OMV Petrom Annual Report 2020 Consolidated Financial Statements Annual Report 2020 Contents 1 OMV Petrom Annual Report 2020 Contents Contents 3 4 5 6 7 8 10 12 16 23 26 26 30 33 36 40 53 63 73 74 78 88 90 91 92 93 95 164 169 Who we are The energy for a better life An integrated energy company Our business model Why invest in OMV Petrom Resilient results in a year with twofold crisis Partner for Romania Company Statement of the Chief Executive Officer OMV Petrom on the capital markets OMV Petrom Strategy Business enviroment 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 Consolidated report on payments to governments Contact and Disclaimer 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 2020 will be published by May 31, 2021. 2 Contents The energy for a better life OMV Petrom Annual Report 2020 Who we are Every single day, OMV Petrom makes people's lives better. Every single day, OMV Petrom produces and supplies the energy for millions of people - for their comfort, their need for mobility, or 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 3 OMV Petrom Annual Report 2020 Who we are 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, Kazakhstan, Bulgaria and won the tender for an exploration block in Georgia. Our expertise varies from deep onshore and offshore exploration to mature fields and shallow offshore production. In 2020, our portfolio consisted of 473 mn boe proved (1P) reserves and around 53 mn boe hydrocarbon production (thereof 3.5 mn tons of crude oil and natural gas liquids and 4.2 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 2020, the Downstream Oil segment recorded 5.0 mn tons of refined product sales, of which 2.6 mn tons were retail sales. In Downstream Gas, we are engaged in electricity production, as well as gas and power sales. We operate the Brazi gas fired power plant, which has a capacity of 860 MW. In 2020, the Downstream Gas segment recorded gas sales volumes of 57.0 TWh (thereof 47.7 TWh to third parties), the equivalent of 5.3 bcm, and generated 4.2 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. 4 An integrated energy company Our business model OMV Petrom Annual Report 2020 Who we are Our business model 5 OMV Petrom Annual Report 2020 Who we are 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 4.2 bn at the end of 2020. 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. 21.35% 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, operational excellence and 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, one of Austria’s largest listed industrial companies. Since its privatization 16 years ago, OMV Petrom’s story has been about transformation, restructuring and modernization. There has 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. 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. 6 Why invest in OMV Petrom Resilient results in a year with twofold crisis OMV Petrom Annual Report 2020 Who we are All values refer to 2020, 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; special items include temporary hedging effects (in order to mitigate Income Statement volatility); 2 After deducting net result attributable to non-controlling interests; 3 Excludes additional special income related to field divestments reflected in the financial result; 4 Dividend subject to GMS approval on April 27, 2021; 5 Calculated with the share prices at the end of the previous year; 6 Calculated with previous year dividend per share. Resilient results in a year with twofold crisis 7 OMV Petrom Annual Report 2020 Who we are Partner for Romania We are the largest private investor in Romania, the largest energy company, the biggest taxpayer and a major employer 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. 1 Fuels refer only to retail diesel and gasoline; OMV Petrom estimates based on National Institute of Statistics and the Romanian Petroleum Association data. 8 Partner for Romania OMV Petrom Annual Report 2020 Who we are Partner for Romania 9 OMV Petrom Annual Report 2020 Company Statement of the Chief Executive Officer Dear Shareholders, We had a very challenging and eventful year 2020, in the context of a twofold crisis generated by the COVID-19 pandemic and the decrease of commodity prices. Yet, we proved our agility, ensured business continuity and security of energy supply, we maintained our commitment towards our stakeholders and had a good operational and financial performance. I am very grateful to all my colleagues from the Executive Board and the entire OMV Petrom team for their great commitment and achievements during a year that tested our limits as humans and organizations. During the COVID-19 pandemic, the climate change debate has intensified. As an energy company, we aim to be part of the solution in the transition to cleaner energy, and our business model, as well as the steps made so far, endorse our commitment to contribute to the energy transition of Romania. In this context, we see an increasing role of gas projects such as Neptun Deep in the transition to a lower-carbon economy, besides the benefits for the country’s economic growth and security of supply. In 2020, we further pursued our initiatives to reduce carbon emissions of our operations, which decreased by 7.5% yoy and by 26% versus 2010, advancing towards our target of 27% reduction until 2025 versus 20101. Lost Time Injury Rate was at record low of 0.15, our strongest annual performance since privatization in 2004, also better than the international benchmark. Moreover, we continued our initiatives within the ”Romania Eficienta” (Efficient Romania) program and we supported Romania’s health care system. In 2020, we made further progress in executing our strategy. In Upstream, we advanced with the regional expansion in our Black Sea focus area by entering Bulgaria and by winning a tender in Georgia. In Downstream Oil, we signed the contract to extend the partnership with Auchan, planning to open up to 100 proximity stores per year, around 400 in total by 2025. We also increased the blending capacity of bio-content in fuels, by year-end we had photovoltaic panels installed in 82 filling stations in Romania and we entered partnerships with Enel X and Eldrive in the e-mobility field. In Downstream Gas, steps were taken to expand our gas and power operations in the neighboring markets, supporting the ambition to shift from a domestic supplier to a regional energy player. Despite the difficult context, our 2020 financial performance was resilient. Our operating cash flow reached RON 5.6 bn, decreasing to a much lower extent than Operating Result mainly due to the strict working capital management. Our CAPEX was down by 24% yoy, as we rephased and optimized long-term delivery projects and postponed non-committed investments. We also reduced operational costs and exploration and appraisal expenditures. These contributed to our financial strength, which allowed us to distribute dividends of RON 1.8 bn for the financial year 2019, an increase of 15% compared to the previous year. Looking at each business segment, in Upstream, we are proud of containing the production decline below the 5% guidance and of our ability to maintain the opex stable while achieving a positive Clean Operating Result, in the context of an over 25% yoy decrease in oil and gas prices. In Downstream Oil, the 92% utilization level of our refinery was excellent, significantly above the European average of around 72%2. We capitalized on the flexibility of our supply chain, selling more equity products in all our markets, while reducing third-party supply. Solid sales margins complemented the good operational performance of our sales channels. As a result, our Clean CCS Operating Result only slightly declined, despite the significant slump in the refining margin. In Downstream Gas, we had the best year on record from three perspectives: gas sales volumes (mostly regulatory 1 Details will be available in OMV Petrom’s Sustainability Report for 2020. 2 Aggregated from monthly European refinery utilization rates in Monthly Oil Market Reports published by OPEC 10 Statement of the Chief Executive Officer OMV Petrom Annual Report 2020 Company driven, leading to enhanced trading activity), net electrical output, and segment Clean Operating Result. OMV Petrom’s share price, while 19% down yoy, outperformed peers’ average. The liquidity went up by 8% yoy, helped by higher free float and the Issuer Market Making program implemented starting September. Based on our 2020 cash position and results, the Executive Board proposed a gross dividend of RON 0.031/share for the 2020 financial year, flat yoy and representing a 136% payout ratio. The proposal was approved by the Supervisory Board and is subject to further approval by the GMS on April 27, 2021. Looking ahead, we aim to maintain the annual production decline in Romania at around 5% yoy, excluding portfolio optimization, between 2021-2023. Given the expected recovery in demand, we foresee higher refined product sales volumes and net electrical output, while for gas sales we expect volumes to be lower in 2021 versus 2020. In terms of CAPEX excluding acquisitions, we estimate RON 2.9 bn for 2021 and an annual average for 2022-2023 of RON 3.8 bn (excluding also development of major strategic projects), most of which to be allocated to Upstream. We remain committed to achieving a positive free cash flow after dividends and excluding major development capex, maintaining a strong balance sheet, and continuing to offer an attractive progressive dividend to our shareholders going forward. 2021 is a crucial year for the Black Sea gas projects such as Neptun Deep as we expect the Offshore Law to be amended, according to public statements. In order to contribute to a cleaner environment, in addition to our efforts for lowering the CO2 emissions, we are assessing various sustainable energy projects, including solar, photovoltaics and bio-fuels. In the second half of this year, we will provide a strategy update, including our approach regarding energy transition. We also aim to improve disclosure on climate change risks and opportunities, using the TCFD framework, to which we adhere since July 2020. Let me take this opportunity to thank all of our shareholders, other stakeholders and employees for your trust and continuing support over the very challenging past year and ensure you that we will continue our greatest efforts to enhance both OMV Petrom’s value and the overall economic and social contribution to the countries in which we operate. Christina Verchere Statement of the Chief Executive Officer 11 OMV Petrom Annual Report 2020 Company OMV Petrom on the capital markets Shareholder structure At the end of 2020, OMV Petrom S.A. had the following shareholding structure: 51.0% – OMV Aktiengesellschaft, 20.6% – Romanian State, and 7.0% – Fondul Proprietatea S.A (FP). The remaining 21.4% 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). The free float increased by three percentage points following the sale by Fondul Proprietatea via an Accelerated Book Building (ABB) in September 2020. At the end of 2020, 477 legal entities from Romania and abroad held 90.5% of the free float shares or 19.3% of OMV Petrom share capital, with the remainder (9.5% of the free float or 2.0% of capital) being held by around 456,000 private individuals. An analysis of our shareholder structure, as at the end of 2020, shows that 67.5% of the free float was held by Romanian institutional shareholders (2019: 60.6%), 9.5% by retail investors (2019: 9.9%), 3.4% were Hungarian institutional investors (2019: 3.7%), 1.7% were from the UK and Ireland (2019: 2.0%), 2.5% were from the USA (GDR component included in this category) (2019: 5.6%), 11.7% were from other European countries (2019: 14.1%), and 3.8% were from rest of the world (2019: 4.1%). Shares The evolution of OMV Petrom share price in 2020 was significantly influenced by the development of the COVID-19 pandemic which also caused stock market crashes, both locally and internationally, most notably between February and April 2020. The year started on a positive note, hence the highest share price of the year, RON 0.4500, was quickly reached on January 7 and 9. However, by the end of January 2020, markets had already started to decline, as the World Health Organization declared the rapidly spreading COVID-19 outbreak a Public Health Emergency of International Concern. The capital market correction deepened in March, catalyzed by turbulence in the oil market. During this time, the oil and gas sector suffered twin shocks of demand destruction due to the pandemic and of supply surge following tensions at OPEC+ level. The tensions culminated with Saudi Arabia increasing crude oil production and selling it at a discount, thus sending oil prices and international markets into free fall. On March 9 and March 12, international stock markets recorded some of the biggest daily losses in years, as the COVID-19 disease was declared a pandemic (March 11) and lockdowns were widely being imposed around the world. In this context, on March 9, OMV Petrom share recorded also its highest daily decline in 2020 of 13.9%. Taking cue from international markets, OMV Petrom’s share also declined, reaching the lowest share price for trades on the Regular market, RON 0.2735, on March 18, 2020. From April 2020 onwards, global capital markets returned to bullish sentiments, on hopes of COVID-19 vaccines and quick economic recovery. However, volatility remained high throughout the year, as diverse information – conflicting data regarding economic outlook, governments’ measures to mitigate the impact of the pandemic, political and civil unrest in major economies such as the US – swayed investors in different directions. In mid-April, OPEC+ reached an agreement on production cuts for the period May 2020 through April 2022, which helped the oil markets and consequently, OMV Petrom share price and industry specific indices to recover. 12 OMV Petrom on the capital markets OMV Petrom Annual Report 2020 Company On the ex-dividend date May 13, the SNP share price corrected by 7.7% (RON 0.028), less than the equivalent of 2019 dividend per share of RON 0.031. The share price ended the month 5.8% below the share price on May 12, but up 7.5% mom, while the BET index appreciated by 9.1% mom. Another sizeable daily decrease of the OMV Petrom share price (-5.9%) was recorded after the pricing of FP’s ABB was announced (September 16). On the next day, FP sold 1.7 bn shares or 3% of OMV Petrom’s capital at RON 0.33, a discount of 11% to the share price before the deal announcement. The 2020 average OMV Petrom share price for trades on the Regular market was RON 0.3473, 11% lower than the 2019 figure of RON 0.3886, while the average dated Brent oil price decrease was of 35% yoy. The highest daily traded volume on the Regular market of 59.6 mn shares was registered on August 17. The average daily traded volume, including Deal trades, was 9.9 mn shares (2019: 9.2 mn), up 8% yoy, helped by the conclusion of an Issuer market making (IMM) program on September 3, 2020. The average daily traded value was RON 3.39 mn, down 5% yoy in RON terms. The 2020 average daily traded value in EUR terms was EUR 0.70 mn. From the floors reached in March, domestic indices followed an upward trend for the rest of 2020, most of them not fully recovering, however, to the levels reached in the previous year. The BET index closed the year 2% below the value of at the end of 2019. The BET-NG index (comprising stocks in the energy and utilities sectors) in which OMV Petrom has a weight of around 30%, decreased by 12% yoy. The BET- BK index (designed as a benchmark for asset managers and institutional investors) also decreased by 1% yoy. The BET-TR (total return BET) appreciated by 3% yoy in 2020. As of September 21, 2020, FTSE’s reclassification for Romania to Secondary Emerging Market became effective. Underperforming the BET index by 17.0 percentage points, OMV Petrom share ended the last trading session of the year on December 30 at the share price of RON 0.3635, 19% lower yoy. The total shareholder return (including the dividend of RON 0.031/share for the 2019 financial year) was (12)%. OMV Petrom on the capital markets 13 OMV Petrom Annual Report 2020 Company OMV Petrom S.A. market capitalization at the end of 2020 was RON 20.6 bn or EUR 4.2 bn, accounting for around 13% of the total market capitalization of the companies listed on the BSE and for around 23% of the capitalization of the BET index (representing the 17 most liquid blue-chip stocks listed on the BSE). 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 2020 2019 ∆ (%) 56,644.1 56,644.1 20,590 4,229 0.4500 0.2735 0.3635 0.0228 0.0312 8.5 136 25,320 5,298 0.4470 0.2820 0.4470 0.0642 0.031 7.0 48 0 (19) (20) 1 (3) (19) (64) 0 21 183 1 Calculated based on the closing share prices and RON/EUR exchange rates as of the last trading day of the respective year; 2 Dividend subject to GMS approval on April 27, 2021; 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 2020 was USD 13.0, translating into a 13.3% yoy decrease. In 2020, the GDR price ranged between a USD 15.7 high (on January 2) and a USD 11.3 low (first reached on July 7). outstanding at the end of each month ranged between 181,353 (in January) and 181,611 (in December). The latter figure represents 7.3% of the GDRs issued in the October 2016 Secondary Public Offering and 0.23% of the free float as of end-2020. In total, 4,454 GDRs were traded in 2020 (2019: 64,492), while the daily average number of GDRs was 17 (2019: 254). The highest monthly trading volume and value were reached in July (1,163 GDRs, worth of USD 13,142), while the lowest in February - May (no trades). The total value of GDRs traded in 2020 was USD 0.06 mn (2019: USD 0.95 mn). 258 GDRs were issued in July and 1,427 GDRs were cancelled in January 2020. The number of GDRs In 2020, indices on the European and US exchanges had mixed evolutions. Some reached record levels towards the end of the year, as markets grew increasingly optimistic that the widespread vaccinations against COVID-19 would lead to a return to normal life and thus boost the economic recovery. Oil and gas - specific indices had a more subdued evolution, as the outlook for oil demand recovery remained uncertain. The DAX increased by 3.5% yoy, FTSE 100 decreased by 14.3% yoy, STOXX Europe 600 decreased by 4.0% yoy, STOXX Europe 600/Oil & Gas closed 25.8% lower yoy, while Dow Jones Industrial average increased by 7.2% yoy. 14 OMV Petrom on the capital markets OMV Petrom Annual Report 2020 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 2020, OMV Petrom S.A. held a total number of 204,776 own shares, representing 0.0004% of issued share capital. In 2020, OMV Petrom did not buy back or cancel any Treasury shares. 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. Investor Relations activities During 2020, the company’s top management and the Investor Relations (IR) team had an active presence on the local and foreign capital markets, by attending conferences and organizing calls for analysts and investors. In the context of the pandemic, the interactions took place mostly online, including for the Annual General Meeting of Shareholders, as there were no shareholders attending in person the meeting. In 2020, we attended 12 conferences and we virtually met around 90 investment funds from all over the world. Such interactions provided the opportunity to regularly update investors and analysts on the company’s response to the COVID-19 crisis and oil price volatility, as well as on the quarterly operational, financial performance and strategy execution. During 2020, the number of interactions with focus on ESG (Environmental, Social and Governance) topics increased. More specifically, we received questions around the impact of the European Green Deal on our sustainability strategy and capital expenditure plans. The main tool via which we update capital markets is the quarterly reporting package, which provides a comprehensive resource for analysts and investors. The package includes, among others, Trading Update of Key Performance Indicators (KPIs) to provide early guidance on OMV Petrom’s key trends for the quarter. OMV Petrom continued publishing a Factsheet as well as the Questions and Answers document of the quarterly conference calls on its corporate website: www.omvpetrom.com. Analyst coverage of OMV Petrom shares At the end of 2020, OMV Petrom stock was covered by nine analysts (2019: nine), of whom eight (or 89%) had “Buy” or equivalent ratings (end of 2019: 55%) and one (or 11%) had a “Hold” or equivalent rating (end-2019: 33%). No analyst had a Sell rating (2019: 11%). The average target price (TP) according to analyst consensus estimates was RON 0.403 (translating into a 11.0% upside potential compared to the share price of RON 0.3635 on the last day of trading in the year). This compares to an average TP of RON 0.462 as at end-2019. 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 2020, which is in line with the current dividend policy. This translates into a total cash outflow of RON 1,756 mn, a payout ratio of 136% of the Group’s 2020 net profit attributable to stockholders of the parent (2019: 48%), or 73% of the Group’s 2020 free cash flow (2019: 54%). The 2020 dividend proposal is subject to the approval of the forthcoming Ordinary GMS on April 27, 2021. Dividend policy OMV Petrom is committed to deliver a competitive shareholder return throughout the business cycle, including paying a progressive dividend. We aim to increase our dividend each year or at least maintain it at the previous year’s level, in line with the financial performance and investment needs, considering the long-term financial health of the Company. OMV Petrom on the capital markets 15 OMV Petrom Annual Report 2020 Company OMV Petrom Strategy In 2020, the Romanian economic environment was marked by a high level of uncertainty, largely related to the COVID- 19 pandemic. Despite the high market volatility and weak demand, OMV Petrom’s achievements at the end of 2020 are remarkable, proving once more the value of our integrated business model, the flexibility in adjusting the plans and our results’ resilience. To ensure business sustainability, the company has to continue the programs started and, at the same time, adjust to the challenges and uncertainties of the current market environment, while playing an important part in the energy transition. To address these, our strategy update is in preparation and we will present it, including our approach regarding the energy transition, in the second half of this year. The projects and programs envisaged under the three strategic pillars – improving the competitiveness of our existing portfolio, developing new opportunities for growth, and expanding our regional footprint – ensure the maximization of the integrated value of our company, the sustainability of our core assets, the competitiveness of our portfolio, and the growth in Romania and regionally. People and Organizational Culture, Technology and Innovation, and Sustainability are the strategic enablers supporting the implementation of the strategy. Divisional contribution to Strategy 2021+ The plans defined to improve the competitiveness of our existing portfolio, the first pillar of the strategy, have continued in all business divisions. In Upstream, two main strategic directions are pursued to successfully extract the highest value from our core assets: improving competitiveness with a continued commitment to operational excellence and exploiting the full potential of opportunities in Romania. A stabilized production cost at around 11 USD/boe was maintained as a result of the strict cost discipline, increased Mean Time Between Failures (MTBF), optimized operations and processes. The MTBF reached 810 days, thus exceeding the 2021 target of 800 days one year earlier, and therefore, the ambition for 2021 was 16 OMV Petrom Strategy OMV Petrom Annual Report 2020 Company revised to approximately 840 days. We remain committed to the 2025 target of reaching a MTBF of more than 900 days by focusing mainly on root cause analysis, predictive maintenance and implementation of new technologies. By the end of 2020, approximately 75% of our active wells portfolio and 70% of our production facilities had been automated and modernized. Our target is to reach an automation level of 95% for wells and 90% for facilities by 2025, leading to automated production systems enabling remote control, business digital transformation enabled trough OT & IT (Operations Technology and Information Technology) systems digitalization, integration and digitally skilled workforce. The divestment of non-strategic fields and the outsourcing of non-core activities have continued. The transfer of 40 marginal fields to Dacian Petroleum S.R.L., as part of the portfolio optimization program that aims to streamline operations and focuses on the core and most profitable fields, is expected to be finalized in the first half of 2021. In addition, the outsourcing of non-core activities (e.g. latest main outsourcing project referring to general surface services estimated to be finalized at the end of the first quarter of 2021) ensures an Upstream organization able to react in a more flexible, efficient and timely manner to both external and internal factors, by reducing the level of complexity and increasing efficiency and performance. Maximizing the economic recovery through the implementation of selected Improved / Enhanced Oil Recovery programs, workovers and drilling programs will help achieve our targets for ultimate recovery factors of 28% for oil and 55% for gas. Viscous salt water flooding is the recovery technique applied for the pilot we are running in Independența field, the second largest onshore oil field in our domestic portfolio. Given the long production history, pressure depletion and the nature of the heavy oil being produced, the field had been declining at a high rate. Applying this technology targets to increase the total recovery by up to 15% of the original oil in place. The pilot started in 2019, and based on the good results of the first injection well, a second injection well was put in production in July 2020. Encouraging results have been registered and by the end of 2020 we have added more than 35,000 barrels of cumulative production since the beginning of the project. The use of this technology has the potential to increase production and unlock reserves in multiple fields across the Upstream portfolio. Our next candidate is Vața field, and further candidates are under evaluation. Furthermore, one of our priorities remains to mature class 4 reserves. By targeting underexplored Near Field Opportunities (NFO) in the proximity of existing infrastructure, selected Field Redevelopment programs and infill drilling, we expect significant reserves to be added. The NFOs 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. We are constantly focusing our efforts on protecting the environment, ensuring energy efficiency, and reducing carbon emissions, thus contributing to the achievement of the company’s goal to reduce the carbon intensity of operations by 27% until 2025, compared to 2010. With a proactive and sustainable approach, we have continued the investments and implementation of projects designed to reduce the emissions, optimize the production flows, modernize facilities and reduce energy consumption. Moreover, we have initiated pilot-projects to use renewable energy and increase energy efficiency (e.g. Solar to Power) and works for additional 9 MW capacity of Gas to Power / Combined Heat and Power plants to prevent routine flaring. In Downstream Oil, even in such difficult times, our refining business has proven its competitiveness in the region and we are proud of our operational results at the end of 2020: ~92% utilization rate, well above European average, and a Fuel and Loss ratio below 8%. Reducing carbon footprint is also one of our main targets in Downstream Oil, therefore environmentally friendly initiatives continued in 2020. Following investments of approximately EUR 21 million starting 2018, Petrobrazi refinery has increased the blending capacity of bio-content in fuels from 200 kilotons to around 350 kilotons of bio-fuels per year. As per the European regulations, transposed into the local ones, the renewable energy content in transportation fuels must increase from 10% in 2020 to 14% in 2030, in order to support the reduction targets of greenhouse gas emissions arising from transportation. Bio-quota targets are set as energetic substitution targets, whereby each fuel has a different energy content defined. OMV Petrom supplies fuels with a volumetric bio-content of 6.5% in diesel and 8% in gasoline. In addition, we performed the field test for 1,000 tons of rapeseed oil as part of the bio-oil process and implemented initiatives for better detection and reduction of emissions. In retail, by the end of 2020 we have installed photovoltaic panels in 82 filling stations in Romania, so that they can be supplied with green energy and reduce the consumption of conventional energy. By installing photovoltaic panels, more than 10% of the electricity needs of the filling stations is supplied from solar energy. The photovoltaic panels produce OMV Petrom Strategy 17 OMV Petrom Annual Report 2020 Company more than 30,000 kWh of green energy per year in each filling station. promise to prolong the engine life, perfectly complemented by VIVA offer as market differentiator, fulfilling “the energy for a better life” promise. For Downstream Gas, 2020 was a year of important milestones. We achieved the record-high gas sales volumes of 57 TWh, the highest ever Brazi net electrical output of 4.1 TWh, and the best power business performance so far. Our 2020 result more than ever emphasises the strengths of our integrated gas and power business model. With the target to diversify origination and trading activities, we have further diversified our gas supply sources, purchasing additional gas volumes to complement our declining equity production. We continued to work towards our strategic long-term goal of consolidating our leading position in the Romanian gas market, by preserving and further expanding our customer portfolio. More than before, we proved to be a key player on the Romanian electricity market, Brazi power plant having had an important contribution on the balancing and ancillary services market, enabled by its technical capabilities. As part of the second strategic pillar – developing growth options – maturing Neptun resources remains one of the most important strategic objectives for the years to come. 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. In Downstream Oil, maximizing Petrobrazi profitability and building a sustainable refining business remain our priorities. We are continuing the evaluation of opportunities for petrochemicals and high-value products, capitalizing on the refinery’s flexibility to adapt to the new environment and to use hydrocarbons in a sustainable manner, contributing to the decrease of our carbon footprint. In retail, we achieved nearly 5 million liters throughput per filling station in Romania, even in the context of weaker demand due to the pandemic circumstances, as people preferred the safety of their personal cars instead of choosing public transportation solutions. To maintain leadership position remains the long-term ambition by differentiating from the competitors with our dual brand strategy. Strategic partnerships, programs to increase customer loyalty, refreshed filling stations design, and dedicated communication and campaigns to attract younger families are our plans to maintain the national Petrom brand – “value for money” – as undisputed leader in fuels in Romania. The “top quality leader” value proposition for OMV brand will be maintained by constantly offering high- performance fuels and reinforcing OMV Maxx Motion’s Following the pilot phase (first opening in May 2017), the partnership with Auchan Retail Romania was extended in August 2020 when the contract was signed. Extending the partnership is an important step, but also a milestone in our strategy to improve our customers’ experience. With only one stop, our customers will be able to shop for their groceries while fueling their cars, thus saving time. This is a unique and innovative approach on the Romanian market and meets the expectations of the modern consumers and of the young generation, whose daily schedules are dynamic and alert. We continue in this way the successful story and we consolidate our position for the best quality-price ratio in the Romanian fuel retail. The plan is to open up to 100 proximity stores per year, around 400 in total by 2025. OMV Petrom and Auchan Retail Romania will invest more than EUR 50 million in total to refurbish the 400 Petrom branded filling stations. MyAuchan proximity stores will replace the existing commercial spaces in the Petrom-branded filling stations, offering to customers over 2,500 products. Following the energy market trends and the increased pressure to reduce CO2 footprint in all segments of activities, including transport, our retail strategy is complemented by a stronger focus on clean technologies and alternative means of transport. And when we talk about passenger cars, the obvious alternative is the electro-mobility. We believe that the answer to our customers’ mobility needs is a mix of fuels and alternative solutions. The partnerships with Enel X and Eldrive for eMobility paves a new layer on the road to sustainable mobility. Through these partnerships, we contribute to the development of the charging infrastructure to enable the transit of electric cars in the region and we secure our presence in the electro-mobility field, extending our portfolio of services for all our customers, regardless of the type of vehicles they drive. We estimate that, by the end of 2021, over 40 charging stations for electric cars will be installed in our regional network. We focus on having in our network EV charging points of minimum 50 kW, to secure a fast recharging of 80% of the batteries of the electrical vehicles within approximately 25 minutes - considering the need for our customers to recharge their cars on the road, when they are usually in a hurry. We have redefined our Upstream priorities under the third strategic pillar – regional expansion – focusing now on the Black Sea region and continuing to build a strong position in the area. Following our growth strategy, we have already made important steps for expanding our offshore presence 18 OMV Petrom Strategy OMV Petrom Annual Report 2020 Company in the Black Sea region, by entering Bulgaria and by winning an international tender in Georgia. In August 2020, OMV Petrom completed the acquisition of OMV Offshore Bulgaria GmbH, thus entering the Han Asparuh deepwater offshore exploration license (OMV Petrom 42.86%, Total 57.14% Operator). The Han Asparuh block is located in the western part of the Black Sea, in Bulgaria. The first exploration well, Polshkov-1, was drilled in 2016. This was followed by the drilling of two further exploration wells in 2017 (Rubin-1) and 2018 (Melnik-1). An extensive 3D seismic campaign was finalized in May 2020 covering 5,614 km². The seismic data are currently being processed, towards maturing future drilling candidates. In June 2020, OMV Petrom was selected as the winner of the international tender held for Offshore Block II, an exploration block with total area of 5,282 km², located on the shelf and within the economic zone of the Black Sea, in Georgia. The Production Sharing Contract was signed in March 2021. As an operator, OMV Petrom will establish an operating company in Georgia, proceed with geoscientific and environmental studies in 2021 and prepare for a large offshore 3D seismic campaign in 2022, which will allow for a detailed evaluation of this block’s potential. In December 2020, we signed the transaction for the sale of 100% shareholding in Kom-Munai LLP (KOM) and Tasbulat Oil Corporation LLP (TOC) in Kazakhstan to Magnetic Oil Limited. KOM and TOC hold the production licenses for four onshore fields. Closing of the transaction is subject to certain conditions precedent including approval by the Kazakh Ministry of Energy and is expected in the first half of 2021. Furthermore, in February 2021, OMV Petrom signed a memorandum of understanding with Naftogaz Group, Ukraine’s national oil and gas company and one of the major players in the CEE gas market, for the cooperation in establishing joint gas exploration and production projects in Ukraine. Taking into account our strategy of expanding the activities in the Black Sea region, Ukraine is a natural step for understanding opportunities in the area. In Downstream Gas, steps were taken to develop gas and power operations in the neighboring markets, supporting the ambition to shift from domestic supplier to regional energy player, leveraging market opportunities and existing business footprint. This will enrich our sales and supply portfolio in the region, offset the impact on our portfolio of the declining equity gas volumes, while mitigating the Romanian market concentration risk. The progress of our strategy implementation is reflected in our financial performance. Although 2020 was impacted by the weak economic environment and all the challenges driven by pandemics, we recorded positive free cash flow after dividends. Digital Journey at OMV Petrom – smart opportunities across the value chain In 2020, OMV Petrom demonstrated not only the ability to respond swiftly and effectively to the challenges of the year, but also took advantage of the opportunities unlocked by digitalization and new ways of working. The company introduced work from home and flexible working hours wherever possible to minimize health risks during the pandemic. Beyond that, the pace of change accelerated across the organization to upgrade the agility of the business. In this sense, we made important steps on the path of simplifying and digitalizing as many processes as possible. A great such example was the roll-out of the qualified digital signature across the company. OMV Petrom has continued to leverage digital technologies to drive business performance and value generation across business divisions. As part of the DigitUp program in Upstream, through the GeoWorkspace technical environment, more than 170 OMV Petrom users involved in exploration, development and production activities accessed securely all critical applications while working remotely. Innovative tools such as a visual inspection application that uses image recognition to collect process parameters for wells and facilities, or drone inspections of oil storage tanks were used to reduce HSSE risks, perform faster data analysis and decrease costs. By implementing advanced process controls in two oil and gas treatment facilities plants in Romania, energy and resource efficiency are maximized and the lifespan of equipment increases. In Downstream, the initiatives under the Digital Motion umbrella program range from advanced analytics and remote operator training at Petrobrazi refinery, to customer- centric innovations in the retail and commercial sales activities. For instance, the implementation of a fast lane concept in five pilot Petrom-branded filling stations having outdoor payment terminals was a premiere in the Romanian market, meant to cater to the expectation of the modern customers whose daily schedules are dynamic and alert. Other examples include electronic labelling, online invoicing and modern customer relationship management systems. We also pursue logistics excellence through various innovative projects, such as a pioneering end-to-end monitoring system that avoids fuel cross-contamination, ensures product safety and fuel tracking during the whole logistic chain that was implemented in Romania. OMV Petrom Strategy 19 OMV Petrom Annual Report 2020 Company Sustainability Strategyiii OMV Petrom aims to provide a secure supply of affordable energy for the sustainable development of society. OMV Petrom has a long tradition of sustainable and responsible behavior in delivering energy with the purpose of improving people’s lives. In 2020, we conducted our business in a careful and responsible manner, ensuring the supply of products and services based on special measures and in critical situations in response to the COVID-19 pandemic, without interruption of operational activities and without incidents. Our approach to sustainability Sustainability for OMV Petrom means focus on conducting business responsibly, efficiently and in an innovative way. We are committed to creating long-term value for the company and our stakeholders, while respecting the environment, supporting the communities in which we operate, and striving to support the United Nations (UN) sustainable development goals. Every day, we do everything we can to make sure our employees return home safely. As a responsible business, we support our local communities to grow and develop. We constantly invest in improving the carbon efficiency of our operations and product portfolio with the aid of new technologies. As the demand for energy is increasing worldwide, so are concerns about climate change. Moreover, this challenge comes with increasing expectations that companies such as ours deliver energy in a cleaner and sustainable manner. We believe the key to this challenge lies in finding the balance between climate protection efforts, affordable energy and reliable supply. We built our Sustainability Strategy 2025 on this foundation. It sets out our top priorities and is already part of our company’s DNA. It drives all our actions, as a solid business that acts responsibly towards all its stakeholders. Measurable targets have been set in the five focus areas: “Health, Safety, Security and Environment (HSSE)”, “Carbon Efficiency”, “Innovation”, “Employees”, “Business Principles and Social Responsibility”. Health, safety, security and environment Health, safety, security and protection of the environment have the highest priority in all our activities. Proactive risk management is essential to achieving HSSE vision of “ZERO harm – NO losses”. 2025 targets and 2020 achievements Achieve zero work-related fatalities (2020: zero fatalities) Stabilize Lost-Time Injury Rate (LTIR) at below 0.30 per one million hours worked (2020: 0.15) Keep leading position for Process Safety Event Rateiv (2020: leading position maintained). Carbon efficiency OMV Petrom is committed to acting on climate change mitigation and responsible resource management and focuses on improving the carbon efficiency of its operations and product portfolio. OMV Petrom supports the goals set forth by the Paris Climate Change Agreement and EU climate targets. 2025 targets and 2020 achievements Reduce carbon intensity of operationsv by 27% until 2025 vs. 2010 (2020: 26% reduction vs. 2010); No new projects with routine flaring and venting practice and phase out existing routine flaring and venting latest until 2030 (2020: we continued to implement projects to phase out routine flaring and venting). Innovation OMV Petrom focuses on investments and partnerships in innovation, research and development. Our innovation efforts focus on optimizing production, developing innovative energy solutions and embracing digital technologies. 2025 targets and 2020 achievements Co-process around 90,000 tons of biogenic feedstock per year in the Petrobrazi refinery by 2025 (2020: process studies finalized; start process design work); Implement Improved Oil Recovery (IOR) pilots in Upstream to increase the recovery factor of our oil fields (2020: successful pilot in Independența field, results of iii All information on 2020 achievements refers to preliminary data or estimates; final data will be available in the 2020 Sustainability Report to be published by 31 May 2021; iv The Process Safety Event Rate is defined as T1+T2/ workhours business units (employees and contractors). This definition excludes workhours from the gorporate functions General management and finance in OMV Petrom); v CO2 equivalent emissions produced to generate a certain business output using the following business specific metric (Upstream: t CO2 equivalent / toe produced, Refineries: t CO2 equivalent / t throughput, Power: t CO2 equivalent / MWh produced) consolidated to an OMV Group Carbon Intensity Operations Index based on weighted average of business segments carbon intensity. 20 Sustainability Strategy OMV Petrom Annual Report 2020 Company project extension are pending; started execution for a similar project in Vața field). Employees OMV Petrom sees its employees as the key to its success. Diversity is a high priority, which is why targeted measures are also planned in this area. In particular, OMV Petrom is striving to increase the proportion of women at management levels through leadership and mentoring programs. 2025 targets and 2020 achievements Increase share of women at management level to 30% (2020: 25.56%); Increase the next generation of talents through fresh graduate employees (2020: 20 fresh graduates hired); Measure and increase the engagement level of our employees (2020: dedicated programs continued). Business principles and social responsibility At OMV Petrom, we have a long tradition of responsible behavior towards employees, environment and society. We follow the guidelines of the UN Global Compact, the UN Guiding Principles on Business and Human Rights, and the UN Sustainable Development Goals. 2025 targets and 2020 achievements Raise business ethics awareness for all employees through trainings and compliance communication programs (2020: 337 employees were trained in business ethics); 20 supplier audits covering sustainability topics by 2025 (2020: 12 supplier audits conducted); Human rights training for all employees exposed to human rights risks by 2025 (2020: 1,307 employees trained on human rights); Assess Community Grievance Mechanism of all business divisions against UN Effectiveness Criteriavi (2020: 737 registered grievances and 575 solved, in addition to 101 from the previous year); Maintain social license to operate through yearly community relations and community development strategies, plans and budgets, based on social impact needs and risks assessment in our operations (2020: over 60 projects implemented covering more than 65 local communities from all our sites; more than EUR 6 mn spent for social and environmental projects). For additional information please access the “Sustainability” section on our website www.omvpetrom.com. vi Legitimate, Accessible, Predictable, Equitable, Transparent, Rights-compatible, A source of continuous learning, Based on engagement and dialogue Sustainability Strategy 21 OMV Petrom Annual Report 2020 Company People Strategy OMV Petrom’s People Strategy is set on five principles – Team Spirit, Accountability, Passion, Pioneering Spirit, and Performance – that guide us for obtaining sustainable business growth. It is managed by the Human Resources Department, whose scope is to support the implementation of four priorities through planned initiatives that target: Strengthening leadership capability; Focusing on culture and performance; Increasing organizational agility; Remaining a great place to work. Specific Programs fulfilled in 2020 Implementation of Get to Know and Grow – a development initiative focusing on Core TOP Talents employees led by OMV Petrom Executive Board Members. It consisted in development talks between Executive Board Members and Core Top Talents in a cross-divisional set up; Launch of Career round table – a program that aimed to enhance cross-divisional talent visibility and mobility, same time tapping more into internal source capabilities of the company in search for talents for various projects and roles; Organization of Employer Branding Webinars – online events for students and young graduates (approximately 100 participants) to strengthen employer branding and increase engagement with the next generation of professionals; Launch of Crowdsourcing – The initiative involved 20 young graduates and students, 8 internal mentors and facilitators that worked in teams on the topic: Unboxing employee experience. What are the hopes and job expectations of the new generation? Training programs In total, in 2020, we delivered 135,285 hours of training to our employees, of which 22,187 hours of online training session. Diversity and Inclusion initiatives In 2020, at OMV Petrom level, we started the Diversity and Inclusion programs by organizing a face-to-face workshop on how to combat gender bias at work, for a group of women. Once the pandemic started, programs continued in the virtual environment. Moreover, in 2020, we started the planning for additional initiatives that will be rolled-out in 2021, such as Diversity Talks, a series of events based on diversity success stories that aims to: Raise awareness on main diversity topics of interest for OMV Petrom Group; Identify relevant diversity topics or immediate needs of the companies / groups across the world; Collect and present best practices existing across the Group, as well as promote to business as usual the most relevant experiences; Build a Community of Diversity Experts and Ambassadors that will be able to address and constructively deal with main diversity indicators. Additional information will be available in the 2020 Sustainability Report that will be published by May 31, 2021. 22 People Strategy Business environment OMV Petrom Annual Report 2020 Company Global macroeconomic and sector trends In 2020, the global economy struggled with both health and economic effects of a profound and rare crisis, triggered by the COVID-19 pandemic. As a result of the exceptional measures imposed by governments across the world to contain the pandemic, global economy contracted sharply, by 3.5%, experiencing its worst recession since the Great Depression. World trade volume collapsed by 9.6% as economic activity slowed down markedly in the first half of the year. Policymakers and central banks were swift in deploying an array of unprecedented support schemes to households, businesses and financial markets. Cumulatively, global actions amounted to USD 14 trillion in fiscal support for the economy, around 16% of world GDP, and USD 9 trillion in monetary support through interest rate cuts and other measures by central banks. Due to the imposition of lockdowns some economic sectors were hit harder than others, with tourism, travel, hospitality and entertainment being among the most severely affected. However, despite the pandemic inflicting significant economic costs, the downturn was not as deep as initially feared and the subsequent recovery, which started in the second half of the year, was stronger than expected. Retail sales and new house building recovered partially, supported by the increase in households‘ saving ratio during the lockdown. The US economy contracted by only 4.9%, helped by the Federal Reserve’s large scale debt purchases, direct cash payments to targeted households and an economic environment with virtually zero interest rates. Although Japan did not impose a compulsory lockdown, its economy shrank by 5.1% as government’s call for voluntary business closures at the onset of the crisis was widely respected. The Chinese economy was a rare exception, with domestic demand remaining in positive territory, managing to grow by 2.3%, thus reaping the benefits of stringent measures taken to bring the pandemic under control. The European Union (EU) was one of the regions on the globe hardest hit by the pandemic. The EU economy declined by 6.4% as services, which account for a large share of it, were severely impacted by mobility restrictions. Output contraction reached post-war records across most of the EU economies, recording 5% in Germany, 8.3% in France, 8.8% in Italy and 11% in Spain. Stronger exports, notably driven by the increase in Chinese demand, and a partial recovery in investment during the second half of the year, mitigated the sharp decline in private consumption. Manufacturing activity continued to advance despite the virus resurgence in autumn, partly supported by increased foreign demand. The EU labor markets, which were under severe strain in the first half of the year, benefited from short-time work schemes and other government support policies, thus limiting the expansion in unemployment and preventing large household income losses. In response to the extraordinary economic circumstances, the European Council agreed to set up a massive EUR 750 bn recovery fund, financed – for the first time ever – by European sovereign bonds in order to support reforms and investments in member countries. Consumer prices in advanced economies grew at an annual rate of only 0.7% as the drop in demand weighed down on prices. EU annual inflation rate decelerated to 0.2% from 1.6% a year before, partially impacted by substantial declines in travel-related services inflation, lower oil prices and a temporary reduction in German VAT rates during the second half of the year. Financial markets were volatile and, after an initial sizable fall in early 2020, they recovered, aided by the extremely large monetary expansion measures by the world’s largest central banks. The main stock market indices in the US, Japan and China posted gains in 2020, while most of those in Western Europe, except Germany and the Netherlands, ended the year lower. Total global oil demand plummeted by a record 8.8 mn bbl/d to 91.2 mn bbl/d in 2020 with lockdowns-induced travel restrictions impinging heavily on demand. Both OECD and non-OECD countries incurred a substantial drop in oil consumption, by 11.8% and 6.1% respectively, as reduced economic activity related to the pandemic triggered changes in demand patterns for oil as well as other fuel liquids. The demand for jet fuel, in particular, plunged the most, being reduced by more than 3 mn bbl/d in 2020. Domestic and international travel restrictions impacted heavily the aviation sector, bringing air passenger traffic down by 60%. Global oil supply responded to the unprecedented weakness in demand dropping by 6.6 mn bbl/d. In April, at an early stage of the pandemic, OPEC and Russia stroke a deal which yielded the biggest oil production cuts in history. The agreement, supported by the US and G20, removed 9.7 mn bbl/d off the world oil market, the equivalent of almost 10% of global supply. Although oil production cuts were gradually unwound throughout the year, as the economies recovered and global oil stocks were being drawn down, the latter remaining above the pre-crisis level. The deep cuts in oil production, especially by Saudi Arabia, left the OPEC surplus crude oil capacity at 6.1 mn bbl/d in 2020, well above the last decade’s average of 2.4 mn bbl/d. Oil prices gyrated strongly in response to the strong market uncertainty. During the first four months of the year alone, Brent prices dropped by 70% in response to oversupply concerns and weakened demand triggered by the pandemic. The decline in oil prices was made worse by the brief oil price war between Saudi Arabia and Russia who initially disagreed over their collective oil production cut strategies. Business environment 23 OMV Petrom Annual Report 2020 Company Saudi Arabia’s decision to flood global oil markets deepened the fall in oil prices in the early months of the year. The collapse in demand coupled with the immediate shortage of oil storage even pushed US oil prices for May delivery briefly into negative territory, for the first time in history, to -40 USD/bbl. From May onwards oil prices followed an upward trend, supported by the gradual economic recovery, the oil production cut agreement between OPEC and Russia and, towards the end of the year, by hope for a relatively speedy vaccine rollout. The average Brent oil price fell in 2020 by 34.8% year-on-year to USD 41.8/bbl, while the average Urals price was USD 41.6/bbl, 35.2% lower compared to 2019. The average spread between Brent and Urals oil prices widened to USD 0.26/bbl from USD 0.02/bbl in 2019. Romania – macroeconomic and sector trends The COVID-19 pandemic put a break in Romania’s solid economic performance recorded over the last years. Preliminary data show that Romania’s economy contracted by 3.9% in 2020. Although the gross domestic product (GDP) decline was significant, it turned out to be less severe than the EU average. The economic impact of the two- month period of lockdown restrictions enforced from mid- March to mid-May, was asymmetric across various sectors. The shutting down of businesses and limits of mobility initially affected disproportionately the manufacturing sector, hotels and restaurants, entertainment, and retail trade. These impacts were more muted in the second half of the year, when a resurgence in infections was tackled by the authorities with targeted lockdowns and the imposition of an alert state. Despite a partial recovery recorded during the second half of the year, industrial production fell by 9.3% in 2020, the largest drop in recent history. Construction, which represents around 7% of GDP, performed above expectations advancing by 15.9% annually, with construction sites being kept open and work there proceeding at almost full speed even during the lockdown. Demand for IT products and services rose as parts of economic activities moved online, helping the sector to grow by 10.4%. Domestic consumption, which was the main engine of growth over the last decade, fell by 3.4%. Retail sales were resilient and, following the dip during the lockdown period, posted a 2.2% growth for the full year. The government’s response to the pandemic followed the paths adopted by other EU countries. Measures focused primarily on easing the burden of the income loss brought about by the imposed lockdown and on supporting the health care system. The immediate fiscal impulses consisted of additional government spending on medical resources, technical unemployment – which paid 75% of gross wages for furloughed employees – and grants to small and medium enterprises. This made the labor market respond to the crisis better than initially expected. The unemployment rate initially jumped to 5.5% in July from 2.8% in January, but subsequently fell to 4.9% at the end of the year. Households’ purchasing power was also maintained, on average, creating premises for a speedier recovery. Another set of policies focused on deferrals, including payments of taxes to the budget or loans reimbursement moratorium for affected debtors. Other measures aimed at providing liquidity and guarantees to the private sector, via credit lines through domestic banks. The authorities’ fiscal space was limited, being constrained by the already existing large budget deficit. Overall, the government’s fiscal support to the economy came up to the equivalent of around 4% of GDP, with almost half of it in government guarantees. This was sizably lower than the fiscal backing received by other economies in the region, where it amounted, on average, between two to three times higher. Macroeconomic imbalances deteriorated further in 2020. Although the current account deficit remained virtually stable as a share in GDP, the additional government spending for pandemic-related measures, the 14% increase in public pensions and the fall in current revenues, together, led to a deepening in the budget deficit to 9.8% of GDP, more than double compared to a year ago. The required additional government borrowing pushed up strongly the public debt to GDP ratio by over 12 percentage points, to 47.7%. Despite this, the perceived country risk diminished gradually throughout the course of the year. Domestic government bond yields fell across all maturities, supported in part by increased global liquidity. Romania’s country rating was left at the lowest level of the investment grade following a downward revision in outlook by two of the three main international rating agencies. Consumer price inflation ended the year at 2.1%, influenced by weakened demand and lower commodity prices. The RON/EUR exchange rate was verystable in 2020, given the large uncertainties faced by various economic sectors. After increasing slightly during the first part of the year, the volatility of RON against the EUR dropped off subsequently. The overall level of RON-EUR volatility remained low, compared to other exchange rates in the region. Against the USD, the RON was more volatile, driven largely by the EUR-USD behaviour. On average, in 2020 the RON fell against both the EUR and the USD by 1.9% and 0.1% respectively. Romania’s total energy supply responded to the lower demand, decreasing by 10.8% in 2020 to 31.4 mn toe. Both domestic production and imports of coal, oil and natural gas fell substantially. Oil supply went down by 14.9% to 10.2 mn toe, as mobility restrictions triggered by the imposition of 24 Business environment OMV Petrom Annual Report 2020 Company lockdown limited demand for fuel products. Retail fuels turnover sank by 8.0% compared to a year ago. Domestic natural gas supply decreased by 9.7% to 7.3 mn toe, with gas imports also falling by 20.8% to 1.7 mn toe. Business environment 25 OMV Petrom Annual Report 2020 Company 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 and amortization, impairments and write-ups (RON mn) Capital expenditures (RON mn)4 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) 2020 6,162 (985) (992) 7 2,305 2,382 195 52.98 50.51 50.33 10.88 473 451 2019 9,541 2,589 (255) 2,845 5,342 3,269 427 55.35 52.97 52.09 10.90 504 477 ∆ (%) (35) n.m. (289) (100) (57) (27) (54) (4) (5) (3) (0) (6) (5) 1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 40-52; 2 Including inter-segment sales; 3 Excluding intersegmental profit elimination; 4 Including capitalized exploration and appraisal and acquisitions. HSSE is our first priority The Lost Time Injury Rate (LTIR) (employees and contractors combined) improved to 0.20, compared with 0.40 in 2019. No work related fatalities occurred in our operations in 2020. In Upstream, the rollout of Safety Culture Program continued in 2020, adapted to the COVID-19 context. We conducted assessments of safety culture maturity and subsequently defined corresponding action plans. Moreover, OMV Petrom’s safety principles were promoted through numerous workshops organized in different business units. We continued to focus on improving the carbon efficiency of our operations, achieving a 24.3% decrease of the carbonvii intensity in 2020 vs. 2019. Our improvement measures included modernization, replacement and/or optimization of gas processing and transportation infrastructure. We 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 July 2019, NAMR announced 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 for onshore acreage is awaited in 2021. We have evaluated the offered acreage during 2020 and selected several blocks of interest. In February, OMV Petrom finalized a large 3D seismic survey of more than 1,500 km2 in exploration block VIII- Urziceni East together with Hunt Oil Company of Romania S.R.L. as operator. Processing was ongoing during the rest of 2020. In March, the deep well 4700 Bărbătești was tested in several reservoir zones, but none of the tests including further pressure monitoring resulted in a sustainable commercial flowrate under the revised long-term price assumptions. The 6600 Băicoi well drilled in 2018 was tested in Q4/20; despite initially encouraging flowrates, the proven volumes were too small to be commercial. vii Details will be available in OMV Petrom’s Sustainability Report for 2020. 26 Upstream OMV Petrom Annual Report 2020 Company In September, a new exploration well was drilled together with Hunt Oil as operator near the Padina Field in the VIII - Urziceni East block, but it did not find commercial hydrocarbons. OMV Petrom’s own exploration wells, which were planned for 2020, have been postponed to 2021/2022 due to the COVID-19 and the oil price crises. Production At the end of 2020, OMV Petrom operated 193 commercial oil and gas fields in Romania (end-2019: 193). In Romania, OMV Petrom’s hydrocarbons production declined by 4.7% compared to 2019 level, to 50.51 mn boe (or 138.0 kboe/d). Crude oil and NGL production declined by 2.8% to 23.38 mn bbl (or 3.25 mn t), while natural gas production declined by 6.2% to 27.13 mn boe (or 4.15 bcm). Offshore production accounted for 16.4% from OMV Petrom’s total hydrocarbons production in Romania (5.4% of the crude oil and NGL production and 25.8% of natural gas production). Crude oil production based on enhanced oil recovery techniques accounted for 25% 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 9.5% of total gas production (2019: 10.1%). Natural decline and maintenance activities were the main factors that impacted production in Romania in 2020. Excluding the effect of divestments, production decline stood at 4.5% yoy. Overall production was supported by the well 4461 Totea South, brought onstream in Q4/19 and by the contribution from new wells and workover activities. increase of the Reserves Replacement Rate, we managed to drill a total of 63 new wells and sidetracks in 2020. OMV Petrom further invested in keeping operation of the facilities in line with HSSE standards and legal requirements as well as in simplifying operations and improving cost efficiency. All these led to safeguarding oil and gas production and deliveries. The following projects represent some highlights of our main onshore projects: FRD Independenţa / Independenţa Tank Farm Independenţa is a mature oil field in production since 1959. The purpose of FRD Independenţa is to increase production by drilling in previously undeveloped areas with high potential of oil accumulations. Out of the entire FRD scope, Independenţa Tank Farm is the last project remaining to be completed. In 2020, the project entered the detailed engineering phase. FRD Suplac Phase 2 and Suplac Key Infrastructure projects Main activities for FRD Suplac Phase 2 as well as for one project from the key infrastructure “Drinking Water Treatment Plant” were completed in 2020, while two other projects, “Revamp Tank Farm Suplac” and “Regenerative Thermal Oxidizer”, are awaiting commissioning. The last project from key infrastructure, “Revamp Gas Plant Abrămuţ” is under assessment for further investments in the area. Totea Deep Compressors Project Totea Deep Compressors Project was initiated in 2017, having the scope to maximize the recovery factor, by decreasing the abandonment pressure of the field, trough the installation of three new electrically driven compressors and their integration in the systems of Park 4540 Totea in Asset Oltenia. 2020 was an active year in terms of routine activities in Upstream, with an average of 97 crews available performing 830 workover jobs and around 4,600 well interventions. All of these led to an MTBF of 810 days, an improvement from 737 days in 2019. Execute phase began in March 2020, followed by the start of construction activities at the end of July. By the end of the year, main civil works were finalized and major items of equipment were delivered on site. Key projects In 2020, drilling activities reached a peak with 10 active rigs in February in the OMV Petrom operated licenses, before being impacted by the COVID-19 pandemic. Despite the pandemic impact and in line with our strategy to support the Offshore Portfolio Petromar Debottlenecking Production Optimization This new growth project within the offshore program intends to fight the decline by installing additional compression capacity and lowering the wellhead pressure of several existing wells. After conducting a feasibility study, the project was officially kicked off in December 2020. Upstream 27 OMV Petrom Annual Report 2020 Company Rejuvenation Program Despite the harsh conditions in 2020, this program aimed at improving key process safety and integrity areas progressed with a series of projects, as follows: one project aimed at implementing a redundancy to the control system on the central and another four platforms, three shutdown projects, a new crane replacement project, as well as the replacement of two gas turbines to secure the power supply. Three new projects started in 2020: the online monitoring project aiming to detect ruptures in piles or main beams, a project to reinforce the subsea steel structure of the Pescăruș platform, and a project to extend the life time certificate for all platforms for another five years. With around EUR 120 mn invested so far, this program shows our full commitment to the operations in the Black Sea region. FRD Petromar The main objective of FRD Petromar is to increase offshore production by developing additional reserves in the Sinoe field and minimizing the development cost by side-tracking existing non-producing wells and upgrading the related facilities. The detail design could be finalized in line with approved strategy. Considering the harsh 2020 economic context, the project team reconsidered the execution strategy and developed an alternative option for the production facility platform number 8. Engineering was kicked off at the end of 2020 and preparation for the FID is ongoing. 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 Timiş, PEC Turnu, and PEC Țicleni, covering 22 mature fields in total. The PECs stipulate that the contractors take over 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, 37 workover jobs were performed by the contractors within the PECs in 2020. The total production of the PECs in 2020 amounted to 6.5 kboe/d (2019: 7.3 kboe/d), of which PEC Țicleni 3.8 kboe/d, PEC Turnu 1.0 kboe/d, and PEC Timiş 1.7 kboe/d. In Q4/20, Expert Petroleum notified OMV Petrom about the early termination of the PEC Timiş. This termination will become effective on January 1, 2023. In the Joint Operations Agreement with Hunt Oil (50% OMV Petrom, 50% Hunt Oil operator), we recorded a production of 1.5 kboe/d (OMV Petrom share) in 2020. The well 2 Padina Nord was put into production in December 2020. The total production recorded by PECs and Joint Operations Agreements in 2020 was 8.0 kboe/d (2019: 8.7 kboe/d), representing 5.8% of the OMV Petrom’s total domestic production. 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 2020, the average oil and gas production in Kazakhstan increased by 4.2% versus 2019, to 2.47 mn boe (6.8 kboe/d), as a result of the increased well intervention and workover activities with a total of 11 workover jobs and 49 well interventions carried out. In December 2020, OMV Petrom signed the transaction for the sale of its 100% shareholding in Kom-Munai LLP (KOM) and Tasbulat Oil Corporation LLP (TOC) to Magnetic Oil Limited, with closing expected in H1/21. In August 2020, OMV Petrom completed the transaction for the acquisition of OMV Offshore Bulgaria GmbH and entered the Han-Asparuh exploration block. Han-Asparuh is located in the western Black Sea in Bulgaria, south of the Neptun Deep Block in Romania, and has an area of 13,819 km² with maximum water depths of over 2,000 m. OMV Petrom holds a 42.86% share in the license, alongside Total (57.14%) who is the operator. Processing of the 5,614 km2 of 3D seismic data acquired in H1/20 is ongoing towards maturing future drilling candidates. In June 2020, OMV Petrom was selected as the winner of the open international tender held by the Ministry of Economy and Sustainable Development of Georgia for the Offshore Block II. The exploration block covers a total area of 5,282 km² and is located on the shelf and within the 28 Upstream OMV Petrom Annual Report 2020 Company economic zone of the Georgian offshore Black Sea. The Production Sharing Contract was signed in March 2021. Production in 2020 Romania Kazakhstan OMV Petrom Group Oil and NGL Natural gas Total mn t 3.25 0.27 3.52 mn bbl 23.38 2.13 25.51 bcm 4.15 0.06 4.21 mn boe mn boe 27.13 0.34 27.47 50.51 2.47 52.98 Proved reserves as of December 31, 2020 Romania Kazakhstan OMV Petrom Group Oil and NGL Natural gas Total mn t 38.8 2.5 41.3 mn bbl bcf mn boe mn boe 279.0 19.8 298.8 928.7 12.0 940.7 172.0 2.0 174.0 451.0 21.8 472.8 Reserve Replacement Rate (RRR)viii As of December 31, 2020, the total proved oil and gas reserves in the OMV Petrom Group’s portfolio amounted to 473 mn boe (of which 451 mn boe in Romania), while the proved and probable oil and gas reserves amounted to 761 mn boe (of which 720 mn boe in Romania). For the single year 2020, the Group’s RRR decreased to 41% (2019: 49%), while in Romania it increased to 48% (2019: 39.5%). The Group’s three-year average RRR increased to 44% in 2020 (2019: 42%), and in Romania it increased to 43% (2019: 38%). OMV Petrom was able to increase RRR mainly due to favourable drilling and workover results and new projects. viii Including the effect of the divestments of nine marginal fields in 2019. Upstream 29 OMV Petrom Annual Report 2020 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 and amortization, impairments and write-ups (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) Fuel Oils & Bitumen (kt) thereof: Retail sales volumes (kt)6 2020 13,657 1,060 49 (442) 1,454 1,810 793 92 4,499 4,097 4,993 1,291 2,518 126 329 2,619 2019 18,346 1,475 (204) 178 1,501 2,223 818 97 4,727 4,306 5,462 1,310 2,702 289 342 2,847 ∆ (%) (26) (28) n.m. n.m. (3) (19) (3) (5) (5) (5) (9) (1) (7) (56) (4) (8) 1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 40- 52; 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) resulting from Downstream Oil; 5 Including NGL; 6 Retail sales volumes refer to sales via Group’s filling stations in Romania, Bulgaria, Serbia and Moldova. HSSE is our first priority In Downstream Oil, we continued to focus on improving the HSSE performance, by rolling out several programs throughout the organization (campaigns such as: “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 0.10, better than the international benchmark. In 2020, due to the pandemic situation that triggered a lower utilization rate of the refinery with less crude processed, carbonix intensity at the refinery increased by 4.1% versus 2019. Operational performance The operational performance and energy efficiency of the Petrobrazi refinery remained at competitive levels.In 2020, the OMV Petrom indicator refining margin was USD 2.89/bbl, lower by USD 1.79 /bbl than in 2019, as a result of falling product spreads, mainly gasoline, jet and diesel. The refinery utilization rate was lower yoy, 92% in 2020 compared to 97% in 2019, reflecting the two weeks planned shutdown in Q3/20 and lower demand following mobility restrictions, but supported by placing more equity products on all our markets while reducing third-party supply. ix Details will be available in OMV Petrom’s Sustainability Report for 2020. 30 Downstream Oil OMV Petrom Annual Report 2020 Company The continued focus on operational and energy efficiency allowed us to maintain the fuel and loss indicator below 8%, similar to the previous year. Production (kt) Gasoline Diesel Kerosene/Jet fuel Fuel Oils LPG total Petroleum coke Other1 Total 2020 1,240 1,911 77 254 157 274 264 2019 1,302 1,958 117 281 196 274 260 4,177 4,388 ∆ (%) (5) (2) (34) (10) (20) - 2 (5) 1 Comprises other products as: Propylene, Naphta, Hydrotreated Gasoline, Heavy Gasoline Fraction, Sulphur, etc. OMV Petrom Group’s total refined product sales amounted to 4,993 kt in 2020, representing a 9% decrease compared to 2019, following weaker demand. Group retail sales volumes were 8% lower than in 2019, reaching 2,619 kt, as effect of reduced traffic during the COVID-19 pandemic. In Romania, retail sales reached 2,248 kt in 2020, 6% lower than in 2019. Therefore, in 2020, the average throughput per station in Romania decreased to 4.88 mn liters (2019: 5.27 mn liters), driving the overall decrease of this indicator at the Group level to 4.03 mn liters (2019: 4.43 mn liters). Retail market sharex in the operating region stood at 32%, flat versus the previous year, as our sales evolved in line with the market, despite increased competition. 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 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, following the successful pilot phase of the cooperation with Auchan, in August 2020 we announced the extension of the partnership for opening approximately 400 MyAuchan proximity stores in the entire Petrom- branded filling stations network. The partnership marks the Petrom brand entrance into a new development stage, to be reflected in the rebranding of the filling stations. The rollout of MyAuchan convenience stores in updated Petrom filling stations reached 25 units at the end of 2020, aiming to cover up to 100 additional units per year. Furthermore, we continued the partnership with Subway in Romania and with KFC in Serbia. In 2020, the total non-fuel margin at Group level decreased by 14% compared to the previous year, being affected by the mobility restrictions during the pandemic crisis. In 2020, the non-retail business continued to be a strong contributor to the overall OMV Petrom result, despite market challenges posed by the COVID-19 pandemic and the economic slowdown. The commercial bulk sales business continued to perform well, capitalizing on market opportunities for white products (diesel and gasoline). Business development initiatives targeted the sale of marine fuel oil with low sulfur content and of bitumen, while several initiatives for digitalization and operational excellence were developed, with a high focus on customers centricity. Jet fuel sales to the aviation industry were the most affected by lockdowns and mobility restrictions imposed widely across Europe. In this context, our focus was to optimize processes and costs. Overall, group non-retail sales decreased by 9% compared to 2019, mainly due to weaker demand in the context of the pandemic and the steep drop in the aviation x 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); Downstream Oil 31 OMV Petrom Annual Report 2020 Company business. In Romania, non-retail sales were 906 kt, 21% below the previous year’s level. reflection in product prices would make the market unstable, OMV Petrom fuel prices only reflect the trend, not the highs or lows. 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 Number of filling stations per country at the end of period The filling stations network operated within the OMV Petrom Group at the end of 2020 comprised a total of 793 filling stations, same as at the end of 2019. Romania Moldova Bulgaria Serbia Total 2020 560 77 93 63 793 2019 556 81 94 62 793 ∆ 4 (4) (1) 1 - 32 Downstream Oil OMV Petrom Annual Report 2020 Company Downstream Gas At a glance 1 Segment sales (RON mn)2 Operating Result (RON mn)3 Special items (RON mn) Clean Operating Result (RON mn) Operating Result before depreciation and amortization, impairments and write-ups (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) 2020 6,069 1,257 539 718 849 9 57.0 47.7 7.0 4.2 2019 6,978 438 156 282 530 85 54.8 47.2 12.5 3.4 ∆ (%) (13) 187 246 155 60 (90) 4 1 (44) 23 1 For information about the financial performance of the segment, please refer to the relevant section in the Directors’ report on pages 40-52; 2 Including inter-segment sales; 3 Excluding intersegmental profit elimination. HSSE is our first priority Though there has been a very difficult year from a medical perspective, in Downstream Gas HSSE is constantly at the top of our minds and always the first priority in any activity we undertake. We have adapted our processes and procedures to keep our employees and contractors healthy and safe and we are proud to once again record a year with no work-related incidents or lost-time injuries. In 2020, we recorded a lower carbonxi intensity level by 0.5% as compared to the 2019 level, in the context of higher net electrical output. Operational performance According to our estimates, national gas consumption increased by around 5% in 2020 as compared to 2019, mainly driven by higher offtake by gas fired power plants and the fertilizer industry. Regarding the supply sources, the national consumption was covered by a decreasing Romanian production and a lower share of imports as compared to last year, given the high volumes available in underground storages at the beginning of the year. Release Program (GRP) introducing for producers the obligation to offer a fixed percentage of their production, in different products (monthly, quarterly, seasonal, annual) with starting prices determined by the market prices recorded in past periods for similar products. In 2020, on the Romanian centralized markets, the traded gas volumes covering a variety of standard products totaled 50.2 TWh (with delivery until end-2021), at an average price of RON 62/MWhxii. In 2020, our gas sales performance was outstanding. OMV Petrom’s total gas sales volumes increased by 4% yoy to 57.03 TWh, historically the largest sales volume since the start of our operations. The uplift is based on 2019 transactions to comply with the regulatory obligations for the regulated and the centralized markets and was supported also by high acquisitions from third parties. The gas sales volume increase is a great achievement, given the challenging market environment in 2020, with prices and margins under pressure due to the competitive and volatile gas market. 2020 was a challenging year for our gas business from the regulatory point of view. In June 2020, the obligation to trade on the centralized markets was replaced with the Gas Given the legislation in force, in 2020 OMV Petrom supplied the gas regulated market, delivering 7.0 TWh to the xi Details will be available in OMV Petrom’s Sustainability Report for 2020; xii 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. Downstream Gas 33 OMV Petrom Annual Report 2020 Company households and district heating for households suppliers, as per the set allocation, at the fixed price of RON 68/MWh. of spot power prices, but also in the context of Romania being a net power importer for the year overall. The OPCOM spot base load power prices decreased by approximately 20% yoy, averaging RON 191/MWh in 2020 (2019: RON 239/MWh). 2020 was a golden year for our power business. Brazi power plant had the largest contribution to the Downstream Gas segment result since the start of commercial operations in 2012. The record high net electrical output of 4.1 TWh covered a share of 7% (2019: 6%) in the national power generation mix. With the annual planned shutdown completed in October 2020, on time, on budget and with no HSSE incidents, the power plant had a technical availability of 95%. 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. Capitalizing on the power plant technical capabilities and flexibility, significant additional revenues were obtained also from the balancing and ancillary services markets. Its significant importance for the security and stability of the national energy system was also proved in 2020, given the challenging supply and consumption power profile impacted by the pandemic crisis. The Brazi power plant had a legal obligation to supply the regulated power market in H2/20 with 0.18 TWh at the price of RON 223/MWh. 2020 was a difficult year, mainly due to the health crisis, the measures taken to contain it, but also due to regulatory changes that brough volatility and unpredictability to the energy markets in particular. Still, this unusual market environment was professionally and promptly managed, innovative ideas were launched to maintain operations in all assets and customer interaction, despite the pandemic constraints. As such, we have demonstrated to our customers and partners our reliability, our unwavering commitment to their success and confirmed our role as a key player in the Romanian energy market, well-positioned for long-term growth and value creation. At the same time, we concluded significant sale transactions on the centralized markets, with a total gas volume of 16 TWh contracted for deliveries until end-2021, at an average price in line with market prices. Some of these transactions were completed within the GRP framework. OMV Petrom fully complied with its obligation. The foundation for an upward trend in sales is a well- diversified supply portfolio, blending equity gas with a diversified mix of other sources. In addition to mid- and long- term activities, short-term solutions were developed in 2020, all creating a supply portfolio tailored to our needs. Faced with declining equity production, we used acquisitions from third parties to cover all our sales commitments and sustainably preserve our end-user portfolio. At the end of 2020, OMV Petrom had 2.0 TWh of gas in storage, following successful management of the extraction and injection cycles. Even if the mimimum stock obligation is no longer in force, OMV Petrom is committed to ensure security of supply for its entire customer portfolio, therefore optimizing the stored gas volume will always remain one of our objectives. In 2020, we succesfully maintained a leading position on the Romanian gas market, in line with on our strategy. Benefiting from our full focus, the end-user portfolio was successfully maintained, proving business robustness and customers’ loyalty. This portfolio broadly ranges from leading industrial players to medium-sized and small consumers, to whom we deliver on our promise to ensure security of supply, complemented by our business-friendly approach, competitive terms and professionalism, thus contributing to the resilience of the Romanian economy. Given the challenges of 2020 and the shift in customers’ behavior towards the online, we have taken considerable steps towards digitalization, making the contractual relationship easier, faster and simpler for our customers. While we were fully compliant with all regulations in force, our focus remains to increase our end user customer portfolio. On the power market, as per currently available data from the grid operator, national electricity consumption decreased to 58 TWh in 2020 (2019: 62 TWh). The national electricity production dropped by 6%, to 55 TWh (2019: 59 TWh). In terms of power generation mix in 2020, the significantly lower power production from coal was not fully compensated by the slightly higher production from natural gas. Market coupling continued to play an important role in 2020 in terms 34 Downstream Gas OMV Petrom Annual Report 2020 Report of the governing bodies 35 OMV Petrom Annual Report 2020 Report of the governing bodies 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. During a year impacted by the COVID-19 pandemic, the Supervisory Board continued to devote close attention to the Company’s strategic focus and business performance in all areas of activity, with special focus on monitoring of the developments of the pandemic and preventive measures implemented to ensure smooth running of activities and to protect the health of employees and customers. 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 2020, the Supervisory Board consisted of the following members: 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. During the same meeting, 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. Therefore, at the end of 2020, the Supervisory Board had the following composition: Rainer Seele (President), Reinhard Florey (Deputy President), Thomas Gangl, Johann Pleininger, Daniel Turnheim, Jochen Weise, Niculae Havrileț, Radu-Spiridon Cojocaru and Joseph Bernhard Mark Mobius. Independence Upon appointing each Supervisory Board member, the Company conducts an independence evaluation based on the independence criteria provided by the Corporate Governance Code of the Bucharest Stock Exchange (which are substantially similar to those provided by the Company Law). The independence evaluation consists of an individual personal assessment carried out by the relevant Supervisory Board member, and is then followed by an external assessment. Moreover, for the purpose of preparing this report, the Company reconfirmed with all Supervisory Board members their independent or non-independent status as of December 31, 2020. Following this evaluation, it resulted that the following Supervisory Board members met during 2020, as well as at the date of this report, all the independence criteria stipulated by the Corporate Governance Code and therefore have an independent status as per such criteria, namely: 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 2020, 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 a year governed by the COVID-19 pandemic, the Supervisory Board members did not meet in person, all five meetings being held by audio and video conferences. Moreover, for specific and particularly urgent matters and 36 Report of the Supervisory Board OMV Petrom Annual Report 2020 Report of the governing bodies 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, by telephone or video conference, the vast majority of the meetings of the Supervisory Board in 2020. The average participation rate was over 98%. Only in one occasion, a Supervisory Board member was represented by another Supervisory Board member in the meeting. 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. Moreover, the Executive Board provided updates to the Supervisory Board on the COVID-19 impact on the Company’s performance, presenting an overview on the measures taken both at company and divisional levels and also on the status of the operations. 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 2020, Supervisory Board’s main focus during 2020 was, amongst others, the overall development of the Company, the status of the Neptun Deep project and COVID-19 impact on the running of the Company’s activities and the measures implemented to ensure the protection of the health of its employees and customers. In addition to the COVID-19 updates, in the regular reports to the Supervisory Board, the President of the Executive Board focused on topics such as HSSE, energy sector overview and macroeconomic prospects. 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. For the 2020 financial year, the Supervisory Board considers its composition to be satisfactory in terms of experience, expertise, qualification, diversity, number of members and presence. Supervisory Board members also value the good collaboration with the Executive Board, the organization and conducting of the Supervisory Board meetings and the quality of the documents provided for such meetings. Audit Committee The Audit Committee is a consultative committee consisting of Supervisory Board members who assist the Supervisory Board on topics such as financial reporting, external auditing, internal auditing, internal controls and risk management, as well as compliance, conduct and conflicts of interest. At the beginning of 2020, the Audit Committee was composed of four members, namely 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 as member of the Supervisory Board (and consequently the cease of the position in the Audit Committee) and the appointment of Niculae Havrileţ as member of the Supervisory Board as of 3 March 2020, Niculae Havrileţ 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 end of 2020, including at the date of this report, the Audit Committee has the following composition: Jochen Weise (President - independent), Reinhard Florey (Deputy President), Niculae Havrileţ (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. Self-evaluation of the Supervisory Board Under the leadership of the President of the Presidential and Nomination Committee, and according to the Guideline in place for this purpose, the Supervisory Board undergoes annually a self-evaluation process aiming to assess and, if necessary, to improve both the efficiency and the In 2020, the Audit Committee members met three times, one time in person, while the other two meetings were held by audio and video conference. During the meetings, the Audit Committee 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 Report of the Supervisory Board 37 OMV Petrom Annual Report 2020 Report of the governing bodies proposal regarding the distribution of dividends for the financial year 2019 and recommended to the Supervisory Board and to the Ordinary GMS the reappointment of Ernst & Young Assurance Services SRL (EY) as independent financial auditor for 2020 financial year. 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. As EY is the independent financial auditor of OMV Petrom Group since 2011, reaching in 2021 the ten years maximum duration provided by the EU Regulation no. 537/2014, in 2019-2020 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 performed, 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 in 2020. Given that EY’s engagements as statutory financial auditor of OMV Petrom Group reaches in 2021 the ten years maximum duration provided by the EU Regulation no. 537/2014, 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 performed. Following the audit tender, the Audit Committee submitted to the Supervisory Board its recommendation consisting in two possible choices for the potential auditor for 2021, with a duly justified preference for one of them. The Supervisory Board proposal, based on the recommendation and in accordance with the preference of the Audit Committee, will be submitted for approval to the next Ordinary GMS to be held on April 27, 2021. Separate financial statements of the Company for the year ended December 31, 2020 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 2020 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, 2020, as well as the Executive Board proposal to distribute dividends of RON 0.031 per share (corresponding to a payout ratio of 136% based on the Group’s 2020 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, 2020 and the Executive Board proposal for allocation of the profit, including distribution of dividends. The separate and consolidated financial statements were approved in the Supervisory Board meeting of March 17, 2021 in line with the Audit Committee’s recommendation and will further be submitted for approval in the Ordinary GMS to be held on April 27, 2021. Furthermore, following the review by the Audit Committee, the Supervisory Board has approved the reports on payments to governments for the year 2020, prepared in accordance with Chapter 8 of the Annex 1 Ministry of Finance Order no. 2844/2016 for approval of Accounting Regulations according to International Financial Reporting Standards, transposing Chapter 10 of the Accounting Directive (2013/34/EU) of the European Parliament and of the Council. 38 Report of the Supervisory Board OMV Petrom Annual Report 2020 Report of the governing bodies Corporate Governance The Supervisory Board also approved the 2020 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 2020 despite the difficulties caused by the effects of the volatile regulatory environment and of the COVID-19 pandemic. demanding year marked by the COVID-19 pandemic and achieved excellent results. We would also like to show our appreciation to the clients and business partners of OMV Petrom. Thanks to the resilient operational performance and sound financial position in the context of the pandemic, the Supervisory Board is confident that the Company is well positioned to surmount further challenges ahead, take advantage of new opportunities and unlock its full potential in the years to come. 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 2020. They successfully met the challenges of an unpredictable and March 17, 2021 Rainer Seele President of the Supervisory Board Report of the Supervisory Board 39 OMV Petrom Annual Report 2020 Report of the governing bodies Directors’ report From left to right: Christopher Veit (EB Member - Upstream); Alina Popa (Chief Financial Officer - EB Member); Christina Verchere (Chief Executive Officer - President of the EB); Radu Căprău (EB Member - Downstream Oil); Franck Neel (EB Member - Downstream Gas). 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 2020 19,717 1,467 1,291 1,291 5,556 3,206 2019 25,485 4,245 3,635 3,635 6,803 4,225 10,761 12,347 ∆ (%) (23) (65) (64) (64) (18) (24) (13) In 2020, the Group consolidated sales of RON 19,717 mn were 23% lower compared to 2019, following negative evolution of the commodity prices and lower sales volumes for petroleum products and electricity. stated after eliminating net special charges of RON (425) mn and inventory holding losses of RON (396) mn. The net result was a profit of RON 1,291 mn in 2020 (2019: RON 3,635 mn). The Group’s Operating Result for the year 2020 decreased by 65% to RON 1,467 mn (2019: RON 4,245 mn), driven mainly by the unfavorable market environment, as the lower prices and the COVID-19 crisis had a negative impact on Group’s performance, and by the net impairments triggered by the revision of price assumptions. Clean CCS Operating Result, in amount of RON 2,287 mn, lower by 50% yoy, is The return on average capital employed xiii (ROACE) reached a value of 4.1% (2019: 12.9%), while Clean CCS ROACE decreased to 6.4% at the end of 2020, from 13.8% at the end of 2019. Cash flow from operating activities amounted to RON 5,556 mn, 18% below the 2019 level, mainly as a xiii For definitions of these ratios please refer to pages 74-76, section “Abbreviations and definitions”. 40 Directors’ report OMV Petrom Annual Report 2020 Report of the governing bodies result of lower commodities prices in the current market environment. Capital expenditure amounted to RON 3,206 mn in 2020 and was 24% lower than in 2019. Due to the significant cash balance at December 31, 2020, OMV Petrom Group reported a net cash position including leases of RON 6,486 mn at the end of 2020, up from RON 5,982 mn at the end of 2019. Operating Result Operating Result (RON mn) Upstream1 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” In Upstream, Operating Result declined to RON (985) mn (2019: RON 2,589 mn), mainly due lower oil and gas prices. Exploration expenses increased to RON 814 mn in 2020 (2019: RON 238 mn), mainly due to write-off of exploration wells slightly counterbalanced by lower seismic acquisition expenses. Group production costs (OPEX) in USD were kept stable at USD 10.88/boe mainly due to ongoing cost optimization, which compensated for the lower production available for sale. In Romania, production costs in USD improved by 1% to USD 10.92/boe, while in RON terms they improved by 1% to RON 46.27/boe. Upstream Operating Result in 2020 also reflected special charges of RON (992) mn, mainly due to net impairments, restructuring charges and reassessment of provisions. In Downstream Oil, Operating Result decreased to RON 1,060 mn in 2020 (2019: RON 1,475 mn), impacted by weaker refining margins, lower volumes sold in the context of the COVID-19 pandemic and the planned shutdown of the refinery in July. The negative effects were offset to a large extent by the positive impact from CO2 certificates sale, middle distillate margin hedges, good operational performance of our sales channels and strict costs management. In 2020, the OMV Petrom indicator refining margin decreased by USD 1.79/bbl to USD 2.89/bbl, as a result of falling product spreads mainly for gasoline, jet and diesel. The refinery utilization rate decreased to 92% (2019: 97%) reflecting the two-week planned shutdown in 2020 (985) 2,317 1,060 1,257 (105) 240 1,467 2019 2,589 1,913 1,475 438 (156) (102) 4,245 ∆ (%) n.m. 21 (28) 187 33 n.m. (65) July and lower demand following mobility restrictions, but supported by placing more equity products on all our markets while reducing third-party supply. Downstream Oil Operating Result reflected also special items of RON 49 mn (2019: special charges of RON (204) mn), and CCS inventory holding losses of RON (442) mn (2019: gains of RON 178 mn). In Downstream Gas, Operating Result significantly improved to RON 1,257 mn (2019: RON 438 mn) reflecting record-high contribution from the power business, built on power forward contracts, complemented by balancing and ancilary services markets revenues. The gas business reflected a very good end-user portfolio resilience. The result also reflects one off revenues booked in Q2/20 representing the compensation for higher costs incurred in 2019 for the power regulated sales. Downstream Gas Operating Result included also net special items of RON 539 mn, mainly from full reversal of impairments for Brazi gas-fired power plant amounting to RON 519 mn before tax, following revision of the long-term power and CO2 price assumptions (2019: net special items of RON 156 mn). Operating Result in the Corporate and Other (Co&O) segment was RON (105) mn (2019: RON (156) mn), as previous year was influenced by higher social sponsorship activities. Directors’ report 41 OMV Petrom Annual Report 2020 Report of the governing bodies Special items and CCS effect Special items and CCS effect (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 2020 2,287 (425) (110) (331) 16 (396) 1,467 2019 4,573 (370) (53) - (317) 42 4,245 ∆ (%) (50) (15) (108) n.a. n.m. n.m. (65) 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. 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 42 Directors’ report 2020 19,717 429 4 20,150 (8,210) (3,489) (873) (2,996) (1,952) (814) (348) 1,467 12 (188) 1,291 0.05 1,291 2019 25,485 259 7 25,752 (10,681) (3,470) (1,187) (3,507) (2,140) (238) (284) 4,245 32 (642) 3,635 0.09 3,635 ∆ (%) (23) 66 (39) (22) 23 (1) 26 15 9 (243) (23) (65) (63) 71 (64) (44) (64) OMV Petrom Annual Report 2020 Report of the governing bodies OMV Petrom is an integrated oil and gas company. The hydrocarbons produced by the Upstream segment are processed and marketed mainly by the Downstream segment. Compared to 2019, consolidated sales revenues decreased by 23% to RON 19,717 mn, following negative evolution of the commodity prices and lower sales volumes for petroleum products and electricity. After the elimination of intra-group transactions of RON 5,852 mn, the contribution of the Upstream segment representing sales to third parties was RON 310 mn or about 2% of the Group’s total sales revenues (2019: RON 481 mn). Sales to external customers in the Downstream Oil segment amounted to RON 13,565 mn or 69% of total consolidated sales (2019: RON 18,237 mn). After elimination of intra-group sales, the Downstream Gas segment’s contribution was RON 5,812 mn or approximately 29% of total sales (2019: RON 6,737 mn). Sales to external customers are split by geographical areas on the basis of where the risks and benefits are transferred to the customer. Romania and Central and Eastern Europe represent the Group’s most important geographical markets. Sales in Romania were in an amount of RON 17,067 mn or 87% of the Group’s total sales (2019: RON 21,566 mn, 85% of total sales) and sales in the rest of Central and Eastern Europe were RON 2,627 mn or 13% of Group sales (2019: RON 3,849 mn). Other operating income increased to RON 429 mn RON (2019: RON 259 mn) mainly due to sale of CO2 certificates in Downstream Oil. Purchases (net of inventory variation) which include costs of goods and materials employed amounted to RON 8,210 mn and decreased by 23% yoy mainly as a result of lower purchases of petroleum products from third parties, as well as lower quantities of crude oil processed in the Petrobrazi refinery, partially offshet by higher expenses with natural gas. Production and operating expenses were stable at RON 3,489 mn (2019: RON 3,470 mn). Exploration expenses increased to RON 814 mn (2019: RON 238 mn), mainly due to write-off of exploration wells slightly counterbalanced by lower seismic acquisition expenses. Other operating expenses increased by 23% to RON 348 mn, compared to the 2019 value of RON 284 mn. The net financial result slightly decreased to RON 12 mn in 2020 (2019: RON 32 mn). Taxes on income were in the amount of RON (188) mn (2019: RON (642) mn), mainly driven by the lower profit generated during 2020. Directors’ report 43 OMV Petrom Annual Report 2020 Report of the governing bodies 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 adjustments1 - Investments in financial assets Additions according to statement of non-current assets (intangible and tangible assets) +/- Non-cash changes2 Cash outflow due to investments in intangible and tangible assets + Net inflow in relation to sale/investment in subsidiaries, non-current assets and other financial assets Net cash used for investing activities 2020 2,382 802 793 9 23 3,206 547 - 3,753 (308) 3,445 (282) 3,163 2019 3,269 903 818 85 53 4,225 589 (0) 4,814 (879) 3,935 (379) 3,556 ∆ (%) (27) (11) (3) (90) (56) (24) (7) n.a. (22) 65 (12) 26 (11) 1 Capital expenditure is adjusted for capitalized decommissioning costs, exploration wells that have not found proved reserves and other additions which by definition are not considered as capital expenditures; 2 Additions are adjusted for items that did not affect cash flows during the period (including acquisitions through leasing, reassessment of decommissioning provisions) and changes of liabilities for investments. Capital expenditure decreased by 24% to RON 3,206 mn (2019: RON 4,225 mn). Investments in Upstream declined by 27% to RON 2,382 mn and represented 74% of total Group CAPEX for 2020. The decline was mainly due to lower development drilling and exploration activities as a response to the curent environment, and the recognition in 2019 of assets under IFRS 16 “Leases” for a long-term contract. Exploration expenditures decreased to RON 195 mn (2019: RON 427 mn) due to less onshore drilling activities and less seismic acquisition. Downstream investments amounted to RON 802 mn (2019: RON 903 mn), thereof RON 793 mn in Downstream Oil (2019: RON 818 mn) and RON 9 mn in Downstream Gas (2019: RON 85 mn). In Downstream Oil, investments were performed mostly at Petrobrazi refinery – continuing the investments to increase the bio-blending capacity, securing long-term logistic access through railway lines, modernization and automation projects in the tank farm area and various works performed in the context of the refinery planned shutdown. In 2019, most amounts were routed to retail, to a new terminal in Serbia, as well as to the completion of the closed blowdown system at the Coker unit and for the upgrade of unloading and storage facilities for bio-blending components at the Petrobrazi refinery. 44 Directors’ report OMV Petrom Annual Report 2020 Report of the governing bodies Statement of financial position Summarized consolidated statement of financial position (RON mn) 2020 2019 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 34,505 30,614 32 2,326 1,534 13,115 2,103 1,258 861 8,894 34,933 31,077 27 2,338 1,491 12,563 2,464 1,892 217 7,989 47,621 47,495 33,071 8,844 214 109 7,272 1,249 - 5,706 2,859 175 413 2,259 47,621 33,501 8,197 241 198 6,456 1,282 21 5,797 3,372 132 224 2,068 47,495 % (1) (1) 18 (1) 3 4 (15) (33) 296 11 0 (1) 8 (11) (45) 13 (3) n.a. (2) (15) 32 84 9 0 Compared to December 31, 2019, total assets slightly increased by RON 126 mn, to RON 47,621 mn. Additions to intangible assets and property, plant and equipment amounted to RON 3,753 mn (2019: RON 4,814 mn). the expected sale of the two subsidiaries in Kazakhstan, their assets and liabilities were reclassified in Q4/20 to assets held for sale and liabilities associated with assets held for sale, respectively. Compared to December 31, 2019, non-current assets slightly decreased by RON 427 mn, to RON 34,505 mn, mainly due to decrease in intangible assets and property, plant and equipment. The depreciation, the net impairments triggered by revision of price assumptions, and the reclassification of assets to held for sale, exceeded the additions during the period and the increase in decommissioning asset following reassessment. In Upstream, the net impairments triggered by revision of price assumptions, include both write-offs of exploration intangibles and net impairments for tangible assets, while in Downstream Gas, the previously recorded impairments for Brazi gas-fired power plant were fully reversed. Following The net increase in current assets (including assets held for sale) was mainly due to reclassification of assets to held for sale following the expected sale of subsidiaries in Kazakhstan. In addition, higher financial assets in relation to margin hedges in the refinery and the increase in cash and cash equivalents were offset by lower trade receivables due to lower sales and by lower inventories. The decrease in total equity by RON 430 mn was mainly as result of dividend distribution for the fiscal year 2019, partly offset by the net profit generated in the current period. The Group’s equity ratio was 69% as of December 31, 2020, compared with 71% as of December 31, 2019. Directors’ report 45 OMV Petrom Annual Report 2020 Report of the governing bodies As at December 31, 2020, total liabilities increased by RON 556 mn compared to the December 31, 2019 value, mainly due to an increase in non-current liabilities by RON 647 mn following the reassessment of provisions for decommissioning and restoration obligations, partially dimished by the decrease in current liabilities (including liabilities associated with assets held for sale) by RON 91 mn, largely from lower trade payables following lower acquisitions, partialy compensated by higher financial liabilities in relation to margin hedges in the refinery. OMV Petrom Group reached a net cash position including leases of RON 6,486 mn as at December 31, 2020 higher than RON 5,982 mn as at December 31, 2019. 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 2020 4,592 5,556 (3,163) 2,393 (1,921) (4) 468 7,014 7,451 652 2019 7,059 6,803 (3,556) 3,246 (1,844) 1 1,404 5,609 7,014 1,730 In 2020, 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 4,592 mn (2019: RON 7,059 mn). Changes in net working capital generated a cash inflow of RON 964 mn (2019: outflow of RON 256 mn). Cash flow from operating activities decreased by RON 1,247 mn compared to 2019, reaching RON 5,556 mn, mainly as a result of lower commodities prices in the current market environment. In 2020, the cash outflow from investing activities resulted in an outflow of RON 3,163 mn (2019: RON 3,556 mn) mainly related to payments for investments in intangible assets and property, plant and equipment, largely in the Upstream segment, counterbalanced to some extent by the partial collection of a 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 1,921 mn (2019: RON 1,844 mn), mainly arising from the payment of dividends of RON 1,740 mn for the fiscal year 2019. Free cash flow (defined as cash flow from operating activities less cash flow from investing activities) showed an inflow of funds of RON 2,393 mn (2019: RON 3,246 mn). Free cash flow less dividend payments resulted in a cash inflow of RON 652 mn (2019: RON 1,730 mn). 46 Directors’ report OMV Petrom Annual Report 2020 Report of the governing bodies Risk management The main purpose of the OMV Petrom’s Enterprise-Wide Risk Management (EWRM) process is to deliver value through risk-based management and decision-making. OMV Petrom is constantly enhancing the EWRM process based on internal and external requirements. The process is facilitated by a Group-wide IT system supporting the established individual process steps (risk identification, risk analysis, risk evaluation, risk treatment, reporting, and risk review through continuous monitoring of changes to the risk profile), guided by the ISO 31000 risk management framework. Risk management governance 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 approach and objectives throughout the Group. To ensure that management takes risk-informed decisions, with adequate consideration of actual and prospective information, the Executive Board has empowered a dedicated Risk Management function with the objective to centrally lead and coordinate the Group’s risk management- related processes. This department ensures that well- defined and consistent risk management processes, tools, and techniques are applied across the entire organization. Risk ownership is assigned to the managers who are best suited to oversee and manage the respective risk. OMV Petrom’s consolidated risk profile is reported twice a year to the Executive Board and to Supervisory Board’s Audit Committee. Risk management process As mentioned, the risk management system and its effectiveness are monitored by the Audit Committee of the Supervisory Board via regular reports. 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 conscious 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 quantitative information technology infrastructure. Additionally, the EWRM system actively pursues the identification, analysis, evaluation, and mitigation of main risks in order to manage their effects on the Company’s cash flow up to an acceptable level agreed as per the risk appetite. The risk management process, implemented through OMV Petrom’s EWRM framework, combines bottom-up and top- down processes, each employee being responsible for managing the risks within their responsibilities. Paying attention to every risk makes risk management a holistic process. The risks identified in the bottom-up risk process by operational staff during day-to-day business management are assessed against a mid-term time horizon of three years. Risks are identified in the bottom-up process during day-to- day business. Department heads are responsible for initiating the risk analysis, which includes selection of the appropriate risk identification techniques. These include not only interviews, workshops, surveys and analyses of historical losses, but also information on risks documented in risk registers or loss data bases. Heat maps or risk matrices are used to support the assessment process and serve to identify probability ranges and the related consequences if risks were to materialize. Senior management evaluates top-down risks to provide a strategic perspective of risks across a longer time horizon. Permanently scanning the horizon to identify emerging risks and having regular risk meetings, the senior management have the full perspective on strategic risks landscape. This enables capturing new trends and developments of the operating environment and industry best practice, and thereby enables the Group to achieve its long term objectives. Risk taxonomy The Group considers short-, medium-, and long-term risks per the horizons noted below: Short-term risks – risks that may impact near-term financial results, including those that may materialize within the current annual reporting cycle; Medium-term risks – risks that may materially impact our financial results due to longer-term manifestation, including those that may materialize over a three-year timeframe and might impact the Mid-Term Plan; Directors’ report 47 OMV Petrom Annual Report 2020 Report of the governing bodies Long-term risks – risks that may fundamentally impact the viability of our long-term strategy and business model, including those that may materialize over a ten- year timeframe. In terms of tools and techniques, OMV Petrom follows the international risk management practices and uses stochastic quantitative models to measure the potential loss associated with the Company’s risk portfolio under a 95% confidence level and a mid-term three-year horizon. The identified risks are analysed depending on their nature, taking into consideration their causes, consequences, historical trends, volatilities, and potential cash flow impact. 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, analysed, and managed consistently. 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. To assess short-term liquidity risk, the budgeted operating and financial cash inflows and outflows throughout OMV Petrom are monitored and analysed 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. The risks within OMV Petrom’s EWRM system are organized into the following categories: market and financial, operational, and strategic. Market and Financial Risks Regarding 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 Group’s risk profile and liquidity. The market price risks of OMV Petrom commodities are closely analysed, quantified, and evaluated. Corresponding optimization and hedging activities are undertaken to mitigate those risks. 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. 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. 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. A special focus is given to process safety risks, where OMV Petrom Group’s policy is “Zero harm, No losses”. 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 analysed, 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. 48 Directors’ report OMV Petrom Annual Report 2020 Report of the governing bodies Strategic risks Strategic risk Details Political & Regulatory Reserve replacement Cyber threats Global oil & gas demand Human capital Technology & Innovation Climate change In relation to political and regulatory risk, the Company is engaging in dialogue with various authorities on national and regional level on topics of relevance for the industry and monitors regulatory developments. In 2020, we saw several fiscal and regulatory initiatives put in discussion and/or implemented. This increases legislative volatility with influence on the overall business environment. The natural decline of our mature oil and gas fields corroborated with a declining demand influence the Reserve Replacement Rate (RRR). The strategy of OMV Petrom Group considers projects intended to improve the RRR. The Group IT infrastructure may experience a massive disruption that can lead to the loss of access or the destruction of critical information. Therefore, this critical risk is constantly monitored and the internal IT landscape is upgraded regularly, both proactively and reactively. Demand in the oil and gas markets is affected by global factors, which may lead to increased volatility in terms of both prices and volumes. Gas prices may also be impacted by various regional developments, and their volatility also varies. The global trends determine us to consider and change human capital strategy in order to adapt to the market. The developments in innovation capabilities within the energy sector lead us to increase our efforts in developing new technologies constantly. The OMV Petrom climate change risk management approach is addressed from both perspectives: how climate change affects the Company and how the Company impacts the environment. This is in line with the TCFD recommendations corroborated with the EU Non- Financial Reporting Directive. Directors’ report 49 OMV Petrom Annual Report 2020 Report of the governing bodies 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 longer-term 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 (oil and gas market demand volatility, climate change, political and regulatory framework, reserve replacement rate, 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. Climate Change Risk Management OMV Petrom is the first Romanian company to support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). OMV Petrom is gradually implementing these recommendations to increase disclosure. OMV Petrom Executive Board members discuss quarterly the current and upcoming environmental, climate, and energy-related policies and regulations; related developments in the fuels and gas market; the status of innovation projects implementation; and progress on achieving sustainability-related targets. OMV Petrom focuses on evaluating the potential vulnerabilities of the Group to climate change (e.g., water scarcity, droughts, floods, and landslides), the impact of the Group’s activities on the environment, and the mitigation actions that will ensure the transition to a low-carbon environment (reduction of carbon emissions, compliance with new regulatory requirements). 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, considering a wider range of uncertainty. The most substantive climate-related changes in the oil and gas industry are expected to arise on a longer time scale. Therefore, management pays close attention to climate change-related long-term risks and opportunities and takes these into account in strategic decision-making. In the bottom-up approach, climate-change related risks are identified using the standardized methodology of the EWRM process. 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 Internal control environment Assessment of process and compliance risks Description 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. 50 Directors’ report OMV Petrom Annual Report 2020 Report of the governing bodies Risk mitigation via control activities 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. Documentation and information Monitoring and audit Management and the Internal Audit department evaluate the effective implementation of the internal control system. OMV Petrom's successful management and operations mean creating value for all stakeholders and require systematically and transparently managing the Company while applying the best corporate governance principles. To attain this objective, OMV Petrom has implemented a rigorous Management System. The Management System represents the set of policies, processes and regulations whose purpose is to manage and control the organization in order to achieve its objectives through optimized utilization of resources. The Management System provides a structured framework of processes and regulations and describes what the company does, how it is organized, how it manages its business and who is responsible for what. It also ensures the continuous improvement of OMV Petrom’s competitiveness by providing appropriate methods and tools. The Internal Audit department assesses the effectiveness and efficiency of the organization’s policies, procedures, and systems which are in place to ensure: proper identification and management of risks, reliability and integrity of information, compliance with laws and regulations, safeguarding of assets, economical and efficient use of resources, and the accomplishment of established objectives and goals. Internal Audit carries out regular audits of individual Group companies and informs the Audit Committee about the results of the audits performed. 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 regulation. 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, OMV Petrom management prepared a consolidated report on payments to governments for the year 2020. This report will be published together with the consolidated financial statements of OMV Petrom for the year ended December 31, 2020. Subsequent events Please refer to Note 38 in the Consolidated Financial Statements. Outlook 2021 All the below is based on the assumption of no significant lockdowns by year end. For the full year 2021, OMV Petrom expects the average Brent oil price to range between USD 50/bbl and USD 55/bbl. We expect the refining margins to be above USD 4/bblxiv. Also the demand for oil products and power is expected xiv The budget is based on the assumption of around 5 USD/bbl for refining margins for 2021 Directors’ report 51 OMV Petrom Annual Report 2020 Report of the governing bodies to be above the 2020 level, while the demand for gas to be broadly similar to 2020. At OMV Petrom Group level, we expect to generate a positive free cash flow after dividends. CAPEX (including capitalized exploration and appraisal and excluding acquisitions) is currently anticipated to be around RON 2.9 bn. With regards to our Neptun Deep strategic project, we outline that we remain keen to see it developed and we expect the Offshore Law to be amended in the first part of 2021, as recently stated by the Romanian authorities. Within our partnership with Auchan, we plan to open up to 100 MyAuchan stores in the upgraded Petrom-branded filling stations. 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 at around 5% vs. 2020, 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 and the divestment of Kazakhstan assets to Magnetic Oil Limited in H1/21. We plan investments, excluding acquisitions, of RON 1.8 bn for drilling up to 40 new wells and sidetracks and for performing more than 700 workovers. As to exploration expenditures, the estimated amount for 2021 is around RON 0.2 bn. The planned activities include the drilling of up to two exploration commitment wells, a new large onshore 3D seismic campaign, seismic data processing towards maturing future drilling candidates in Bulgaria and preparations for an offshore seismic data acquisition campaign in Georgia. As part of our regional expansion endeavors, in addition to the activities mentioned above in Bulgaria, we signed the Production Sharing Contract for the Georgian Offshore Exploration Block II in March 2021. As an operator, OMV Petrom will establish an operating company in Georgia, proceed with geoscientific and environmental studies in 2021 and prepare for a large offshore 3D seismic campaign in 2022, which will allow for a detailed evaluation of this block’s potential. In Downstream Oil, the refinery utilization rate is expected to be above 95%, while the total refined product sales are forecasted to be higher compared to 2020. In Downstream Gas, we expect lower gas sales volumes, in part due to regulatory requirements in 2020, and the net electrical output to be higher vs. 2020. Also, a planned shutdown of the Brazi power plant is scheduled in Q2/21. 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 2020 will be published by May 31, 2021. 52 Directors’ report OMV Petrom Annual Report 2020 Report of the governing bodies Corporate governance report The Company has always conferred great importance upon the principles of good corporate governance considering corporate governance a key element underpinning the sustainable growth of the business and also the enhancement of long-term value for shareholders. To remain competitive in a changing world, OMV Petrom constantly develops and updates its corporate governance practices, so that it can meet new demands and future opportunities. Since 2007, the Company has been governed in a two-tier system in which the Executive Board manages the daily business and operations of the Company, whereas the Supervisory Board 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 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. 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. Corporate governance report 53 OMV Petrom Annual Report 2020 Report of the governing bodies 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 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. 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 shares with multiple voting rights, preferential voting rights or maximum voting rights or other voting right restrictions such as non-voting shares without preference, priority shares, golden shares and other voting rights ceilings Moreover, shareholders have the right to challenge the decisions of GMS or withdraw from the Company and request the Company acquire their shares, in certain conditions mentioned by the law. Likewise, as per the applicable legislation, 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; 54 Corporate governance report OMV Petrom Annual Report 2020 Report of the governing bodies 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 will end on April 28, 2021. 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. Herein below is the composition of the Supervisory Board at the end of 2020: Thomas Gangl was appointed as member of OMV Petrom Supervisory Board as of July 1, 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.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 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 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 OMV Petrom Supervisory Board as of 1 August 2016. 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. Afterwards, 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 member of OMV Petrom Supervisory Board as of August 10, 2019. 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. Niculae Havrileţ (1956) Niculae Havrileț graduated the Technical University Cluj Napoca, Faculty of Mechanical Engineering – Technologies. Niculae Havrileț has 40 years of experience in electricity field and natural gas, including over 25 years of experience in various leading positions. Moreover, Niculae Havrileț holds Corporate governance report 55 OMV Petrom Annual Report 2020 Report of the governing bodies large experience in central public administration. From June 2012 to October 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). From February 2018 to November 2019 he acted as a personal advisor to the Minister of Energy for issuing the National Energy Strategy for 2016-2030 up to 2050. As of December 2019, Niculae Havrileț is state secretary within the Ministry of Economy. In 2000, he has received the “Order of the Star of Romania” Knight. Niculae Havrileţ was appointed as member of OMV Petrom Supervisory Board starting March 3, 2020. Radu-Spiridon Cojocaru (1947) – independent xv 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 Natonal Securities Commission (currently the Financial Supervisory Authority), Bucharest Stock Exchange, Central Depositary, RASDAQ (Romanian Association of Securities Dealers Automated Quotation). Starting 1990, he held various positions within the management structures of some Romanian companies. He also held the position of Member of the Chamber of Deputies within the Romanian Parliament between 1996 and 2000, and was a member of the Commission for Economic Policies, Reform and Privatization where he contributed to the framing of the legislation in the field, including the budget, and to the supervision of some public bodies under the control of Parliament. He was a member of the presidential commission for the Romania’s Country Program between 2016 and 2018. Between 2018-2019, he was member of the National Committee for Substantiation of the National Euro Changeover Plan. 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 xv Jochen Weise graduated in Law from the University of from Universities of Bochum and 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 to 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. Main duties and powers of the Supervisory Board The Supervisory Board has the following main powers: to exercise control over the management of the Company by the Executive Board; to appoint and revoke the members of the Executive Board; to submit to the GMS a report concerning the supervision Radu-Spiridon Cojocaru was appointed as member of OMV Petrom Supervisory Board as of 28 April 2017. activity undertaken; to verify the reports of the members of the Executive Joseph Bernhard Mark Mobius (1936) – independent xv 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 Board; to verify the Company’s annual separate and consolidated financial statements; xv 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. 56 Corporate governance report OMV Petrom Annual Report 2020 Report of the governing bodies 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. Details on the Supervisory Board works and activities in 2020, as well as the results of the Supervisory Board self- evaluation are included in the Supervisory Board Report. Supervisory Board functioning The responsibilities of the members of the Supervisory Board, as well as the working procedures and the approach to conflicts of interest are governed by relevant internal regulations. The Supervisory Board meets whenever necessary, but at least once every three months. The Supervisory Board may hold meetings in person or by telephone or video conference. At least five of the Supervisory Board members must be present for resolutions to be validly passed. The decisions of the Supervisory Board shall be validly passed by the affirmative vote of the majority of the members present or represented at such Supervisory Board meeting. In the event of parity of votes, the President of the Supervisory Board or the person empowered by him/her to chair the meeting shall have a casting vote. In urgent cases, the Supervisory Board may take decisions by circulation, without an actual meeting being held, by the majority of votes. The President shall decide on whether issues are of an urgent nature. Special committees The Supervisory Board may assign particular issues to certain Supervisory Board members, acting individually or as part of special committees, and may also refer to experts to analyze certain issues. The task of the committees is to issue recommendations for preparing resolutions to be passed by the Supervisory Board itself, without preventing the entire Supervisory Board from dealing with matters assigned to the committees. The special committees established at the level of the Supervisory Board are the Audit Committee and the Presidential and Nomination Committee. Audit Committee The Audit Committee is composed of four members appointed by decision of the Supervisory Board from among its members. During 2020, there was only one change in the membership of the Audit Committee. Following Sevil Shhaideh’s revocation as of 3 March 2020 as a member of the Supervisory Board (and consequently the cease of the position in the Audit Committee) and the appointment of Niculae Havrileţ as member of the Supervisory Board as of 3 March 2020, Niculae Havrileţ 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 end of 2020 as well as 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 Havrileţ (member) and Radu-Spiridon Cojocaru (member - independent). 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 with the observance of the legal provisions in place. Details on the Audit Committee works and activities in 2020 are included in the Supervisory Board Report. Audit Committee functioning The working procedures of the Audit Committee are stated in the Audit Committee’s Terms of Reference. Corporate governance report 57 OMV Petrom Annual Report 2020 Report of the governing bodies 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. has the right to make recommendations concerning the proposal of candidates for appointment in the Supervisory Board; deals and decides on matters concerning the remuneration of the Executive Board members and the content of mandate contracts with Executive Board members; carries out the Supervisory Board self-evaluation and the assessment of independency of Supervisory Board members, under the leadership of the President of the Presidential and Nomination 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 2020, there was only one change in the membership of the Presidential and Nomination Committee. Following Sevil Shhaideh’s revocation as of 3 March 2020 as member of the Supervisory Board (and consequently the cease of the position in the Presidential and Nomination Committee) and the appointment of Niculae Havrileţ as member of the Supervisory Board as of 3 March 2020, Niculae Havrileţ 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. Therefore, at the end of 2020 as well as 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). Presidential and Nomination Committee functioning The Presidential and Nomination Committee meets on a regular basis, at least once per year, and on an extraordinary basis if required. The Presidential and Nomination 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 Presidential and Nomination Committee shall be validly passed by the affirmative vote of the majority of the members present or represented at the meeting. In the event of parity of votes, the President or the person empowered by him/her to chair the meeting shall have a casting vote. However, the President shall endeavor to achieve that, to the extent possible, resolutions are passed with a consensus among its members. In urgent cases, the Presidential and Nomination Committee may take decisions also by circular resolution, without an actual meeting being held, by the majority of votes. The President shall decide on whether issues are of an urgent nature. 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. Main duties and powers of the 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: At the beginning of 2020, the Executive Board was composed of the following members: Christina Verchere (CEO and President), Alina-Gabriela Popa (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). The Supervisory Board approved the appointment of Christopher Veit as Executive Board member in charge of 58 Corporate governance report OMV Petrom Annual Report 2020 Report of the governing bodies Upstream activity starting with October 1, 2020, following Peter Zeilinger’s waiver of his mandate, which became effective on September 30, 2020. Therefore, at the end of 2020, 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 of BP Canada located in Calgary and from 2014 to 2018, she has been BP 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 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 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. Christopher Veit (1958) Responsible for Upstream Christopher Veit holds a degree in Mechanical Engineering and a Masters degree of Petroleum Engineering of the Mining University at Leoben. He joined OMV Group in 1986 as a Production Engineer. He held various technical and management positions in Libya, Pakistan and Austria such as the Senior Vice President and Managing Director of OMV Austria Exploration & Production GmbH. As of January 2016, he took over the position as Senior Vice-president of Exploration, Development & Production within OMV Exploration & Production GmbH. He also represented OMV in several supervisory boards of its subsidiaries. He is member of the advisory board of the Department Petroleum Engineering at Mining University Leoben. He was appointed member of the OMV Petrom Executive Board starting October 1, 2020. Radu-Sorin Căprău (1974) Responsible for Downstream Oil After graduating the Faculty of Management from the University of Economic Studies in Braşov, 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; Corporate governance report 59 OMV Petrom Annual Report 2020 Report of the governing bodies to undertake all the measures necessary and useful for the management of the Company, implied by the daily management of each division or delegated by the GMS or by the Supervisory Board, with the exception of those reserved to the GMS or to the Supervisory Board through operation of law or of the Articles of Association; to exercise any competence delegated by the Extraordinary GMS. The Executive Board reports to the Supervisory Board on a regular basis on all relevant issues concerning the course of business, strategy implementation, the risk profile and risk management of the Company. Moreover, the Executive Board ensures that the provisions of the relevant capital markets legislation are complied with and implemented by the Company. Likewise, the Executive Board ensures the implementation and operation of accounting, risk management and internal controlling systems which meet the requirements of the Company. The members of the Executive Board have the duty to disclose immediately to the Supervisory Board any material personal interests they may have in transactions of the Company as well as all other conflicts of interest. Furthermore, they have the duty to notify other Executive Board colleagues of such interests forthwith. All business transactions between the Company and the members of the Executive Board as well as persons or companies closely related to them must be in accordance with normal business standards and applicable corporate regulation. Such business transactions as well as their terms and conditions require the prior approval of the Supervisory Board. Executive Board functioning The responsibilities of the Executive Board members, as well as the working procedures and the approach to conflicts of interest are governed by the 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 requires 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 2020, the Executive Board met 50 times, either in person or by video conference and passed resolutions by circulation on 8 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 the oil and gas industry. OMV Petrom strives for diverse teams and specifically, at management level, aims to increase female representation in Senior Leadership roles to 30% 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 2020 and at the date of this report, there were two women in OMV Petrom’s management bodies: Christina Verchere, the CEO and President of the Executive Board and Alina Gabriela Popa, CFO and member of the Executive Board. Moreover, at the end of 2020, 30% of the first line directors reporting to the Executive Board were women, whilst the percentage of women in senior leadership roles in total (senior vice presidents, directors, head of departments and senior advisors) was around 28%. The proportion of women in the OMV Petrom Group as a whole was 24% 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. 60 Corporate governance report OMV Petrom Annual Report 2020 Report of the governing bodies Principles of Remuneration Policy 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 oil and gas sector, in order to attract, motivate and retain the best qualified talents. remuneration of EUR 4,000 for each member of the Audit Committee (for 2019: EUR 4,000 per meeting) and an additional gross remuneration per meeting corresponding to a net remuneration of EUR 2,000 for each member of the Presidential and Nomination Committee (for 2019: EUR 2,000 per meeting). 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. In line with the recent requirements regarding directors’ remuneration as per Law no. 24/2017 on issuers of financial instruments and market operations (as amended and supplemented by Law 158/2020), OMV Petrom prepared a Remuneration Policy for the Executive Board and Supervisory Board of OMV Petrom, applicable starting 2021 financial year.The Remuneration Policy was drafted by the Presidential and Nomination Committee, in close cooperation with independent consultants. The Remuneration Policy proposed by the Presidential and Nomination Committee was then approved by the Supervisory Board and afterwards will be put to a vote at the Ordinary GMS on 27 April 2021. Once approved by the Ordinary GMS, the Remuneration Policy will be available in the Corporate Governance section of our corporate website (www.omvpetrom.com). The Remuneration Policy is aligned with OMV Petrom’s long-term strategy, current market practice, as well as OMV Petrom’s shareholders’ views and interests. It follows OMV Petrom’s core principle of pay according to performance. The implementation of the Policy and the performance outcomes will be set out in the annual Remuneration Report for OMV Petrom’s Executive Board and Supervisory Board, which will be prepared starting by reference to financial year 2021. Remuneration of the Supervisory Board members For 2020, the Ordinary GMS 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 2019: EUR 20,000 per year), an additional gross remuneration per meeting corresponding to a net As at December 31, 2020 and December 31, 2019, there were no loans or advances granted by any of the Group companies to the members of the Supervisory Board. As at December 31, 2020 and December 31, 2019, the Group companies did 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 2020 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 69.40 mn (for 2019: RON 81.51 mn). The remuneration paid to members of the Executive Board and to the directors reporting to the Executive Board members aims to be at 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, HSSE and sustainability metrics) in line with company strategy, to align the interests of management and shareholders, including both short- and long- term plans consisting of: ▸ performance bonus program of 1 year ▸ long term incentive as multiyear performance plan of 3 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 the 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. Corporate governance report 61 OMV Petrom Annual Report 2020 Report of the governing bodies 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 2020 Report of the governing bodies Corporate governance statement xvi Provisions of the Bucharest Stock Exchange Corporate Governance Code Section A - Responsibilities Complies Does not comply or partially complies Comments 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. A.3. The Supervisory Board should have at least five members. 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 √ √ √ √ 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 main resposabilities of the Executive Board and Supervisory Board (including its committees), as well as of the GMS are also mentioned in the Annual Report. 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, when such situations occur, providing for immediate disclosure and refraining from debates/voting on that particular matter. 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. 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 xvi 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 OMV Petrom Annual Report 2020 Report of the governing bodies Complies Does not comply or partially complies Comments Provisions of the Bucharest Stock Exchange Corporate Governance Code 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. 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 √ √ √ √ 64 Corporate governance statement 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, 2020. Following this evaluation, it resulted that at the date of this report, three Supervisory Board members meet 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. 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. OMV Petrom Annual Report 2020 Report of the governing bodies Complies Does not comply or partially complies Comments The outcome of the Supervisory Board’s self-evaluation for 2020 is presented in the Supervisory Board Report. Provisions of the Bucharest Stock Exchange Corporate Governance Code 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. 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. √ 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 at the meetings of the Executive Board and the Supervisory Board, including the Audit Committee and the Presidential and Nomination Committee, during 2020, are included in the Supervisory Board Report and the Corporate Governance Report. The reports of the Supervisory Board and Executive Board for 2020 are included in the Annual Report and submitted for Ordinary GMS’s approval. 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 the date of this report, three Supervisory Board members meet all the independence criteria stipulated by the Corporate Governance Code. Information on the independence status of the members of the Supervisory Board is included on the Company’s corporate website, within the About Us section, Supervisory Board sub-section, and in the Supervisory Board Report. As stipulated in the Company’s Articles of Association and applicable law, the Supervisory Board members are appointed by the Ordinary GMS, based on a transparent procedure of appointment and on the majority of votes of the shareholders. Prior to the Ordinary GMS, their CVs are made available for the consultation of the shareholders. The shareholders can supplement the candidates list for the position of member of the Supervisory Board. In accordance with the Company’s Articles of Association, the Executive Board members are appointed by decision of the Supervisory Board based on the majority of votes. OMV Petrom’s Supervisory Board has set up a Presidential and Nomination Committee. Corporate governance statement 65 OMV Petrom Annual Report 2020 Report of the governing bodies Provisions of the Bucharest Stock Exchange Corporate Governance Code Complies Does not comply or partially complies Comments 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 the date of this report, one member of the Presidential and Nomination Committee is independent and thus, the Company is only "partially compliant" with this provision. 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, out of which only two are independent at the date of this report, the Company being thus only “partially compliant” with this provison. 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 2020 as well as at the date of this report, the president of the Audit Committee meets all independence criteria provided by the Corporate Governance Code. 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. √ B.3. Among its responsibilities, the audit committee should undertake √ 66 Corporate governance statement OMV Petrom Annual Report 2020 Report of the governing bodies Complies Does not comply or partially complies Comments √ √ √ √ √ 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 accordance with Related Party Transactions Policy, and observing also the legal provisions in place; 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. The Audit Committee submits periodic reports to the Supervisory Board on the specific subjects assigned to it. Corporate governance statement 67 Provisions of the Bucharest Stock Exchange Corporate Governance Code 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. 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. OMV Petrom Annual Report 2020 Report of the governing bodies Provisions of the Bucharest Stock Exchange Corporate Governance Code 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. 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. 68 Corporate governance statement Complies Does not comply or partially complies Comments √ √ √ 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 legal provisions in place 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 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 submits reports on significant 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. 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 OMV Petrom Annual Report 2020 Report of the governing bodies Provisions of the Bucharest Stock Exchange Corporate Governance Code Complies Does not comply or partially complies Comments 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. √ 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 √ 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 assessing how to fully comply with this provision in the future. During 2020, as well as at the date this report was prepared, OMV Petrom did not have a formal remuneration policy in place. However, a Remuneration Policy for the Executive Board and Supervisory Board of OMV Petrom, applicable starting 2021 financial year was drafted by the Presidential and Nomination Committee, then approved by the Supervisory Board and will be put to a vote at the Ordinary GMS on 27 April 2021. The Remuneration Policy is aligned with OMV Petrom’s long-term strategy, current market practice, as well as OMV Petrom’s shareholders’ views and interests. It follows OMV Petrom’s core principle of pay granted according to performance. Once approved by the OGMS, the Remuneration Policy will be available on the Corporate Governance section of our website (www.omvpetrom.com). The implementation of the Policy and the performance outcomes will be set out in the annual Remuneration Report for OMV Petrom’s Executive Board and Supervisory Board, which will be prepared starting with financial year 2021. 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; Corporate governance statement 69 OMV Petrom Annual Report 2020 Report of the governing bodies Provisions of the Bucharest Stock Exchange Corporate Governance Code Complies Does not comply or partially complies Comments 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 shareholdes 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 Investor Relations 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. The Company has a Forecast Policy which is published on its corporate website in the About us section, Corporate Governance sub-section. 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. 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 √ √ 70 Corporate governance statement OMV Petrom Annual Report 2020 Report of the governing bodies Complies Does not comply or partially complies Comments √ √ √ √ √ √ 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. 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 systems. 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 Corporate governance statement 71 Provisions of the Bucharest Stock Exchange Corporate Governance Code 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. 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 OMV Petrom Annual Report 2020 Report of the governing bodies Complies Does not comply or partially complies Comments Provisions of the Bucharest Stock Exchange Corporate Governance Code 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. financial elements relevant for their investment decision. In 2020, 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, which in the context of the COVID-19 pandemic, were organized mostly online. 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. OMV Petrom conducts various activities regarding education, social and environmental responsibility, as well as governance, supporting the local communities in which the Company operates. OMV Petrom concentrates its sustainability efforts on five focus areas: health, safety, security and environment, carbon efficiency, innovation, employees and business principles and social responsibility. More details in relation thereto may be found in the Sustainability Report for 2020, which will be issued by the Company, in accordance with the legal requirements regarding the disclosure of non-financial information. 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. √ 72 Corporate governance statement OMV Petrom Annual Report 2020 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, 2020, 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, 2021 The Executive Board Christina Verchere Chief Executive Officer President of the EB Alina Popa Chief Financial Officer Member of the EB Christopher Veit 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 73 OMV Petrom Annual Report 2020 Report of the governing bodies Abbreviations and definitions ABB ANRE bbl bbl/d bcf bcm bn boe, kboe boe/d, kboe/d BET BSE CAPEX Capital employed CCS / CCS effects / Inventory holding gains / (losses) CEO CFO Clean CCS Operating Result Clean CCS net income attributable to stockholders Clean CCS ROACE CV EB EPS EU, EUR EURIBOR FP FRD GDP GDR 74 Abbreviations and definitions Accelerated Book Building Romanian Energy Regulatory Authority barrel(s), i.e. 159 liters bbl per day billion cubic feet; 1 billion standard cubic meters = 35.3147 bcf for Romania or 34.7793 bcf for Kazakhstan billion cubic meters billion barrels of oil equivalent, thousand barrels of oil equivalent boe per day, kboe per day a free float market capitalization weighted index reflecting the performance of the most traded 17 companies on the BSE’s regulated market Bucharest Stock Exchange Capital Expenditure Equity including minorities + net debt 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. Chief Executive Officer Chief Financial Officer 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. Net income attributable to stockholders, adjusted for the after tax effect of special items and CCS 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) (%) Curriculum Vitae Executive Board 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 Fondul Proprietatea Field redevelopment Gross Domestic Product Global Depositary Receipts OMV Petrom Annual Report 2020 Report of the governing bodies GMS HSSE HU IE IFRS ISO LPG LSE LTIR m, km mn mom MTBF MW; MWh n.a. n.m. NAMR Net debt/(cash) NGL NOPAT OECD OGMS OPCOM OPEC Operating Result Operating Result before depreciation OPEX Q ROACE ROBOR RON RRR S.A. Special items t, kt TCFD TOC TP TWh US(A) General Meeting of Shareholders Health, Safety, Security and Environment Hungary Ireland International Financial Reporting Standards International Organization for Standardization Liquefied Petroleum Gas London Stock Exchange Lost-time injury rate (employees and contractors). The number of lost time injuries (fatalities and lost workday injuries) per one million hours worked. meter(s), kilometer(s) million month-on-month mean time between failures megawatt(s); megawatt hour(s) not applicable/not available (as the case may be) not meaningful; the deviation is above (±) 500% or the comparison is made between values of opposite signs National Agency for Mineral Resources 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 Organisation for Economic Co-operation and Development Ordinary general meeting of shareholders The administrator of the Romanian electricity market Organization of Petroleum Exporting Countries The “Operating result” includes the former indicator EBIT (“Earnings Before Interest and Taxes”) and the net result from equity-accounted investments Former EBITD = Operating Result Before Interest, Taxes, Depreciation and amortization, impairments and write-ups of fixed assets, including reversals Operating Expenses 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 Acţiuni) 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 Task Force on Climate-related Financial Disclosures Tasbulat Oil Corporation Target Price terawatt hour(s) United States (of America) Abbreviations and definitions 75 OMV Petrom Annual Report 2020 Report of the governing bodies UK USD VAT yoy United Kingdom United States dollar(s) Value added tax year-on-year 76 Abbreviations and definitions OMV Petrom Annual Report 2020 Consolidated Financial Statements Translation of the Company’s consolidated financial statements issued in the Romanian language 1 OMV Petrom Annual Report 2020 Consolidated Financial Statements INDEPENDENT AUDITOR’S REPORT To the Shareholders of OMV Petrom S.A. Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of OMV Petrom S.A. (“the Company”) and its subsidiaries (together referred to as “the Group”) with official head office in 22 Coralilor Street, Petrom City, District 1, Bucharest, Romania identified by sole fiscal registration number RO1590082, which comprise the consolidated statement of financial position as at December 31, 2020 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, 2020, 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. 78 Independent auditor’s report The English version of the audit report represents a translation of the original audit report issued in Romanian language. OMV Petrom Annual Report 2020 Consolidated Financial Statements Description of each key audit matter and our procedures performed to address the matter Key audit matter How our audit addressed the key audit matter Recoverability of the carrying value of property, plant and equipment (Upstream) As at 31 December 2020, the carrying value of the Upstream property, plant and equipment was RON 20,218 million, after a net impairment of RON 346 million recorded in 2020. The impairment mainly relates to oil & gas assets. Under the International Financial Reporting Standards, an entity is required to assess, at least at each reporting date, whether indicators for potential impairment, or reversal of impairment previously recorded, exist and, if they exist, an impairment test is required. The assessment of the recoverability of the carrying amount of property, plant and equipment requires judgement in assessing whether there is an indication of impairment or reversal of a previously recognized impairment, in determining the level at which an asset or cash generating unit should be tested for impairment and in measuring the recoverable amount. An impairment assessment also involves management estimates, the most significant relating to estimates of future cash flows and discount rates, which are used in the evaluation of the recoverability of property, plant and equipment. These future cash flows from oil & gas assets are mainly sensitive to assumptions relating to future oil and gas prices and production volumes. The Group’s disclosures about property, plant and equipment and impairment adjustments are included in Note 2 (Judgements, Estimates and Assumptions), Note 7 (Property, Plant and Equipment), Note 23 (Cost information) and Note 28 (Segment information) to the financial statements. We analysed the management’s process for assessing the recoverability of the carrying amount of property, plant and equipment and performed procedures to evaluate the impairment test prepared by the management. 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 impairment testing process; Assessed the determination of cash generating units; Compared the assumptions used in the future cash flow estimates with approved budgets and business plans; Compared production volumes to oil and gas reserves; 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; Assess the consideration of Covid-19-pandemic impact in the cash flow estimates; Assessed the historical accuracy of management’s budgets and forecasts (in terms of production volumes and operating costs) by comparing them to actual performance and to prior year; Checked the mathematical accuracy of management’s cash flow model for determining the value-in-use and its conformity with the requirements of the International Financial Reporting Standards; Involved our valuation specialists to assist us in the analysis of discount rates and inflation rates; Evaluated the management’s sensitivity analysis over key assumptions in the future cash flow model in order to assess the potential impact of possible changes; and Assessed the adequacy of the Group’s disclosures in the financial statements. The English version of the audit report represents a translation of the original audit report issued in Romanian language. Independent auditor’s report 79 OMV Petrom Annual Report 2020 Consolidated Financial Statements Key audit matter How our audit addressed the key audit matter We analysed the management’s process for assessing recoverability of the Brazi gas fired power plant cash generating unit and performed procedures to evaluate the impairment test prepared by management. 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 impairment testing process; Compared the assumptions used within the future cash flow estimates with approved budgets and business plans; Corroborated with supporting evidence the main assumptions included in the determination of value in use; Checked the mathematical accuracy of management’s cash flow model for determining the value-in-use and its conformity with the requirements of the International Financial Reporting Standards; Involved our valuation specialists to assist us in the analysis of discount rates and inflation rates; Evaluated the management’s sensitivity analysis over key assumptions in the future cash flow model in order to assess the potential impact of a range of possible changes; and Assessed the adequacy of the Group’s disclosures in the financial statements. Recoverability of the carrying value of Brazi gas fired power plant The carrying value of Brazi gas fired power plant was RON 1,346 million as at 31 December 2020, after an impairment reversal of RON 519 million recorded in 2020. Under the International Financial Reporting Standards, an entity is required to assess, at least at each reporting date, whether indicators for potential impairment, or reversal of impairment previously recorded, exist and, if they exist, an impairment test is required. The assessment of the recoverability of the carrying amount of Brazi gas fired power plant requires judgement in assessing whether there is an indication that an asset or a cash generating unit should be impaired or an impairment may be reversed and in measuring any such impairment adjustment. An impairment assessment also involves management estimates, the most significant relating to estimates of future cash flows and discount rates, which are used in the evaluation of the recoverability of the carrying value of the Brazi gas fired power plant. These future cash flows are mainly sensitive to assumptions regarding spark spreads (being the differences between the electricity prices and the gas and CO2 certificates prices) and the power quantity produced that are affected by expected future performance and market conditions. The Group’s disclosures about intangible assets, property, plant and equipment and related impairment testing are included in Note 2 (Judgements, Estimates and Assumptions), Note 6 (Intangible assets), Note 7 (Property, Plant and Equipment), Note 23 (Cost information) and Note 28 (Segment information) to the financial statements. 80 Independent auditor’s report The English version of the audit report represents a translation of the original audit report issued in Romanian language. OMV Petrom Annual Report 2020 Consolidated Financial Statements Key audit matter How our audit addressed the key audit matter Recoverability of intangible exploration and evaluation (E&E) assets 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. The carrying value of intangible E&E assets was RON 2,685 million at 31 December 2020, after write offs (impairment) of RON 599 million recorded in 2020. 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. 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; Analysed the management’s assumptions 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. Independent auditor’s report 81 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 used 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, 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. 82 Independent auditor’s report The English version of the audit report represents a translation of the original audit report issued in Romanian language. OMV Petrom Annual Report 2020 Consolidated Financial Statements Key audit matter How our audit addressed the key audit matter Estimation of decommissioning and restoration provisions and environmental provisions We assessed management’s annual estimation of provision for decommissioning and restoration obligation and environmental obligation. The total decommissioning and restoration provision and the environmental provision was RON 7,540 million and RON 410 million respectively at 31 December 2020. Specifically, our work included, but was not limited to, the following procedures: The Group’s core activities regularly lead to obligations related to dismantling and removal, asset retirement and soil remediation activities. The key estimates and assumptions relate to management’s estimates of future costs, discount rates and inflation rates which are used to project the decommissioning, restoration and environmental obligations. The Group’s disclosures about decommissioning, restoration and environmental obligations are included in Note 2 (Judgements, Estimates and Assumptions) and Note 14 (Provisions) to the financial statements. Performed a detailed understanding of the Group’s 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 previously incurred. 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. Independent auditor’s report 83 OMV Petrom Annual Report 2020 Consolidated Financial Statements Key audit matter How our audit addressed the key audit matter Recoverability of receivable from the Romanian State We assessed management’s estimate regarding recoverability of the receivable from the Romanian State. As part of the privatization agreement, the Company 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 corresponding estimated decommissioning obligations having a net present value of RON 2,152 million as at December 31, 2020 and the environmental obligations in Downstream Oil with a total net present value of RON 250 million. The measurement of the receivable from the Romanian State, requires management to make significant judgements and estimates to address the uncertainty around the specific expenditure that is recoverable from Romanian State. The assessment process considers inter alia the history of amounts claimed, documentation process related requirements and potential litigation or arbitration proceedings. The Group’s disclosures about environmental and decommissioning state receivable are included in Note 2 (Judgements, Estimates and Assumptions) and in Note 9 (Trade Receivables and Other Financial Assets) to the financial statements. 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 SA, as approved by Law no. 555/2004. Annex P includes stipulations related to the obligation of the seller (i.e. Ministry of Economy and Commerce) to reimburse the Company for historical environmental losses and abandonment costs, provided certain conditions are met; Analysed the management’s assessment of the recoverability of the receivable 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. 84 Independent auditor’s report The English version of the audit report represents a translation of the original audit report issued in Romanian language. OMV Petrom Annual Report 2020 Consolidated Financial Statements Other information Other information consists of the information included in the Group’s 2020 Annual Report which includes the Report of the Supervisory Board, the Directors’ Report and the consolidated Report on payments to governments and also the Sustainability report, but does not include the consolidated financial statements and our auditor’s report thereon. We obtained the Annual report (except for the Report of the Supervisory Board), prior to the issuance of our auditor’s report, and we expect to obtain the Report of the Supervisory Board and the Sustainability report after the issuance of our auditor’s report. Management is responsible for the other information. Our opinion on the consolidated financial statements does not cover the other information and we do not and will 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 in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated 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 OMV Petrom Annual Report 2020 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, actions taken to eliminate threats or safeguards applied. 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, 2020; 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; 86 Independent auditor’s report The English version of the audit report represents a translation of the original audit report issued in Romanian language. OMV Petrom Annual Report 2020 Consolidated Financial Statements 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, 2020, 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 27, 2020 to audit the consolidated financial statements for the financial year end December 31, 2020. 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 10 years covering the financial periods end December 31, 2011 till December 31, 2020. 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 3, 2021. 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 2021 The English version of the audit report represents a translation of the original audit report issued in Romanian language. Independent auditor’s report 87 OMV Petrom Annual Report 2020 Consolidated Financial Statements OMV PETROM S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2020 (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, 2020 December 31, 2019 6 7 8 9 10 18 11 9 9 10 12 13 14 15 7, 16 14 14 16 17 18 2,811.51 27,802.20 31.68 2,092.96 233.28 1,533.74 3,132.01 27,944.72 26.94 2,122.57 215.47 1,490.93 34,505.37 34,932.64 2,102.90 1,258.13 1,213.11 229.77 7,450.64 12,254.55 860.90 47,620.82 5,664.41 27,406.22 33,070.63 0.50 2,464.45 1,891.86 486.10 489.44 7,013.54 12,345.39 217.20 47,495.23 5,664.41 27,836.45 33,500.86 0.51 33,071.13 33,501.37 213.69 108.94 543.06 7,272.42 645.12 46.87 14.09 - 240.70 197.88 572.15 6,456.08 588.87 106.82 13.89 20.91 8,844.19 8,197.30 88 Consolidated statement of financial position as of December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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, 2020 December 31, 2019 16 15 7, 16 14 16 17 12 2,858.64 3,372.35 175.03 137.33 43.60 516.87 802.61 758.74 5,292.82 412.68 47,620.82 132.25 128.79 205.21 623.31 372.54 738.36 5,572.81 223.75 47,495.23 These consolidated financial statements were approved on March 17, 2021. _____________________ Christina Verchere, Chief Executive Officer President of the EB _____________________ Alina Popa, Chief Financial Officer Member of the EB _____________________ Christopher Veit, 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 Consolidated statement of financial position as of December 31, 2020 89 OMV Petrom Annual Report 2020 Consolidated Financial Statements OMV PETROM S.A. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020 (all amounts are expressed in million RON, unless otherwise specified) Sales revenues Other operating income Net income from investments in associates Total revenues and other income Purchases (net of inventory variation) Production and operating expenses Production and similar taxes Depreciation, amortization, impairments and write-ups 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 and diluted earnings per share (RON) Notes 19, 28 20 21 23 22 28 24 24 25 26 27 2020 2019 19,716.98 25,485.47 428.95 4.47 20,150.40 (8,209.70) (3,488.97) (873.30) (2,996.06) (1,952.35) (814.47) (348.46) 1,467.09 337.33 (295.44) (30.28) 11.61 1,478.70 (187.69) 1,291.01 1,290.96 0.05 0.0228 258.77 7.36 25,751.60 (10,680.68) (3,469.59) (1,187.33) (3,506.70) (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 These consolidated financial statements were approved on March 17, 2021. _____________________ Christina Verchere, Chief Executive Officer President of the EB _____________________ Alina Popa, Chief Financial Officer Member of the EB _____________________ Christopher Veit, 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 90 Consolidated income statement for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements OMV PETROM S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2020 (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 Gains/(losses) on hedges that are subsequently transferred to the carrying amount of the hedged item Total of items that will not be reclassified ("recycled") subsequently to the income statement Income tax relating to items that may be reclassified ("recycled") subsequently to the income statement Income tax relating to items that will not be reclassified ("recycled") subsequently to the income statement Total income tax relating to components of other comprehensive income Other comprehensive income/(loss) for the year, net of tax Total comprehensive income for the year thereof attributable to stockholders of the parent thereof attributable to non-controlling interests 2020 1,291.01 (2.63) 467.80 (371.31) 93.86 (11.45) (134.60) 2019 3,634.68 26.69 24.69 3.26 54.64 (25.61) - (146.05) (25.61) (15.07) 23.37 8.30 (43.89) 1,247.12 1,247.06 0.06 (5.10) 4.11 (0.99) 28.04 3,662.72 3,662.62 0.10 Consolidated statement of comprehensive income for the year ended December, 2020 91 OMV Petrom Annual Report 2020 Consolidated Financial Statements OMV PETROM S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2020 (all amounts are expressed in million RON, unless otherwise specified) Consolidated statement of changes in equity for the year ended December 31, 2020 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 27,736.81 27.70 (168.52) 240.48 (0.02) 33,500.86 0.51 33,501.37 - 1,290.96 - - - - (9.62) (32.01) (0.31) (1.96) - 1,281.34 (32.01) (0.31) (1.96) - (1,755.96) - - - 78.67 - - - - - - - - - 1,290.96 0.05 1,291.01 (43.90) 0.01 (43.89) 1,247.06 0.06 1,247.12 (1,755.96) (0.07) (1,756.03) 78.67 - 78.67 5,664.41 27,262.19 74.36 (168.83) 238.52 (0.02) 33,070.63 0.50 33,071.13 Balance at January 1, 2020 Net income for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year Dividends distribution Reclassification of cash flow hedges to balance sheet Balance at December 31, 2020 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 Balance at January 1, 2019 Net income for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year Dividends distribution Balance at December 31, 2019 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 - - - - (21.50) 23.48 22.74 3.31 - 3,613.09 23.48 22.74 3.31 - (1,529.38) - - - - - - - 3,634.59 0.09 3,634.68 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 For details on equity components, see Note 13. 92 Consolidated statement of changes in equity for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements OMV PETROM S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2020 (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: - Inventories - Receivables and other assets - 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)/decrease in inventories (Increase)/decrease in receivables and other assets Increase/(decrease) in liabilities Cash flow from operating activities Notes 24 24, 25 8 32 20, 22 32 2020 1,478.70 (265.14) 27.44 15.28 (38.82) (38.79) 74.82 35.35 (4.47) - (41.25) 3,677.85 (94.60) 189.26 (22.54) (401.24) 4,591.85 297.09 798.20 (131.41) 5,555.73 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 6,802.52 Consolidated statement of cash flows for the year ended December 31, 2020 93 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 subsidiaries Cash flow from investing activities Net repayments of borrowings Dividends paid 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 Thereof cash disclosed within assets held for sale Cash and cash equivalents presented in the consolidated statement of financial position Notes 2020 2019 32 32 32 32 32 (3,445.27) (3,935.26) - 38.19 210.50 - 71.59 262.24 78.58 - (3,163.18) (3,556.25) (180.56) (327.65) (1,740.38) (1,515.89) (1,920.94) (1,843.54) (3.93) 467.68 7,013.54 7,481.22 30.58 1.38 1,404.11 5,609.43 7,013.54 - 7,450.64 7,013.54 94 Consolidated statement of cash flows for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements OMV PETROM S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (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, 2020 and 2019 OMV Aktiengesellschaft Romanian State Fondul Proprietatea S.A. Legal entities and private individuals Total Percent 2020 Percent 2019 51.011% 20.639% 6.997% 21.353% 51.011% 20.639% 9.998% 18.352% 100.000% 100.000% As of December 31, 2020 the number of Global Depositary Receipts (GDRs) was 181,611, equivalent of 27,241,650 ordinary shares, representing 0.048% of the share capital. As of December 31, 2019 the number of GDRs was 182,780, equivalent of 27,417,000 ordinary shares, representing 0.048% 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. Notes to the consolidated financial statements for the year ended December 31, 2020 95 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 periodically (usually every two years). The last external audit for oil and gas reserves was performed in 2018. 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 accounting policy below), determined as presented above. The carrying amount of oil and gas assets at December 31, 2020 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. 96 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 and offshore 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 prepared 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 decommissioning and 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 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. The key estimates and assumptions used bear the risk of change due to the inherent volatile nature of various macro-economic factors and the uncertainty in asset or CGU specific factors like reserve volumes and production profiles, which can impact the recoverable amount of assets and/or CGUs. Impairment testing in Upstream 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 the whole life term of the field (“life of field“) planning. In 2020, OMV Petrom Group updated its mid-term plan and revised its long-term planning assumptions to reflect changes in the market environment. In addition, the short-term oil price assumption were updated in order to reflect the significant decrease in oil prices in 2020. Notes to the consolidated financial statements for the year ended December 31, 2020 97 OMV Petrom Annual Report 2020 Consolidated Financial Statements The nominal oil price assumptions and the RON/USD exchange rates are listed below: Oil price assumptions in 2020 Brent oil price (USD/bbl) RON/USD exchange rate Brent oil price (RON/bbl) Oil price assumptions in 2019 Brent oil price (USD/bbl) RON/USD exchange rate Brent oil price (RON/bbl) 2021 50 4.30 215 2020 60 4.22 253 2022 60 4.30 258 2021 70 4.22 295 2023 60 4.30 258 2022 70 4.22 295 2024 65 4.30 280 2023 75 4.22 316 2025 65 4.30 280 2024 75 4.22 316 For the years 2026 until 2029, OMV Petrom Group assumed a Brent oil price of USD 65/bbl which is expected to gradually decline to USD 60/bbl until 2035. From 2035 onwards, OMV Petrom Group applied a Brent oil price of USD 60/bbl. All before mentioned assumptions for the years after 2025 are based on 2025 real terms. The assumptions used for oil prices for short and medium term are based on management’s best estimate and were consistent with external sources. The long-term assumptions were consistent with data provided by external studies and consider long-term views of global supply and demand. The above revisions led to impairments (net of write-ups) in Romania of RON 346.37 million before tax and write-offs of exploration intangibles of RON 599.09 million before tax. The recoverable amounts of impaired assets or for which a reversal of impairment was booked amounted to RON 2,730.42 million. The after-tax discount rate used was 9.7%. The recoverable amount was based on the value in use. An increase of 1 percentage point in the after-tax discount rates would lead to an additional after-tax impairment of approximately RON 150 million. Furthermore, a Brent oil price decrease of USD 10/bbl per year would lead to an additional after-tax impairment of approximately RON 2.5 billion. 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 was necessary. Impairment testing in Downstream In the Downstream Oil business, besides discount rates, the recoverable amounts are mainly impacted by the indicator refinery margin and the utilization rate in the refinery and by the retail margin and sales volumes in retail. In 2020 and 2019, based on management estimations it was concluded that there were no triggering indicators for performing an impairment test in Downstream Oil. In the Downstream Gas business, besides discount rates, the main valuation assumptions for the calculation of the recoverable amounts are the spark spreads (being the differences between the electricity prices and the cost of gas and cost of CO2 certificates) and net electrical output for the power plant. The assumptions used for prices are based on management’s best estimate, considering specifics of local market as well as the correlation between the local and regional markets. In 2020, the long-term power and CO2 price assumptions were revised taking into account the improved power generation market, favoring gas fired power plants as compared with coal fired power plants. This led to the full reversal of impairments for Brazi gas fired power plant, in amount of RON 518.65 million before tax based on an after-tax discount rate of 4.26%. 98 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements An increase of 1 percentage point in the after-tax discount rates would not change the amount of the reversal, as the recoverable amount would be still higher than the write-up cap. Also, a decrease of 25% in the spark-spread would not have an impact on the reversal booked. In 2019, based on management estimations it was concluded that there were no triggering indicators for performing an impairment test in Downstream Gas. 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 from 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 the income statement in the period when the new information becomes available. The exploration and evaluation expenditure capitalized is presented under intangible assets in the statement of financial position. 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. For more details, see Note 9 b). Judgments In the process of applying the Group’s accounting policies, the following judgments were made, particularly with respect to the following: f) 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. Notes to the consolidated financial statements for the year ended December 31, 2020 99 OMV Petrom Annual Report 2020 Consolidated Financial Statements g) 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. h) 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 in relation to 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. 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, 2020, prepared in accordance with consistent accounting and valuation principles. The financial statements of the subsidiaries are prepared for the same reporting date, December 31, 2020, 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 100 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 consolidated income statement. Any investment retained is recognized at fair value. The number of consolidated entities is as follows: As at January 1, 2020 Included for the first time Deconsolidated during the year As at December 31, 2020 Romanian companies Foreign companies Full consolidation Equity method 11 1 (1) 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, 2020 and December 31, 2019. 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. 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 Notes to the consolidated financial statements for the year ended December 31, 2020 101 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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. Joint ventures are joint arrangements in which the parties that share control have rights to the net assets of the arrangement. Joint operations are joint arrangements in which the parties that share joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement. As of December 31, 2020 and 2019, the Group had joint arrangements classified as joint operations. 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. 102 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 4. ACCOUNTING AND VALUATION PRINCIPLES 4.1. Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year, except for the changes as described below. First-time adoption of amended standards The Group has adopted the following amended standards with a date of initial application of January 1, 2020: Amendments to IFRS 3 Business Combinations: Definition of a Business Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform Amendments to IAS 1 and IAS 8: Definition of Material Amendments to References to the Conceptual Framework in IFRS Standards The amendments did not have any material impact on OMV Petrom Group’s financial statements. Change in income statement presentation Starting with 2020, reversals of impairments on tangible and intangible assets are reported within the line “Depreciation, amortization, impairments and write-ups” in order to improve the international comparability of the income statement presentation. The prior year figures have been adjusted accordingly. The voluntary change in accounting policy has no effect on the operating result. Adjustments to income statement items In RON million Other operating income Total revenues and other income Depreciation, amortization, impairments and write-ups 2019 (old) Reclassification 2019 (new) 263.95 25,756.78 (3,511.88) (5.18) (5.18) 5.18 258.77 25,751.60 (3,506.70) 4.2. New and revised standards not yet mandatory OMV Petrom Group has not applied the following new or revised IFRSs that have been issued but are not yet effective. They are not expected to have any material effects on the Group’s financial statements. EU endorsement is still pending in some cases. Notes to the consolidated financial statements for the year ended December 31, 2020 103 OMV Petrom Annual Report 2020 Consolidated Financial Statements Standards and amendments Amendments to IFRS 16 Leases: Covid 19 Related Rent Concessions Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform - Phase 2 Amendments to IFRS 3 Business Combinations: Reference to the Conceptual Framework Amendments to IAS 16 Property, Plant and Equipment: Proceeds before intended use Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract Annual Improvements to IFRS Standards 2018-2020 Amendments to IAS 1: Classification of Liabilities as Current and Non-Current IASB effective date June 1, 2020 January 1, 2021 January 1, 2022 January 1, 2022 January 1, 2022 January 1, 2022 January 1, 2023 Amendment to 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 postponed indefinitely 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 reassesses 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 reassessment 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. 104 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements c) Licence acquisition costs Exploration licence acquisition costs are capitalized in intangible assets. Licence acquisition costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount exceeds the recoverable amount. This review includes confirming that exploration drilling is still under way or firmly planned, or that it has been determined, or work is under way to determine that the discovery is economically viable based on a range of technical and commercial considerations and sufficient progress is being made on establishing development plans and timing. If no future activity is planned or the licence has been relinquished or has expired, the carrying value of the licence acquisition costs is written off through income statement. Upon recognition of proved reserves and internal approval for development, the relevant expenditure is transferred to oil and gas assets 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. f) Intangible assets and property, plant and equipment Intangible assets and property, plant and equipment are recognized at cost of acquisition or construction (including costs of major inspection and general overhauls) 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 Notes to the consolidated financial statements for the year ended December 31, 2020 105 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 within depreciation, amortization, impairments and write-ups line. Intangible assets Goodwill Software Concessions, licences and other intangibles Business-specific property, plant and equipment Upstream Downstream Oil Downstream Oil Downstream Oil Downstream Gas Downstream Gas Other property, plant and equipment Production and office buildings Other plant and equipment Fixtures and fittings Useful life (years) Indefinite 3 -5 5 - 20, or contract duration Oil and gas core assets Unit of production method Storage tanks and refinery facilities Pipeline systems Filling stations components Gas pipelines Gas fired power plant 25 – 40 20 5 – 20 20 - 30 8 – 30 20 – 50 10 – 20 5 – 10 For the application of the unit-of-production depreciation method, the Group has separated the areas where it operates into regions. The unit-of-production factor is computed at the level of each productive region, based on the extracted quantities and the proved reserves or proved developed reserves as applicable. Capitalized exploration and evaluation activities are generally not depreciated as long as they are related to unproved reserves, but tested for impairment. Once the reserves are proved and commercial viability is established, the related assets are reclassified into tangible assets and once production starts depreciation commences. Capitalized development costs and support equipment are generally depreciated based on proved developed reserves/total proved reserves by applying the unit-of-production method once production starts. 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. 106 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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. Transactions in which control of an exploration entity is obtained are treated as asset acquisitions, if the entity does not constitute a business as defined by IFRS 3 Business combinations. Assets classified as held for sale are disclosed at the lower of carrying value and fair value net of any disposal costs. Non- current assets and groups of assets are classified as held for sale if their carrying value will be recovered principally through a sale transaction rather than through continuing use. This classification requires that the sale must be estimated as highly probable, and that the asset must be available for immediate disposal in its present condition. The highly probable criteria implies that management must be committed to the sale and an active plan to locate a buyer was initiated, the transaction should be expected to qualify for recognition as a completed sale within one year from the date of classification (except if certain conditions are met), the asset is actively marketed at a price that is reasonable in relation to its current fair value and 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. In assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. The cash flows are generally derived from recent budgets and planning calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. 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, impairments and write-ups 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) if no impairment loss had 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). Notes to the consolidated financial statements for the year ended December 31, 2020 107 OMV Petrom Annual Report 2020 Consolidated Financial Statements Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement assets or parts of assets, inspection costs and overhaul costs. Inspection costs associated with major maintenance programs are capitalized and amortized over the period to the next inspection. Cost of major remedial activities for wells workover, if successful, is also capitalized and depreciated using the unit-of- production method. All other day-to-day repairs and maintenance costs are expensed as incurred. h) Research and development Expenditure related to research activities is recognized as expense in the period in which it is incurred. Research and development (R&D) expenses include all direct and indirect materials, personnel and external services costs incurred in connection with the focused search for new insights related to the development and significant improvement of products, services and processes and in connection with research activities. Development costs are capitalized if the recognition criteria according to IAS 38 are fulfilled. i) Leases OMV Petrom Group as a lessee recognizes lease liabilities and right-of-use assets for lease contracts according to IFRS 16. It applies the recognition exemption for short-term leases and leases in which the underlying asset is of low value and therefore does not recognize right-of-use assets and lease liabilities for such 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 IFRS 16. 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 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 and presented within property, plant and equipment. 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. Non-lease components are separated from the lease components for the measurement of right-of-use assets and lease liabilities. 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. OMV Petrom Group as a lessor entered in contracts which were assessed as operating leases, for which payments received for rent are recognized as revenue from rents and leases over the period of the lease. 108 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements j) Financial instruments Non-derivative financial assets At initial recognition, OMV Petrom Group classifies its financial assets as subsequently measured at amortized cost, fair value through other comprehensive income (OCI) or fair value through profit or loss. The classification depends both on the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Debt instruments are classified and measured at amortized cost if both of the following conditions are met: the asset is held within the business model whose objective is to hold financial assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise on specific dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These assets are subsequently measured at amortized cost using the effective interest method less any impairment losses. Interest income, impairment losses and gains or losses on derecognition are recognized in profit or loss. The Group’s financial assets at amortised cost include mainly trade receivables. OMV Petrom Group recognizes allowances for expected credit losses (ECLs) for financial assets measured at amortized costs. The ECL calculation is based on external or internal credit ratings of the counterparty, associated probabilities of default and loss given default. External credit rating is based mainly on reports issued by well-known rating agencies and is reflected in OMV Petrom Group by grouping financial assets in five risk classes (risk class 1 being the lowest risk category). The probabilities of default used for each risk class, as presented in Note 9, are based on Standard & Poor’s average global corporate default rates. A loss given default of 45% was applied for computation of ECL of financial assets which are not credit impaired. 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. Notes to the consolidated financial statements for the year ended December 31, 2020 109 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 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 assets 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 according to IFRS 9 is applied. 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 are either (i) a fair value hedge when hedging exposure to changes in the fair value of a recognized asset or liability or (ii) a cash flow hedge when hedging exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction. For cash flow hedges, the effective part of the changes in fair value is recognized in other comprehensive income, while the ineffective part is recognized immediately in the income statement. 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 the consolidated income statement. However, contracts that are 110 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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. k) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifyed assets are capitalized until these 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. l) Government grants Government grants – except for emission rights (see Note 4.3 n) – are recognized as 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. m) Inventories Inventories are recognized at the lower of cost and net realizable value, except for inventories held for trading which are measured at fair value less cost to sell. Net realizable value is the estimated selling price in the normal course of activity less any selling expenses. Cost of producing crude oil and gas and refined petroleum products is accounted on weighted average basis, and includes all costs incurred in the normal course of business in bringing each product to its present location and condition, including the appropriate proportion of depreciation, depletion and amortization and overheads based on normal capacity. Appropriate allowances are made for any obsolete or slow moving stocks based on the management’s assessments. n) 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. Notes to the consolidated financial statements for the year ended December 31, 2020 111 OMV Petrom Annual Report 2020 Consolidated Financial Statements Decommissioning and environmental obligations 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, surface and offshore 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 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. Estimates of future remediation costs are based on current contracts concluded with suppliers, reports prepared by OMV Petrom Group engineers, as well as past experience. Where the liability will not be settled for a number of years, the amount recognized is the present value of the estimated future expenditure. Based on the privatization agreement of OMV Petrom S.A., part of OMV Petrom’s decommissioning and environmental cost will be reimbursed by the Romanian State. The portion to be reimbursed by the Romanian State has been presented as receivable and reassessed in order to reflect the current best 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 consolidated 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 receivable 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. Pensions and similar obligations OMV Petrom Group has defined benefit plans and other benefits. 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 retirement benefits in consolidated other comprehensive income and for other benefits in the consolidated income statement. 112 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Provisions for voluntary and involuntary separations under restructuring programs are recognized if a detailed plan has been approved by management prior to the consolidated statement of financial position date, and an irrevocable commitment is thereby established. Voluntary amendments to employees’ remuneration arrangements are recognized if the respective employees have accepted the company’s offer. Provisions for obligations under individual separation agreements are recognized at the present value of the obligation where the amounts and dates of payment are fixed and determined. Emission allowances received free of cost from governmental authorities (EU Emissions Trading Scheme for greenhouse gas emissions allowances) reduce obligations for CO2 emissions and are recognized based on net approach for Government Grant (i.e. zero value in accounting). Provisions are recognized only for shortfalls. Provisions for shortfalls are initially measured at the best estimation of expenditure required to settle the obligation. The related expenses are 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. o) 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. The taxable profit differs from the 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 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. Notes to the consolidated financial statements for the year ended December 31, 2020 113 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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. p) Revenue recognition Revenues from contracts with customers Revenue is generally recognized when 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. 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 been 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. Only in exceptional cases long-term gas supply contracts contain stepped prices in different periods where the rates do not reflect the value of the goods at the time of delivery. In these cases, revenue is recognized based on the average contractual price. 114 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 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 they 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. As the revenues are recognized in the amount to which the Group 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 mainly include revenues from commodity transactions that are within the scope of IFRS 9 Financial Instruments, realized and unrealized results from hedging of sales transactions, as well as rental and lease revenues. As per IFRS 9 Financial Instruments, commodity contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements fall within the own use exemption. OMV Petrom Group obtains revenues from gas sales forward contracts with physical delivery, which are considered to fall under own use exemption as mentioned above. 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. q) Cash and cash equivalents Cash is considered to be cash on hand and in operating accounts in banks. Cash equivalents represent deposits and highly liquid short-term investments with original maturities of less than three months. Notes to the consolidated financial statements for the year ended December 31, 2020 115 OMV Petrom Annual Report 2020 Consolidated Financial Statements 5. FOREIGN CURRENCY AND 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: Year ended December 31, 2020* Average for the year ended December 31, 2020 Year ended December 31, 2019* Average for the year ended December 31, 2019 3.9660 4.8694 0.2305 0.0414 2.4897 4.2413 4.8376 0.2451 0.0411 2.4734 4.2608 4.7793 0.2481 0.0407 2.4436 4.2392 4.7454 0.2413 0.0403 2.4263 Currencies US dollar (USD) Euro (EUR) Moldavian Leu (MDL) Serbian Dinar (RSD) Bulgarian Leva (BGN) *) as communicated by the 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 the consolidated income statement. Unrealized foreign exchange gains and losses related to monetary items are recognized in the consolidated income statement for the year. 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. 116 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 6. INTANGIBLE ASSETS COST Balance as at January 1, 2020 1,350.29 3,411.65 4,761.94 Concessions, licences and other intangible assets Oil and gas assets with unproved reserves Total Exchange differences Additions Transfers (Note 7) Disposals* Transfers to assets held for sale Balance as at December 31, 2020 ACCUMULATED AMORTIZATION AND IMPAIRMENT Balance as at January 1, 2020 Exchange differences Amortization Impairment Transfers (Note 7) Disposals Write-ups Transfers to assets held for sale Balance as at December 31, 2020 CARRYING AMOUNT As at January 1, 2020 As at December 31, 2020 0.69 3.00 0.41 (3.93) (1.03) 0.80 277.66 (5.97) (58.74) - 1.49 280.66 (5.56) (62.67) (1.03) 1,349.43 3,625.40 4,974.83 1,258.20 0.49 10.59 - - (3.57) (41.46) (0.93) 1,223.32 92.09 126.11 371.73 1,629.93 - - 628.95 (1.52) (58.52) (0.64) - 0.49 10.59 628.95 (1.52) (62.09) (42.10) (0.93) 940.00 2,163.32 3,039.92 3,132.01 2,685.40 2,811.51 *) Includes the amount of RON 0.19 million representing decrease from reassessment of decommissioning asset for exploration wells (under category "Oil and gas assets with unproved reserves"). Oil and gas assets with unproved reserves include mainly 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 were no impairment triggers as at December 31, 2020 and 2019. Notes to the consolidated financial statements for the year ended December 31, 2020 117 OMV Petrom Annual Report 2020 Consolidated Financial Statements 7. PROPERTY, PLANT AND EQUIPMENT Land, land rights and buildings, incl. buildings on third-party property Oil and gas assets Plant and machinery Other fixtures and fittings, tools and equipment Assets under construction Total COST Balance as at January 1, 2020 5,180.77 43,366.55 11,281.87 1,592.24 671.34 62,092.77 Exchange differences Additions* Transfers** 13.76 97.23 (17.48) 2,589.33 109.58 (101.68) 0.03 326.56 321.10 2.21 62.84 56.63 Transfers to assets held for sale (9.39) (3,818.97) (198.43) (106.63) Disposals (41.08) (409.80) (70.70) (40.45) 0.47 (1.01) 396.52 3,472.48 (380.07) 5.56 (4.92) (0.22) (4,138.34) (562.25) Balance as at December 31, 2020 5,350.87 41,607.95 11,660.43 1,566.84 683.12 60,869.21 ACCUMULATED DEPRECIATION AND IMPAIRMENT Balance as at January 1, 2020 2,394.14 24,077.43 6,671.92 Exchange differences Depreciation Impairment Transfers** 5.49 (15.82) 217.61 1,931.24 5.15 0.07 846.34 0.95 0.11 722.14 13.94 (1.49) Transfers to assets held for sale (4.16) (3,336.45) (177.48) Disposals Write-ups (24.87) (1.05) (400.77) (366.66) (67.74) (476.11) 983.99 1.91 167.29 4.31 1.99 (90.25) (34.44) (2.11) 20.57 34,148.05 (0.18) (8.49) - - - - - - 3,038.28 869.74 1.52 (3,608.34) (527.82) (845.93) Balance as at December 31, 2020 2,592.38 22,736.26 6,685.29 1,032.69 20.39 33,067.01 CARRYING AMOUNT As at January 1, 2020 2,786.63 19,289.12 4,609.95 As at December 31, 2020 2,758.49 18,871.69 4,975.14 *) Includes the amount of RON 487.01 million representing increase from reassessment of the decommissioning asset. **) Net amount represents transfers from intangibles (Note 6). 608.25 534.15 650.77 27,944.72 662.73 27,802.20 Expenditure capitalized in the course of construction of tangible and intangible assets amounts to RON 529.58 million (2019: RON 541.11 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. 118 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Right-of-use assets recognized under IFRS 16 Right-of-use assets as at January 1, 2020 Additions Depreciation Other movements Right-of-use assets as at December 31, 2020 Amounts recognized in consolidated income statement Land and buildings Plant and machinery Other fixtures, fittings and equipment 231.72 58.11 (25.69) (5.38) 258.76 104.07 12.51 (23.13) (0.41) 93.04 336.43 47.98 (93.59) (5.57) 285.25 Total 672.22 118.60 (142.41) (11.36) 637.05 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 2020 2019 20.78 0.72 20.70 142.42 10.95 5.66 65.47 0.60 26.84 108.93 10.51 10.25 In addition, OMV Petrom Group incurred in 2020 short term lease costs of RON 54.73 million (2019: RON 240.08 million) which were capitalized in the cost of other assets. Variable lease payments expensed in 2020 in amount of RON 20.70 million (2019: 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, 2020 119 OMV Petrom Annual Report 2020 Consolidated Financial Statements 8. INVESTMENTS IN ASSOCIATED COMPANIES As at December 31, 2020 and December 31, 2019 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 Carrying amount reconciliation for immaterial associates is as follows: January 1, 2020 Share of total comprehensive income of associates (see above) December 31, 2020 2020 31.68 4.47 0.27 - 4.74 2019 26.94 7.36 (0.34) (0.13) 6.89 Associated companies 26.94 4.74 31.68 During 2019 the share capital of the associated entity OMV Petrom Global Solution S.R.L. was reduced by way of cash distribution, with no impact on the shareholding of 25% held by OMV Petrom Group. For details please see Note 32 c). 9. TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS a) Trade receivables Trade receivables are amounting to RON 1,258.13 million as at December 31, 2020 (2019: RON 1,891.86 million). 120 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Credit quality of trade receivables December 31, 2020 Risk class 1 Risk class 2 Risk class 3 Risk class 4 Risk class 5 Total Expected credit loss rate Gross carrying amount Expected credit loss Net carrying amount 0.07% 0.25% 1.19% 10.26% 100.00% 66.14 357.68 739.98 98.39 200.03 1,462.22 - 0.06 4.86 1.61 197.56 204.09 66.14 357.62 735.12 96.78 2.47 1,258.13 December 31, 2019 Expected credit loss rate Gross carrying amount Expected credit loss Net carrying amount 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 The movements in impairment of trade receivables are as follows: January 1 Amounts written off Net remeasurement of expected credit losses Foreign exchange rate differences December 31 b) Other financial assets (net of impairment) 2020 204.06 (0.68) 0.52 0.19 204.09 293.97 641.50 893.29 59.73 3.37 1,891.86 2019 243.20 (20.79) (18.61) 0.26 204.06 Expenditure recoverable from Romanian State Derivative financial assets (Note 33) Investments Other financial assets Total December 31, 2020 less than 1 year over 1 year Liquidity term 2,402.19 647.52 0.91 255.45 359.05 646.13 - 207.93 2,043.14 1.39 0.91 47.52 3,306.07 1,213.11 2,092.96 Notes to the consolidated financial statements for the year ended December 31, 2020 121 OMV Petrom Annual Report 2020 Consolidated Financial Statements Expenditure recoverable from Romanian State Derivative financial assets (Note 33) 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 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 2,152.42 million as at December 31, 2020 (2019: RON 1,793.22 million) and the environmental liabilities with net present value of RON 249.77 million (2019: RON 169.61 million), as these were existing prior to privatization of OMV Petrom S.A. On 7 March 2017, OMV AG, as party in the privatization agreement, initiated arbitration proceedings against the Romanian Ministry of Environment, in accordance with the International Chamber of Commerce (“ICC”) Rules, regarding certain claims unpaid by the Ministry of Environment for costs incurred by OMV Petrom with well decommissioning and environmental remediation works, amounting to RON 287.66 million. On July 9, 2020, the Arbitral Tribunal issued the Final Award on the arbitration and requested the Ministry of Environment to reimburse to OMV Petrom S.A. the amount of RON 287.62 million and related interest (see Note 24). As of December 31, 2020, the procedure for recognition and enforcement in Romania of the Award is ongoing. On 2 October 2020, OMV AG, as party in the privatization agreement, initiated arbitration proceedings against the Romanian Ministry of Environment, in accordance with the ICC Rules, regarding certain claims unpaid by the Ministry of Environment in relation to well decommissioning and environmental remediation works amounting to RON 155.73 million. As of December 31, 2020, the arbitration procedure is ongoing. Investments Investments are related to companies that were not consolidated, as the Group neither has control nor significant influence over their operations, or they were considered immaterial for the Group. Other financial assets On 14 September 2016, OMV Petrom signed a financing contract with the Romanian Ministry of Energy for 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, 2020 the present value of the financial asset representing government grant to be received for Brazi power plant investment was in amount of RON 39.15 million (2019: RON 172.47 million). During 2020 an amount of RON 140.19 million from third tranche was collected, whilst during 2019 the first two tranches in amount of RON 226.59 million were collected (see Note 32 d). 122 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Credit quality other financial assets at amortized cost – gross carrying amount December 31, 2020 Risk class 1 Risk class 2 Risk class 3 Risk class 4 Risk class 5 Total Expected credit loss rate 0.07% 0.25% 1.19% 10.26% 100.00% 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 0.05 2,522.13 138.41 2.39 0.25 2,663.23 - - - - - - - 45.68 - - 538.90 584.58 Total 0.05 2,567.81 138.41 2.39 539.15 3,247.81 For risk class 2, “12-month ECL” included an amount of RON 2,405.64 million and “Lifetime ECL credit impaired” included an amount of RON 45.68 million, related to expenditure recoverable from the Romanian State. 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 42.57 2,201.06 85.66 2.56 0.14 2,331.99 - - - - - - - 67.38 - - 542.42 609.80 Total 42.57 2,268.44 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. Credit quality other financial assets at amortized cost – expected credit loss December 31, 2020 Expected credit loss rate 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Risk class 1 Risk class 2 Risk class 3 Risk class 4 Risk class 5 Total 0.07% 0.25% 1.19% 10.26% 100.00% - 4.83 0.54 0.11 0.11 5.59 - - - - - - - 45.68 - - 538.90 584.58 Total - 50.51 0.54 0.11 539.01 590.17 For risk class 2, “12-month ECL” included an amount of RON 3.45 million and “Lifetime ECL credit impaired” included an amount of RON 45.68 million, related to expenditure recoverable from the Romanian State. Notes to the consolidated financial statements for the year ended December 31, 2020 123 OMV Petrom Annual Report 2020 Consolidated Financial Statements December 31, 2019 Expected credit loss rate 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 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% - 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. 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: January 1, 2020 Amounts written off Net remeasurement of expected credit losses Foreign exchange rate differences December 31, 2020 January 1, 2019 Amounts written off Net remeasurement of expected credit losses Foreign exchange rate differences December 31, 2019 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 4.96 - 0.75 (0.12) 5.59 - - - - - 609.80 (12.99) (12.23) - 584.58 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 4.45 - 0.50 0.01 4.96 - - - - - 614.14 (0.01) (4.33) - 609.80 Total 614.76 (12.99) (11.48) (0.12) 590.17 Total 618.59 (0.01) (3.83) 0.01 614.76 124 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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, 2020 less than 1 year over 1 year Liquidity term 272.91 52.55 49.70 18.20 69.69 463.05 85.06 52.55 10.74 11.73 69.69 187.85 - 38.96 6.47 - 229.77 233.28 Liquidity term December 31, 2019 less than 1 year over 1 year 303.03 52.61 81.56 17.17 250.54 704.91 120.13 182.90 52.61 55.08 11.08 250.54 489.44 - 26.48 6.09 - 215.47 The decrease in “Other non-financial assets” is mainly related to lower stock of emission certificates, following sale and consumption in 2020. 11. INVENTORIES Crude oil Natural gas Other materials Work in progress Finished products Total December 31, 2020 December 31, 2019 474.30 104.24 279.02 95.44 1,149.90 2,102.90 482.66 180.81 279.17 154.05 1,367.76 2,464.45 The cost of materials and goods consumed during 2020 (whether used in production or re-sold) is of RON 8,781.06 million (2019: RON 11,392.29 million). As at December 31, 2020 and 2019 there are no inventories pledged as security for liabilities. Notes to the consolidated financial statements for the year ended December 31, 2020 125 OMV Petrom Annual Report 2020 Consolidated Financial Statements 12. ASSETS HELD FOR SALE Land and buildings Plant and equipment Other assets Cash and cash equivalents Assets held for sale Provisions for decommissioning and restoration Other provisions and liabilities Liabilities associated with assets held for sale December 31, 2020 December 31, 2019 6.61 722.91 100.80 30.58 860.90 319.33 93.35 412.68 1.53 215.67 - - 217.20 222.55 1.20 223.75 As at December 31, 2020, assets and liabilities held for sale referred to Upstream segment and are related to: the two subsidiaries in Kazakhstan, as in December 2020 OMV Petrom signed a transaction for the sale of its 100% shareholding in Kom-Munai LLP and Tasbulat Oil Corporation LLP to Magnetic Oil Limited, which led to the reclassification of their assets and liabilities to “held for sale” as of December 31, 2020. The transaction had a positive effect of RON 134.64 million in Operating Result triggered by the reversal of previously recorded impairments, presented under “Depreciation, amortization, impairments and write-ups”. At closing, the Group expects an estimated negative net effect of RON 91.98 million in the consolidated income statement, generated by recycling of the exchange rate differences from the translation of these foreign operations and by recycling of exchange differences on loans considered net investments in the two subsidiaries. 40 marginal onshore oil and gas fields, for which OMV Petrom S.A. reached an agreement with Dacian Petroleum S.R.L. in January 2020, which led to their reclassification of related assets and liabilities to “held for sale”. As of December 31, 2020, management expects that this transaction will be closed within the following twelve months. 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, impairments and write-ups”. 126 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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, 2020 and 2019 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, 2020 and 2019. 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, it is not distributable and it was non-taxable. Legal reserves are amounting to RON 1,132.88 million as at December 31, 2020 and 2019. 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 500.47 million (2019: RON 454.06 million). The amount of RON 46.41 million was allocated to other reserves, representing fiscal facilities from reinvested profit in the year 2020 (2019: RON 31.14 million). At the Annual General Meeting of Shareholders held on April 27, 2020, the shareholders of OMV Petrom S.A. approved the distribution of gross dividends in amount of RON 0.031 per share for the financial year 2019. On March 17, 2021, the Supervisory Board endorsed the management’s proposal to distribute gross dividends of RON 0.031 per share for the financial year 2020. The dividend proposal is subject to further approval by the Ordinary General Meeting of Shareholders, on April 27, 2021. 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 product prices and crude oil 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 74.36 million as at December 31, 2020 (2019: RON 27.70 million). The hedged item (underlying transaction) can affect profit or loss or balance sheet; when this happens the amounts previously accounted for in other comprehensive income are recycled to income statement or transferred to the carrying amount of the hedged item, respectively. 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, 2020 127 OMV Petrom Annual Report 2020 Consolidated Financial Statements 14. PROVISIONS January 1, 2020 thereof short-term thereof long-term Exchange differences Liabilities associated with assets held for sale Used Net allocations/(releases) December 31, 2020 thereof short-term thereof long-term Pensions and similar obligations Decommissioning and restoration Other provisions 240.70 - 240.70 0.01 - (19.28) (7.74) 213.69 - 213.69 6,768.27 312.19 6,456.08 (0.19) (49.05) (201.21) 1,021.97 7,539.79 267.37 7,272.42 899.99 311.12 588.87 (0.22) (31.44) (104.35) 130.64 894.62 249.50 645.12 Total 7,908.96 623.31 7,285.65 (0.40) (80.49) (324.84) 1,144.87 8,648.10 516.87 8,131.23 Provisions for pensions and similar obligations Employees of several Group companies are entitled to receive retirement benefits on reaching normal retirement age. The entitlements depend on years of service and final compensation levels. Retirement benefits obligation as of December 31, 2020 amounts RON 140.55 million (2019: RON 156.50 million). In addition, employees receive other benefits consisting in death and coffin benefits. Other benefits obligation as of December 31, 2020 amounts to RON 73.14 million (2019: RON 84.20 million). Provisions have been set up based on actuarial calculations performed by qualified actuaries using the following parameters: a discount rate of 3.35% (2019: 4.41%) and an estimated average yearly salary increase of 3.10% (2019: 4.19%). Present value of the pensions and similar obligations Present value of obligations as of January 1 Current service cost Past service cost Interest cost Benefits paid Remeasurements for the year Present value of obligations as of December 31 2020 240.70 8.50 (43.56) 10.83 (19.28) 16.50 213.69 2019 211.38 7.51 2.08 10.06 (11.59) 21.26 240.70 In 2020 past service cost is related mainly to outsourcing of activities for general surface services. Sensitivities changes in absolute terms Pensions and other similar obligations increase/ (decrease) (11.33) 11.83 3.49 (4.29) Discount rate Salary increase rate 0.50% -0.50% 0.25% -0.25% 128 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Maturity profile Retirement benefits Maturity profile 1-5 years 6-10 years >10 years 32.75 35.63 72.16 Duration in years 11.42 Provisions for decommissioning and restoration obligations 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 at December 31, 2020 were between 0.50% and 0.57% for onshore (2019: between 0.00% and 1.65%) and 3.10% for offshore (2019: 1.65%). A decrease of 1 percentage point in the real interest rates used to calculate the decommissioning and restoration provisions would lead to an additional provision of RON 936 million. The provision for decommissioning and restoration costs includes mainly obligations in respect of OMV Petrom S.A. amounting to RON 7,511.13 million (2019: RON 6,702.45 million). In relation to part of the OMV Petrom S.A. decommissioning and restoration obligations, there is a corresponding receivable from the Romanian State, as 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. 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 2020 6,768.27 (0.19) 733.55 288.42 (201.21) (49.05) 7,539.79 2019 6,238.63 4.81 651.61 293.95 (197.37) (223.36) 6,768.27 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 2020 was generated by lower net discounting rates and higher estimated average unit costs for onshore assets in Romania. 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. Notes to the consolidated financial statements for the year ended December 31, 2020 129 OMV Petrom Annual Report 2020 Consolidated Financial Statements Other provisions December 31, 2020 Environmental provision Other personnel provisions Provisions for litigations Other Total December 31, 2019 Environmental provision Other personnel provisions Provisions for litigations Other Total Total less than 1 year over 1 year 410.22 118.66 83.83 281.91 894.62 55.18 117.15 5.13 72.04 249.50 355.04 1.51 78.70 209.87 645.12 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 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, 2020 and 2019 represent the best estimate of the Group’s experts for environmental matters. Environmental provisions are mainly computed using a discount rate of 3.10% (2019: 4.41%). OMV Petrom S.A. recorded certain environmental liabilities against receivable from the Romanian State, as these obligations existed prior to privatization (as further explained in Note 9b “Expenditure recoverable from Romanian State”). Provisions for litigations OMV Petrom Group monitors all litigations instigated against it and assesses the likelihood of losses and the related costs using in house lawyers and external legal advisors. OMV Petrom Group has assessed the potential liabilities with respect to ongoing cases and recorded its best estimate of likely cash outflows. 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. 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 643,767 emission certificates for the year 2020 (2019: 1,018,845 emission certificates). During 2020 the Company received 973,979 emission certificates, out of which 330,212 emission certificates representing the 2019 entitlement according to article 10c) of the Directive and 643,767 emission certificates from 2020 entitlement according to article 10a) of the Directive. During 2020 the Group had net sales of 329,915 emissions certificates (2019: net other purchases of 1,153,324 emissions certificates). A shortfall in emission certificates is provided for. As of December 31, 2020, the Group was not short of certificates. 130 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 15. INTEREST-BEARING DEBTS As at December 31, 2020 and December 31, 2019 OMV Petrom Group had the following loans: Borrower Lender Interest-bearing debts short-term OMV Petrom S.A. OMV Petrom S.A. European Investment Bank (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 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, 2020 December 31, 2019 92.75 81.22 1.13 (0.07) 175.03 108.98 (0.04) 108.94 108.94 283.97 91.03 39.67 1.62 (0.07) 132.25 198.00 (0.12) 197.88 197.88 330.13 (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, 2020 was RON 201.73 million (equivalent of EUR 41.43 million) (2019: RON 289.03 million, equivalent of EUR 60.48 million). (b) A cash pooling agreement with maturity on April 18, 2021, 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 100.00 million, usable in RON, EUR, USD or GBP. The amount drawn by the Group as at December 31, 2020 was RON 81.22 million (2019: RON 39.67 million). The OMV Petrom Group’s companies have several credit facilities in place as at December 31, 2020 as follows: (c) An unsecured credit facility granted by Raiffeisen Bank S.A. up to EUR 50.00 million (equivalent of RON 243.47 million) consisting in two subfacilities: subfacility A with maturity date prolonged to December 31, 2021 (for an amount of EUR 30.00 million, equivalent of RON 146.08 million) and subfacility B with maturity date prolonged to December 31, 2024 (for an amount of EUR 20.00 million, equivalent of RON 97.39 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, GBP 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 97.39 million) and by OMV Petrom Aviation S.R.L. (only up to the maximum limit of EUR 10.00 million, equivalent of RON 48.69 million) only for the issuance of letters of credit and/or issuance of letters of bank guarantee. As at December 31, 2020 no withdrawings were made (2019: an amount of RON 0.01 million was used from the cash portion of the credit facility, being included in “Accrued interest and other” line). An unsecured facility contracted by OMV Petrom S.A. from ING Bank N.V., that can be used in USD, RON or EUR, (d) up to the maximum amount of EUR 50.00 million (equivalent of RON 243.47 million), for issuance of letters of bank guarantee and as overdraft for working capital financing. The maturity of the credit facility is November 22, 2022. No drawings under the overdraft were made as at December 31, 2020 and 2019. Notes to the consolidated financial statements for the year ended December 31, 2020 131 OMV Petrom Annual Report 2020 Consolidated Financial Statements An uncommitted and unsecured credit facility contracted by OMV Petrom S.A. from BRD – Groupe Société (e) Générale S.A. with maximum limit of EUR 90.00 million (equivalent of RON 438.25 million) that can be used in RON, with maturity date prolonged until April 30, 2021. The facility is designated to finance OMV Petrom S.A. 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, 2020 and 2019. A committed and unsecured credit facility contracted by OMV Petrom S.A. from Banca Comercială Română S.A., (f) that can be used in USD, EUR or RON, up to a maximum amount of EUR 200.00 million (equivalent of RON 973.88 million), for issuance of letters of bank guarantee and similar and as overdraft for working capital financing. As at December 31, 2020, the maturity for letters of bank guarantee and similar is January 13, 2024 and for overdraft the maturity is January 11, 2022, 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, 2020 and 2019. An unsecured credit facility agreement was signed by OMV Petrom S.A. with Garanti Bank S.A. for up to EUR (g) 15.00 million (equivalent of RON 73.04 million) to be utilized for issuance of letters of bank guarantee and similar and as overdraft for working capital financing. The maturity is January 15, 2022 for overdraft purposes and March 15, 2023 for issuance of bank guarantees. The cash portion of the credit facility was not used as at December 31, 2020 and 2019. (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 24.84 million) and maturity date until March 30, 2022. The destination of the facility is for general corporate purposes financing. As at December 31, 2020 there is no amount used under the overdraft facility (2019: RON 0.01 million used from overdraft facility, included in “Accrued interest and other” line). An unsecured credit facility agreement was signed by Petrom Moldova SRL with Banca Comercială Română (i) Chișinău SA for up to MDL 20.00 million (equivalent of RON 4.61 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, 2020 and 2019. A credit facility contracted on October 02, 2014 by Tasbulat Oil Corporation LLP and Kom-Munai LLP as Borrowers (j) from JSK Citibank Kazakhstan, accessible to both companies up to the maximum limit of USD 15.00 million (equivalent of RON 59.49 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, 2020 and 2019. (k) An unsecured facility contracted by OMV Bulgaria OOD from Raiffeisenbank Bulgaria EAD, with a limit of BGN 19.75 million (equivalent of RON 49.17 million) and maturity date January 30, 2024. 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, 2020 and 2019. OMV Petrom Group’s companies have signed also facilities with several banks for issuing letters of bank guarantee and letters of credit, as follows: An unsecured facility agreement was signed by OMV Petrom S.A. with BNP Paribas Fortis Bank S.A./N.V. – (l) Bucharest branch – for up to EUR 30.00 million (equivalent of RON 146.08 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. An unsecured credit facility received by OMV Petrom S.A. from Banca Transilvania S.A., up to EUR 25.00 million (m) (equivalent of RON 121.74 million), to be utilized only for issuance of letters of bank guarantee, with maturity until March 31, 2022. A frame facility contracted by OMV Serbija from Raiffeisen Banka a.d. Belgrad, with a maximum limit of EUR 2.00 (n) million (equivalent of RON 9.74 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. 132 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements An unsecured credit facility agreement was signed by Petrom Moldova SRL with Banca Comercială Română (o) Chișinău SA for up to MDL 1.00 million (equivalent of RON 0.23 million) to be utilized for issuance of letters of bank guarantees. Maturity is March 19, 2021 and it is expected to be prolonged. As at December 31, 2020 and 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. 16. OTHER FINANCIAL LIABILITIES Derivative financial liabilities (Note 33) Financial liabilities in connection with joint operations Other financial liabilities Total Derivative financial liabilities (Note 33) Financial liabilities in connection with joint operations Other financial liabilities Total December 31, 2020 less than 1 year over 1 year 472.64 5.22 371.62 849.48 472.64 5.22 324.75 802.61 - - 46.87 46.87 December 31, 2019 less than 1 year over 1 year 213.72 1.12 264.52 479.36 171.54 1.12 199.88 372.54 42.18 - 64.64 106.82 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, 2020 Interest-bearing debts Lease liabilities Trade payables Derivative financial liabilities Other financial liabilities Total December 31, 2019 Interest-bearing debts Lease liabilities Trade payables Derivative financial liabilities Other financial liabilities Total < 1 year 1-5 years > 5 years 176.87 147.63 2,858.64 472.64 329.97 3,985.75 110.38 351.59 - - 15.04 477.01 - 273.95 - - 31.83 305.78 < 1 year 1-5 years > 5 years 135.05 138.60 3,372.35 171.54 201.00 4,018.54 202.08 372.13 - 42.18 31.82 648.21 - 285.40 - - 32.82 318.22 Total 287.25 773.17 2,858.64 472.64 376.84 4,768.54 Total 337.13 796.13 3,372.35 213.72 265.64 4,984.97 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, 2020 133 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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, 2020 less than 1 year over 1 year 413.57 49.70 143.63 91.24 74.69 772.83 413.57 49.70 143.63 77.15 74.69 758.74 - - - 14.09 - 14.09 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 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 were as follows: January 1 Revenue recognized that was included in the contract liability balance at the beginning of the year Increases due to cash received, excluding amounts recognized as revenue during the year December 31 2020 145.44 2019 138.86 (110.34) (131.92) 108.53 143.63 138.50 145.44 134 Notes to the consolidated financial statements for the year ended December 31, 2020 18. DEFERRED TAX December 31, 2020 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 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 OMV Petrom Annual Report 2020 Consolidated Financial Statements Deferred tax assets total Deferred tax assets not recognized Deferred tax assets recognized Deferred tax liabilities 296.63 21.95 151.86 36.22 1,067.90 68.91 - 1,643.47 - - (38.51) - - (0.65) - (39.16) 296.63 21.95 113.35 36.22 1,067.90 68.26 - 1,604.31 (70.57) 1,533.74 27.57 - 40.94 2.06 - - - 70.57 (70.57) - Deferred tax assets total Deferred tax assets not recognized Deferred tax assets recognized 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) - 1,625.79 (61.69) 354.59 26.07 122.95 42.47 948.49 69.24 0.29 1,564.10 (73.17) 1,490.93 46.23 - 43.80 4.05 - - - 94.08 (73.17) 20.91 2019 26.13 0.74 6.37 6.41 17.79 67.44 – – 124.88 Notes to the consolidated financial statements for the year ended December 31, 2020 135 As at December 31, 2020, losses carry-forward for tax purposes amounted to RON 242.75 million (2019: RON 124.88 million). Eligibility of losses for carry-forward expires as follows: 2020 2021 2022 2023 2024 2025 / After 2024 After 2025 unlimited Total 2020 0 22.17 1.02 10.82 5.40 15.01 86.78 101.55 242.75 OMV Petrom Annual Report 2020 Consolidated Financial Statements No deferred tax asset was recognized for part of tax losses carry-forward included in the above table, in amount of RON 230.20 million (2019: RON 123.43 million). As of December 31, 2020, the deferred tax asset recognised for part of tax losses carried-forward is included under "Assets held for sale". 19. SALES REVENUES Revenues Revenues from contracts with customers Revenues from other sources Total sales revenues 2020 18,120.39 1,596.59 19,716.98 2019 24,326.96 1,158.51 25,485.47 Revenues from contracts with customers In the following tables, revenues recorded in 2020 and 2019 are disaggregated by products and reportable segments. 2020 Upstream Downstream thereof Downstream Oil thereof Downstream Gas Corporate & Other Crude Oil, NGL, condensates Natural gas, LNG and power Fuels and heating oil Other goods and services* 259.50 47.63 5.33 4,671.28 47.63 9.30 - 9,821.33 9,821.33 39.06 3,261.73 3,197.25 - 4,661.98 - 64.48 Total 307.13 4,676.61 9,821.33 - - - 14.53 3,315.32 Total 2019 Crude Oil, NGL, condensates Natural gas, LNG and power Fuels and heating oil Other goods and services* 303.89 17,801.97 13,075.51 4,726.46 14.53 18,120.39 Upstream Downstream thereof Downstream Oil thereof Downstream Gas Corporate & Other 420.63 60.81 5.84 5,532.69 60.81 13.24 - 5,519.45 - 14,157.52 14,157.52 - - - - Total 481.44 5,538.53 14,157.52 48.70 4,087.01 3,981.16 105.85 13.76 4,149.47 Total 475.17 23,838.03 18,212.73 5,625.30 13.76 24,326.96 *) Mainly non-fuel business in Downstream Oil Revenues from other sources Revenues from other sources mainly include revenues from commodity transactions that are within the scope of IFRS 9 Financial Instruments, realized and unrealized results from hedging of sales transactions, 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 2020 amount to RON 48.34 million (2019: RON 50.31 million). 136 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 20. OTHER OPERATING INCOME Exchange gains from operating activities Gains on disposal of non-current assets Other operating income Total 2020 46.58 52.79 329.58 428.95 2019 29.17 84.07 145.53 258.77 Other operating income in 2020 includes revenues from sales of CO2 certificates in amount of RON 180.99 million and gains of RON 71.50 million from the fair value measurement of CO2 certificates held for trading in Downstream. During 2019 this line included income related to clarification of a tax related topic in Romania, in amount of RON 66.96 million. Gains on disposal of non-current assets include in 2019 the amount of RON 52.82 million in relation to non-current assets transferred to Mazarine Energy Romania S.R.L. (see Note 32e). 21. NET INCOME FROM INVESTMENTS IN ASSOCIATES Share of net result of associated companies Total 22. OTHER OPERATING EXPENSES Exchange losses from operating activities Losses on disposal of non-current assets Other operating expenses Total 2020 4.47 4.47 2020 32.93 11.54 303.99 348.46 2019 7.36 7.36 2019 34.15 5.81 244.45 284.41 Other operating expenses include an amount of RON 110.47 million (2019: RON 53.06 million) representing restructuring expenses mainly in relation with outsourcing of activities for general surface services and an amount of RON 8.50 million (2019: RON 9.41 million) representing costs with digitalization initiatives at group level. Notes to the consolidated financial statements for the year ended December 31, 2020 137 OMV Petrom Annual Report 2020 Consolidated Financial Statements 23. COST INFORMATION For the years ended December 31, 2020 and December 31, 2019 the consolidated income statement includes the following personnel expenses: Wages and salaries Other personnel expenses Total personnel expenses 2020 1,557.08 263.75 1,820.83 2019 1,580.08 239.56 1,819.64 The above personnel expenses included the amount of RON 19.42 million, representing Group’s contribution to state pension plan for the year ended December 31, 2020 (2019: RON 19.90 million). Depreciation, amortization and impairment losses net of write-ups of intangible assets and property, plant and equipment consisted of: Depreciation and amortization Impairment tangible and intangible assets Write-ups tangible and intangible assets Total depreciation, amortization and net impairment 2020 3,044.09 1,521.79 (888.03) 3,677.85 2019 2,955.34 683.96 (5.18) 3,634.12 Net impairment losses booked during the year ended December 31, 2020 for intangible assets and property, plant and equipment (including those classified as held for sale) were related mostly to Upstream segment in amount of RON 1,151.77 million, reflecting mainly impairment at CGU level and write-offs of exploration intangibles as described in Note 2, unsuccessful workovers and obsolete or replaced assets in Romania. These were partially offset by a write-up in amount of RON 518.65 million related to Brazi power plant in Downstream Gas segment (see Note 2). Net impairments in Downstream Oil segment were in amount of RON 0.59 million and in Corporate & Other segment in amount of RON 0.05 million. 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. In the consolidated income statement for the year ended December 31, 2020 net impairments are included under depreciation, amortization, impairments and write-ups in amount of RON (48.03) million (2019: RON 551.37 million) and under exploration expenses in amount of RON 681.79 million (2019: RON 127.42 million). 138 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 2020 2019 118.91 146.23 72.19 337.33 (24.23) (10.60) 86.86 138.09 92.68 317.63 (26.16) (10.01) Unwinding expenses for decommissioning provision, net of the unwinding income for related Romanian State receivable (234.53) (231.96) 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) (26.08) (295.44) 41.89 (8.85) (276.98) 40.65 Interest income from receivables and other in 2020 is mainly related to clearance of the arbitration proceedings initiated by OMV Aktiengesellschaft at the International Chamber of Commerce Paris against the Romanian Ministry of Environment. 25. OTHER FINANCIAL INCOME AND EXPENSE Net foreign exchange gains/(losses) from financing activities Net gains/(losses) from investments and financial assets Other financial expenses Other financial income and expenses 26. TAXES ON INCOME Current income taxes Deferred income taxes Taxes on income - (expense)/revenue 2020 (27.07) - (3.21) (30.28) 2019 (4.67) (1.33) (2.91) (8.91) 2020 (238.07) 50.38 (187.69) 2019 (699.81) 57.69 (642.12) Notes to the consolidated financial statements for the year ended December 31, 2020 139 OMV Petrom Annual Report 2020 Consolidated Financial Statements The reconciliation of net deferred tax is as follows: Deferred tax, net January 1 Deferred tax, net December 31 Changes in deferred tax thereof deferred tax expense in consolidated other comprehensive income thereof deferred tax transferred to "held for sale" thereof deferred tax revenue 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 2020 1,470.02 1,533.74 63.72 (5.16) 18.50 50.38 1,478.70 16% (236.59) (1.20) (237.79) 50.10 (187.69) 2019 1,412.51 1,470.02 57.51 (0.18) - 57.69 4,276.80 16% (684.29) 0.85 (683.44) 41.32 (642.12) In 2020, main amounts included under items that are (non-deductible) / non-taxable relate to fiscal credits. 27. EARNINGS PER SHARE Calculation of earnings per share is based on the following data: Net profit attributable to stockholders of the parent Weighted average number of shares Earnings per share in RON December 31, 2020 December 31, 2019 1,290.96 3,634.59 56,643,903,559 56,643,903,559 0.0228 0.0642 The basic and diluted earnings per share are the same, as there are no instruments that have a dilutive effect on earnings. 140 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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, Bulgaria and Kazakhstan. Upstream products consisting of crude oil and natural gas are sold mainly inside of OMV Petrom Group. 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 Group 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. Notes to the consolidated financial statements for the year ended December 31, 2020 141 OMV Petrom Annual Report 2020 Consolidated Financial Statements Operating segments: December 31, 2020 Upstream Downstream * Downstream Oil Downstream Gas Downstream elimination Corpo- rate & Other Total Consoli- dation Consoli- dated total Intersegment sales Sales with third parties 5,852.05 214.83 92.04 256.74 (133.95) 197.01 6,263.89 (6,263.89) - 309.87 19,376.70 13,564.84 5,811.86 - 30.41 19,716.98 - 19,716.98 Total sales 6,161.92 19,591.53 13,656.88 6,068.60 (133.95) 227.42 25,980.87 (6,263.89) 19,716.98 Operating result (985.10) 2,317.41 1,060.30 1,257.11 Total assets** 22,906.69 7,272.13 5,785.32 1,486.81 Additions in PPE/IA Depreciation and amortization Impairment losses/ (write- ups), net 2,917.04 813.21 805.03 8.18 2,138.06 860.10 749.59 110.51 1,151.77 (518.06) 0.59 (518.65) - - - - - (104.88) 1,227.43 239.66 1,467.09 434.89 30,613.71 - 30,613.71 22.89 3,753.14 - 3,753.14 45.93 3,044.09 - 3,044.09 0.05 633.76 - 633.76 *) Sales Downstream = Sales Downstream Oil + Sales Downstream Gas – intersegmental elimination Downstream Oil and Downstream Gas; **) Intangible assets (IA), property, plant and equipment (PPE). Information about geographical areas: December 31, 2020 Sales with third parties* Total assets** Additions in PPE/IA Romania 17,066.90 29,688.26 3,554.25 Rest of Central Eastern Europe 2,627.14 925.45 176.50 Rest of Europe Rest of world - - - 22.94 - 22.39 Consolidated total 19,716.98 30,613.71 3,753.14 *) 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 1,302.14 million in 2020. 142 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Operating segments: December 31, 2019 Upstream Downstream * Downstream Oil Downstream Gas Downstream elimination Corpo- rate & Other Total Consoli- dation 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 Additions in PPE/IA Depreciation and amortization Impairment losses/ (write- ups), net 3,853.21 908.04 822.89 85.15 2,083.32 830.83 742.77 88.06 669.15 8.66 4.84 3.82 - - - - - (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 41.19 2,955.34 - 2,955.34 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). Information about geographical areas: December 31, 2019 Sales with third parties* Total assets** Additions in PPE/IA Romania 21,565.86 29,857.21 4,693.87 Rest of Central Eastern Europe 3,848.88 807.59 130.07 Rest of Europe Rest of world 41.66 - - 29.07 411.93 (10.11) Consolidated total 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. 29. AVERAGE NUMBER OF EMPLOYEES Total OMV Petrom Group thereof: OMV Petrom S.A. Subsidiaries December 31, 2020 December 31, 2019 11,791 12,720 10,949 842 11,814 906 The number of employees was calculated as the average of the month’s end number of employees during the year. Notes to the consolidated financial statements for the year ended December 31, 2020 143 OMV Petrom Annual Report 2020 Consolidated Financial Statements 30. RELATED PARTIES The terms of the outstanding balances receivable from/payable to related parties are typically 0 to 120 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, 2020 and December 31, 2019. Dividends receivable are not included in the below balances and revenues. During 2020, OMV Petrom Group had the following transactions with related parties (including balances as of December 31, 2020): Nature of transactions Purchases Balances payable OMV Petrom S.A. - parent company OMV Supply & Trading Limited Acquisition of crude oil and petroleum products OMV Petrom Global Solutions S.R.L. Financial, IT and other services OMV Gas Marketing & Trading GmbH Acquisition of natural gas and other OMV Exploration & Production GmbH Delegation of personnel and other OMV Downstream GmbH (former OMV Refining & Marketing GmbH) OMV Aktiengesellschaft OMV Gas & Power GmbH Acquisition of petroleum products and services Delegation of personnel and other Delegation of personnel and other OMV Austria Exploration & Production GmbH Acquisition of materials OMV New Zealand Limited OMV - International Services Ges.m.b.H. Total OMV Petrom S.A. Various services Various services OMV Petrom Group subsidiaries OMV Downstream GmbH (former 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 - International Services Ges.m.b.H. Various services OMV Exploration & Production GmbH Delegation of personnel and other Borealis L.A.T GmbH OMV Aktiengesellschaft OMV Gas & Power GmbH Total subsidiaries Total OMV Petrom Group Acquisition of materials Delegation of personnel and other Various services 1,130.86 468.61 424.98 104.99 65.86 31.51 0.39 0.12 0.06 0.01 238.76 113.21 115.20 34.52 39.27 38.71 1.68 - 0.06 - 2,227.39 581.41 92.74 72.40 27.59 6.98 3.23 1.15 0.71 0.20 205.00 2,432.39 16.06 8.37 1.32 28.90 0.41 - 0.05 0.20 55.31 636.72 144 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Nature of transactions Revenues Balances receivable OMV Petrom S.A. - parent company OMV Gas Marketing & Trading GmbH Sales of natural gas and other OMV Deutschland Marketing & Trading GmbH & Co. KG Sales of propylene OMV Deutschland GmbH OMV Downstream GmbH (former OMV Refining & Marketing GmbH) OMV Supply & Trading Limited Sales of propylene Sales of petroleum products, delegation of personnel and other Sales of petroleum products OMV Exploration & Production GmbH Delegation of personnel and other OMV Petrom Global Solutions SRL Various services OMV Aktiengesellschaft Delegation of personnel and other OMV Austria Exploration & Production GmbH Sale of fixed assets Borealis L.A.T Romania s.r.l. Total OMV Petrom S.A. Various services OMV Petrom Group subsidiaries OMV Petrom Global Solutions S.R.L. Various services OMV Česká republika, s.r.o. OMV Downstream GmbH (former OMV Refining & Marketing GmbH) Delegation of personnel Delegation of personnel and other OMV Exploration & Production GmbH Delegation of personnel OMV - International Services Ges.m.b.H. Various services Total subsidiaries Total OMV Petrom Group 333.96 119.32 111.37 91.34 29.54 26.08 23.18 11.92 0.33 0.07 747.11 1.77 0.82 0.65 0.52 - 3.76 750.87 0.45 31.78 - 3.02 - 3.14 2.09 2.61 - 0.02 43.11 0.19 - 1.71 0.16 12.59 14.65 57.76 During 2020, OMV Petrom Group had the following interest expenses with related parties (including balances as of December 31, 2020 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 1.87 1.87 1.87 0.14 0.14 0.14 There were no interest income and interest receivables with related parties in 2020. In December 2019, OMV Petrom S.A. signed a contract to acquire OMV Offshore Bulgaria GmbH, the transaction being completed in August 2020 (see Note 34 and Note 35 for more details). This transaction was accounted for as asset acquisition, given that the acquired entity does not constitute a business as defined by IFRS 3 Business Combinations. Notes to the consolidated financial statements for the year ended December 31, 2020 145 OMV Petrom Annual Report 2020 Consolidated Financial Statements During 2019, OMV Petrom Group had the following transactions with related parties (including balances as of December 31, 2019): Nature of transactions Purchases Balances payable OMV Petrom S.A. - parent company OMV Supply & Trading Limited Acquisition of crude oil and petroleum products OMV Petrom Global Solutions SRL Financial, IT and other services 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 OMV Gas Marketing & Trading Hungária Kft. OMV - International Services Ges.m.b.H. Trans Gas LPG Services S.R.L. Total OMV Petrom S.A. OMV Petrom Group subsidiaries Acquisition of petroleum products, other materials and services Delegation of personnel and other Delegation of personnel and other Acquisition of propylene Various services Various services Various services OMV Gas Marketing & Trading GmbH Acquisition of natural gas OMV Refining & Marketing GmbH Acquisition of petroleum products, other materials and services OMV Petrom Global Solutions SRL 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 Ges.m.b.H. 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 2,111.41 450.73 356.56 85.49 58.02 35.64 5.66 0.10 0.01 0.01 0.01 204.02 101.29 51.55 34.91 30.15 30.84 2.84 - - - - 3,103.64 455.60 159.53 130.58 77.69 27.08 18.09 7.66 4.99 0.77 0.73 - 427.12 3,530.76 - 19.09 15.36 1.17 - 81.39 0.63 - 0.06 0.01 117.71 573.31 146 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Nature of transactions Revenues Balances receivable OMV Petrom S.A. - parent company OMV Gas Marketing & Trading GmbH Sales of electrivcity 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. OMV Petrom Group subsidiaries OMV Petrom Global Solutions SRL OMV Gas Marketing & Trading GmbH OMV Refining & Marketing GmbH OMV Česká republika, s.r.o. Various services Various services Various services Sales of natural gas Delegation of personnel and other Delegation of personnel and other OMV Exploration & Production GmbH Delegation of personnel and other Borealis OMV Offshore Bulgaria GmbH OMV - International Services Ges.m.b.H. Total subsidiaries Total OMV Petrom Group Various sales and services 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 4.24 1.55 0.95 0.83 0.16 0.10 0.06 - 7.89 772.35 (0.04) - 0.14 - 0.02 - 0.01 12.75 12.88 117.72 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 There were no interest income and interest receivables with related parties in 2019. Interest expense Balances interest payable 1.67 1.67 1.67 0.14 0.14 0.14 Notes to the consolidated financial statements for the year ended December 31, 2020 147 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 L.L.C. (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. The consolidated financial statements of OMV Aktiengesellschaft are prepared in accordance with IFRS as adopted by the EU and in accordance with the supplementary accounting regulations pursuant to Sec. 245a, Para. 1 of the Austrian Company Code (UGB) and are available on OMV’s website: http://www.omv.com/portal/01/com/omv/OMV_Group/investors-relations/reportsandpresentations. Key management remuneration For 2020, the General Meeting of Shareholders of OMV Petrom S.A. approved an annual gross remuneration corresponding to a net remuneration for each member of the Supervisory Board amounting to EUR 20,000 per year (2019: 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 (2019: 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 (2019: EUR 2,000 per meeting). As at December 31, 2020 and 2019, there were no loans or advances granted by any of the Group companies to the members of the Supervisory Board. As at December 31, 2020 and 2019, the Group companies did not have any obligations regarding pension payments to former members of the Supervisory Board. The aggregate amount of remuneration and other benefits, including benefits in-kind, paid in 2020 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 69.40 million (2019: RON 81.51 million). The remuneration paid to members of the Executive Board and to the directors reporting to Executive Board members aims to be at 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, HSSE and sustainability metrics) in line with company strategy, to align the interests of management and shareholders, including both short and long term plans: ▸ performance bonus program of 1 year; ▸ long term incentive as multi-year performance plan of 3 years; benefits in kind (non-cash benefits) as support to properly carry out job related activities, including accident and liability insurance. 148 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 31. DIRECT AND INDIRECT INVESTMENTS OF OMV PETROM GROUP WITH AN INTEREST OF AT LEAST 20% AS OF DECEMBER 31, 2020 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 Offshore Bulgaria GmbH OMV Petrom Gas S.R.L. Petromed Solutions S.R.L. OMV Srbija DOO OMV Bulgaria OOD Petrom Exploration & Production Limited Associated companies (20-50%) OMV Petrom Global Solutions S.R.L. Asociatia Romana pentru Relatia cu Investitorii *) 1 (one) equity interest owned through OMV Petrom Marketing S.R.L. **) Consolidation treatment: Share interest percentage Consolidation treatment** Activity Country of incorporation 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.99% 99.99% 99.96% 99.90% 99.99% 25.00% 20.00% Oil exploration and production in Kazakhstan FC Oil exploration and production in Kazakhstan FC FC Fuel distribution FC Fuel distribution FC Airport services FC Exploration activities FC Gas supply FC Medical services FC Fuel distribution FC Fuel distribution Kazakhstan Kazakhstan Moldova Romania Romania Austria Romania Romania Serbia Bulgaria NC Exploration and production services Isle of Man EM Financial, IT and other services NAE Public representation Romania Romania FC EM NC NAE Full consolidation Accounted for at equity (associated company) Not-consolidated subsidiary (companies of relative insignificance, both individually and collectively, to the consolidated financial statements) Other investment recognized at cost (associated companies of relatively little importance to the assets and earnings of the consolidated financial statements). On August 31, 2020, OMV Petrom S.A. completed the acquisition of 100% shares in OMV Offshore Bulgaria GmbH, which holds an interest in Han Asparuh offshore block in Bulgaria, from OMV Exploration & Production GmbH. The new subsidiary is consolidated starting with the acquisition date. Starting with October 31, 2020, the subsidiary Petrom Exploration & Production Ltd was deconsolidated due to immateriality. 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. 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. Notes to the consolidated financial statements for the year ended December 31, 2020 149 OMV Petrom Annual Report 2020 Consolidated Financial Statements 32. CASH FLOW STATEMENT INFORMATION a) Drawings and repayments of borrowings The following tables show the reconciliation of the changes in liabilities arising from financing activities: 1 January 2020 Repayments of interest bearing debts and principal portion of lease liabilities Increase in interest bearing debts Total cash flows relating to financing activities Lease liabilities recognized during the year Net other changes Total non-cash changes 31 December 2020 thereof short-term thereof long-term 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 330.13 700.94 1,031.07 (91.80) 41.55 (50.25) - 4.09 4.09 283.97 175.03 108.94 Interest- bearing debts 549.30 (226.85) (226.85) - 7.68 7.68 330.13 132.25 197.88 (130.31) - (130.31) 118.61 (8.85) 109.76 680.39 137.33 543.06 Lease liabilities 169.44 (100.80) (100.80) 637.38 (5.08) 632.30 700.94 128.79 572.15 (222.11) 41.55 (180.56) 118.61 (4.76) 113.85 964.36 312.36 652.00 Total 718.74 (327.65) (327.65) 637.38 2.60 639.98 1,031.07 261.04 770.03 150 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements b) Non-controlling interest There were no changes in non-controlling interest during 2020 and 2019. 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. d) Proceeds in relation to non-current assets In 2020, proceeds in relation to non-current assets include the amount of RON 140.19 million representing the encashment by OMV Petrom S.A. from the third tranche of the government grant for Brazi power plant investment (2019: RON 226.59 million representing the first two tranches). For details please see Note 9 b). e) Transfer of business In 2020, OMV Petrom Group did not transfer any business. In March 2019, OMV Petrom 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 Notes to the consolidated financial statements for the year ended December 31, 2020 151 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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. f) Disposal of Group companies During 2020 and 2019, OMV Petrom Group did not dispose of any subsidiary. In 2020 the Group received an advance for the expected sale of Kazakhstan subsidiaries, in amount of RON 71.59 million. 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, 2020 is of RON 253.70 million (2019: RON 497.10 million), out of which the amount of RON 144.58 million is related to operating activities (2019: RON 129.51 million) and the amount of RON 109.12 million represents cash outflows for exploration investing activities (2019: RON 367.59 million). h) Other non-monetary adjustments Other non-monetary adjustments include mainly the change in the fair value of derivatives through income statement and impact from reassessment of long-term receivables. i) Cash and cash equivalents Cash at banks and on hand Short-term deposits Cash and cash equivalents December 31, 2020 December 31, 2019 303.15 7,147.49 7,450.64 334.24 6,679.30 7,013.54 152 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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). In order to determine the fair value for financial instruments, usually forward prices of commodities, as obtained from the market, and foreign exchange rates are used as inputs to the valuation model. Net amount of assets and liabilities associated with assets held for sale are measured at fair value. The basis of the valuation was fair values less cost of disposal derived from an agreed sales price. 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 and assets held for sale as at December 31, 2020 Derivatives designated and effective as hedging instruments Other derivatives Net amount of assets and liabilities associated with assets held for sale Total . Fair value hierarchy of financial liabilities as at December 31, 2020 Derivatives designated and effective as hedging instruments Other derivatives Other financial liabilities Total 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 - - - - 16.33 631.19 448.22 1,095.74 - - - - Total 16.33 631.19 448.22 1,095.74 Level 1 Level 2 Level 3 Total - - - - (19.58) (453.06) - - (19.58) (453.06) - (15.88) (15.88) (472.64) (15.88) (488.52) Level 1 Level 2 Level 3 Total - - - 227.01 54.63 281.64 - - - 227.01 54.63 281.64 Notes to the consolidated financial statements for the year ended December 31, 2020 153 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 Other derivatives Net amount of assets and liabilities associated with assets held for sale Other financial liabilities Total Level 1 Level 2 Level 3 Total - - - - - (194.03) (19.69) (6.55) - - - (194.03) (19.69) (6.55) - (14.31) (14.31) (220.27) (14.31) (234.58) 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, 2020 and December 31, 2019, as well as the respective differences are presented in the tables below. The fair value of these financial liabilities was determined by discounting future contractual cash flows using interest rates prevailing at reporting date for similar liabilities with similar maturities, obtained from the market for similar transactions (Level 2 – observable inputs). The management assessed that the fair values of other financial assets and financial liabilities that were measured at amortized cost approximate their carrying amounts. December 31 2020 Financial liabilities Interest-bearing debts Total December 31 2019 Financial liabilities Interest-bearing debts Total Fair value 286.66 286.66 Fair value 335.55 335.55 Carrying amount 283.96 283.96 Carrying amount 330.13 330.13 Difference 2.70 2.70 Difference 5.42 5.42 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. 154 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Offsetting of financial assets 2020 Derivative financial instruments Trade receivables Other financial assets Total 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) - (42.72) - (42.72) 647.52 1,258.13 255.45 2,161.10 (429.41) - (62.33) (491.74) Net amounts 218.11 1,258.13 193.12 1,669.36 Gross amounts 647.52 1,300.85 255.45 2,203.82 *) Net amounts presented in the statement of financial position are detailed in Note 9. Offsetting of financial liabilities 2020 Derivative financial instruments Trade payables Other financial liabilities Total 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) - (42.72) - (42.72) 472.64 2,858.64 371.62 3,702.90 (429.41) - (62.33) (491.74) Net amounts 43.23 2,858.64 309.29 3,211.16 Gross amounts 472.64 2,901.36 371.62 3,745.62 *) Net amounts presented in the statement of financial position are detailed in Note 16. Offsetting of financial assets 2019 Derivative financial instruments Trade receivables Other financial assets Total Amounts set- off in the statement of financial position Net amounts presented in the statement of financial position* Gross amounts 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 Assets with right of set-off (not offset) (188.31) - - (188.31) Net amounts 93.33 1,891.86 364.20 2,349.39 *) Net amounts presented in the statement of financial position are detailed in Note 9. Offsetting of financial liabilities 2019 Derivative financial instruments Trade payables Other financial liabilities Total Amounts set- off in the statement of financial position Net amounts presented in the statement of financial position* Gross amounts 213.72 3,527.17 264.52 4,005.41 - (154.82) - (154.82) 213.72 3,372.35 264.52 3,850.59 Liabilities with right of set-off (not offset) (188.31) - - (188.31) Net amounts 25.41 3,372.35 264.52 3,662.28 *) Net amounts presented in the statement of financial position are detailed in Note 16. Notes to the consolidated financial statements for the year ended December 31, 2020 155 OMV Petrom Annual Report 2020 Consolidated Financial Statements 34. COMMITMENTS AND CONTINGENCIES Commitments As at December 31, 2020 the total commitments engaged by OMV Petrom Group for investments (except those in relation to joint arrangements) are in amount of RON 796.26 million (2019: RON 914.34 million), out of which RON 623.75 million related to property, plant and equipment (2019: RON 737.72 million) and RON 172.51 million for intangible assets (2019: RON 176.62 million). The Group has additional commitments in relation to joint arrangements - for details please refer to Note 35. Litigations We face a variety of litigations, arbitrations, proceedings and disputes referring to a wide range of subjects, such as, but without being limited to, real estate matters, fiscal matters, intellectual property, environmental, competition, administrative matters, commercial matters, labour related litigation, debt recovery, insolvency of contractors, criminal deeds, and contraventional matters. It is possible that unanticipated judicial outcomes might occur. OMV Petrom Group provides for litigations that are likely to result in obligations. Management is of the opinion that litigations, to the extent not covered by provisions or insurance, will not materially affect OMV Petrom Group’s financial position. Contingent liabilities The production facilities and properties of all Group companies are subject to a variety of environmental protection laws and regulations in the countries where they operate; provisions are made for probable obligations arising from environmental protection measures. In December 2019, OMV Petrom S.A. signed a contract to acquire OMV Offshore Bulgaria GmbH, which holds a stake in the Han Asparuh exploration license in Bulgaria. The transaction was completed at the end of August 2020, by means of acquisition of 100% shares in OMV Offshore Bulgaria GmbH from OMV Exploration & Production GmbH. The contract between OMV Petrom S.A. and the seller OMV Exploration & Production GmbH includes contingent variable payments to be made by OMV Petrom S.A. which are dependent on reserves determinations at final investment decision milestone and at reserves revision milestone. The reserves determinations will have to be certified by a jointly appointed suitable qualified and experienced third party reserves auditor. At the date of these financial statements, a reliable estimate of the potential variable payments and timing, if any, cannot be made. Therefore, no provision has been recognized in this respect in OMV Petrom’s Group Financial Statements as at December 31, 2020. On April 16, 2020, the Bulgarian Commission for Protection of Competition announced the initiation of an investigation regarding the determination of the prices on fuel market. OMV Bulgaria EOOD is subject to this investigation, among other major manufacturers and retailers on Bulgarian market. During 2020 two requests of providing information were received from authorities and the responses were submitted in due time. The sanctions for antitrust infringements are up to 10% of the total company’s turnover of the respective undertaking for the financial year prior to the sanctioning decision. At the date of these financial statements, we are not able to evaluate the outcome of the investigation and no provision was recorded in this respect. In addition, OMV Petrom Group has contingent liabilities representing performance guarantees in amount of RON 371.84 million as at December 31, 2020 (2019: RON 196.73 million). 156 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 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 December 2019, OMV Petrom S.A. signed a contract to acquire OMV Offshore Bulgaria GmbH, which at that time held a 30% stake in the Han Asparuh exploration license in Bulgaria, alongside Repsol and Total. In June 2020, this percentage increased to 42.86% following Repsol’s exit from the joint venture, as approved by the Bulgarian regulator. The remaining interest of 57.14% is held by Total, which is also the operator. The transaction was completed at the end of August 2020, by means of acquisition of 100% shares in OMV Offshore Bulgaria Gmbh from OMV Exploration & Production Gmbh. 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, 2020 is amounting RON 44.73 million (2019: RON 57.86 million), mainly in relation to offshore activities requirements. 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 6,486.28 million at December 31, 2020 (2019: net cash position of RON 5,982.47 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. Notes to the consolidated financial statements for the year ended December 31, 2020 157 OMV Petrom Annual Report 2020 Consolidated Financial Statements To ensure that management takes risk-informed decisions, with adequate consideration of actual and prospective information/data, OMV Petrom Executive Board has empowered a dedicated Risk Management function with the objective to centrally lead and coordinate the Group’s risk management-related processes. This department ensures that well-defined and consistent risk management processes, tools, and techniques are applied across the entire organization. Risk ownership is assigned to the managers who are best suited to oversee and manage the respective risk. OMV Petrom’s consolidated risk profile is reported twice a year to the Executive Board and to Supervisory Board’s Audit Committee. 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. The main purpose of the OMV Petrom’s EWRM process is to deliver value through risk-based management and decision- making. OMV Petrom Group is constantly enhancing the EWRM process based on internal and external requirements. The process is facilitated by OMV Petrom Group-wide IT system supporting the established individual process steps (risk identification, risk analysis, risk evaluation, risk treatment, reporting, and risk review through continuous monitoring of changes to the risk profile), guided by the ISO 31000 risk management framework. 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. Climate Change Risks OMV Petrom consistently evaluates the Group’s exposure to risks related to climate-change in addition to the market price risk from European Emission Allowances. Such risks comprise the potential impact of acute or chronic events like more frequent extreme weather events or systemic changes to our business model due to a changing legal framework or substitution of OMV Petrom Group’s products due to changing consumer behavior. OMV Petrom Group recognizes climate change as a key global challenge. We thus integrate the related risks and opportunities into the development of the Group’s business strategy. Commodity Market Price Risk In regard to the market price risk, OMV Petrom Group 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 Group’s risk profile and liquidity. The market price risks of OMV Petrom Group commodities are closely analysed, quantified, and evaluated. Financial derivative instruments are used where appropriate to hedge the main industry risks resulting from changes in commodity prices which could have a negative effect on assets, liabilities or expected future cash flows. Hedges are generally placed in the legal entities where the underlying exposure exists. When certain conditions are met, the Group may elect to apply IFRS 9 hedge accounting principles in order to recognize the offsetting effects in the income statement of changes in the fair value of the hedging instruments at the same time with the hedged items. In 2020 the risk management objective for the refinery margin hedges for diesel and jet changed and therefore the corresponding hedging relationships were discontinued. The accumulated gains and losses remain in the cash flow hedging reserve upon realization of the hedged items. The gains and losses related to the forecast sales and purchases of specific 158 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements products for which the hedged future cash flows were no longer expected to occur, being affected by COVID-19 outbreak, were immediately reclassified from other comprehensive income. Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives are not designated as hedging instruments, they are classified as fair value through profit or loss (FVPL) in accordance with IFRS 9. 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 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. In 2020 most of the refinery margin hedges were discontinued due to the change in the risk management objective. Stock hedges are used to mitigate price exposure whenever actual priced stock levels deviate from target 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). Nominal and fair values of derivatives designated and effective as hedging instruments 2020 Nominal value Below one year More than one year Fair value - assets Fair value - liabilities Cash flow hedge reserve (before tax) 2019 Nominal value Below one year More than one year Fair value - assets Fair value - liabilities Cash flow hedge reserve (before tax) Forecast purchases Forecast sales 91.87 91.87 - - 14.18 (14.18) Forecast purchases 313.77 193.60 120.17 26.76 - 26.76 147.85 147.85 - 16.33 5.40 10.93 Forecast sales 4,120.59 2,794.79 1,325.80 200.25 194.03 6.22 Total 239.72 239.72 - 16.33 19.58 (3.25) Total 4,434.36 2,988.39 1,445.97 227.01 194.03 32.98 Notes to the consolidated financial statements for the year ended December 31, 2020 159 OMV Petrom Annual Report 2020 Consolidated Financial Statements The tables above show the fair values of derivative financial instruments designated and effective as hedging instruments together with their notional amounts. The notional amount, reflected gross, is the amount of a derivative’s underlying asset and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of the transactions outstanding at the year-end and are not indicative of either the market risk or the credit risk. Fair values are presented in lines “Other financial assets” and “Other financial liabilities” in consolidated statement of financial position. Cash flow hedging - Impact of hedge accounting 2020 Cash flow hedge reserve as of 1 January 2020 (net of tax) Gains/(losses) of the period recognized in OCI Amounts reclassified to income statement Amounts reclassified from OCI because the hedged future cash flows no longer expected to occur Amounts transferred to cost of non-financial item Tax effects Cash flow hedge reserve as of 31 December 2020 (net of tax) Thereof discontinued hedges Hedge ineffectiveness recognized in income statement 2019 Cash flow hedge reserve as of 1 January 2019 (net of tax) Gains/(losses) of the period recognized in OCI Amounts reclassified from OCI Tax effects Cash flow hedge reserve as of 31 December 2019 (net of tax) Thereof discontinued hedges Hedge ineffectiveness recognized in income statement Forecast purchases 22.48 (134.60) - 14.79 78.87 6.55 (11.91) - (3.81) Forecast sales 5.22 467.80 (369.69) (1.62) - (15.44) 86.27 77.09 9.72 Forecast purchases Forecast sales - 32.52 (5.76) (4.28) 22.48 - 0.05 4.22 (7.83) 9.02 (0.19) 5.22 - (0.34) Total 27.70 333.20 (369.69) 13.17 78.87 (8.89) 74.36 77.09 5.91 Total 4.22 24.69 3.26 (4.47) 27.70 - (0.29) For “Forecast purchases” the hedge ineffectiveness is included in line item “Purchases (net of inventory variation)” in the consolidated income statement. The hedge ineffectiveness and recycling of “Forecast sales” for hedges where a risk component of the non-financial item is designated as the hedged item in the hedging relationship are shown in line item “Sales revenues” in the consolidated income statement. 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: 160 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements Assets Liabilities December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019 Thousand USD Thousand EUR 248,806 125,303 153,748 72,171 234,593 234,242 130,547 250,068 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 -10% decrease in the foreign currencies rates Profit/ (Loss) Other comprehensive income Thousand USD Impact (i) Thousand EUR Impact (ii) 2020 1,503 (82) 2019 14 2,306 2020 2019 (10,894) (17,790) - - Thousand USD Impact (i) Thousand EUR Impact (ii) 2020 (1,503) 82 2019 (14) (2,306) 2020 10,894 - 2019 17,790 - (i) This is mainly attributable to the exposure on USD of derivative financial assets, cash and cash equivalents, derivative financial liabilities and trade payables at the year end. (ii) This is mainly attributable to the exposure on EUR of trade receivables, interest bearing debts, lease liabilities and trade payables. 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). Notes to the consolidated financial statements for the year ended December 31, 2020 161 OMV Petrom Annual Report 2020 Consolidated Financial Statements Analysis for change in interest rate risk Balance as at Effect of 1% change in interest rate, before tax Short term borrowings Long term borrowings 173.97 108.98 130.70 198.00 1.74 1.09 1.31 1.98 December 31,2020 December 31,2019 December 31,2020 December 31,2019 In 2020 and 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. 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 2020 the statutory auditor Ernst & Young Assurance Services SRL had a contractual statutory audit fee of EUR 545,000 (2019: 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 128,920 (2019: EUR 120,400), representing mainly other assurance services in relation to certain 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 153,900 (2019: 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 5,946 (2019: EUR 2,405). 162 Notes to the consolidated financial statements for the year ended December 31, 2020 OMV Petrom Annual Report 2020 Consolidated Financial Statements 38. SUBSEQUENT EVENTS There are no significant events subsequent to the reporting date. These financial statements, presented from page 88 to page 163, 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, 2021. _____________________ Christina Verchere, Chief Executive Officer President of the EB _____________________ Alina Popa, Chief Financial Officer Member of the EB _____________________ Christopher Veit, 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, 2020 163 OMV Petrom Annual Report 2020 Consolidated report on payments to governments Consolidated report on payments to governments for the year 2020 Cover+picture 164 Consolidated report on payments to governments for the year 2020 OMV Petrom Annual Report 2020 Consolidated report on payments to governments Consolidated report on payments to governments for the year 2020 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 group) 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. Beside 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), KOM-Munai LLP (Kazakhstan) and OMV Offshore Bulgaria GmbH (Bulgaria). For the last one, no payments in scope of this report are to be reported for the year 2020. 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. 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. Consolidated report on payments to governments for the year 2020 165 OMV Petrom Annual Report 2020 Consolidated report on payments to governments 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 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. 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 group 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 2020, OMV Petrom group had no such reportable dividend payments to a government. 166 Consolidated report on payments to governments for the year 2020 OMV Petrom Annual Report 2020 Consolidated report on payments to governments Bonuses Bonuses include signature, discovery and production bonuses in each case to the extent paid in relation to the relevant activities. OMV Petrom group 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 group for infrastructure improvements such as a building of a road or bridge that serve the community, irrespective if OMV Petrom group 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. Payments overview The overview table below shows the relevant payments to governments that were made by OMV Petrom group in the year that ended December 31, 2020. Out of the seven payment types that are required by the Regulation to be reported upon, OMV Petrom group 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 683,785 53,958 737,742 584,356 - 584,356 128,467 4,044 132,511 1,396,607 58,002 1,454,609 Consolidated report on payments to governments for the year 2020 167 OMV Petrom Annual Report 2020 Consolidated report on payments to governments Payments by project, government and type of payment (in thousands of RON) ROMANIA Payments per project Onshore production zones Onshore Joint Operations Offshore Black Sea Payments not attributable to projects Total Payments per Government State Budget National Company of Forests - Romsilva Various Local City Councils National Authority for Electricity Regulation (ANRE) National Agency for Mineral Resources (ANRM) Offshore Operations Regulatory Authority (ACROPO) CONPET S.A. Total KAZAKHSTAN Payments per project Tasbulat, Turkmenoi, Aktas Komsomolskoe Total Payments per Government State Revenue Committee1 Licensed Research and Development Organizations2 Akimat of Mangystau Region3 Training centers, universities 4 Total Total Taxes (on income, production or profit) Royalties Fees (license, rental, entry and others) Total Payments - - 61,046 622,739 683,785 444,381 5,085 134,890 - 107,613 - 3,457 17,397 551,994 5,085 199,393 640,136 584,356 128,467 1,396,607 683,785 584,356 - 1,268,140 - - - - - - - - - - - - 74,244 21,928 17,397 11,656 2,770 472 74,244 21,928 17,397 11,656 2,770 472 683,785 584,356 128,467 1,396,607 19,860 34,097 53,958 53,958 - - - 53,958 737,742 - - - - - - - - 2,763 1,281 4,044 - 2,581 1,096 367 4,044 22,623 35,379 58,002 53,958 2,581 1,096 367 58,002 584,356 132,511 1,454,609 1 State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan; 2 Various expenses with regard to research and development works; 3 Financing of various projects under the joint control of the Akimat of Mangystau Region and OMV Petrom; 4 Financing of various expenses with regard to university training centers as agreed within the concession. Christina Verchere Chief Executive Officer President of the EB Alina Popa Chief Financial Officer Member of the EB Christopher Veit Member of the EB Upstream Franck Neel Member of the EB Downstream Gas Radu Căprău Member of the EB Downstream Oil 168 Consolidated report on payments to governments for the year 2020 OMV Petrom Annual Report 2020 Contact and Disclaimer Contact and Disclaimer 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. 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