More annual reports from SNGN Romgaz SA :
2023 ReportSocietatea Nationala de Gaze Naturale “ROMGAZ” SA Consolidated Board of Directors’ Report 2019 2019 Consolidated Board of Directors’ Report Contents I. 2019 ROMGAZ GROUP OVERVIEW .............................. Error! Bookmark not defined. 1.1. Romgaz Group in figures ............................................. Error! Bookmark not defined. 1.2. Important events .......................................................... Error! Bookmark not defined. II. THE PARENT COMPANY AT A GLANCE .................... Error! Bookmark not defined. 2.1. Identification Data ....................................................... Error! Bookmark not defined. 2.2. Company organization ................................................. Error! Bookmark not defined. 2.3. Mission, Vision and Values ......................................... Error! Bookmark not defined. 2.4. Strategic Objectives ..................................................... Error! Bookmark not defined. III. REVIEW OF ROMGAZ GROUP BUSINESS ................. Error! Bookmark not defined. 3.1. Business Segments ...................................................... Error! Bookmark not defined. 3.2. Brief History ................................................................ Error! Bookmark not defined. 3.3. Mergers and Reorganizations, Acquisitions and Divestment of Assets ....................... 18 3.4. Group Business Performance ..................................................................................... 19 3.4.1. Overall Performance ........................................................................................... 19 3.4.2. Sales ..................................................................... Error! Bookmark not defined. 3.4.3. Prices and Tariffs .................................................. Error! Bookmark not defined. .................................................. Error! Bookmark not defined. .......................................... Error! Bookmark not defined. ............................. Error! Bookmark not defined. ............................................................. Error! Bookmark not defined. IV. GROUP’S TANGIBLE ASSETS ..................................... Error! Bookmark not defined. 4.1. Main Production Facilities ........................................... Error! Bookmark not defined. 4.2. Investments ................................................................. Error! Bookmark not defined. V. SECURITIES MARKET ................................................... Error! Bookmark not defined. 5.1. Dividend Policy ......................................................................................................... 48 VI. COMPANY MANAGEMENT ........................................ Error! Bookmark not defined. 6.1. Board of Directors ....................................................... Error! Bookmark not defined. 6.2. Upper Management ..................................................... Error! Bookmark not defined. VII. CONSOLIDATED FINANCIAL-ACCOUNTING INFORMATION .. Error! Bookmark not defined. 7.1. Statement of Financial Position .................................... Error! Bookmark not defined. 7.2. Statement of consolidated Comprehensive Income....... Error! Bookmark not defined. 7.3. Statement of Cash Flows ............................................. Error! Bookmark not defined. VIII. CORPORATE GOVERNANCE ................................... Error! Bookmark not defined. IX. PERFORMANCE OF THE MANDATE CONTRACT/DIRECTORS’ AGREEMENTS 80 Signatures ............................................................................ Error! Bookmark not defined.1 Page 2 of 2019 Consolidated Board of Directors’ Report Romgaz Group1 recorded in 2019 a revenue of RON 5,080.5 million, increasing by 1.52%, namely RON 76.3 million, as compared to the previous year. The Net Profit of RON 1,089.6 million was lower by RON 276.55 million than the net profit for 2018. Following factors influenced the net profit: A net impairment of assets of RON 837.3 million was recorded at the end of 2019 as a result of: cancelling some of the well investment projects (RON 250.3 million, of which RON 55.9 million for well Trinity – IX within EX 30 Trident block in the Black Sea), of some recent small investments in investment projects started in the previous years (RON 88.9 million), recording a net adjustment of RON 71.3 million following an impairment test of gas fields performed on December 31, 2019 and RON 388.1 million based on an impairment test of assets used in underground storage activity following the GMS and BoD decisions, taken in 2020, to increase the share capital of Filiala Depogaz; Increase by RON 166.1 million (30.16%) of the windfall tax further to the deregulation of prices in the gas sector; Decrease by RON 22.97% of petroleum royalty expenses (RON 343 million in 2019, compared to RON 445 million in 2018) further to the decrease in the reference price used in calculating such royalty; Increase by 11% of consolidated income from natural gas storage compared to 2018, in amount of RON 330.8 million (RON 298.0 million in 2018), the biggest influence being the capacity reservation services (an increase of RON 35.4 million, namely by 15.33%, compared to the previous year). The reserved capacity of 2019-2020 cycle (April 2019- March 2020), including the Group’s share increased by 26.08% compared to the 2018- 2019 underground storage cycle (April 2018-March 2019). In 2019, the quantities injected in storages increased by 51.40% which explains the increase of the income from underground storage services; Introduction in 2019 of a monetary contribution from licence holders in the electric power and natural gas sectors of 2% from the revenue obtained from the activities under the scope of licences granted by ANRE, amounting to RON 86.96 million. The consolidated net profit per share was RON 2.83. The achieved margins of the consolidated net profit (21.5%), consolidated EBIT (24.4%) and consolidated EBITDA (51.1%) confirm that the Group continues to maintain a high profitability. In 2019, Romgaz Group made investments of RON 891.6 million, lower by RON 296.9 million, namely 24.98%, compared to 2018 and the value of commissioned fixed assets was RON 522.8 million. 1 Romgaz Group consists of SNGN Romgaz SA (“Company”/”Romgaz”) as parent company, Filiala de Inmagazinare Gaze Naturale Depogaz Ploiesti SRL (“Depogaz”), 100% owned by Romgaz, and associates SC Depomures SA (40% of the share capital) and SC Agri LNG Project Company SRL (25% of the share capital). Page 3 of 2019 Consolidated Board of Directors’ Report In 2019, Romania’s natural gas consumption recorded a decrease of approximately 4%, from 12.3 bcm to 11.5 bcm according to ANRE and to the company’s consumption estimations2. The 2019 Romgaz natural gas production recorded in 2019 a volume of 5,277 million cm, being lower by 1.05% than the production recorded in 2018. This level of production is high in relation to hydrocarbon production sector where production decline continually diminishes reserves production potential. This production, according to estimations, ensured Romgaz a 56% market share of internal gas deliveries for consumption, and an approximately 44% market share of deliveries for the total consumption of Romania. The 2019 Romgaz electricity production was 590.13 GW lower by 49.35% than 2018 production because of the units’ unavailability due to works on the new power plant. According to Transelectrica, Romgaz’ market share is 1.00%. The table below shows a summary of the main production indicators, royalty and storage services: Q4 2018 Q3 2019 1,411 1,249.8 2,589 3,679 104 90 Q4 2019 1,327 4,388 96 Main indicators Δ Q4 (%) -5.95 Gas production (million m3) 69.49 Condensate production (tons) Petroleum royalty (million m3) -7.69 2018 2019 Δ ‘19/’18 (%) 5,333 5,277 -1.05 7,867 17,340 120.41 388 339 -12.63 414.5 120.4 298.0 -28.11 Electricity production (GWh) 1,165.2 590.1 -49.35 819.0 0.0 347.1 -57.62 119.6 1,226.8 346.1 189.38 Invoiced UGS withdrawal services (million m3) Invoiced UGS injection services (million m3) 1,949.9 1,271.8 -34.78 1,731.2 2,620.5 51.37 Natural gas quantities produced, delivered, injected into and withdrawn from gas storages are shown in the table below (million m3): Item No 0 1. 1.1. 1.2. 2. 3. 4. 5. 6. 7. Specifications 2017 2018 2019 Ratios Gross gas production – total, including: 1 *own gas *Schlumberger (100%) Technological consumption 2 3 5,157.5 5,333.3 5,276.9 4 5=4/3x100 98.9% 4,987.7 5,177.1 5,276.9 101.9% 169.8 156.3 74.5 86.4 0.0 78.9 - 91.3% Net own gas production (1.-1.2.-2.) 4,913.2 5,090.6 5,198.0 102.1% Own gas injected into UGS Own gas withdrawn from UGS 253.5 723.5 5.1. *gas cushion Difference from conversion to Gross Calorific Value 2.7 348.1 479.4 6.9 1.4 526.0 151.1% 257.7 53.8% 0.0 0.0 - - Delivered own gas (3.-4.+5.-6.) 8.1. Gas sold in UGS 5,380.5 5,220.5 4,929.7 94.4% 0.0 8.1 0.0 - 8.2. Gas delivered to CTE Iernut and Cojocna from Romgaz’s 506.4 326.7 173.0 53.0% gas 9. Own gas delivered to the market (7.+8.1.-8.2.) 4,874.1 4,901.9 4,756.7 97.0% 2 As until the date of this Report ANRE did not publish the gas market monitoring reports for December 2019, the data used for national consumption and market shares are estimated data. Page 4 of 2019 Consolidated Board of Directors’ Report Item No 0 10. Gas from joint ventures– total, including: Specifications 1 *Schlumberger (50%) *Raffles Energy (37.5%) 11. *Amromco (50%) Gas purchase from domestic production (including imbalances) 2017 2018 2019 Ratios 2 175.5 3 163.6 4 140.5 5=4/3x100 85.9% 84.9 0.1 90.5 27.0 78.2 0.0 85.4 9.7 0.0 0.0 140.5 4.4 - - 85.9% 45.4% 12. Traded domestic gas (9.+10.+11.) 5,076.6 5,075.2 4,901.6 96.6% 13. Gas delivered from domestic production (8.2+12.) 5,583.0 5,401.9 5,074.6 93.9% 14. 15. Delivered import gas Gas delivered to CTE Iernut and Cojocna from other sources (including imbalances) 33.0 40.3 181.4 19.4 53.0 4.5 29.2% 23.2% 16. Total delivered gas (13.+14.+15.) * * Invoiced UGS withdrawal services Invoiced UGS injection services 5,656.3 5,602.7 5,132.1 91.6% 1,745.5 1,949.9 1,271.8 65.2% 1,497.6 1,731.2 2,620.5 151.4% Note: the information is not consolidated; these include the transactions between Romgaz and Depogaz. *) Romgaz-Schlumberger joint venture contract ended on November 30, 2018. With respect to the joint venture with Amromco, gas produced is reflected in Romgaz revenue, proportionally with its respective participating interest share in the joint venture. Natural gas production lies in the parameters forecasted in the 2019 program, achieving 98.6% of the planned production (5,277 million m3 – achieved vs 5,350 million m3 – planned). The production level was maintained by the ongoing production rehabilitation projects of the main fields, performance of capitalisable repair and well recompletion works in 169 wells, bringing into production new wells. The natural gas production evolution during 2000-2019 is shown below: m c n o i l l i b 8.4 8 7.3 7 6.6 6.3 6.2 5.9 5.9 5.8 5.8 5.6 5.7 5.7 5.7 5.6 5.2 5.3 5.3 4.2 9 8 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Decrease of Romgaz electricity production by 49.35% as compared to the similar period of 2018, as noticed in the data shown below, is due to the unavailability of the units because of the works performed at the new power plant. Page 5 of 2019 Consolidated Board of Directors’ Report The table below shows the quarterly electricity production for 2019, as compared to 2018: *MWh* 1 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2018 2 287,287 178,933 284,429 414,539 Year total 1,165,189 2019 3 170,894 773 120,443 298,019 590,129 Variation 4=(3-2)/2x100 -40.51% -99.57% -57.65% -28.11% -49.35% Romgaz is one of the largest gas suppliers in Romania. The evolution of gas supplies3 during 2008-2019 is shown below: m c n o i l l i m 7000 6000 5000 4000 3000 2000 1000 0 343 304 680 1018 606 310 81 33 181 53 3 7 5572 5563 5513 5200 5156 5304 5529 5055 5623 5422 5079 4223 2008 2009 2010 2011 2012 2013 Domestic gas 2014 2015 Import gas 2016 2017 2018 2019 Q4 2018 Q3 2019 Q4 2019 Δ Q4 (%) Main indicators 2018 * RON million * Δ ‘19/’18 (%) 2019 1,559.6 916.1 1,289.6 -17.31 1,531.2 1,014.6 1,308.4 -14.55 1,164.7 770.1 1,429.3 22.72 Revenue Income Expenses 5,004.2 5,080.5 5,048.8 5,235.4 1.52 3.70 3,464.3 3,961.7 14.36 0.6 0.2 0.1 -83.33 Share of profit of associates 0.6 1.5 150.00 367.5 244.7 (120.8) 27.8 35.5 (25.3) 339.7 209.2 (95.5)7 354.2 238.5 (128.8) n/a n/a n/a n/a 673.9 467.5 634.9 -5.79 0.86 21.78 0.5 (0.25) 22.8 -7.4 n/a n/a Gross profit Income tax expense Net profit EBIT**) EBITDA**) Earnings per share EPS**) (RON) Net profit ratio**) (% from Revenue) 1,585.2 1,275.2 -19.56 219.0 185.60 -15.25 1,366.2 1,089.6 -20.25 1,531.9 1,237.1 -19.24 2,240.0 2,595.3 15.86 3.54 2.83 -20.06 27.30 21.45 -21.43 3 Comprise own gas from domestic production, including gas delivered to CTE Iernut and Cojocna, 50% of the gas from Schlumberger joint venture and gas purchased from the domestic production of other producers Page 6 of 2019 Consolidated Board of Directors’ Report 22.71 43.2 26.0 51.0 -9.99 n/a 49.23 13.96 6,214 6,214 6,251 0.6 EBIT Ratio**) (% from Revenue) (% EBITDA Ratio**) Revenue) Number of employees at the end of the period from 30.61 44.76 24.35 51.08 -20.45 14.12 6,214 6,251 0.6 Figures in the above table are rounded; therefore, small differences may result upon reconciliation. Note 1: Income and Expenses do not include those related to in-house production of non-current assets. Since November 12, 2013, the company’s shares have been traded on the regulated market governed by BVB (Bucharest Stock Exchange) under the “SNG” symbol, and the GDRs on the regulated market governed by LSE (London Stock Exchange) under the “SNGR” symbol. Performance of Romgaz shares compared to the evolution of BET index (Bucharest Exchange Trading) from listing to December 31, 2019 is shown below: 45.00 40.00 35.00 30.00 25.00 20.00 e r a h s / N O R 15.00 10.00 5.00 0.00 3 1 0 2 / 2 1 / 1 1 3 1 0 2 / 7 2 / 2 1 4 1 0 2 . 2 0 . 4 1 4 1 0 2 / 1 3 / 3 4 1 0 2 . 5 0 . 0 2 . 4 1 0 2 7 0 4 0 . 12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 4 1 0 2 / 9 1 / 8 4 1 0 2 . 0 1 . 3 0 4 1 0 2 . 1 1 . 7 1 5 1 0 2 . 1 0 . 8 0 5 1 0 2 / 0 2 / 2 5 1 0 2 / 8 / 4 5 1 0 2 / 7 2 / 5 5 1 0 2 / 0 1 / 7 5 1 0 2 / 4 2 / 8 5 1 0 2 / 7 / 0 1 5 1 0 2 / 9 1 / 1 1 6 1 0 2 / 2 1 / 1 6 1 0 2 / 4 2 / 2 6 1 0 2 / 7 / 4 6 1 0 2 / 3 2 / 5 6 1 0 2 / 6 / 7 6 1 0 2 / 9 1 / 8 6 1 0 2 / 3 / 0 1 6 1 0 2 / 5 1 / 1 1 7 1 0 2 / 4 / 1 7 1 0 2 / 3 / 4 7 1 0 2 / 7 1 / 2 7 1 0 2 / 8 1 / 5 7 1 0 2 / 5 / 7 7 1 0 2 / 8 1 / 8 7 1 0 2 / 2 / 0 1 7 1 0 2 / 4 1 / 1 1 8 1 0 2 / 4 / 1 8 1 0 2 / 9 1 / 2 8 1 0 2 / 4 / 4 8 1 0 2 / 2 2 / 5 8 1 0 2 / 6 / 7 8 1 0 2 / 1 2 / 8 8 1 0 2 / 3 / 0 1 8 1 0 2 / 5 1 / 1 1 9 1 0 2 / 4 / 1 9 1 0 2 / 3 / 4 9 1 0 2 / 9 1 / 2 9 1 0 2 / 1 2 / 5 9 1 0 2 / 4 / 7 9 1 0 2 / 9 1 / 8 9 1 0 2 / 1 / 0 1 9 1 0 2 / 3 1 / 1 1 SNG BET March 29, 2019 Romanian Government issues GEO No.19/20194 favourably amending GEO no. 114/20185 in that capping of natural gas sale price at RON 68/MWh during May 1, 2019 – February 28, 2022 is limited to gas deliveries to “suppliers of residential customers and thermal energy producers, only for natural gas quantity used in producing thermal energy in cogeneration plants and thermal power plants for population consumption”. Through GEO no. 114/2018 price capping aimed at gas deliveries to “eligible final suppliers and customers”, with the mention that “during this period the producer has the obligation to sell to suppliers, as a priority, under ANRE regulated conditions, in order to cover the entire consumption needs of residential customers from current production and/or from UGSs”. 4 Romanian GEO no.19 of March 29, 2019 amending and supplementing certain legislative acts. 5 GEO no. 114 of December 28, 2018 on imposing certain measures in public investments sector and certain fiscal-budgetary measures, amending and supplementing certain legislative acts and extending certain terms. Page 7 of 2019 Consolidated Board of Directors’ Report April 1, 2019 New storage tariffs approved by ANRE through Order no.44/2019 take effect. May 7, 2019 Romgaz celebrates 110 years from the first gas discovery in Romania. Natural gas history in Romania began in 1909, in Sarmasel, when, while drilling at over 300 m depth for potassium salts, natural gas burst out. This phenomenon marked the beginning of a secular industry. June 26, 2019 Through Resolution No.6, Romgaz shareholders, exercising the cumulative vote, appoint the following persons as members of Romgaz Board of Directors: Stan-Olteanu Manuela-Petronela Havrilet Niculae Ciobanu Romeo-Cristian Parpala Caius-Mihai Harabor Todorel Cimpeanu Nicolae Jansen Petrus Antonius Maria Mr. Ciobanu Romeo Cristian and Mr. Jansen Petrus Antonius Maria were reconfirmed as members, being selected following a selection process carried out during 2018 and appointed as members of Romgaz Board of Directors for a 4 year mandate pursuant to Resolution of OGMS no.8 of July 6, 2018. As a result, their mandate is still in effect. The other board members are appointed for a 4 month period due to their interim mandate. October 24, 2019 Romgaz and SOCAR signed a Memorandum of Understanding pursuant to which both companies shall cooperate in oil and gas upstream projects (exploration and production). The purpose of this Memorandum is to establish a strategic cooperation in order to develop projects of common interest, mainly in the Republic of Azerbaijan and Romania, as well as internationally. October 28, 2019 By Resolution No.8, Romgaz shareholders approve the extension of the interim mandates for a period of 2 month as of their end date, pursuant to the provisions of article 641, paragraph (5) of GEO No. 109/2011. December 23, 2019 By Resolution No. 11, Romgaz shareholders approve the revocation of the following members of the Board of Directors: Stan-Olteanu Manuela-Petronela Havrilet Niculae Parpala Caius-Mihai Harabor Tudorel Cimpeanu Nicolae and approve the selection of the following interim members of the Board of Directors, for a 4 months mandate: Jude Aristotel Marius Page 8 of 2019 Consolidated Board of Directors’ Report Stan-Olteanu Manuela-Petronela Harabor Tudorel Marin Marius Dumitru Balazs Botond Name: Societatea Nationala de Gaze Naturale “ROMGAZ” SA Main scope of activity: natural gas production Address: Medias, 4 Constantin I. Motas Square, 551130, Sibiu County Trade Registry registration number: J32/392/2001 Fiscal registration number: RO14056826 LEI Code: 2549009R7KJ38D9RW354 Legal form of establishment: joint-stock company Subscribed and paid in share capital: RON 385,422,400 Number of shares: 385,422,400 each having a nominal value of RON 1 Regulated market where the company’s shares are traded: Bucharest Stock Exchange (shares) and London Stock Exchange (GDRs) Phone: 0040 374 401020 Fax: 0040 269 846901 www.romgaz.ro Web: E-mail: secretariat@romgaz.ro Bank accounts opened at: Banca Comerciala Romana, BRD-Groupe Société Générale, Citibank Europe, Patria Bank, Raiffeisen Bank, Banca Transilvania, ING Bank, Eximbank, CEC Bank. Shareholder Structure As of December 31, 2019 the shareholder structure is: The Romanian State6 Free float – total, including: *legal persons *natural persons Total Number of shares Number of shares 269,823,080 115,599,320 98,317,285 17,282,035 385,422,400 % % 70.0071 29.9929 25.5090 4.4839 100.0000 6 The Romanian State through the Ministry of Economy, Energy and Business Environment Page 9 of 2019 Consolidated Board of Directors’ Report FREE FLOAT 30% The Romanian State 70% In financial year 2019 the Company neither performed transactions with own shares nor held own shares on December 31, 2019. Romgaz organization structure is a hierarchy-functional type, with a number of six hierarchy levels, from company’s shareholders to execution personnel, as follows: General Meeting of Shareholders Board of Directors Director General Deputy Directors General Branch Directors Heads of functional and operational compartments subordinated to the Director General, Deputy Directors General and Branch Directors Execution Personnel The responsibilities of the Board of Directors are detailed in the Company’s Articles of Incorporation as well as in the Rules of Organization and Operation. The Director General, the Deputy Directors General, Economic Director, as well as the branch directors are key people in the structure and function of the company. The heads of compartments (branches/departments/directions/offices etc.) representing the connection between the upper structure and the employees of the respective compartment are directly subordinated to the afore-mentioned. Each compartment has its own attributions well-defined in the company’s Rules of Organization and Operation and all these elements work as a whole. The tasks, competencies and responsibilities of the execution personnel are included in the job descriptions related to each position. Until March 31, 2018, the company had seven branches set up based on the specific of the activities performed and on the region (natural gas production branches) as follows: Sucursala Medias (Medias Branch) having its office in Medias, 5 Garii Street, postal code 551025, Sibiu County, territorially organized in 8 sections; Sucursala Targu Mures (Targu Mures Branch) having its office in Tirgu Mures, 23 Salcamilor Street, postal code 540202, Mures County, territorially organized in 8 sections; Page 10 of 2019 Consolidated Board of Directors’ Report Sucursala Ploiesti (Ploiesti Branch) having its office in Ploiesti, 184 G. Cantacuzino Street, postal code 100492, Prahova County, territorially organized in 2 sections and 2 workshops; Sucursala de Interventii, Reparatii Capitale si Operatii Speciale la Sonde Medias (SIRCOSS – Branch for Well Workover, Recompletions and Special Well Operations) having its office in Medias, 5 Soseaua Sibiului Street, postal code 551009, Sibiu County, territorially organized in 3 sections and 5 workshops; Sucursala de Transport Tehnologic si Mentenanta Targu Mures (STTM – Technological Transport and Maintenance Branch) having its office in Targu Mures, 6 Barajului Street, postal code 540101, Mures County, territorially organized in 3 sections and 3 workshops; Sucursala de Productie Energie Electrica Iernut (SPEE – Iernut Power Generation Branch) having its office in Iernut, 1 Energeticii Street, postal code 545100, Mures County; Sucursala Bratislava (Bratislava Branch) having its office in Bratislava, City Business Centre V.-Karadžičova 16, code 82108, Slovakia. As of April 1, 2018 Sucursala Ploiesti ceased its activity and SNGN Romgaz SA – Filiala de Înmagazinare Gaze Naturale Depogaz Ploieşti SRL became operational, managing the natural gas underground storage activity. Subject to BoD Resolution No.33 dated September 4, 2019, Ploiesti Branch was removed from the graphical scheme and deregistered from the National Tarde Registry Office. Therefore, subject to EC Directive No. 73/2009 implemented by the Electricity and Natural Gas Law 123/2012 (art. 141), the storage activity is unbundled from SNGN Romgaz SA and performed by a storage operator, namely a subsidiary, where SNGN Romgaz SA is sole associate. The subscribed and paid in share capital of the company is RON 66,056,160, divided in a number of 6,605,616 shares, with a nominal value of RON 10/share, solely owned by Romgaz. The Subsidiary took over the operation of the underground storages licensed by SNGN Romgaz SA, the operation of assets that contribute to performing the storage activity and the entire personnel performing storage activities. Information about the Subsidiary can be found at: https://www.depogazploiesti.ro Romgaz is to produce and supply energy, to provide underground gas storage activities under quality, safety, continuity and flexibility conditions. The company uses all resources in a responsible and ethical manner in order to obtain long-term profit. ROMGAZ aims to be an active, profitable and competitive player on the gas and electricity production market. Romgaz has to pursue both a strong development on the local market and the development on the international market in order to become an important player on the regional energy market. promoted by Romgaz are mainly the following: Page 11 of 2019 Consolidated Board of Directors’ Report Increasing the company's value for its shareholders Care for the environment Quality products and services Efficiency ROMGAZ Safety for the employees Social responsibility Transparency Sustainable development In order to meet its main business scope by efficiently using material, financial, informational and human resources, the company set the following strategic objectives: increase of the gas resources and reserves portfolio through the discovery of new resources and the improvement of the recovery rate of already discovered resources; identify new growth and diversification opportunities; increase the company’s performance; optimization, development and diversification of the UGS activity by reconsidering its importance in terms of safety, continuity and flexibility of the natural gas supply; increase efficiency of the underground gas storages to improve gas trading capacities; increase daily production through investments that reduce dependency of the daily production capacity on the reservoir pressure; maintain the natural production decline at maximum 1.5% /year; consolidate the position on the energy supply market; optimise and increase efficiency of the company’s organisational structure; elaborate a predictable dividend distribution policy to help potential investors understand the company’s financial structure; expand the business regionally by identifying new business opportunities; implement corporate governance principles and the Ethics and Integrity Code; develop reporting, control and risk management capacities; responsible and active involvement in corporate social responsibility actions. Page 12 of 2019 Consolidated Board of Directors’ Report Romgaz Group undertakes business in the following segments: natural gas exploration and production; UGS activity (the Subsidiary); natural gas supply; special well operations and services; maintenance and transportation services; power generation and supply; natural gas distribution. In Romania, Romgaz performs, as titleholder or co-titleholder, under petroleum agreements as follows: petroleum operations in 9 exploration-development-production blocks with 100% participating interest and in 4 blocks as co-titleholder under certain concession agreements; 139 commercial reservoirs and 12 non-commercial reservoirs with experimental production and 11 reservoirs operated together with Amromco; exploration and production rights in Slovakia. Exploration Since October 1997, the exploration activity has been carried out in 8 blocks located in Transylvania, Moldova, Muntenia, and Oltenia, in accordance with the Concession Agreement approved by Government Decision No. 23/2000. In 2019, six exploration wells out of ten were tested with gas and temporarily abandoned until the necessary infrastructure is constructed to turn these into experimental or final production. The success rate of 60% lies within the average margin of 35%-65% recorded in the international hydrocarbon production activity. Well 7 Merii and well 4 Tapu turned 3,000 million cm from prospective resources to contingent resources. Romgaz designs and plans all exploration works based on its own concepts by using modern professional software, prospectivity assessments of the geological areas displaying specific features within the blocks under concession. These are performed by using specific surface exploration methods to identify the areas with hydrocarbon accumulations (prospects), followed by exploration drilling to prove the presence of accumulations. In 2012, the results materialised in the highest reserve replacement ratio of 323%. The table below shows the evolution of the reserves replacement ratio during 2010-2019: Page 13 of 2019 Consolidated Board of Directors’ Report 323 155 92 % 350 300 250 200 150 100 50 0 94 82 70 102 42 55.94 40.75 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Reserves replacement ratio was influenced by the reduced volume of updated commercial fields and by postponing investments in the infrastructure necessary for commissioning production facilities. Production The 2019 annual program for petroleum operations considered the gas demand dynamics, reactivation, recompletion and workover operations, bringing into production of production wells and of those resulted from exploration activities, maintenance programs of compressor stations and of dehydration stations, commissioning of new compressor units and the dynamics of import and UGS injected/withdrawn gas flows. The company’s gas production in 2019 recorded a minimal decline, being 1.05% (5,277 million m3 vs 5,333 million m3) lower than the one recorded in 2018. According to estimates, this production ensured Romgaz a 56% market share of internal production gas deliveries for consumption and a 44% share of deliveries in Romania’s total consumption. The 5,277 million m3 of production recorded in 2019 was influenced by: 1. investments made for extension/upgrading of surface facilities; commissioning of new wells on Caragele structure led to a production which represented 6.9% of Romgaz total production while condensate production equalled 10,677 tones, representing 61.5% of Romgaz total condensate production; 2. continuous production rehabilitation of the main mature fields: Filitelnic, Delenii, Laslău, Sădinca, Copsa Mica, Nadeş-Prod-Seleuş, Roman, Corunca Sud, Târgu Mureş, Grebeniş, Piscu Stejari-Hurezani; 3. performance of capitalisable repair and well recompletion works in 169 wells resulting in a production of 195.95 million m3, namely 3.7% of the total production Beginning with 2019 there are 6 operational UGSs in depleted gas reservoirs in Romania. Romgaz owns and operates 5 UGSs having a total capacity of 3.965 billion m3 and a working gas volume of 2.770 billion m3. Nationally, the ratio between the working gas volume and the annual consumption was about 22% in 2019. This level is in the first upper half of the international values chart of Europe. Page 14 of 2019 Consolidated Board of Directors’ Report In 2019 the ratio of stored gas volumes to the working volume of the UGSs was 69.31%. The UGS activity performed by Depogaz Subsidiary is a business segment regulated by ANRE (National Authority for Energy Regulation) with regard to UGS operators’ licensing, the access to the UGSs as well as setting the tariffs related to UGS activity. After a thorough restructuring, the Romanian natural gas sector is currently split into independent activities. The Romanian natural gas market includes a NTS operator (Transgaz), producers (Romgaz and Petrom with a 97% market share), UGS operators, companies for the distribution and supply of gas to non-eligible customers, and suppliers on the wholesale market. The natural gas market in Romania consists of the competition segment, which includes gas trading activities between suppliers and between suppliers and eligible consumers, and the regulated segment, which includes monopoly-like activities performed in accordance with framework contracts (transmission, underground storage, distribution and supply at a regulated price). In terms of supply, Romgaz held, during 2012-2019, a national market share ranging between 37 and 46%: National consumption Romgaz traded volumes (domestic + import) Romgaz market share M.U. 2012 2013 2014 2015 2016 2017 2018 2019 bcm bcm 13.5 5.9 12.5 5.7 12.2 5.7 11.6 5.1 11.8 4.4 12.3 5.7 12.3 5.6 11.5 5.1 % 42.82 44.5 46.1 44.0 37.1 46.3 45.5 44.1 The above quantities include gas from own internal production, domestic gas purchased from third parties, 100% gas from Schlumberger joint venture and import gas. As compared to previous years, 2018 and 2019 deliveries include gas delivered to Iernut and Cojocna for electricity production, as well as technological consumption. SIRCOSS was set up in 2003 in accordance with the GSM Resolution No. 5/June 13, 2003. The branch performs two main types of activities: well workover, recompletion operations and production tests; special well operations. All well workover, recompletion operations and production tests operations are performed by means of rig installations. The second main activity consists of special well operations, namely services supplied by means of different transportable equipment for downhole or surface operations. During the past years, most of services were supplied for the wells within the company’s portfolio, yet, well workover and special well operations were also performed for other companies that have under concession and operate gas wells in Romania. Page 15 of 2019 Consolidated Board of Directors’ Report STTM was established in October 2003, by taking over the means of transportation from Medias, Targu-Mures and Ploiesti branches. The branch’s scope of activity is the transportation of goods and people, the specific technological transportation, and the maintenance activity for the benefit of the company and of third parties. CTE Iernut is an important junction point in the National Power Grid, located in the centre of the country, in Mures County, on the left bank of Mures River, between towns Iernut and Cuci, with easily accessible gas and industrial water sources and power discharge facilities. CTE Iernut is operated by Sucursala de Producţie Energie Electrică (SPEE). At the beginning of 2019, CTE Iernut had an installed capacity of 800 MW comprising 6 energy groups: 4 100 MW groups of Czechoslovakian manufacturing and 2 200 MW groups of Soviet manufacturing. The groups were commissioned between 1963 and 1967. Taking into consideration the beginning of investment works at 430 MW Combined Cycle Plant and the need to ensure proper conditions for carrying out works at the related cooling system, in January 2019, the commercial exploitation license was revoked for groups 2 and 3 of 100 MW, and in November 2019 for group 1 (of 100 MW) and 6 (of 200 MW). Therefore, at the end of 2019, SPEE Iernut holds commercial exploitation license for 2 groups: 1 100 MW group and 1 200 MW group. Cojocna Project is an outcome of the pressing need of finding ways to experimentally produce from a series of wells resulted from exploratory drilling, in order to determine, as detailed as possible, the production potential of such area. The wells were located far from each other and from the National Transmission System (NTS). Therefore, gas from wells Palatca 1, Vaida 1 and 2 is used as fuel gas for two electricity generation units, each having 1.5 MW power. The natural gas distribution activity is a regulated activity carried out in Ghercesti and Piscu Stejari areas. Romgaz has concession agreements with the Ministry of Economy and Trade for Ghercesti area and with Piscu Stejari Town Hall for Piscu Stejari distribution. The activity is carried out by Targu-Mures Branch. Societatea Nationala de Gaze Naturale “ROMGAZ” SA is Romania’s most important natural gas producer and supplier. The company’s experience in the field of gas exploration and production exceeds 100 years. Its history began in 1909 when the first natural gas commercial reservoir was discovered, in the Transylvanian Basin, upon drilling of well Sarmasel-2. Page 16 of 2019 Consolidated Board of Directors’ Report The most important historic benchmarks are: 1909 1913 1925 1958 1972 1976 1979 1991 1998 2000 2001 2013 2015 2018 • Natural gas discovery in Sarmasel (Transylvanian Basin) • First gas production recorded in Romania (113,000 m3) • Setting up the National Gas Company "SONAMETAN" • • First UGS in Romania at Ilimbav, Sibiu County • • Use of compressors in the course of production • Maximum gas production obtained by Romgaz (29,834 million m3) • Started to import natural gas from the Russian Federation • Centrala Gazului Metan was reorganized, by Government decision, to Regia Autonoma "ROMGAZ" RA • "ROMGAZ" RA becomes Societatea Naţională de Gaze Naturale "ROMGAZ" SA • SNGN "ROMGAZ" SA was reorganized in five independent companies (SC "Exprogaz" SA Mediaş, SNDSGN "Depogaz" SA Ploieşti, SNTGN "Transgaz" SA Mediaş, SC "Distrigaz Sud" SA Bucureşti şi SC "Distrigaz Nord" SA Tîrgu-Mureş • The current SNGN "ROMGAZ" SA Medias was established • Company shares are traded on Bucharest Stock Exchange and London stock Exchange (GDR's) • Unbundling the underground gas storage activity by setting up Filiala de Înmagazinare Gaze Naturale Depogaz SRL Ploieşti • As of April 1, 2018 Filiala de Înmagazinare Gaze Naturale Depogaz SRL Ploieşti became operational Page 17 of 2019 Consolidated Board of Directors’ Report Unbundling of underground gas storage activity In compliance with European and national applicable laws, Directive 2009/73/EC7 and Gas Law No 123/20128 Romgaz has to legally unbundle the gas storage activity from gas production and supply activities. According to the provisions of article 141, paragraph 1 of the Law (which transcribes article 15, paragraph 1 of the Directive) a storage operator under a vertically integrated economic operator must be independent from other activities not related to transmission, distribution or underground storage activities at least from legal, organizational and decision-making perspective. Therefore, considering the above mentioned matters, it is compulsory to legally unbundle the gas storage activity from the gas production and supply activities performed by Romgaz by establishing a separate company to act as independent storage operator. The Extraordinary General Meeting of Shareholders approved by Resolution No.10/19.12.2014 (item 2) the setting up of “SNGN ROMGAZ SA - Filiala de Înmagazinare Gaze Naturale “Depogaz” Ploieşti S.R.L.” subsidiary. The subsidiary became operational as of April 1, 2018. Changes to the organizational structure A series of changes to the organizational structure were performed in 2019: Decision No.5 of the Board of Directors of February 5, 2019 modified the organisational structure at the headquarters and the Rules of Organisation and Operation. The main changes are as follows: - Setting up new organisational units: Accounting Department, Regulations Department; - Reorganizing the Controlling and Risk Analysis Office and setting up a Controlling Office under the Accounting Department; - Setting up new offices: Preventive Financial Control, Strategic Analysis, Business Development, UE Funds and within it the Objectives Management and Strategy Office. - Disestablishing the Business Development Department and cancelling the related department director position; - Setting up of a new office under the name of “Business Development Office’ - Changing the subordination of certain organisational units: Corporate Management Department, branches; - Cancelling certain management positions: deputy director general, Mechanic Department Director, Chief Drilling Engineer, Director of Energy Management Department, Director of Management Support Department; - Setting up the Patrimony Office; Decision No. 24 dated May 16, 2019 of the Board of Directors modified the organisational structure at the headquarters and SIRCOSS Medias and, consequently, the Rules of Organisation and Operation as follows: - headquarters: setting up a new organisational unit: “Drilling Department”; - changing the subordination of certain organisational units: Mechanic Office, and Natural Gas Administrative Office, Technical Regulations 7 Directive 2009/73/EC of the European Parliament and Council of July 13, 2009 concerning common rules of the internal market in the natural gas sector and repealing Directive 2003/55/EC 8 Electricity and Gas Law no. 123 of July 10, 2012 Page 18 of 2019 Consolidated Board of Directors’ Report Authorizations Office, Record of Petroleum Concessions Office, Petroleum Licenses Office; - SIRCOSS Medias – setting up 2 well workovers and recompletion formations; Decision No. 33 dated September 4, 2019 of the Board of Directors modified the organisational structure of the headquarters, removing “Ploiesti Branch” from the company’s organisational structure and setting up “Strategy, International Relations and EU Funds Department”; Decision No. 38 dated October 21, 2019 of the Board of Directors modified the organisational structure of STTM Targu Mures and SPEE Iernut. The main changes are as follows: STTM Targu Mures o Reorganisation of car repair activities; Through reorganisation, at Medias, Targu Mures, Roman and Ploiesti working points administrative structures were set up, managing car transportation and repair activities coordinated by the same manager. transportation and SPEE Iernut o Mechanic Office and ISCIR (State Inspection for Control of Boilers, Pressure Vessels and Hoisting) - Repairs Monitoring Office merged under one organisational structure: Mechanic Office No mergers of the company took place in financial year 2019. 3.4.1. Overall Performance The Group’s revenues are generated mainly from gas production and delivery (own gas production and delivery, gas produced by joint ventures, import gas deliveries and gas deliveries from other domestic producers), from supply of underground gas storage services, from production and supply of electric power and from other specific services. * RON thousand * Item no 0 1 2 3 4 5 6 7 Description 2018 2019 1 Total Income, out of which: *operating income *financial income Revenue Total Expenses, out of which: *operating expenses *financial expenses Share of associates’ result Gross Profit Income tax Net Profit 2 5,048,815 4,991,422 57,393 5,004,197 3,464,253 3,388,441 75,812 622 1,585,184 219,016 1,366,168 3 5,235,436 5,194,679 40,757 5,080,482 3,961,730 3,929,265 32,465 1,474 1,275,180 185,557 1,089,623 The total income of 2019 was higher by 3.70 % than the 2018 income. Ratio (2019/2018) 4=3/2x100 103.70% 104.07% 71.01% 101.52% 114.36% 115.96% 42.82% 236.98% 80.44% 84.72% 79.76% Page 19 of 2019 Consolidated Board of Directors’ Report Below are the compared economic-financial indicators for 2018 and 2019 and their detailed structure split by activity: Compared economic-financial indicators Description 2018 2019 * RON thousand * Variance (2019/2018) 1 Revenue Cost of commodities sold Investment Income Other gains or losses Net losses from impairment of trade receivables Changes in inventories Raw materials and consumables Depreciation, amortization and impairment Employee benefit expense Finance cost Exploration Expenses Share of associates’ result Other Expenses Other Income Profit before tax Income tax expense Profit for the year Structure of indicators split by activity-2018 Description TOTAL 2018 including: 2 5,004,197 Gas production and deliveries 3 4,522,558 2 5,004,197 (245,020) 53,279 (102,989) (19,941) (32,180) (75,460) (708,142) 3 4=(3/2-1)x100 5,080,482 (107,800) 38,124 (63,069) (81,221) 1.52% -56.00% -28.44% -38.76% 307.31% 80,008 (76,048) n/a 0.78% (1,358,250) 91.80% (621,330) (670,408) 7.90% (29,724) (247,123) 622 (24,740) (24,564) 1,474 (1,409,447) (1,551,642) 18,442 1,585,184 (219,016) 1,366,168 32,834 1,275,180 (185,557) 1,089,623 -16.77% -90.06% 136.98% 10.09% 78.04% -19.56% -15.28% -20.24% Underground Gas Storage Electricity * RON thousand * Settlement Other between activities segments 4 355,135 5 388,514 6 356,486 7 (618,496) (245,020) (212,492) (142) (34,084) (805) 2,503 Other gains and losses (102,989) 53,279 (19,941) 74 (61,366) (20,103) 456 2,970 - 10 52,739 (2,446) (42,147) 163 (1) - - - - (32,180) (75,460) (13,380) (54,882) (21,606) (21,530) 77 2,729 (1,213) (11,033) 13,198 (708,142) (529,727) (98, 481) (61,512) (18,422) (621,330) (390,737) (57,578) (34, 411) (138,604 ) - - Page 20 of 1 Revenue Cost of commodities sold Investment Income Net losses from impairment of trade receivables Changes in inventories Raw materials and consumables Depreciation, amortization and impairment Employee benefit expense 2019 Consolidated Board of Directors’ Report Finance cost (29,724) (25,815) (3,909) Exploration Expenses (247,123) (247,123) Share of associates’ result Other Expenses Other Income Profit before tax 622 - (1,409,447 ) 18,442 Income tax expense (219,016) - (1,504,998) (151,725) (281,861) (76,755) 605,892 16,575 82 1,125 (3,097) 1,585,184 1,478,584 (26,681) 125,934 - - 3,757 7,347 (754) - - - - - 622 - - - - (218,262 ) (92,328) - - - Profit for the year 1,366,168 1,478,584 6,593 (26,681) Raw materials and consumables Depreciation, amortization and impairment Employee benefit expense Finance cost Share of associates’ result Other expenses Other income Description Structure of indicators split by activity-2019 Gas production and deliveries 3 TOTAL 2019, including: 1 2 Revenue 5,080,482 4,709,795 Electricity Undergroun d gas storage 4 454,370 5 237,759 Cost of commodities sold (107,800) (84,328) (3) (22,452) Other activities * RON thousand * Settleme nt between segments 7 (610,325 ) - 6 288,883 (1,017) Investment income 38,124 116 Other gains and losses (63,069) (73,663) 464 (501) 12 37,548 (816) 11,914 Loses from impairment of trade receivables Changes in inventories (81,221) (81,208) 80,008 78,675 - - (6) 59 (7) 1,274 (16) (3) - - (76,048) (51,100) (31,215) (955) (10,071) 17,293 (1,358,250) (848,836) (485,078) (7,135) (17,201) (670,408) (416,635) (62,412) (39,187) (152,174) (24,740) (21,170) (3,045) Exploration expense (24,564) (24,564) 1,474 - - - - - - (541) - 1,474 (1,551,642) (1,703,856) (198,547) (154,849) (88,165) 593,775 32,834 30,887 264 64 2,362 (743) Profit before tax 1,275,180 1,514,113 (325,703) 12,494 74,279 Income tax expense (185,557) - (7,741) - (177,81) Profit for the year 1,089,623 1,514,113 (333,444) 12,494 (103,53) (3) - (3) Compared revenue and the revenue weight on activity segments is shown in the table below: Description 2017 2018 2019 Gas production activity UGS activity and delivery RON mil 3,760.4 % R 82.01 RON mil 4,522.6 % R 90.37 RON mil 4,709.8 % R 92.70 566.2 12.35 355.1 7.09 454.4 8.94 Page 21 of - - 16 - - 2019 Consolidated Board of Directors’ Report Electricity generation and delivery activity Other activities Settlement between branches TOTAL Revenue 545.3 11.89 388.5 7.76 237.8 4.68 264.5 -551.3 4,585.2 5.77 -12.02 100.00 356.5 -618.4 5,004.2 7.12 -12.35 100.00 288.9 -610.3 5,080.5 5.69 -12.01 100.00 The financial income is lower by 28.99 % than the one recorded in the previous year. Financial income consists mainly of interests from cash in bank deposits and in state bonds. Description Year 2018 Year 2019 Ratio (RON thousand) 2 3,388,441 75,812 3,464,253 (RON thousand) 3 3,929,265 32,465 3,961,730 (2019/2018) 4=3/2x100 115.96% 42.82% 114.36% 1 Operating expenses Financial expenses Total expenses Financial Expenses Financial expenses during 2019 are lower by 57.18% as compared to the previous year due to impairment recorded in 2018 in connection with the investment made by the Group in Electrocentrale Bucuresti. Chapter 7 shows more details on the different expenses categories and a comparative assessment thereof. Compared economic-financial results are shown in the table below (RON thousand): Description 2018 2019 1 Operating results Financial results Share of associates’ result Gross result Income tax Net Result 2 1,602,981 (18,419) 622 1,585,184 219,016 1,366,168 3 1,265,414 8,292 1,474 1,275,180 185,557 1,089,623 Ratio (2019/2018) 4=3/2x100 78.94% 45.02% 236.98% 80.44% 84.72% 79.76% Gross result during January – December 2019 in amount of RON 1,275,180 thousand is lower than the gross result of the similar period of 2018 by 19.56%. The 2019 financial result is higher than the 2018 one, as 2018 was negatively affected by the impairment recorded in connection with the investment made by the Group in Electrocentrale Bucuresti. Page 22 of 2019 Consolidated Board of Directors’ Report is also emphasized by the evolution of indicators presented in the table below: Indicators 1 Working capital (WC) Working capital requirements (WCR) Net cash Economic Rate of Return (ERR) Return on Equity Return on Sales Return on Assets EBIT EBITDA ROCE Current liquidity Asset Solvency where: M.U. 2018 2019 Calculation Formula 2 Clt-Af = E+Lnc+Pr+Si-Af (Ast-L+Pp) - (Lcrt-Crst+Idf) WC-WCR = L-Crst Pg/Cltx100 Pn/Ex100 Pg/Rx100 Pn/Ax100 Pg+Exi-Ir EBIT+Am EBIT/Cempx100 Ac/Lc E/Lx100 3 RON mil RON mil RON mil % % % % RON mil RON mil % - % 4 5 1,894 1,327 567 19.01 17.82 31.68 14.96 1,532 2,240 18.37 3.38 83.95 1,863 1,499 364 16.59 15.19 25.10 13.20 1,237 2,595 16.10 4.28 86.92 Clt Af E Lnc Pr Si Ast L Pp Crst Idf long-term capital; non-current assets; equity; non-current liabilities; provisions; investment subsidies; short term assets; liquidity position; Prepayments; short-term credit; deferred income Pg Pn R A Exi Ir Am Cemp Ac Lc L gross profit; net profit; revenue; total assets; interest expense; interest income amortization and impairment; capital employed (total assets–current liabilities) Current assets Current liabilities total liabilities 3.4.2. Sales Sales’ evolution and perspective The entire quantity of gas traded by Romgaz was sold on the internal market. Romgaz traded quantities delivered on free market both by bilateral negotiation and on the centralized market. Quantities delivered during 2019 on the competitive market have been traded 55% on the Romanian centralized market. Description 2017 2018 2019 2018/2017 2019/2018 Delivered gas mil.cm 5,656.3 5,602.7 5,132.1 Sales to third parties mil.cm 5,109.6 5,276.0 4,959.1 -0.95% 3.26% -8.40% -6.01% Gas for electricity production in own power plant mil.cm 546.7 346.1 173.0 -40.24% -47.05% Page 23 of 2019 Consolidated Board of Directors’ Report From the total of quantities of gas delivered to third parties the following available means of trade have been used: gas delivered on the basis of contracts on regulated market: 16 TWh; gas delivered on the basis of contracts on centralized markets: 19.4 TWh; gas delivered on the basis of bilateral contracts on competitive market: 16.6 TWh. Even if ROMGAZ’s gas production increased, the volumes delivered in 2019 recorded a sensitive decrease, approximately 92% of the one recorded in 2018. With regard to gas deliveries from own production, these deliveries decreased to approximately 94.4%. Gas delivered to third parties recorded a decrease of 6%. It is worth mentioning the increase of traded import gas by 30% compared to 2018. At the same time, the quantity of gas used at CET Iernut decreased by 53% as compared to 2018. The status of deliveries and sources is shown in the table from pages 4-5. As regards the means of trading through Romanian centralized markets, Romgaz’s weight was significant, approximately 30% of the total of gas traded on these markets with delivery in 2019 was sold by Romgaz. In terms of quantity, Romgaz traded over 19 TWh with delivery in 2019 on centralized markets, from the total of approximately 60 TWh, representing the total transactions performed on these markets with the same period of delivery. Romgaz was also active on the day ahead market, respectively intraday market in order to optimize sales on one hand and to balance the portfolio, on the other hand, quantities sold on these markets being of approximately 0.7 TWh. For 2020 the perspectives for the company’s gas trades are characterized by: conclusion during 2019 of contracts with delivery in 2020 for approximately 50% of the sales estimates for this year; quantities were contracted both based on regulated contracts and on the competitive market. Through centralized markets, approximately 8 TWh were contracted with delivery in 2020; price capping for residential consumption and heat producers, as well as the other measures provided in GEO No. 114/20189 will cease starting with GEO no.1/2020, starting with July 2020. Current debates regarding the regulation of bidding methods on centralized markets; Withdrawal from UGSs, against the background of a mild winter, is at a very low level and considering the large quantities stored in 2019, we estimate that a significant gas quantity will remain in UGSs at the end of the withdrawal cycle; Implementation of projects that will increase the capacities of exporting gas from Romania to other countries (especially to Hungary and Bulgaria), which would lead to a proper interconnection of gas transmission networks from Romania and would represent an alternative in terms of gas trade. This aspect must be viewed in connection with the regulation framework that will be prepared by applying GEO No. 114/2018. We estimate the maintenance of gas production and sales, corroborated with a decrease of energy production at CET Iernut in 2019 considering the works that will be performed to put the new power plant into operation. 9 GEO No 114 of December 28, 2018 on setting up measures in the public investment sector and of fiscal- budgetary measures, amending and supplementing certain legislative acts and extending certain terms. Page 24 of 2019 Consolidated Board of Directors’ Report The competitive status and share in the market of the company’s products and services During 2019, the Romanian gas market continued its evolution with regard to the increase in liquidity and reselling on centralized markets as well as the positive evolutions regarding trade balancing through transactions on short term markets. The impact of GEO No.114/2018 led to a sharp increase of prices on the competitive market. On gas market, as regards the sources, the competition was high between domestic and import sources. In fact, import volumes recorded a significant increase taking into consideration the decreasing import gas prices as well as the attractiveness of Romanian market regarding these sources. According to the company’s estimates, the national gas consumption dropped with approximately 6.7% as compared to 2018. The market share of domestic production recorded a decrease of 17% compared to 2018 (domestic gas for consumption). Most of additional import quantities compensated the decrease of national production. In accordance with the data provided by the system operator, the national electricity production was of 59,454,280 MWh in 2019. On this market, Romgaz held a market share of 1.00% with a decrease of 45.12% compared to last year. The yearly evolution of electricity production and market share: Description 2017 (MWh) 2018 2019 (MWh) (MWh) 2018/2017 (%) 2019/2018 (%) Domestic production 63,747,760 63,933,510 59,454,280 Romgaz production 1,863,788 1,165,189 590,129 Romgaz market share 2.924 1.822 1.00 0.29 -37.49 -37.67 -7.64 -49.35 -45.12 As regards the generation sources, in 2019, the electricity was produced by (approximate levels, ANRE source, market reports): 30% hydro; 22 % coal; 18 % nuclear; 15% gas; 15 % renewable sources and other producers The situation of Romanian gas market allowed the company to have an extended portfolio of customers both on centralized markets and as regards the contracting by direct negotiation. Moreover, the company has a balanced portfolio as regards the ratio of the final consumer market (especially the power plants) to wholesale market where it sells gas to suppliers. 3.4.3. Prices and Tariffs The regulatory framework for natural gas production, transmission, distribution, supply and storage, organization and operation of the gas sector, market access as well as criteria and procedures for granting authorizations and/or licenses in the natural gas sector is set by Law No. 123/2012. Romgaz Group operates both on regulated market, performing underground gas storage and distribution activities, and on the free market, performing gas and electricity production and supply activities. Page 25 of 2019 Consolidated Board of Directors’ Report Underground Gas Storage The revenues from the underground storage business and the storage tariffs are regulated since April 1, 2004, by ANRGN Decision No. 1078/2003, abrogated by ANRE Order no. 22 of May 25, 2012 on approval of the Methodology for approving prices and setting regulated tariffs in the gas sector, published in the Official Gazette of Romania No. 379 of June 6, 2012. The ANRE Order No. 14 of February 13, 2019 is currently in effect, approving the Methodology of establishing regulated tariffs for natural gas underground storage services. The storage tariffs applied for the two compared periods are those approved by ANRE Order No. 58 of March 27, 2015 (between January 1, 2017 and March 31, 2018), ANRE Order No. 58 of March 29, 2018 (between April 1, 2018 and March 31, 2019) and ANRE Order No. 44 of March 29, 2019 (starting with April 1, 2019) respectively. ANRE Order No.9 of March 23, 2016 and Order No. 19 of March 30, 2017 extended the term for applying Order No. 58/2015. The storage tariffs applied are described in the table below: Tariff Component M.U. Tariffs (01.01.2017- 31.03.2018) Tariffs (01.04.2018- 31.03.2019) Volumetric component for gas injection Fixed component for capacity reservation Volumetric withdrawal component for gas RON/MWh RON/MWh/ storage cycle RON/MWh 2.37 13.68 1.87 1.68 9.90 1.67 Tariffs (starting with 01.04.2019) 1.90 9.98 1.61 Natural Gas Supply The final gas price for the customer is the sum of the weighted average gas acquisition price, the tariffs of transmission, storage and distribution, and the trading component, according to the following formula: Final price = Weighted average price of gas acquisition + Transmission tariff + Storage tariff + Distribution tariff + Trading component The distribution tariffs depend on the distribution area and on the distribution system operator. Regulated prices and tariffs are calculated by the “revenue-cap” method for underground storage and gas transmission and by the “price-cap” method for regulated distribution and supply. According to the provisions of Article 181, paragraph (5) of Law No. 123/2012, the domestic gas acquisition price on the regulated market is set by Government Decision, at the proposal of the competent ministry, and is updated by ANRE and ANRM, in accordance with the provisions of the Calendar for gradual deregulation of prices for the final customers. The table below shows the average gas supply prices in the period 2017-2019: Description 1 Average supply price for internal gas production10 M.U. 2 RON/1000 cm RON/MWh 2017 3 695.74 66.33 2018 4 783.42 74.94 2019 5 882.2 83.7 Average price for import gas RON/1000 cm 898.27 1,134.84 1,468.8 RON/MWh 83.81 105.65 136.9 10 Including commodity gas and gas from the association with Schlumberger and without storage services costs Page 26 of 2019 Consolidated Board of Directors’ Report Natural Gas Distribution Distribution tariffs and final regulated prices valid during the analysed period are approved by ANRE Orders, as follows: ANRE Order No. 57/2015 on amending ANRE Order No. 120/2014 on setting regulated tariffs for gas distribution services and approving prices for regulated gas supply performed by Societatea Natională de Gaze Naturale "ROMGAZ" - S.A. Medias, (as of July 1, 2015); ANRE Order No. 58/2016 on setting regulated tariffs for gas distribution service and approving prices for regulated gas supply performed by Societatea Nationala de Gaze Naturale "ROMGAZ" - S.A. Medias (as of October 1, 2016); ANRE Order No. 89/2017 on setting the regulated tariffs for gas distribution services and approving prices for regulated gas supply performed by Societatea Naţională de Gaze Naturale "ROMGAZ" - S.A. Medias (as of October 1, 2017); ANRE Order No. 85/2018 on setting the regulated tariffs for gas distribution services performed by Societatea Naţională de Gaze Naturale "ROMGAZ" - S.A. Medias (as of May 1, 2018); ANRE Order No. 146/2018 on setting the unitary income for 2019 and on approving regulated prices for regulated gas supply activity performed by Societatea Naţională de Gaze Naturale "ROMGAZ" - S.A. Medias (as of August 1, 2018). ANRE Order No. 146/2019 on setting the unitary income for 2019 and on approving regulated prices for regulated gas supply activity performed by Societatea Naţională de Gaze Naturale "ROMGAZ" - S.A. Medias (as of July 1, 2019). ANRE Order No.111/2019 on setting the regulated tariffs for gas distribution services performed by Societatea Naţională de Gaze Naturale "ROMGAZ" - S.A. Medias (as of July 2019). The applied tariffs and prices are presented in the table below: Description 01.10.’17- 30.04.’18 01.05.’18- 31.07.’18 01.08.’18- 30.06.2019 01.07.’19 -present Distribution tariffs (RON/MWh): *B1 consumption up to 23.25 MWh *B2 annual consumption between 23.26 and 116.28 MWh *B3 annual consumption between 116.29 and 1,116.78 MWh *B4 annual consumption between 1,116.79 and 11,627.78 MWh Distribution tariffs (RON/MWh): *C1 consumption up to 280 MWh *C2 annual consumption between 280 and 2,800 MWh *C3 annual consumption between 2,800 and 28,000 MWh Final regulated prices (RON/MWH): *B1 consumption up to 23.25 MWh *B2 annual consumption between 23.26 and 116.28 MWh Final regulated prices (RON/MWh): *C1 consumption up to 280 MWh 52.70 47.91 47.01 46.21 52.75 47.96 47.07 46.26 52.75 47.96 47.07 46.26 119.10 114.31 119.10 114.31 152.23 147.44 52.87 0.00 50.00 139.24 Page 27 of 2019 Consolidated Board of Directors’ Report On December 31, 2019 Romgaz Group had 6,251 employees and SNGN Romgaz SA had 5,738 employees. As of April 1, 2018 a number of 504 employees terminated their labour contracts concluded with the company continuing their activity under Depogaz Subsidiary. The evolution of the number of employees between January 1, 2017 – December 31, 2019 is shown in the table below: Description 2017 2018 2019 1 Employees at the beginning of the year Newly hired employees Employees who terminated their labour relationship with the company Romgaz Group 3 6,198 286 270 2 6,246 233 281 SNGN Romgaz SA 4 6,198 241 751 Romgaz Group 5 6,214 264 227 SNGN Romgaz SA 6 5,688 238 188 Employees at the end of the year 6,198 6,214 5,688 6,251 5,738 The structure of employees at the end of 2019 was the following: a) by level of education University Secondary education Foreman education Vocational school Middle school b) by age under 30 years 30-40 years 40-50 years 50-60 years over 60 years c) by activities gas production production tests/well special operations health transportation electricity production 24.66 % 28.55% 2.96 % 33.23 % 10.60 % 4.46 % 13.87 % 33.58 % 38.81 % 9.27 % 69.48 % 12.32 % 1.41 % 9.38 % 7.41 %. Distribution of Romgaz employees by headquarters and by branches is shown in the figure below: Page 28 of 2019 Consolidated Board of Directors’ Report STTM 9% SIRCOSS 12% Iernut Branch 8% Headquarters 9% Medias Branch 33% Targu Mures Branch 29% The structure of the company’s employees from the headquarters and from branches is shown in the table below: Entity Workers Foremen 1 Headquarters Mediaş Branch Targu-Mures Branch SIRCOSS STTM Iernut Branch TOTAL 2 36 1,485 1,324 506 407 269 3 89 49 54 13 41 Administrative Employees 4 465 338 282 147 118 115 Total 5 501 1,912 1,655 707 538 425 5,738 4,027 246 1,465 In 2019, the scope of the professional training activity was to increase competitiveness and professional performance by improving the professional training activity. Thus, the following were taken into account: training of administrative employees in various areas of activity, in cooperation with national and international training suppliers; authorization/re-authorization, according to specialization and position; skills improvement and vocational training of workers through internal training courses. A number of 1,951 employees were trained during 2019 and the costs of such professional training and skills improvement training courses were of RON 1,988,322. The annual training program was implemented as follows: 714 persons participated in professional training programs with professional subjects applicable to their activity; 1,103 persons participated in training courses to obtain authorization/re-authorization in accordance with their specialization and position; 122 persons participated in internal training courses; 12 persons participated in qualification courses at work place. Page 29 of 2019 Consolidated Board of Directors’ Report During 2019, the professional training activity focused mainly on sustaining the increase of adaptability to new economy requirements based on knowledge, in order to ensure and update the required competencies for employees working in the technical, economic, research- development field, etc. Within Romgaz Group there are three trade unions: “Sindicatul Liber din cadrul S.N.G.N. Romgaz S.A.”, consisting of 5,930 members; “Sindicatul Extracţie Gaze şi Servicii”, consisting of 5 members; “Sindicatul Filiala Inmagazinare DEPOGAZ”, consisting of 279 members. Thus, the total number of union members within Romgaz is 6,214 as compared to 6,251 representing the total number of employees. The union members/total number of employees ratio is 99.41%. Relationship between manager and employees: following negotiations, the parties agreed to conclude a new Collective Labour Agreement. On November 27, 2019, the parties agreed to conclude a new Collective Labour Agreement for SNGN Romgaz SA, registered at Territorial Labour Inspectorate Sibiu under no. 18161/04.12.2019, valid from December 29, 2019 up to and including December 28, 2021. For Depogaz, a Collective Labour Agreement is in effect, negotiated with “Sindicatul Liber Romgaz”, to which “Sindicatul Filiala de Inmagazinare Gaze Naturale” adhered, being valid until March 27, 2021. During 2019, there were two conflicts between the management and the trade union, finalized on December 31, 2019 (see Litigations: Items 51 and 379, points 3.4.7). In 2019, the environment protection activity continued to focus on ensuring compliance of Group’s business with the applicable legal requirements on environment protection. Another aim was meeting specific objectives related to: Increase of awareness regarding compliance with legal requirements; Pursuing the accomplishment of all reports imposed by the environment legislation in force, by centralizing the information required and reported by Romgaz Branches and submitting it to public authorities; Rendering efficiency to the environment protection activity, a support for the management process. The environment protection activities during 2019 focused on: Complying with permitting requirements: Complying with legal requirements relating to environment permits for all 126 units. In this respect, the conformity degree is 100%. Thus, for 13 units the company has required and obtained the review of the permits, for 26 units reauthorisation was requested and obtained, for 33 units the annual endorsement was requested and obtained, for 41 units documents for abandoning gas production wells were submitted; Complying with legal requirements regarding waste water management permits, for: 81 units, for which the conformity degree is 100% to be noted that for 16 units re-authorization permits are in process of being obtained, for 2 units a Page 30 of 2019 Consolidated Board of Directors’ Report point of view for the necessity of obtaining authorization for waste water management was required; 36 units related to reservoir water injection systems / wells, out of which 12 are in process of obtaining re-authorization and for 1 unit the abandoning documentation was submitted; A company-wide application is under development to monitor environment/water/injection permits, permanently analysing and continuously supervising compliance with legal requirements in the field of environment protection; Management of waste generated from own activity, according to the legal requirements in force. In 2019, the company managed a quantity of 6,250.518 tons of waste, out of which 877.814 tons were recycled and co-incinerated (862.180 tons were recycled and 15.634 tons were co-incinerated), 16.082 tons of waste were disposed by incineration and 4,645.384 tons of waste were disposed by storage. AMOUNT OF WASTE MANAGED IN 2019 (6,250.518 tons) 16 877 4,645 6 000 5 500 5 000 4 500 4 000 Qantity disposed by storage Qantity recycled and co incinerated Qantity disposed by incineration In 2019, the “Program for Prevention and Reduction of Waste Generated by S.N.G.N. Romagaz S.A.” pursued the accomplishment of the measures thereunder and this can be viewed by accessing the following link: https://www.romgaz.ro/ro/content/program-de-prevenire-si- reducere-cantitatilor-de-deseuri. The Program aims at continuously identifying the objectives, targets and action policies the company is required to comply with in its waste management activity in order to fulfil the company’s strategic objectives. Monitoring the compliance with legal requirements on environment protection. In 2019 Romgaz did not exceed the limits permitted by regulations in force, with the effluents discharged into surface water bodies or sewage networks; In 2019, three external environment complaints were recorded, as follows: Pollution with oil products of pavement, balustrade and decorative stone from planters inside Beoma company, near Mures gas dehydration station. On May 3, 2019, an intervention team was set up and proceeded with cleaning the surfaces affected by oil pollution. Connection with Boema owners was kept in order to finalise the cleaning process of affected surfaces and of affected decorative stone; Page 31 of 2019 Consolidated Board of Directors’ Report Discomfort generated by the gas cooling systems of Mures gas compression station, in Corunca. Two noise measurements were performed, one during day and the other one during night, as measures with certain term provided in the findings note drawn up by the commissioners of the Environmental Guard. Test reports did not identified exceedances of equivalent continuous weighted sound pressure level; Discomfort generated by gas compression machines at gas compression station Cristuru Secuiesc. Measurements were carried out to determine the sound level on Septemeber 12, 2019, between 1000-2300 and on September 13, 2019, between 2300-0200. Measurements were performed in 8 perimeter points (the limit within the premises, SE outside the warehouse at 150 m, SE outside the warehouse at 350 m, 2 measurements at 250 m SW and at 450 m SW at the limit of houses and at 300 m W). The results show a sound level exceeding the levels allowed by SREN ISO1996/2-08, as results from the measurement bulletins, site plan, zone framing plans. In order to decrease the noise pollution at Cristuru Secuiesc work point the proposal was to install sound absorber panels in order to keep the noise level within the limits permitted by the legislation in force; In 2019, Romgaz continued to monitor the compliance with permanent or multiannual measures of implementation provided in the Remedial Report (maintenance of the perchlorethylene consumption under 1 tonne/year, for each location, so as to comply with the provisions of GD No. 699/2003 on establishing certain measures for decreasing emissions of volatile organic compounds resulting from the use of organic solvents in certain activities and installations, locating industrial units at safe distances from protected receivers, reducing fugitive emissions in the areas with calibration tanks, metallic tanks and concrete reservoirs for temporary storage of reservoir waters – by equipping the tanks with ecologic dispersion systems, periodic payment of the contribution towards the “Closing Fund”, until reaching the value of mandatory provision, for the Ogra specific waste facility, supervising the annual monitoring frequency for Dumbravioara drilling waste facility, closed in 2003, etc). Planning and organizing the internal environmental inspection activity in order to verify compliance with the legal requirements applicable to inspected activities. In 2019, 58 internal environmental inspections were planned and conducted by Romgaz headquarters environmental inspectors, at the authorized units of branches, following which 10 non- conformity reports were prepared, 8 of which being closed for a certain provided term, 2 opened (in a certain provided term). Thus, Romgaz activity complies with the applicable legal environmental requirements, the conformity degree identified following the implementation of a procedural assessment method for 2019 being 99%, representing a very good value indicating potential for reaching 100%. Assessing the conformity level regarding environmental protection requirements and contractual requirements of contractors and subcontractors of drilling works contracted by Romgaz, during 2019; Accomplishing the actions/measures programs for prevention and/or limitation of the impact on the environment for 2019, by modernizing the reservoir water storages, mounting waste water systems, transforming abandoned wells in reservoir water injection wells, etc. In 2019, the Environmental Guard and the Water Basins Administrations carried out 45 inspections at Romgaz locations. Following such inspections, the company had no sanctions. Page 32 of 2019 Consolidated Board of Directors’ Report CO2 Certificates By GD. No. 1096/2013 on approving the mechanism for the free of charge transitory allocation of greenhouse gas emissions certificates to electric power producers for 2013-2020, including the National Investment Plan (NIP), the Romanian Government intends to finance replacement of old thermoelectric installations from a fund supplied from sales of greenhouse gas emissions certificates, investments receiving a non-reimbursable funding of 25% of the value of eligible expenses based on financing contracts, within available funds, according to the order of financing request and approval. By means of Annexes: Annex no. 1: provides the eligible installations for free of charge transitory allocation and the number of annually allocated certificates for 2013-2020; Annex no. 3: National Investment Plan beneficiaries, Romgaz is included in the above mentioned annexes and launched in 2017 the investment from the National Investment Plan. Therefore, pursuant to Annex no.1 of the Order, a number of 137,441 certificates were allocated to SPEE Iernut for 2019. Payment of the consideration for the greenhouse gas emission certificates free of charge and transitory allocated for 2019 was made in December 2019 pursuant to the legislation in force. In order to comply with the legal requirements of GD No. 780/2006, updated (article 8, letter e) the requirement to reimburse, by April 30 of the following year, to the one for whom the monitoring of greenhouse gas emissions was made, a number of greenhouse gas emission certificates equal to the total number of emissions from such installations, SPEE Iernut acquired, in March 2019, 370,000 certificates in order to achieve compliance for 2018. During 2019, the competent state institutions, namely the Territorial Labour Inspectorates carried out 8 inspections. No deficiencies were noted. Individual protection equipment was acquired, based on the framework agreements and subsequent contracts, for all the employees of the company. According to the Collective Labour Agreement, additional voluntary health insurances were acquired for all employees. The contract for voluntary health insurances concluded by the company expired on December 27, 2018 and on January 30, 2020 a new contract was signed. The summarized breakdown of litigations where Romgaz is involved as of December 31, 2019 is the following: 964 litigations, out of which: 817 cases where Romgaz is plaintiff; 143 cases where Romgaz is defendant; 4 cases where Romgaz is civil party/injured party; The (approximate) total value of the files where Romgaz is plaintiff amounts RON 2,866,527,931; Page 33 of 2019 Consolidated Board of Directors’ Report The (approximate) total value of the files where Romgaz is defendant amounts RON 455,780,132; The (approximate) total value of the files where Romgaz is civil party amounts RON 3,768,366. The detailed list of litigations can be viewed on Romgaz website www.romgaz.ro – Investor Relations – Annual Reports – 2019. 3.4.8 Legal acts concluded under article 52 of the GEO No. 109/2011 Pursuant to articles 52 paragraph (6) of GEO no. 109/2011 “The legal acts concluded under paragraph (1) and (3) shall be specified in the quarterly and annual reports of the Board of Directors … in a special chapter ….” Paragraph (3) letter b) provides as follows: (3) the Board of Directors … informs the shareholders, during the first general meeting of shareholders following conclusion of the legal act, on any transaction concluded by the public company with: …………………………………………………………………………………………………. b) another public company or with the public supervisory authority, if the transaction has, individually or in a series of transactions, a value of at least the RON equivalent of EUR 100,000”. Article 82 paragraph (1) of Law No. 24/201711 provides that “The administrators of issuers of whose securities are admitted for transactions on a regulated market have the obligation to promptly report any legal act concluded by the issuer with the administrators, employees, shareholders that control, as well as with the persons with whom these act together, the value of which represents at least the RON equivalent of EUR 50,000 .” Therefore, Romgaz prepares current reports any time it concludes a legal act as mentioned above, which are sent to Bucharest Stock Exchange and published on its website. Half yearly, Romgaz financial auditor prepares a “ Limited Insurance Independent Report on the information included in the current reports issued by SNGN Romgaz SA in accordance with the requirements of Law No. 24/2017 (article 82) and Regulation No. 5/2018 of the Financial Supervision Authority”. The report is sent to Bucharest Stock Exchange and published on its website. Current reports prepared by the company in accordance with article 82 of Law no. 24/2017 include also legal acts concluded in accordance with the provisions of article 52 of GEO No. 109/2011. Taking into consideration that current reports are public documents, posted on Bucharest Stock Exchange website, as well as that the current quarterly reports with the legal acts concluded in each quarter, reports audited by the company’s financial audit, are published on company’s website, for more details on concluded legal acts please access company’s website www.romgaz.ro, under Investor Relations – News and Events – Current Reports-Contracts (“Auditor Report”). 11 Law No. 24 of March 21, 2017 on market operations and issuers of financial instruments Page 34 of 2019 Consolidated Board of Directors’ Report The occurrence and thereafter the development and gradual diversification of what was truly going to be the Romanian natural gas infrastructure has an important benchmark, year 1909, when the first gas reservoir was discovered by drilling well 2 Sarmasel (Mures County). During the immediately following years, a gas infrastructure unique in Europe for those times started to outline at a small scale, consisting of the following assets: gas transmission pipeline, the first of this kind in Europe, built in 1914, connecting towns Sarmasel and Turda (Cluj County), and gas compressor station from Sarmasel; built in 1927- the first one in Europe. It is notable that the country’s large gas structures were discovered after 1960 and in parallel, a complex infrastructure started to be developed, at national scale, dedicated exclusively to the gas extraction process and later to the injection and underground storage process. These large gas structures located in the Transylvanian basin supply considerable gas quantities even today. The infrastructure related to field production and to gas storage in depleted fields turned into underground storages, is today a particularly complex system. As a whole, the infrastructure of the company developed continuously before and after 1989. The development of the production capacities reached the peak during 1970–1980 when the annual production was extremely high, both due to the consumption demand in those times and to the considerable reservoir energy of most of the discovered gas fields. Part of the company’s production infrastructure (assets) resulted from the nationalisation of June 1948. Currently, no natural or legal person, from the country or from abroad, claimed any asset of Romgaz. Although operational, most of the production facilities are several decades old, therefore, a rehabilitation and modernisation process started a few years ago consisting of installing, replacing or upgrading gas delivery/take over fiscal panels, gas dehydration stations, gas compressor stations. The production facilities relating to the company’s infrastructure are summarized below: 1. Gas wells (currently producing wells, wells temporarily shut-in for reactivation or recompletion operations, wells for reservoir water injection); 2. Pipelines (gathering pipelines connecting the well clusters, waste water pipelines, industrial water pipelines); 3. Gas heaters (radiators); 4. Gas separators (underground and surface separators); 5. Flow metering panels (technological flow metering panels for almost every gas field, fiscal flow metering panel located at the interface with the NTS); 6. Gas dehydration (conditioning) stations: 7. Gas compression units: low capacity portable compressors installed at the well head or at the cluster, booster compressors for one or more fields, and Page 35 of 2019 Consolidated Board of Directors’ Report gas compressor stations, usually consisting of two or more units, which can be intermediate or final compressor stations (outlet to the NTS); 8. Industrial or reservoir water pumping stations; 9. Other facilities (buildings, workshops, storehouses, electric lines, well access roads etc.). Production facilities are used at their maximum capacity (close to 100%). Currently, 162 gas fields are producing out of which 150 are well defined blocks (including those 11 fields operated together with Amromco) and the rest of 12 are blocks with experimental production. Production from these fields is obtained through approximately 3240 wells and through almost the same number of technological surface facilities consisting mainly of flowlines, gas heaters (where applicable) liquid separators and gas flow metering panels. From the total number of wells, 26% of the wells produce at depths below 2,000 m. Pressure and flow limits of production wells are maintained by 127 compressor units, of which 93 units are grouped in 20 compressor stations, and 17 units are the so-called booster compressors while 17 units are compressors located near gas wells being well cluster compressors. One technical demand required by applicable laws is the quality of gas, which is 100% fulfilled by means of 74 gas dehydration stations. Another component of the company’s infrastructure, namely the technical-information system, consists of all information equipment and programs (software) used to monitor the parameters related to gas research, production and storage activities. Depogaz holds Licence No. 1942/2014 for the operation of 5 underground gas storages, developed in depleted gas fields, their aggregate capacity representing about 90.51 % of the total storage capacity of Romania. The capacity of the underground gas storages operated by Depogaz, by storages, is presented in the table below: Storage Active capacity Bălăceanca Bilciureşti Gherceşti Sărmăşel Urziceni TOTAL Mil.St.m3/cycle 50 TWh/cycle 0.545 1,310 150 900 360 2,770 14.326 1.634 9.599 4.017 30.121 Withdrawal capacity GWh/day 13.176 152.782 21.40 79.035 50.157 316.55 Injection capacity GWh/day 10.980 109.130 21.400 68.497 33.438 243.445 1. Balaceanca Storage Balaceanca Storage facility is located at approximately 4 km from Bucharest. The fixed assets contributing to the storage process are as follows: 24 wells of which 21 injection/withdrawal wells and 3 piezometric wells; surface infrastructure includes: Balaceanca gas compressor station; 8.4 km gathering pipelines; 4 separators; 4 technological gas metering facilities; Page 36 of 2019 Consolidated Board of Directors’ Report 1 gas dehydration station; 15 gas heaters; communication system and fiber-optic data acquisition system; 1 bi-directional fiscal metering system. 2. Bilciuresti Storage Bilciuresti Storage facility is located in Dambovita County, approximately 40 km W-NW of Bucharest. The fixed assets contributing to the storage process are as follows: 61 wells of which 57 injection/withdrawal wells, 3 piezometric wells, 1 waste water injection well; surface infrastructure includes: Butimanu gas compressor station; 6 gas dehydration stations; 26.5 km gathering pipelines for 57 injection/withdrawal wells; 50 gas heaters; 24 separators; 14 technological gas metering facilities; 37.5 km gathering pipelines; bi-directional fiscal metering system; waste water injection station. 3. Ghercesti Storage Ghercesti Storage facility is located in Dolj County, near Craiova. The fixed assets contributing to the storage process are as follows: 85 wells; surface infrastructure includes: 135.7 km gathering pipelines for 79 injection/withdrawal wells; 22.6 km gathering pipelines; 13 separators; 12 technological gas metering facilities; 1 gas dehydration station; communication system and fiber-optic data acquisition system; bi-directional fiscal metering system. 4. Sarmasael Storage Sarmasel Storage facility is located near Sarmasel, approximately 35 km NW of Tirgu-Mures, 35 km north of Ludus and 48 km east of Cluj-Napoca. The fixed assets contributing to the storage process are as follows: 63 wells; surface infrastructure includes: Sarmasel gas compressor station; 26.7 km gathering pipeline for 63 wells; 13.8 km gathering pipelines; 59 separators; bi-directional fiscal metering system. Page 37 of 2019 Consolidated Board of Directors’ Report 5. Urziceni Storage Urziceni Storage facility is located in Ialomita County approximately 50 km NE of Bucharest. The fixed assets contributing to the storage process are as follows: 32 wells of which 31 injection/withdrawal wells and 1 piezometric well; surface infrastructure includes: Urziceni gas compressor station; 19.5 km of gathering pipelines for 32 wells; 3.3 km gathering pipelines; 6 technological gas metering facilities; 31 gas heaters; 1 gas dehydration station; optic fibre data acquisition system; bi-directional fiscal metering system. Cetatea de Balta Storage Pursuant to Romgaz Decision No. 545 dated December 24, 2018, fixed assets belonging to Cetatea de Balta and taken over from Filiala de Inmagazinare Gaze Naturale Depogaz Ploiesti SRL were transferred to Medias Branch and starting with January 1, 2019, upon ANRM’s approval, Romgaz resumed production of resources from production unit Sarmatian III of Cetatea de Balta commercial field. Well workover, recompletions and well production tests represent all the services performed with workover rigs, as well as equipment for specific support operations such as: cement plug drilling installations, mud tank equipped with agitator, sand control-sand blender, DST- cased hole testing of productive layers, shale shaker, mud pumps. Special Well Operations are performed with the following equipment: cementing unit, slickline, wireline, coiled tubing unit, liquid nitrogen converter, liquid nitrogen tank truck, cement container, filter unit, equipment for discharge and measurement with two-phase separation, equipment for discharge and measurement with three-phase separation, equipment for tubing investigation, echometer, tubing cutting, packer assembling device, hydraulic packer recovery tool, well fire-fighting equipment. Future well workover and special well operations are required in order to stop production decline, taking into consideration the continuous need for such works and the large number of works performed in the past. The car fleet of STTM consists of 626 motor vehicles as follows: Passenger carriers: cars (88), minibuses (13), buses (2) and large buses (2); passengers and goods utility cars < than 3.5 t (10) and > than 3.5 t (110) respectively; vehicles for goods transportation: dumpers (21), cesspit emptier (34), platform trucks (18), tank trucks (3); vehicles for heavy transportation: truck-tractors (1) and semitrailer trucks (13); lifting and handling machinery (autocranes): (24); other special vehicles: mobile laboratory for equipment testing and checking (1); heavy machinery: bulldozers (8), caterpillar shovels (2), wheel loaders (14), motor grader (3), compactor (3), front end loaders (9); Page 38 of 2019 Consolidated Board of Directors’ Report other machinery: tractor trucks (67), fork lift trucks (12), motorised cleaning vehicle (3) etc.; other vehicles: trailers for heavy transportations, trailers and semitrailers for tractors (75). Considering the dynamics of the gas exploration – production activity performed by Romgaz, in order to achieve the activities on medium term (approx. 5 years) the perspective to develop STTM must be achieved by permanently determining methods and measures resulting from the provision of quality services and in terms of economic efficiency. The main scope of activity of SPEE Iernut is to produce electricity. With an installed capacity of 800 MW, including 6 power units: 4 units of 100 MW and 2 units of 200 MW, grouped in 5 combustion units - Type I, as follows: - 4 Czechoslovakian SKODA power units with an installed capacity of 100 MW: IMA1, IMA2, IMA3, IMA4; - 2 Soviet power units with an installed capacity of 200 MW each (group no.5 and group no.6): IMA5. The units were commissioned between 1963 and 1967 when there were no environmental restrictions such as the current ones. Following Romania’s accession to the European Union and implicitly the transposition of European directives on environmental prevention and protection, CTE Iernut undertook measures in order to comply with the newly imposed requirements, mainly those related to compliance with the emission limit values of NOx emissions from combustion units. The power plant is connected to the main road E60 by a 1.5 km long road and to the national railway system at Cuci by a 2 km railway both owned by the CTE Iernut. Taking into consideration the ongoing contract no. 13384/31.10.2016 “Development of CTE Iernut though the construction of a new combined cycle gas turbine power plant” and in order to comply with the environmental requirements and the conditions imposed by the Integrated Environmental Authority, the following procedures have begun during 2019: 1. Decommissioning of IMA2 and IMA3 starting with February 2019-is now finalized; 2. Decommissioning of its own industrial railway (approximately 2 km) – ongoing procedure; 3. Decommissioning of IMA1 and Group no.6 (part of IMA5) starting with October 2019 – finalized; 4. Preparing/upgrading/modernizing the auxiliary installations which will serve the new CCGT (combined cycle gas turbine) power plant under construction. Investments play an important part in maintaining the production decline, which is achieved by discovering of new reserves, by improving the current recovery rate, and by rehabilitation, development and modernization of existing facilities. In 2019, Romgaz Group invested RON 891.6 million that is 25% (RON 296.9 million) lower than 2018 investments, representing approx. 67% from the scheduled investments. The Company invested during 2015 – 2019 approximately RON 4.23 billion, as follows: Year 2015 2016 2017 2018 2019 Total Page 39 of 2019 Consolidated Board of Directors’ Report Value (thousand RON) 937,916 497,716 781,768 1,150,349 866,218 4,233,967 For 2019, Romgaz forecasted the achievement of an investment program with a total budget of RON 1,245.00 million, based mostly on objectives aiming to compensate the natural decline and electricity generation, such as: continuing geological research works by performing exploration drillings for the discovery of new gas reserves; development of the production potential by adding new facilities on existing structures (drilling of wells, surface facilities, drying stations, compressor stations, compression in gas fields), improving the performance of facilities and equipment to increase production safety, reducing energy consumption and optimise gas field production; modernization and upgrading of constructions, installations and equipment, as well as acquisition of new equipment and performing facilities specific for the core activity; procurement of specific machinery to ensure the technological transportation and maintenance of core activities and ensuring optimal use of road infrastructure in gas fields. In absolute figures, the investment costs for 2019 reached RON 866,218 thousand representing: 75.3% as compared to the achievements for 2018; 69.6% of the scheduled level. The investments were financed as follows: - from own sources and sources obtained from the National Investment Plan (approx. 22% from eligible expenses) for “The Development of CTE Iernut Power Plant by building a new combined cycle CCTG power plant”; and - exclusively from own sources for the other approved investment objectives. As regards physical achievements for the analysed period, the objectives initiated in the previous year were achieved, and preparatory works were carried out (design, obtaining lands, approvals, agreements, authorizations, acquisitions). The Company started the works for part of the new objectives and performed modernisation works and repairs that can be capitalized at the producing wells. The value of fixed assets commissioned during the reporting period was RON 487.23 million. The table below shows the investments made in 2019, as compared to those scheduled and accomplished in 2018, the table is similar to Annex 4 to the Income and Expenditure Budget: Item No. 0 Investment chapter 2018 *RON thousand* % 2019 1 2 3 4 Program Achieved 1. Investments in progress – total, out of which: 1.1 Natural gas exploration, production works 771,449 771,063 566,992 565,512 547,104 545,917 1.2 Maintaining UGS capacity 0 0 0 0.0 Page 40 of ’19/’18 5=4/2x10 0 70.92 70.80 2019 Consolidated Board of Directors’ Report 1.3 Environment protection works 2. New investments – total, out of which: 2.1 Natural gas exploration, production works 2.2 Maintaining UGS capacity 2.3 Environmental protection works 3. 4. Investment in existing tangible assets Equipment (other acquisitions of tangible assets) 5. Other investments (studies, licenses, software, financial assets etc.) * TOTAL 386 166,990 162,606 2980 1,404 156,228 55,424 258 1,480 256,563 251,366 0 5,197 267,946 139,082 14,417 1,187 88,797 88,444 0 353 188,138 39,903 2,276 307.51 53.18 54.39 0.00 25.14 120.43 72.00 882.17 1,150,349 1,245,000 866,218 75.30 The table below shows the achieved investments according to Romgaz Investment Program for 2019: *RON thousand* Investment Categories 1 I. Geological exploration works to discover new methane gas reserves II. Exploitation drilling works, putting into production of wells, infrastructure and utilities and electricity generation III. Maintaining UGS capacity IV. Environmental protection works V. Retrofitting and revamping of installation and equipment VI. Independent equipment and installations VII. Expenses related to studies and projects TOTAL The chart below shows the investments for 2019: 0.00% 0.18% 21.72% 4.61% 40.34% 32.89% Program 2019 2 385,189 % Achieved on 31.12. 2019 3 284,916 4=3/2x100 73.97% 431,689 349,445 80.95% 0 0 0% 6,677 267,946 139,082 14,417 1,245,000 1,540 188,138 23.06% 70.21% 39,903 2,276 28.69% 15.79% 866,218 69.58% I. Geological exploration for the discovery of new natural gas reserves II. Gas field production, infrastructure and utilities, electricity generation III. Underground gas storage IV. Environmental protection V. Retrofitting and revamping of installation and equipment VI. Independent equipment and installations VII. Consultancy, studies and projects, software and licenses The summary of the achieved investment projects is shown below: Page 41 of 2019 Consolidated Board of Directors’ Report Main Projects Planned Achieved Item No. 1. Drilling, exploration 27 wells 9 completed wells; 4 wells drilling in progress; 14 wells under procurement for drilling works; 21 wells with completed technical design, in the process of obtaining the approvals, lands and organisation of drilling procurement procedure; 10 wells under design or design acquisition; 3 completed wells; 2. Drilling design - 3. Performance of exploration 3 wells drilling 4. Construction of surface facilities – at shut-in wells 5. Well recompletion operations, reactivation and capitalizable repairs 6. Electricity generation 7. Partnerships/Associations 6 surface facilities under construction for putting into production 10 wells 4 surface facilities completed for putting into production 5 wells; 5 surface facilities under construction for putting into production 6 wells; 15 new surface facilities for bringing into production 16 shut in wells; budget to prepare 57 surface facilities for putting into production 64 wells; 15 surface facilities for connecting 22 wells, in the process of obtaining land/permits, agreements, authorisations; Technical design is currently prepared for the surface facilities to connect 16 wells. Works at approx.160 wells, correlated with the annual program agreed by ANRM Continuing works at CTE Iernut Raffles Energy SRL - putting into experimental production well 1 Voitinel discharging the gas in a G2P ( gas to power) power plant Lukoil - preparatory works and drilling of an exploration well Trinity 1X in Block 30EX Trident; In 2019, works were performed for a total of 169 wells (87 wells at Medias Branch and 82 wells for Tg. Mures Branch), works performed in-house by S.I.R.C.O.S.S. Continuing the performance of the Execution Contract -retesting well 1 Voitinel with positive results and therefore the well was put under conservation; -analysis for putting the well into production. - Continuing in 2019 preparatory works for drilling; - Well Trinity 1X Trident was drilled in 30 EX Trident Block in Q3 Amromco - drilling 5 wells; - 3D seismic surveys in blocks Bibesti and Zatreni; - completed drilling of exploration well Bibesti 213, works started in 2018; - putting in production well Bibesti 213; Page 42 of 2019 Consolidated Board of Directors’ Report - recompletion operations at 6 wells; - works and surface facilities for wells proposed to be drilled; - abandoning wells that received the permit in this respect; - design and permits Slovacia - the budget was approved only for the first four months of the year - surface works and drilling of well Zatreni 100; - drilling and putting into production well Balta Alba 121; - recompletion operations for 2 wells; - works related to abandonment of 2 wells; - permits and approvals for drilling well Balta Alba 122 and for installing compressors for wells Bibesti 213 and Bibesti 214. -relinquished exploration in two blocks in 2018; - taking into account the strong opposition of institutions and population against drilling in the interest area, we analysed the possibility of withdrawing from the partnership. - Development of CTE Iernut One of Romgaz main strategic directions, provided in “The Development Strategy for 2015- 2025”, is consolidation of the company’s position on the energy supply markets. In this case, in the field of electricity generation, Romgaz proposed to have “a more efficient activity by making investments to increase the efficiency of the Thermoelectric Plant (CTE) Iernut to a minimum of 55%, respecting the environmental requirements (NOx, CO2) and increasing the exploitation safety”. Thus, a very important objective is the “The Development of CTE Iernut Power Plant by building a new combined cycle CCTG power plant”, with a deadline for completion in Q 1, 2020. In 2019 the following equipment was supplied: in pressure lubrication system; recirculating pumps; main parts of steam turbines; excitation transformers; condense pumps for steam turbines ST13 and ST23; water pumps for HRSG 21 and HRSG 22; high alloy steel valves < Ø4”; condensers for the steam turbines ST13 and ST23; ball cleaning system for steam turbine condensers ST13 and ST23; water pumps for HRSG11 and HSRG12; Ex2100 static excitation system for steam turbines ST13 and ST23; heaters for gas stations 11, 12, 21, 22; generator for gas turbines. Page 43 of 2019 Consolidated Board of Directors’ Report Construction works were performed for the electric building and the control room, machine hall, water treatment station, water pumping and cooling station, foundations and upper works for equipment, as well as several surface facilities. The main reasons causing delays in achieving the objectives included in the 2019 investment program, with direct influences on the achievements, were the following: - - - - - - drilling works were not completed on time due to difficulties encountered during drilling scheduled wells; the procedures for procuring drilling works related to 8 wells were cancelled due to challenges in court; the well construction program was modified for wells: 76, 79 and 79 Rosetti , Visani 65, Vizireni 61 and Jirlau 2; difficulties related to obtaining land (lack of ownership documents and/or owners’ refusal to lend or sell the land) for performing well modernisation works and recompletion operations as scheduled; long-time interval to obtain the approvals and agreements issued by water, environmental property register, agricultural related institutions, with direct effects upon the issuance of the construction authorization for the construction of surface facilities; resume the procurement procedure for independent vehicles due to the lack of offers; The investments that were not achieved/delayed in 2019 will continue to be performed in 2020. In 2019, Depogaz Subsidiary had an approved investment plan of RON 79,085 thousand (without the gas cushion for Sarmasel storage in amount of RON 54,665 thousand) and achieved investments of RON 25,364 thousand, representing 32%, as follows: Item No. 1. Underground gas storage activities 2. Modernisation and upgrading of installations and equipment, Description surface facilities, utilities Independent equipment and machinery Costs with consultancy, studies and projects, softs, licences and patents etc. TOTAL 3. 4. * Schedule Results 4,800 62,130 3,145 9,010 2,276.3 20,462.2 2,212.8 412.4 79,085 25,363.7 The investments were financed entirely from own sources. For the reporting period, the fixed assets were commissioned in amount of RON 35,619 thousand. The main objectives included in the investment program for 2019 were: modernisation of wells: RON 19,627.91 thousand; modernisation of Ghercesti storage facility: RON 1,767.94 thousand; modernisation of telecommunication system: RON 867.30 thousand; system for real-time determination of gas composition for the gas delivered to the market: RON 517 thousand; compensations and land procurement: RON 508.36 thousand; gas heaters: RON 499.50 thousand; Page 44 of 2019 Consolidated Board of Directors’ Report study related to Bilciuresti storage facility: RON 250 thousand; safety power supply for Sarmasel compressor station: RON 239.79 thousand; modernisation of gas metering system Balaceanca: RON 218.83 thousand; modernisation of technological metering system Sarmasel storage facility: RON 174.150 thousand; hydrocarbon dew point analyser: RON 110 thousand; methanol injection facility: RON 89.50 thousand. Page 45 of 2019 Consolidated Board of Directors’ Report Government Decision No. 831/201012 approved “the sale by secondary initial public offering of shares representing 15% of S.N.G.N. Romgaz S.A. share capital by the Ministry of Economy, Trade and Business Environment, through the Office Ownership and Privatization in Industry”. On November 12, 2013, the company was listed on the Bucharest Stock Exchange (BVB) and on London Stock Exchange (LSE). As of this date, the shares of the company have been traded on the regulated market governed by BVB under the symbol “SNG”, and on the regulated market governed by LSE as GDRs issued by the Bank of New York Mellon (1 GDR = 1 share) under the symbol “SNGR”. No. Description 2013 2014 2015 2016 2017 2018 2019 1. Number of shares (x1000) 2. Market capitalisation13 385,422.4 385,422.4 385,422.4 385,422.4 385,422.4 385,422.4 385,422.4 *million RON *million EUR 13,178 2,952 14,018 3,127 10,483 2,315 3. Maximum price (RON) 4. Minimum price (RON) 5. Year-end price (RON) 6. Net profit per share (RON) 7. Gross dividend per share 35.60 33.80 34.19 2.58 2.57 36.37 32.41 35.36 3.66 3.15 36.55 26.30 27.20 3.10 2.70 9,636 2,122 27.55 21.60 25.00 2.66 5.76*) 12,064 2,589 33.95 25.10 31.30 4.81 6.85**) 10,714 2,297 38.20 27.80 27.80 14,299 2,992 38.40 27.35 37.10 3.53 4.17***) 2.83 1.61****) (RON) 8. Dividend yield (7./5.x100) 9. Exchange rate (RON/EUR) 7.5% 8.9% 9.9% 23.04% 21.88% 15.00% 4.34% 4.4639 4.4834 4.5285 4.5411 4.6597 4.6639 4.7785 *) The gross dividend per share of RON 5.76 is composed of the gross dividend per share for financial year 2016 in amount of RON 2.40/share, and the additional gross dividend of RON 1.42/share resulted from the distribution of retained earnings and the additional gross dividend of RON 1.94/share assigned under the provisions of Article II and III of Government Emergency Ordinance No.29/2017, distributed from the company’s reserves, representing own financing sources. **) The gross dividend per share of RON 6.85 is composed of the gross dividend per share for financial year 2017 in amount of RON 4.34 per share, and the additional gross dividend of RON 0.65 share resulted from the distribution of retained earnings and the additional gross dividend of RON 1.86 /share assigned under the provisions of Article II and III of Government Emergency Ordinance No. 29/2017, distributed from the company’s reserves representing own financing sources. ***) The gross dividend per share is 4.17 RON is composed of the gross dividend per share for financial year 2018 in amount of RON 3.15 per share, and the additional gross dividend of RON 0.08/share resulted from the distribution of retained earnings and the additional gross dividend of RON 0.94/share assigned under the provisions of Article 43 of Government Emergency Ordinance No 114/2018. ****) proposed dividend of RON 1.61 is composed of the gross dividend per share for financial year 2019, in mount of 1.39 RON/share and the additional gross dividend of 0.22 RON/share resulted from the distribution of retained earnings representing the impairment value of fixed assets and the value of fixed assets and abandoned investment 12 GD No. 831 of August 4, 2010 on the approval of the privatisation strategy by public offering of Societatea Naţionala de Gaze Naturale “Romgaz” – S.A. Mediaş and of the mandate of the public institution involved in the development of such process. 13 Calculated based on the closing price on the last trading day of the year, namely based on the exchange rate communicated by the National Bank of Romania and valid in the last trading day of the year. Page 46 of 2019 Consolidated Board of Directors’ Report projects in the reporting years that were financed from “the share of expenses necessary for the development and modernisation of gas production” according to GD No. 168/1998 as subsequently amended and supplemented. In 2019, on the regulated market governed by BVB the trading price of shares reached a historical maximum of 38.40 RON/share, at the end of four days namely on October 22, December 6, 9 and 16, 2019. At the beginning of 2019 the share price continued the descending trend recorded at the end of 2018, as a consequence of GEO no.114/2018 on establishing fiscal, budgetary and public investment measures, amending and supplementing some pieces of legislation and extending some deadlines. The lowest price per share of 27.35 RON/share was recorded on January 14, 2020. Thereafter, the share price increased considerably, exceeding the limit of RON 30 at the beginning of February and recorded a monthly average value of 33.58 RON/share. This ascending trend of the share price can be noticed by comparing the year-end price (RON 37.10) with the trading price recorded in the first day (RON 27.40), namely +30.63%. GDR’s trading prices on LSE recorded the same ascending trend similar to shares. Therefore, the minimum price was 6.80 USD/GDR recorded on January 14, 2019 and the maximum price of 8.80 USD/GDR was reached in the last period of the year, namely December 19, 2019. In 2019, the average GDR’s price was 7.84 USD/GDR, recording between the first and last trading day of the year an increase of 25.71%. Since the listing day up to present, Romgaz has been considered an attractive company for investors and holds a significant position in the top of local issuers, being included in BVB indices by the end of 2019, as follows: - Second place, by market capitalization, in the top of Premium BVB issuers. With a market capitalization amounting to RON 14,299.17 million (respectively EUR 2,991.89 million) on December 31, 2019; Romgaz is the second largest listed company in Romania, being preceded by OMV Petrom with a capitalization of RON 25,319.91 million, namely EUR 5,297.82 million; - Fourth place as regards the total amount of transactions in 2019, in the top of local issuers in the main segment of BVB (RON 987.10 million), ranked after Banca Transilvania, Fondul Proprietatea and BRD; - Weight of 10.96% and 10.29% in BET index (top 15 issuers) and namely BET-XT index (top 25 issuers), 30.00% in BET-NG index (energy and utilities) and 10.69% in BET-TR index (BET Total Return). Performance of Romgaz shares between listing and December 31, 2019 compared to the BET index, is shown below: Page 47 of 2019 Consolidated Board of Directors’ Report 45.00 40.00 35.00 30.00 25.00 20.00 e r a h s / N O R 15.00 10.00 5.00 0.00 3 1 0 2 / 2 1 / 1 1 3 1 0 2 / 7 2 / 2 1 . 4 1 0 2 2 0 4 1 . 4 1 0 2 / 1 3 / 3 . 4 1 0 2 5 0 0 2 . . 4 1 0 2 7 0 4 0 . 4 1 0 2 / 9 1 / 8 . 4 1 0 2 0 1 3 0 . . 4 1 0 2 1 1 7 1 . . 5 1 0 2 1 0 8 0 . 5 1 0 2 / 8 / 4 5 1 0 2 / 0 2 / 2 5 1 0 2 / 7 2 / 5 5 1 0 2 / 0 1 / 7 5 1 0 2 / 4 2 / 8 5 1 0 2 / 7 / 0 1 5 1 0 2 / 9 1 / 1 1 6 1 0 2 / 2 1 / 1 6 1 0 2 / 4 2 / 2 6 1 0 2 / 7 / 4 6 1 0 2 / 6 / 7 6 1 0 2 / 3 2 / 5 6 1 0 2 / 9 1 / 8 6 1 0 2 / 3 / 0 1 6 1 0 2 / 5 1 / 1 1 7 1 0 2 / 4 / 1 7 1 0 2 / 7 1 / 2 7 1 0 2 / 3 / 4 7 1 0 2 / 8 1 / 5 7 1 0 2 / 5 / 7 7 1 0 2 / 8 1 / 8 7 1 0 2 / 2 / 0 1 7 1 0 2 / 4 1 / 1 1 8 1 0 2 / 4 / 1 8 1 0 2 / 9 1 / 2 8 1 0 2 / 4 / 4 8 1 0 2 / 2 2 / 5 8 1 0 2 / 6 / 7 8 1 0 2 / 1 2 / 8 8 1 0 2 / 3 / 0 1 8 1 0 2 / 5 1 / 1 1 9 1 0 2 / 4 / 1 9 1 0 2 / 9 1 / 2 9 1 0 2 / 3 / 4 9 1 0 2 / 1 2 / 5 9 1 0 2 / 4 / 7 9 1 0 2 / 9 1 / 8 9 1 0 2 / 1 / 0 1 9 1 0 2 / 3 1 / 1 1 SNG BET 12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 Performance of GDRs traded on London Stock Exchange and RON/USD exchange rate movements are shown below: 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 R D G / D S U . 3 1 0 2 1 1 2 1 . . 3 1 0 2 2 1 7 2 . . 4 1 0 2 2 0 4 1 . . 4 1 0 2 3 0 1 3 . . 4 1 0 2 5 0 0 2 . . 4 1 0 2 7 0 4 0 . . 4 1 0 2 8 0 9 1 . . 4 1 0 2 0 1 3 0 . . 4 1 0 2 1 1 7 1 . . 5 1 0 2 1 0 8 0 . . 5 1 0 2 2 0 0 2 . . 5 1 0 2 4 0 8 0 . . 5 1 0 2 5 0 6 2 . . 5 1 0 2 7 0 9 0 . . 5 1 0 2 8 0 1 2 . . 5 1 0 2 0 1 6 0 . . 5 1 0 2 1 1 8 1 . . 6 1 0 2 1 0 1 1 . . 6 1 0 2 2 0 3 2 . . 6 1 0 2 4 0 6 0 . . 6 1 0 2 5 0 3 2 . . 6 1 0 2 7 0 7 0 . . 6 1 0 2 8 0 2 2 . . 6 1 0 2 0 1 5 0 . . 6 1 0 2 1 1 7 1 . . 7 1 0 2 1 0 0 1 . . 7 1 0 2 2 0 3 2 . . 7 1 0 2 4 0 7 0 . . 7 1 0 2 5 0 6 2 . . 7 1 0 2 7 0 3 1 . . 7 1 0 2 8 0 5 2 . . 7 1 0 2 0 1 0 1 . . 7 1 0 2 1 1 2 2 . . 8 1 0 2 1 0 2 1 . . 8 1 0 2 2 0 7 2 . . 8 1 0 2 4 0 7 1 . . 8 1 0 2 6 0 1 1 . . 8 1 0 2 7 0 4 2 . . 8 1 0 2 9 0 7 0 . 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 D S U / N O R . 8 1 0 2 0 1 2 2 . . 8 1 0 2 2 1 5 0 . . 9 1 0 2 1 0 3 2 . . 9 1 0 2 3 0 8 0 . . 9 1 0 2 4 0 4 2 . . 9 1 0 2 6 0 3 1 . . 9 1 0 2 7 0 9 2 . . 9 1 0 2 9 0 2 1 . . 9 1 0 2 0 1 5 2 . . 9 1 0 2 2 1 9 0 . USD/GDR RON/USD The General Meeting of Shareholders determines the value of dividends to be distributed to shareholders considering the specific legal provisions. Therefore, Government Ordinance No. 64/200114 approved by Law No. nr.769/2001 as amended, provides at Article 1, par. (1), let. f) that the profit after the deduction of profit tax is distributed minimum 50% as dividends. 14 Government Ordinance No. 64/August 30, 2001 on distribution of profit in majority state-owned companies as well as in autonomous regies Page 48 of 2019 Consolidated Board of Directors’ Report By way of derogation from provisions of Law No. 31/1990 providing that the dividends must be paid no later than six months after the approval of the annual financial statements, the state- owned companies are required, according to the provisions of Government Ordinance nr.64/2001, to pay the due dividends to the shareholders within 60 days from the legal deadline for the submission of the annual financial statements of the competent fiscal authorities. According to Government Emergency Ordinance No. 29/201715: “The amounts distributed in the previous years from other reserves under the provisions of Art. 1 para (1) let. (g) of Government Ordinance No.64/2001 [...], existing at the date of entry into force of this Emergency Ordinance, can be redistributed as dividends [...]” - Art.II; “After the approval of the financial statements of 2016, the entities provided in Art. 1, par. (1) of the Government Ordinance No.64/2001, [...], the retained earnings existing in the balance account on December 31, can be distributed as dividends” - Art.III par. (1). According to Article 43 of Government Emergency Ordinance No. 114/2018 “The economic operators, partially or wholly state owned, applying the provisions of Government Ordinance No. 26/2013, distribute and pay under the law, within 60 days since the approval of the financial statements for 2018, under the form of dividends or payments to the state budget, in case of autonomous regies, 35% of the amounts distributed to other reserves, under the conditions of Article 1, par. (1), let. g) of the Government Ordinance No. 64/2001, found as cash in hand and at bank accounts, as well as the one related to short term investments as of December 31, 2018 and which on the same date are not committed, under procurement contracts, to be used as own financing sources”. Report on the macroeconomic situation for 2019 and its projection for 2020 – 2022, elaborated by the Ministry of Public Finance, provides that the budgetary planning considered, among others: the impact generated by Article 43 of GEO no. 114/2018; enforcing in 2019 the measures for allocating minimum 90% from the achieved net profit as dividends. The table below shows the status of dividends for years 2016-2019: Description Dividends Gross dividends per share (RON/share) Dividend distribution rate (%) Number of shares 2016 2,220,033,024 5.76*) 2017 2,640,143,440 6.85**) 2018 1,607,211,408 4.17***) 2019 proposal 620,530,064 1.61****) 141.24 103.70 117.64 56.95 385,422,400 385,422,400 385,422,400 385,422,400 *) The gross dividend per share of RON 5.76 is composed of the gross dividend per share for financial year 2016 in amount of RON 2.40/share, and the additional gross dividend of RON 1.42/share resulted from the distribution of retained earnings and the additional gross dividend of RON 1.94/share assigned under the provisions of Article II and III of Government Emergency Ordinance No.29/2017, distributed from the company’s reserves, representing own financing sources. **) The gross dividend per share of RON 6.85 is composed of the gross dividend per share for financial year 2017 in amount of RON 4.34 per share, and the additional gross dividend of RON 0.65 share resulted from the distribution of retained earnings and the additional gross dividend of RON 1.86 /share assigned under the provisions of Article II and III of Government Emergency Ordinance No. 29/2017, distributed from the company’s reserves representing own financing sources. 15 Government Emergency Ordinance No. 29 of March 30, 2017 to amend Art. 1 par. (1) let. g) of Government Ordinance No. 64/2001 on the distribution of profits in national companies, and trading companies with full or majority state capital, as well as in autonomous regies, and to amend Art. 1 par. (2) and (3) of Government Emergency Ordinance no.109/2001 on corporate governance of public enterprises. Page 49 of 2019 Consolidated Board of Directors’ Report ***) The gross dividend per share is 4.17 RON is composed of the gross dividend per share for financial year 2018 in amount of RON 3.15 per share, and the additional gross dividend of RON 0.08/share resulted from the distribution of retained earnings and the additional gross dividend of RON 0.94/share assigned under the provisions of Article 43 of Government Emergency Ordinance No 114/2018. ****) proposed dividend of RON 1.61 is composed of the gross dividend per share for financial year 2019, in mount of 1.39 RON/share and the additional gross dividend of 0.22 RON/share resulted from the distribution of retained earnings representing the impairment value of fixed assets and the value of fixed assets and abandoned investment projects in the reporting years that were financed from “the share of expenses necessary for the development and modernisation of gas production” according to GD No. 168/1998 as subsequently amended and supplemented. In 2019, OGMS Resolution No.3/April 25, 2019 approved the distribution of dividends in total gross amount of RON 1,607,211,408 (4.17 RON/share), representing dividends for financial year 2018 (3.15 RON/share) and additional dividends (1.02 RON/share). The Government of Romania mandated the state representatives in the General Meeting of Shareholders/Board of Directors of national companies and majority or entirely state owned companies and of autonomous regies, to take all the necessary measures for the distribution of a minimum share of 90% of the net profit achieved in 2018 as dividends/payments to the state budget. The Government made this decision through Memorandum No. 20/4737/18.03.2019 issued by the Ministry of Public Finances. The internal regulation “Dividend Policy” was approved by the company’s Board of Directors in March 2017 and is currently published on the company’s webpage www.romgaz.ro, at “Investor Relations – Corporate Governance – Reference Documents”. The selection and appointment of members in the Board of Directors was accomplished in compliance with the provisions of GEO No.109/2001 on corporate governance of public companies, as subsequently amended and supplemented, approved by Law No.111/2016 and by Enforcement Guidelines (GD No. 722/2016). The members of the Board of Directors on January 1st, 2019 were as follows: Item No. 1 2 3 Name Nistoran Dorin Liviu Position in the Board chairman/member** Ungur Ramona member/chairman*** Volintiru Adrian Constantin member Status*) non-executive independent non-executive independent executive non- independent Professional Qualification engineer Institution of Employment Evolio economist - economist SNGN Romgaz SA 4 Grigorescu Remus member non-executive independent PhD in Economics Universitatea “Constantin Brâncoveanu” 5 6 7 Ciobanu Romeo Cristian member non-executive independent PhD engineer Universitatea Tehnică Iaşi Jude Aristotel Marius member Jansen Petrus Antonius Maria member non-executive non- independent non-executive independent MBA legal adviser economist SNGN “Romgaz” SA London School of Business and Finance Page 50 of 2019 Consolidated Board of Directors’ Report *) - members of the Board of Directors submitted the independent statements in compliance with the provisions of Romgaz Corporate Governance Code. **) – chairman until May 13, 2019. ***) – chairman as of May 14, 2019. During 2019, the Board of Directors underwent several changes. Thus, on June 26, 2019, by OGMS Resolution No.6/2019, the company shareholders appointed by cumulative vote the following persons as members of the Board: Stan-Olteanu Manuela-Petronela Havrilet Niculae Ciobanu Romeo-Cristian Parpala Caius-Mihai Harabor Tudorel Cimpeanu Nicolae Jansen Petrus Antonius Maria Mr. Ciobanu Romeo-Cristian and Mr. Jansen Petrus Antonius Maria were reconfirmed as board members continuing their four years mandate, following a selection process carried out in 2018, according to OGMS Resolution no.8 of July 6, 2018. The other board members were appointed as interim members for a four-month period. Following the selection procedure, the Board of Directors had the following composition: Item no. 1 Name Stan-Olteanu Manuela-Petronela Position in the Board chairman 2 Havrileţ Niculae member Status*) Professional Qualification Institution of Employment non-executive non-independent non-executive non-independent legal adviser General Secretariat of the Government engineer Ministry of Energy 3 Ciobanu Romeo- Cristian member non-executive independent PhD engineer Universitatea Tehnică Iaşi 4 Parpală Caius-Mihai member non-executive independent engineer ANAR - Administraţia Bazinală de Ape Mureş – Sistemul de Gospodărire al Apelor Arad 5 Hărăbor Tudorel member 6 7 Cîmpeanu Nicolae member Jansen Petrus Antonius Maria member non-executive independent non-executive independent non-executive independent economist - economist economist OMV Petrom Global Solutions S.R.L. London School of Business and Finance *) - members of the Board of Directors submitted the independent statements in compliance with the provisions of Romgaz Corporate Governance Code. Company’s shareholders approve by Resolution No. 8 of October 28, 2019 to extend the mandates of interim board members by two months from the date of their mandate expiration, in compliance with article 641 para (5) of GEO No. 109/2011. Page 51 of 2019 Consolidated Board of Directors’ Report On December 23, 2019, the company’s shareholders approved by OGMS Resolution No. 11/2019 revocation of the following members of the Board: Stan-Olteanu Manuela-Petronela Havrilet Niculae Parpala Caius-Mihai Harabor Tudorel Cimpeanu Nicolae and election of the following interim Board members with a mandate of four months: Jude Aristotel Marius Stan-Olteanu Manuela-Petronela Harabor Tudorel Marin Marius Dumitru Balazs Botond. Consequently, the Board of Directors has the following members: Item no. 1 2 Name Stan-Olteanu Manuela-Petronela Position in the Board chairman Status*) Professional Qualification Institution of Employment non-executive non-independent legal adviser General Secretariat of the Government Jude Aristotel Marius member non-executive non-independent MBA in Law legal adviser SNGN Romgaz SA 3 Hărăbor Tudorel member 4 Marin Marius- Dumitru member 5 Balazs Botond member 6 7 Ciobanu Romeo- Cristian Jansen Petrus Antonius Maria member member non-executive independent non-executive independent non-executive non-independent non-executive independent non-executive independent economist - PhD engineer MDM Consultancy Deva legal adviser SNGN Romgaz SA PhD engineer Universitatea Tehnică Iaşi economist London School of Business and Finance *) - members of the Board of Directors submitted the independent statements in compliance with the provisions of Romgaz Corporate Governance Code. The Curricula Vitae of the current Board members are to be found on the company’s webpage www.romgaz.ro, at “Investor Relations – Corporate Governance – The Board of Directors”. According to the information supplied by each director, there is no agreement, understanding or family relationship between them and another person that contributed to their appointment as directors. As of December 31, 2019, among the members of the Board only Mr. Balazs Botond held shares in the company, namely 11 shares representing 0.00000285% of the share capital. Page 52 of 2019 Consolidated Board of Directors’ Report Volintiru Adrian Constantin - Chief Executive Officer (CEO) The Board of Directors appointed Mr. Volintiru Adrian Constantin as Chief Executive Officer of the Company for 4 years by Resolution No. 45 of October 1, 2018. Bobar Andrei – Chief Financial Officer (CFO) The Board of Directors appointed Mr. Bobar Andrei as Chief Financial Officer by Resolution no. 30 of November 2, 2017. The Board of Directors appointed Mr. Bobar Andrei by Resolution no. 39 of August 28, 2018 as Chief Financial Officer for a limited period, from August 28, 2018 until November 2nd, 2021. Mr. Bobar Andrei unilaterally terminated the Contract of Mandate by giving on 22 August 2019 Notification no. 28593 relating to the 30-day contract termination notice, in compliance with contractual provisions. The notice period ended on September 21, 2019. Upon the appointment of Mr. Andrei Bobar as CFO his Individual Employment Contract was suspended; on September 19, 2019, the CEO issued Resolution no. 530 which effected the reactivation of Mr. Bobar’s Individual Employment Contract and his position as Finance Director of the Company. The Board of Directors appointed Mr. Veza Marius Leonte as interim Chief Financial Officer until December 28, 2019, by Resolution No. 39/November 4, 2019. Other persons discharging managerial responsibilities: Name ROMGAZ - headquarters Tataru Argentina Paraschiv Nelu Veza Marius Leonte Bobar Andrei Dediu Mihaela Carmen - Boiarciuc Adrian Lupa Leonard Ionuţ Chertes Viorel Claudiu Ciolpan Vasile Endre Ioo Stan Ioan Cindrea Corin Emil Radu Cristian Gheorghe Mediaş Branch Dobrescu Dumitru Achimeţ Teodora Magdalena - Man Ioan Mihai Târgu Mureş Branch Roiban Claudiu Dimbean Catalin - Baciu Marius Tiberiu Iernut Branch Balazs Bela Oros Cristina Monica Oprea Maria Aurica Position Deputy Director General Deputy Director General Accounting Director Finance Director Exploration-Appraisal Director Production Director Information Technology Director Procurement Director Director for Technical Regulations Energy Trade Director Legal Department Director Human Resources Director HQSE Director Strategy, International Relations, European Funds Director Director Economic Director Production Director Technical Director Director Economic Director Production Director Technical Director Director Economic Director Trading Director Page 53 of 2019 Consolidated Board of Directors’ Report Bircea Angela SIRCOSS Rotar Dumitru Gheorghe Bordeu Viorica Gheorghiu Sorin STTM Cătană Cristian Victor Ilinca Cristian Alexandru Cioban Cristian Augustin Technical Director Director Economic Director Technical Director Director Economic Director Operation-Development Director The members of the upper management, except the chief executive officer and the chief financial officer are employees of the company, having an individual labour contract for an indefinite period. The management and operating personnel are employed, promoted and dismissed by the chief executive officer based on the powers delegated to him by the Board of Directors. The Board of Directors and the upper management of Depogaz is provided on the website: https://www.depogazploiesti.ro/ro/despre-noi/conducere According to our information, there is no agreement, understanding or family relationship between the members of the above mentioned upper management and another person that contributed to their appointment as members of the upper management. The table below shows the number of shares held by the members of the upper management as of December 31, 2019: Name and Surname Number of shares held Weight in the share capital (%) Item no. 0 1 3 4 6 7 1 Rotar Dumitru Gheorghe Ştefan Ioan Obrejan Dan Nicolae Andrea Nicolae Dincă Ispasian Ioan 20,611 2,945 286 200 48 38 2 3 0.00534764 0.00076410 0.00007420 0.00005189 0.00001245 0.00000986 10 Balasz Bela Atila To the best of our knowledge, the persons mentioned at 6.1 and 6.2 above, have not been involved in litigations or administrative proceedings related to their activity in Romgaz in the last 5 years, nor in proceedings related to their capacity of fulfilling the duties, except for the litigations arising out of the application of Decision No.26/2016 of the Court of Accounts – Sibiu Chamber of Accounts, having as scope the recovery of the amounts paid as regular overtime pay to the managing personnel (see items 155, 158, 161-165, 167, 169, 170, 196, 282, 292, 368 of the “Litigations” posted on www.romgaz.ro Investor Relations-Annual Reports- 2019). Page 54 of 2019 Consolidated Board of Directors’ Report The consolidated financial statements of the Group have been prepared in accordance with the provisions of the International Financial Reporting Standards (IFRS) as adopted by the European Union and the provisions of the Ministry of Finance Order No. 2844/2016. For the purposes of preparing these consolidated financial statements, the functional currency of the Company is deemed to be the Romanian Leu (RON). IFRS, as adopted by the EU, differs in certain respects from IFRS as issued by the IASB. However, the differences have no significant impact on the Group’s consolidated financial statements for the years presented. The consolidated financial statements have been prepared on a going concern basis in accordance with the historical cost convention. The table below presents a summary of the statement of consolidated financial position as of December 31, 2019: Indicator 0 ASSETS Non-current assets Property, plant and equipment Other intangible assets Investments in associates Deferred tax assets Other financial assets Right of use asset Total non- current assets Current assets Inventories Trade and other receivables Contract costs Other financial assets Other assets Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Issued capital Reserves Retained earnings TOTAL EQUITY Non-current liabilities Retirement benefit obligation Provisions Deferred income Lease liability 31.12.2017 (thousand RON)*) 1 31.12.2018 (thousand RON) 2 31.12.2019 (thousand RON) 3 Variance (2019/2018) 4=(3-2)/2*100 6,221,699 8,629 22,676 69,965 69,678 - 6,279,748 4,970 23,298 127,491 9,812 - 5,543,177 9,164 24,772 230,947 5,388 8,590 6,392,647 6,445,319 5,822,038 389,515 816,086 - 2,787,261 305,913 227,167 4,525,942 10,918,589 245,992 826,046 583 881,245 168,878 566,836 2,689,580 9,134,899 311,013 638,158 312 1,075,224 42,485 363,943 2,431,135 8,253,173 385,422 2,312,532 6,277,486 8,975,440 119,482 682,041 - - 385,422 1,824,999 385,422 1,587,409 5,458,196 5,201,222 7,668,617 7,174,053 139,254 510,114 21,128 - 114,876 366,393 21,244 8,285 -11.73% 84.39% 6.33% 81.15% -45.09% n/a -9.67% 26.43% -22.75% -46.48% 22.01% -74.84% -35.79% -9.61% -9.65% 0.00% -13.02% -4.71% -6.45% -17.51% -28.17% 0.55% n/a Page 55 of 2019 Consolidated Board of Directors’ Report Total non-current liabilities Current liabilities Trade payables and other liabilities Contract liabilities Current tax liabilities Deferred income Provisions Lease liability Other liabilities 801,523 670,496 510,798 -23.82% 606,109 - 128,520 970 76,923 - 186,702 46,381 68,001 8,442 93,645 - 329,104 392,615 109,910 42,705 64,342 3,729 82,701 694 264,241 -41.13% -7.93% -5.38% -55.83% -11.69% n/a -32.70% -28.58% -26.40% -9.65% Total current liabilities TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES 1,141,626 1,943,149 10,918,589 795,786 1,466,282 9,134,899 568,322 1,079,120 8,253,173 *) restated NON CURRENT ASSETS The total non-current assets decreased by 9.67% by the end of 2019, compared to the end of 2018, meaning by RON 623.28 million, from RON 6,445.32 million on December 31, 2018 to RON 5,822.04 million, on December 31, 2019, despite the total investments achieved in 2019 of RON 891.58 million. The decrease is due to depreciation, amortization and net impairment of RON 1,358.25 million, but also due to the decrease of the wells decommissioning provision that generated a decrease of non-current assets of RON 135.01 million. The increase of 84.39% recorded in Other Non-Current Assets during 2019 is due to the development of the Group’s IT systems. With regard to Other Financial Assets, the Group recorded in 2019 a loss of RON 4.5 million from the assessment related to investment in Electrocentrale Bucuresti, being fully adjusted. Investments in associates are accounted for in the consolidated financial statements by the equity method which implies that the investment is initially recognized as cost and adjusted afterwards, depending on the post-acquisition modifications, in the apportioned share of the Group in the associate’s net assets in which the investment had been made. The Group’s profit or loss includes its share of the associate’s profit or loss. In 2019, International Financial Reporting Standard 16 “Leases” entered into force and replaced International Accounting Standard 17 “Leases” (IAS 17). According to the new standard, the lessee accounts finance lease contracts and operating lease (rent) contracts in the same manner. As such, the lessee records a “right of use” asset for the underlying asset subject to the lease contract simultaneously with the recognition of a lease liability. The Group has no finance leases. The “right of use” assets derive from lease contracts concluded by the Group; previously, these contracts were reported in form of rent-related expenses. Deferred tax asset Deferred tax asset is based on the temporary differences between the accounting value and the tax value of balance sheet items. These temporary differences may be taxable, meaning they will result in taxable values when determining the taxable result of future periods, or deductible, meaning they will result in values that are deductible when determining the taxable result of future periods. Taking into account the impairment recorded for the fields operated by the Group, for abandoned investment projects and for storage assets, the temporary difference between the Page 56 of 2019 Consolidated Board of Directors’ Report accounting and the tax value of the assets increased, which generated a rise in the deferred tax asset on December 31, 2019 as compared to December 31, 2018. CURRENT ASSETS Inventories Inventories increased at the end of 2019, as compared to December 31, 2018 by 26.43% as a result of an increased gas stock in storages. The value of the gas stock on December 31, 2019 increased compared to the end of the previous year by 94.62% due to the increase by 51.1% of the gas volumes stored in 2019 as compared to 2018 and due to the decrease by 46.25% of the withdrawn gas volume. Trade and other receivables Trade receivables decreased in 2019 as compared to December 31, 2018 by 22.75% as a result of lower gas quantities delivered in December 2019 as compared to December 2018, by approximately 16.64% but also due to net impairment losses for trade receivables of RON 81.22 million. Cash and cash equivalents. Other financial assets On December 31, 2019, cash and cash equivalents and other financial assets (bank deposits and purchased state bonds) were RON 1,439.2 million, as compared to RON 1,448.1 million at the end of 2018. Other assets Other assets decreased due to recovery in 2019 of RON 123.2 million of the receivables representing excise duties related to technological consumption for the period 2010-2016. The Group received in 2019 a favourable decision related to a litigation with ANAF. During December 2016-April 2017, there was a partial fiscal inspection to review the VAT for the period December 2010 – June 2011, and to review the income tax for the period January 2010-December 2011. The scope of the inspection were the discounts granted by Romgaz to interruptible consumers for the delivery of internal gas between 2010-2011. This category was established by the transmission system operator, TRANSGAZ. The notice of assessment set additional payment obligations in amount of RON 15,284 thousand, as well as late payment penalties of RON 3,129 thousand. In 2019, the court ruled in favour of Romgaz so that the adjustment of RON 18.4 million was cancelled. EQUITY The Group’s own equity reduced in 2019 by 6.45% (RON 494.6 million) as compared to the end of 2018, due to distributing to shareholders as dividends the result of 2018 and part of the result of the previous years and certain reserves, in compliance with the resolution of the Group’s general meeting of shareholders. NON-CURRENT LIABILITIES At the end of 2019, non-current liabilities decreased by 23.82% as compared to December 31, 2018, mainly due to the decrease of the decommissioning provision for wells with RON 146.23 million (-27.57%). In 2019, the Group re-analysed well abandonment costs based on which this provision is calculated. Following this analysis, the provision decrease generated an income of RON 51.8 million and a decrease of non-current assets with RON 135.01 million. CURRENT LIABILITIES Current liabilities decreased by RON 227.47 million from RON 795.79 million recorded on December 31, 2018 to RON 568.32 million at the end of 2019. Page 57 of 2019 Consolidated Board of Directors’ Report Trade payables and other liabilities Trade payables decreased compared to December 31, 2018 by 41.13% due to fewer works performed at Iernut power plant towards the end of 2019, as compared to the end of 2018, liabilities to the contractor decreased by RON 85.26 million. Other liabilities Other liabilities recorded a decrease by 32.7% as a result of the following: - decrease of the Group’s petroleum royalty liability (decrease by RON of 71.69 million, as a result of a lower reference price communicated by the National Agency for Mineral Resources in Q4 2019 as compared to Q4 2018); - decrease of the windfall tax liability by RON 10.78 million, due to the decrease of the average gas price delivered in December 2019 by approximately 11.54% as compared to December 2018 and due to the gas quantities delivered during this month compared to the same period of 2018, by approximately 16.64%; - decrease of the VAT liability by RON 26.34 million due to lower sales during December 2019 as compared to December 2018; - payment to Schlumberger of a liability taking into account that the association agreement expired in 2018 (RON 22.5 million). The Group did not issue bonds or other debt instruments in financial year 2019. Provisions On December 31, 2019, current provisions recorded a decrease by 11.69% as compared to December 31, 2018. This decrease is due, mainly, to the decrease of the provision for greenhouse gas emission certificates (RON 16.7 million). The Group profit and loss account summary for the period January 1 – December 31, 2019, as compared to the similar period of the years 2018 and 2017, is shown below: Indicator 0 Revenue Cost of commodities sold Investment income Other gains and losses Impairment losses on trade receivables Changes in inventory of finished goods and work in progress Raw materials and consumables used Depreciation, amortization and impairment expenses Employee benefit expense Year 2017 (RON thousand) *) 1 4,585,186 Year 2018 (RON thousand) 2 5,004,197 Year 2019 (RON thousand) 3 5,080,482 (61,095) (245,020) (107,800) 22,350 53,279 (122,068) (102,989) - (186,651) (64,329) (552,446) (562,894) (19,941) (32,180) (75,460) (76,048) (708,142) (1,358,250) (621,330) (670,408) 38,124 (63,069) (81,221) 80,008 Variance (2019/2018) 4=(3-2)/2*100 1.52% -56.00% -28.44% -38.76% 307.31% n/a 0.78% 91.80% 7.90% Page 58 of 2019 Consolidated Board of Directors’ Report Finance cost Exploration expense Share of associates ‘result Other expenses Other income Profit before tax Income tax expense Profit for the period *)restated Revenue (18,791) (29,724) (183,121) (247,123) (24,740) (24,564) 1,375 (1,101,933) 622 (1,409,447) 1,474 (1,551,642) 364,169 18,442 2,119,752 (316,118) 1,803,634 1,585,184 (219,016) 32,834 1,275,180 (185,557) 1,366,168 1,089,623 -16.77% -90.06% 136.98% 10.09% 78.04% -19.56% -15.28% -20.24% In 2019, Romgaz reported a consolidated revenue of RON 5.1 billion as compared to RON 5.0 billion achieved in 2018. The increase resides from a 4.4% rise of revenue from sales of gas produced by Romgaz and of gas purchased for resale, as well as gas from joint ventures, an increase by 11% of revenues from storage services and an increase by 115.7% of revenues from gas condensate sale, despite the decrease of revenues from electricity sales by 50.95%. As for the quantities, the Group reports for 2019 as compared to 2018: 3.4 % less gas sales; provided gas injection services in storages by 51.4% higher, gas withdrawal services from storages by 34.8% lower, reserved a higher storage capacity by 42.51% for 2019 – 2020 storage cycle as compared to the previous cycle, partly due to minimum stock obligations established by ANRE; sold by 120.4% more gas condensate; and produced by 49.4% less electricity. Cost of Commodities Sold In 2019, cost of commodities sold decreased by 56% as compared to the previous year, mainly due to the decrease by 70.8% of the gas quantity purchased from import for resale. Investment Income Investment income represent income from placing Group’s liquidities in bank deposits or in state bonds. Other Gains and Losses Net losses are lower due to receiving a favourable decision on a litigation with ANAF, as mentioned before in the section related to the Group’s financial position. The adjustment of RON 18.4 million was reduced by releasing it to income. In 2019, the Group recorded a net loss of financial investments measured at fair value through profit and loss of RON 4.5 million, as compared to the net loss of RON 40.8 million in 2018. In both periods, the loss was generated by the decrease of the value of the 2.49% share in Electrocentrale Bucuresti capital, which on December 31, 2019 was measured at RON 0. In 2019, the Group wrote-off non-current assets of RON 68.0 million. Nonetheless, the effect in result of these written off assets is insignificant, the Group recording an income corresponding to the release of the impairment for these assets, as presented in the expenses with amortisation and impairment. Page 59 of 2019 Consolidated Board of Directors’ Report Impairment losses on trade receivables In 2019, the Group recorded net impairment losses of receivables of RON 81.2 million, due to the risk of non-collecting some receivables from insolvent clients. The Group was forced by decisions of the courts to deliver gas to such customers considered ”captive” by the insolvency law. Subsequent to the issuance of these decisions, the Group did not record any additional outstanding receivables from these customers, but, according to IFRS, it recorded adjustments for the impairment of the receivables according to the estimated risk of non-collection. Therefore, for receivables uncollected in due date, the Group recorded a net impairment of RON 34.08 million, and from the analysis of non-collection risk of current receivables, it recorded an impairment of RON 47.1 million. When calculating the impairment adjustments, the Group took into account the collections of 2020 until the issue date of financial statements. Changes in Inventory The gas quantity injected in 2019 was higher than the quantity withdrawn from storages, thus generating favourable changes in inventory (income), unlike the year 2018 when the injected quantity was lower than the withdrawn quantity generating unfavourable changes in inventories (loss). The quantity of gas injected in storages in 2019 as compared to 2018 increased by 51.1% while the withdrawn quantity decreased by 46.25%. Depreciation, amortization and impairment expenses In 2019, the depreciation and amortization of non-current assets was of RON 520.96 million, lower by 11.89% as compared to the previous year. Following the impairment recorded in 2018 for the assets associated with gas fields and current power plant Iernut, the depreciable amount of the assets decreased by RON 189 million, generating lower depreciation expenses. In 2019, the Group recorded net impairment losses for assets of RON 837.3 million due to: the abandonment of certain investment projects in wells (RON 250.3 million, of which RON 55.9 million related to Trinity-1X Well from EX 30 Trident Block in the Black Sea); some insignificant recent investments in projects started in previous years (RON 88.9 million); a net adjustment of RON 71.2 million pursuant to a gas field impairment testing conducted on December 31, 2019. For performing this test, the Group took into account the events subsequent to December 31, 2019, namely ANRE issued for consultation a draft order ruling that Romanian gas producers that record a significant production are obliged to make available on the centralised gas market 30% of their gas production at a price that represents maximum 95% of the price of the Central European Gas Hub. The Group’s management believes that this obligation will be translated into a law and therefore the estimated gas sale price for the following period decreased as compared to the price used for calculating the preliminary results. Recording an adjustment of RON 388.1 million for assets used in storage activities. Company’s shareholders decided to increase Depogaz share capital in kind with the assets that are used for the storage activity. Following this decision, the Board of Directors approved the increase of the share capital of Depogaz by RON 871.8 million, representing the transfer in kind of assets, less the gas cushion. Before this decision, there were no indications of asset impairment, because their value was recovered based on the rent invoiced by the Company to the subsidiary. Based on the two decisions, there have been identified indications of asset impairment, under the evaluation report performed in 2019 following the shareholder’s resolution no. 14/2018. The adjustment of RON 388.1 million resulted following the impairment test. Page 60 of 2019 Consolidated Board of Directors’ Report Employee benefit expense Increase of employee benefit expenses by 7.9% as compared to 2018, both due to salaries indexation by the inflation rate and to the incentives granted for special results according to the human resource policy. Exploration expenses Exploration expenses recorded in 2019 in amount of RON 24.6 million decreased by 90.06% compared to the previous year. The decrease is due to lower exploration expenses (seismic surveys) by RON 96.0 million. Exploration expenses also include the costs of wells written off. In 2019 the cost of these decommissioned investments was RON 23.1 million, compared to RON 149.6 million in 2018. These costs are mainly offset by net impairment income from impairment adjustments. Other expenses In 2019 other expenses increased by 10.09% as compared to 2018. The increase of RON 142.2 million is mainly due to higher windfall tax and the introduction of monetary contribution levied from the licence holders in the field of electricity and natural gas of 2% of the revenue achieved from the activities covered by the licences granted by ANRE (+ RON 169.38 million). Other expenses also include a net income of RON 51.76 million from the decrease of the wells decommissioning provision. In 2019, the Group re-analysed the costs generated by well abandonment works, which generated a decrease in the provision for the production wells. Other income Other income increased by 78.04% in the year ended on December 31, 2019 as compared to the same period of 2018, due to the increase of income from compensations, fines and penalties for uncollected amounts according to contractual terms or noncompliance of suppliers with execution terms (+ RON 9.26 million). Out of the total income from penalties of RON 20.41 million, the amount of RON 14.40 million was not collected until December 31, 2019; the Group recorded an impairment loss for these receivables. Statements of cash flows recorded in the period 2017 – 2019 are shown in the table below: INDICATOR 2017*) 2018 *thousand RON* 2019 Cash flow from operating activities Net Profit for the year Adjustments for: Income tax expense Share from associates’ result Interest expense Unwinding of decommissioning provision Interest revenue Net loss on disposal of non-current assets Change in decommissioning provision recognized in profit or loss, other than unwinding Change in other provisions Net impairment of exploration assets Exploration projects written-off Net impairment of property, plant and equipment and intangibles 1,803,634 1,366,168 1,089,623 316,118 (1,375) 3 18,788 (22,350) 74,401 22,978 11,389 (45,100) 135,350 24,489 219,016 (622) - 29,724 (53,279) 62,961 (34,390) 30,152 (118,809) 149,620 235,661 185,557 (1,474) 543 24,197 (38,124) 68,046 (51,760) (5,402) 208,350 23,051 628,943 Page 61 of 2019 Consolidated Board of Directors’ Report Depreciation and amortization Amortization of contract costs Impairment of investments in associates Net impairment of other financial assets Change in investments at fair value through profit and loss Losses from disposal of other financial investments Net receivable write-offs and movement in allowances for trade receivables and other assets Other gains and losses - leasing Net movement in write-down allowances for inventory Liabilities written off Subsidies income Cash generated from operations before movement in working capital Movement of working capital (Increase)/Decrease in inventory (Increase)/Decrease in trade and other receivables (Increase)/Decrease in trade and other liabilities Cash generated from operations Interest paid Income tax paid Net cash generated by operating activities Cash flows from investing activities Payments for investment increase in associates Net collections/(payments) related to financial assets Interest received Proceeds from sale of non-current assets Acquisition of non-current assets Acquisition of exploration assets Proceeds from disposal of associates Net cash used in investing activities Cash flows from financing activities Dividends paid Subsidies received Repayment of lease liability Net cash used in financing activities Net Increase/(Decrease) 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 *) restated 573,057 - (12,462) (21) - 12,308 38,575 - 8,147 591,290 1,291 - - 40,782 - 20,048 - (2,052) (610) (150) 2,957,169 (58) (269) 2,537,234 178,363 (180,285) 105,975 3,061,221 (3) (309,956) 2,751,263 (144) 104,970 20,909 207 (479,797) (231,496) 298 (585,053) 143,114 (8,156) (194,681) 2,477,511 - (334,324) 2,143,187 - 1,917,569 49,338 961 (948,588) (205,371) - 813,909 (2,220,003) 413 - (2,219,590) (53,380) (2,638,535) 21,108 - (2,617,427) 339,669 520,957 651 - - 4,424 - 67,297 (52) 5,125 (89) (81) 2,729,782 (38,428) 116,143 (78,115) 2,729,382 - (297,059) 2,432,323 - (203,972) 43,470 1,305 (694,349) (173,563) - (1,027,109) (1,607,246) - (861) (1,608,107) (202,893) 280,547 227,167 566,836 227,167 566,836 363,943 Page 62 of 2019 Consolidated Board of Directors’ Report Corporate governance accommodates continuously to the requirements of a modern economy, to increasing globalization of social life and to investors and interested parties need for information on companies business. As a national company Romgaz has to comply with GEO No. 109 of November 30, 2011 on public companies corporate governance, as amended and supplemented (the “Ordinance”), approved by Law 111/2016 and Government Decision no. 722 of September 28, 2016 on Methodological Norms for establishing the financial and nonfinancial performance criteria and variable component of remuneration of Board members, or if applicable, of the supervisory board members, and of managers and members of the directorate. The Ordinance sets up a number of principles and provisions to ensure their application. Ordinance provisions are observed by the company, and are included in the Company’s Articles of Incorporation, as amended and approved by the company’s shareholders in the following resolutions no. 19 of October 18, 2013; no. 5 of July 30, 2014, no. 8 of October 29, 2015, no.9 of October 28, 2016 and no.4 of August 9, 2017 (latest update of the Articles of Incorporation). The updated Company’s Articles of Incorporation is posted on the webpage www.romgaz.ro, at “Investor Relations – Corporate Governance - Reference Documents”. Since November 12, 2013, Romgaz shares have been traded on the regulated market governed by BVB, at category I, under the symbol “SNG”, as well as on the London Stock Exchange (where GDRs are traded) under the symbol “SNGR”. On January 5, 2015, after the Financial Supervisory Authority approved the proposals to amend BVB’s regulations, Romgaz was admitted into the PREMIUM category of BVB regulated market. As issuer of securities traded on the regulated market, Romgaz has to fully comply with the corporate governance standards provided by applicable national regulations, namely the Corporate Governance Code of BVB, posted on the internet webpage www.bvb.ro, at “Investor Relations – Regulations - BVB Regulations”. The Corporate Governance system was and will be continuously improved according to rules and recommendations applicable to Companies listed on Bucharest Stock Exchange and on London Stock Exchange. Some of the already implemented measures include: drafting a new Corporate Governance Code, in accordance with the new Corporate Governance Code of BVB applicable since January 4, 2016 – the document was approved by Romgaz Board of Directors by Resolution no.2/January 28, 2016. The Corporate Governance Code was updated and shall be submitted for approval of the Board of Directors. The Company’s Articles of Incorporation is posted on the webpage www.romgaz.ro, at “Investor Relations – Corporate Governance – Reference Documents”. Board of Directors approval and update of the Internal Rules for the advisory committees during the meetings held on March 24, 2016 (for all committees) and March 23, 2017 (update of the Internal Rules of the Strategy Committee) and May 14, 2018 (update of the Internal Rules of the Audit Committee). The Internal Rules of the Nomination and Remuneration Committee was updated to include all legal amendments on corporate governance (Law No. 111/2016 and GD No. 722/2016) and it will be submitted for approval of the Board of Directors. Page 63 of 2019 Consolidated Board of Directors’ Report Update of the Terms of Reference of the Board of Directors to include the latest legal changes on corporate governance. The Terms of Reference were approved by the Board of Directors on March 23, 2017 and updated subsequently in January 2018 and in February 2019; Approval of Romgaz Policy related to remuneration and the Policy related to the assessment of Board members on March 12, 2019; Approval of Romgaz Policy related to transactions with affiliates and the draft statement of Board members’ commitment to develop and implement the internal management control system and the risk management policy on March 20, 2019; Draft/update a series of internal regulations/policies in compliance with BVB Corporate Governance Code; Include in the Board of Directors’ Report a chapter dedicated to corporate governance referring, among others, to : the applicable Corporate Governance Code, the duties of the executive management and of the three advisory committees of the Board of Directors (Nomination and Remuneration Committee and Audit Committee and the Strategy Committee), aspects related to remuneration of members of the Board and of managers, measures to improve the corporate governance, aspects related to internal control and risk management system and aspects related to social responsibility; Include in the Board of Directors’ Report a section referring to compliance with the provisions of BVB Corporate Governance Code (Annex 1); Diversify communication ways with shareholders and investors by posting on the website press releases addressed to market players, half year and quarterly financial statements, annual reports, procedures to follow for access and participation to GMS, and by setting up of an “Infoline” for shareholders/investors to respond to their requirements and/or questions; Establish a specialized department dedicated to investor and shareholder relations; Conclude professional liability insurances for Board members and managers and appointment a person to monitor such contracts; Starting the procedures necessary for adopting and the National Anticorruption Strategy. Therefore, a Commission has been established, responsible with the implementation of the strategy provisions; the Chief Executive Officer adopted the Statement of Adherence to the National Anticorruption Strategy and Integrity Plan for 2017, 2018 and 2019, documents published on the internet website at “Investor Relations – Corporate Governance – Transparency”. implementing Among the measures to be implemented, we mention the remuneration policy for the executive management, with a fixed and variable component that depends on the results of their evaluation. According to the Corporate Governance Code of London Stock Exchange, long-term bonus schemes should be submitted for shareholders’ approval (GMS). The shareholders structure is presented within Chapter II “Parent Company at a Glance” Romgaz respects and protects the rights and legitimate interests of the shareholders. The company undertakes all necessary efforts to facilitate the exercitation of shareholders’ rights in relation with the company under the law and in compliance with the Articles of Incorporation. Page 64 of 2019 Consolidated Board of Directors’ Report A separate document on the rules and procedures of the GMS setting the framework for the way GMS is organized and carried out was drafted and is about to be submitted for the approval of the Board of Directors in the following period. The General Meeting of Shareholders is summoned by the Board of Directors, whenever necessary, in accordance with the legal provisions. The convening notices and afterwards, the GMS resolutions, are sent to Bucharest Stock Exchange, London Stock Exchange and to the Financial Supervisory Authority in compliance with the regulations of the capital market and are published on the company’s website at “Investor Relations – General Meeting of Shareholders”. The Ordinary General Meeting of Shareholders has the following main competencies: a) to approve the company’s strategic objectives; b) to discuss, approve or amend, as the case may be, the annual financial statements of the company based on the reports submitted by the Board of Directors and the financial auditor, and to set the dividend; c) to discuss, approve or request, as the case may be, the addition or review of the company’s management plan, under legal provisions; d) to set the income and expenditure budget for the following financial year; e) to appoint and revoke Board members and to set their remuneration; f) to make an opinion on the governance of the Board of Directors; g) to appoint and to dismiss the financial auditor and to set the minimum term of the financial audit contract; i) h) to approve contracting bank loans, whose value exceeds, individually or cumulated with other bank loans in progress over a financial year, EUR 100 million, equivalent in RON; to approve the documents for establishing guarantees, other than guarantees for the company’s non-current assets, with individual or cumulated value with other established guarantees other than guarantees in progress for the company’s non-current assets over a financial year of EUR 50 million, equivalent in RON. The Extraordinary General Meeting of Shareholders has the following main competencies: a) to change company’s legal form; b) to move the headquarters; c) to change the Company’s scope of activity; d) to establish companies, as well as conclude or amend incorporation documents of the companies where Romgaz is partner; to increase the share capital; the anticipated winding up of the company; to convert shares from a category into the other; e) to conclude or amend joint venture contracts where the company is contracting party; f) g) to reduce the share capital or to restore it by issuing new shares; h) to merge with other companies or to spin-off the company; i) j) k) to convert one category of bonds into another one or in shares; l) m) to conclude the documents related to the acquisition of non-current assets whose value exceeds, separately or cumulatively, during a financial year, 20% of the total non- current assets of the company, except for receivables; to issue bonds; n) to conclude the documents related to disposal, exchange and set up of guaranties referring to non-current assets whose value exceeds, separately or cumulatively, during a financial year, 20% of the total non-current assets, except for receivables; Page 65 of 2019 Consolidated Board of Directors’ Report o) to conclude the documents related to rental of tangible assets to the same contractors or to persons involved or acting together, for a period longer than 1 (one) year, whose value exceeds, separately or cumulatively, 20% of the total non - current assets, except for receivables at the document conclusion date; p) any other change in the articles of incorporation or any other resolution that requires the approval of the extraordinary general meeting of shareholders. Romgaz is a joint-stock company governed under an one-tier system. The Board of Directors consists of 7 (seven) members elected by the general meeting of shareholders, in compliance with legal applicable provisions and the provisions of the Articles of Incorporation, one of its members is appointed Chairman of the Board. Board of Directors composition complies with the legal criteria/conditions on the share of non- executive and independent members, the studies and competencies, experience and gender diversity (criteria detailed in the Board of Directors Terms of Reference). Board of Directors composition on December 31, 2019 is presented in Chapter VI “Company management”. According to the independency declarations sent to the company, four board members declared to be independent and three as non-independent. The independence of Board members is determined based on the criteria detailed in Romgaz Corporate Governance Code (art.6). Aspects on board members’ rights, obligations and competencies, as well as aspects related to Board Meetings are detailed in the Articles of Incorporation and in the Board of Directors Terms of Reference. Until December 31, 2019, the Board of Directors did not make a self- assessment for 2019. In its activity, the Board of Directors is supported by three advisory committees, namely: the nomination and remuneration committee, the audit committee and the strategy committee. The Audit Committee has legal competencies provided in Article 65 of Law No. 162/210716 consisting mainly in monitoring the financial reporting process, the internal control systems, the internal audit and risk management systems within the company, as well as in controlling the statutory audit activity related to annual financial statements and managing the relationship with the external auditor. The Nomination and Remuneration committee has, basically, the competence to set the procedures for selecting the candidates for the board member and manager positions, and to make proposals for the position as board member and to get involved in the selection and recruitment procedure of managers, and to make proposals for their remunerations. During the financial year, the committee has also the obligation to elaborate an annual report on the remuneration and other benefits awarded to directors and managers. The main scope of the strategy committee is to coordinate drafting/updating and monitoring of the company’s development strategies, correlated with the national and European energy strategy, to analyse the implementation of such strategies and the measures needed to reach the objectives set, and to monitor the business diversification projects by carrying out some investment objectives. 16 Law No. 162 of July 15, 2017 on the statutory audit of annual financial statements and of annual consolidated financial statements and of amending pieces of legislation Page 66 of 2019 Consolidated Board of Directors’ Report The detailed presentation of duties and responsibilities of each advisory committee can be found in their respective Internal Rules published on the company’s webpage www.romgaz.ro at “Investor Relations – Corporate Governance – Reference Documents”. On December 31, 2019, the advisory committees’ structure was the following: I) Nomination and Remuneration Committee: Balazs Botond (chairman) Hărăbor Tudorel Stan-Olteanu Manuela-Petronela II) Audit Committee Jansen Petrus Antonius Maria (chairman) Ciobanu Romeo Cristian Jude Aristotel Marius Marin Marius Dumitru Hărăbor Tudorel III) Strategy Committee Hărăbor Tudorel (chairman) Stan-Olteanu Manuela-Petronela Jansen Petrus Antonius Maria Marin Marius Dumitru Jude Aristotel Marius Ciobanu Romeo Cristian Balazs Botond. Information regarding the Board of Directors’ meetings and the Advisory Committees meetings held in 2019 The Board of Directors held in 2019 35 meetings, in compliance with the legal and statutory provisions, out of which: 18 meetings with physical attendance of board members; 8 conference-call meetings; and 9 electronic vote meetings. The attendance at the Board of Directors’ meetings: First and last name Number of meetings during the mandate P PA NP No. % No. % No. % Ciobanu Romeo Cristian Jansen Petrus Antonius Maria Jude Aristotel Marius Nistoran Dorin-Liviu Grigorescu Remus Volintiru Adrian Constantin Ungur Ramona Stan Manuela Petronela Harabor Tudorel Havrilet Nicolae Parpala Caius Cîmpeanu Nicolae 35 35 22 21 21 21 21 14 14 14 14 13 27 31 22 19 20 20 21 14 11 10 14 13 77.1 88.6 100.0 90.4 95.2 95.2 100.0 100.0 78.6 71.4 100.0 100.0 8 4 2 1 1 3 4 22.9 11.4 9.6 4.8 4.8 21.4 28.6 Page 67 of 2019 Consolidated Board of Directors’ Report Marin Marius Balazs Botond where: P = participate PA = power of attorney NP = did not participate 1 1 1 1 100.0 100.0 Board members’ attendance at Advisory Committees’ meetings: Nomination and Remuneration Committee: 9 meetings First name and last name Grigorescu Remus Ungur Ramona Nistoran Dorin Liviu Stan-Olteanu Manuela-Petronela Hărăbor Tudorel Parpală Caius Mihai Ciobanu Romeo Cristian Audit committee: 8 meetings First name and last name Jansen Petrus Antonius Maria Ungur Ramona Jude Aristotel Marius Ciobanu Romeo Cristian Nistoran Dorin Liviu Havrileţ Nicolae Hărăbor Tudorel Cîmpeanu Nicolae Strategy Committee: 2 meetings physical attendance 5 5 5 4 4 4 2 physical attendance 8 6 6 4 2 2 2 2 First name and last name physical attendance Ciobanu Romeo Cristian Havrileţ Nicolae Cîmpeanu Nicolae Jansen Petrus Antonius Maria Parpală Caius Mihai 2 2 2 2 2 In compliance with the company’s Articles of Incorporation “the Board of Directors shall assign, totally or part of, the management competences of the Company to one or more managers, appointing one of them as Chief Executive Officer” Article 24, paragraph (1), “manager” meaning “the person to whom the Board of Directors delegated authority to manage the company” Article 24, paragraph (12). The Board of Directors decided by Resolution No. 45 of October 1, 2018 to appoint Mr. Volintiru Adrian Constantin as Chief Executive Officer for a four years mandate. By Resolution no. 49 from October 9, 2018, the Board of Directors established the duties delegated to the Chief Executive Officer as follows: A. Duties related to internal management: Page 68 of 2019 Consolidated Board of Directors’ Report a) Carries out the Company’s main activity and development directions established by the Board of Directors; b) Carries out the Company’s’ development strategies and/or policies approved by the Board of Directors; c) Monitors the way the accounting and financial control policies are carried out and approves the financial statements and financial planning reports; d) Concludes legal acts on behalf, in the interest and on the account of the Company, according to Law No. 31/1990. For contracts with an equivalent value between 1,000,000 Euro and 10,000,000 Euro it is required to inform the Board of Directors within 30 days. Contracts with a value higher or equal with the equivalent of 10,000,000 Euro are approved by the Board of Directors; e) Organizes the Company’s’ personnel selection, hires, awards, sanctions and fires, as the case may be, the Company’s’ personnel in compliance with the provisions of labour legislation and the provisions of the labour contract; f) appoints, suspends and/or revokes the units’ managers and executive directors hired by the company and negotiates their base salaries. g) Submits for approval of the Board of Directors the Organisation and Operation Rules of the Company and the organizational chart; h) Approves the Company’s’ organizational and functional chart as well as the other internal documents which regulate the Company’s’ activity at employees level; i) Negotiates the Collective Labour Agreement (CLA) and the individual labour agreements in compliance with the provisions of the CLA – salary and social expenses and fund limits provided in the income and expenditures budget approved by the Company’s General Meeting of Shareholders; j) Establishes the personnel’s competencies, attributions, duties and responsibilities on departments, except for executive board members and managers that signed a contract of mandate; k) Analyses business opportunities with internal and external partners in compliance with the Company’s interest; l) Ensures efficiency of the internal control system and the management system in compliance with the legislation in force; m) Organizes and manages the Company’s activities, coordinates and controls them in order to ensure the lawful usage of financial, material and human resources, in accordance with the accounting system approved by the Company’s Board of Directors and the applicable legal provisions and the provisions of the Contract of Mandate; n) Represents the Company with full and discretionary rights in general meetings and boards of directors of third companies where the Company is partner/shareholder, excepting naming and revoking the members of their boards of directors which is possible through special mandate from the Board of Directors. o) May delegate the power to represent the company for specific documents by its decisions with the prior approval of the Board of Directors; p) Ensures and promotes the Company’s image; q) Fulfils any other duties provided in the applicable legal frame in compliance with the law. B. Responsibilities and duties related to representation of the company: represents the company when concluding/issuing legal documents; represents the company in pre-contractual, administrative and/legal procedures; Page 69 of 2019 Consolidated Board of Directors’ Report fulfils any accessory duties, namely any acts and special operations necessary and useful for achieving the above mentioned duties. The Chief Executive Officer has both the obligation to inform periodically the Board of Directors on the manner of achieving the assigned duties, as well as the right to request and to obtain instructions on the manner of exercising the assigned duties. Internal audit activity is organised and conducted in compliance with: Law 672/2002 on the internal public audit, as subsequently amended and supplemented; Own methodological norms, issued under GD No. 1086/2013 on approving the General Norms on exercising the internal public audit; Order of the Minister of Public Finance No. 252/2004, Code of ethics of the internal auditor, as subsequently amended and supplemented; SNGN Romgaz SA Internal Audit Charter. Therefore, in compliance with Law 672/2002 the internal public audit aims at improving management by the following: - - assurance activities, that represent fair examinations of evidence, carried out in order to make an independent assessment of risk management, control and governance processes; advisory activities for adding value and improving governance processes without undertaking management responsibilities; With respect to the internal public audit, the audit types are those: - - that represent a detailed assessment of management and internal control systems in order to establish if these are economically, effective and efficiently operational to identify deficiencies and to make recommendations for corrective actions – system audit; that examine if the criteria set for implementing the objectives and duties of the company are correct in order to evaluate the results and assesses if the results are consistent with the objectives – performance audit. In order to achieve its objectives, the Internal Public Audit Department has among its main duties to draft the Annual Internal Public Audit Plan. The annual plan is prepared based on the risk assessment associated to different activities, programs/projects or operations, as well as by taking into account the suggestions of the Chief Executive Officer, Board of Directors and the recommendations of the Romanian Court of Accounts. Moreover, it performs internal public audit activities to assess if the financial and control management systems are transparent and consistent with the criteria of lawfulness, regularity, economy, efficiency and effectiveness. Romgaz sets and maintains permanently and operational the internal audit function which is carried out independently from other functions and activities. According to the effective laws, the Internal Audit Department is directly subordinated to the Chief Executive Officer but reports also to the Board of Directors through the Audit Committee. Internal auditing mission, attributions and responsibilities are defined in the Internal Audit Charter approved by the Chief Executive Officer. The charter sets at least: - the position of the internal audit within the company; Page 70 of 2019 Consolidated Board of Directors’ Report - the manner for accessing company’s documents in order to fulfil audit missions and defines their scope of activity. The internal audit activity is independent and objective ensuring the company on the control level of operations; it is carried out in compliance with the approved procedures. In order to observe and to meet the above mentioned conditions and subject to the Activity Plan of the Internal Public Audit Department 2019 no. 39006/18.12.2018, endorsed by the Audit Committee and approved by the Chief Executive Officer in 2019, the audit mission consisted of five assurance audit missions for confirming regularity/conformity of procedures and operations with the regulatory framework. The assurance audit mission was performed by comparing reality with the established reference system. One audit mission was carried out to provide advice by identifying the obstacles that hinder the normal course of processes, to establish causes, determine the consequences and to provide solutions for eliminating such obstacles. Additionally, the upper management requested three exceptional ad-hoc missions for regularity/conformity. The missions have been performed in the following fields: budget; public procurement; specific functions; internal management control system financial-accounting; information technology. The missions analysed the actions with financial effects on the budget evaluating observance of applicable principles, procedures and methodological rules. The missions evaluated the degree of effectiveness and fulfilment of policies, programs and actions by functional units, aiming at their continuous improvement. The table below shows the assurance level for each audit mission carried out in 2019, as follows: Item no. Audited activity Global assessment result 1. Assess the manner of carrying out the procurement and monitoring compliance of contractual clauses related to security services. 2. Asses the activity of S.N.G.N. ROMGAZ S.A. Technical-Economic Council 3. Assess the performance of project “The Development of CTE Iernut Power Plant by building a new combined cycle CCTG power plant” 4. Assess the Corruption Prevention System – 2019 5. Verify the settlement of drilling works performed in case of incidents or 6. accidents Identify the tasks, namely undertaking responsibilities with respect to natural gas pipeline management 7. Analyse the performance of the procurement procedure related to “Geophysical surveys in open hole” 8. Notify the management on aspects found by the Court of Accounts noted in Control Report 12444/6.05.2016 related to deficiencies found in the gas trading activity 9. Notify the management on the petroleum operations performed in the Republic of Slovakia High assurance level Medium assurance level Low assurance level Mission type planned planned planned planned planned planned Ad-hoc Ad-hoc Ad-hoc Page 71 of 2019 Consolidated Board of Directors’ Report Internal auditing is conducted permanently in order to provide an independent evaluation of operations, control and its management processes, it evaluates the potential risk exposure of various business segments (asset security, compliance with laws and contracts, integrity of operational and financial information etc.) makes recommendation for improving the systems, controls and procedures to ensure efficiency of operations and observes the proposed corrective actions and the results. The audit activities carried out take into account the National Anti-Corruption Strategy 2016 – 2020 and the actions to enforce it. The strategy defines the necessity of performing, at least once in two years, an internal audit of the corruption prevention system at all public authorities starting with 2018. Against this background, we carried out in 2019 an audit mission to evaluate the corruption prevention system with the scope to deliver assurance to the company with respect to the implementation level of prevention measures provided by applicable laws stated in Annex 3 of GD No. 583/2016 required for approving the National Anti-Corruption Strategy 2016 – 2020 for the period January 1, 2016 – June 10, 2019. As a general note, we state that during the reported period, Romgaz focused on compliance of internal integrity rules and on a continuous self-assessment of the implementation level of internal anti-corruption measures, as described in the National Anti-Corruption Strategy 2016 – 2020 and other secondary laws (Order No.600/2018 on approving the Internal Management Control Code of public companies). Company’s Policies and Objectives related to Risk Management In accordance with the Corporate Governance Code, an important role played by the company’s management is to ensure that an efficient risk management system is in place. One major concern of the management is to raise the awareness on the objectives of the risk management process and on the necessity to be directly involved in the risk management process, as well as on the alignment to the latest practices in the field by complying with the applicable law, standards and norms related to such process. The Board of Directors approved in March 2019 the draft Statement of BoD commitment for developing and implementing the internal management control system and the risk management policy. The company’s risk management system is implemented in accordance with: Government Ordinance no.119/1999 (Article 4) on the internal control and the preventive financial control; Law no. 234 of December 7, 2010 amending and supplementing Government Ordinance No. 119/1999; International Standard ISO 31010:2011: “Risk management – risk assessment techniques”; International Standard ISO 31000:2018: “Risk management: Guidelines”; Romanian Standard SR Guidelines 73:2010: “Risk management-Vocabulary”. General Secretariat of Government No. 600 of April 20, 2018 for approval of Public Entities Internal Management Control Code. Consequently, in compliance with the risk management process, the company systematically analyses, at least once a year, the risks related to its objectives and activities and prepares Page 72 of 2019 Consolidated Board of Directors’ Report adequate remedy plans in order to mitigate the possible consequences of such risks, and appoints employees responsible for implementing those plans. Moreover, the company’s risk management system is an integral part of the decision making process by setting the requirement to use a risk management analysis when drafting any document (technical projects, execution projects). The main benefits of the risk management process are the improvement of the company’s performance by identifying, analysing, assessing and managing all risks within the company, in order to minimize the negative risk consequences or to increase the positive risk consequences, as the case may be. A risk management department has been established for an efficient assessment of the company’s risks. One major task of this department is drafting the company’s documents in terms of risk management: Risk Register, Risk Report, Measure Implementation Plan and the Company’s Risk Profile. Three role levels are set up in the risk management system: base level, represented by those who identify risks and by the risk managers (head of each organizational unit) who are responsible for preparing risk management documents related to the level of the unit they manage; middle level, represented by the company’s middle management forming together with the heads of the organizational units the Risk Management Commission that facilitates and respective direction/department/division; the management process within coordinates the high level, represented by the executive upper management through the Monitoring Commission that approves the company’s risk appetite and risk profile in accordance with its objectives. General scope of the risk management activity: 1. setting the general uniform framework for risks identification, analysis and management; 2. providing the appropriate tool for a controlled and efficient risk management; 3. describing the manner in which control measures are set and implemented in order to prevent the occurrence of negative risks. Some of the analysed risk categories are: financial risks, market risks, occupational health and safety risks, personnel risks, risks related to IT systems, legal and regulatory risks. All risks are analysed from following perspectives: the specificity of the risk; causes of risk occurrence; consequences further to risk materialization; occurrence probabilities; risk materialization impact; risk exposure; risk response strategy; recommended control (remedy) measures; residual risks remaining after remedy of initial risks. Page 73 of 2019 Consolidated Board of Directors’ Report Risk exposure The Company is exposed to a variety of financial risks: market risk (which includes foreign currency risk, inflation risk, interest rate risk), credit risk, liquidity risk. The Company’s risk management program is focused on the financial markets’ unpredictability and seeks to minimize, within some limits, the potential negative consequences on the Company’s financial performance. However, this approach does not prevent the losses that occur outside these limits in case of significant variations on the market. The Company does not use derivatives to cover the exposure to certain risks. The Company faces foreign exchange risks following the exposure to different foreign currencies. The foreign exchange risk occurs from future transactions and from recorded receivables and payables. The financial assets exposing the Group to a potential credit risk comprise mainly trade receivables. The Group’s policies provide for gas sales to clients with low credit risk. Moreover, sales have to be secured either by advanced payments or by letters of bank guarantee. The net value of the receivables following the impairment of doubtful debts, represents the maximum value exposed to credit risk. The Group has a credit risk concentration related to its four largest clients representing together 83.12% from the net receivables balance on December 31, 2019 (the largest four clients: 87.96% on December 31, 2018). Despite the above mentioned policies, the Group is compelled by court order to supply gas to insolvent clients considered “captive” according to insolvency laws. In respect of these clients, the Group makes estimates of the lifetime expected credit losses and records appropriate impairment losses. Even though the collection of receivables might be affected by economic factors, the management believes that there is no significant risk of loss for the Group, besides the impairment of doubtful debts, already established. The responsibility for the liquidity risk resides to the company’s management establishing a suitable framework for liquidity risk management for the Company’s short, medium and long- term financing and for complying with the provisions for liquidity risk management. The Company manages liquidity risk by maintaining an adequate level of the reserves by continuous monitoring of the forecasts and present cash flow and by connecting the profile of financial assets maturity with those of the financial debts. The risk management system evaluates continuously the commercial risks faced by the Company. A new vision is about to be implemented in this respect so that the market risks impact, quantitative as well as price risks, to which the Company is naturally exposed in its trading activity, will be systematically and continuously evaluated and quantified, evaluated and minimized/remedied, as the case may be. The main risks identified are quantitative (volatility of demand/offer ratio on the market) with consequences in underselling and overselling, as well as price risks, inherent on a volatile market, emerging under the aspect of liquidity but also influenced by a multitude of internal factors (regulating/political) and also external factors related to import sources and weather conditions. Currently, one of the main risk factors with direct consequences on the company’s commercial outcome is the political and regulations risk. The Company uses all available instruments in order to minimize/remedy this risk by means of dialogue with the competent authorities, in the phase of drafting the regulating documents as well as afterwards in the phase of enforcement. The regulation framework suffered in the previous years major changes of the regulatory framework in order to adopt a European market model regarding the Network Code. However, the Group is exposed to unfavourable changes of the primary and/or secondary laws. For example, the successive modifications of Law 123/2012, of the Energy and Gas Law, especially the obligation to sell gas at a capped price (GEO No.114/2018 and GEO No. 19/2019), as well Page 74 of 2019 Consolidated Board of Directors’ Report as cancelling such provisions by GEO No.1/2020. Other amendments to Law 123/2012 regulate trading on the competitive market, especially provisions related to trading obligations. The amendments that were made or are going to be made to the primary laws, as well as secondary rules of ANRE may lead to major changes to the company’s commercial activities and may influence the financial exposure caused by legislative volatility. Taking into account the latest commercial aspects, quantitative risks were generated by weather conditions, recording unusual high temperatures that led to lower demands. These risks may spread over longer periods causing a decrease of the market demand considering that large quantities of stored gas cannot be sold. External risk factors (the context of the regional and even of the global energy market) may provide supply alternatives for the Romanian market, generating a quantitative commercial risk. In order to reduce the risk, the company asses commercial risks, monitors and remedies, as the case may be, by using specific commercial means (sale alternatives, management of quantities, storage management, sale strategies). Internal control In Romgaz, the internal control system operates in a continuously changing control environment that requires the adjustment of control at the level of every activity, differentially and integrative, established in relation to the company’s interests. Internal control is a process carried out by personnel at all levels, Board of Directors, upper management, entire personnel. Romgaz internal management control system is developed and implemented in order to reach the following objectives: - compliance with legal regulation, with internal rules, with contracts and administrative and jurisdictional decisions applicable to the company’s activity; - fulfilling Romgaz objectives under effectiveness, economy and efficiency conditions; - protect Romgaz patrimony against losses due to errors, waste of money, fraud or abuse; - development and maintenance of collection, storage, processing, updating and distribution of financial and management data and information, as well as of proper systems/procedures to inform the public. The internal/management control system is drafted, implemented, developed and assessed in compliance with the provisions set in Government Ordinance No. 119/1999 and with the standards provided by SGG Order No. 600/2018. 2019 internal control management system development/enhancement actions: adherence to the principles and fundamental values promoted by the National Anticorruption Strategy 2016-2020. SNGN Romgaz Integrity Plan was adopted by Decision No.28/17.01.2019 posted on the company’s website - correlated with the Development Program of the Internal Management Control for 2019; to raise awareness on and to educate employees on anti-corruption measures; the company prepared a document highlighting several essential concepts of the National Anticorruption Strategy. The documents was addressed to all employees; analyses and identifies the sensitive job positions at every organisational unit compliant with Procedure PS–16 Inventory of sensitive job positions Ed3/revised/05.12.2018. The risks identified following the analysis were centralized and submitted to the monitoring committee, which drafted the Inventory of sensitive job positions and the List of persons in these positions; Page 75 of 2019 Consolidated Board of Directors’ Report in order to raise awareness on and to educate employees with respect to anti-corruption and correlated with intensified internal management control system activities, the company initiated between September 23 – November 30, 2019 an action for implementing the internal management control system and the anticorruption strategy; drafting and updating Romgaz Risk Register. According to the self-assessment results for the implementation of Internal/Management Control System, in 2019 (in relation to the 16 internal/management control standards provided in Order no. 600/2018), the Internal/Management Control System is compliant. Romgaz’s Code of Conduct was first prepared in 2013. The current Ethics and Integrity Code was approved by BoD Resolution No.47/October 1, 2018. The code was prepared in order to comply with the legal requirements on corporate governance, internal control and National Anticorruption Strategy. The Ethics and Integrity Code sets values, principles and rules of ethical conduct ensuring the proper climate for carrying out professional activities, maintaining the company’s goodwill, earning the partners’ respect and trust. The code regulates the following important aspects: the conflict of interests, trading the company’s shares, compliance with laws on competition, integrity and prevention of corruption deeds, preventing and reporting frauds, money laundering, etc. The Ethics and Integrity Code can be accessed by any stakeholder at www.romgaz.ro “Investor Relations – Corporate Governance – Reference Documents” Romgaz activities in the field of social responsibility are performed voluntarily, beyond the legal responsibilities, the company being aware of its role in society. Social responsibility means for Romgaz a business culture including business ethics, customer rights, economic and social equity, environmental friendly technologies, fair treatment of workforce, transparent relationship with the public authorities, moral integrity and investment in the community. Moreover, Romgaz supports a sustainable development of the society and community, through financial support/ total or partial sponsorship for some actions and initiatives in the following main fields: education, social, sport, health and environment. Granting financial support/partial or total sponsorship for actions and initiatives, within the budgeted limits, Romgaz has shown a pro-active attitude of social responsibility and increased the awareness of the parties involved as regards to the importance and benefits of social responsibility actions. In 2019, Romgaz supported, totally or partially, actions and initiatives stipulated in Government Emergency Ordinance (“GEO”) no.2/2015, complying with the budget, as follows: Expenses/activities Achieved (RON) Total of sponsorship expenses, out of which Expenses with sponsorships in medical and health fields – Article XIV letter a) Expenses with sponsorships in education and sport fields – Article XIV letter b) – total, out of which: 19,500,000 7,800,000 7,800,000 Page 76 of 2019 Consolidated Board of Directors’ Report o For Sports Clubs Sponsorships for other actions and activities – Article XIV letter c) 5,850,000 3,900,000 The detailed description of the projects as regards the sponsorship provided in GEO no.2/2015 is included in the Annual Report on Social Responsibility and Patronage for 2019 published on www.romgaz.ro at “Investor Relations - Corporate Governance - Social Responsibility”. The projects carried out in 2019 had besides the positive impact on the environment and community, an important benefit for the company by inspiring the organisational culture and the goodwill being a responsible employer, and also an involved social partner, promotor of a transparent and open relationship. This is positively reflected in Romgaz image, domestically and internationally, both for investors, government and local authorities and for other stakeholders. When supporting/performing projects, actions, social responsibility initiatives, Romgaz took into consideration the provisions of Sponsorship Policy and Sponsorship Guide applicable in 2019, published on the company’s website at Social Responsibility. (https://www.romgaz.ro/en/content/social-responsibility-0 ) Legal Framework The remuneration policy and criteria of the executive and non-executive members of the Board of Directors are based on the following norms: Law no. 31/1990 on trading companies, as subsequently amended and supplemented; GEO no. 109/2011 on corporate governance of public entities, as subsequently amended and supplemented, approved by Law no.111/2016; The company’s Articles of Incorporation, approved by the Extraordinary General Meeting of Shareholders no. 9/October 28, 2016 and no.4/ August 9, 2017 (latest update of the Articles of Incorporation); SNGN Romgaz SA remuneration policy, approved by the Board of Directors by Resolution No.13 of March 12, 2019; Resolution No. 9/ December 20, 2017 of the Ordinary General Meeting of Shareholders approving the director agreements for interim members of the Board of Directors; Resolution No. 8/ July 8, 2018 of the Ordinary General Meeting of Shareholders approving the form of the contract signed with the board members elected for a 4 years mandate; Resolution No.6/ June 26, 2019 of the Ordinary General Meeting of Shareholders approving the contract of mandate signed with the elected interim board members; Resolution No.8/ October 28, 2019 of the Ordinary General Meeting of Shareholders approving for interim board members the mandate extension by two months starting with the expiration date; Resolution No.11/ December 23, 2019 of the Ordinary General Meeting of Shareholders approving the contract of mandate signed with the board members elected for a four months mandate; Page 77 of 2019 Consolidated Board of Directors’ Report Resolution No. 14/ August 26, 2013 of the Ordinary Meeting of Shareholders establishing the general limits for the remuneration of the chief executive officer, active member of the BoD; Resolutions No. 7/ February 22, 2018 and No. 29/ June 14, 2018 approving the contracts of mandate of the interim chief executive officers; Resolution No. 45/ October 2018 appointing the chief executive officer for 4 years and approving the contract of mandate; Resolution No. 35/ December 14, 2017 approving the contract of mandate of the Chief Financial Officer; Resolution No. 39/ August 28, 2018 approving the contract of mandate of the Chief Financial Officer for a limited period from 28.08.2018 until 02.11.2021. For compliance with the Requirements of BVB Corporate Governance Code and GEO no. 109/2011, Romgaz drafted the Policy on remuneration, which shall be submitted for approval of the Board of Directors. The structure of the remuneration granted to non-executive board members The fixed monthly remuneration as well as the variable one were established according to applicable legal provisions (detailed in the 2019 Annual Report on remunerations and other benefits granted to SNGN Romgaz SA board members and managers) and provided in the Director Agreement of each board member, as approved by the applicable GMS resolution. The fixed monthly remuneration for 2019 was established at a monthly gross allowance equal two times the average over the last 12 months of the monthly gross average salary for the activity carried out according to the company’s activity field as communicated by the National Institute of Statistics previously to the appointment. The variable remuneration provided in the director’s agreement will be established and granted depending on fulfilment of objectives included in the governing plan and of financial and non- financial performance indicators approved by the General Meeting of Shareholders in 2020. The variable element, as well as the performance objectives and indicators revision conditions will be included in an addendum to the directors’ agreement. The structure of the remuneration granted to executive board members, namely the Chief Executive Officer As active member of the Board of Directors, the Chief Executive Officer concluded both a director agreement for the membership in the Board and a contract of mandate for the position as Chief Executive Officer. The Chief Executive Officer was entitled strictly to payment of the remuneration according to the contract of mandate. The structure of the remuneration granted to managers The monthly fixed remuneration, as well as the variable remuneration were granted under the legal applicable provisions (detailed in the Annual Report 2019 on remunerations and other benefits granted to SNGN Romgaz SA board members and managers), being provided in the contract of mandate of each manager, and approved by Board resolutions. The monthly fixed remuneration for 2019 was set at a monthly gross allowance six times the average over the last 12 months from the monthly gross average salary for the work carried out in accordance with the company’s core business as communicated by the National Institute of Statistics, prior to appointment. The fixed allowance is updated at the beginning of each year based on the data provided by the National Institute of Statistics. Page 78 of 2019 Consolidated Board of Directors’ Report The variable remuneration established depending on the fulfilment of financial and non- financial performance indicators and objectives, will be included in an addendum to the contract of mandate. In 2019 the Chief Executive Officer and the Chief Financial Officer did not benefit of variable remuneration. Romgaz prepares a separate report for financial year 2019, that will be public on the company’s website by the end of June 2020, according to the Finance Minister Order no. 2844/201617 (chapter 7, item 42, para (1)). 17 Order of the Ministry of Public Finances no.2844 of December 12, 2016 on approving Accounting Regulations compliant with the International Financial Reporting Standards Page 79 of 2019 Consolidated Board of Directors’ Report Directors Agreements The directors agreements of board members appointed by the General Meeting of Shareholders in 2018 for a four year mandate were effective in 2019, as well as the directors agreements of interim board members that were appointed in 2019 for four months. The director agreements approved by the General Meeting of Shareholders do not include performance criteria and indicators. By Resolution No.8/July 6, 2018 the Ordinary General Meeting of Shareholders appointed following the cumulative vote, the members of the Board of Directors for a four-year mandate. Following drafting and approval of the Governing Plan, the General Meeting of Shareholders was called to negotiate and approve the financial and non-financial performance indicators to be included in the directors’ agreements by an addendum thereto. By Resolution No.4 /May 15, 2019, the General Meeting of Shareholders “did not approve the key financial and non-financial performance indicators, resulting from SNGN Romgaz SA Governing Plan prepared for 2018-2022”. The General Meeting of Shareholders appointed following the cumulative vote, by Resolution No.6/June 26, 2019 the members of the Board of Directors, set the fixed monthly gross allowance and approved the contract of mandate for interim board members. Company’s shareholders appointed by Resolution No.11/December 23, 2019 the interim board members, set the fixed monthly gross allowance and approved their contract of mandate. The director agreement does not include key financial and non-financial performance indicators, as a consequence the board members do not benefit from the variable component. Contract of Mandate The Board of Directors appointed on June 14, 2018 under Resolution No. 29, Mr. Volintiru Adrian Constantin as Chief Executive Officer for four months, and the Board of Directors appointed under Resolution No. 45 of October 1, 2018 Mr. Volintiru Adrian Constantin as Chief Executive Officer for a four-year mandate. The Board of Directors appointed on November 2nd, 2017 under Resolution No. 30 Mr. Bobar Andrei as Chief Financial Officer and on August 28, 2018 under Resolution No. 39 as Chief Financial Officer for a limited period, from August 28, 2018 until November 2nd, 2021. Mr. Bobar Andrei unilaterally terminated the Contract of Mandate by giving on 22 August 2019 Notification no. 28593 relating to the 30-day contract termination notice, in compliance with contractual provisions. The notice period ended on September 21, 2019. Upon the appointment of Mr. Andrei Bobar as CFO his Individual Employment Contract was suspended; on September 19, 2019, the CEO issued Resolution no. 530 which effected the reactivation of Mr. Bobar’s Individual Employment Contract and his position as Finance Director of the Company. The Board of Directors appointed Mr. Veza Marius Leonte as interim Chief Financial Officer until December 28, 2019, by Resolution No. 39/November 4, 2019. The contracts of mandate concluded between the Board of Directors and the Chief Executive Officer, and the Chief Financial Officer, respectively, do not provide for performance indicators Page 80 of Board of Directors’Report2019 Annex 1 Table on compliance with BVB Code of Corporate Governance BVB CGC Provisions Compliance 2 x x x x x x x A.1 A.2 A.3 A.4 A.5 A.6 A.7 A.8 1 All companies should have in place Regulations of the Board of Directors that include the terms of reference / the responsibilities of the Board and the company’s key management positions, and that apply, among others, the General Principles in section A. The BoD Regulations should include provisions for the management of conflict of interest. The members of the Board should notify the Board on any conflicts of interest which have arisen or may arise and should refrain from taking part in the discussion (including by absence, except where such absence prevents quorum to be attained) and from voting on the adoption of a resolution on the issue which gives rise to such a conflict of interest. The BoD should comprise at least five members. The majority of the members of the BoD should be non-executive; not less than two non-executive members of the BoD should be independent. Each independent member of the BoD shall submit a statement at the time of his/her nomination for election or re-election, as well as whenever a change in his/her status occurs, indicating the elements on which it is deemed independent in terms of its character and his judgment. A Board member’s other relatively permanent professional commitments and engagements, including executive and non-executive Board non-profit positions organizations, should be disclosed to shareholders and to his/her nomination and during his/her mandate. investors prior to potential companies and in Any member of the BoD should submit to the Board information on any relationship with a shareholder who holds, directly or indirectly, shares representing more than 5% of all voting rights. This also applies to any relationship which may affect the member's position on matters decided by the Board. The company should appoint a Board secretary responsible for supporting the work of the BoD 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 so, summarize key action points and changes resulting from it. The company should have a policy/ guidelines regarding the evaluation of the BoD containing the Noncompliance / Partial compliance 3 Reason for noncompliance/ explanation on compliance 4 x partially The section on Statement on corporate governance in the Annual Board of Directors’ Report includes mentiones the evaluation of the BoD. Romgaz the Board Evaluation Policy prepared on Board of Directors’Report2019 BVB CGC Provisions Compliance 1 2 purpose, criteria and frequency of the evaluation process. Noncompliance / Partial compliance 3 x x x x A.9 A.10 A.11 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 (personally and in their absence) and a report of the Board and committees on their activities. The corporate governance statement should contain information on the independent members of the Board of Directors. the precise number of The BoD should set up a nomination committee comprised of non-executives, which will lead the nominaton process for Board members and make recommendations to the Board. The majority of the members of the nomination committee should be independent B.1 The Board should set up an Audit Committee and at least one member should be an independent non- executive. The Audit Committee should be comprised of at least three members and the majority should be independent. 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 a proven and appropriate auditing and/or accounting experience. B.2 The Chairperson of the Audit Committee should be an independent non-executive member. x Reason for noncompliance/ explanation on compliance 4 and it was approved by BoD on 12 March 2019. Following approval, the Policy was published on the company’s web site. The assesment of BoD members has not been performed because in 2019 there were three Boards of Directors. Two of these of Directors Boards included provisional members, and with the modified composition (including the composition of NRC) all these directors have not been appointed in the accordance with provisions OUG 109/2011. of Page 2 of 7 Board of Directors’Report2019 BVB CGC Provisions Compliance 1 2 B.3 Among its responsibilities, the Audit Committee should perform an annual assessment of the internal control system. Noncompliance / Partial compliance 3 x partilly x B.4 The assessment mentioned in section B.3 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, and management’s responsiveness and effectiveness in dealing with the failures and weak points identified during the internal control and submit relevant reports to the Board. B.5 The Audit Committee should review conflicts of interests in transactions of the company and its subsidiaries with affiliated parties. x partially B.6 The Audit Committee should evaluate the efficiency of the internal control system and risk management system x partially Reason for noncompliance/ explanation on compliance 4 responsibility of for The the monitoring the effectiveness company’s internal control, internal audit and risk management systems is specified in the ToR of the Audit Committee. 2019 For the Audit Committee performed the annual assessment of the internal control system. See explanaition in section B.3 This provision is already mentioned in Art. 8, par. 2 of Romgaz CCG. The ToR of the Audit Committee approved by the BoD in the meeting of May 14, 2018 includes provisions such obligation. on Moreover, Romgaz has developed a Policy on related party transactions and this was approved by the BoD on March 20, 2019. Following approval it was the published company’s website. on the Audit For 2019, Committee performed evaluation on conflicts of interest, where appropriate. of responsibility for The the monitoring effectiveness the company’s internal control systems, internal audit and risk management systems is specified in the ToR of the Audit Committee. For 2019, the Audit Committee performed the Page 3 of 7 Board of Directors’Report2019 BVB CGC Provisions Compliance 2 x x x x x x x B.7 B.8 B.9 B.10 B.11 B.12 C.1 1 the The Audit Committee should monitor application of statutory and generally accepted standards of internal auditing. The Audit Committee should receive and evaluate the reports of the internal audit team. The Audit Committee should report periodically (at least annually) or adhoc to BoD with regard to the reports or analyses undertaken by the committee. 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 The BoD should adopt a policy ensuring that any transaction of the company with any of the companies in close relationship, with a value equal to or higher than 5% of the company’s net assets (as stated in the latest financial report), is approved by the Board based on a mandatory opinion of the Audit Committee and fairly disclosed to the shareholders and potential investors, to the extent such transactions fall under the category of events subject to disclosure requirements. The internal audits should be carried out by a audit separate department) within the company or by hiring an independent third-party entity. structural division (internal The Internal Audit Department should functionally report to the BoD via the Audit Committee. For administration purposes and for the scope related to the obligations of the management to monitor and mitigate risks, the Internal Audit Department should report directly to the Director General. formulated so as The company should publish on its website the Remuneration Policy. The Remuneration Policy should be the shareholders to understand the principles and arguments underlying the remuneration of the members of the Board and of the General Director. Any the Remuneration Policy should be posted in due time on the company's website. change occurred significant to allow in The company should include in its Annual Report a statement on the implementation of this Policy during the annual period under review. The Report on Remuneration should present the implementation of the Remuneration Policy for persons identified in this Policy during the annual period under review. Noncompliance / Partial compliance 3 Reason for noncompliance/ explanation on compliance 4 annual assessment on the internal control system and on the risk management system. The provision is already mentioned in Art. 9 of ROMGAZ CCG and it will be implemented by the Policy on related party transactions, as approved by the BoD on March 20, 2019. the Following approval, policy was published on the company’s website. The provision is already mentioned in Art. 11, par. 5 of ROMGAZ CCG. The section Statement on corporate governance in the Annual Board of Directors’ Report includes mentiones regarding the implementation of the Remuneration Policy and the remuneration of the Directors Board members the directors. and of of A separate document on Remuneration Policy was Page 4 of 7 Board of Directors’Report2019 BVB CGC Provisions Compliance 1 2 Noncompliance / Partial compliance 3 D.1 The company should establish an Investors Relation Department - indicating to the public the responsible person/persons or the organizational unit. x Besides the information required by the legal provisions, the company should also include on its website a dedicated Investor Relations section, both in Romanian and English, with all the relevant information of interest for investors, including: D.1.1 Main corporate the articles of regulations: incorporation, general meeting of shareholders procedure; x partially D.1.2 Professional CVs of the members of the company’s governing bodies, other professional commitments of Board member’s, including executive and non- executive Board positions in companies and non- profit organizations. D.1.3 Current reports and periodic reports (quarterly, semi-annual and annual reports) – at least those specified in Note D.8- including current reports with detailed to non- compliance with the Bucharest Stock Exchange Code of Corporate Governance; information related D.1.4 Information related to GMS: the agenda and supporting materials; the procedure approved for the election of BoD members, the arguments for the proposal of candidates for the election to the Board together with their professional CVs; shareholders’ questions related to the agenda and the company’s answers, including the decisions taken by the GMS; x x x Reason for noncompliance/ explanation on compliance 4 drafted and approved by the BoD on March 12 2019. Following approval, the policy was published on the company’s website. The Annual Report on Remuneration is presented together with the Annual Board of Directors’ Report. It presents details of the principles applied for the determination of the remuneration of the Board Members and directors. on Items the GMS organization are presented to shareholders at each meeting. A separate document on the GMS Procedure and Rules was prepared and it will be submitted for BoD in a meeting approval subsequent this statement of conformity. to Page 5 of 7 Board of Directors’Report2019 BVB CGC Provisions Compliance 1 D.1.5 and other dividends Information on corporate events (such as payment of to shareholders, or other events leading to the acquisition or limitation of rights of a shareholder) including the deadlines and principles applicable to such operations. distributions Such information will be published within a period of time allowing investors to take investment decisions; D.1.6 The names and contact data of the persons who to provide knowledgeable should be able information on request; D.1.7 Corporate presentations (for example presentations for investors, presentations on quarterly results, etc.), financial statements (quarterly, semi-annual, annual), audit reports and annual reports. D.2 D.3 D.4 D.5 D.6 D.7 The company should have a policy for the annual distribution of dividends or other benefits to shareholders, proposed by the Director General and adopted by the BoD as the company’s Guideline on net profit distribution. The principles of the policy on annual distribution of dividends to Shareholders shall be published on the company’s website. The company shall adopt a policy with respect to forecasts, whether they are made public or not. The Policy on forecasts should determine the forecasts’ frequency, period and content and should be published on the company’s website. GSM rules should not restrict the participation of shareholders in general meetings and the exercising of their rights. The modification of rules will become effective no sooner than the following shareholders’ meeting. external The the shareholders’ meetings when their reports are presented there. auditors should attend The BoD should submit to the GMS 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. Any professional, consultant, expert or financial analyst, may participate in the shareholders’ meeting upon prior invitation from the BoD. Accredited journalists may also attend the GMS, unless the Board decides otherwise. the Chairman of 2 x x x x x x x x x Noncompliance / Partial compliance 3 Reason for noncompliance/ explanation on compliance 4 auditors are External to attend GMS invited meetings when their reports are presented in said meeting. Page 6 of 7 Noncompliance / Partial compliance 3 Reason for noncompliance/ explanation on compliance 4 Board of Directors’Report2019 BVB CGC Provisions Compliance D.8 D.9 D.10 1 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. least The company should organize at two meetings/conference calls with analysts and investors each year. The information presented on these occasions should be published on the company’s website in the IR section at the date of the meetings/teleconferences. sport cultural expression, If the company supports various forms of artistic activities, and educational or scientific activities, and considers the resulting impact on the innovativeness and competitiveness of the company is part of its business mission and development strategy, it should publish the policy guiding its activity in this area. 2 x x x Legend: = General Meeting of Shareholders GMS BVB = Bucharest Stock Exchange BoD CCG ROMGAZ CCG = Code of Corporate Governance of S.N.G.N. ROMGAZ S.A., as approved on January 28, 2016 CV ToR = Board of Directors = Code of Corporate Governance = Curriculum Vitae = Terms of Reference Page 7 of 7 Ernst & Young Assurance Services SRL Bucharest Tower Center Building, 22nd Floor 15-17 Ion Mihalache Blvd., Sector 1 011171 Bucharest, Romania Tel: +40 21 402 4000 Fax: +40 21 310 7193 office@ro.ey.com ey.com INDEPENDENT AUDITOR’S REPORT To the Shareholders of SNGN ROMGAZ S.A. Report on the Audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of SNGN ROMGAZ S.A. (the Company) and its subsidiary (together “the Group”) with official head office in Mediaş, Piaţa Constantin I. Motaş. nr. 4, cod 551130, Sibiu county, Romania, identified by sole fiscal registration number RO 14056826, which comprise the consolidated statement of financial position as at December 31, 2019, and the consolidated statements of comprehensive income, of changes in shareholders’ equity and of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2019 and of its financial performance and its cash flows for the year then ended in accordance with the Order of the Minister of Public Finance no. 2844/2016, approving the accounting regulations compliant with the International Financial Reporting Standards, with all subsequent modifications and clarifications. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs), Regulation (EU) No. 537/2014 of the European Parliament and of the Council of 16 April 2014 (“Regulation (EU) No. 537/2014“) and Law 162/2017 („Law 162/2017”). Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated financial statements” section of our report. We are independent of the Group in accordance with the International 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 consolidated 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. 2 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 consolidated 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. 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 Estimation of gas reserves used in the calculation of depreciation and amortisation The Group’s disclosures about estimation of gas reserves are included in Note 2 (Use of Estimates) to the financial statements. Estimation of the gas reserves is a focus area in our audit because it has a significant impact on the financial statements, as the reserves are the basis for production estimates used in the Group’s cash flow forecasts for impairment testing and they are also the basis for unit of production depreciation and amortization for the core assets in the Upstream segment. The estimation of gas reserves requires the Group’s management and engineers to make significant judgement and assumptions. We assessed the management’s estimation process in the determination of gas reserves. Specifically, our work included, but was not limited to, the following procedures: - We performed a detailed understanding of the Group’s internal process and related documentation flow and key controls associated with the gas reserves estimation process; - We analysed the certification process for technical and commercial specialists who are responsible for gas reserves estimation; we also assessed the competence, capabilities and objectivity of management specialists; - We tested whether significant increases or reductions in gas reserves were made in the period in which the new information became available and in compliance with the standards of the National Agency for Mineral Resources (“ANRM”); 3 - We compared the gas reserves with the assumptions used in the cash flows for the impairment testing of production assets and in the accounting for depreciation and amortization for the core assets in the Upstream segment We further assessed the adequacy of the Group’s disclosures about impairment testing and calculation of depreciation and amortization. Impairment testing of production assets in the Upstream Gas segment The Group’s disclosures about its impairment testing are included in Note 2 (Use of estimates) and in Note 12 (Property, Plant and Equipment) to the financial statements The impairment test is significant to our audit because the assessment process is complex, requires significant management judgment and is based on assumptions that are affected by expected future market conditions. Furthermore, the carrying value of the production assets and the common infrastructure and corporate assets allocated to each cash generating unit (CGU) from the Upstream segment’s property, plant and equipment of RON 2,710 million as at 31 December 2019 is significant. International Financial Reporting Standards require an entity to assess whether indicators of impairment exist. Management considered that the recent changes brought by new legislation in 2019, as well as recent changes in market conditions, constitute impairment indicators and, consequently, has carried out an impairment test for the production assets in the Upstream Gas segment which resulted in an additional impairment of RON 71 million. In respect of impairment testing, our work included, but was not limited to, the following procedures: - We analysed and evaluated the management’s assessment of the existence of impairment indicators (triggering events); - We reviewed the allocation of the carrying value of common infrastructure and corporate assets to each CGU (field) - We evaluated the management’s assessment of the recoverability of the carrying value of property, plant and equipment of the cash generating unit for which triggering events were identified; - We tested the reasonability of future yearly production volumes per field based on actual ANRM reports and appendixes (future production plan per field is made based on ANRM approved plan for each field); - On a sample basis, we compared the remaining reserves per field from impairment test as of 31 December 2019 with the latest ANRM approved reserve reports; 4 - We compared the main assumptions used in the impairment test (gas prices, operating costs, production volumes, gas reserves and discount rate) with the current forecasts approved as part of the Group’s mid-term planning process; - We assessed the historical accuracy of management’s budgets and forecasts by comparing them to actual performance and to prior year; - We involved our internal valuation specialists to assist us in evaluating the key assumptions and methodologies used by the Group for the impairment testing of upstream productions assets (e.g. checked the mathematical accuracy of the model, its conformity with the requirements of the International Financial Reporting Standards and discount rates used, etc) We also assessed the adequacy of the Group’s disclosures in the financial statements. Impairment testing of the property, plant and equipment to be transferred to Depogaz from the Gas storage segment The Group’s disclosures about its impairment testing are included in Note 2 (”Use of estimates”) and in Note 12 (Property, Plant and Equipment) to the financial statements The impairment test is significant to our audit because the assessment process is complex, requires significant management judgment and is based on assumptions that are affected by expected future market conditions. Furthermore, the carrying value of the property, plant and equipment to be transferred to Depogaz from the Gas storage segment in amount of RON 701 million as at 31 December 2019, is significant. International Financial Reporting Standards require an entity to assess whether indicators of impairment exist. In 2018, Romgaz SA decided to transfer most of the gas storage activity related assets to its fully owned subsidiary Depogaz at market We evaluated and tested management’s assessment of the triggering events for potential additional impairment. Specifically our work included, but was not limited to the following procedures: - We analyzed and evaluated the management’s assessment of the existence of impairment indicators (triggering events), specifically the external valuation report concluded in 2019; - We reconciled the carrying value of property, plant and equipment to be transferred to Depogaz included in the valuation report to the Fixed asset register tested value, in form of in kind contribution. For this purpose, an external valuation report was made by an independent external valuator in 2019. The valuation report indicated that fair values of some individual assets from the property, plant and equipment to be transferred to Depogaz are lower than their carrying amount. Management considered that this information constitutes an impairment indicator and, consequently, recorded impairment for those items of property, plant and equipment to be transferred to Depogaz with an individual fair value lower than their carrying amount. This resulted in an impairment of RON 388 million. 5 - We assessed the allocation of property, plant and equipment to the gas storage segment based on their nature and location. - We evaluated the reasonableness of management’s assumption of future revenues by analysing the ANRE regulated tariffs and based on current depositing capacities - We compared the main assumptions used in the impairment test (depositing tariffs, operating costs, deposited volumes, and discount rate) with the current forecasts approved as part of the Group’s mid-term planning assumptions; - We assessed the historical accuracy of management’s budgets and forecasts by comparing them to actual performance and to prior year; - We involved our internal valuation specialists to assist us in: o evaluation of the key assumptions and methodologies used by Romgaz Group for the impairment testing of property, plant and equipment to be transferred to Depogaz from the gas storage segment (e.g: checked the mathematical accuracy of model and its conformity with the requirements of the International Financial Reporting Standards, discount rates used, etc) o assessment of the key assumptions and methodologies used by the external appraiser for determining the fair values of the property, plant and equipment to be transferred to Depogaz from the gas storage segment o comparison the valuation of land and buildings against market values. o evaluation of the competence, capabilities and objectivity of external valuator; 6 We also assessed the adequacy of the Group’s disclosures in the financial statements. Estimation of decommissioning provisions The Group’s disclosures about decommissioning obligations are included in Note 2 (Use of estimates) and Note 19 (Provisions) to the financial statements. The Group’s core activities regularly lead to obligations related to dismantling and removal of equipment and installations, asset retirement and soil remediation activities. The decommissioning provision is important to our audit because of its magnitude (carrying value of RON 384.2 million at 31 December 2019) and because management makes estimates and judgments in determining the respective provisions. The key estimates and assumptions relate to the envisaged future dismantling costs, forecasted inflation rates and discount rates to determine the present value of the obligations. Our work in respect of management’s estimation of decommissioning and restoration provisions included, but was not limited to, the following procedures: - We performed a detailed understanding of the Group’s estimation process and the related documentation flow and assessed the design and implementation of the controls within the process; - We compared the current estimates of decommissioning, costs with the actual costs incurred in previous periods; - We reviewed the timing of works to be performed for surface and subsurface decommissioning for wells; - We inspected supporting evidence for any material revisions in cost estimates during the year; - We involved our valuation specialists to assist us in performing industry bench marking and analysis over discount rates and inflation rates; - We tested the mathematical accuracy of management’s decommissioning and restoration provision calculations; - We assessed the competence, capabilities and objectivity of management specialists We also assessed the adequacy of the Group’s disclosures in the financial statements relating to decommissioning obligations. 7 Other information The other information comprises the Annual Report (which includes the Directors' Consolidated Report, the Report on Payments to Governments for mining activities and the Corporate Governance Statement), but does not include the consolidated financial statements and our auditors’ report thereon. The Corporate responsibility and sustainability report will be published separately at a later date. Management is responsible for the other information. Our audit opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of our 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 Order of the Minister of Public Finance no. 2844/2016 approving the accounting regulations compliant with the International Financial Reporting Standards, with all subsequent modifications and clarifications, 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. 8 Auditor’s Responsibilities for the Audit of the 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. 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. 9 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 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 Directors’ Report, we have read the Report and report that: a) b) in the Directors’ Consolidated Report we have not identified information which is not consistent, in all material respects, with the information presented in the Group consolidated financial statements as at December 31, 2019; the Directors’ Consolidated 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 and 26-28; c) based on our knowledge and understanding concerning the entity and its environment gained during our audit of the consolidated financial statements as at December 31, 2019, we have not identified information included in the Directors’ Consolidated 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 06 December 2018 to audit the consolidated financial statements for the financial year ended December 31, 2019. Total uninterrupted engagement period, for the statutory auditor, has lasted for two years covering the financial years ended December 31, 2018 and 2019. 10 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 Group, which we issued on 19 March 2020. 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 other audit related services, as disclosed in the financial statements, no other services were provided by us to the Group 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. FA 77 Name of the Auditor/ Partner: Alexandru Lupea Registered in the electronic Public Register under No. AF 273 Bucharest, Romania 19 March 2020 Ernst & Young Assurance Services SRL Bucharest Tower Center Building, 22nd Floor 15-17 Ion Mihalache Blvd., Sector 1 011171 Bucharest, Romania Tel: +40 21 402 4000 Fax: +40 21 310 7193 office@ro.ey.com ey.com INDEPENDENT AUDITOR’S REPORT To the Shareholders of SNGN ROMGAZ S.A. Report on the Audit of the standalone financial statements Opinion We have audited the standalone financial statements of SNGN ROMGAZ S.A (the Company) with official head office in Mediaş, Piaţa Constantin I. Motaş. nr. 4, cod 551130, Sibiu county, Romania, identified by sole fiscal registration number RO 14056826, which comprise the statement of financial position as at December 31, 2019 and the statement of comprehensive income, of changes in shareholders’ equity and of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. In our opinion, the financial statements give a true and fair view of the financial position of the Company as at December 31, 2019 and of its financial performance and its cash flows for the year then ended, in accordance with the Order of the Minister of Public Finance no. 2844/2016, approving the accounting regulations compliant with the International Financial Reporting Standards, with all subsequent modifications and clarifications. 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 financial statements” section of our report. We are independent of the Company in accordance with the 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 financial statements of the current period. These matters were addressed in the context of our audit of the 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. 2 We have fulfilled the responsibilities described in the “Auditor’s responsibilities for the audit of the 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 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 Estimation of gas reserves used in impairment testing and the calculation of depreciation and amortisation The Company’s disclosures about estimation of gas reserves are included in Note 2 ( “Use of estimates”) to the financial statements. Estimation of the gas reserves is a focus area in our audit because it has a significant impact on the financial statements, as the reserves are the basis for production estimates used in the Company’s cash flow forecasts for impairment testing and they are also the basis for unit of production depreciation and amortization for the core assets in the Upstream segment. The estimation of gas reserves requires the Company’s management and engineers to make significant judgement and assumptions. We assessed the management’s estimation process in the determination of gas reserves. Specifically, our work included, but was not limited to, the following procedures: - We performed a detailed understanding of the Company’s internal process and related documentation flow and key controls associated with the gas reserves estimation process; - We analysed the certification process for technical and commercial specialists who are responsible for gas reserves estimation; we also assessed the competence, capabilities and objectivity of management specialists; - We tested whether significant increases or reductions in gas reserves were made in the period in which the new information became available and in compliance with the National Agency for Mineral Resources (“ANRM”) standards; - We compared the gas reserves with the assumptions used in the cash flows for the impairment testing of production assets and in the accounting for depreciation and amortization for the core assets in the Upstream segment 3 We further assessed the adequacy of the Company’s disclosures about impairment testing and calculation of depreciation, and amortization. Impairment testing of production assets in the Upstream Gas segment The Company’s disclosures about its impairment testing are included in Note 2 (”Use of estimates”) and in Note 12 (Property, Plant and Equipment) to the financial statements The impairment test is significant to our audit because the assessment process is complex, requires significant management judgment and is based on assumptions that are affected by expected future market conditions. Furthermore, the carrying value of the production assets and the common infrastructure and corporate assets allocated to each cash generating unit (CGU) from the Upstream property, plant and equipment of RON 2710 million as at 31 December 2019 is significant. In respect of impairment testing, our work included, but was not limited to, the following procedures: - We analysed and evaluated the management’s assessment of the existence of impairment indicators (triggering events); - We reviewed the allocation of the carrying value of common infrastructure and corporate assets to each CGU (field) - We evaluated the management’s International Financial Reporting Standards require an entity to assess whether indicators of impairment exist. Management considered that the recent changes brought by new legislation in 2019, as well as changes in market conditions, constitute impairment indicators and, consequently, has carried out an impairment test for the production assets in the Upstream Gas segment which resulted in an additional impairment of RON 71 million. assessment of the recoverability of the carrying value of property, plant and equipment of the cash generating unit for which triggering events were identified; - We tested the reasonability of future yearly production volumes per field based on actual ANRM reports and appendixes (future production plan/field is made based on ANRM approved plan for each field); - On a sample basis, we compared the remaining reserves per field in the impairment test as of 31 December 2019 with the latest ANRM approved reserve reports; - We compared the main assumptions used in the impairment test (gas prices, operating costs, production volumes, gas reserves and discount rate) with the current forecasts approved as part of the Company’s mid-term planning process; - We assessed the historical accuracy of management’s budgets and forecasts by comparing them to actual performance in prior years; 4 - We involved our internal valuation specialists to assist us in evaluating the key assumptions and methodologies used by the Company for the impairment testing of upstream productions assets (checked the mathematical accuracy of model, its conformity with the requirements of the International Financial Reporting Standards and discount rates used, etc) We also assessed the adequacy of the Company’s disclosures in the financial statements Impairment testing of property, plant and equipment to be transferred to Depogaz from the Gas storage segment The Company’s disclosures about its impairment testing are included in Note 2 (”Use of estimates) and in Note 12 (Property, Plant and Equipment) and in note 29 (Discontinued operations) to the financial statements The impairment test is significant to our audit because the assessment process is complex, requires significant management judgment and is based on assumptions that are affected by expected future market conditions. Furthermore, the carrying value of the property, plant and equipment to be transferred to Depogaz from the Gas storage segment in amount of RON 701 million as at 31 December 2019, is significant. International Financial Reporting Standards require an entity to assess whether indicators of impairment exist. In 2018, Romgaz SA decided to transfer most of the gas storage activity related assets to its fully owned subsidiary Depogaz at market value, in form of in kind contribution. For this purpose, an external valuation report was made by an independent external valuator in 2019. The valuation report indicated that fair values of some individual assets from the property, plant and equipment to be transferred to Depogaz are lower than their carrying amount. Management considered that this information constitutes an impairment indicator and, consequently, We evaluated and tested management’s assessment of the triggering events for potential additional impairment. Specifically our work included, but was not limited to the following procedures: - We analyzed and evaluated the management’s assessment of the existence of impairment indicators (triggering events), specifically the external valuation report concluded in 2019; - We reconciled the carrying value of property, plant and equipment to be transferred to Depogaz to the Fixed asset register - We assessed the allocation of property, plant and equipment to the gas storage segment based on their nature and location; - We evaluated the reasonableness of management’s assumption of future revenues by analysing the ANRE regulated tariffs and current depositing capacities; - We compared the main assumptions used in the impairment test (depositing tariffs, operating costs, deposited recorded impairment for those items of property, plant and equipment to be transferred to Depogaz with an individual fair value lower than their carrying amount. This resulted in an impairment of RON 388 million. 5 volumes, and discount rate) with the current forecasts approved as part of the Company’s mid-term planning assumptions; - We assessed the historical accuracy of management’s budgets and forecasts by comparing them to actual performance and to prior year; - We involved our internal valuation specialists to assist us in: o Evaluation of the key assumptions and methodologies used by Romgaz for the impairment testing of property, plant and equipment to be transferred to Depogaz (e.g: checked the mathematical accuracy of model and its conformity with the requirements of the International Financial Reporting Standards, discount rates used, etc) o assessment of the key assumptions and methodologies used by the external appraiser for determining the fair values of the property, plant and equipment to be transferred to Depogaz from the gas storage segment o comparison of the valuation of land and buildings against market values. o evaluation of the competence, capabilities and objectivity of external valuator; We also assessed the adequacy of the Company’s disclosures in the financial statements. 6 Estimation of decommissioning, provisions The Company’s disclosures about decommissioning obligations are included in Note 2 (”Use of estimates”) and Note 19 (Provisions) to the financial statements. The Company’s core activities regularly lead to obligations related to dismantling and removal of equipment and installations, asset retirement and soil remediation activities. The decommissioning provision is important to our audit because of its magnitude (carrying value of RON 384,2 million at 31 December 2019) and because management makes estimates and judgments in determining the respective provisions. The key estimates and assumptions relate to the envisaged future dismantling costs, forecasted inflation rates and discount rates to determine the present value of the obligations. Our work in respect of management’s estimation of decommissioning provisions included, but was not limited to, the following procedures: - We performed a detailed understanding of the Company’s estimation process and the related documentation flow and assessed the design and implementation of the controls within the process; - We compared the current estimates of decommissioning, costs with the actual costs incurred in previous periods; - We reviewed the timing of works to be performed for surface and subsurface decommissioning for wells; - We inspected supporting evidence for any material revisions in cost estimates during the year; - We involved our valuation specialists to assist us in performing industry bench marking and analysis over discount rates and inflation rates; - We tested the mathematical accuracy of management’s decommissioning provision calculations; - We assessed the competence, capabilities and objectivity of management specialists We also assessed the adequacy of the Company’s disclosures in the financial statements relating to decommissioning obligations. 7 Other information The other information comprises the Annual Report (which includes the Consolidated Directors' Report, the Report on Payments to Governments for mining activities and the Corporate Governance Statement), but does not include the financial statements and our auditors’ report thereon. The Corporate responsibility and sustainability report will be published separately at a later date Management is responsible for the other information. Our audit opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the 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 our 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 financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Order of the Minister of Public Finance no. 2844/2016 approving the accounting regulations compliant with the International Financial Reporting Standards, with all subsequent modifications and clarifications, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company'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 Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the 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 financial statements. 8 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 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 Company'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 Company'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 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 Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. 9 Report on Other Legal and Regulatory Requirements Reporting on Information Other than the 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 Consolidated Directors’ Report, we have read the Directors’ Report and report that: a) b) in the Consolidated Directors’ Report we have not identified information which is not consistent, in all material respects, with the information presented in the accompanying financial statements as at December 31, 2019; the Consolidated 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 and 26-28; c) based on our knowledge and understanding concerning the entity and its environment gained during our audit of the financial statements as at December 31, 2019, we have not identified information included in the Consolidated 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 Company by the General Meeting of Shareholders on 06 December 2018 to audit the financial statements for the financial year end December 31, 2019. Total uninterrupted engagement period, for the statutory auditor, has lasted for two years, covering the years ended December 31, 2018 and 2019. Consistency with Additional Report to the Audit Committee Our audit opinion on the financial statements expressed herein is consistent with the additional report to the Audit Committee of the Company, which we issued on 19 March 2020. 10 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 Company and we remain independent from the Company in conducting the audit. In addition to statutory audit services and other audit related services as disclosed in the 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. FA 77 Name of the Auditor/ Partner: Alexandru Lupea Registered in the electronic Public Register under No. AF 273 Bucharest, Romania 19 March 2020
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