Annual Report
2019
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
19
22
22
27
30
34
38
51
63
75
76
80
90
92
93
94
96
98
193
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.
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 2019 will be published
by June 30, 2020.
OMV Petrom Annual Report 2019 | Who we are
The energy for a better life
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
their passion to travel.
Energy is part of our lives: fuels are the basis for mobility, gas is
used for heating homes, and electricity powers the appliances
that make our lives easier. Behind all this stands the energy of
OMV Petrom.
OMV Petrom leverages on the 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 and offshore exploration to mature fields
and shallow offshore production. In 2019, our
portfolio consisted of 504 mn boe proved (1P)
reserves and around 55 mn boe hydrocarbon
production (thereof 3.6 mn tons of crude oil and
natural gas liquids and 4.5 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
793 filling stations located in Romania, Moldova,
Bulgaria, and Serbia. These filling stations are
operated under two brands: Petrom and OMV.
In 2019, the Downstream Oil segment recorded
5.5 mn tons of refined product sales, of which 2.8
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 MW. In 2019, the Downstream
Gas segment recorded gas sales volumes of
54.8 TWh (thereof 47.2 TWh to third parties), the
equivalent of 5.2 bcm, and generated 3.4 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 communities
in which we operate.
2 An integrated energy company
OMV Petrom Annual Report 2019 | Who we are
Our business model
UPSTREAM
I
N
O
T
C
U
D
O
R
P
Offshore Oil and Gas
Exploration and Production
Offshore Oil and Gas
Exploration and Production
Onshore Oil
Onshore Oil
Exploration and Production
Exploration and Production
Onshore Gas
Exploration and Production
Onshore Gas
Exploration and Production
Offshore Oil and Gas
Exploration and Production
Exploration and Production
DOWNSTREAM GAS
Workover and Drilling
Workover and Drilling
Oil and Gas Treatment
Oil and Gas Treatment
Internal Pipelines
R
Internal Pipelines
U
O
I
I
S
E
T
V
T
C
A
I
DOWNSTREAM OIL
I
S
N
O
T
A
R
E
P
O
Workover and Drilling
Oil and Gas Treatment
Gas Marketing
Gas Marketing
Power Marketing
Refining
Storage Logistics
Transportation
R
U
O
I
I
S
E
T
V
T
C
A
I
R
U
O
I
I
S
E
T
V
T
C
A
I
Power Production
Refining
T
C
U
D
O
R
P
Power Marketing
Storage Logistics
E
G
A
S
U
Transportation
Power Production
Marketing of Refined
and Non-fuel Products
Power Marketing
Chemicals
Power
Steel
Aviation
Agriculture
Commercial Transport
T
C
U
D
O
R
P
E
G
A
S
U
E
G
A
S
U
USAGE
Steel
Aviation
Chemicals
Agriculture
Commercial Transport
Power
Cars
Steel
Aviation
Agriculture
Cars
Constructions
Plastics
E
G
A
S
U
Chemicals
Electricity
Heating
Hospitality
Steel
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 5.3 bn at the
end of 2019.
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 15 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
OMV Petrom Annual Report 2019 | Who we are
From sound performance to attractive returns
CLEAN CCS
OPERATING RESULT 1
(IN 2018: RON 4.8 bn)
CLEAN CCS NET
INCOME ATTRIBUTABLE
TO STOCKHOLDERS 1,2,3
(IN 2018: RON 3.7 bn)
NET INCOME
ATTRIBUTABLE TO
STOCKHOLDERS 2
(IN 2018: RON 4.1 bn)
RON
4.6 bn
RON
3.9 bn
RON
3.6 bn
CASH FLOW FROM
OPERATING ACTIVITIES
(IN 2018: RON 7.4 bn)
CAPITAL EXPENDITURE
(IN 2018: RON 4.3 bn)
TOTAL DIVIDENDS
(IN 2018: RON 1.5 bn)
RON
4.2 bn
RON
1.8 bn 4
CLEAN CCS ROACE 1, 3
(IN 2018: 14.3%)
DIVIDEND PER SHARE
(IN 2018: RON: 0.027)
RON
6.8 bn
FREE CASH FLOW
AFTER DIVIDENDS
(IN 2018: RON 2.0 bn)
RON
1.7 bn
13.8%
PAYOUT RATIO
(IN 2018: 38%)
DIVIDEND YIELD 5
(IN 2018: 9%)
RON
48% 4
7%
RON
0.031 4
TOTAL SHAREHOLDER
RETURN 6
(IN 2018: 11.5%)
RON
58.5%
All values refer to 2019, 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 field divestment agreements in 2019, reflected in the financial result;
4 Dividend subject to GMS approval on April 27, 2020;
5 Calculated with the share prices at the end of the previous year;
6 Calculated with previous year dividend per share.
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 5 private employers in the country. We are aware of the important role we play in the economy
and responsible behaviour is deeply embedded in our company's culture.
WE ARE AN
IMPORTANT
CONTRIBUTOR
TO ROMANIA's
SECURITY OF
ENERGY SUPPLY
> 40% OF FUELS & GAS
COMBINED NATIONAL
DEMAND 1
KEY ROLE IN
BALANCING NATIONAL
ELECTRICITY SYSTEM
JOBS
WE EMPLOY OVER
12,000 PEOPLE
66>
15.3
BILLION EURO
INVESTED DURING
2005-2019
MILLION EURO IN SUSTAINABILITY
PROJECTS DURING 2007-2019
30.4
BILLION EURO
TAXES AND
STATE BUDGET
CONTRIBUTIONS
PAID DURING
2005-2019
TECHNOLOGY IS EMBEDDED
IS OUR STRATEGY
SAFETY IS OUR
TOP PRIORITY
WE PROMOTE ENERGY
EFFICIENCY IN ROMANIA VIA
”EFFICIENT ROMANIA“ PROGRAM
1 Fuels refer only to retail diesel and gasoline; OMV Petrom estimates based on the National Institute of Statistics and the Romanian Petroleum Association data.
6 Partner for Romania
8
10
14
19
22
22
27
30
Company
8
10
14
19
22
22
27
30
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
Statement of the Chief Executive Officer
Dear Shareholders,
As another eventful year has come to an end, it
is time again to look back at our achievements
and think about what awaits us in 2020. Most
importantly, I am very grateful to all my Executive
Board member colleagues and everybody at
OMV Petrom for their great commitment and
achievements during the year.
In 2019, we faced weaker international market
conditions with volatile commodity prices
and refining margins. Romania’s security of
energy supply was impacted by the geopolitical
landscape, which led to higher gas imports
and storage obligations, while interconnecting
capacities remained limited. The local regulatory
environment presented the additional challenge of
a return to the regulated gas and power market.
From a wider perspective, the climate change
debate has gained momentum. The European
Green Deal objective to transform Europe into
the first climate-neutral continent by 2050 implies
both challenges and opportunities. Romania
needs to produce more and cleaner energy in the
next decades, as the domestic energy demand
is expected to increase, and economic prosperity
outpaces improved energy efficiency. In this
context, we believe natural gas will play a key role
in the transition to a lower-carbon energy system,
which makes gas projects such as Neptun Deep
vital for Romania’s energy security of supply and
carbon footprint reduction.
We clearly embrace our role in this transition
towards a cleaner future and have set the target
to reduce carbon intensity of our operations by
27% vs. 2010 until 2025. In this respect, we
continued our efforts to reduce greenhouse
gas emissions i in all business segments in
2019, achieving a reduction by 22% vs. 2010.
In addition, in partnership with the Romanian
Energy Policy Group, we launched the ”Romania
Eficienta” (Efficient Romania) program, aiming to
promote energy efficiency measures at national
level.
In 2019, we made further progress in executing
our strategy. Neptun Deep remains the most
i Details will be available in the OMV Petrom’s Sustainability Report for 2019.
Climate change debate
gained momentum
Target of reducing
carbon intensity by
27% vs. 2010 until
2025
8 Statement of the Chief Executive Officer
important growth project. Moving the project
further to FID would underpin the security of
supply in Romania and in the region. Moreover,
we continued to assess growth opportunities in
selected areas of interest and we made a first step
towards expanding our presence in the deepwater
area of the Bulgarian Black Sea. In Downstream
Oil, we completed the Polyfuel project that enables
us to increase refinery flexibility, and extended
the pilot phase of the Auchan partnership with
two more locations, targeting further expansion of
the partnership. In Downstream Gas, our long-
term strategic goals remain the consolidation of
our leading position in the Romanian gas market
and being an important player in the Romanian
electricity market. This implies the diversification
of gas supply sources, which is crucial in the
context of the equity gas production decline, and
for maintaining the focus on the end-customer
portfolio, including further expansion towards small
and medium-sized enterprises.
In 2019, the demand for our products was mixed,
with rising demand for fuels and weaker demand
for gas and power. In this market context, our
2019 yoy performance was strong. Clean CCS
net income went up by 4% to RON 3.9 bn and
the operating cash flow reached RON 6.8 bn. Our
CAPEX was relatively stable yoy. In addition, we
also paid higher dividends of RON 1.5 bn for the
financial year 2018, an increase of 35% compared
to the previous year. As a result, our free cash
flow after dividends reached RON 1.7 bn. Our
balance sheet remained solid, with cash reserves
of RON 7 bn at the end of 2019, which puts us in
a strong position to finance our strategic projects,
both organic and inorganic. In addition, we are
well equipped to offer an attractive dividend to
our shareholders going forward, while remaining
financially robust in a more challenging price
environment.
Looking at each business segment, in Upstream,
we made progress towards simplifying our
footprint, completed another successful shallow
offshore drilling campaign and initiated seismic
acquisition in the VIII-Urziceni East block.
In Downstream Oil, we improved our operational
performance in refining and increased our sales
volumes, despite a weaker refining margin
environment.
In Downstream Gas we were able to supply
multiple gas sales channels, significantly
increasing our gas sales volumes through
enhanced trading activity. The gas business
compensated the weaker power business
performance, which was caused by deteriorated
market conditions.
OMV Petrom’s share price finished the year at
RON 0.447, up by 49.5% yoy and outperformed
the BET index by 14.4 percentage points. The
total shareholder return (including the dividend of
RON 0.027/share for the 2018 financial year) was
58.5% in 2019. In turn, the liquidity of shares was
lower in 2019, with an average daily traded value
at RON 3.6 mn, down by 12.2% yoy.
Based on the results and strong free cash
flow, the Executive Board proposed a gross
dividend of RON 0.031/share for the 2019
financial year, up by 15% from the previous
year and representing a 48% payout ratio. The
proposal was approved by the Supervisory
Board and is subject to further approval by the
GMS on April 27, 2020.
Looking ahead at 2020, we aim to maintain the
annual production decline below 5% yoy, excluding
OMV Petrom Annual Report 2019 | Company
We welcome changes
brought by GEO
1/2020, but our Neptun
project depends on
amendments to the
Offshore Law
portfolio optimization. Also, we remain strongly
committed to developing our key growth project
Neptun Deep. While we welcome the acceleration
of the return to a liberalized market brought by
the GEO 1/2020, the progress of Neptun Deep
is subject to the upcoming implementation of
amendments to the Offshore Law. In terms of
CAPEX (including E&A but excluding acquisitions),
we estimate RON 4.2 bn for 2020, stable yoy. In
terms of ongoing transactions, we expect to close
the acquisition of the Han Asparuh offshore stake
in Bulgaria by mid-2020 and to finalize the transfer
of the 40 marginal onshore fields in Romania in
the second part of the year. We remain 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 going forward. All
these initiatives are vital in the current energy
transition period.
Let me take this opportunity to thank all of our
shareholders, other stakeholders and employees
for your trust and continuing support over the past
year and ensure you that we make our greatest
effort to enhance both OMV Petrom’s value and
the overall economic and social contribution to the
countries in which we operate.
Christina Verchere
Total shareholder
return in 2019 at
58.5%; 2019 dividend
proposal up 15% yoy
Statement of the Chief Executive Officer 9
OMV Petrom on the capital markets
Shareholder structure
At the end of 2019, OMV Petrom S.A. had the
following shareholding structure: 51.0105% –
OMV Aktiengesellschaft, 20.6389% – Romanian
State (via the Ministry of Energy ii), and 9.9985%
– Fondul Proprietatea S.A. The remaining
18.3521% represents the free float, traded
as shares within the Premium category of the
Bucharest Stock Exchange (BSE) and as GDRs
within the Standard category on the main market
of the London Stock Exchange (LSE). At the
end of 2019, 466 legal entities from Romania
and abroad held 90.1% of the free float shares
or 16.5% of OMV Petrom share capital, with
the remainder (9.9% 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%
60.6%
Free float
18.35%
Free float
18.35%
3.7%
2.0%
5.6%
9.9%
4.1%
14.1%
RO
HU
GB + IE
US
Rest of Europe
Rest of World
Retail
Our free float has a
lower share of
retail investors and
a higher share of
Romanian institutional
shareholders
The share price ranged
between RON 0.2820
and RON 0.4470
An analysis of our shareholder structure, as at the
end of 2019, shows that 60.6% of the free float
was held by Romanian institutional shareholders
(2018: 52.6%), 9.9% by retail investors (2018:
10.5%), 3.7% were Hungarian institutional
investors (2018: 5.7%), 2.0% were from the UK
and Ireland (2018: 4.1%), 5.6% were from the
USA (GDR component included in this category)
(2018: 5.9%), 14.1% were from other European
countries (2018: 16.6%), and 4.1% were from rest
of the world (2018: 4.6%).
Shares
The evolution of OMV Petrom share price followed
a clear upward trend through 2019, punctuated
by periods of increased volatility and turbulence
on the local and international capital markets.
The year started on a pessimistic note in the local
market, following the December 2018 Government
Emergency Ordinance (GEO) no. 114, which
affected multiple sectors, including energy.
Therefore, OMV Petrom’s lowest share price
for trades on the Regular market was RON
0.2820, recorded on January 14, 2019. With the
GEO 19/2019 that amended some of the GEO
114/2018 provisions, OMV Petrom share price
started to recover, witnessing mostly an upward
trend by year end, with a few exceptions, triggered
by exogenous factors such as: dynamics of the
international oil markets, geopolitical and trade
tensions on the global scene, as well as political
and regulatory uncertainties on the Romanian
market.
On the ex-dividend date May 22, 2019, the
share price corrected by 5.53%, less than the
equivalent 2018 dividend per share of RON 0.027.
Subsequently, the share price recovered quickly,
ending the month 1.2% above the share price on
May 21 and up 0.5% mom, while the BET index
appreciated by 0.6% mom. The end-of-May rally
was likely fueled by positive investor sentiment
around the European Parliamentary elections
results in Romania, alongside discussions of a
potential withdrawal of GEO 114/2018.
Other sizeable variations of the OMV Petrom
share price were recorded around media news of
a potential sale of OMV Petrom shares from the
ii The shares belonging to the Romanian State were transferred from the account of the Romanian State through the Ministry of Energy to the account of the
Romanian State through the Ministry of Economy, Energy and Business Environment, according to a notification from the Romanian Central Depositary
dated 11 February 2020.
10 OMV Petrom on the capital markets
OMV Petrom Annual Report 2019 | Company
Romanian State’s stake (June – July 2019) and
around speculations of changes in Neptun Deep
joint venture structure (July 2019).
The 2019 average OMV Petrom share price for
trades on the Regular market was RON 0.3886,
16% higher than the 2018 figure of RON 0.3351,
while the average dated Brent oil price increase
was of 36% yoy. The highest daily traded
volume of 173.6 mn shares was registered on
November 20. The average daily traded volume,
including Deal trades, was 9.2 mn shares (2018:
11.8 mn), down 22% yoy, while the average daily
traded value was RON 3.57 mn, down 12.2% yoy.
The 2019 average traded value in EUR terms was
EUR 0.75 mn.
Domestic indices followed a sustained ascending
trend in 2019, especially starting April, after the
sharp decline registered at the end of 2018 and
a higher volatility in January 2019. Resilient to
the short-term fluctuations, the BET index closed
the year 35% above the closing value of 2018.
The BET-TR (total return BET) appreciated by
47% yoy in 2019. The BET-NG index (comprising
stocks in the energy and utilities sectors) in
which OMV Petrom has a weight of around
30%, increased by 30% yoy. The BET-BK index
(designed as a benchmark for asset managers and
institutional investors) also increased by 30% yoy.
Outperforming the BET index by 14.4 percentage
points, the OMV Petrom share ended the last
trading session of the year on December 30 at
the maximum yearly price of RON 0.4470,
49% higher yoy. The total shareholder return
(including the dividend of RON 0.027/share for the
2018 financial year) was 59%.
OMV Petrom share
outperformed the BET
index by 14.4 pp
OMV Petrom share price (SNP) and BET performance in 2019
31 December 2018 = 100
15 Jul 2019: Media news
of potential changes in
Neptun Deep JV structure;
RON 0.4180
31 Jul 2019: Q2/19
results publication;
RON 0.4170
22 May 2019:
Dividend
ex-date;
RON 0.3590
30 Dec 2019: Highest
share price of the
year; RON 0.4470
14 Jan 2019: Lowest
share price of the year;
RON 0.2820
24 Jul 2019: Media news re.
potential Gov. sale of SNP
shares: RON 0.3880
Jan.-19
Feb.-19
Mar.-19
Apr.-19
May-19
Jun.-19
Jul.-19
Aug.-19
Sep.-19
Oct.-19
Nov.-19
Dec.-19
SNP
BET
160
150
140
130
120
110
100
90
80
Dec.-18
OMV Petrom S.A. market capitalization at the
end of 2019 was RON 25.3 bn or EUR 5.3 bn,
accounting for around 14% of the total market
capitalization of the companies listed on the
BSE and for around 27% of the capitalization of
the BET index (representing the 16 most liquid
blue-chip stocks listed on the BSE).
OMV Petrom on the capital markets 11
OMV Petrom S.A. share symbols
ISIN
Bucharest Stock Exchange
Bloomberg
Reuters
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)
Dividend per share (RON)
Dividend yield (%) 1
Payout ratio (%) 3
ROSNPPACNOR9
SNP
SNP RO
ROSNP.BX
2019
56,644.1
25,320
5,298
0.4470
0.2820
0.4470
0.0642
0.031 2
7.0
48
2018
56,644.1
16,937
3,631
0.3955
0.2800
0.2990
0.0720
0.027
9.0
38
∆ (%)
0
50
46
13
1
50
(11)
15
(22)
26
1 Calculated based on the closing share price and RON/EUR exchange rate as of the last trading day of the respective year;
2 Dividend subject to GMS approval on April 27, 2020;
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 trading day in 2019
was USD 15.0, translating into a 32.7% yoy
increase. In 2019, the GDR price ranged between
a USD 10.7 low (on January 21) and a USD 15.0
high (first reached on November 4).
In total, 64,492 GDRs were traded in 2019 (2018:
751,171), while the daily average number of
GDRs was 254 (2018: 2,969).
The highest monthly trading volume and value
were reached in November (52,905 GDRs, worth
of USD 0.79 mn), while the lowest in March,
October and December (no trades). The total
value of GDRs traded in 2019 was USD 0.95 mn
(2018: USD 9.52 mn).
No GDRs were issued and 55,142 GDRs were
cancelled in 2019. The number of GDRs
outstanding at the end of each month ranged
between 237,922 (in January) and 182,780 (in
December). The latter figure represents 7.3% of
the GDRs issued in the October 2016 Secondary
Public Offering and 0.26% of the free float as of
end-2019.
In 2019, most of the indices on both the European
and US exchanges had an upward trend: the DAX
increased by 25.5%, FTSE 100 by 11.5%, STOXX
Europe 600 by 23.2%, while the FTSE Global
Energy Index, comprising the world’s largest oil
and gas companies, increased by 13.0%. Dow
Jones Industrial average increased by 22.2% yoy,
while STOXX Europe 600/Oil & Gas closed 6.0%
higher yoy.
Value of GDRs traded
significantly lower yoy
12 OMV Petrom on the capital markets
OMV Petrom Annual Report 2019 | Company
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
Own shares
At the end of 2019, OMV Petrom S.A. held a total
number of 204,776 own shares, representing
0.0004% of issued share capital. In 2019, OMV
Petrom did not buy back or cancel any Treasury
shares.
Investor Relations activities
During 2019, 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 roadshows, 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.
The quarterly reporting package provides a
comprehensive resource for analysts and
investors, including, among others, a Trading
Update of Key Performance Indicators (KPIs)
to provide early guidance on OMV Petrom’s key
trends. 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
marginally increased. PKO BP Securities initiated
coverage and no analyst ceased coverage on
OMV Petrom during 2019.
At the end of 2019, OMV Petrom stock was
covered by nine analysts (2018: eight), of whom
five (or 55%) had “Buy” or equivalent ratings
(end of 2018: 75%), three (or 33%) had “Hold” or
equivalent ratings (end of 2018: 25%) and one
(or 11%) had a Sell rating (there were no analysts
with Sell ratings at end of 2018). The average
target price (TP) according to analyst consensus
estimates was RON 0.4620 (translating into a
3.5% upside potential compared to the share price
of RON 0.4470 on the last day of trading in the
year), which is consistent to a Hold rating. This
compares to an average TP of RON 0.4370 as at
end of 2018.
Dividends
The Supervisory Board has approved the
Executive Board’s proposal to the Ordinary GMS
to distribute a gross dividend per share of RON
0.031 for the year 2019. This translates into a total
cash outflow of RON 1,756 mn, a payout ratio of
48% of the Group’s 2019 net profit attributable to
stockholders of the parent (2018: 38%), or 54%
of the Group’s 2019 free cash flow (2018: 49%),
which is in line with the current dividend policy of a
progressive dividend. The 2019 dividend proposal
is subject to the approval of the forthcoming
Ordinary GMS on April 27, 2020.
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.
Average target price
at RON 0.4620, up
6% yoy
2019 dividend proposal
implies a 48% payout
ratio
OMV Petrom on the capital markets 13
New trends in the
ongoing energy
transition to result in
a changed energy
landscape
OMV Petrom Strategy
The global energy landscape remains very
dynamic – the constantly increasing world
population is demanding more energy with an
increasing urgency to address the challenges
posed by the climate change. The world population
is set to reach almost 10 bn by 2050 iii, while the
global energy demand is set to increase by 24%
by 2040 iv. Oil and gas are forecasted to continue
to meet more than half of the demand, and to
remain the backbone of global energy supply.
However, there are new trends emerging through
the ongoing energy transition, such as the strong
advance of renewables, an increasing demand for
alternative fuels in transport, particularly electric
and gas mobility, the mounting pressure for
increasing energy efficiency while simultaneously
reducing greenhouse gas emissions, and the
disruption caused by the rise of digital innovation
in all areas. Some of these trends may result
in significant changes to the power generation
mix, new mobility solutions, and a more active
participation of consumers in the energy system.
The new energy macro-trends, as well as new
regulations, have already started to impact
developed markets such as Western Europe.
The Romanian energy landscape is facing
similar challenges to the global and European
macro trends, albeit at a slower pace. In order to
address the new consumption patterns and meet
the increasing demand, OMV Petrom remains
committed to continue delivering the energy
required for a better life for millions of people in a
reliable and responsible way.
During the three years since publishing our 2021+
Strategy, we have worked hard to achieve our
objectives. Going forward, we continue to pursue
our three strategic directions: improving the
competitiveness of our existing portfolio,
developing new opportunities for growth, and
expanding our regional footprint. Supported by
our strategic enablers – People and Organizational
Culture, Technology and Innovation, and
Sustainability – we are constantly developing our
business to become more sustainable, efficient,
and innovative, to deliver on our promises to
our customers and business partners, as well
as to ensure profitability and offer an attractive
shareholder return.
OMV Petrom achievements on strategic objectives
2021+ Strategic Objectives
2019 Achievements
Exploit full potential of Romanian opportunities
Improve competitiveness
Mature Neptun resources
Develop opportunities for regional diversification
Upstream
<11 USD/boe stabilized production cost despite production decline
Neptun Deep assessment of commercial and economic viability continued
28 marginal fields divested, 40 are being transferred
Simplified footprint, 7 producing assets
70% automated wells and modernized per automated facilities
Contract signed to enter offshore Bulgaria
Explore petrochemicals growth opportunities
Ensure reliable operations at competitive costs
Secure strong retail position via dual brand strategy
Focus on customer centric organization,
digitalization
DS Oil
<8% Fuels & Losses; 97% refinery utilization rate
Polyfuel plant in operation
Coker unit closed blowdown system implemented
Fully modernized fuel storage network
Memorandum of Understanding signed for partnership extension with Auchan
5.3 mn l throughput per filling station in Romania
Integrated gas and power business model
Develop origination and trading
Become regional gas player
Provide integrated energy solutions
DS Gas
Strengthened leading position on the Romanian gas market
Regional operations in neighboring countries
55 TWh gas sales volumes in 2019
3rd party gas to extend supply portfolio
3.4 TWh Brazi power plant net electrical output in 2019
People &
Organizational Culture
Technology & Innovation
Sustainability
iii United Nations, World Population Prospects 2019: Highlights;
iv International Energy Agency World Energy Outlook 2019, Stated Energy Policy Scenario.
14 OMV Petrom Strategy
OMV Petrom Annual Report 2019 | Company
We have constantly worked towards maximizing
operational efficiency and the competitiveness
of our portfolio, fully leveraging our integrated
business model. This proven successful concept,
alongside our hard-working and dedicated people,
safeguard our leading market position in the retail
and gas businesses.
Great achievements have been accomplished
in all divisions in 2019.
In Upstream, the implementation of the 2021
strategic competitiveness initiatives has led to a
more resilient portfolio. Production costs have
stabilized at 11 USD per boe despite the natural
production decline. By divesting a total of 28
marginal fields between 2017 and 2019 and with
signing the agreement to transfer additional 40
fields in 2020, the portfolio optimization program
continues, aiming to streamline operations and
focus on the most profitable fields.
The improvement of organizational performance
has been a continuous process within the
Upstream division over the past years. During
that period, we optimized our operations
through modernization and automation and we
simplified our organizational structure by reducing
hierarchical layers and making the decision
process faster. As a result of simplifying the
structure and of achieving operational synergies,
we are now a leaner organization with seven
producing assets. Going forward, we aim to
develop an even stronger, leaner and more stable
organization, which is built on the efficiency and
the effectiveness of the processes to sustain the
Upstream long-term strategy.
Near Field and Enhanced Recovery opportunities
with the potential to add significant reserves by
2025 contribute to the increase of the ultimate
recovery factors. The first phase of the program,
that commenced in 2019, targets around
30 mn boe. The Near Field opportunities target
formations deeper than 3,000 meters with the
aim to put the volumes fast into production, using
an infrastructure led appraisal approach, while
leveraging the available capacity. In addition,
the full potential of our mature fields will be
achieved by using Enhanced/ Improved Oil
Recovery techniques to extend their lifetime. We
are working to develop a consistent process to
identify and evaluate the right candidates and the
best methodology to be applied on a value basis
approach. We are currently running one polymer
injection pilot project, which aims to contribute
to the improvement of the recovery factor of our
fields, therefore continuing to be committed to our
targets for ultimate recovery factors of 28% for oil
and 55% for gas.
The operational excellence programs have
continued in 2019. As a result, Mean Time
Between Failures (MTBF) reached 737 days in
2019 and we remain committed to our 2021 and
2025 targets of 800 and 900 days, respectively.
Moreover, our priorities in this area are the
following: shortening operations execution time,
focusing on particular well issues supported by
root cause analysis as well as identifying new
technologies that will improve MTBF and lead to
production cost reduction.
By the end of 2019, approximately 70% of our
active wells portfolio and our production surface
facilities have been modernized and automated.
Our target is to reach an automation level of
around 90% for both wells and facilities by 2025.
In Downstream Oil, we are proud of our
competitive refining business in the region which is
supported by our operational excellence resulting
in a 97% utilization rate and a Fuel and Loss ratio
below 8% at the end of 2019.
Investments to reduce the environmental impact
have been made at the Petrobrazi refinery. One
example is the EUR 46 mn investment at the
Coker unit for a closed blowdown system. The
Coker unit is an important part in the refining
process. This is where heavy oil components
from the other units are redirected and where
the final oil transformation process takes place.
The best available technologies for the recovery
of hydrocarbon vapors were implemented at the
Coker unit, where the 20-year-old system was
replaced with a modern, closed blowdown system.
The new system ensures the complete elimination
MTBF at 737 days
in 2019 vs. 900 days
target for 2025
EUR 46 mn investment
at the Petrobrazi
refinery to reduce
environmental impact
OMV Petrom Strategy 15
of any potential volatile organic compounds’
emissions, thus supporting the reduction of the
environmental impact.
With regards to the fuel storage network, we
have successfully completed the infrastructure
optimization program which required investments
of around EUR 145 mn over the last twelve years.
Through this program, we have managed to
streamline our operations into six large terminals
that cover the entire country and which now ensure
a higher efficiency level of supply. Three new
terminals were built – in Jilava, Brazi and Ișalnița,
and the terminals at Bacău, Cluj and Arad were
modernized. Together, they have an aggregated
capacity of 119,000 cubic meters of fuels. The
last of the six depots was inaugurated on the ring
road of Arad at the end of May 2019. Through an
investment of approximately EUR 19 mn, we have
completed the modernization of the fuel terminal
in less than 18 months. Arad is the largest terminal
in Western Romania and the second largest in
our network, covering an area of 50,000 square
meters. It is also one of the most modern and
safest terminals for oil products in Europe. State-
of-the-art technologies at international level have
been implemented here to increase efficiency,
simplify fuels’ management and delivery, as well
as to ensure safe working conditions for our
employees.
In Downstream Gas, consolidating our leading
position in the Romanian gas market remains our
strategic long-term goal, while we continue to be
an important player in the Romanian electricity
market. As such, in 2019, we achieved 54.8 TWh
gas sales volumes, implying an average of
more than 50 TWh over the last three years. Net
electrical output was 3.4 TWh in 2019, covering
6% of Romania’s power generation. We have
diversified our gas supply sources, purchasing
additional gas volumes to complement our
equity production, with the aim to preserve, and
further expand our customer portfolio. We have
maintained the focus on sales to end-customers,
supplying large industrial clients while also
expanding towards smaller volumes consumers
(the combined number of small and medium
customers for gas and power has increased by
12% vs. 2018).
Regarding the second strategic pillar – developing
growth options – the assessment of the
commercial and economic viability of the Neptun
Deep project continued in 2019. All prerequisites –
including the 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 it becomes commercially viable, the
Neptun Deep project will be a key contributor to
our RRR target.
In Downstream Oil, after two years of project
related works, the Polyfuel plant successfully
became operational at the Petrobrazi refinery
following an investment of circa EUR 65 mn. By
using an innovative and environmentally friendly
technology, approximately 90,000 tons of high
octane gasoline and diesel, or the equivalent
of 1.8 mn car refills, are obtained through the
reconversion of liquefied petroleum gas (LPG) and
low-grade light gasoline. This unit is the third of its
kind worldwide and the first to convert low-grade
light gasoline, as well, not just LPG. The result
of this reconversion is the value increase of the
production mix, due to the larger share of gasoline
and diesel. Furthermore, this process enhances
the flexibility of the refinery and can be adapted to
what is more in demand on the market: gasoline or
diesel.
Furthermore, we are currently evaluating
opportunities for petrochemicals in the Petrobrazi
refinery, which implies not only an opportunity
to increase our profitability, but also allows a
sustainable product mix in the long term.
In retail, we have surpassed the 5 mn liters
throughput per filling station in Romania, an
outstanding result that gives us the confidence
that we have succesfully delivered on customers’
evolving and more sophisticated needs. We look
forward to 2020 and beyond, to secure our position
in the market and to continue to differentiate from
our competitors with the two retail brands: Petrom
and OMV.
In February 2019, we have signed a Memorandum
of Understanding to extend the partnership with
Auchan Retail Romania. The cooperation was
Completed fuel storage
network optimization
More than 50 TWh
average gas sales
volumes over the last
three years
16 OMV Petrom Strategy
OMV Petrom Annual Report 2019 | Company
initiated in 2017 and, during a pilot phase, several
MyAuchan convenience stores were opened at
Petrom branded filling stations, both in urban and
rural areas in Romania. The pilot phase aimed to
test the business model and to allow both partners
to evaluate the potential of this partnership, which
amounted to 17 convenience stores by the end of
2019. MyAuchan stores at Petrom filling stations
feature a wide range of up to 3,000 products,
from high-quality food, including ready meals,
fresh coffee, fresh products (fruit and vegetables,
bakery, diary) and groceries, to non-food products,
such as cosmetics, detergents, baby products, as
well as car accessories. Thus, Petrom’s best value
for money proposition in fuels has been completed
with Auchan’s offering of 24/7, convenient,
accessible goods, available while customers fuel
their cars.
For the OMV brand, in 2019 we continued to
strengthen the unique value proposition of OMV
MaxxMotion Performance Fuels. The proprietary
formula containing unique cleaning molecules
has been proven to prolong the life of the engine,
as demonstrated by the consumer product test
initiated in the summer of 2019 in partnership
with the Technical University from Cluj-Napoca.
In addition, an increased percentage of biofuels
in fuels has provided additional environmental
benefits. As to the non-fuels offer, we have
continued to capitalize on the VIVA proposition
with our innovative, gourmet recipes, tailor-made
for people on the go, and the unique serving of
VIVA Coffee.
In Upstream, the assessment of regional
expansion opportunities in the areas of interest
continued in 2019. We aim to expand our
presence in the Black Sea region by entering
Bulgaria. In December 2019, OMV Petrom signed
a contract to acquire OMV Offshore Bulgaria
GmbH, which currently holds a 30% stake in
the Han Asparuh exploration license in Bulgaria
through a joint venture led by Total as operator.
Closing of the transaction is subject to certain
conditions precedent and is expected to take
place by mid-2020. The deepwater offshore
Han Asparuh exploration block is located in the
western part of the Black Sea. The first exploration
well, Polshkov-1, was drilled by the joint venture
in 2016. This was followed by the drilling of two
further exploration wells in 2017 (Rubin 1) and
2018 (Melnik 1). Geological and geophysical
studies are being performed with the aim to
identify additional exploration drilling targets.
In Downstream Gas, we pursue our strategic
direction of becoming a regional player. This
hinges on the Final Investment Decision for the
Neptun Deep project. Meanwhile, we aim to enrich
our sales and supply portfolio in the region in order
to offset the decline in equity gas volumes, while
at the same time mitigating the Romanian market
concentration risk, expanding our operations into
the neighboring countries (subject to the network
and interconnectors development).
The progress of our strategy implementation
is measured by the financial targets we have
defined. In 2019, we spent RON 4.2 bn on
CAPEX, distributed RON 1.5 bn in dividends to
our shareholders, recorded a RON 1.7 bn free
cash flow after dividends, and achieved a 13.8%
Clean CCS ROACE.
The three strategic enablers – People and
Organizational Culture, Technology and
Innovation, and Sustainability – support the
implementation of the strategy and ensure the
long-term success of the company.
People are at the core of our business. Our
People strategy is focused on inspiring leadership,
performance-focused and principle-led behavior,
organizational agility and building a great
workplace (learning, development, benefits,
diversity).
The strategic enabler Technology and Innovation
aims to make our company more efficient and
agile through more innovation and increased
digital dexterity. The Upstream and Downstream
divisions are focusing on introducing digital
technologies to modernize their business.
However, technological change will not be
successful without our people embracing the new
ways of thinking and acting. Agile ways of working
and a set of new methodologies like Design
Thinking and Rapid Prototyping will strongly
support this new mindset.
Becoming a regional
gas player hinges on
FID for the Neptun
Deep project
OMV Petrom Strategy 17
Safety is our number
one priority under the
Sustainability enabler
Under the Sustainability enabler, safety is the
number one priority. We operate in a hazardous
industry, in which risk comes with the job.
However, we believe that all accidents are
preventable. Although not easy to achieve, every
job can be done safely. We are committed to
putting safety first in the pursuit of our financial
and operational objectives.
We have pledged to do business sustainably
and in a way that benefits the economy, the
environment, and the society as a whole. We will
continue to uphold this commitment as it is the
only way to protect and preserve security, living
standards, and well-being. We are committed
to acting on climate change mitigation and
responsible resource management. We will also
focus on improving the carbon efficiency of our
operations and product portfolio with the aid of
new technologies. Moreover, we are aware that
we are a corporate citizen of this country, and as
such, we aim to be a responsible partner for our
stakeholders, mainly for the communities where
we operate.
18 OMV Petrom Strategy
OMV Petrom Annual Report 2019 | Company
Business environment
Global macroeconomic and sector trends
The global economy grew by 2.9% in 2019,
its lowest pace in a decade. The slowdown
in economic activity affected equally major
economies, like the US and the Euro area, and
developing countries, such as India, Russia
or Mexico. One common factor across the
weakening growth picture was the deceleration
in manufacturing and global trade, the latter
advancing by a meagre 1% compared to
3.7% a year before. Higher tariffs and ongoing
uncertainties regarding trade policies held back
investment and the demand for capital goods.
At the same time, the automobile industry, which
accounts for almost 6% of global output, went
further into recession, with sales dropping more
than 4% in 2019, owing to disruptions from new
emission standards in Europe and falling demand
in both China and India. The US economy grew by
2.3% with economic activity moderating as a result
of weak investment and the tapering off effect of
the 2018 tax reform. In Japan, growth stood at 1%
despite weak manufacturing performance. The
Japanese government announced a large fiscal
package, equivalent to 2.4% of GDP, to counteract
the downside risks to economic activity and to
partially offset the negative effects on demand of
the consumption tax increase. China’s economic
growth slowed down to 6%, as the domestic
fiscal stimulus managed to mitigate some of
the negative economic impact caused by the
imposition of US tariffs.
In contrast to the weak manufacturing and trade
performance, the services sector remained strong
across most advanced economies, keeping wage
growth resilient. The Euro area growth decelerated
to 1.2%, from 1.9% a year ago, with all major Euro
zone economies slowing down, partly influenced
by Britain’s decision to leave the European Union.
Germany’s economy advanced by 0.5%, impacted
strongly by the fall in manufacturing output. The
French economy grew by 1.3% supported by
the strength of its services sector and domestic
consumption, while the Italian economy increased
by a meagre 0.2%, adversely affected by global
trade tensions. However, despite the slowdown
in economic growth, Euro area labor markets
remained resilient, with employment rising
and income levels continuing to aid consumer
spending. Financial conditions remained broadly
accommodative across both advanced and
emerging economies, supported by interest rate
cuts and renewed stimulus packages by the main
global central banks.
Consumer price inflation in advanced
economies slowed down to 1.4% as economic
activity levels scaled back. Core inflation, which
excludes volatile food and energy items, dropped
below target in most advanced economies.
Notwithstanding the increase in import tariffs
in several major economies, cost pressures
remained largely subdued. Neither cost pressures
nor the increase in wages had a strong pass
through effect to core consumer price inflation.
Eurozone headline inflation stood at 1.3%, with
energy inflation rebounding from negative rates
displayed in the summer and turning positive
again at the end of the year.
Total global oil demand rose by 1% yoy to
100.3 mn bbl/d in 2019. The largest increase
came from Asia, almost 0.7 mn bbl/d, while
Americas and the Middle East accounted for
0.1 mn bbl/d each. Oil demand growth in Europe
remained once again stagnant, for the second
year in a row. In OECD countries oil demand fell
by 0.2%, driven by Europe and Asia with annual
decreases of -0.5% and -1.8% respectively. In
contrast, oil demand in OECD Americas rose by
0.4% or 0.1 mn bbl/d. Oil demand in non-OECD
countries displayed a solid growth, rising by 2.1%,
or 1.1 mn bbl/d, driven largely by China and India.
Global oil supply remained virtually stagnant in
2019, as OPEC countries effectively reduced their
output by 1.93 mn bbl/d, a 6.1% drop compared
to 2018, to offset production increases elsewhere.
In July, OPEC and Russia agreed to extend their
crude oil production cuts for an additional nine
months, until March 2020. OPEC’s efforts to curtail
oil production, mainly in response to increased
US shale output, managed to diminish, to some
extent, the existing global oversupply. Overall,
however, the net oil production in OECD countries
rose by 1.56 mn bbl/d, propelled by an increase of
1.6 mn bbl/d coming from the US alone.
Oil was trading in a relatively narrow price range in
2019, between USD 55-70/bbl, despite episodes
Global oil demand
up 1% yoy
Business environment 19
Average Brent-Urals
spread narrowed by
USD 1.18/bbl
Romania's GDP growth
at a still robust 4.1%
which saw an increase in geopolitical uncertainty.
Early in the year, oil prices were pushed higher
by production losses in Venezuela and increased
tensions between the US and Iran. Later on,
several attacks on Saudi Arabia oil infrastructure
raised the prospect of further tensions in the Strait
of Hormuz, which transits around 20% of global
oil trade, pushing up both oil prices and insurance
costs. The average Brent oil price fell in 2019 by
10% yoy to USD 64.21/bbl, while the average
Urals price was USD 64.19/bbl, 8.5% lower
compared to 2018. The average spread between
Brent and Urals oil prices narrowed to USD 0.02/
bbl from USD 1.2/bbl a year before.
Romania - macroeconomic and sector trends
According to preliminary official estimates,
Romania’s economy grew by 4.1% in 2019,
marginally lower than a year before. Growth
remained robust, but for a second consecutive
year fell short of the government’s beginning
of the year forecast of 5.5%, by quite a large
margin. Private consumption continued to be the
main engine of growth, supported by a strong
increase in wages across all sectors of the
economy. Average economy annual net real wage
advanced strongly, going up by almost 15%, as a
scarcity of qualified labor force and the increase
in minimum wages maintained upward pressures
on wage growth. There were discrepancies in
wage growth rates across various sectors, with
the traded sector having to respond to competitive
pressures and thus registering lower wage growth
than that recorded in the non-traded public
sector. As a direct consequence of the increase
in households’ purchasing power, annual retail
sales went up by a solid 7.1%, higher than the
5.6% rate recorded in 2018. Fuel retail sales
were also buoyant, increasing by 6.5% compared
to 2018. But the new car registrations data sent
more mixed signals. The number of registered
cars for passenger transport rose in 2019 by
0.8% compared to a year before, in contrast to
the number of registered cars for freight transport
which fell by 0.9%.
Domestic demand remained solid and
counteracted the economic effects caused
by the worsening of economic conditions in
external markets. Robust consumption was
complemented by an even stronger performance
of the construction sector. Annual construction
volume increased by a remarkable 28%, with new
constructions having a large share in total. But
industrial production went into negative territory,
after eight years of expansion, declining by 2.3%
in 2019 compared to a year ago. The slowdown
in industry output was led by manufacturing,
which fell by 1.9%, as the main European export
markets, notably Germany’s, were impacted by
lower demand. Energy production also went down
by 4.2%, while mining and quarrying dropped by
2.7%.
Despite the positive performance of consumption
and construction, domestic macroeconomic
imbalances worsened in 2019. The budget deficit
reached 4.6% of GDP at the end of 2019, far
above government’s target of 2.8%, as lower than
forecast revenues, together with the increase
in public pensions, pushed up government’s
borrowing needs. In addition, the current account
deficit continued to widen to 4.8% of GDP from
4.4% of GDP a year before. Political instability
also rose, with a new minority government
getting in power in October after its predecessor
lost a no-confidence vote. Concerns about
the size of the twin deficits, by far the largest
among the countries in the region, coupled with
the heightened political risk prompted some
major international rating agencies to revise the
country’s outlook from stable to negative, in effect
leaving Romania’s rating one notch above the
non-investment grade status. Frequent changes
in legislation and the increased volatility in both
political and economic environment impacted
negatively net foreign investment. Although
net foreign investment remained virtually flat in
nominal terms, to an estimated EUR 5.3 bn, it fell
as a percentage of GDP by around 8%, to 2.4%
of GDP.
The uncertainty regarding the impact of legislation
changes on local businesses, notably those
pertaining to the effects of the emergency
ordinance 114/2018, led to a six fold increase in
the RON/EUR exchange rate monthly volatility in
the first half of the year. On average, in 2019 the
RON fell against both the EUR and the USD by
2% and 7.5% respectively.
20 Business environment
OMV Petrom Annual Report 2019 | Company
End-year consumer price inflation stood at 4%,
higher than the 3.3% recorded a year before.
Volatile food prices and a relatively strong base
effect in domestic fuel prices pushed up the
overall inflation rate, while the depreciation of the
RON against major currencies and the increase
in excises had also inflationary effects. Monetary
policy remained largely accommodative in 2019,
as the central bank benchmark interest rate was
left unchanged.
Romania’s total energy supply went up by
2.2% in 2019, more than double the rate of
growth recorded in 2018, reaching 35.3 mn toe.
Domestic energy production fell across all energy
sources with the corresponding imports going up.
Oil supply went up by 3.1% to 12 mn toe, with
domestic production falling by 1% compared to a
year ago. But distortions created by the change
in legislation, which imposed a cap on gas prices
sold to households, led to a sizable jump in gas
imports. Domestic natural gas supply increased by
7.4% to 10.2 mn toe, with gas imports growing by
an outstanding 77% to 2.1 mn toe. This pushed up
natural gas imports’ share in total supply to 21% in
2019 from 13% a year before.
Gas imports up
77% yoy; share in
consumption up to
21% in 2019 vs. 13%
in 2018
Business environment 21
Business segments’ operational performance
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 expenditures (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)
2019
9,541
2,589
(255)
2,845
5,342
3,269
427
55.35
52.97
52.1
10.90
504
477
2018
9,742
3,531
306
3,224
5,606
3,150
466
58.30
55.82
54.3
11.18
532
509
∆ (%)
(2)
(27)
n.m.
(12)
(5)
4
(8)
(5)
(5)
(4)
(3)
(5)
(6)
1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 38-50;
2 Including inter-segment sales;
3 Excluding intersegmental profit elimination.
HSSE is our first priority
The Lost Time Injury Rate (LTIR) (employees and
contractors combined) improved to 0.40, compared
with 0.48 in 2018. No work related fatalities
occurred in our operations in 2019.
We continued to build a strong safety culture,
where everyone is confident that every job can be
safely performed. We are committed to achieving a
sustainable culture of safety, where open reporting
is a mean of learning and improvement. In order
to foster this, we have initiated an HSSE training
for frontline managers and continued to rollout the
HSSE Passport program for contractors as well
as the Safety Culture program following DuPont
model.
In Upstream, we continued to focus on improving
the carbon efficiency of our operations, achieving a
4.7% decrease of the carbon v intensity in 2019 vs.
2018. We will continue to act on climate change
mitigation by developing projects that contribute
to reaching our zero routine flaring and venting
objective by latest 2030.
Upstream operations in Romania
Exploration
In June, the Romanian Government granted OMV
Petrom a five-year extension for nine exploration
blocks.
In July, NAMR announced the launching of a new
license round for Romania, comprising 28 oil
and gas exploration blocks (22 onshore and six
offshore). The official start of the tender process is
awaited in 2020.
In December, OMV Petrom signed a contract to
acquire OMV Offshore Bulgaria GmbH, which
holds a 30% stake in the Han Asparuh exploration
license in Bulgaria. Closing of the transaction is
subject to certain conditions precedent and is
expected by mid-2020.
During 2019, two new exploration wells were
drilled in OMV Petrom’s onshore licences. The
shallow well 2800 Cobia was spudded in March
and plugged and abandoned after it did not find
hydrocarbons. The deep well 4700 Bărbătești was
spudded in March and drilled to a depth of almost
v Details will be available in the OMV Petrom’s Sustainability Report for 2019.
4.7% yoy decrease
of carbon intensity in
Upstream
22 Upstream
OMV Petrom Annual Report 2019 | Company
5,000 m; the well was completed and is planned to
be tested in the first half of 2020.
The exploration well 4461 Totea South drilled
in the previous year was successfully tested in
April 2019 and started production in Q4/19. The
exploration well 6600 Băicoi drilled in 2018 was
completed and prepared for production testing in
2020.
In October, OMV Petrom started a large (more
than 1,500 km2) 3D seismic survey in exploration
block VIII-Urziceni East together with Hunt
Oil Company of Romania S.R.L. as operator.
Completion is expected in the first half of 2020.
Production
At the end of 2019, OMV Petrom operated 193
commercial oil and gas fields in Romania. In
March 2019, nine marginal fields with a production
of around 1 kboe/d (2018 average) were
transferred to Mazarine Energy Romania under a
business transfer agreement.
In Romania, OMV Petrom’s hydrocarbons
production declined by 5.1% compared to 2018
level, to 52.97 mn boe (or 145.1 kboe/d). Crude
oil and NGL production declined by 2.1% to 24.06
mn bbl (or 3.34 mn t), while natural gas production
declined by 7.4% to 28.92 mn boe (or 4.42 bcm).
Offshore production accounted for 17% from
OMV Petrom’s total hydrocarbons production in
Romania (6% of the crude oil and NGL production
and 26% of natural gas production).
Crude oil production based on enhanced oil
recovery techniques accounted for 26% of total
domestic oil production of OMV Petrom. Heavy oil,
representing crude oil with density greater than
900 kg/m3, accounted for 36% of total production
of crude oil and NGL.
The internal gas consumption for Upstream
domestic operations accounted for 10% of total
gas production.
Natural decline, maintenance activities, and the
transfer of nine marginal fields to Mazarine Energy
Romania were the main factors that impacted
production in Romania in 2019. Excluding the
effect of divestments, production decline stood at
4.6% yoy.
Overall production was supported by the
production start of exploration well 4461 Totea
South in the fourth quarter and the excellent
contribution from new wells and workover
activities.
2019 was an active year in terms of routine
activities in Upstream, with an average of 93 crews
available performing over 900 workover jobs and
more that 5,000 well interventions. All of these
lead to an MTBF of 737 days, an improvement
from 700 days in 2018.
Key projects
In 2019, drilling activities were sustained at a high
level, with a peak of 13 active rigs in November in
OMV Petrom’s operated licenses. In line with our
strategy to support the increase of the Reserves
Replacement Rate (RRR), a total of 100 new
wells and sidetracks were drilled in 2019. These
activities included drilling of deep and complex,
high impact exploration wells, and also well
completion and production start at some significant
wells.
OMV Petrom further invested in keeping operation
of the facilities in line with company’s HSSE
standards and legal requirements as well as
in simplifying operations and improving cost
efficiency. All of these led to safeguarding oil and
gas production and deliveries.
The following projects represent some highlights
of our Main Onshore Projects:
4461 Totea South – Well hook-up and
flowlines project
Totea 4461 exploration well is a new gas discovery
in Oltenia area. Considering the production
potential from the well testing results, the surface
project was fast tracked, optimized in respect to
activities planning enabling the well to be put in
production in Q4/19.
Central Hydrocarbon Dewpointing
installation (CHD) Hurezani
Exploration well 4461
Totea South supported
overall production
13 active rigs at peak,
100 new wells and
sidetracks drilled
Upstream 23
In 2019, works at the CHD Hurezani continued
with the successful testing and start-up of the Low
Temperature Separation (LTS) plant. By finalizing
the LTS Plant, the entire Hurezani Gas Treatment
Hub is now complete, after an overall investment
of around EUR 200 mn over the past nine years,
which included the Turbo Compressor Station,
the Dehydration Station, and the Hydrocarbon
Dewpointing Station.
The new gas treatment facility represents an
investment of approximately EUR 50 mn that
reflects latest industry standards in terms of
technology. It increases energy efficiency and
significantly contributes to the reduction of
greenhouse gas emissions, while ensuring safe
operations to deliver around 20% of OMV Petrom’s
gas production into the national gas transportation
network.
FRD Burcioaia and Safety Upgrade Mădulari
The facilities in Burcioaia and Mădulari are state
of the art facilities for gas treatment following
investments of more than EUR 130 mn. While
FRD Burcioaia became fully operational towards
the end of 2018, the Mădulari plant became fully
operational in 2019.
FRD Independența / Independența Tank Farm
Independența is a mature oil field in production
since 1959. The purpose of FRD Independența
is to increase 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 mid-2018,
following investments of around EUR 50 mn.
Out of the entire FRD scope, Independența Tank
Farm is the last project remaining to be completed.
Front End Engineering Design (FEED) was
finalized and the project will pass into the detailed
engineering phase and execution.
FRD Suplac Phase 2 and Suplac Key
Infrastructure projects
Several FRD Suplac Phase 2 activities were
finalized in 2019; a gathering park, three well
tie-ins clusters, and five platforms clusters.
Construction works progressed on two other major
projects in the Suplac area: “Revamp tank farm
Suplac” and “Revamp potable water plant Suplac”,
projects focused on improving safety, efficiency,
and energy consumption. Also the FEED for
“Revamp gas plant Abrămuț” has been completed.
The investments in the Suplac area projects
amounted to more than EUR 10 mn in 2019.
Offshore Portfolio
In 2019, the Gloria Jack-up Rig was safely
removed from its production location in the Sinoe
field. This marked the end of a 40-year drilling and
production platform in the Romanian Black Sea
and the first offshore decommissioning operation in
Romania.
Rejuvenation Program
The program continued to improve key process
safety and integrity areas through completing a
series of projects such as: installation of the third
new offshore crane, upgrade of the fire and gas
detection systems on three offshore platforms,
installation of a new foam system for the crude
oil bunds in Midia Terminal, intelligent pigging
inspections on onshore and offshore pipelines, and
initiation of detail design for helideck modernization
on four offshore platforms. With over EUR 100
mn invested so far, this program shows our full
commitment to the operations in the Black Sea
region.
FRD Petromar
The project passed Technical Committee in
August, with the FEED contract commencing end
of September 2019. The main objective of FRD
Petromar is to increase offshore production while
developing additional reserves in the Sinoe field
and minimizing development cost by side-tracking
existing non-producing wells as well as upgrading
the related facilities.
Partnerships
Since July 2010, in order to optimize the portfolio
of existing assets, OMV Petrom has entered into
partnerships with international companies for
production enhancement.
The partnerships with PetroSantander, Expert
Petroleum Solution and Expert Petroleum are
governed by production enhancement contracts
(PECs) referred to as PEC Timiș, PEC Turnu, and
PEC Țicleni, covering 22 mature fields in total.
The PECs stipulate that the contractors take over
CHD Hurezani
increases energy
efficiency and reduces
GHG emissions
24 Upstream
OMV Petrom Annual Report 2019 | Company
and finance the operations and together with OMV
Petrom commit to the future developments of the
respective fields, 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 total, two new wells were drilled and 60
workovers jobs were performed by the contractors
in 2019 within the PECs. The total production
of the PECs in 2019 amounted to 7.3 kboe/d
(2018: 7.4 kboe/d), of which PEC Țicleni, PEC
Turnu, and PEC Timiș contributed 3.9 kboe/d,
1.2 kboe/d, and 2.2 kboe/d respectively.
In the Joint Operations Agreement with Hunt
Oil (50% OMV Petrom, 50% Hunt Oil operator),
we recorded a production of 1.4 kboe/d (OMV
Petrom share) in 2019. A second well, 2 Padina
Nord, was drilled and tested in Q4/19, with
positive results.
The total production recorded by PECs and
Joint Operations Agreements in 2019 was 8.7
kboe/d (2018: 8.8 kboe/d), representing 6% of the
OMV Petrom’s total domestic production.
Production from PECs
and Joint Operations
Agreements at
8.7 kboe/d
International Upstream operations
In Kazakhstan, OMV Petrom holds development
and production licenses for the TOC fields
(Tasbulat, Aktas, Turkmenoi) and for the
Komsomolskoe field. In 2019, the average oil
and gas production in Kazakhstan declined by
4.6% versus 2018, to 2.37 mn boe (6.5 kboe/d),
as the increased well intervention and workover
activities could not fully compensate the lower
production from key wells at the beginning of the
year. Well interventions and workover activities
were restarted after the pause in 2018. A total of
twelve workover jobs and 44 well interventions
were carried out in 2019.
Production in 2019
Oil and NGL
Natural gas
Romania
Kazakhstan
OMV Petrom Group
mn t
3.34
0.27
3.61
mn bbl
24.06
2.07
26.12
bcm
4.42
0.05
4.47
mn boe
28.92
0.30
29.22
Proved reserves as of December 31, 2019
Romania
Kazakhstan
OMV Petrom Group
Oil and NGL
mn t
40.4
3.1
43.6
mn bbl
290.9
24.3
315.2
Natural gas
bcf
mn boe
1,005.8
186.3
14.9
2.5
1,020.7
188.7
Total
mn boe
52.97
2.37
55.35
Total
mn boe
477.2
26.8
503.9
Upstream 25
Reserve Replacement Rate (RRR) vi
As of December 31, 2019, the total proved oil
and gas reserves in the OMV Petrom Group’s
portfolio amounted to 504 mn boe (of which
477 mn boe in Romania), while the proved and
probable oil and gas reserves amounted to 786
mn boe (of which 743 mn boe in Romania).
For the single year 2019, the Group’s RRR
increased to 49% (2018: 42%), while in Romania
it was 39.5% (2018: 40%). The Group’s three-
year average RRR increased to 42% in 2019
(2018: 38%), and in Romania it increased to 38%
(2018: 34%).
due to favourable drilling and workover results and
new projects.
OMV Petrom Group (1Y) Reserves
Replacement Rate
(%)
100
80
60
40
20
0
70
73
67 68
38 35
44
42
31
33
3636 34
49
42
OMV Petrom was able to increase RRR mainly
06 07
08 09
10
11
12
13
14
15
16
17
18 19
Single year 2019 RRR
at 49%, up 7 pp yoy
vi Including the effect of the divestments of nine marginal fields in 2019.
26 Upstream
OMV Petrom Annual Report 2019 | Company
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 (%)
Refining input (kt)
Crude oil processed (kt) 5
Total refined product sales (kt)
thereof: Gasoline (kt)
Diesel (kt)
Kerosene/Jet fuel (kt)
2019
18,346
1,475
(204)
178
1,501
2,223
818
97
4,727
4,306
5,462
1,310
2,702
289
2018
17,208
1,385
9
42
1,335
2,068
1,112
85
4,084
3,788
4,987
1,208
2,494
275
∆ (%)
7
6
n.m.
326
12
7
(26)
14
16
14
10
8
8
5
Fuel oils & Bitumen (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 38-50;
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)
2,847
2,743
267
342
28
4
resulting from Downstream Oil;
5 Including NGL;
6 Retail sales volumes refer to sales via Group’s filling stations in Romania, Bulgaria, Serbia, 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: “Golden Rules &
Supplementary Life Saving Rules”, “Be Smart, Be
Safe”, as well as the “Leading Safety“ program).
The LTIR (employees and contractors combined)
in Downstream Oil was 0.15, better than the
international benchmark.
In 2019, we continued to concentrate on improving
the carbon footprint of our operations by reducing
the carbon vii intensity by 3% versus 2018.
Operational performance
The operational performance and energy
vii Details will be available in the OMV Petrom’s Sustainability Report for 2019.
efficiency of the Petrobrazi refinery remained at
competitive levels.
In 2019, the OMV Petrom indicator refining margin
was USD 4.67/bbl, lower by USD 1.61/bbl than in
2018, due to lower spreads for products, mainly
gasoline.
OMV Petrom indicator
refining margin down
by USD 1.61/bbl
The refinery utilization rate was higher yoy, 97%
in 2019 compared to 85% in 2018, which was
impacted by the six-week planned turnaround in
Q2/18.
The continued focus on operational and energy
efficiency allowed us to maintain the fuel and loss
indicator below 8%, improved versus the previous
year.
Fuel and loss indicator
below 8%
Downstream Oil 27
Production (kt)
Gasoline
Diesel
Kerosene/Jet fuel
Fuel oils
LPG total
Petroleum coke
Other 1
Total
2019
1,302
1,958
117
281
196
274
260
2018
1,151
1,582
111
234
189
248
238
4,388
3,754
∆ (%)
13
24
5
20
4
10
-3
17
1 Comprises other products such as: Propylene, Naphta, Hydrotreated Gasoline, Heavy Gasoline Fraction, Sulphur, etc.
OMV Petrom Group’s total refined product sales
amounted to 5,462 kt in 2019, representing
a 10% increase compared to 2018, mainly
reflecting the improved demand in all sales
channels in 2019 and the lower product
availability in the prior year due to the refinery
turnaround.
Group retail sales volumes were 4% higher
than in 2018, reaching 2,847 kt, as a result of
a positive trend mainly in the domestic market
demand. In Romania, retail sales reached 2,388
kt in 2019, 5% higher than in 2018. Therefore,
in 2019, the average throughput per station
in Romania increased to 5.27 mn liters (2018:
5.03 mn liters), driving the overall increase of
this indicator at the Group level to 4.43 mn liters
(2018: 4.28 mn liters).
Retail market share viii in the operating region
was 32%, reflecting improved efficiency, despite
increased competition.
on fuels, while continuing our efforts to become
more appealing to the younger demographic, via
specific consumer promotions and capitalizing
on the convenience of our offer. Regarding our
strategic partnerships, we continued the pilot
phase of the cooperation with the retailer Auchan,
via the addition of two new filling stations with
an innovative approach to design, reaching a
total of 17 MyAuchan convenience stores in the
Petrom-branded filling stations. A Memorandum
of Understanding (MoU) was signed in February
2019 between OMV Petrom and Auchan Retail
Romania, setting forth the intentions of both
parties to discuss further expansion of the
partnership. Subsequently, the Competition
Council issued its approval of the partnership,
a necessary step of the process towards
expansion at national level, subject to closing the
negotiations and contract signing. Furthermore,
we continued the partnership with Subway in
Romania and with KFC in Serbia.
Within the OMV-branded filling stations, we
continued to provide our customers with best-
in-class fuels and convenience on the go with
a diversified range services for the drivers (e.g.
money transfer, car insurance, utilities payments,
courier services).
In the Petrom-branded filling stations, we have
consolidated our “value for money” proposition
As a result of these measures, together with
sustained customer incentive programs, the
non-fuel business contribution continued to
support the increased retail performance yoy.
In 2019, the total non-fuel 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 ix
concept, the diversified offer in the restaurant
area, and our strategic partnerships.
Average throughput
per station in Romania
at 5.27 mn liters, up
5% yoy
viii 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);
ix Space rented to partners within the shop area of a filling station.
28 Downstream Oil
OMV Petrom Annual Report 2019 | Company
In 2019, in the non-retail distribution channels,
OMV Petrom continued to focus on strengthening
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. Group non-
retail sales increased by 17% compared to 2018
reflecting higher wholesale and export sales.
In Romania, non-retail sales were 1,146 kt, 2%
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 2019 comprised
a total of 793 filling stations, one unit below 2018.
Group non-retail sales
up 17% yoy
Number of filling stations per country at the end of period
Romania
Moldova
Bulgaria
Serbia
Total
2019
556
81
94
62
793
2018
558
82
93
61
794
∆
-2
-1
1
1
-1
Downstream Oil 29
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)
thereof to the regulated market (TWh)
Net electrical output (TWh)
2019
6,978
438
156
282
530
85
54.8
47.2
12.5
3.4
2018
5,079
286
(73)
360
378
26
47.3
38.9
-
3.8
∆ (%)
37
53
n.m.
(22)
40
230
16
21
n.m.
(11)
1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 38-50;
2 Including inter-segment sales;
3 Excluding intersegmental profit elimination.
HSSE is our first priority
Downstream Gas HSSE performance remained
outstanding in 2019. As always, in any activity we
undertake, the health and safety of our employees
and contractors is our top priority and we are proud
to once again record a year with no work-related
incidents or lost-time injuries. We continue to focus
on improving our carbon footprint.
In 2019, we recorded a marginally higher carbon x
intensity level as compared to the 2018 level, in the
context of lower net electrical output.
Operational performance
According to our estimates, national gas
consumption decreased by ~6% in 2019 as
compared to 2018, mainly weather driven,
being covered by lower domestic production
and significantly higher imports. In 2019, on the
Romanian centralized markets, the traded gas
volumes covering a variety of standard products
totaled 60.6 TWh (with delivery until end-2020), at
an average price of RON 109/MWh xi.
54.8 TWh in 2019, by 16% yoy, supported by
higher aquisitions from third parties. Given the
legislation in force, in 2019 OMV Petrom supplied
the gas regulated market, delivering 12.5 TWh to
the households and district heating for households
suppliers, as per the set allocation, at the fixed
price of RON 68/MWh.
In the same time, we concluded significant sale
transactions on the centralized markets, with
a total gas volume of 18.7 TWh contracted for
deliveries until end-2020, at an average price in
line with market prices.
The gas supply portfolio blended equity gas
with a diversified mix of other sources to secure
sustainable coverage of all our sales commitments.
Faced with declining equity production as well as
the obligation to supply quantities to the regulated
and to trade on the centralized markets, we have
acquired gas volumes from third parties in order to
develop our end-user portfolio. At the end of 2019,
OMV Petrom had 3.0 TWh of gas in storage.
With a very strong gas sales performance, OMV
Petrom’s total gas sales volumes increased to
We succesfully maintained our leading position
on the Romanian gas market, thus delivering
x Details will be available in the OMV Petrom’s Sustainability Report for 2019;
xi 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.
National gas demand
down ~6% yoy, on our
estimates
30 Downstream Gas
on our strategy. Our customer portfolio broadly
ranges 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.). Built on
our promise to ensure security of supply as well
as supported by our business-friendly approach,
competitive terms and professionalism, our
relationships with the customers are long-term
and mutually supportive. We are committed to
understand our customers’ activities, we are
actively involved in events that help us maintain
a close relationship with the Romanian business
environment, and we constantly support the
developing directions of the Romanian industry
through the expertise and experience we have
accumulated. We aim to further improve the
partnership with our customers for long-term
mutual value creation.
On the power market, as per currently available
data from the grid operator, national electricity
consumption slightly decreased to 60 TWh in
2019 (2018: 61 TWh). The national electricity
production dropped by 8%, to almost 59 TWh
(2018: 64 TWh). In terms of power generation
mix in 2019, the significantly lower power
production from hydro, coal and natural gas
was not compensated by the slightly higher
production from renewable sources. As such,
Romania was a net power importer in 2019. The
OPCOM spot base load power prices increased
by approximately 10% yoy, averaging RON 239/
MWh in 2019 (2018: RON 216/MWh). Market
coupling played a particularly important role in
2019 in terms of spot power prices but also in the
context of Romania being a net power importer for
the year overall and in every month in the second
half of the year.
2019 was a good year for our power business as
well, with the Brazi power plant having generated
a net electrical output of 3.4 TWh in the context
OMV Petrom Annual Report 2019 | Company
of 93% availability. The power plant’s optimization
mechanism covers both forward and spot sales
and thus improves the role of the power plant
within our equity gas value chain, while forward
contracts are used as hedges to protect against
price volatility, both long- and short-term.
In 2019, the power plant was able to capture
market opportunities, also on the balancing
market, and covered approximately 6%
of Romania’s electricity production, same
percentage as in 2018. The Brazi power plant
had a legal obligation to supply the regulated
power market with 1.14 TWh at the price of RON
259.58/MWh. As per our regular power business,
we supplied both the wholesale power market,
as well as our retail customer portfolio. Moreover,
we had a significant contribution to the stability
of the national electricity system, providing timely
balancing services.
More than ever, the Downstream Gas
performance in 2019 needs to be considered
in correlation with the overall energy market
context. In 2019, both gas and power markets
were highly volatile and unpredictable, mainly
due to regulatory changes at the beginning of the
year. With a strong commitment to a liberalized
market and with the strong support from our
customers and business partners, we managed
to strengthen our market position. We enforced
our business foundation and optimized operations
by centralizing all gas and power activities under
one legal entity. The diversified supply and sale
portfolios, the commitment to our customers and
partners and to the Romanian energy market are
robust premises for long-term future value added.
Brazi power plant
covered ~6% of
Romania's electricity
production
Highly volatile and
unpredictable gas and
power markets in 2019
Downstream Gas 31
Report of the
governing bodies
34
38
Report of the Supervisory Board
Directors’ report
51
Corporate governance report
63
75
Corporate governance statement
Declaration of the management
Report of the Supervisory Board 33
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 2019.
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 appointed 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
short presentations are included in the Corporate
Governance Report.
At the beginning of 2019, the Supervisory Board
consisted of the following members: 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.
Following Manfred Leitner’s waiver of his mandate
as member of the Supervisory Board, Thomas
Gangl was appointed as interim member of the
Supervisory Board, effective as of July 1, 2019
and until the next GMS. Moreover, following the
waiver of Christopher Veit’s mandate as member
of the Supervisory Board, Johann Pleininger was
appointed as interim member of the Supervisory
Board, effective as of August 10, 2019 and until
the next GMS.
Therefore, at the end of 2019, the Supervisory
Board had the following composition: Rainer
Seele (President), Reinhard Florey (Deputy
President), Thomas Gangl, Johann Pleininger,
Daniel Turnheim, Jochen Weise, Sevil Shhaideh,
Radu-Spiridon Cojocaru and Joseph Bernhard
Mark Mobius.
On March 3, 2020, the Ordinary GMS, convened
at the request of the shareholder Romanian State
(via the Ministry of Economy, Energy and Business
Environment), approved the revocation of Sevil
Shhaideh from her capacity as member of the
Supervisory Board and the appointment of Niculae
Havrileț as new member in the Supervisory Board
for the remaining period of the mandate granted
to Sevil Shhaideh. On the same occasion, the
Ordinary GMS approved the appointment of
Thomas Gangl and Johann Pleininger (previously
interim Supervisory Board members) as
Supervisory Board members for the remaining
period of the mandates granted to Manfred Leitner
and Christopher Veit, respectively.
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, 2019.
Following this evaluation, it resulted that the
following Supervisory Board members met during
2019 all the independence criteria stipulated by
the Corporate Governance Code, namely: Jochen
Weise, Radu-Spiridon Cojocaru, Sevil Shhaideh
and Joseph Bernhard Mark Mobius.
Supervisory Board's
current mandate until
April 2021
34 Report of the Supervisory Board
OMV Petrom Annual Report 2019 | Report of the governing bodies
Supervisory Board
approved a new
four-year mandate for
the Executive Board
At the date of this report, considering also the
above mentioned changes in the Supervisory
Board composition, the following members have
an independent status as per the Corporate
Governance Code’s criteria: Jochen Weise, Radu-
Spiridon Cojocaru and Joseph Bernhard Mark
Mobius. Information on the independency of the
Supervisory Board members is included also on
the Company’s corporate website.
Supervisory Board works
In 2019, 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
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 three
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 2019. The
average participation rate was over 90%. On
three 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 2019, Supervisory
Board’s main focus during 2019 was, amongst
others, the overall development of the Company
and the status of the Neptun Deep project.
In terms of governing bodies, the Supervisory
Board approved in 2019 a new four-year mandate
for the Executive Board.
In addition, in the regular report to the Supervisory
Board, the President of the Executive Board
focused on topics such as HSSE, energy sector
overview and macroeconomic prospective.
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
2019, under the guidance of the President of the
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.
Report of the Supervisory Board 35
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 beginning of 2019, 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). In order to increase
the level of compliance with the provisions of
the Corporate Governance Code, starting April
19, 2019, the Supervisory Board approved the
following changes: Jochen Weise, who previsouly
held the position of Deputy President, was
appointed as President of the Audit Committee,
while Reinhard Florey became Deputy President
of the Audit Committee.
Therefore, at the end of 2019, the Audit
Committee had the following composition: Jochen
Weise (President - independent), Reinhard Florey
(Deputy President), Sevil Shhaideh (member
- independent) and Radu-Spiridon Cojocaru
(member - independent).
Following Sevil Shhaideh’s revocation as of 3
March 2020 of her mandate as member of the
Supervisory Board (and consequently the cease
of the position in the Audit Committee) and the
appointment of Niculae Havrileț as member
of the Supervisory Board as of 3 March 2020,
Niculae Havrileț was also appointed as member
of the Audit Commitee as of 13 March 2020 and
until the expiration of the mandate of the current
Supervisory Board, namely until 28 April, 2021.
Therefore, at the date of this report, following this
change in the Supervisory Board membership, the
Audit Commitee has the following composition:
Jochen Weise (President - independent), Reinhard
Florey (Deputy President), Niculae Havrileț
(member) and Radu-Spiridon Cojocaru (member -
independent).
The CVs of the current Audit Committee members
are available on the Company’s corporate website
and short presentations are also included in the
Corporate Governance Report.
In 2019, the Audit Committee met three times, on
which occasions it reviewed and recommended
the adoption of the annual financial statements,
reviewed the reports on payments to governments,
endorsed the Executive Board’s proposal
regarding the allocation of profits as well as the
proposal regarding the distribution of dividends
for the financial year 2018 and recommended to
the Supervisory Board and to the Ordinary GMS
the reappointment of Ernst & Young Assurance
Services SRL (EY) as independent financial
auditor.
As EY is the independent financial auditor of OMV
Petrom group since 2011, reaching next year
the ten years maximum duration period provided
by the EU Regulation no. 537/2014, in 2019 a
public tendering process for the selection of the
independent financial auditor for the audit of 2021
individual and consolidated financial statements of
OMV Petrom was initiated, the selection process
being steered by the Audit Committee.
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 2020.
In the same time, the Audit Committee 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
Changes in the Audit
Committee to increase
compliance with
Corporate Governance
Code
A new Audit Committee
member starting March
2020
36 Report of the Supervisory Board
OMV Petrom Annual Report 2019 | Report of the governing bodies
in 2019. 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 27,
2020.
statements were approved in the Supervisory
Board meeting of March 17, 2020 in line with the
Audit Committee’s recommendation and will be
further submitted for approval in the Ordinary GMS
to be held on April 27, 2020.
Dividend proposal of
RON 0.031/share
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, 2019 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 2019 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, 2019, as well
as the Executive Board proposal to distribute
dividends of RON 0.031 per share (corresponding
to a payout ratio of 48% based on the Group’s
2019 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, 2019 and the
Executive Board proposal for allocation of the
profit, including distribution of dividends.
The separate and consolidated financial
Furthermore, following the review by the Audit
Committee, the Supervisory Board has approved
the reports on payments to governments for
the year 2019, prepared in accordance with
Chapter 8 of the Annex 1 of 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 2019
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
2019 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
met the challenges of a demanding 2019 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 17, 2020
Rainer Seele
President of the Supervisory Board
Report of the Supervisory Board 37
Directors’ report
From left to right: Alina Popa (Chief Financial Officer - EB Member); Radu Căprău (EB Member - Downstream Oil);
Christina Verchere (Chief Executive Officer - President of EB); Franck Neel (EB Member - Downstream Gas); 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
2019
25,485
4,245
3,635
3,635
6,803
4,225
2018
22,523
5,213
4,078
4,078
7,385
4,289
12,347
13,201
∆ (%)
13
(19)
(11)
(11)
(8)
(2)
(6)
Consolidated sales up
13% yoy
In 2019, the Group reported consolidated sales of
RON 25,485 mn, 13% higher compared to 2018,
driven by higher sales volumes and prices for
natural gas, higher sales volumes for petroleum
products and higher prices for electricity, partially
compensated by lower selling prices for petroleum
products.
market environment as well as net special charges
in 2019. Clean CCS Operating Result, in amount
of RON 4,573 mn, lower by 5% yoy, is stated after
eliminating net special charges of RON (370) mn
and inventory holding gains of RON 42 mn. The
net result was a profit of RON 3,635 mn in 2019
(2018: RON 4,078 mn).
The Group’s Operating Result for the year 2019
decreased by 19% to RON 4,245 mn (2018: RON
5,213 mn), influenced mainly by unfavorable
The return on average capital employed xii
(ROACE) reached a value of 12.9% (2018:
15.6%), while Clean CCS ROACE decreased to
xii For definitions of these ratios please refer to pages 76-78, section “Abbreviations and definitions”.
38 Directors’ report
OMV Petrom Annual Report 2019 | Report of the governing bodies
13.8% at the end of 2019, from 14.3% at the end
of 2018.
Capital expenditure amounted to RON 4,225 mn
in 2019 and was 2% lower than in 2018.
Cash flow from operating activities amounted
to RON 6,803 mn, 8% below the 2018 level,
reflecting the lower operating result and the
increase of the net working capital.
Due to the significant cash balance at December
31, 2019, OMV Petrom Group reported a net cash
position of RON 5,982 mn at the end of 2019, up
from RON 4,891 mn at the end of 2018.
Strong net cash
position of RON 6 bn
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”.
2019
2,589
1,913
1,475
438
(156)
(102)
4,245
2018
3,531
1,672
1,385
286
(106)
116
5,213
∆ %
(27)
14
6
53
(48)
n.m.
(19)
In Upstream, Operating Result declined to
RON 2,589 mn (2018: RON 3,531 mn), mainly
driven by lower oil price, lower hydrocarbon
volumes, higher depreciation and exploration
expenses, partly offset by higher gas price.
Exploration expenses increased to RON 238
mn in 2019 (2018: RON 174 mn) due to seismic
acquisition in VIII - Urziceni East block and
increased G&G activities. Group production
cost improved by 3% compared to the 2018
level to USD 10.90/boe, mainly due to favorable
FX effects, which compensated the impact from
lower production available for sale. Production
cost in Romania improved by 3% versus 2018, to
USD 11.03/boe, while in RON terms it increased
by 4% to RON 46.77/boe. Upstream Operating
Result in 2019 also reflected special charges of
RON (255) mn, driven mainly by an impairment
of assets held for sale, while 2018 special items,
of RON 306 mn, reflected mainly an impairment
reversal; both periods included personnel
restructuring costs.
In Downstream Oil, Operating Result
increased to RON 1,475 mn (2018: RON
1,385 mn), reflecting the low base effect from
the prior year’s Petrobrazi refinery turnaround,
the improved operational performance in refining
and the higher sales volumes, in the context of
a weaker refining margin environment. In 2019,
the OMV Petrom indicator refining margin
decreased versus 2018 by USD 1.61/bbl to USD
4.67/bbl, due to lower spreads for products,
mainly gasoline. The refinery utilization rate
reached 97%, compared to 85% in 2018,
which was impacted by the six-week planned
turnaround. Downstream Oil Operating Result
reflected also special charges of RON (204)
mn (2018: special items RON 9 mn), and CCS
inventory holding gains of RON 178 mn (2018:
RON 42 mn).
In Downstream Gas, Operating Result
increased to RON 438 mn (2018: RON 286 mn)
reflecting the optimization of products and
clients portfolios, enlarged gas sales volumes
and increased trading activity, compensating the
weaker power business performance triggered by
deteriorated market conditions. Downstream Gas
Operating Result reflected also net special items
Downstream Oil
Operating Result
increased despite
weaker refining margin
Downstream Gas
Operating Result up
53% yoy
Directors’ report 39
of RON 156 mn mainly from temporary effects
on valuation of forward contracts (2018: special
charges of RON (73) mn).
(2018: RON (106) mn), impacted by higher social
sponsorship activities.
Operating Result in the Corporate and
Other (Co&O) segment was RON (156) 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
RON (370) mn net
special charges
2019
4,573
(370)
(53)
-
(317)
42
4,245
2018
4,804
223
(71)
423
(130)
186
5,213
∆ %
(5)
n.m.
25
(100)
(144)
(77)
(19)
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.
40 Directors’ report
OMV Petrom Annual Report 2019 | 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
2019
25,485
264
7
25,757
(10,681)
(3,470)
(1,187)
(3,512)
(2,140)
(238)
(284)
4,245
32
(642)
3,635
0
3,635
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
∆ %
13
(61)
(23)
11
(33)
(11)
4
(10)
8
(36)
(19)
(19)
n.m.
23
(11)
n.m.
(11)
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 2018, consolidated sales revenues increased
by 13% to RON 25,485 mn, driven by higher
sales volumes and prices for natural gas, higher
sales volumes for petroleum products and higher
prices for electricity, partially counterbalanced
by lower selling prices for petroleum products.
After the elimination of intra-group transactions of
RON 9,060 mn, the contribution of the Upstream
segment representing sales to third parties was
RON 481 mn or about 2% of the Group’s total
sales revenues (2018: RON 528 mn). Sales
to external customers in the Downstream Oil
segment amounted to RON 18,237 mn or 72%
of total consolidated sales (2018: RON 17,075
mn). After elimination of intra-group sales, the
Downstream Gas segment’s contribution was
RON 6,737 mn or approximately 26% of total
sales (2018: RON 4,884 mn).
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 21,566 mn or 85% of the
Group’s total sales (2018: RON 19,112 mn, 85%
of total sales) and sales in the rest of Central and
Eastern Europe were RON 3,849 mn or 15% of
Group sales (2018: RON 3,382 mn).
Other operating income decreased to RON
264 mn, while in 2018 amounted to RON 672 mn,
when it included a positive effect of RON 430 mn
from the reversal of a previously recorded
impairment in Upstream.
Purchases (net of inventory variation) which
include costs of goods and materials employed
amounted to RON 10,681 mn and increased by
33% yoy mainly as a result of higher purchases
from third parties that supported higher sales
volumes.
Sales to external customers are split by
geographical areas on the basis of where
Production and operating expenses increased
to RON 3,470 mn (2018: RON 3,140 mn) partly
Sales in Romania at
85% of total, same as
in 2018
Directors’ report 41
as a result of the set-up of a provision related to
future estimated soil remediation costs in relation
to Arpechim refinery.
Exploration expenses
up 37% yoy
Exploration expenses increased to RON 238 mn
(2018: RON 174 mn), mainly due to seismic
acquisition in VIII - Urziceni East block and
increased G&G activities.
Other operating expenses increased by 19%
to RON 284 mn, compared to the 2018 value of
RON 239 mn.
The net financial result improved to RON 32 mn
from a loss of RON (299) mn in 2018, reflecting
mainly the positive impact from the discounting of
receivables and higher interest income on bank
deposits.
Taxes on income were in the amount of RON
(642) mn (2018: RON (836) mn), mainly driven by
the lower profit generated during 2019.
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) 2
+/- Non-cash changes 3
Cash outflow due to investments in intangible and tangible
assets
+ Net inflow from sale/investment in subsidiaries, non-current
assets and other financial assets
2019
3,269
903
818
85
53
2018
3,150
1,138
1,112
26
1
4,225
4,289
589
(0)
4,814
(879)
54
(9)
4,334
(7)
3,935
4,327
(379)
(67)
Δ (%)
4
(21)
(26)
230
n.m.
(2)
n.m.
(99)
11
n.m.
(9)
466
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
3,556
(17)
definition are not considered as capital expenditures;
2 Additions in 2019 do not include the recognition of right-of-use asset resulted from the first-time application of IFRS 16 Leases;
3 Additions are adjusted for items that did not affect cash flows during the period (including acquisitions through leasing, reassessment of decommissioning
provisions) and changes of liabilities for investments.
Capital expenditure decreased by 2% to RON
4,225 mn (2018: RON 4,289 mn).
Investments in Upstream amounted to RON
3,269 mn and represented 77% of total Group
CAPEX for 2019, being 4% higher than in 2018
mainly due to recognition of assets under IFRS 16
Leases for a long term contract, partially offset by
lower exploration drilling.
Exploration expenditures decreased to RON 427
mn (2018: RON 466 mn) due to lower exploration
drilling activities partially counterbalanced by
seismic acquisition.
Downstream investments amounted to RON
903 mn (2018: RON 1,138 mn). Downstream Oil
investments amounted to RON 818 mn (2018:
RON 1,112 mn), mainly routed to Retail, as well
Total CAPEX
down as a result
of Downstream Oil
CAPEX decline
42 Directors’ report
OMV Petrom Annual Report 2019 | Report of the governing bodies
as to Refining for the completion of a modern,
closed blowdown system at the Coker unit and for
the upgrade of unloading and storage facilities for
bio-blending components at Petrobrazi refinery. The
yoy decrease was mainly due to high base effect,
2018 investments being directed to the Petrobrazi
refinery turnaround, tie-in projects, and the Polyfuel
growth project. In Downstream Gas, the 2019
CAPEX was mainly routed to works related to Brazi
power plant planned shutdown in Q2/19.
Statement of financial position
Summarized consolidated statement of financial position (RON mn)
2019
2018
Assets
Non-current assets
Intangible assets and property, plant and equipment
Investments in associated companies
Other non-current assets
Deferred tax assets
Current assets (incl. Assets held for sale)
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 for decommissioning and restoration obligations
Provisions and other liabilities
Deferred tax liabilities
Current liabilities (incl. Liabilities associated with assets held for sale)
Trade payables
Interest-bearing debts
Liabilities associated with assets held for sale
Provisions and other liabilities
Total equity and liabilities
34,933
31,077
27
2,338
1,491
33,549
29,808
58
2,249
1,433
12,563
10,235
2,464
1,892
217
7,989
2,152
1,674
129
6,281
47,495
43,784
33,501
31,368
8,197
6,867
241
198
6,456
1,282
21
5,797
3,372
132
224
211
282
5,993
361
20
5,549
3,050
267
103
2,068
2,128
47,495
43,784
%
4
4
(54)
4
4
23
15
13
68
27
8
7
19
14
(30)
8
255
5
4
11
(51)
117
(3)
8
Directors’ report 43
Lease liabilities up
following IFRS 16
Leases implementation
Compared to December 31, 2018, total assets
increased by RON 3,711 mn, to RON 47,495
mn, mainly driven by a higher cash and cash
equivalents position and by the increase in
property, plant and equipment. Additions to
intangible assets and property, plant and
equipment amounted to RON 4,814 mn (2018:
RON 4,334 mn).
The increase in total equity by RON 2,133 mn
was the result of the net profit generated in the
current year, partially offset by the dividends
distributed for the 2018 financial year in a gross
amount of RON 1,529 mn.
As at December 31, 2019, total liabilities
increased by RON 1,578 mn compared to the
December 31, 2018 value, mainly due to an
increase in non-current liabilities by RON 1,330
mn as a consequence of the reassessment of
provisions for decommissioning and restoration
obligations and the set-up of a provision for soil
remediation in relation to the Arpechim refinery
site.
Lease liabilities increased by RON 532 mn mainly
following the implementation of IFRS 16 Leases,
while total interest-bearing debts decreased to
RON 330 mn as of December 31, 2019, from RON
549 mn as of December 31, 2018, mainly due to
repayment of loans.
The net increase in assets held for sale and
liabilities associated with assets held for
sale is due to reaching an agreement to transfer
40 marginal onshore oil and gas fields and
reclassification of the related assets and liabilities
as held for sale, partially counterbalanced by the
closing in 2019 of the transfer for 9 marginal fields.
OMV Petrom Group reached a net cash position
of RON 5,982 mn (2018: RON 4,891 mn).
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
2019
7,059
6,803
(3,556)
3,246
(1,844)
1
1,404
5,609
7,014
1,730
2018
7,353
7,385
(4,261)
3,125
(1,495)
1
1,630
3,979
5,609
2,002
Switch from cash
inflow in 2018 to cash
outflow in 2019
In 2019, 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-monetary adjustments, as well as net
interest received and income tax paid was RON
7,059 mn (2018: RON 7,353 mn). Changes in net
working capital generated a cash outflow of RON
256 mn (2018: inflow of RON 32 mn). Cash flow
from operating activities decreased by RON
583 mn compared to 2018, reaching RON 6,803
mn, reflecting the lower operating result and the
increase of the net working capital.
In 2019, the cash outflow from investing
activities amounted to RON 3,556 mn (2018:
RON 4,261 mn) mainly related to investments
in intangible assets and property, plant and
44 Directors’ report
OMV Petrom Annual Report 2019 | Report of the governing bodies
equipment, largely in the Upstream segment,
offset to some extent by the partial collection of the
receivable in relation to the government grant for
Brazi power plant investment.
Cash flow from financing activities reflected
an outflow of funds amounting to RON 1,844 mn
(2018: RON 1,495 mn), mainly arising from the
payment of dividends of RON 1,516 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 3,246
mn (2018: RON 3,125 mn). Free cash flow less
dividend payments resulted in a cash inflow of
RON 1,730 mn (2018: RON 2,002 mn).
Risk management
Risk prevention is deeply integrated into the
decision-making processes of everyday business
activities at every level of our organization.
The Executive Board sets, communicates,
and implements our risk management culture
throughout the Group. The risk management
process, implemented through OMV Petrom’s
Enterprise – Wide Risk Management (EWRM)
framework, combines bottom-up and top-down
processes, with every single employee responsible
for managing the risks within their area of
responsibilities. Paying attention to every risk
makes risk management a holistic process. We
use common risk terminology across OMV Petrom
in order to facilitate effective risk communication
and management.
To ensure that management takes risk-informed
decisions, with adequate consideration of actual
and prospective risks, 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 consolidated risk profile
is regularly reported for the Executive Board’s
endorsement and for the information of the
Supervisory Board’s Audit Committee.
The risks identified in the bottom-up risk
assessment process by operational staff during
day-to-day business management are assessed
against a mid-term time horizon of three years.
Senior management evaluates top-down risks
against a long-term time horizon of three to
seven years. Together, they provide a strategic
perspective of risks across a longer time horizon.
The risk management process is based on a
precautionary, systematic approach, aimed at
timely identification and management of risks in
order to avoid a possible negative impact on our
business or reputation. We believe that creating
a risk-aware culture throughout the organization,
where everyone is aware of the risks related
to their jobs and implements risk management
practices on a daily basis, is the most effective
way to avoid a negative impact. To this end,
our comprehensive EWRM program is driven
by senior management and cascades to every
employee of the Company. It ensures greater
awareness and focus on risks that might affect the
Company’s objectives.
OMV Petrom’s 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 high-end 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
validates 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.
Four levels of risk
management roles
Directors’ report 45
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 with 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.
Market and Financial Risks
OMV Petrom’s key financial and non-financial
exposures are generated by the 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.
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.
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 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.
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.
Operational Risks
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
95% confidence level
and three-year horizon
to measure potential
losses of the risk
portfolio
46 Directors’ report
OMV Petrom Annual Report 2019 | Report of the governing bodies
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.
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.
Strategic risks
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
hand, to 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
achieve its objectives.
Annual strategic risk
assessments in place
Strategic risks
Political & Regulatory
Human capital
Oil & Gas market
volatility
Climate change
Decrease of global oil
demand
Reserve replacement
Technology & Innovation
Cyber risks
Directors’ report 47
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 2019,
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.
in a bottom-up approach by the employees
responsible for our day-to-day business, and
in a top-down approach by the corporate units
responsible for monitoring regulatory, market, and
reputational risks in line with the latest national
and international developments. These risks are
assessed in terms of their potential impact on the
medium-term financial performance plan. In the
bottom-up approach, climate-change related risks
are identified using the standardized methodology
of the EWRM process.
Climate Change Risk Management
Climate-change-related risks and opportunities
are integrated into OMV Petrom’s EWRM process
aimed at identifying, assessing, and managing
business-related risks. The short- and medium-
term risks are analysed for their impact on the
Company’s three-year financial plan. The effects
of long-term risks are evaluated based on a
qualitative analysis, taking into account a wider
range of uncertainty.
The management pays close attention to
climate-change-related long-term risks and
opportunities and takes these into account in
strategic decision-making. Risks are identified
Internal control
The Group has implemented an internal control
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.
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, 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.
Climate change
related long-term risks
are part of strategic
decision-making
48 Directors’ report
OMV Petrom Annual Report 2019 | Report of the governing bodies
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.
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
2019. This report will be published together with
the consolidated financial statements of OMV
Petrom for the year ended December 31, 2019.
Subsequent events
Please refer to Note 38 in the Consolidated
Financial Statements.
Outlook 2020
The outbreak of coronavirus (COVID-19) and the
efforts to contain it are expected to affect the global
economy and, as a result, to have an impact on
prices and demand of oil products and crude oil;
however, as it is not possible to quantify it at this
moment, such impact is not included in the outlook
below.
For the full year 2020, OMV Petrom expects the
average Brent oil price to be at USD 60/bbl.
We expect the refining margins to be above
USD 5/bbl. Also the demand for oil products is
expected to be above the 2019 level, while the
demand for gas and power to be broadly similar
to 2019.
A stable, predictable, and investment-friendly fiscal
and regulatory framework is a key requirement for
our future investments, both onshore and offshore.
COVID-19 impact not
included in the 2020
outlook
Amendments of GEO 114/2018 and GEO 19/2019,
providing for a faster return to a liberalized
market, have already been implemented via GEO
1/2020; the changes refer to the timing of the
price liberalization: as of July 1, 2020 for gas and
January 1, 2021 for electricity; in addition, the
Faster return
to a liberalized
market brought by
GEO 1/2020
Directors’ report 49
2% financial contribution to ANRE was repealed
starting January 1, 2020.
According to public statements, the Romanian
authorities are working on changing the Offshore
Law through a parliamentary process.
At OMV Petrom 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 4.2 bn, excluding acquisitions.
With regards to our Neptun Deep strategic
project, we outline that we remain keen to see it
developed and we welcome the acceleration of
the return to a liberalized market brought by the
GEO 1/2020. However, changes to the Offshore
Law are needed in order to move the project
forward.
Within our partnership with Auchan, we
continued the pilot phase of the cooperation, by
adding two new filling stations with an innovative
approach to design, reaching a total of 17
MyAuchan stations. Negotiations for opening
convenience stores in more Petrom-branded
filling stations are ongoing.
A sustainable cost base, supported by ongoing
efficiency programs, is important in the context
of the current market volatility and challenging
regulatory environment. In order to protect
our cash flows and margins from commodity
price risk, we use various hedging products,
especially in Downstream.
We are focused on energy efficiency and
decreasing the emissions of our operations, thus
we target to reduce carbon intensity by 27% vs.
2010 until 2025.
In Upstream, we aim to maintain production
decline below 5% vs. 2019, excluding portfolio
optimization. We will continue to focus on the
most profitable barrels; as such, we expect to
close the transfer of 40 marginal fields to Dacian
Petroleum in the second part of 2020. We will
continue to simplify our footprint and focus on our
strategic assets. We plan investments of around
RON 3.0 bn for drilling around 100 new wells and
sidetracks and maintaining a constant level of
workovers vs. 2019. In addition, we target near
field and enhanced oil recovery opportunities to
improve ultimate recovery factors. Furthermore,
we are continuously focusing on upgrading the
critical infrastructure as well as modernizing
and automating our facilities towards the latest
standards in the oil and gas industry, for which we
plan to invest more than EUR 70 mn in 2020. As
to exploration expenditures for 2020, estimated
at around RON 0.3 bn, we aim to complete
more than 1,500 km2 of 3D seismic survey in
the exploration block VIII-Urziceni East together
with Hunt Oil Company of Romania S.R.L. as
operator, as well as to evaluate the potential of
already drilled exploration wells. As part of our
regional expansion endeavors, we expect to close
the acquisition of 30% stake in the Han Asparuh
offshore Bulgaria license (through acquiring all
the shares in OMV Offshore Bulgaria GmbH
from OMV Exploration & Production GmbH) by
mid-2020.
In Downstream Oil, the refinery utilization rate is
expected to be above 90%, including a two-week
planned shutdown in Q2 for maintenance works.
In Downstream Gas, we expect slightly lower
gas sales volumes and net electrical output vs.
2019. OMV Petrom Group has an allocation to
supply the regulated gas market with 5.5 TWh for
the period January - March 2020 at the maximum
price of RON 68/MWh; the regulated gas volumes
for Q2/20 are still to be announced. The Brazi
power plant is no longer required to supply the
regulated power market in 2020, as per current
allocation. Also, a two week planned shutdown for
the entire capacity will take place in Q2/20.
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
2019 will be published by June 30, 2020.
CAPEX currently
planned at RON 4.2 bn
Production decline
below 5% yoy
50 Directors’ report
OMV Petrom Annual Report 2019 | Report of the governing bodies
Corporate governance report
High corporate
governance standards
since 2010
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 appointed 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.
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
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.
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
Corporate governance report 51
Possibility to vote by
correspondence prior
to the GMS
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
52 Corporate governance report
OMV Petrom Annual Report 2019 | Report of the governing bodies
Supervisory Board's
current mandate ends
on April 28, 2021
the law. Likewise, one or more shareholders
holding, individually or jointly, at least 5% of
the 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 appointed 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.
Herein below is the composition of the
Supervisory Board at the end of 2019:
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 appointed as member of the
OMV Petrom Supervisory Board as of 7 July
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
Corporate governance report 53
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 appointed as member of the
OMV Petrom Supervisory Board as of 1 August
2016.
Thomas Gangl (1971)
Thomas Gangl graduated in chemical engineering
from Vienna University of Technology and also
in mechanical engineering from the University
of Salford (Manchester). He started his career
with OMV in 1998 as process engineer within
the Schwechat Refinery where he held various
management positions over the years. Since 2016,
Thomas Gangl has been Senior Vice President
Business Unit Refining & Petrochemicals, being
responsible for all three OMV refineries. As of
July 1, 2019, Thomas Gangl is Member of the
Executive Board of OMV Aktiengesellschaft,
responsible for Refining & Petrochemical
Operations.
Thomas Gangl was appointed as interim member
of the OMV Petrom Supervisory Board starting
July 1, 2019 and confirmed by the Ordinary GMS
on March 3, 2020.
Johann Pleininger (1962)
Johann Pleininger studied mechanical and
economic engineering and began his career
at OMV in 1977. From 2007 to 2013 he was
Executive Board member responsible for
Exploration & Production at OMV Petrom. Most
recently, he has been the Senior Vice President
responsible for the core Upstream countries
Romania, Austria, as well as the development of
the Black Sea Region. Since September 1, 2015
he has been a member of the OMV Executive
Board and is responsible for Upstream (Exploration
& Production). As of July 1, 2017 Mr. Pleininger
was appointed also Deputy Chairman of the OMV
Executive Board.
Johann Pleininger was appointed as interim
member of the OMV Petrom Supervisory Board
starting August 10, 2019 and confirmed by the
Ordinary GMS on March 3, 2020.
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 appointed as member of
OMV Petrom Supervisory Board as of 1 January
2017.
Sevil Shhaideh (1964) – independent xiii
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. Sevil Shhaideh was
appointed as member of the OMV Petrom
Supervisory Board as of 26 October 2017.
Radu-Spiridon Cojocaru (1947) – independent xiii
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
xiii 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.
Two new Supervisory
Board members
appointed in 2019
54 Corporate governance report
OMV Petrom Annual Report 2019 | Report of the governing bodies
(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. Between 2018-2019, he was member of
the National Committee for Substantiation of the
National Euro Changeover Plan.
Radu-Spiridon Cojocaru was appointed as
member of the OMV Petrom Supervisory Board as
of 28 April 2017.
Joseph Bernhard Mark Mobius (1936) –
independent xiv
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 directed the analysts of Franklin Templeton's
18 emerging market offices and managed 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 appointed as member of OMV
Petrom Supervisory Board as of 29 April 2010.
Jochen Weise (1956) – independent xiv
Jochen Weise graduated in Law from the
University of Bonn, Germany, where he also
received his PhD. 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 appointed as member of OMV
Petrom Supervisory Board as of 1 November
2016.
In the Ordinary GMS of 3 March 2020, a new
member in the Supervisory Board was appointed
further to the revocation of Sevil Shhaideh, namely
Niculae Havrileț. Below is a brief presentation of
Niculae Havrileț:
A new Supervisory
Board member
appointed in 2020
Niculae Havrileț (1956)
Niculae Havrileț graduated the Technical
University Cluj Napoca, Faculty of Mechanical
Engineering – Technologies. Niculae Havrileț has
over 35 years of experience in electricity field and
natural gas, including over 20 years of experience
in various leading positions. Moreover, Niculae
Havrileț holds large experience in central public
administration. Between 2012-2017, he has been
the President of the National Energy Regulatory
Authority (ANRE), including member of the
Regulatory Authorities Council within the Agency
for the Cooperation of Energy Regulators (ACER)
and member of the General Meeting of the Council
of European Energy Regulators (CEER). As of
December 2019, Niculae Havrileț is state secretary
within the Ministry of Economy, Energy and
Business Environment. In 2000, he has received
the “Order of the Star of Romania” Knight.
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;
xiv 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 55
No changes in the
membership of the
Audit Committee in
2019
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;
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.
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.
Audit Committee
The Audit Committee is composed of four
members appointed by decision of the Supervisory
Board from among its members.
Details on the Supervisory Board works and
activities in 2019, 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
During 2019, there were no changes as regards
the members of the Audit Committee. However,
starting April 19, 2019, in order to increase the
level of compliance with the provisions of the
Corporate Governance Code, the Supervisory
Board approved the following change: Jochen
Weise, who previsouly held the position of
Deputy President of the Audit Committee, was
appointed as President of the Audit Committee,
while Reinhard Florey, who previously held the
position of President of the Audit Committee,
was appointed as Deputy President of the Audit
Committee.
Therefore, at the end of 2019, the Audit Committee
consisted of the following members: Jochen
Weise (President - independent), Reinhard Florey
(Deputy President), Sevil Shhaideh (member
– independent) and Radu-Spiridon Cojocaru
(member – independent).
Following Sevil Shhaideh’s revocation as of 3
March 2020 of her mandate as member of the
Supervisory Board (and consequently the cease
of the position in the Audit Committee) and the
appointment of Niculae Havrileț as member
of the Supervisory Board as of 3 March 2020,
Niculae Havrileț was also appointed as member
of the Audit Commitee as of 13 March 2020 and
until the expiration of the mandate of the current
Supervisory Board, namely until 28 April, 2021.
Therefore, at the date of this report, following this
change in the Supervisory Board membership,
the Audit Commitee has the following composition
Jochen Weise (President - independent), Reinhard
Florey (Deputy President), Niculae Havrileț
(member) and Radu-Spiridon Cojocaru (member -
independent).
56 Corporate governance report
OMV Petrom Annual Report 2019 | Report of the governing bodies
The Audit Committee’s members 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.
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 2019 are included in the Supervisory
Board Report.
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 2019, there were two changes in the
membership of the Presidential and Nomination
Committee. Thomas Gangl was appointed as
member and Deputy President of the Presidential
and Nomination Committee as of July 1, 2019,
following the waiver of Manfred Leitner of his
mandates as member of the Supervisory Board
and Deputy President of the Presidential and
Nomination Committee. On August 10, 2019,
Johann Pleininger was appointed as member
and Deputy President of the Presidential and
Nomination Committee following Thomas Gangl’s
waiver of his mandate as member and Deputy
President of the Presidential and Nomination
Committee (while still remaining Supervisory
Board member).
Therefore, at the end of 2019, the Presidential and
Nomination Committee consisted of the following
four members: Rainer Seele (President), Johann
Pleininger (Deputy President), Joseph Bernhard
Mark Mobius (member - independent) and Sevil
Shhaideh (member - independent).
Following Sevil Shhaideh’s revocation as of 3
March 2020 of her mandate as member of the
Supervisory Board (and consequently the cease
of the position in the Presidential and Nomination
Two new members of
the Presidential and
Nomination Committee
appointed in 2019
Corporate governance report 57
A new CFO starting
April 2019
Committee) and the appointment of Niculae
Havrileț as member of the Supervisory Board
as of 3 March 2020, Niculae Havrileț was also
appointed as member of the Presidential and
Nomination Committee as of 13 March 2020 and
until the expiration of the mandate of the current
Supervisory Board, namely until 28 April, 2021.
At the date of this report, following this change
in the Supervisory Board membership, the
Presidential and Nomination Committee has the
following composition: Rainer Seele (President),
Johann Pleininger (Deputy President), Joseph
Bernhard Mark Mobius (member - independent)
and Niculae Havrileț (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, 2023.
At the beginning of 2019, the Executive Board
was composed of the following members:
Christina Verchere (CEO and President), Stefan
Waldner (CFO and member), Peter Rudolf
Zeilinger (member in charge of Upstream
activity), Radu Sorin Cǎprǎu (member in charge
of Downstream Oil activity) and Franck Neel
(member in charge of Downstream Gas activity).
Four Executive Board
members reappointed
in 2019
On March 14, 2019, the Supervisory Board
reappointed the following members of the
Executive Board of OMV Petrom for a four-
year term starting April 17, 2019 and ending
on April 17, 2023: Christina Verchere as CEO
58 Corporate governance report
and President of the Executive Board, Peter
Rudolf Zeilinger as Executive Board member
in charge of Upstream activity, Radu Sorin
Căprău as Executive Board member in charge
of Downstream Oil activity and Franck Albert
Neel as Executive Board member in charge
of Downstream Gas activity. Moreover, during
the same meeting, the Supervisory Board
acknowledged and confirmed the appointment of
Alina-Gabriela Popa as new CFO and member of
the Executive Board of OMV Petrom for a four-
year mandate as of April 17, 2019 and ending on
April 17, 2023 (in accordance with the decision of
OMV Petrom’s Supervisory Board dated 26 April
2018), following the cease of Stefan Waldner’s
mandate as member of the Executive Board.
Therefore, at the end of 2019, 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.
Alina Gabriela Popa (1977)
Chief Financial Officer
Alina Popa graduated from Bucharest Academy
of Economic Studies, Faculty of Accounting
and Information Systems and is a member of
Association of Chartered Certified Accountants
(ACCA) in the UK, Charter Certified Accountants
in Romania (CECCAR) and Chamber of Financial
Auditors in Romania (CAFR). She started her
career with Deloitte Audit Romania and joined
OMV Petrom Annual Report 2019 | Report of the governing bodies
Balanced Executive
Board structure by
gender and nationality
OMV Petrom in 2006 having held leadership
positions in finance functions and coordinating
important cross-functional projects. Between 2015
and 2019, she has been the General Manager
and President of the Board of Directors of OMV
Petrom Global Solutions, the Shared Service
Center of OMV Group. She was appointed Chief
Financial Officer and member of the OMV Petrom
Executive Board as of April 17, 2019.
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 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 Brașov,
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.
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 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
Corporate governance report 59
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 2019, the Executive Board met 43 times in
person and passed resolutions by circulation on
16 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 discuss all significant
matters concerning the Company and to inform
each other about all relevant issues of their
activity.
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.
At the end of 2019, there were three women in
OMV Petrom’s management bodies: Christina
Verchere, the CEO and President of the Executive
Board, Alina Gabriela Popa, CFO and member
of the Executive Board and Sevil Shhaideh,
member of the Supervisory Board. Moreover,
at the end of 2019, around 31% of the first line
directors reporting to the Executive Board were
OMV Petrom supports
promotion of women in
management positions
60 Corporate governance report
OMV Petrom Annual Report 2019 | Report of the governing bodies
women, whilst the percentage of women in senior
leadership roles in total (senior vice presidents,
directors, head of departments and senior
advisors) was around 28%. The proportion of
women in the OMV Petrom Group as a whole was
23% 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 uses a variety of reward elements to
strengthen its position as an attractive employer in
the oil and gas industry. The overall remuneration
structure is specifically set up to reflect the reward
principles of the Company, while paying special
attention on fairness and transparency towards
employees and other stakeholders within and
outside organization. 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.
A reward package typically consists of several
components as fixed compensation containing
base salary, allowances and other fixed
payments, variable compensation containing the
performance bonus and various rewards and the
benefits containing various recognition, awards,
development and career.
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, the Supervisory Board members’
activity is covered by liability insurance.
For 2019, the GMS of OMV Petrom approved an
annual gross remuneration corresponding to a net
remuneration for each member of the Supervisory
Board amounting to EUR 20,000 per year (for
2018: EUR 20,000 per year), an additional gross
remuneration per meeting corresponding to a net
remuneration of EUR 4,000 for each member for
the Audit Committee (for 2018: EUR 4,000 per
meeting) and an additional gross remuneration per
meeting corresponding to a net remuneration of
EUR 2,000 for each member for the Presidential
and Nomination Committee (for 2018: EUR 2,000
per meeting).
At December 31, 2019 and December 31, 2018,
there are no loans or advances granted by any
of the Group companies to the members of the
Supervisory Board. As at December 31, 2019 and
December 31 2018, the Group companies do not
have any obligations regarding pension payments
to former members of the Supervisory Board.
Remuneration of the Executive Board
members and of the senior management
The aggregate amount of remuneration and other
benefits, including benefits in-kind, paid in 2019
to the members of the Executive Board and the
directors reporting to Executive Board members,
collectively as a group, for their activities
performed in all capacities, amounted to RON
81.51 mn (for 2018: RON 111.14 mn).
The Company is currently working to prepare a
formal remuneration policy covering the Executive
Board and the Supervisory Board.
The remuneration paid to members of the
Executive Board and to the directors reporting
to Executive Board members aims to be at
Corporate governance report 61
Performance based
remuneration set for
Executive Board,
including linked to
share price
competitive levels and consists of:
fixed remuneration based on contractual
arrangements
performance-related remuneration assessed
against financial and non-financial metrics
(including OMV Petrom S.A. share price
evolution) in line with company strategy, to align
the interests of management and shareholders,
including both short- and long- term plans
performance bonus program of one year
long-term incentive as multiyear performance
plan of three years
Benefits in kind (non-cash benefits) as support
to properly carry out job related activities,
including accident and liability insurance.
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.
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.
62 Corporate governance report
OMV Petrom Annual Report 2019 | Report of the governing bodies
Corporate governance statement xv
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 appointed by the Ordinary
GMS, in accordance with the provisions of
Company Law and the Company’s Articles
of Association.
xv 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 63
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-
executives. 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, 2019.
Following this evaluation, it resulted that at all times
during 2019 there were four Supervisory Board
members that met all the independence criteria
provided 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.
64 Corporate governance statement
OMV Petrom Annual Report 2019 | 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. The self-evaluation
is conducted under the leadership of
the President of the Presidential and
Nomination Committee.
The outcome of the Supervisory Board’s
self-evaluation for 2019 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 2019, are
included in the Supervisory Board Report
and Corporate Governance Report.
The reports of the Supervisory Board and
Executive Board for 2019 are included
in the Annual Report and submitted for
Ordinary GMS’s approval.
Corporate governance statement 65
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 2019,
there were four Supervisory Board members that met
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.
OMV Petrom’s Supervisory Board has set up a Presidential
and Nomination Committee.
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.
The Presidential and Nomination Committee is 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 all times during 2019, two members of the Presidential
and Nomination Committee were independent and thus the
Company was only ”partially compliant“ with this provision.
Following the recent change in the Presidential and
Nomination Committee, the Presidential and Nomination
Committee currently has only one independent member and
therefore at the date of this report the compliance status
remains the same, the Company being ”partially compliant“
with this provision.
66 Corporate governance statement
OMV Petrom Annual Report 2019 | 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.
B.2. The audit committee should be
chaired by an independent non-executive
member.
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 2019, the majority of the Audit
Committee members met all independence criteria
provided by the Corporate Governance Code,
being thus ”compliant“ with this provison.
Following the recent change in the membership of
the Audit Committee, at the date of this report, the
Company is ”partially compliant“ with this provision,
as only two out of the four members of the Audit
Committee meet 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.
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 2019, the majority of the
Audit Committee members met all independence
criteria provided by the Corporate Governance
Code.
As of April 19, 2019, the Supervisory Board
appointed a new president of the Audit Committee.
Thus, following such change, currently the
Company is ”compliant“ with this provision, as
the president of the Audit Committee fulfills both
the condition of being non-executive and also the
condition of being independent.
Corporate governance statement 67
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 main roles and functions of the Audit
Committee, as detailed in the Terms of Reference
for the Audit Committee, 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.
68 Corporate governance statement
OMV Petrom Annual Report 2019 | 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 69
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 Company is working to develop a formal
remuneration policy covering the Executive Board
and the Supervisory Board.
70 Corporate governance statement
OMV Petrom Annual Report 2019 | 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
relevant 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, General Meeting of
Shareholdes 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, General Meeting of shareholders
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 relevant
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 71
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.
72 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 2019 | 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 Investor Relations 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 2019, 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 73
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 2019, which will be issued by the
Company by June 30, 2020, in accordance with
the legal requirements regarding the disclosure
of non-financial information.
74 Corporate governance statement
OMV Petrom Annual Report 2019 | Report of the governing bodies
Declaration of the management
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, 2019, 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 17, 2020
The Executive Board
_______________________
Christina Verchere
Chief Executive Officer
President of the EB
_______________________
Alina Popa
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 75
Abbreviations and definitions
ANRE
Romanian Energy Regulatory Authority
bbl
bbl/d
bcf
bcm
bn
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 16 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
EB
Curriculum Vitae
Executive Board
76 Abbreviations and definitions
GEO
EPS
EU, EUR
EURIBOR
FEED
FRD
GDP
GDR
G&G
GMS
HSSE
IFRS
ISO
LPG
LSE
LTIR
m, km
mn
mom
Government Emergency Ordinance
Earnings per share = Net income attributable to stockholders divided by weighted number
of shares
European Union, euro(s)
Euro Interbank Offer Rate – the reference rate for European banks in interbank loans
denominated in EUR
Front End Engineering Design
Field redevelopment
Gross Domestic Product
Global Depositary Receipts
Geological and geophysical
General Meeting of Shareholders
Health, Safety, Security and Environment
International Financial Reporting Standards
International Organization for Standardization
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 77
Q
ROACE
ROBOR
RON
RRR
S.A.
Special items
t, kt
TOC
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
Tasbulat Oil Corporation
Target Price
terawatt hour(s)
United States (of America)
United Kingdom
United States dollar(s)
year-on-year
78 Abbreviations and definitions
Consolidated financial
statements and notes
80
90
92
93
94
96
98
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
Independent auditor’s report 79
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, 2019 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, 2019, 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 International Code of Ethics for Professional
Accountants (including International Independence Standards) as issued by the International Ethics
Standards Board for 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.
80 Independent auditor’s report
OMV Petrom Annual Report 2019 | 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
We audited management’s assessment of the triggers for
potential additional impairment or reversal of impairment
previously recorded. Specifically, our work included, but
was not limited to the following procedures:
Analysed the management’s assessment of the
existence of impairment or impairment reversal
indicators (the triggering events analysis);
Compared the average actual oil and gas prices in
2019 with the estimated oil and gas prices in the budget
prepared for 2019;
Compared the actual production volumes in 2019, of
each cash generating unit with the production volumes
estimates in the budget prepared for 2019;
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;
Compared the main assumptions used in the
impairment test performed in 2015 (oil prices and
production volumes) with the current forecasts approved
as part of the Group’s mid-term planning assumptions;
Checked if there are significant downward revisions
of oil and gas reserves to determine if they represent
impairment indicators; and
Assessed the adequacy of the Group’s disclosures in
the financial statements.
Recoverability of the carrying value of
property, plant and equipment (Upstream)
The carrying value of the Upstream property,
plant and equipment is RON 20,759 million as at
31 December 2019.
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 relation to the
aforementioned indicators.
The Group’s disclosures about property, plant and
equipment and related triggering events analysis,
are included in Note 2 (Judgements, Estimates
and Assumptions) and Note 7 (Property, Plant and
Equipment) to 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
Key audit matter
How our audit addressed the key audit matter
Recoverability of intangible exploration and
evaluation (E&E) assets
The carrying value of intangible E&E
assets amounted to RON 3,040 million at
31 December 2019.
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 value 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
senior management as to the intentions and strategy
of the Group, and reviewed 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 management about the status of the
largest exploration projects;
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.
82 Independent auditor’s report
OMV Petrom Annual Report 2019 | 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 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 controls of 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, prepared once every two years, on their
review of Group’s estimated oil and gas reserves
(latest report as at 1 July 2018 for the reserves as of
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 Group’s Reserves and Resources
Guidelines;
Tested that the updated oil and gas reserve
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 83
Key audit matter
How our audit addressed the key audit matter
Estimation of decommissioning and
restoration provisions and environmental
provisions
The total decommissioning and restoration
provision and the environmental provision
amounted to RON 6,768 million and RON 397
million respectively at 31 December 2019.
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.
We assessed management’s annual estimation
of provision for decommissioning and restoration
obligation and environmental obligation. Specifically,
our work included, but was not limited to, the following
procedures:
Performed a detailed understanding of the Group’s
decommissioning and restoration obligations
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;
Involved our valuation specialists to assist us in the
analysis of discount rates and inflation rates;
Tested the mathematical accuracy of
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.
84 Independent auditor’s report
OMV Petrom Annual Report 2019 | 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
regarding OMV Petrom S.A., 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 of RON 1,793 million as
at December 31, 2019 and the environmental
obligations in Downstream Oil with a total net
present value of RON 170 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 management’s estimate regarding
recoverability of the receivables from the Romanian State.
Specifically, our work included, but was not limited to, the
following procedures:
Read the stipulations of the Annex P of the privatization
agreement dated 23 July 2004, related to the acquisition
by OMV Aktiengesellschaft of shares in the National
Petroleum Company Petrom S.A., 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 Company 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 with
management about the status of the notices of claims
submitted to the Romanian State and of the Arbitration
process;
Obtained and read the independent lawyers’ assessment
of the status of the Arbitration, that was considered by
the Group for the measurement of the State Receivable
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 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 85
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.
86 Independent auditor’s report
OMV Petrom Annual Report 2019 | 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 87
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, 2019;
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, 2019, 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 19, 2019
to audit the consolidated financial statements for the financial year end December 31, 2019. 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 9 years covering
the financial periods end December 31, 2011 till December 31, 2019.
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 5, 2020.
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
88 Independent auditor’s report
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
Provision of Non-audit Services
No prohibited non-audit services referred to in Article 5 (1) of Regulation (EU) No. 537/2014 of the
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. FA77
Name of the Auditor/ Partner: Andreas Hadjidamianou
Registered in the Electronic Public Register under No. AF3357
Bucharest, Romania
17 March 2020
The English version of the audit report represents a translation of the original audit report issued in Romanian language.
Independent auditor’s report 89
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2019
(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
Lease liabilities
Provisions for decommissioning and restoration obligations
Other provisions
Other financial liabilities
Other liabilities
Deferred tax liabilities
Non-current liabilities
Notes December 31,
2019
December 31,
2018
6
7
8
9
10
18
11
9
9
10
12
13
14
15
7, 16
14
14
16
17
18
3,132.01
3,058.95
27,944.72
26,749.09
26.94
58.29
2,122.57
2,165.22
215.47
84.11
1,490.93
1,433.00
34,932.64
33,548.66
2,464.45
1,891.86
486.10
489.44
2,151.54
1,674.23
195.19
476.14
7,013.54
5,609.43
12,345.39
10,106.53
217.20
128.95
47,495.23
43,784.14
5,664.41
5,664.41
27,836.45
25,703.21
33,500.86
31,367.62
0.51
0.48
33,501.37
31,368.10
240.70
197.88
572.15
211.38
281.87
-
6,456.08
5,992.95
588.87
106.82
13.89
20.91
190.27
155.63
14.84
20.49
8,197.30
6,867.43
The notes on pages 98 to 191 form part of these consolidated financial statements.
90 Consolidated statement of financial position as of December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
Trade payables
Interest-bearing debts
Lease liabilities
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,
2019
December 31,
2018
16
15
7, 16
14
16
17
12
3,372.35
3,049.66
132.25
128.79
205.21
623.31
372.54
738.36
267.43
-
228.47
690.29
388.34
821.36
5,572.81
223.75
5,445.55
103.06
47,495.23
43,784.14
These consolidated financial statements were approved on March 17, 2020.
Christina Verchere,
Chief Executive Officer
President of the EB
Alina Popa,
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
Irina Dobre,
Vice President Finance Department
Nicoleta Drumea,
Head of Financial Reporting
The notes on pages 98 to 191 form part of these consolidated financial statements.
Consolidated statement of financial position as of December 31, 2019 91
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2019
(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
19, 28
20
21
2019
2018
25,485.47
22,523.24
263.95
7.36
672.10
9.51
25,756.78
23,204.85
(10,680.68)
(3,469.59)
(1,187.33)
(3,511.88)
(2,140.17)
(237.66)
(284.41)
4,245.06
317.63
(276.98)
(8.91)
31.74
4,276.80
(642.12)
3,634.68
3,634.59
0.09
0.0642
23
22
28
24
24
25
26
27
(8,040.24)
(3,139.79)
(1,240.55)
(3,180.13)
(1,977.47)
(174.27)
(239.41)
5,212.99
162.24
(435.60)
(26.06)
(299.42)
4,913.57
(835.78)
4,077.79
4,078.10
(0.31)
0.0720
These consolidated financial statements were approved on March 17, 2020.
Christina Verchere,
Chief Executive Officer
President of the EB
Alina Popa,
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
Irina Dobre,
Vice President Finance Department
Nicoleta Drumea,
Head of Financial Reporting
The notes on pages 98 to 191 form part of these consolidated financial statements.
92 Consolidated income statement for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2019
(all amounts are expressed in million RON, unless otherwise specified)
Net income for the year
Exchange differences from translation of foreign operations
Gains/(losses) on hedges arising during the year
Reclassification of (gains)/losses on hedges to income statement
Total of items that may be reclassified ("recycled")
subsequently to the income statement
Remeasurement gains/(losses) 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 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
2019
2018
3,634.68
4,077.79
26.69
24.69
3.26
54.64
(25.61)
15.84
5.02
-
20.86
9.03
(25.61)
9.03
(5.10)
(12.50)
4.11
(1.46)
(0.99)
28.04
3,662.72
3,662.62
0.10
(13.96)
15.93
4,093.72
4,095.75
(2.03)
The notes on pages 98 to 191 form part of these consolidated financial statements.
Consolidated statement of comprehensive income for the year ended December 31, 2019 93
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2019
(all amounts are expressed in million RON, unless otherwise specified)
Consolidated statement of changes in equity for the year ended December 31, 2019
Share
capital
Revenue
reserves
Cash flow
hedge
reserve
Foreign
currency
translation
reserve
Other
reserves
Treasury
shares
Stockholders'
equity
Non-
controlling
interests
Total
equity
5,664.41
25,653.10
4.22
(191.26)
237.17
(0.02)
31,367.62
0.48
31,368.10
-
3,634.59
-
-
-
-
3,634.59
0.09
3,634.68
-
(21.50)
23.48
22.74
3.31
-
3,613.09
23.48
22.74
3.31
-
(1,529.38)
-
-
-
-
-
-
28.03
0.01
28.04
3,662.62
0.10
3,662.72
(1,529.38)
(0.07)
(1,529.45)
5,664.41
27,736.81
27.70
(168.52)
240.48
(0.02)
33,500.86
0.51
33,501.37
Balance at
January 1, 2019
Net income for the
year
Other
comprehensive
income/(loss) for
the year
Total
comprehensive
income for the
year
Dividends
distribution
Balance at
December 31,
2019
For details on equity components, see Note 13.
The notes on pages 98 to 191 form part of these consolidated financial statements.
94 Consolidated statement of changes in equity for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
Consolidated statement of changes in equity for the year ended December 31, 2018
Share
capital
Revenue
reserves
Cash
flow
hedge
reserve
Foreign
currency
translation
reserve
Other
reserves
Treasury
shares
Stockholders'
equity
Non-
controlling
interests
Total
equity
5,664.41
22,765.94
-
(126.27)
175.61
(0.02)
28,479.67
(58.64)
28,421.03
-
(4.93)
-
-
-
-
(4.93)
-
(4.93)
5,664.41
22,761.01
-
(126.27)
175.61
(0.02)
28,474.74
(58.64)
28,416.10
-
4,078.10
-
-
-
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
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
For details on equity components, see Note 13.
The notes on pages 98 to 191 form part of these consolidated financial statements.
Consolidated statement of changes in equity for the year ended December 31, 2019 95
OMV PETROM S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2019
(all amounts are expressed in million RON, unless otherwise specified)
Profit before tax
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
Income from associated companies
Gain on transfer of business
Net gains on the disposal of non-current assets
Depreciation, amortization and impairments including write-ups
Other non-monetary adjustments
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
Notes
24
24, 25
8
32
20, 22
2019
4,276.80
(224.95)
29.07
-
1.27
(34.51)
4.11
6.78
230.40
(7.23)
(51.77)
(25.44)
3,637.67
(213.92)
171.69
(20.73)
(720.58)
7,058.66
(326.56)
(192.55)
262.97
2018
4,913.57
(114.17)
90.43
1.17
(12.59)
42.19
(4.53)
46.65
(74.58)
(8.59)
-
(6.82)
2,872.32
126.96
108.60
(92.20)
(535.78)
7,352.63
(88.00)
(217.78)
338.23
6,802.52
7,385.08
The notes on pages 98 to 191 form part of these consolidated financial statements.
96 Consolidated statement of cash flows for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
Investments
Intangible assets and property, plant and equipment
Investments and other financial assets
Disposals
Proceeds in relation to non-current assets
Proceeds from transfer of business
Proceeds from sale of Group companies, net of cash disposed
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
Notes
2019
2018
32
32
32
32
32
32
(3,935.26)
(4,327.44)
38.19
-
262.24
78.58
-
53.73
-
13.21
(3,556.25)
(4,260.50)
(327.65)
(371.45)
(1,515.89)
(1,122.80)
-
(1.01)
(1,843.54)
(1,495.26)
1.38
1,404.11
5,609.43
7,013.54
1.06
1,630.38
3,979.05
5,609.43
The notes on pages 98 to 191 form part of these consolidated financial statements.
Consolidated statement of cash flows for the year ended December 31, 2019 97
OMV PETROM S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019
(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 Oil and Downstream Gas 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, 2019 and 2018 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, 2019 the number of Global Depositary Receipts (GDRs) was 182,780, equivalent of
27,417,000 ordinary shares, representing 0.048% of the share capital.
As of December 31, 2018 the number of GDRs was 237,922, equivalent of 35,688,300 ordinary shares,
representing 0.063% 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 have
been prepared on the historical cost basis, except for certain items that have been measured at fair
value as described in Note 4 Accounting and valuation principles. For financial assets and liabilities
where fair value differs from carrying amounts at the reporting date, fair values have been disclosed in
Note 33.
98 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | 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, 2019 99
2. JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
accounting policy below), determined as presented above. The carrying amount of oil and gas assets at
December 31, 2019 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
100 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | 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 2019, based on management estimations regarding long term Brent oil price and production volumes,
an analysis of the triggering events was performed and it was concluded that there are no indicators for
impairment or reversal of impairment, consequently no impairment test is necessary.
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 in 2018
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 were 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 the Downstream Oil business, besides the discount rates, the recoverable amounts are mainly
Notes to the consolidated financial statements for the year ended December 31, 2019 101
2. JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued)
impacted by the indicator refinery margin and the utilization rate in the refinery and by the retail margin and
sales volumes in retail.
In the Downstream Gas business, besides the discount rates, the main valuation assumptions for the
calculation of the recoverable amounts are the spark spreads and net electrical output for power plant.
In 2019 and 2018, based on management estimations was concluded that there were no triggering
indicators for performing any impairment test in Downstream.
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 Romanian State receivable
Management is periodically assessing the recoverability of the receivable related to expenditure recoverable
from the Romanian State related to obligations for decommissioning and environmental costs in OMV
Petrom S.A., which was 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.
102 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | 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.
c) Lease term and incremental borrowing rate
OMV Petrom Group determines the lease term as the non-cancellable term of the lease, together with
any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any
periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The
Group has lease contracts which include prolongation and termination options. When determining the lease
term to be used for the measurement of the lease, the Group takes into account all the relevant facts and
circumstances that create an economic incentive for exercising either the extension or termination option of
the lease term, such as market factors, the extent of oil and gas reserves or other relevant facts. In case of
lease term for land for filling stations and access roads, for periods covered by prolongation or termination
options, the assumption applied was that the lease term will not exceed 20 years. The maximum useful life
of filling station buildings is 20 years and beyond this period the exercise of any option becomes uncertain.
The Group cannot readily determine the interest rate implicit in its leases. Therefore, it uses the relevant
incremental borrowing rates to measure lease liabilities. These incremental borrowing rates were
determined taking into consideration factors such as the term of the lease, credit risk, currency in which the
lease was denominated and economic environment.
Notes to the consolidated financial statements for the year ended December 31, 2019 103
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” or ‘the Group”) as at December
31, 2019, prepared in accordance with consistent accounting and valuation principles. The financial
statements of the subsidiaries are prepared for the same reporting date, December 31, 2019, 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.
104 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
3. CONSOLIDATION (continued)
The number of consolidated entities is as follows:
As at January 1, 2019
Included for the first time
Deconsolidated during the year
As at December 31, 2019
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, 2019 and December 31, 2018.
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, 2019 105
3. CONSOLIDATION (continued)
The consolidated income statement reflects the share of the net 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, 2019 and 2018, 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.
106 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
3. CONSOLIDATION (continued)
The Group recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations
and its share of any jointly held or incurred assets, liabilities, revenues and expenses. 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, 2019 107
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
changes as described below.
The Group has initially adopted IFRS 16 Leases from January 1, 2019. The effects of this standard are
described in the following paragraphs.
IFRS 16 Leases
This standard replaces IAS 17 and sets out new rules for lease accounting. 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 eliminates the classification of leases as either operating leases
or finance leases as was required by IAS 17 and, instead, introduces a single lessee accounting model.
Applying that model, a lessee is required to recognize right-of-use assets and liabilities for leases in the
scope of IFRS 16 and depreciation of the right-of-use assets separately from interest on lease liabilities
in the income statement. The right-of-use assets are depreciated on a straight-line basis over the shorter
of the asset’s useful life and the lease term. Interest expense is charged to income statement over the
lease period on the remaining balance of the lease liability for each period. For lessors, there are minor
changes compared to IAS 17.
On transition to IFRS 16, OMV Petrom Group applied the practical expedient to grandfather the
assessment of which transactions are leases. This means it applied IFRS 16 only to contracts that were
previously identified as leases. Contracts that were not identified as leases under the previous standard
were not reassessed for whether they are leases. Additionally, OMV Petrom Group did not recognize any
right-of-use assets and lease liabilities for contracts which expire in 2019 because they are treated as
short-term leases.
Leases to explore for and use oil and natural gas, which comprise mainly land leases used for such
activities, are not in the scope of IAS 17 and IFRS 16. In addition, some commitments are covered
by the exceptions for short-term and low-value leases. Consequently, right-of-use assets and lease
liabilities were not recognized for these contracts. Moreover, non-lease components are separated from
the lease components for measurement of right-of-use assets and lease liabilities.
OMV Petrom Group initially applied IFRS 16 on January 1, 2019 using the modified retrospective
approach for transition, thus not restating comparative amounts for the comparative period presented.
The right-of-use assets for previous operating leases were measured at the date of initial application
at the amount of the lease liability, adjusted by prepaid or accrued lease payments. The lease liabilities
were measured at the present value of the lease payments over the remaining lease term, discounted
108 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
using the incremental borrowing rate as of January 1, 2019. The weighted average lessee’s incremental
borrowing rate applied to these lease liabilities on January 1, 2019 was 1.34%.
The first-time application of IFRS 16 resulted in recognizing RON 299.68 million as right-of-use assets (see
Note 7) and RON 284.98 million as lease liabilities for previous operating leases. For leases previously
classified as finance leases the Group recognized the carrying amount of the lease asset and lease liability
before transition as the carrying amount of the right-of-use asset and lease liability at the date of initial
application. In the consolidated statement of financial position, the right-of-use assets are presented within
the property, plant and equipment line and lease liabilities are shown in separate lines, within current
liabilities and non-current liabilities.
Reconciliation of future operating lease commitments as at December 31, 2018 to lease liability
as at January 1, 2019
Future minimum lease payments under non-cancellable operating
leases as at December 31, 2018
less minimum lease payments for short-term leases
less minimum lease payments for low value leases
plus minimum lease payments under reasonably certain prolongation
or termination options
Gross lease liability for previously unrecognized operating lease
commitments as at January 1, 2019
less discounting effect as at January 1, 2019
Lease liability for previously unrecognized operating lease
commitments as at January 1, 2019
Finance lease liability recognized as at 31 December, 2018
Lease liability recognized as at January 1, 2019
January 1, 2019
197.19
(26.86)
(0.02)
155.61
325.92
(40.94)
284.98
169.44
454.42
Additionally, the Group has adopted the following amended standards and interpretations with a date of
initial application of January 1, 2019:
IFRS 9: Prepayment features with negative compensation (Amendment)
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
Notes to the consolidated financial statements for the year ended December 31, 2019 109
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
amortized cost or at fair value through other comprehensive income.
IAS 28: Long-term Interests in Associates and Joint Ventures (Amendments)
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.
IFRIC Interpretation 23: Uncertainty over Income Tax Treatments
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.
IAS 19: Plan Amendment, Curtailment or Settlement (Amendments)
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 requirements.
Annual Improvements to IFRSs 2015 – 2017 Cycle, which is a collection of amendments to
IFRSs:
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.
These amendments and interpretations did not have a significant impact on the consolidated financial
statements of the Group.
110 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
4.2. New or revised standards and interpretations not yet mandatory
The Group has not early adopted the following new or revised IFRSs that have been issued but are not
yet effective. EU endorsement is still pending in some cases.
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 date
of this amendment indefinitely pending the outcome of its research project on the equity method of
accounting.
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.
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.
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
Notes to the consolidated financial statements for the year ended December 31, 2019 111
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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.
Interest Rate Benchmark Reform - IFRS 9, IAS 39 and IFRS 7 (Amendments)
The amendments are effective for annual periods beginning on or after 1 January 2020 and must
be applied retrospectively. Earlier application is permitted. In September 2019, the IASB issued
amendments to IFRS 9, IAS 39 and IFRS 7, which concludes phase one of its work to respond to the
effects of Interbank Offered Rates (IBOR) reform on financial reporting. Phase two will focus on issues
that could affect financial reporting when an existing interest rate benchmark is replaced with a risk-free
interest rate (an RFR). The amendments published, deal with issues affecting financial reporting in
the period before the replacement of an existing interest rate benchmark with an alternative interest
rate and address the implications for specific hedge accounting requirements in IFRS 9 Financial
Instruments and IAS 39 Financial Instruments: Recognition and Measurement, which require forward-
looking analysis. The amendments provided temporary reliefs, applicable to all hedging relationships
that are directly affected by the interest rate benchmark reform, which enable hedge accounting to
continue during the period of uncertainty before the replacement of an existing interest rate benchmark
with an alternative nearly risk-free interest rate. There are also amendments to IFRS 7 Financial
Instruments: Disclosures regarding additional disclosures around uncertainty arising from the interest
rate benchmark reform.
IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-
current (Amendments)
The amendments are effective for annual reporting periods beginning on or after January 1, 2022
with earlier application permitted. The amendments aim to promote consistency in applying the
requirements by helping companies determine whether, in the statement of financial position, debt
and other liabilities with an uncertain settlement date should be classified as current or non-current.
The amendments affect the presentation of liabilities in the statement of financial position and
do not change existing requirements around measurement or timing of recognition of any asset,
liability, income or expenses, nor the information that entities disclose about those items. Also, the
amendments clarify the classification requirements for debt which may be settled by the company
issuing own equity instruments.
The Group is currently assessing the impact of adopting these amendments on the Group’s
consolidated financial statements and does not expect it to be significant.
112 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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 calculated as the excess of the aggregate of the consideration transferred, 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 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.
Notes to the consolidated financial statements for the year ended December 31, 2019 113
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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 within tangible 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
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.
114 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
f) Intangible assets and property, plant and equipment
Intangible assets and 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 statement,
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
Unit of production method
Downstream Oil Storage tanks and refinery facilities
Downstream Oil Pipeline systems
Downstream Oil Filling stations components
Downstream Gas Gas pipelines
Downstream Gas Gas power plant
Other property, plant and equipment
Production and office buildings
Other plant and equipment
Fixtures and fittings
25 – 40
20
5 – 20
20 - 30
8 – 30
20 – 50
10 – 20
5 – 10
Notes to the consolidated financial statements for the year ended December 31, 2019 115
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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.
The right-of-use assets are depreciated on a straight-line basis over the shorter of the asset’s useful life
and the lease term.
An item of property, plant and equipment and any significant part initially recognized are derecognized
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
116 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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 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.
Notes to the consolidated financial statements for the year ended December 31, 2019 117
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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
OMV Petrom Group, as a lessee, recognizes lease liabilities and right-of-use assets for all lease
contracts. Exempted from the recognition are the short-term leases, i.e. leases with lease term less
than 12 months, and leases in which the underlying asset is of low value. These exemptions are
applied for all asset classes. Additionally, leases of exploration and production licenses and land leases
that are directly related to the exploration, or production of natural gas or oil are scoped out from the
recognition criteria. The rent for these contracts is recognized on a straight-line basis over the contract
term.
At the commencement date of the lease (i.e. the date the underlying asset is available for use), lease
liabilities are recognized at the net present value of fixed lease payments and lease payments which
depend on an index or rate over the determined lease term, with the applicable discount rate. The
Group uses its incremental borrowing rate at the lease commencement date because the interest rate
implicit in the lease is not readily determinable.
The amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of lease liabilities is remeasured if there are changes
in the lease term, lease payments or in the assessment of an option to purchase the underlying asset.
Right-of-use assets are recognized at commencement date, and measured at the present value of
the lease liability plus prepayments and initial direct costs. After the commencement date, right-of-use
assets are measured at cost, less any accumulated depreciation and any accumulated impairment
losses (See Note 4f) and adjusted for any remeasurement of the lease liability, if the case.
Variable lease payments that do not depend on an index or a rate are recognized as expenses, in the
period in which the event or condition that triggers the payment occurs.
The Group does not recognize the service components of the lease payments in the lease liability or
right-of-use assets.
OMV Petrom Group as a lessor entered in contracts which were assessed as operating leases, for
which received payments for rent are recognized as revenue from rents and leases over the period of
the lease.
118 Notes to the consolidated financial statements for the year ended December 31, 2019
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4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
In case of sublease agreements where the lease term represents a significant part of the lease term of
the head lease contract or the present value of the lease payments amounts to at least substantially all
of the fair value of the underlying asset, right-of-use assets are derecognized and net investments in
the lease are recognized. For these finance subleases OMV Petrom Group recognizes interest income
over the lease term.
The classification and measurement provisions of IFRS 16 were applied using the modified
retrospective method, without restating the figures of the comparative period, which continue to be
reported under the previous accounting standard for leases IAS 17. Differences between the lease
accounting according to IFRS 16 and IAS 17 are disclosed in Note 4.1.
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
Notes to the consolidated financial statements for the year ended December 31, 2019 119
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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. Available forward-looking
information is taken into account, if it has a material impact on the amount of valuation allowance
recognized.
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 other
comprehensive income 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
120 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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.
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.
Non-derivative financial liabilities
Non-derivative financial liabilities are carried at amortized cost, except for contingent consideration
related to acquisition of financial asset which is measured at fair value at the date of acquisition and
subsequently measured at fair value with the changes in fair value recognized in income statement.
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 hedge accounting
Derivative instruments are used to hedge risks resulting from changes in 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.
Notes to the consolidated financial statements for the year ended December 31, 2019 121
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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.
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 other
comprehensive income.
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
122 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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
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
Notes to the consolidated financial statements for the year ended December 31, 2019 123
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
Romanian State has been presented as receivable and reassessed in order to reflect the current best
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
consolidated 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 consolidated 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 the 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
124 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
recognized 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 income 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 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 tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time
Notes to the consolidated financial statements for the year ended December 31, 2019 125
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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 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 control over a product or a service is transferred 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.
126 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
When goods such as crude oil, LNG, oil products and similar goods are sold, the delivery of each
quantity 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 gross or net 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 case long-term gas supply
contracts contain stepped prices, in different periods, 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 is recognized in line with the
amount chargeable 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.
Notes to the consolidated financial statements for the year ended December 31, 2019 127
4. ACCOUNTING AND VALUATION PRINCIPLES (continued)
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.
Revenues from other sources
Revenues from other sources include mainly the impact from commodity sales/purchases transactions
that are within the scope of IFRS 9 Financial Instruments, as well as rental and lease revenues.
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.
128 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
5. FOREIGN CURRENCY TRANSLATION
a) Group companies
The consolidated financial statements are presented in RON, which is OMV Petrom S.A.’s 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,
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. Income statement items are translated
at average rates for the period. 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:
Currencies
US dollar (USD)
Euro (EUR)
Moldavian Leu (MDL)
Serbian Dinar (RSD)
Bulgarian Leva (BGN)
Year ended
December 31,
2019 *
Average for the
year ended
December 31, 2019
Year ended
December 31,
2018 *
Average for the
year ended
December 31, 2018
4.2608
4.7793
0.2481
0.0407
2.4436
4.2392
4.7454
0.2413
0.0403
2.4263
4.0736
4.6639
0.2389
0.0394
2.3847
3.9433
4.6535
0.2347
0.0394
2.3793
*) 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.
Notes to the consolidated financial statements for the year ended December 31, 2019 129
6. INTANGIBLE ASSETS
COST
Balance as at January 1, 2019
Exchange differences
Additions *
Transfers (Note 7)
Disposals
Concessions,
licences and other
intangible assets
Oil and gas
assets with unproved
reserves
Total
1,338.42
3,287.74
4,626.16
1.32
11.67
0.46
(1.58)
-
1.32
337.41
349.08
(213.50)
(213.04)
-
(1.58)
Balance as at December 31, 2019
1,350.29
3,411.65
4,761.94
ACCUMULATED AMORTIZATION AND
IMPAIRMENT
Balance as at January 1, 2019
Exchange differences
Amortization
Impairment
Transfers (Note 7)
Disposals
Balance as at December 31, 2019
CARRYING AMOUNT
As at January 1, 2019
As at December 31, 2019
1,249.44
317.77
1,567.21
0.94
9.14
0.01
-
(1.33)
1,258.20
88.98
92.09
-
-
126.99
(73.03)
-
0.94
9.14
127.00
(73.03)
(1.33)
371.73
1,629.93
2,969.97
3,058.95
3,039.92
3,132.01
*) Includes the amount of RON 0.46 million representing additions on decommissioning asset for exploration wells (under category "Oil and gas assets with unproved
reserves").
Oil and gas assets with unproved reserves include mainly expenditure capitalized in relation to Neptun
project. OMV Petrom remains keen to see the Neptun Deep strategic project being developed. Based on
management assessment it was concluded that there are no impairment triggers as at December 31, 2019.
130 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
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, 2019
4,726.26
41,176.81
10,578.84
1,194.51
995.14
58,671.56
Recognition of right-of-use asset on
initial application of IFRS 16
Adjusted balance
January 1, 2019
Exchange differences
Additions *
Transfers **
200.26
-
-
99.42
-
299.68
4,926.52
41,176.81
10,578.84
1,293.93
995.14
58,971.24
30.68
168.64
171.62
3,245.79
90.44
74.19
15.49
465.61
449.43
11.59
328.31
2.40
228.80
253.43
4,464.76
32.98
(578.68)
68.36
Transfers to assets held for sale
(1.78)
(752.58)
(20.08)
Disposals
(36.71)
(546.30)
(207.42)
(5.98)
(68.59)
0.06
(1.01)
(780.36)
(860.03)
Balance as at December 31, 2019
5,180.77
43,366.55
11,281.87
1,592.24
671.34
62,092.77
ACCUMULATED DEPRECIATION
AND IMPAIRMENT
Balance as at January 1, 2019
2,191.67
22,525.48
6,261.41
923.37
20.54
31,922.47
Exchange differences
14.26
150.91
13.16
9.29
0.09
187.71
Depreciation
Impairment
Transfers **
Transfers to assets held for sale
Disposals
Write-ups
216.54
1,903.78
713.06
117.82
-
2,951.20
4.22
540.54
9.90
(3.20)
(1.44)
49.08
(117.28)
(547.23)
(13.16)
1.42
(0.25)
(4.54)
0.88
-
-
(27.91)
(540.32)
(194.80)
(63.12)
(0.94)
-
(4.81)
(0.37)
-
-
556.96
(71.65)
(566.37)
(827.09)
(5.18)
Balance as at December 31, 2019
2,394.14
24,077.43
6,671.92
983.99
20.57
34,148.05
CARRYING AMOUNT
As at January 1, 2019
2,534.59
18,651.33
4,317.43
As at December 31, 2019
2,786.63
9,289.12
4,609.95
271.14
608.25
974.60
26,749.09
650.77
27,944.72
*) Includes the amount of RON 524.47 million representing increase from reassessment of the decommissioning asset.
**) Transfers are in net amount of RON 140.01 million and represent transfers from intangibles (See Note 6) and the reclassification of the tangible assets under former
finance leases to right-of-use assets at their net carrying amount, following IFRS 16 Leases implementation.
Notes to the consolidated financial statements for the year ended December 31, 2019 131
7. PROPERTY, PLANT AND EQUIPMENT (continued)
Expenditure capitalized in the course of construction of tangible and intangible assets amounts to RON
541.11 million (2018: RON 484.00 million).
For details on impairments see Note 23.
OMV Petrom Group as a lessee
OMV Petrom Group as a lessee recognized right-of-use assets related mainly to land for filling stations,
cars, rail cars and other transportation vehicles, the hydrogen plant at Petrobrazi Refinery and power
generators, as well as other land and office buildings leases.
Due to the nature of oil and gas operations, some lease contracts include the possibility for OMV
Petrom Group as a lessee to extend or terminate the original lease term. The existence of such
options is a business necessity, as the activities are largely dependent on the market factors and on
the existence of oil and gas reserves. These provide operational flexibility in terms of managing the
assets used in the Group’s operation. These options are assessed by OMV Petrom Group at lease
commencement whether it is reasonably certain that they will be exercised or not.
Right-of-use assets recognized under IFRS 16
Finance lease assets as at
January 1, 2019
Right-of-use assets recognized
at transition
Right-of-use assets as at
January 1, 2019
Additions
Depreciation
Other movements
Right-of-use assets as at
December 31, 2019
Land and
buildings
Plant and
machinery
Other fixtures,
fittings and
equipment
Total
11.91
139.68
0.32
151.91
200.26
-
99.42
299.68
212.17
50.29
(27.12)
(3.62)
139.68
9.89
(29.24)
(16.26)
99.74
292.22
(52.57)
(2.96)
451.59
352.40
(108.93)
(22.84)
231.72
104.07
336.43
672.22
132 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
7. PROPERTY, PLANT AND EQUIPMENT (continued)
Amounts recognized in consolidated income statement
Operating result
Short-term lease expenses
Low-value lease expenses
Variable lease expenses
Depreciation expense of right-of-use assets
Net financial result
Interest expense on lease liabilities
Foreign exchange loss on lease liabilities
2019
65.47
0.60
26.84
108.93
10.51
10.25
In addition, OMV Petrom Group incurred short term lease costs of RON 240.08 million which were
capitalized in the cost of other assets.
Variable lease payments expensed in 2019 in amount of RON 26.84 million were related to contingent
rent mainly for leased filling stations and power generators equipment, determined based on turnover,
quantities or other contractual parameters.
For other information on lease liability please see Note 16 and Note 32 a).
Notes to the consolidated financial statements for the year ended December 31, 2019 133
8. INVESTMENTS IN ASSOCIATED COMPANIES
As at December 31, 2019 and December 31, 2018 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
2019
26.94
7.36
(0.34)
(0.13)
6.89
2018
58.29
9.51
0.08
(0.92)
8.67
Carrying amount reconciliation for immaterial associates is as follows:
Carrying amount at January 1, 2019
Share of total comprehensive income of associates (see above)
Reduction of share capital
Carrying amount at December 31, 2019
Associated companies
58.29
6.89
(38.24)
26.94
During 2019 the share capital of the associated entity OMV Petrom Global Solutions S.R.L. was reduced
by way of cash distribution, with no impact on the shareholding of 25% held by OMV Petrom Group.
134 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS
a) Trade receivables are amounting to RON 1,891.86 million as at December 31, 2019 (2018: RON
1,674.23 million).
Credit quality of trade receivables
December 31, 2019
Expected credit
loss rate
Gross carrying
amount
Expected credit
loss
Net carrying
amount
293.97
641.50
893.29
59.73
3.37
1,891.86
Net carrying
amount
265.68
438.86
888.25
75.30
6.14
1,674.23
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
0.07%
0.24%
1.22%
10.27%
100.00%
293.98
641.63
898.34
60.84
201.13
2,095.92
0.01
0.13
5.05
1.11
197.76
204.06
December 31, 2018
Expected credit
loss rate
Gross carrying
amount
Expected credit
loss
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
0.08%
0.25%
1.25%
10.33%
100.00%
265.79
439.00
893.76
76.41
242.47
1,917.43
The movements in impairment of trade receivables are as follows:
January 1, under IAS 39
Adjustment on initial application of IFRS 9
January 1, under IFRS 9
Amounts written off
Net remeasurement of expected credit losses
Foreign exchange rate differences
December 31
2019
243.20
(20.79)
(18.61)
0.26
204.06
0.11
0.14
5.51
1.11
236.33
243.20
2018
251.63
0.62
252.25
(7.01)
(1.58)
(0.46)
243.20
Notes to the consolidated financial statements for the year ended December 31, 2019 135
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS (continued)
b) Other financial assets (net of impairment)
Expenditure recoverable from Romanian State
Derivative financial assets (Note 33)
Other financial assets
Total
Expenditure recoverable from Romanian State
Derivative financial assets (Note 33)
Investments
Other financial assets
Total
December 31, 2019 less than 1 year
over 1 year
Liquidity term
1,962.83
281.64
364.20
2,608.67
-
1,962.83
231.23
254.87
486.10
50.41
109.33
2,122.57
Liquidity term
December 31, 2018 less than 1 year
over 1 year
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
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 1,793.22 million as at December 31, 2019 (2018: RON 1,589.95 million) and the
environmental liabilities in Downstream Oil and Upstream with net present value of RON 169.61 million
(2018: RON 170.88 million), as these were existing prior to privatization of OMV Petrom S.A.
On 7 March 2017, OMV AG, as party in the OMV Petrom privatization agreement, initiated arbitration
proceedings against the Romanian Ministry of Environment, in accordance with the International
Chamber of Commerce Rules, regarding certain claims unpaid by the Ministry of Environment for
costs incurred by OMV Petrom with well decommissioning and environmental remediation works. As of
December 31, 2019, the amount in arbitration is RON 287.66 million and the arbitration proceedings are
ongoing.
Investments
The position “Investments” comprised 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. As at December 31, 2019, these investments are fully impaired.
136 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS (continued)
Other financial assets
On 14 September 2016, OMV Petrom signed a financing contract with the Romanian Ministry of Energy for
a government grant to be received for Brazi power plant investment, which was subsequently increased
through two addendums in 2017 and 2018, recorded as other financial assets against reduction of cost of
fixed assets.
As of December 31, 2019 the present value of the financial asset representing government grant to be
received for Brazi power plant investment was in amount of RON 172.47 million (2018: RON 339.89
million). During 2019 the first two tranches in amount of RON 226.59 million were collected (see Note
32 d).
As of December 31, 2018, OMV Petrom had in balance a financial asset recognized in relation to
insurance indemnities in Power business division in amount of RON 77.27 million, collected in 2019.
Credit quality other financial assets at amortized cost – gross carrying amount
December 31, 2019
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
Expected
credit loss
rate
0.07%
0.24%
1.22%
10.27%
100.00%
12-month ECL
Lifetime ECL
not credit
impaired
Lifetime
ECL credit
impaired
Total
42.57
2,201.06
85.66
2.56
0.14
2,331.99
-
-
-
-
-
-
-
42.57
67.38
2,268.44
-
-
542.42
609.80
85.66
2.56
542.56
2,941.79
For risk class 2, “12-month ECL” included an amount of RON 1,965.92 million and “Lifetime ECL credit
impaired” included an amount of RON 67.38 million, related to expenditure recoverable from the Romanian
State.
Notes to the consolidated financial statements for the year ended December 31, 2019 137
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS (continued)
December 31, 2018
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
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
127.85
2,171.92
11.77
1.86
-
2,313.40
-
-
-
-
-
-
-
70.61
-
-
543.53
614.14
Total
127.85
2,242.53
11.77
1.86
543.53
2,927.54
For risk class 2, “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.
Credit quality other financial assets at amortized cost – expected credit loss
December 31, 2019
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
Expected
credit loss
rate
0.07%
0.24%
1.22%
10.27%
100.00%
12-month ECL
Lifetime ECL
not credit
impaired
Lifetime
ECL credit
impaired
-
3.36
1.48
0.12
-
4.96
-
-
-
-
-
-
-
67.38
-
-
542.42
609.80
Total
-
70.74
1.48
0.12
542.42
614.76
For risk class 2, “12-month ECL” included an amount of RON 3.09 million and “Lifetime ECL credit
impaired” included an amount of RON 67.38 million, related to expenditure recoverable from the Romanian
State.
138 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS (continued)
December 31, 2018
Risk class 1
Risk class 2
Risk class 3
Risk class 4
Risk class 5
Total
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
For risk class 2, “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 amounts in the above tables do not include derivative financial assets which are measured at fair
value.
The movements in impairment of other financial assets at amortized cost were as follows:
12-month
ECL
Lifetime ECL
not credit
impaired
Lifetime
ECL credit
impaired
Total
January 1, 2019
Amounts written off
Net remeasurement of expected credit losses
Foreign exchange rate differences
December 31, 2019
4.45
-
0.50
0.01
4.96
-
-
-
-
-
(0.01)
(4.33)
-
609.80
614.14
618.59
12-month
ECL
Lifetime ECL
not credit
impaired
Lifetime
ECL credit
impaired
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
0.51
4.38
4.89
0.03
(0.42)
(0.05)
4.45
-
-
-
-
-
-
-
589.85
-
589.85
(12.68)
36.97
-
614.14
(0.01)
(3.83)
0.01
614.76
Total
590.36
4.38
594.74
(12.65)
36.55
(0.05)
618.59
Notes to the consolidated financial statements for the year ended December 31, 2019 139
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 non-financial assets
Total
Receivable from taxes
Advance payments on fixed assets
Prepaid expenses and deferred charges
Rental and lease prepayments
Other non-financial assets
Total
December 31, 2019 less than 1 year
over 1 year
Liquidity term
303.03
52.61
81.56
17.17
250.54
704.91
120.13
52.61
55.08
11.08
250.54
489.44
182.90
-
26.48
6.09
-
215.47
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
The increase in “Other non-financial assets” is driven mainly by higher market prices for the acquired
emission certificates.
11. INVENTORIES
Crude oil
Natural gas
Other materials
Work in progress
Finished products
Total
December 31, 2019
December 31, 2018
482.66
180.81
279.17
154.05
1,367.76
2,464.45
425.08
90.97
219.73
142.55
1,273.21
2,151.54
The cost of materials and goods consumed during 2019 (whether used in production or re-sold) is of
RON 11,392.29 million (2018: RON 8,543.96 million).
As at December 31, 2019 and 2018 there are no inventories pledged as security for liabilities.
140 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
12. ASSETS HELD FOR SALE
Land and buildings
Plant and equipment
Assets held for sale
Provisions for decommissioning and restoration
Liabilities
Liabilities associated with assets held for sale
December 31, 2019
December 31, 2018
1.53
215.67
217.20
222.55
1.20
223.75
1.04
127.91
128.95
103.06
-
103.06
As at December 31, 2019, assets and liabilities held for sale referred to Upstream segment, as OMV
Petrom S.A. reached an agreement with Dacian Petroleum S.R.L. to transfer 40 marginal onshore oil
and gas fields, which led to the reclassification of related assets and liabilities to “held for sale”. This
triggered an overall negative impact on operating result amounting to RON 220.00 million, including a
pre-tax impairment of property, plant and equipment of RON 171.16 million shown in the line “Depreciation,
amortization and impairment charges”.
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, 2019 141
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,
2019 and 2018 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 is amounting to RON 5,062.84 million as at December 31, 2019 and 2018. 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 are amounting to RON 1,132.88 million as at December 31, 2019 and 2018. 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 454.06 million (2018: RON 422.92 million). The
amount of RON 31.14 million was allocated to other reserves, representing fiscal facilities from reinvested
profit in the year 2019 (2018: RON 35.85 million).
At the Annual General Meeting of Shareholders held on April 19, 2019, the shareholders of OMV Petrom
S.A. approved the distribution of gross dividends in amount of RON 0.027 per share.
On March 17, 2020, the Supervisory Board endorsed the management’s proposal to distribute gross
dividends of RON 0.031 per share. The dividend proposal is subject to further approval by the Ordinary
General Meeting of Shareholders, on April 27, 2020.
Cash flow hedge 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.
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 other comprehensive income. The cumulative unrealized
gain recognized in other comprehensive income, net of tax, is in amount of RON 27.70 million as at
December 31, 2019 (2018: RON 4.22 million). When the hedged item (underlying transaction) affects profit
142 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
13. STOCKHOLDERS’ EQUITY (continued)
and loss, the amounts previously accounted for in other comprehensive income are recycled to income
statement. For more details on hedges please refer to Note 36.
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.
Notes to the consolidated financial statements for the year ended December 31, 2019 143
14. PROVISIONS
January 1, 2019
thereof short-term
thereof long-term
Exchange differences
Liabilities associated with assets
held for sale
Used
Net allocations/(releases)
December 31, 2019
thereof short-term
thereof long-term
Pensions
and similar
obligations
Decommissioning
and restoration
Other
provisions
Total
211.38
-
211.38
0.01
-
(11.58)
40.89
240.70
-
240.70
6,238.63
245.68
5,992.95
4.81
(223.36)
(197.37)
945.56
6,768.27
312.19
6,456.08
634.88
7,084.89
444.61
690.29
190.27
6,394.60
1.68
6.50
-
(223.36)
(116.08)
(325.03)
379.51
1,365.96
899.99
7,908.96
311.12
623.31
588.87
7,285.65
Provisions for pensions and similar obligations
Employees of several Group companies are entitled to receive pension benefits 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 4.41% (2018: 4.75%) and an estimated average yearly salary increase of
4.19% (2018: 2.61%).
Provisions for decommissioning and restoration
Changes in provisions for decommissioning and restoration are shown in the table below. In the event
of changes in estimated restoration costs 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 0.00% and 1.65% (2018:
between 0.66% and 2.11%).
The provision for decommissioning and restoration costs includes mainly obligations in respect of OMV
Petrom S.A. amounting to RON 6,702.45 million (2018: RON 6,113.40 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.
144 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | 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
2019
6,238.63
4.81
651.61
293.95
(197.37)
(223.36)
6,768.27
2018
7,701.81
5.27
(1,533.30)
323.73
(155.82)
(103.06)
6,238.63
The revisions in estimates impact the assets subject to decommissioning, the consolidated income
statement or the related receivable from the Romanian 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 the Romanian State. The effect of changes in net discount rate or timing of the
receivable from the Romanian 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 2019 was generated mainly by the decrease of net discount rates
and higher estimated average unit costs for onshore wells in Romania.
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.
Notes to the consolidated financial statements for the year ended December 31, 2019 145
14. PROVISIONS (continued)
Other provisions were as follows:
December 31, 2019
Environmental provision
Other personnel provisions
Provisions for litigations
Other
Total
December 31, 2018
Environmental provision
Other personnel provisions
Provisions for litigations
Other
Total
Total
less than 1 year
over 1 year
397.11
101.76
82.49
318.63
899.99
51.20
99.13
5.47
155.32
311.12
345.91
2.63
77.02
163.31
588.87
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
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, 2019
and 2018 represent the best estimate of the Group’s experts for environmental matters. Environmental
provisions are mainly computed using a discount rate of 4.41% (2018: 4.74%).
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”).
The environmental provision increased in 2019 following the set-up of a provision for soil remediation in
relation to Arpechim refinery site amounting to RON 218.33 million as at December 31, 2019.
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.
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.
146 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | 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 1,018,845 emission certificates for the year 2019
(2018: 1,355,624 emission certificates). During 2019 the Company received 1,349,058 emission
certificates, out of which 660,425 emission certificates representing the 2018 entitlement according to
article 10c) of the Directive and 688,633 emission certificates from 2019 entitlement according to article
10a) of the Directive.
During 2019 the Group had net other purchases of 1,153,324 emissions certificates (2018: net other
purchases of 377,791 emissions certificates).
A shortfall in emission certificates would be provided for. Until December 31, 2019, the Group was not
short of certificates.
Notes to the consolidated financial statements for the year ended December 31, 2019 147
15. INTEREST-BEARING DEBTS
As at December 31, 2019 and December 31, 2018 OMV Petrom Group had the following loans:
Borrower
Lender
Interest-bearing debts short-term
OMV Petrom S.A.
European Investment Bank (a)
OMV Petrom S.A. OMV Petrom Global Solutions S.R.L. (b)
Accrued interest and other
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 Investment Bank (a)
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
Total interest-bearing debts
December
31, 2019
December
31, 2018
91.03
39.67
1.62
(0.07)
132.25
88.84
176.25
2.41
(0.07)
267.43
December
31, 2019
December
31, 2018
198.00
(0.12)
197.88
197.88
330.13
282.05
(0.18)
281.87
281.87
549.30
(a) For the construction of the Brazi Power Plant, OMV Petrom S.A. 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, 2019 was RON 289.03 million (equivalent of EUR 60.48 million) (2018: RON 370.89
million, equivalent of EUR 79.52 million).
(b) A cash pooling agreement with maturity on April 19, 2020, renewable each year, was signed between
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, usable in RON or any other currency EUR, USD and
GBP. The amount drawn by the Group as at December 31, 2019 was RON 39.67 million (2018: RON
176.25 million).
148 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
15. INTEREST-BEARING DEBTS (continued)
The OMV Petrom Group’s companies have several credit facilities signed as at December 31, 2019 as
follows:
(c) An unsecured credit facility granted by Raiffeisen Bank S.A. up to EUR 55.00 million (equivalent
of RON 262.86 million) consisting in two subfacilities: subfacility A with maturity date prolonged to
December 31, 2020 (for an amount of EUR 35.00 million, equivalent of RON 167.27 million) and
subfacility B with maturity date prolonged to December 31, 2023 (for an amount of EUR 20.00 million,
equivalent of RON 95.59 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,
equivalent of RON 95.59 million); and by OMV Petrom Aviation S.R.L. (up to the maximum limit of
EUR 10.00 million, equivalent of RON 47.79 million) only for the issuance of letters of credit and/or
issuance of letters of bank guarantee. As at December 31, 2019 an amount of RON 0.01 million was
used from the cash portion of the credit facility (2018: nil) included in “Accrued interest and other”
line.
(d) 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 238.97 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, 2019 and 2018.
(e) An uncommitted and unsecured credit facility contracted by OMV Petrom S.A. from BRD – Groupe
Société Générale S.A. with maximum limit of EUR 90.00 million (equivalent of RON 430.14 million)
that can be used in RON, with maturity date prolonged until April 30, 2020. 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, 2019 and
2018.
(f) A committed and unsecured credit facility contracted by OMV Petrom S.A. from Banca Comercială
Română S.A., that can be used in USD, EUR or RON, up to a maximum amount of EUR 200.00
million (equivalent of RON 955.86 million), for issuance of letters of bank guarantee and similar and
as overdraft for working capital financing. As at December 31, 2019, the maturity for letters of bank
guarantee and similar is January 13, 2022 and for overdraft the maturity is 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, 2019 and 2018.
(g) An unsecured credit facility agreement was signed by OMV Petrom S.A. with Garanti Bank S.A. for
up to EUR 15.00 million (equivalent of RON 71.69 million) to be utilized for issuance of letters of
bank guarantee and similar and as overdraft for working capital financing. As at December 31, 2019,
the maturity was January 15, 2020 for overdraft purposes and March 15, 2021 for issuance of bank
Notes to the consolidated financial statements for the year ended December 31, 2019 149
15. INTEREST-BEARING DEBTS (continued)
guarantees. In January 2020, the maturity of the credit facility was prolonged until January 15, 2022
for overdraft and until March 15, 2023 for bank guarantees. The cash portion of the credit facility was
not used as at December 31, 2019 and 2018.
(h) 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 24.42 million) and maturity date until March 30, 2020.
The destination of the facility is for general corporate purposes financing. The maturity of the credit
facility was prolonged until March 30, 2022. As at December 31, 2019 an amount of RON 0.01 million
was used from the overdraft facility (2018: nil) included in “Accrued interest and other” line.
(i) An unsecured credit facility agreement was signed by Petrom Moldova SRL with Banca Comercială
Română Chișinău SA for up to MDL 20.00 million (equivalent of RON 4.96 million) to be utilized as
overdraft for working capital financing. Final maturity is March 19, 2021. No drawings were made under
the overdraft facility as at December 31, 2019.
(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 63.91 million) and maturity date prolonged to July 31, 2024. 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, 2019 and 2018.
(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 59.87 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 the
financing of current operational activities and issuance of letters of bank guarantee. There were no
drawings under the overdraft facility as at December 31, 2019 and 2018.
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 143.38 million), to
be utilized only for issuance of letters of bank guarantee and letters of credit, with maturity date
prolonged to March 27, 2021. Maturity is subject to possibility of further automatic extensions for
successive periods of 12 months, but not longer than March 27, 2022.
(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 119.48 million), to be utilized only for
issuance of letters of bank guarantee, with maturity until March 31, 2022.
(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 9.56 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.
150 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
15. INTEREST-BEARING DEBTS (continued)
(o) An unsecured credit facility agreement was signed by Petrom Moldova SRL with Banca Comercială
Română Chișinău SA for up to MDL 1.00 million (equivalent of RON 0.25 million) to be utilized for
issuance of letters of bank guarantees. Final maturity is March 19, 2021. No drawings were made
under the overdraft facility as at December 31, 2019.
As at December 31, 2019, 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, 2019 151
16. OTHER FINANCIAL LIABILITIES
Derivative financial liabilities (Note 33)
Financial liabilities in connection with joint operations
Other financial liabilities
Total
Finance lease liabilities
Derivative financial liabilities (Note 33)
Financial liabilities in connection with joint operations
Other financial liabilities
Total
December 31, 2019
less than 1 year over 1 year
213.72
1.12
264.52
479.36
171.54
42.18
1.12
-
199.88
64.64
372.54
106.82
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
Following the implementation of IFRS 16 Leases starting with January 1, 2019, the lease liabilities are
presented in separate new lines in the consolidated statement of financial position as at December 31,
2019, within current liabilities, in amount of RON 128.79 million and non-current liabilities, in amount of
RON 572.15 million. Until 2018, finance lease liabilities were included in line “Other financial liabilities”.
152 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
16. OTHER FINANCIAL LIABILITIES (continued)
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):
December 31, 2019
Interest-bearing debts
Lease liabilities
Trade payables
Derivative financial liabilities
Other financial liabilities
Total
December 31, 2018
Interest-bearing debts
Trade payables
Derivative financial liabilities
Other financial liabilities
Total
< 1 year
1-5 years
> 5 years
Total
135.05
138.60
3,372.35
171.54
201.00
202.08
372.13
-
42.18
31.82
-
285.40
-
-
32.82
337.13
796.13
3,372.35
213.72
265.64
4,018.54
648.21
318.22
4,984.97
< 1 year
1-5 years
> 5 years
271.23
3,049.66
163.53
231.11
3,715.53
290.30
-
-
100.57
390.87
-
-
-
104.43
104.43
Total
561.53
3,049.66
163.53
436.11
4,210.83
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, 2019 153
17. OTHER LIABILITIES
Tax liabilities
Social security
Contract liabilities
Deferred income
Other liabilities
Total
Tax liabilities
Social security
Contract liabilities
Deferred income
Other liabilities
Total
December 31, 2019 less than 1 year
over 1 year
462.62
44.69
145.44
23.37
76.13
752.25
462.62
44.69
145.44
9.48
76.13
738.36
-
-
-
13.89
-
13.89
December 31, 2018
less than 1 year
over 1 year
551.11
46.08
138.86
25.04
75.11
836.20
551.11
46.08
138.86
10.20
75.11
821.36
-
-
-
14.84
-
14.84
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
2019
138.86
(131.92)
138.50
145.44
154 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
18. DEFERRED TAX
December 31, 2019
Tangible and intangible assets
Inventories
Receivables and other assets
Provisions for pensions and similar
obligations
Other provisions
Liabilities
Tax loss carried forward
Total
Netting (same tax jurisdiction/country)
Total deferred tax, net
Deferred tax assets
before allowances
Allowances Net deferred
tax assets
Deferred tax
liabilities
369.83
26.54
161.27
42.47
954.30
71.09
0.29
(15.24)
(0.47)
(38.32)
-
(5.81)
(1.85)
-
354.59
26.07
122.95
42.47
948.49
69.24
0.29
1,625.79
(61.69)
1,564.10
(73.17)
1,490.93
46.23
-
43.80
4.05
-
-
-
94.08
(73.17)
20.91
31 December 2018
Tangible and intangible assets
Inventories
Receivables and other assets
Provisions for pensions and similar
obligations
Other provisions
Liabilities
Tax loss carried forward
Total
Netting (same tax jurisdiction/country)
Total deferred tax, net
Deferred tax assets
before allowances
Allowances Net deferred
tax assets
Deferred tax
liabilities
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
Notes to the consolidated financial statements for the year ended December 31, 2019 155
18. DEFERRED TAX (continued)
As at December 31, 2019, losses carry-forward for tax purposes amounted to RON 124.88 million
(2018: RON 128.95 million). Eligibility of losses for carry-forward expires as follows:
2020
2021
2022
2023
2024 / After 2023
After 2024
Total
2019
26.13
0.74
6.37
6.41
17.79
67.44
124.88
2018
23.13
23.83
1.14
5.12
75.73
-
128.95
No deferred tax asset was recognized for part of tax losses carry-forward included in the above table,
in amount of RON 123.43 million (2018: RON 125.26 million).
156 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
19. SALES REVENUES
Revenues
2019
2018
Revenues from contracts with customers
25,351.30
22,547.15
Revenues from other sources
Total sales revenues
134.17
(23.91)
25,485.47
22,523.24
Revenues from contracts with customers
In the following tables, revenues recorded in 2019 and 2018 are disaggregated by products and
reportable segments.
2019
Upstream Downstream
thereof
Downstream
Oil
thereof
Downstream
Gas
Corporate
& Other
Total
Crude Oil, NGL, condensates
420.63
60.81
Natural gas, LNG and power
5.84
6,557.03
60.81
13.24
-
6,543.79
Fuels and heating oil
-
14,157.52
14,157.52
-
-
-
-
481.44
6,562.87
14,157.52
Other goods and services *
48.70
4,087.01
3,981.16
105.85
13.76
4,149.47
Total
2018
475.17
24,862.37
18,212.73
6,649.64
13.76
25,351.30
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
Other goods and services *
62.81
3,670.09
3,668.04
-
2.05
-
-
-
529.00
4,986.35
13,277.20
21.70
3,754.60
Total
521.13
22,004.32
17,031.41
4,972.91
21.70
22,547.15
*) Mainly non-fuel business in Downstream Oil.
Revenues from other sources
Revenues from other sources include mainly the impact from commodity sales/purchases transactions
that are within the scope of IFRS 9 Financial Instruments, as well as rental and lease revenues.
OMV Petrom Group acts as a lessor for lease arrangements assessed as operating leases mainly for
land and buildings and equipment. Rental and lease revenues in 2019 amount to RON 50.31 million
(2018: RON 44.16 million).
Notes to the consolidated financial statements for the year ended December 31, 2019 157
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
2019
29.17
84.07
5.18
145.53
263.95
2018
35.98
26.73
432.94
176.45
672.10
“Gains on disposal of non-current assets” in 2019 include the amount of RON 52.82 million in relation
to non-current assets transferred to Mazarine Energy Romania S.R.L. (see Note 32e).
“Write-up tangible and intangible assets” included in 2018 the reversal of a previously recognized
impairment for a cash generating unit in Upstream in OMV Petrom S.A., in amount of RON 430.40
million.
“Other operating income” in 2019 includes income related to clarification of a tax related topic in
Romania, in amount of RON 66.96 million, while 2018 included insurance revenues related to the Brazi
gas-fired power plant, in amount of RON 81.80 million.
21. NET INCOME FROM EQUITY-ACCOUNTED INVESTMENTS
Share of net result of associated companies
Total
2019
7.36
7.36
2018
9.51
9.51
158 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
22. OTHER OPERATING EXPENSES
Exchange losses from operating activities
Losses on disposal of non-current assets
Net loss/ (income) from provisions for litigations
Other operating expenses
Total
2019
34.15
5.81
1.01
243.44
284.41
2018
44.02
19.91
(41.89)
217.37
239.41
Other operating expenses include an amount of RON 53.06 million (2018: RON 57.66 million)
representing restructuring expenses.
Notes to the consolidated financial statements for the year ended December 31, 2019 159
23. COST INFORMATION
For the years ended December 31, 2019 and December 31, 2018 the consolidated income statement
includes the following personnel expenses:
Wages and salaries
Other personnel expenses
Total personnel expenses
2019
1,580.08
239.56
1,819.64
2018
1,636.57
163.09
1,799.66
Included in the above personnel expenses is the amount of RON 19.90 million, representing Group’s
contribution to state pension plan for the year ended December 31, 2019 (2018: RON 33.01 million).
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
2019
2,955.34
678.78
3,634.12
2018
2,879.37
(7.05)
2,872.32
Net impairment losses booked during the year ended December 31, 2019 for intangible assets and
property, plant and equipment (including those classified as held for sale) were related to Upstream
segment in amount of RON 669.15 million (including mainly impairments for replaced assets,
unsuccessful workovers, assets held for sale and unsuccessful exploration assets in Romania), to
Downstream Oil segment in amount of RON 4.84 million, Downstream Gas segment in amount of RON
3.82 million and Corporate & Other segment in the amount of RON 0.97 million.
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 & Other segment in the amount of RON 0.01 million.
160 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
23. COST INFORMATION (continued)
In the consolidated income statement as at December 31, 2019 the write-ups are included in other
operating income in amount RON 5.18 million (2018: RON 432.94 million) and impairment losses are
included under depreciation, amortization and impairment charges in amount of RON 556.54 million
(2018: RON 300.76 million) and under exploration expenses in amount of RON 127.42 million (2018:
RON 125.13 million).
Notes to the consolidated financial statements for the year ended December 31, 2019 161
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 Romanian 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 Romanian State
receivable
Unwinding expenses and discounting for other items
and negative effect of changes in discount rate and
timing for Romanian State receivable
Total interest expenses
Net interest revenues/ (expenses)
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
2019
2018
86.86
138.09
92.68
317.63
(26.16)
(10.01)
13.70
100.47
48.07
162.24
(59.03)
(9.21)
(231.96)
(257.48)
(8.85)
(276.98)
40.65
(109.88)
(435.60)
(273.36)
2019
30.71
0.11
30.82
(35.38)
(1.44)
(2.91)
(39.73)
(8.91)
2018
44.44
0.23
44.67
(37.58)
(1.75)
(31.40)
(70.73)
(26.06)
162 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
26. TAXES ON INCOME
Tax on income - current taxes
Deferred tax revenue/(expense)
Total taxes on income – expense
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 in the consolidated
Other Comprehensive Income
thereof deferred tax (expense)/revenues in the consolidated
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 consolidated Income Statement
2019
(699.81)
57.69
(642.12)
2019
1,412.51
-
1,412.51
1,470.02
57.51
2018
(705.37)
(130.41)
(835.78)
2018
1,545.35
0.07
1,545.42
1,412.51
(132.91)
(0.18)
(2.50)
57.69
(130.41)
4,276.80
16.00%
(684.29)
0.85
(683.44)
41.32
(642.12)
4,913.57
16.00%
(786.17)
0.34
(785.83)
(49.95)
(835.78)
Notes to the consolidated financial statements for the year ended December 31, 2019 163
27. EARNINGS PER SHARE
Calculation of earnings per share is based on the following data:
Net profit attributable to stockholders of the parent
3,634.59
4,078.10
Weighted average number of shares
Earnings per share in RON
56,643,903,559
56,643,903,559
0.0642
0.0720
December 31, 2019 December 31, 2018
The basic and diluted earnings 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, Downstream Oil, and
Downstream Gas, 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.
164 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
28. SEGMENT INFORMATION (continued)
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, with an
annual capacity of 4.5 million tons. 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 S.A. is the main player on the Romanian fuels market.
Gas business unit, part of Downstream Gas segment, has the strategic objective to focus on gas sales,
becoming a regional player. Business division Power, part of Downstream Gas segment, mainly extends
the gas value chain into a gas-fired power plant.
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,
2019
Upstream Downstream * Downstream
Oil
Downstream
Gas
Downstream
elimination
Corpo-
rate &
Other
Total Consolida-
tion
Consoli-
dated total
Intersegment
sales
Sales with
third parties
9,059.89
234.00
109.00
241.52
(116.52)
199.70
9,493.59
(9,493.59)
-
481.49
24,973.93
18,236.98
6,736.95
-
30.05
25,485.47
-
25,485.47
Total sales
9,541.38
25,207.93
18,345.98
6,978.47
(116.52)
229.75
34,979.06
(9,493.59)
25,485.47
Operating
result
2,589.46
1,913.18
1,475.38
437.80
Total assets **
23,802.46
6,808.65
5,738.25
1,070.40
3,853.21
908.04
822.89
85.15
-
-
-
(156.00)
4,346.64
(101.58)
4,245.06
465.62
31,076.73
-
31,076.73
52.59
4,813.84
-
4,813.84
2,083.32
830.83
742.77
88.06
-
41.19
2,955.34
-
2,955.34
669.15
8.66
4.84
3.82
-
0.97
678.78
-
678.78
*) Sales Downstream = Sales Downstream Oil + Sales Downstream Gas – intersegmental elimination Downstream Oil and Downstream Gas;
**) Intangible assets (IA), property, plant and equipment (PPE).
Notes to the consolidated financial statements for the year ended December 31, 2019 165
Additions in
PPE/IA
Depreciation
and
amortization
Impairment
losses/ (write-
ups), net
28. SEGMENT INFORMATION (continued)
Information about geographical areas:
December 31, 2019
Romania
Rest of Central
Eastern Europe
Rest of
Europe
Rest of
world
Consolidated
total
Sales with third parties *
21,565.86
3,848.88
41.66
29.07
Total assets **
29,857.21
Additions in PPE/IA
4,693.87
807.59
130.07
-
-
411.93
(10.11)
25,485.47
31,076.73
4,813.84
*) 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 Central Eastern Europe include sales made in Bulgaria
amounting to RON 1,848.38 million in 2019.
Additions in PPE/IA from Rest of world include RON (42.43) million net decrease from reassessment of
the decommissioning asset.
Operating segments:
December 31,
2018
Upstream Downstream * Downstream
Oil
Downstream
Gas
Down-
stream
elimination
Corpo-
rate &
Other
Total Consolida-
tion
Consoli-
dated total
Intersegment
sales
Sales with
third parties
9,214.71
234.86
132.44
195.67
(93.25)
185.00
9,634.57
(9,634.57)
-
527.74
21,958.85
17,075.07
4,883.78
-
36.65
22,523.24
-
22,523.24
Total sales
9,742.45
22,193.71
17,207.51
5,079.45
(93.25)
221.65
32,157.81
(9,634.57)
22,523.24
Operating
result
3,530.52
1,671.74
1,385.40
286.34
Total assets **
22,866.45
6,521.73
5,440.16
1,081.57
3,234.73
1,098.54
1,134.85
(36.31)
-
-
-
(105.63)
5,096.63
116.36
5,212.99
419.86
29,808.04
-
29,808.04
0.94
4,334.21
-
4,334.21
2,097.84
759.24
668.58
90.66
-
22.29
2,879.37
-
2,879.37
(21.88)
14.82
14.20
0.62
-
0.01
(7.05)
-
(7.05)
Additions in
PPE/IA ***
Depreciation
and
amortization
Impairment
losses/ (write-
ups), net
*) 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.
166 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
28. SEGMENT INFORMATION (continued)
Information about geographical areas:
December 31, 2018
Sales with third parties *
Total assets **
Additions in PPE/IA
Romania
Rest of Central
Eastern Europe
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 Central Eastern Europe include sales made in Bulgaria
amounting to RON 1,632.87 million in 2018.
29. AVERAGE NUMBER OF EMPLOYEES
Total OMV Petrom Group
12,720
13,409
December 31, 2019 December 31, 2018
thereof:
OMV Petrom S.A.
Subsidiaries
11,814
906
12,498
911
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 mainly in cash.
There are no guarantees given or paid to related parties as at December 31, 2019 and December 31, 2018.
Dividends receivable are not included in the below balances and revenues.
Notes to the consolidated financial statements for the year ended December 31, 2019 167
30. RELATED PARTIES (continued)
During 2019, OMV Petrom Group had the following transactions with related parties (including balances as
of December 31, 2019):
OMV Petrom S.A. - parent company
OMV Supply & Trading Limited
Nature of transaction
Purchases Balances
payable
Acquisition of crude oil and
petroleum products
2,111.41
204.02
OMV Petrom Global Solutions S.R.L.
Financial, IT and other services
450.73
101.29
OMV Gas Marketing & Trading GmbH
Acquisition of natural gas and other
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Refining & Marketing GmbH
OMV Aktiengesellschaft
OMV Gas & Power GmbH
OMV Deutschland GmbH
Acquisition of petroleum products,
other materials and services
Delegation of personnel and other
Delegation of personnel and other
Acquisition of propylene
OMV Gas Marketing & Trading Hungária Kft. Various services
OMV International Services GmbH
Trans Gas LPG Services S.R.L.
Total OMV Petrom S.A.
Various services
Various services
356.56
85.49
58.02
35.64
5.66
0.10
0.01
0.01
0.01
51.55
34.91
30.15
30.84
2.84
-
-
-
-
3,103.64
455.60
OMV Petrom Group subsidiaries
OMV Gas Marketing & Trading GmbH
Acquisition of natural gas
159.53
-
Nature of transaction
Purchases Balances
payable
OMV Refining & Marketing GmbH
Acquisition of petroleum products,
other materials and services
OMV Petrom Global Solutions S.R.L.
Financial, IT and other services
OMV Hungária Ásványolaj Korlátolt
Felelösségü Társaság
Acquisition of bitumen
OMV Gas Marketing & Trading Hungária Kft.
Acquisition of natural gas
OMV International Services GmbH
Various services
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Gas & Power GmbH
OMV Aktiengesellschaft
Borealis
Total subsidiaries
Total OMV Petrom Group
Delegation of personnel and other
Delegation of personnel and other
Various services
130.58
77.69
27.08
18.09
7.66
4.99
0.77
0.73
-
19.09
15.36
1.17
-
81.39
0.63
-
0.06
0.01
427.12
117.71
3,530.76
573.31
168 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
30. RELATED PARTIES (continued)
Nature of transaction
Revenues
Balances
receivable
OMV Petrom S.A. - parent company
OMV Gas Marketing & Trading GmbH
Sales of electricity and other
OMV Deutschland GmbH
Sales of propylene
OMV Refining & Marketing GmbH
Sales of petroleum products,
delegation of personnel and other
OMV Exploration & Production GmbH
Delegation of personnel and other
OMV Petrom Global Solutions SRL
Various services
OMV Aktiengesellschaft
Borealis
Delegation of personnel and other
Various sales and services
OMV Austria Exploration & Production GmbH
Sale of fixed assets
Energy Production Enhancement S.R.L.
Trans Gas LPG Services S.R.L.
Total OMV Petrom S.A.
Various services
Various services
322.69
298.76
78.47
28.88
23.92
11.65
0.03
0.03
0.02
0.01
36.37
44.57
14.54
4.31
2.39
2.65
0.01
-
-
-
764.46
104.84
Nature of transaction
Revenues
Balances
receivable
OMV Petrom Group subsidiaries
OMV Petrom Global Solutions S.R.L.
Various services
OMV Gas Marketing & Trading GmbH
Sales of natural gas
OMV Refining & Marketing GmbH
Delegation of personnel and other
OMV Česká republika, s.r.o.
Delegation of personnel and other
OMV Exploration & Production GmbH
Delegation of personnel and other
Borealis
Various sales and services
OMV Offshore Bulgaria GmbH
Trans Gas LPG Services SRL
OMV International Services GmbH
Total subsidiaries
Total OMV Petrom Group
Various services
Various services
Various services
4.24
1.55
0.95
0.83
0.16
0.10
0.06
-
-
7.89
(0.04)
-
0.14
-
0.02
-
0.01
-
12.75
12.88
772.35
117.72
Notes to the consolidated financial statements for the year ended December 31, 2019 169
30. RELATED PARTIES (continued)
During 2019, OMV Petrom Group had the following interest expenses with related parties (including
balances as of December 31, 2019 for interest payable).
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
1.67
1.67
1.67
0.14
0.14
0.14
There were no interest income and interest receivables with related parties in 2019.
In December 2019, OMV Petrom S.A. signed a contract to acquire OMV Offshore Bulgaria GmbH, which
currently holds a 30% stake in the Han Asparuh exploration license in Bulgaria. Closing of the transaction
is subject to certain conditions precedent and is expected to take place by mid-2020.
During 2018, OMV Petrom Group had the following transactions with related parties (including balances as
of December 31, 2018):
OMV Petrom S.A. - parent company
OMV Supply & Trading Limited
Nature of transaction
Purchases
Balances
payable
Acquisition of crude oil and
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
170 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | 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
OMV Gas Marketing & Trading GmbH
Financial services
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
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
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 S.R.L.
Various services
OMV Aktiengesellschaft
Delegation of personnel and other
OMV Austria Exploration & Production GmbH
Sale of fixed assets
Trans Gas LPG Services S.R.L.
Energy Production Enhancement S.R.L.
Borealis
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
Notes to the consolidated financial statements for the year ended December 31, 2019 171
30. RELATED PARTIES (continued)
Nature of transaction
Revenues
Balances
receivable
OMV Petrom Group subsidiaries
OMV Petrom Global Solutions S.R.L.
Various services
OMV Česká republika, s.r.o.
Various services
OMV Refining & Marketing GmbH
Delegation of personnel and other
Borealis
OMV Offshore Bulgaria GmbH
Trans Gas LPG Services SRL
Various services
Various services
Various services
OMV International Services GmbH
Other services
OMV Aktiengesellschaft
Delegation of personnel and other
Total subsidiaries
Total OMV Petrom Group
2.00
0.80
0.62
0.11
0.06
0.02
0.18
0.10
0.09
-
0.01
-
-
12.53
(0.07)
3.54
-
12.91
666.03
104.16
During 2018, OMV Petrom Group had the following interest expenses with related parties (including
balances as of December 31, 2018 for interest payable).
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
There were no interest income and interest receivables with related parties in 2018.
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
main shareholders of OMV Aktiengesellschaft are Österreichische Beteiligungs AG (ÖBAG; previously
Österreichische Bundes- und Industriebeteiligungen GmbH (ÖBIB), Vienna, which is in turn wholly
owned by the Republic of Austria – 31.5%) and Mubadala Petroleum and Petrochemicals Holding
Company (MPPH, Abu Dhabi – 24.9%).There is a consortium agreement in place between MPPH and
ÖBAG providing for coordinated behavior and certain restrictions on transfers of shareholdings.
172 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
30. RELATED PARTIES (continued)
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:
https://www.omv.com/en/investor-relations/publications?year=2019#annual-reports.
Key management remuneration
For 2019, the General Meeting of Shareholders approved an annual gross remuneration corresponding
to a net remuneration for each member of the Supervisory Board amounting to EUR 20,000 per year
(2018: EUR 20,000 per year), an additional gross remuneration per meeting corresponding to a net
remuneration of EUR 4,000 for each member for the Audit Committee (2018: EUR 4,000 per meeting)
and an additional gross remuneration per meeting corresponding to a net remuneration of EUR 2,000
for each member for the Presidential and Nomination Committee (2018: EUR 2,000 per meeting).
At December 31, 2019 and December 31, 2018, there are no loans or advances granted by the
Group to the members of the Supervisory Board. As at December 31, 2019 and December 31, 2018,
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
2019 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 81.51 million (2018: RON 111.14 million).
Notes to the consolidated financial statements for the year ended December 31, 2019 173
31. DIRECT AND INDIRECT INVESTMENTS OF OMV PETROM GROUP WITH
AN INTEREST OF AT LEAST 20% AS OF DECEMBER 31, 2019
Company Name
Subsidiaries (>50%)
Tasbulat Oil Corporation LLP
Kom Munai LLP
Petrom Moldova S.R.L.
OMV Petrom Marketing S.R.L.
OMV Petrom Aviation S.R.L.*
OMV Petrom Gas S.R.L.
Petromed Solutions S.R.L.
OMV Srbija DOO
OMV Bulgaria OOD
Petrom Exploration & Production Limited
Share interest
percentage
Consolidation
treatment **
Activity
Country of
incorporation
100.00%
100.00%
100.00%
100.00%
100.00%
99.99%
99.99%
99.96%
99.90%
99.99%
FC
FC
FC
FC
FC
FC
FC
FC
FC
FC
Oil exploration and production in
Kazakhstan
Kazakhstan
Oil exploration and production in
Kazakhstan
Kazakhstan
Fuel distribution
Fuel distribution
Airport services
Gas supply
Medical services
Fuel distribution
Fuel distribution
Exploration and production
services
Moldova
Romania
Romania
Romania
Romania
Serbia
Bulgaria
Isle of Man
Energy Production Enhancement S.R.L.
100.00%
NC
Services incidental to oil and gas
production
Romania
Associated companies (20-50%)
OMV Petrom Global Solutions S.R.L.
Asociatia Romana pentru Relatia cu
Investitorii
25.00%
20.00%
EM
NAE
Financial, IT and other services
Romania
Public representation
Romania
*) 1 (one) equity interest owned through OMV Petrom Marketing S.R.L.
**) Consolidation treatment:
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 2019, the legal form of OMV Petrom Aviation was changed from a joint stock company to a limited liability
company, Trans Gas LPG Services S.R.L. was liquidated and Brazi Oil & Anghelescu Prod Com S.R.L. was sold.
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.
174 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
32. CASH FLOW STATEMENT INFORMATION
a) Drawings and repayments of borrowings
During 2019 OMV Petrom Group has not drawn any borrowings (2018: RON 38.56 million) and has
repaid borrowings amounting to RON 226.85 million (2018: RON 377.64 million) and lease obligations
amounting to RON 100.80 million (2018: RON 32.37 million).
The following table shows a reconciliation of the changes in liabilities arising from financing activities:
1 January, 2019
Repayments of interest bearing debts and principal
portion of lease liabilities
Total cash flows relating to financing activities
Lease liabilities recognized during the year, including
transition to IFRS 16
Net other changes
Total non-cash changes
31 December, 2019
thereof short-term
thereof long-term
Interest-
bearing debts
Lease
liabilities
Total
549.30
169.44
718.74
(226.85)
(226.85)
(100.80)
(100.80)
(327.65)
(327.65)
-
7.68
7.68
330.13
132.25
197.88
637.38
(5.08)
632.30
700.94
128.79
572.15
637.38
2.60
639.98
1,031.07
261.04
770.03
b) Non-controlling interest
There were no changes in non-controlling interest during 2019.
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 million was paid.
c) Investments and other financial assets
During 2019, OMV Petrom Group received RON 38.24 million following the reduction in the share capital
of the associated entity OMV Petrom Global Solutions S.R.L., and it increased its contribution to the
share capital of the not-consolidated subsidiary Energy Production Enhancement S.R.L. with RON 0.05
million.
Notes to the consolidated financial statements for the year ended December 31, 2019 175
32. CASH FLOW STATEMENT INFORMATION (continued)
d) Proceeds in relation to non-current assets
In 2019, proceeds in relation to non-current assets include the amount of RON 226.59 million
representing encashment by OMV Petrom S.A. of first two tranches of the government grant for Brazi
power plant investment (2018: nil). For details please see Note 9 b).
e) Transfer of business
In March 2019, OMV Petrom Group transferred 9 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 for decommissioning and restoration
Other adjustments related to items transferred
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
2019
129.63
(103.87)
1.05
26.81
2019
78.58
(26.81)
51.77
2019
78.58
78.58
The gain on transfer of business comprises the amount of RON 52.82 million reflected under “Gains
on disposal of non-current assets” (see Note 20) and losses related to other items in amount of RON
1.05 million.
In 2018, OMV Petrom Group did not transfer any business.
176 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
32. CASH FLOW STATEMENT INFORMATION (continued)
f) Disposal of Group companies
During 2019, OMV Petrom Group did not disposed of any subsidiary.
The amount of RON 13.21 million received during 2018 represents the deferred consideration for sale in
December 2017 of shares in subsidiary Wind Power Park S.R.L.
g) Exploration cash-flows
The amount of cash outflows in relation to exploration activities incurred by OMV Petrom Group for
the year ended December 31, 2019 is of RON 497.10 million (2018: RON 624.10 million), out of which
the amount of RON 129.51 million is related to operating activities (2018: RON 72.83 million) and the
amount of RON 367.59 million represents cash outflows for exploration investing activities (2018: RON
551.27 million).
h) Cash and cash equivalents
Cash at banks and on hand
Short-term deposits
Cash and cash equivalents
December 31, 2019
334.24
6,679.30
7,013.54
Notes to the consolidated financial statements for the year ended December 31, 2019 177
33. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The following overview presents the measurement of 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 of financial assets as at December 31, 2019
Derivatives designated and effective as hedging instruments
Other derivatives
Total
Level 1
Level 2
Level 3
Total
-
-
-
227.01
54.63
281.64
-
-
-
227.01
54.63
281.64
Fair value hierarchy of financial liabilities and liabilities associated with assets held for sale as at
December 31, 2019
Derivatives designated and effective as hedging instruments
- (194.03)
Other derivatives
Net amount of assets and liabilities associated with assets held for sale
Other financial liabilities
Total
-
-
-
(19.69)
(6.55)
-
(14.31)
(14.31)
(220.27)
(14.31)
(234.58)
Total
- (194.03)
-
(19.69)
-
(6.55)
Level 1 Level 2 Level 3
Fair value hierarchy of financial assets as at December 31, 2018
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
178 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
33. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)
Fair value hierarchy of financial liabilities as at December 31, 2018
Derivatives designated and effective as hedging
instruments
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)
There were no transfers between levels of the fair value hierarchy. There were no changes in the fair
value measurement techniques for assets and liabilities that are measured at fair value.
The financial liabilities whose fair values differ from their carrying amounts as at December 31, 2019 and
December 31, 2018 (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 other financial assets and financial liabilities that were measured at amortized
cost approximates their fair value.
December 31, 2019
Financial liabilities
Interest-bearing debts
Total
December 31, 2018
Financial liabilities
Interest-bearing debts
Finance lease liabilities
Total
Fair value
Carrying amount
Difference
335.55
335.55
330.13
330.13
5.42
5.42
Fair value
Carrying amount
Difference
554.27
177.83
732.10
549.30
169.45
718.75
4.97
8.38
13.35
Notes to the consolidated financial statements for the year ended December 31, 2019 179
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 consolidated statement
of financial position when OMV Petrom Group 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 Group enters in the normal course of business into various master
netting arrangements in the form of International Swaps and Derivatives Association (ISDA) agreements
or European Federation of Energy Traders (EFET) agreements or other similar arrangements that do not
meet the criteria of offsetting in the consolidated statement of the financial position in accordance with
IAS 32.
The following tables present the carrying amounts of recognized financial assets and financial liabilities
that are subject to various netting arrangements. The net column would be on the Group’s consolidated
statement of financial position, if all set-off rights were exercised.
Offsetting of financial assets 2019
Gross amounts
Amounts
set-off in the
statement
of financial
position
Net amounts
presented in
the statement
of financial
position *
Net
amounts
Liabilities
with right of
set-off (not
offset)
Derivative financial
instruments
Trade receivables
Other financial assets
Total
281.64
1,958.23
452.65
2,692.52
-
(66.37)
(88.45)
(154.82)
281.64
1,891.86
364.20
2,537.70
(188.31)
93.33
-
-
1,891.86
364.20
(188.31)
2,349.39
*) Net amounts presented in the statement of financial position are detailed in Note 9.
Offsetting of financial liabilities 2019
Gross amounts
Amounts
set-off in the
statement
of financial
position
Net amounts
presented in
the statement
of financial
position *
Assets with
right of set-off
(not offset)
Net
amounts
Derivative financial
instruments
Trade payables
Other financial liabilities
Total
213.72
3,527.17
264.52
4,005.41
-
(154.82)
-
(154.82)
213.72
3,372.35
264.52
3,850.59
(188.31)
25.41
-
-
3,372.35
264.52
(188.31)
3,662.28
*) Net amounts presented in the statement of financial position are detailed in Note 16.
180 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
33. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)
The comparative tables for 2018 were changed in order to be in line with 2019 disclosures.
Offsetting of financial assets 2018
Gross
amounts
Amounts
set-off in the
statement
of financial
position
Net amounts
presented in
the statement
of financial
position *
Liabilities with
right of set-off
(not offset)
Net
amounts
Derivative financial
instruments
Trade receivables
66.11
(15.32)
1,819.85
(145.62)
Other financial assets
568.75
(20.63)
Total
2,454.71
(181.57)
*) Net amounts presented in the statement of financial position are detailed in Note 9.
50.79
1,674.23
548.12
2,273.14
-
-
-
-
50.79
1,674.23
548.12
2,273.14
Offsetting of financial liabilities 2018
Gross
amounts
Amounts
set-off in the
statement
of financial
position
Net amounts
presented in
the statement
of financial
position *
Assets with
right of set-off
(not offset)
Net
amounts
Derivative financial
instruments
Trade payables
178.85
(15.32)
3,195.28
(145.62)
Other financial liabilities
228.51
(20.63)
Total
3,602.64
(181.57)
*) Net amounts presented in the statement of financial position are detailed in Note 16.
163.53
3,049.66
207.88
3,421.07
-
-
-
-
163.53
3,049.66
207.88
3,421.07
Notes to the consolidated financial statements for the year ended December 31, 2019 181
34. COMMITMENTS AND CONTINGENCIES
Commitments
As at December 31, 2019 the total commitments engaged by OMV Petrom Group for investments
(except those in relation to joint arrangements) are in amount of RON 914.34 million (2018: RON
955.09 million), out of which RON 737.72 million related to property, plant and equipment (2018: RON
861.49 million) and RON 176.62 million for intangible assets (2018: RON 93.60 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.
The contingency disclosed in 2018 financial statements related to the Arpechim refinery site is no
longer applicable, as a provision for soil remediation was set up during 2019 (see Note 14).
OMV Petrom Group has contingent liabilities representing performance guarantees in amount of RON
196.73 million as at December 31, 2019 (2018: RON 36.81 million).
182 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
35. INTERESTS IN JOINT ARRANGEMENTS
In 2008 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).
In 2010 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 had a participating interest of 51%. OMV Petrom S.A. had 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.
Joint activities described above were 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, 2019 is amounting RON 57.86 million (2018: RON 45.84 million), mainly in relation to
offshore activities requirements.
Notes to the consolidated financial statements for the year ended December 31, 2019 183
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 Interest bearing debts and Lease
liabilities). 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 and lease liabilities, less cash and cash equivalents.
Due to the significant cash balance, the Group reported a net cash position of RON 5,982.47 million at
December 31, 2019 (2018: RON 4,890.68 million).
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.
184 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
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 are 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.
Cash flow hedge accounting
In Downstream Oil Business, OMV Petrom Group is especially exposed to volatile refining margins and
inventory risks. In order to mitigate those risks the Group enters into corresponding hedging activities,
which include margin hedges as well as stock hedges.
The risk management strategy is to harmonize the pricing of product sales and purchases in order to
remain within an approved range of priced stocks at all times, by means of undertaking stock hedges so
as to mitigate the price exposure. In respect of refinery margin hedges, crude oil and products are hedged
separately, with the aim to protect future margins.
During 2019, OMV Petrom S.A. concluded margin hedges in relation to highly probable sales of diesel, jet
and fuel oil and stock hedges in relation to crude oil inventory purchased, using oil swaps instruments.
In case of refinery margin hedges for diesel and jet, the product crack spread is designated as the hedged
item, buying Brent crude oil on a fixed basis and selling the product on a fixed basis. The crack spread
for diesel and jet is a separately identifiable component and can therefore represent the specific risk
component designated as hedged item. In case of refinery margin hedges on fuel oil, forecast sales and
purchase transactions for fuel oil and oil products are designated as the hedged items.
Stock hedges are used to mitigate price exposure whenever actual priced stock levels deviate from target
Notes to the consolidated financial statements for the year ended December 31, 2019 185
36. RISK MANAGEMENT (continued)
levels. Forecast sales and purchase transactions for crude oil and oil products are designated as the
hedged item.
Hedge ineffectiveness can arise from timing differential between derivative and hedged item delivery and
pricing differentials (derivatives are valued on the future monthly average quotations (or other periods) and
sales/purchases are valued on prices at the date of transaction/delivery).
Cash flow hedging - Impact on the statement of financial position
Nominal value
Below one year
More than one year
Fair value - assets
Fair value - liabilities
Cash flow hedge reserve (before tax)
Swaps - forecast
purchases
Swaps - forecast
sales
313.77
193.60
120.17
26.76
-
26.76
4,120.59
2,794.79
1,325.80
200.25
194.03
6.22
Total
4,434.36
2,988.39
1,445.97
227.01
194.03
32.98
Fair values shown in the above table are presented in lines “Other financial assets” and “Other financial
liabilities” in consolidated statement of financial position.
Cash flow hedging - Impact on the statement of comprehensive income
Gains/(losses) of the period recognised in
other comprehensive income
Hedge ineffectiveness recognized in income
statement
Amounts reclassified from other
comprehensive income
Swaps - forecast
purchases
Swaps - forecast
sales
Total
32.52
(7.83)
24.69
0.05
(0.34)
(0.29)
(5.76)
9.02
3.26
The hedge ineffectiveness and recycling of “Swaps – forecast sales” are both shown in line “Sales
revenues” in consolidated income statement, while for “Swaps – forecast purchase” these are included in
line “Purchases (net of inventory variation)” in consolidated income statement.
186 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
36. RISK MANAGEMENT (continued)
Cash flow hedging - Impact on the statement of changes in equity
Swaps - forecast
purchases
Swaps - forecast
sales
Total
Cash flow hedge reserve as of 1 January
2019 (net of tax)
Gains/(losses) of the period recognised in
other comprehensive income
Amounts reclassified from other
comprehensive income
Tax effects
Cash flow hedge reserve as of 31
December 2019 (net of tax)
-
4.22
4.22
32.52
(7.83)
24.69
(5.76)
(4.28)
9.02
(0.19)
3.26
(4.47)
22.48
5.22
27.70
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 RON/EUR and RON/USD exchange rates in
the consolidated financial statements, are as follows:
Assets
Liabilities
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Thousand USD
Thousand EUR
153,748
72,171
64,897
87,734
130,547
250,068
25,439
208,002
Notes to the consolidated financial statements for the year ended December 31, 2019 187
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 *
Thousand EUR Impact **
2019
14
2,306
2018
1,613
2,333
2019
(17,790)
-
2018
(12,027)
-
-10% decrease in the foreign currencies rates
Profit/ (Loss)
Other comprehensive income
Thousand USD Impact *
Thousand EUR Impact **
2019
(14)
(2,306)
2018
(1,613)
(2,333)
2019
17,790
-
2018
12,027
-
*) This is mainly attributable to the exposure on USD derivative financial assets and liabilities and trade payables;
**) This is mainly attributable to the exposure on EUR interest bearing debts, lease liabilities and trade payables.
188 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
36. RISK MANAGEMENT (continued)
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.
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,
2019
December 31,
2018
December 31,
2019
December 31,
2018
Short term borrowings
Long term borrowings
130.70
198.00
265.09
282.05
1.31
1.98
2.65
2.82
In 2019, 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 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.
Notes to the consolidated financial statements for the year ended December 31, 2019 189
36. RISK MANAGEMENT (continued)
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).
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 2019 the statutory auditor Ernst & Young Assurance Services SRL had a contractual statutory audit fee
of EUR 586,920 (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 120,400, 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 147,900
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 2,405.
190 Notes to the consolidated financial statements for the year ended December 31, 2019
OMV Petrom Annual Report 2019 | Consolidated financial statements and notes
38. SUBSEQUENT EVENTS
On 8th of January 2020, OMV Petrom S.A. signed the agreement for the transfer of 40 marginal onshore
oil and gas fields in Romania to Dacian Petroleum S.R.L. As at December 31, 2019 the related assets
and liabilities were classified as held for sale (see Note 12).
On March 6, 2020, OPEC (Organization of the Petroleum Exporting Countries) members and Russia
failed to agree on a cut to oil production that would have responded to the sharp decrease in demand
from the new coronavirus outbreak. Consequently, on March 8, 2020, oil prices dropped 30% after the
market was opened, with Brent crude reaching USD 31 per barrel. OMV Petrom Group’s view is that the
supply surge, together with the massive uncertainty caused by the coronavirus outbreak will lead to a
highly volatile market environment in the following months.
These financial statements, presented from page 90 to page 191, 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 17, 2020.
Christina Verchere,
Chief Executive Officer
President of the EB
Alina Popa,
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
Irina Dobre,
Vice President Finance Department
Nicoleta Drumea,
Head of Financial Reporting
Notes to the consolidated financial statements for the year ended December 31, 2019 191
Consolidated report on
payments to goverments
Consolidated report on payments to governments for the year 2019
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, the Company 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 (hereinafter OMV Petrom)
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 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.
194 Consolidated report on payments to governments for the year 2019
OMV Petrom Annual Report 2019 | 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 2019 195
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 2019, 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.
196 Consolidated report on payments to governments for the year 2019
OMV Petrom Annual Report 2019 | 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, 2019.
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
others)
Total of Payments
1,041,273
759,020
78,893
-
1,120,166
759,020
147,173
4,890
152,063
1,947,466
83,783
2,031,249
Consolidated report on payments to governments for the year 2019 197
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
Non-Attributable to Projects
Total
Payments per Government
State Budget
National Company of Forests - Romsilva
National Authority for Electricity Regulation
(ANRE)
Local City Councils
National Agency for Mineral Resources
Offshore Operations Regulatory Authority
(ACROPO)
CONPET S.A.
Total
KAZAKHSTAN
Payments per project
Tasbulat, Turkmenoi, Aktas
Komsomolskoe
Total
Payments per Government
State Revenue Committee 1
Training centers, universities 2
Licensed Research and Development
Organizations 3
Total
Total
Taxes (on income,
production or
profit)
Royalties
Fees (license,
rental, entry and
others)
Total
Payments
-
-
576,765
6,078
97,917
176,177
943,356
-
95,559
672,324
2
4,577
47,035
6,080
278,671
990,392
1,041,273
759,020
147,173
1,947,466
1,041,273
759,020
-
-
-
-
-
-
-
-
-
-
-
-
-
1,800,293
65,375
65,375
47,035
19,564
10,438
4,336
425
47,035
19,564
10,438
4,336
425
1,041,273
759,020
147,173
1,947,466
28,314
50,579
78,893
78,893
-
-
78,893
-
-
-
-
-
-
-
3,780
1,109
4,890
1,172
1,447
2,271
4,890
32,094
51,688
83,783
80,065
1,447
2,271
83,783
1,120,166
759,020
152,063
2,031,249
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;
3 Various expenses with regard to research and development works.
198 Consolidated report on payments to governments for the year 2019
OMV Petrom Annual Report 2019 | Consolidated report on payments to governments
Christina Verchere,
Chief Executive Officer
President of the EB
Alina Popa,
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
Consolidated report on payments to governments for the year 2019 199
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
Disclaimer:
This report does not, and is not intended to, constitute or form part of, and should not be construed as, constituting or forming part of, any actual
offer to sell or issue, or any 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