81
2.16
0.33
1.70
(6.04)
(0.98)
(0.51)
92.65
2017
94.67
(92.65)
2.02
2017
94.67
(13.19)
(1.70)
79.78
172 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
32. CASH FLOW STATEMENT INFORMATION (continued)
In relation to disposal of subsidiary Wind Power Park S.R.L, the deferred consideration for sale of shares
was received in January 2018 (RON 13.21 million).
Also, during 2017 the not-consolidated entities Petrom Nadlac S.R.L. and Franciza Petrom 2001 S.A.
were liquidated, generating a cash inflow of RON 0.43 million and a net loss of RON 0.31 million.
d) Transfer of business
In 2018, OMV Petrom Group did not transfer any business.
In August 2017, OMV Petrom Group transferred 19 marginal onshore fields to Mazarine Energy
Romania S.R.L.
Net assets at the date of transfer
Intangible assets and property, plant and equipment
Provisions and liabilities
Net assets
Gain/(Loss) on transfer of business
Proceeds on transfer of business
Net assets disposed of
Gain on transfer of business
Net cash flow from transfer of business
Net consideration received
Net cash inflow on transfer of business
2017
179.16
(129.82)
49.34
2017
52.48
(49.34)
3.14
2017
52.48
52.48
In connection with the transfer of marginal fields and related decommissioning obligations, the Group
booked a write-off of receivables in amount of RON 7.49 million.
Notes to the consolidated financial statements for the year ended December 31, 2018 173
32. CASH FLOW STATEMENT INFORMATION (continued)
e) Exploration cash-flows
The amount of cash outflows in relation to exploration activities incurred by OMV Petrom Group for the
year ended December 31, 2018 is of RON 624.10 million (2017: RON 241.80 million), out of which the
amount of RON 72.83 million is related to operating activities (2017: RON 58.98 million) and the amount
of RON 551.27 million represents cash outflows for exploration investing activities (2017: RON 182.82
million).
174 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
33. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The following overview presents the measurement of financial instruments (assets and liabilities)
recognized at fair value.
In accordance with IFRS 13, the individual levels are defined as follows:
Level 1: Using quoted prices in active markets for identical assets or liabilities.
Level 2: Using inputs for the asset or liability, other than quoted prices, that are observable either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Using inputs for the asset or liability that are not based on observable market data such as
prices, but on internal models or other valuation methods.
Fair value hierarchy for derivative instruments as at December 31, 2018
Financial instruments on asset side
Derivatives designated and effective as hedging instruments
Other derivatives
Total
Level 1
Level 2
Level 3
-
-
-
5.78
45.01
50.79
-
-
-
Total
5.78
45.01
50.79
Financial instruments on liability side
Liabilities on derivatives designated and effective as hedging
instruments
Liabilities on other derivatives
Other financial liabilities
Total
Level 1 Level 2 Level 3
Total
-
(0.75)
- (162.78)
-
(0.75)
- (162.78)
-
-
(11.41)
(11.41)
- (163.53)
(11.41)
(174.94)
Fair value hierarchy for derivative instruments as at December 31, 2017
Financial instruments on asset side
Derivatives designated and effective as hedging instruments
Other derivatives
Total
Level 1
Level 2
Level 3
-
-
-
-
7.86
7.86
-
-
-
Total
-
7.86
7.86
Notes to the consolidated financial statements for the year ended December 31, 2018 175
33. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)
Financial instruments on liability side
Liabilities on derivatives designated and effective as
hedging instruments
Liabilities on other derivatives
Total
Level 1
Level 2
Level 3
Total
-
-
-
-
(56.96)
(56.96)
-
-
-
-
(56.96)
(56.96)
The financial liabilities whose fair values differ from their carrying amounts as at December 31, 2018 and
December 31, 2017 (Level 2 – observable inputs), as well as the respective differences are presented
in the tables below. The fair value of these financial liabilities was determined by discounting future cash
flows using interest rates prevailing at reporting date for similar liabilities with similar maturities.
The carrying amount of all other financial assets and financial liabilities that were measured at amortized
cost approximates their fair value.
December 31, 2018
Financial liabilities
Interest-bearing debts
Finance lease liabilities
Total
December 31, 2017
Financial liabilities
Interest-bearing debts
Finance lease liabilities
Total
Fair value
Carrying amount
Difference
554.27
177.83
732.10
549.30
169.45
718.75
4.97
8.38
13.35
Fair value
Carrying amount
Difference
894.48
194.03
1,088.51
887.30
194.60
1,081.90
7.18
(0.57)
6.61
176 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
33. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amounts are reported in the statement of financial
position when OMV Petrom has a current legally enforceable right to set-off the recognized amounts and
there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
OMV Petrom enters in the normal course of business into various master netting arrangements in
the form of International Swaps and Derivatives Association (ISDA) agreements or other similar
arrangements.
The following table presents the carrying amounts of recognized financial assets and liabilities that are
subject to various netting arrangements, amounts that meet the criteria of offsetting in the statement of
financial position as at December 31, 2018 and 2017 in accordance with IAS 32 and shows in the net
column the amounts presented in the statement of financial position.
Offsetting of financial assets 2018
Gross amounts
financial
assets
Financial
liabilities
set-off
Net amounts
presented in
the statement
of financial
position
Financial
liabilities with
right of set-off
(not offset)
Net
amounts
Trade receivables
Derivative financial
instruments
Other financial assets
Total
145.98
(145.62)
0.36 *
22.15
23.50
(15.32)
(20.63)
191.63
(181.57)
6.83 **
2.87 **
10.06
*) included in Trade receivables of RON 1,674.23 million in the statement of financial position;
**) included in Other financial assets of RON 195.19 million in the statement of financial position.
-
-
-
-
0.36
6.83
2.87
10.06
Offsetting of financial liabilities 2018
Gross amounts
financial
liabilities
Financial
assets
set-off
Net amounts
presented in
the statement
of financial
position
Financial assets
with right of
set-off
(not offset)
Net
amounts
Trade payables
Derivative financial
instruments
Other financial liabilities
Total
145.62
(145.62)
- *
17.54
(15.32)
23.84
(20.63)
187.00
(181.57)
2.22 **
3.21 **
5.43
*) included in Trade payables of RON 3,049.66 million in the statement of financial position;
**) included in Other financial liabilities of RON 388.34 million in the statement of financial position.
-
-
-
-
-
2.22
3.21
5.43
Notes to the consolidated financial statements for the year ended December 31, 2018 177
33. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)
Offsetting of financial assets 2017
Gross amounts
financial
assets
Financial
liabilities
set-off
Net amounts
presented in
the statement
of financial
position
Financial
liabilities with
right of set-off
(not offset)
Net
amounts
Other financial assets
Total
9.74
9.74
(7.38)
(7.38)
2.36 *
2.36
-
-
2.36
2.36
*) included in Other financial assets of RON 243.96 million in the statement of financial position.
Offsetting of financial liabilities 2017
Gross amounts
financial
liabilities
Financial
assets
set-off
Net amounts
presented in
the statement
of financial
position
Financial assets
with right of
set-off
(not offset)
Net
amounts
Other financial liabilities
Total
7.38
7.38
(7.38)
(7.38)
- *
-
-
-
-
-
*) included in Other financial liabilities of RON 371.25 million in the statement of financial position.
178 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
34. COMMITMENTS AND CONTINGENCIES
Commitments
As at December 31, 2018 the total commitments engaged by OMV Petrom Group for investments
(except those in relation to joint arrangements) are in amount of RON 955.09 million (2017: RON
860.90 million), out of which RON 861.49 million related to property, plant and equipment (2017: RON
805.68 million) and RON 93.60 million for intangible assets (2017: RON 55.22 million).
The Group has additional commitments in relation to joint arrangements - for details please refer to
Note 35.
Litigations
We face a variety of litigations, arbitrations, proceedings and disputes referring to a wide range of
subjects, such as, but without being limited to, real estate matters, fiscal matters, intellectual property,
environmental, competition, administrative matters, commercial matters, labour related litigation, debt
recovery, insolvency of contractors, criminal deeds, and contraventional matters. It is possible that
unanticipated judicial outcomes might occur.
OMV Petrom Group provides for litigations that are likely to result in obligations. Management is of the
opinion that litigations, to the extent not covered by provisions or insurance, will not materially affect
OMV Petrom Group’s financial position.
Contingent liabilities
The production facilities and properties of all Group companies are subject to a variety of
environmental protection laws and regulations in the countries where they operate; provisions are
made for probable obligations arising from environmental protection measures.
In Romania, group activities related to refining of petroleum products could lead to obligations related
to soil remediation activities, depending on the requirements of environmental agencies, when
these activities are closed. With reference to Arpechim refinery site, at the date of these financial
statements, contamination existence and a reliable estimation of the amount required to settle a
potential remediation obligation cannot be determined until performance of specialized studies in order
to establish the degree of contamination, if any; consequently, no provision has been booked by the
Group in this respect.
OMV Petrom Group has contingent liabilities representing performance guarantees in amount of RON
36.81 million as at December 31, 2018 (2017: RON 64.38 million).
Notes to the consolidated financial statements for the year ended December 31, 2018 179
35. INTERESTS IN JOINT ARRANGEMENTS
OMV Petrom S.A. entered into a farm out arrangement with ExxonMobil Exploration and Production
Romania Limited (“Exxon”) with the purpose to explore and develop the Neptun Deepwater block in
the Black Sea and has a participating interest of 50%. Starting August 2011, ExxonMobil has been
appointed as operator (previously OMV Petrom S.A. was operator).
OMV Petrom S.A. entered into a farm out arrangement with Hunt Oil Company of Romania S.R.L.
(“Hunt”) with the purpose to explore and develop Adjud and Urziceni East onshore blocks and has a
participating interest of 50%. Starting October 2013, Hunt has been appointed as operator (previously
OMV Petrom S.A. was operator).
In 2013 OMV Petrom S.A. entered into four farm out arrangements with Repsol with the purpose to
explore and develop four onshore blocks (Băicoi V, Târgoviște VI, Pitești XII and Târgu Jiu XIII) for the
area deeper than 2,500-3,000 m and has a participating interest of 51%. OMV Petrom S.A. has been
appointed operator. During 2018, Repsol notified OMV Petrom of its intention to exit the licenses and
the National Agency for Mineral Resources approved the takeover by OMV Petrom of Repsol’s interest
in the four onshore exploration licenses. Following National Agency for Mineral Resources approval,
OMV Petrom became sole titleholder and operator of the four exploration blocks.
In 2012 OMV Petrom S.A. signed a transfer agreement with ExxonMobil, Sterling Resources Ltd.
and Petro Ventures Europe B.V. for the purchase of hydrocarbon exploration and production rights
to the deep water portion of the XV Midia Block (“Midia Deep”). Following completion of the transfer
agreement in 2014, the participating interests in Midia Deep were: ExxonMobil 42.5%, OMV Petrom
42.5%, and Gas Plus 15% and ExxonMobil was the operator of petroleum operations. During 2016, the
titleholders applied to the National Agency for Mineral Resources in Romania for the relinquishment of
the concession agreement, which was approved at the beginning of 2017.
Joint activities described above are classified as joint operations according with IFRS 11.
OMV Petrom’s share of the aggregate capital commitments for these joint arrangements as at
December 31, 2018 is amounting to RON 45.84 million (2017: RON 117.30 million), mainly in relation
to offshore drilling requirements.
180 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
36. RISK MANAGEMENT
Capital risk management
OMV Petrom Group continuously manages its capital adequacy to ensure that its entities will be optimally
capitalized, in accordance with their risk exposure, in order to maximize the return to stakeholders.
The capital structure of OMV Petrom Group consists of equity attributable to stockholders of the parent
(comprising share capital, reserves and revenue reserves as disclosed in the “Consolidated Statement
of Changes in Equity”) and debt (which includes the short and long term borrowings disclosed in Note
15). Capital risk management at OMV Petrom Group is part of the value management and it is based on
permanent review of the gearing ratio of the Group.
Net debt is calculated as interest-bearing debts including financial lease liability, less cash and cash
equivalents. Due to the significant cash balance the Group reported a net cash position of RON 4,890.68
million at December 31, 2018 compared to RON 2,897.15 million at December 31, 2017.
OMV Petrom Group’s management reviews the capital structure, as well as group risk reports regularly. As
part of this review, the cost of capital and the risks associated with each class of capital are considered.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition,
the basis of measurement and the basis on which income and expenses are recognized, in respect
of each class of financial asset, financial liability and equity instrument are disclosed in Note 4 to the
consolidated financial statements.
Financial risk management objectives and policies
The objective of OMV Petrom Risk Management function is to assess if the risk estimations are within
the tolerance levels set in the Risk Appetite statement and to provide assurance that the risks are well
managed and kept under control by the risk owners. Low probability high potential impact risks are
assessed and monitored individually, with a dedicated set of mitigating measures put in place.
The Risk Management function reports to OMV Petrom Executive Board and Supervisory Board’s Audit
Committee an overview of OMV Petrom Group’s risk profile for midterm horizon (twice per year) and
for the long term horizon (once per year). The reports summarize the risk management activities and
initiatives undergone for mitigating the Group’s risk exposures.
Risk exposures and responses
OMV Petrom’s Risk Management function performs a central coordination of a mid-term Enterprise Wide
Risk Management (EWRM) and a long-term Strategic Risk Management processes in which it actively
pursues the identification, analysis, evaluation and treatment of significant risks (market and financial,
operational and strategic) in order to assess their effects on planned cash flows, to engage management
in planning and implementing mitigating actions and to provide to the executive and Supervisory Board’s
Audit Committee members the assurance that risks are under control and within the tolerance levels from
the risk appetite.
Notes to the consolidated financial statements for the year ended December 31, 2018 181
36. RISK MANAGEMENT (continued)
Risk Management function monitors and manages the significant risks of the Group through an integrated
process in line with ISO 31000 EWRM standard.
Beside the business operational and strategic category of exposures, the market and financial risk
category plays an important role in the Group’s risk profile and it is managed with dedicated diligence –
market and financial risks include commodity market price risk, foreign exchange risk, interest rate risk,
counterparty credit risk, and liquidity risk.
Response wise, any risk which increases near to its significance level or which is sensitive to the risk
appetite level is monitored and specific treatment plans are proposed, approved and implemented
accordingly in order to decrease the risk exposure.
Commodity Market Price Risk
The Group is naturally exposed to the market risks arising from the price driven volatility of the cash flows
generated by production, refining and marketing activities associated with crude oil, oil products, gas and
electricity. The market risk has core strategic importance within the Group’s risk profile and its midterm
liquidity.
Financial derivative instruments may be used where appropriate to hedge the main industry risks
associated with price volatility such as the highly negative impact of low oil prices on cash flow.
Foreign exchange risk management
Because OMV Petrom Group operates in many currencies therefore the corresponding exchange risks
are analyzed. OMV Petrom Group is mostly exposed to the movement of the US dollar and Euro against
Romanian Leu. Other currencies have only limited impact on cash flows and Operating result.
Financial derivative instruments may be used where appropriate to hedge the risk associated with foreign
currency transactions, whereas a decrease of USD/RON currency rate or an increase of EUR/RON
currency rate is unfavorable to the Group’s cash flows.
Foreign currency sensitivity analysis
The carrying amounts at the reporting date of foreign currency denominated monetary assets and liabilities
of OMV Petrom Group companies, which induce sensitivity to EUR/USD exchange rate in the consolidated
financial statements, are as follows:
Assets
Liabilities
December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Thousand USD
Thousand EUR
64,897
87,734
443,922
93,620
25,439
208,002
26,411
296,489
182 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
36. RISK MANAGEMENT (continued)
Translation risk arises on the consolidation of subsidiaries preparing their financial statements in other
currencies than in Romanian lei, but also from the consolidation of assets and liabilities naturally
denominated in foreign currency. Foreign currency assets and liabilities are those which result from
transactions denominated in other currencies than the functional currencies of OMV Petrom Group
companies. The largest exposures result from changes in the value of the US dollar and Euro against the
Romanian Leu.
The following table details OMV Petrom Group’s sensitivity to a 10% increase and decrease in the USD
and EUR against the relevant functional currencies. The sensitivity analysis includes outstanding foreign
currency denominated monetary items and adjusts their translation at the year-end for a 10% change
in foreign currency rates. A positive number below indicates an increase in total comprehensive income
before tax generated by a 10% currency fluctuation and a negative number below indicates a decrease in
total comprehensive income before tax with the same value.
+10% increase in the foreign currencies rates
Profit/ (Loss)
Other comprehensive income
Thousand USD Impact (i)
Thousand EUR Impact (ii)
2018
1,613
2,333
2017
9,051
32,700
2018
(12,027)
-
2017
(20,287)
-
-10% decrease in the foreign currencies rates
Profit/ (Loss)
Other comprehensive income
Thousand USD Impact (i)
Thousand EUR Impact (ii)
2018
(1,613)
(2,333)
2017
(9,051)
(32,700)
2018
12,027
-
2017
20,287
-
(i) This is mainly attributable to the exposure on USD financial assets and financial liabilities;
(ii) This is mainly attributable to the exposure on EUR loans and leases.
The effect in equity is the effect in profit or loss before tax and other comprehensive income, net of income
tax (16%).
The above sensitivity analysis of the inherent foreign exchange risk shows the translation exposure at the
end of the year; however, the cash flow exposure during the year is continuously monitored and managed
by OMV Petrom Group.
Notes to the consolidated financial statements for the year ended December 31, 2018 183
36. RISK MANAGEMENT (continued)
Interest rate risk management
To facilitate management of interest rate risk, OMV Petrom Group’s liabilities are analyzed in terms of
fixed and variable rate borrowings, currencies and maturities. Currently, OMV Petrom Group has limited
exposure to this risk.
The sensitivity analyses below have been determined based on the exposure to interest rates for
borrowings at the reporting date. For floating rate liabilities, the analysis is prepared assuming the amount
of liability outstanding at the reporting date was outstanding for the whole year. A 1% increase or decrease
represents management’s assessment of the reasonably possible change in interest rates (with all other
variables held constant).
Analysis for change in interest rate risk
Balance as at
Effect of 1% change in interest rate,
before tax
December 31,
2018
December 31,
2017
December 31,
2018
December 31,
2017
Short term borrowings
Long term borrowings
265.09
282.05
325.25
561.61
2.65
2.82
3.25
5.62
In 2018, there was no need for hedging the interest rate risk, hence no financial instruments were used
for such purpose.
Counterparty Credit Risk management
Credit risk refers to the risk that counterparty will default on its contractual obligations or on its financial
standing, resulting in financial loss to OMV Petrom Group. The main counterparty credit risks are
assessed, monitored and managed at OMV Petrom Group level using predetermined limits for specific
countries, banks and business partners. On the basis of creditworthiness, all counterparties are assigned
maximum permitted exposures in terms of credit limits (amounts and maturities), and the creditworthiness
assessments and granted limits are reviewed on a regular basis. For all counterparties depending on
their liquidity class, parts of their credit limits are secured via liquid contractual securities such as bank
guarantee letters, credit insurance and other similar instruments. The credit limit monitoring procedures
are governed by internal guidelines.
OMV Petrom Group does not have any significant credit risk concentration exposure to any single
counterparty or any group of counterparties having similar characteristics. The Group’s cash and cash
equivalent is primarily invested in banks with rating at least BBB- (S&P and Fitch) and Baa3 (Moody’s).
184 Notes to the consolidated financial statements for the year ended December 31, 2018
OMV Petrom Annual Report 2018 | Consolidated financial statements and notes
36. RISK MANAGEMENT (continued)
Liquidity risk management
For the purpose of assessing liquidity risk, budgeted operating and financial cash inflows and outflows
throughout OMV Petrom Group are monitored and analyzed on a monthly basis in order to establish
the expected net change in liquidity. This analysis provides the basis for financing decisions and capital
commitments. To ensure that OMV Petrom Group remains solvent at all the times and retains the
necessary financial flexibility, liquidity reserves in form of committed credit lines are maintained. The
maturity profile of the Group financial liabilities is presented in Note 16.
37. EXPENSES GROUP AUDITOR
In 2018 the statutory auditor Ernst & Young Assurance Services SRL had a contractual statutory audit fee
of EUR 598,170 (for the statutory audit of the standalone and consolidated annual financial statements
of the Company and of its Romanian subsidiaries and associates). Services contracted with the statutory
auditor other than audit services were of EUR 97,850, being other assurance services in relation to
certain mandatory reports issued by the Company that are not prohibited by Article 5(1) of Regulation
(EU) No. 537/2014 of the European Parliament and of the Council.
Other EY network firms performed audit services for the OMV Petrom subsidiaries of EUR 152,900
and non-audit services that are not prohibited by Article 5(1) of Regulation (EU) No. 537/2014 of the
European Parliament and of the Council of EUR 20,370.
Notes to the consolidated financial statements for the year ended December 31, 2018 185
38. SUBSEQUENT EVENTS
There are no significant events subsequent to the reporting date.
These financial statements, presented from page 86 to page 186, comprising the consolidated statement
of financial position, consolidated income statement, consolidated statement of comprehensive income,
consolidated statement of changes in equity, consolidated statement of cash flows and notes to the
consolidated financial statements, were approved on March 14, 2019.
Christina Verchere,
Chief Executive Officer
Stefan Waldner,
Chief Financial Officer
Peter Zeilinger,
Member of the EB
Upstream
Franck Neel,
Member of the EB
Downstream Gas
Radu Căprău,
Member of the EB
Downstream Oil
Irina-Nadia Dobre,
Director Finance Department
Nicoleta-Mihaela Drumea,
Head of Financial Reporting
186 Notes to the consolidated financial statements for the year ended December 31, 2018
Consolidated report on
payments to goverments
Consolidated report on payments to governments for the year 2018
Introduction
Chapter 8 of the Annex 1 of Ministry of Finance Order 2844/2016 for approval of Accounting Regulations
according to International Financial Reporting Standards (hereinafter the “Regulation”), transposing
Chapter 10 of the Accounting Directive (2013/34/EU) of the European Parliament and of the Council,
requires that large undertakings and public interest entities that are active in the extractive industry or
logging of primary forests prepare and publish a report on payments to governments on an annual basis.
Large undertakings and public interest entities which are under the obligation to prepare consolidated
financial statements are required to prepare a consolidated report on payments to governments.
OMV Petrom S.A. (hereinafter the “Company”) is, on one side, operating in the extractive industry
and, on the other side, admitted for trading on Bucharest Stock Exchange (with shares) and London
Stock Exchange (with global depositary receipts). Therefore, in accordance with the above mentioned
Regulation, OMV Petrom has prepared the following consolidated report (hereinafter the “Report”)
on payments to governments. The Report covers OMV Petrom S.A. and its subsidiaries performing
extractive activities (Upstream business segment).
The “Basis of Preparation” section provides information to the reader about the contents of the Report.
This section also includes information on the type of payment for which disclosure is required and on the
manner in which OMV Petrom has interpreted the Regulation for the purpose of the preparation of the
Report.
From a socio-economic perspective, our Company and its subsidiaries have a larger contribution to
countries in which they operate, than the reportable payments under the Regulation. OMV Petrom group
companies make payments to governments also in connection with other segments of activity, not only
Upstream, i.e. Downstream Oil, Downstream Gas, Corporate & Other. Besides government payments,
OMV Petrom group companies contribute to the economies of the countries in which they operate by
providing jobs for employees and contractors, purchasing goods and materials from local suppliers and
undertaking social investment activities.
Basis of preparation
Reporting entities
Under the requirements of the Regulation, OMV Petrom is required to prepare a consolidated report
covering payments made to Governments by itself and any subsidiary undertakings included in the
consolidated group financial statements, which is active in the extractive industry. Therefore, the reporting
entities for the purpose of this Report are OMV Petrom S.A. (Romania), Tasbulat Oil Corporation LLP
(Kazakhstan) and KOM-Munai LLP (Kazakhstan).
Activities within the scope of the Report
Payments made by OMV Petrom group (hereinafter OMV Petrom) to governments in connection with any
of the following activities: exploration, prospection, discovery, development and extraction of minerals,
oils and natural gas deposits or other materials (“extractive activities”) are presented in this report.
188 Consolidated report on payments to governments for the year 2018
OMV Petrom Annual Report 2018 | Consolidated report on payments to governments
Government
A “government” is defined as any national, regional or local authority of a country and includes a
department, agency or entity undertaking that is controlled by the government authority.
Project
According to the Regulation, the payments are reported:
on government and governmental body basis;
by type of payment;
on “project” basis, where possible.
For the purpose of this report “project” is defined as the operational activities which are governed
by a single contract, licence, lease, concession or similar legal agreement, and form the basis for
payment liabilities to the government. Where these agreements as per the aforementioned definition
are substantially interconnected, they are treated for the purpose of this Report as a single project.
“Substantially interconnected” is defined as a set of operationally and geographically integrated
contracts, licences, leases or concessions or related agreements with substantially similar terms
that are signed with a government, giving rise to payment liabilities. Such agreements can be
governed by a single contract, joint venture, production sharing agreement or other overarching legal
agreement.
There may be instances - for example, corporate income taxes - where it is not possible to attribute
the payment to a single project and therefore OMV Petrom discloses these payments at the country
level in the current Report.
Cash and Payments in Kind
In accordance with the Regulation, amounts have to be reported on a cash basis, meaning that
they are reported in the period in which they are paid, regardless of the period in which they are
accounted for on an accruals basis.
Refunds are also reported in the period in which they are received and will either be offset against
payments made in the period or be shown as negative amounts in the Report.
Payments in kind made to a government are converted to an equivalent cash value based on the
most appropriate and relevant valuation method for each payment type. This can be at cost or
market value and an explanation is provided in the Report to help explain the valuation method. If
applicable, the related volumes would be also included in the Report.
Materiality
Payments made as a single payment or a series of related payments that fall below EUR 100,000
(RON 443,400) within a financial year are excluded from this Report.
Reporting currency
Reporting currency is Romanian Leu (RON). Payments made in currencies other than RON are
translated for the purposes of this Report at the average exchange rate of the reporting period.
Consolidated report on payments to governments for the year 2018 189
Payment types
Production Entitlements
Under production sharing agreements (PSA’s) the host government is entitled to a share of the oil and
gas produced and these entitlements are often paid in kind. OMV Petrom has not made such payments
in the year.
Taxes
Taxes levied on income, production or profits of companies are reported. Refunds will be netted
against payments and shown accordingly. Consumption taxes, personal income taxes, social security
contributions, sales taxes are not reported under the Regulation. Also, other taxes such as property and
environmental taxes are not reported.
Royalties
Royalties are payments for the rights to extract oil and gas resources, typically at set percentage of
production value.
Dividends
In accordance with the Regulation, dividends are reported when paid to a government in lieu of
production entitlements or royalties. Dividends that are paid to a government as an ordinary shareholder
are not reported, as long as the dividends are paid in the same terms and conditions as to other
shareholders.
For the year ended 31 December 2018, OMV Petrom had no such reportable dividend payments to a
government.
Bonuses
Bonuses include signature, discovery and production bonuses in each case to the extent paid in relation
to the relevant activities. OMV Petrom has not made any payments in the category in the year.
Fees
These include licence fees, rental fees, entry fees and other considerations for licences and/or
concessions, respectively for access to the area where extractive activities will be performed.
The Report excludes fees paid to a government for administrative services that are not specifically
related to extractive activities or access to extractive resources. In addition, payments made in return for
services provided by a government are also excluded.
Infrastructure Improvements
The Report should include payments made by OMV Petrom for infrastructure improvements such as
a building of a road or bridge that serve the community, irrespective if OMV Petrom pays the amounts
to non-government entities. These are reported either when the cash contribution was paid to the
government or when the relevant assets are handed over to the government or made available for use
by the local community. Payments that have a social investment nature, donations or sponsorships are
excluded from the Report.
190 Consolidated report on payments to governments for the year 2018
OMV Petrom Annual Report 2018 | Consolidated report on payments to governments
Payments overview
The overview table below shows the relevant payments to governments that were made by OMV
Petrom in the year that ended December 31, 2018.
Of the seven payment types that are required by the Regulation to be reported upon, OMV Petrom did
not pay any dividends, production entitlements, bonuses or infrastructure improvements that met the
Regulation definition and therefore these categories are not shown.
(in thousands of RON)
Romania
Kazakhstan
Total
Taxes
(on income,
production or profit)
Royalties
Fees (license,
rental, entry and
other)
Total of Payments
830,634
758,223
115,666
-
946,300
758,223
91,584
3,637
95,221
1,680,441
119,303
1,799,744
Consolidated report on payments to governments for the year 2018 191
Payments by project, government and type of payment
(in thousands of RON)
Romania
Payments per project
Onshore production zones
Onshore joint ventures
Offshore Black Sea
Payments not attributable to projects
Total
Payments per Government
State Budget
National Company of Forests
Local City Councils
Conpet SA
Total
Kazakhstan
Payments per project
Tasbulat area
Komsomolskoe
Total
Payments per Government
State Revenue Committee 1
Training centers, universities 2
Total
Total
Taxes (on income,
production or
profit)
Royalties
Fees
(license, rental,
entry and other)
Total of
Payments
-
576,209
-
5,737
-
176,277
830,634 -
87,966
24
1,005
2,589
664,175
5,761
177,282
833,223
830,634
758,223
91,584
1,680,441
830,634
758,223
-
1,588,857
-
-
-
-
62,478
22,506
2,629
2,649
829
493
62,478
22,506
2,629
2,649
829
493
-
-
830,634
758,223
91,584
1,680,441
46,206
69,460
115,666
115,666
-
115,666
946,300
-
-
-
-
-
-
2,482
1,155
3,637
998
2,639
3,637
48,688
70,615
119,303
116,664
2,639
119,303
758,223
95,221
1,799,744
National Agency for Mineral Resources
-
-
National Regulatory Authority for Energy
-
-
Offshore Operations Regulatory Authority
-
-
1 State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan;
2 Financing of various expenses with regard to university training centers as agreed within the concession agreement.
192 Consolidated report on payments to governments for the year 2018
OMV Petrom Annual Report 2018 | Consolidated report on payments to governments
Christina Verchere,
Chief Executive Officer
Stefan Waldner,
Chief Financial Officer
Peter Zeilinger,
Member of the EB
Upstream
Franck Neel,
Member of the EB
Downstream Gas
Radu Căprău,
Member of the EB
Downstream Oil
Consolidated report on payments to governments for the year 2018 193
Contact at Investor Relations
OMV Petrom S.A.
Mailing address: 22 Coralilor Street, District 1, Bucharest
Tel: +40 (0) 372 161 930; Fax: +40 (0) 372 868 518
E-mail: investor.relations.petrom@petrom.com
Mailing service
To obtain the printed version of quarterly and annual reports in Romanian and English,
please e-mail investor.relations.petrom@petrom.com.
Disclaimer:
This solicitation of any offer to purchase or subscribe for, any shares issued by OMV Petrom S.A. (the Company) or any of its subsidiaries in any
jurisdiction or any inducement to enter into investment activity; nor shall this document or any part of it, or the fact of it being made available, form the
basis of, or be relied on in any way whatsoever. No part of this report, nor the fact of its distribution, shall form part of or be relied on in connection
with any contract or investment decision relating thereto; nor does it constitute a recommendation regarding the securities issued by the Company.
The information and opinions contained in this report are provided as at the date of this report and may be subject to updating, revision, amendment
or change without notice. Where this report quotes any information or statistics from any external source, it should not be interpreted that the
Company has adopted or endorsed such information or statistics as being accurate.
No reliance may be placed for any purpose whatsoever on the information contained in this report, or any other material discussed verbally. No
representation or warranty, express or implied, is given as to the accuracy, fairness or currentness of the information or the opinions contained in this
document or on its completeness and no liability is accepted for any such information, for any loss howsoever arising, directly or indirectly, from any
use of this report or any of its content or otherwise arising in connection therewith.
This report may contain forward-looking statements. These statements reflect the Company’s current knowledge and its expectations and projections
about future events and may be identified by the context of such statements or words such as “anticipate,” “believe”, “estimate”, “expect”, “intend”,
“plan”, “project”, “target”, “may”, “will”, “would”, “could” or “should” or similar terminology. By their nature, forward-looking statements are subject to a
number of risks and uncertainties, many of which are beyond the Company’s control that could cause the Company’s actual results and performance
to differ materially from any expected future results or performance expressed or implied by any forward-looking statements.
None of the future projections, expectations, estimates or prospects in this report should in particular be taken as forecasts or promises nor should
they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or
prospects have been prepared or the information and statements contained herein are accurate or complete. As a result of these risks, uncertainties
and assumptions, you should in particular not place reliance on these forward-looking statements as a prediction of actual results or otherwise.
This report does not purport to contain all information that may be necessary in respect of the Company or its shares and in any event each person
receiving this report needs to make an independent assessment. The Company undertakes no obligation publicly to release the results of any
revisions to any forward-looking statements in this report that may occur due to any change in its expectations or to reflect events or circumstances
after the date of this report. This report and its contents are proprietary to the Company and neither this document nor any part of it may be
reproduced or redistributed to any other person.
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OMV Petrom Group in figures
OMV PETROM S.A.
Mailing address: 22 Coralilor Street,
District 1, Bucharest, Romania
Phone: +40 (0) 372 161 930
Fax: +40 (0) 372 868 518
Web: www.omvpetrom.com