Societatea 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
/
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R
15.00
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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
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.
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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.
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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;
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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
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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:
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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
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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.
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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
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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