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2023 ReportSocietatea Nationala de Gaze Naturale “ROMGAZ” SA Consolidated Board of Directors’ Report 2020 2020 Consolidated Board of Directors’ Report Contents I. 2020 ROMGAZ GROUP OVERVIEW ............................................................................................3 1.1. Romgaz Group in Figures .............................................................................................................3 1.2. Significant Events .........................................................................................................................7 II. PARENT COMPANY AT A GLANCE ........................................................................................10 2.1. Identification Data .......................................................................................................................10 2.2. Company Organization ...............................................................................................................11 2.3. Mission, Vision and Values ........................................................................................................12 2.4. Strategic Objectives.....................................................................................................................12 III. REVIEW OF ROMGAZ GROUP BUSINESS ...........................................................................14 3.1. Business Segments ......................................................................................................................14 3.2. Brief History ................................................................................................................................18 3.3. Mergers and Reorganizations, Acquisitions and Divestment of Assets ......................................19 3.4. Group’s Business Performance ...................................................................................................19 3.4.1. Overall Performance ............................................................................................................19 3.4.2. Sales .....................................................................................................................................23 3.4.3. Prices and Tariffs .................................................................................................................25 3.4.4. Human Resources .................................................................................................................27 ........................................................................................................29 ...........................................................................................31 .............................................................................................................................33 ................................................33 IV. GROUP’S TANGIBLE ASSETS .................................................................................................35 4.1. Main Production Facilities ..........................................................................................................35 4.2. Investments .................................................................................................................................39 V. SECURITIES MARKET ................................................................................................................46 5.1. Dividend Policy ...........................................................................................................................49 VI. COMPANY MANAGEMENT .....................................................................................................51 6.1. Board of Directors .......................................................................................................................51 6.2. Upper Management .....................................................................................................................53 VII. CONSOLIDATED FINANCIAL-ACCOUNTING INFORMATION ....................................55 7.1. Statement of Consolidated Financial Position.............................................................................55 7.2. Statement of Consolidated Comprehensive Income ...................................................................57 7.3. Statement of Consolidated Cash Flows .......................................................................................59 VIII. CORPORATE GOVERNANCE ...............................................................................................61 IX. PERFORMANCE OF DIRECTORS’ AGREEMENTS/CONTRACTS OF MANDATE ......79 SIGNATURES: ......................................................................................................................................80 Page 2 of 80 2020 Consolidated Board of Directors’ Report I. 2020 ROMGAZ GROUP OVERVIEW Romgaz Group1 recorded in 2020 a revenue of RON 4,074.9 million, by 19.79% lower as compared to the previous year. The Net Profit of RON 1,247.9 million was higher by RON 158.28 million than the net profit for 2019 (+14.53%). Following factors influenced Romgaz Group performances for the year ended December 31, 2020: Decrease by RON 146.0 million (42.59%) of petroleum royalty expenses (RON 195.9 million in 2020 as compared to RON 342.9 million in 2019) pursuant to the decrease of the reference price taken into account; Decrease by RON 302.0 million (42.12%) of the windfall tax further to the deregulation of prices in the gas sector, the gas sale price decreased on average by 16% and quantities supplied were lower by 10.1%; Due to existing market conditions the Group identified impairment indicators for assets used in the gas production segment. The Group ran an impairment test, which did not result in any additional impairment. In 2020 the Group only recorded impairment for specific assets, for abandoned wells as dry holes. Due to this fact, the depreciation, amortisation and impairment expenses decreased by RON 779.7 million (-53.71%) as compared to previous year; In 2020 the Group did not encounter any major collection issues regarding current trade receivables, so that it recorded a net impairment gain on trade receivables of RON 17.6 million compared to a net loss of RON 81.2 million last year; In 2020 the Company was subject to an economic-financial inspection on the allocation of dividends according to art. 43 of Government Emergency Ordinance no. 114/2018. The inspectors concluded that the Company did not calculate the allocated dividends correctly, but rather it should have paid additional dividends of RON 34,852 thousand, of which RON 24,284 thousand payable to the main shareholder and penalties of RON 938 thousand. As the Company did not agree with the conclusions in the report, currently legal proceedings are pending. The deemed dividends attributable to the main shareholder and related penalties were offset by the National Agency for Fiscal Administration (“ANAF”) against receivables of the Company from ANAF, although the Company requested the receivables to be offset against other tax liabilities when due. Following the offset, the consolidated result includes an expense of RON 24,284 thousand, as there is no shareholders’ decision to allocate additional dividends. As for the penalties of RON 938 thousand, these were written-off according to Government Emergency Ordinance No. 69/2020; Consolidated net profit per share was Ron 3.3. Consolidated net profit margin (30.62%) and Consolidated EBIT margin (33.83%) have risen strongly from 2019 levels (21.45%, respectively, 24.35%) and show a high profitability of the Group despite a drop in revenue. Consolidated EBIDTA margin (50.33%) decreased from last year, but it maintains a high rate. Investments made by Romgaz Group in 2020 amount to RON 637.3 million, lower by RON 254.3 million, namely 28.5%, as compared to 2019, and the value of fixed assets brought in production reached RON 361.0 million. In 2020, Romania’s natural gas consumption recorded an increase of approximately 5%, from 121.05 TWh to 127.24 TWh according to ANRE and the company’s consumption estimations2. 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). 2 Until the date of this Report ANRE did not publish the gas market monitoring reports for December 2020, the data used for national consumption and market shares are estimations. Page 3 of 80 2020 Consolidated Board of Directors’ Report 2020 gas production was 4,520 million m3, by 14.3% lower than the production recorded in 2019. This relatively high decline was recorded against a significant decrease of gas production in Q2 and Q3 due to overlapping of commercial, economic, sanitary and regulatory factors that led on short term to a lower gas demand. This production, according to estimations, ensured Romgaz a 48% market share in terms of deliveries from internal production and approximately 39% market share of deliveries for the total consumption of Romania. Romgaz electricity production reached in 2020 937.5 GW, by 58.86% higher as compared to 2019. This was achieved as a result of shorter intervals when CTE Iernut old units were unavailable. These unavailability periods occur because of works performed at the new power plant and to adapt the burning system of unit 5 as to reduce NOx emissions for compliance with emission limits. According to preliminary data published by Transelectrica, Romgaz market share is 1.69%. The table below shows a summary of the main production indicators, royalty and storage services: Q4 2019 Q3 2020 Q4 2020 Δ Q4 (%) Main indicators 2019 2020 Δ ‘20/’19 (%) -0.38 Gas production (million m3) 5,277 4,520 -14.35 1,327 4,388 96 952.0 5,349 64 1,322 6,119 94 14.40 Condensate production (tons) Petroleum royalty (million m3) -2.11 298.0 322.6 319.6 7.25 Electricity production (GWh) 17,340 22,713 339 316 590.1 937.5 30.99 -6.84 58.86 347.1 0.3 892.5 157.13 346.1 444.5 99.6 -71.22 Invoiced UGS withdrawal services (million m3) Invoiced UGS injection services (million m3) 1,271.8 1,816.8 42.85 2,620.5 1,115.1 -57.45 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. Specifications 2018 2019 2020 Ratios Gross gas production – total, including: 1 *own gas *Schlumberger (100%) Technological consumption 2 3 5,333.3 5,276.9 4,519.7 4 5=4/3x100 85.7% 5,177.1 5,276.9 4,519.7 85.7% 156.3 86.4 0.0 78.9 0.0 63.7 - 80.8% Net internal gas production (1.-1.2.-2.) 5,090.6 5,198.0 4,456.0 85.7% Internal gas volumes injected into UGS Internal gas volumes withdrawn from UGS 5.1. *gas cushion 6. 7. Difference from conversion to Gross Calorific Value Volumes supplied from internal production (3.-4.+5.- 6.) 348.1 479.4 6.9 1.4 526.0 257.7 0.0 0.0 225.9 44.9% 367.8 142.7% 0.0 6.3 - - 5,220.5 4,929.7 4,591.6 93.1% 8.1. Gas sold in UGS 8.1 0.0 0.0 - 8.2. Gas supplied to CTE Iernut and Cojocna from Romgaz’s 326.7 173.0 277.2 160.2% 9. gas Gas supplied from internal production to the market (7.+8.1.-8.2.) 4,901.9 4,756.7 4,314.4 90.7% 10. Gas from partnerships– total, including: 163.6 140.5 91.4 65.1% *Schlumberger (50%) *Raffles Energy (37.5%) 78.2 0.0 0.0 0.0 0.0 0.0 - - Page 4 of 80 11. 12. 13. 14. 15. 16. * * 2020 Consolidated Board of Directors’ Report *Amromco (50%) 85.4 140.5 91.4 Purchased internal gas volumes (including imbalances) Sold internal gas volumes (9.+10.+11.) 9.7 0.4 5,075.2 4,901.6 4,406.2 4.4 65.1% 9.1% 89.9% Supplied internal gas volumes (8.2+12.) 5,401.9 5,074.6 4,683.4 92.3% Supplied import gas volumes Gas supplied to CTE Iernut and Cojocna from other sources (including imbalances) Total gas supplies (13.+14.+15.) Invoiced UGS withdrawal services Invoiced UGS injection services 181.4 19.4 53.0 4.5 0.0 4.7 - 104.4% 5,602.7 5,132.1 4,688.1 91.3% 1,949.9 1,271.8 1,816.7 142.8% 1,731.2 2,620.5 1,115.1 42.6% 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. The production level was maintained by the ongoing production rehabilitation projects of the main fields, performance of capitalisable repair and well recompletion works in 168 wells, bringing into production new wells. Evolution of natural gas production between years 2000-2020 is shown below: 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 4,5 4,2 9 8 7 6 5 4 3 2 1 0 m c n o i l l i b 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 The table below shows the quarterly electricity production for 2020, as compared to 2019: 2019 2020 2 170,894 773 120,443 298,019 590,129 3 258,923 36,310 322,633 319,634 937,500 *MWh* Variation (%) 4=(3-2)/2x100 51.51 4,597.17 167.87 7.25 58.86 1 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year total Romgaz is one of the largest gas suppliers in Romania. The evolution of gas supplies3 during 2008-2020 is shown below: 3 Include gas from internal production, including gas supplied to CTE Iernut and Cojocna, 50% of the gas from Schlumberger joint venture and gas purchased from internal production of other producers Page 5 of 80 2020 Consolidated Board of Directors’ Report 7000 6000 5000 4000 3000 2000 1000 0 m c n o i l l i m 343 304 680 1018 606 310 81 33 181 53 0 3 7 5572 5563 5513 5200 5156 5304 5529 5055 5623 5422 5079 4683 4223 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Internal gas Import gas Q4 2020 1,156.5 1,129.2 810.7 1.1 319.7 13.7 306.0 307.4 543.7 0.79 26.46 Q4 2019*) 1,289.6 1,308.4 1,429.3 0.1 (120.8) (25.3) (95.5) (128.8) 728.4 (0.25) -7.4 -9.99 56.48 Q3 2020 725.0 771.3 607.7 0.3 163.8 22.7 141.1 150.8 315.5 0.37 19.5 20.8 43.52 26.58 47.02 n/a -16.75 6,251 6,201 6,188 -1.01 Δ Q4 (%) Main indicators 2019*) 2020 Δ ‘20/’19 (%) * RON million * -10.32 Revenue -13.70 -43.28 1,000.0 0 n/a -45.85 n/a n/a -25.36 n/a n/a Income Expenses Share of profit of associates Gross profit Income tax expense Net profit EBIT EBITDA Earnings per share EPS (RON) Net profit Revenue) EBIT Ratio (% from Revenue) EBITDA Ratio Revenue) Number of employees at the end of the period from from ratio (% (% 5,080.5 5,235.4 3,961.7 1.5 4,074.9 4,133.9 2,708.7 1.3 1,275.2 185.6 1,089.6 1,237.1 2,688.8 2.83 21.45 1,426.5 178.6 1,247.9 1,378.7 2,050.7 3.24 30.62 -19.79 -21.04 -31.63 -13.33 11.86 -3.77 14.53 11.45 -23.73 14.53 42.79 24.35 52.92 33.83 50.33 38.95 -4.91 6,251 6,188 -1.01 *) – restated – see the comment to the statement of consolidated comprehensive income 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, 2020 is shown below: Page 6 of 80 2020 Consolidated Board of Directors’ Report 45,00 40,00 35,00 30,00 25,00 20,00 e r a h s / N O R 15,00 10,00 5,00 0,00 3 1 0 2 / 2 1 / 1 1 3 1 0 2 / 7 2 / 2 1 . 4 1 0 2 2 0 4 1 . 4 1 0 2 / 1 3 / 3 . 4 1 0 2 5 0 0 2 . . 4 1 0 2 7 0 4 0 . 4 1 0 2 / 9 1 / 8 . 4 1 0 2 0 1 3 0 . . 4 1 0 2 1 1 7 1 . . 5 1 0 2 1 0 8 0 . 5 1 0 2 / 8 / 4 5 1 0 2 / 0 2 / 2 5 1 0 2 / 7 2 / 5 5 1 0 2 / 0 1 / 7 5 1 0 2 / 4 2 / 8 5 1 0 2 / 7 / 0 1 5 1 0 2 / 9 1 / 1 1 6 1 0 2 / 2 1 / 1 6 1 0 2 / 4 2 / 2 6 1 0 2 / 7 / 4 6 1 0 2 / 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 / 7 1 / 2 7 1 0 2 / 3 / 4 7 1 0 2 / 8 1 / 5 7 1 0 2 / 5 / 7 7 1 0 2 / 8 1 / 8 7 1 0 2 / 2 / 0 1 7 1 0 2 / 4 1 / 1 1 8 1 0 2 / 4 / 1 8 1 0 2 / 9 1 / 2 8 1 0 2 / 4 / 4 8 1 0 2 / 2 2 / 5 8 1 0 2 / 6 / 7 8 1 0 2 / 1 2 / 8 8 1 0 2 / 3 / 0 1 8 1 0 2 / 5 1 / 1 1 9 1 0 2 / 4 / 1 9 1 0 2 / 9 1 / 2 9 1 0 2 / 3 / 4 9 1 0 2 / 1 2 / 5 9 1 0 2 / 4 / 7 9 1 0 2 / 9 1 / 8 9 1 0 2 / 1 / 0 1 9 1 0 2 / 3 1 / 1 1 SNG BET 12000,00 10000,00 8000,00 6000,00 4000,00 2000,00 0,00 January 30, 2020 Romgaz announces production from Caragele Deep by well 77 Rosetti with a daily production potential of 1,500 boe. March-May 2020 “Together for Romania!”- Romgaz engaged in the fight against COVID-19 by: supporting Romanian Red Cross with RON 1,250,000 for the coronavirus information and prevention campaign; supporting Sibiu County Emergency Clinical Hospital with RON 1,500,000 for extending and equipping the Anaesthesia and Intensive Care Unit for treating COVID-19 patients whenever necessary and RON 900,000 for securing materials needed in the fight against COVID-19; supporting Medias Town Hospital with RON 1,500,000 for equipping the Anaesthesia and Intensive Care Unit and with specific medical equipment and RON 500,000 for equipping the ICU with 2 beds and specific equipment within the COVID-19 ward; supporting Alba County Emergency Hospital with RON 1,500,000 for limiting and preventing possible COVID-19 illnesses and for efficiently managing COVID-19 suspected/confirmed cases; supporting Slatina County Emergency Hospital with RON 1,500,000 for fighting against COVID-19; supporting Vaslui County Emergency Clinical Hospital RON 1,500,000 for fighting against COVID-19; supporting Mures County Clinical Hospital RON 1,500,000 for fighting against COVID-19. April 13, 2020 By Resolution No. 5, company’s shareholders approve to extend the mandate of interim directors by two months from the expiration date, in compliance with the provisions of Art. 641 para (5) of GEO No.109/20114. 4 Emergency Ordinance No. 109 of December 14, 2011 on corporate governance of public enterprises, as subsequently amended and supplemented. Page 7 of 80 2020 Consolidated Board of Directors’ Report June 10, 2020 Romgaz and SC Liberty Galati SA agreed to conclude a Memorandum of Understanding envisaging a joint venture for the development of greenfield projects, namely to develop a gas fuelled power production unit (“CCGT”) and units for the production of electricity from renewable sources using both wind and photovoltaic technologies. Implementation of these investments will take between 3.5 and 4 years. June 15, 2020 General Meeting of Shareholders approves by Resolution No. 7 “S.N.G.N. Romgaz S.A. Development/Investment Strategy 2020-2025”. According to the Strategy, the investment program of RON 15.69 billion is set for the following main investment directions: to continue geological research by new drilling works and geological surveys to discover new natural gas reserves; to develop the production potential by adding new capacities on the existing structures; to improve performances of facilities and equipment and to increase production safety; to identify new development and diversification opportunities. June 25, 2020 By Resolution No.8, the Company’s shareholders appointed the following persons as members of the Board: Stan Olteanu Manuela Petronela Jude Aristotel Marius Simescu Nicolae Bogdan Marin Marius-Dumitru Balazs Botond Ciobanu Romeo Cristian Jansen Petrus Antonius Maria. Mr. Ciobanu Romeo Cristian and Mr. Jansen Petrus Antonius Maria were reconfirmed as board members by OGMS Resolution No. 6 of June 26, 2019, they were selected following a selection process in 2018 and appointed board members for a 4-years mandate by OGMS Resolution No. 8 of July 6, 2018. Therefore, their mandate is ongoing. The other board members, as interim board members, are appointed for 4-months. July 1, 2020 The Board of Directors decided to appoint Mrs Stan Olteanu Manuela Petronela as Chairman of the Board. During the same meeting, the board of directors set the members of its committees. August 25, 2020 Romgaz concluded a Memorandum of Understanding with GSP Power SRL in order to provide the framework necessary to start the discussions between the two companies for developing some projects based on the following principle: GSP Power builds and operates the electric power plants with capacities between 50 MW and 200 MW, at the indication and locations set by Romgaz; in return Romgaz will rent the production capacity of these power plants from GSP Power SRL in order to generate electric power. August 26, 2020 The Board of Directors appoints by Resolution No. 32/2020 Mr. Pena Daniel Corneliu as Deputy Chief Executive Officer for 2 months with a temporary mandate, from August 28 to October 26, 2020. September 18, 2020 The Board of Directors approved by Resolution No.36/2020 to establish Drobeta –Turnu Severin Branch. Page 8 of 80 2020 Consolidated Board of Directors’ Report October 14, 2020 The Board of Directors approved by Resolution No.41/2020 to extend by 120 days the temporary mandate of Mr. Pena Daniel Corneliu, Deputy Chief Executive Officer, namely until February 24, 2021. October 23, 2020 Company’s shareholders approve by Resolution No.12 to extend the mandate of interim board members by 2 months from their expiration date, in compliance with the provisions of Art. 641 para (5) of GEO No. 109/2011. November 3, 2020 The Board of Directors appointed Mr. Jude Aristotel Marius as Chairman of the Board. During the same meeting, the board set the members of its committees. November 4, 2020 Romgaz informs shareholders and investors that the Ministry of Economy, Energy and Business Environment transferred RON 115,027,026.77 representing the 2nd instalment of the Financing Contract No. 4/07.12.2017 for the investment “Combined cycle gas turbines” – Iernut in total amount of RON 320.90 million. December 9, 2020 The Board of Directors appointed by Resolution No.50/2020 Mr. Popescu Razvan as interim Chief Financial Officer for a 4-months term, as of December 14, 2020. December 21, 2020 Company’s shareholders appoint by Resolution No.14 SNGN Romgaz SA interim board members: Jude Aristotel Marius Marin Marius-Dumitru Stan Olteanu Manuela Petronela Balazs Botond Simescu Nicolae Bogdan The interim board members were appointed for 4-months as of December 27, 2020 until April 27, 2021. December 28, 2020 The Board of Directors decided to appoint Mr. Jude Aristotel Marius as Chairman. During the same meeting, the board set the members of its committees. The committees’ members can be found on Romgaz website by accessing https://www.romgaz.ro/en/consiliu-administratie . Page 9 of 80 2020 Consolidated Board of Directors’ Report II. PARENT COMPANY AT A GLANCE 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 Web: www.romgaz.ro 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 On December 31, 2020 the shareholder structure was the following: The Romanian State5 Free float – total, including: *legal persons *natural persons Total FREE FLOAT 30% Number of shares 269,823,080 115,599,320 % 70.0071 29.9929 95,612,507 19,986,813 24.8072 5.1857 385,422,400 100.0000 The Romanian State 70% In financial year 2020 the Company neither performed transactions with own shares nor held own shares on December 31, 2020. 5 The Romanian State through the Ministry of Economy, Energy and Business Environment Page 10 of 80 2020 Consolidated Board of Directors’ Report 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. The company has 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 Targu Mures, 23 Salcamilor Street, postal code 540202, Mures County, territorially organized in 8 sections; 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 Bratislava6 (Bratislava Branch) having its office in Bratislava, City Business Centre V.-Karadžičova 16, code 82108, Slovakia; Sucursala Drobeta-Turnu Severin (Drobeta-Turnu Severin Branch), having its office in Drobeta-Turnu Severin, 109 Traian Street, ap.2, code 220139, Caras Severin County. 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. 6 Company shareholders approved by EGMS Resolution No. 3 of March 25, 2020 SNGN Romgaz SA withdrawal from Svidnik concession block located in Slovakia, by this decision the company withdrew from Slovakia Page 11 of 80 2020 Consolidated Board of Directors’ Report 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 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: 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; Page 12 of 80 2020 Consolidated Board of Directors’ Report identify new growth and diversification opportunities; increase the company’s performance; optimize, develop and diversify the UGS activity by reconsidering its importance in terms of safety, continuity and flexibility of 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 13 of 80 2020 Consolidated Board of Directors’ Report III. REVIEW OF ROMGAZ GROUP BUSINESS 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; electricity generation and supply; natural gas distribution. In Romania, Romgaz performs, as titleholder or co-titleholder, subject to petroleum agreements: 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, Muntenia-Oltenia and Moldova, in accordance with the Concession Agreement approved by Government Decision No. 23/2000. In 2020, six exploration wells out of ten were tested with gas and temporarily abandoned until the necessary infrastructure is build 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 m3 from prospective resources to contingent resources. The company finalised works for 11 exploration wells that will enter production testing. Moreover, the company initiated the procurement for 3D seismic data in RG 08 Oltenia Block and RG 06 Muntenia Nord-Est Block. Romgaz designs and plans all exploration works based on its own concepts by using modern professional software, prospectivity assessments of 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 reserves replacement ratio of 323%. The table below shows the evolution of the reserves replacement ratio between 2010-2020: Page 14 of 80 2020 Consolidated Board of Directors’ Report 323 155 92 % 350 300 250 200 150 100 50 0 94 82 70 102 42 56 63 41 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Reserves replacement ratio is influenced by the updates to the reserves and resources assessment studies and by finalising investments in the infrastructure necessary for bringing in new production facilities. Production The 2020 annual program for petroleum operations considered the gas demand dynamics, reactivation, recompletion and workover operations, bringing into production new wells and exploration wells; the program focused also on maintenance programs of compressor stations and of dehydration stations. 4,520 million m3 gas production recorded in 2020, by 757 million m3 lower than the production recorded in the previous year (-14.35%) and by 205 million m3 higher than planned (+5%). The production of 4,520 million m3 recorded in 2020 was influenced by: 1. 2. 3. 4. significant decrease of gas sales in Q2 and Q3 as a result of overlapping commercial, economic, sanitary and regulatory factors that led to a reduced gas demand on short term; investments made for extension/upgrading of surface facilities to bring new wells in production; 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; performing capitalisable repair and well recompletion works for inactive or low production wells. Currently, there are 6 operational UGSs in depleted gas reservoirs in Romania. Romgaz owns and operates through Depogaz 5 UGSs having a total capacity of 3.965 bcm and a working gas volume of 2.770 bcm. Nationally, the ratio between the working gas volume and the annual consumption was about 24.6% in 2020. This level is in the first upper half of the international values chart of Europe. In 2020 the ratio between stored gas volumes and working volume of the UGSs was 102%. Page 15 of 80 2020 Consolidated Board of Directors’ Report The underground storage activity performed by Depogaz Subsidiary will be regulated by ANRE (National Authority for Energy Regulation) until April 1, 2021 with respect to UGS operators’ licensing, the access to the UGSs as well as to setting storage tariffs. According to Government Emergency Ordinance No. 106/2020 amending Gas and Electricity Law No. 123/2012 storage activities are no longer regulated. Therefore, after the withdrawal cycle 2020-2021, the storage activity is no longer regulated. 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 2013-2020, a national market share ranging between 37% and 46%: National consumption Romgaz (domestic + import) Romgaz market share traded volumes M. U. 2013 2014 2015 2016 2017 2018 2019 2020 bcm bcm 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 12.0 4.7 % 44.5 46.1 44.0 37.1 46.3 45.5 44.1 39.1 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÷2020 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 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 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. As regards well reactivation works, the branch planned 123 works and performed works in 168 wells. Page 16 of 80 2020 Consolidated Board of Directors’ Report The table below shows recompletion operations and capitalisable repairs performed in 2020: Program Achieved Difference Number of wells Daily flow rate (thousand m3) Number of wells Daily flow rate (thousand m3) Number of wells Daily flow rate (thousand m3) Mediaș Branch 78 562 94 1,043 16 481 Tg. Mureș Branch 45 258 74 427 29 169 TOTAL Romgaz 123 820 168 1,470 45 650 Following recompletion operations and capitalisable repair works, production recorded additional 210 million m3 , representing 4.6% of 2020 total production. 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 transportation of goods and people, specific technological transportation, and maintenance activities 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). CTE Iernut has an installed capacity of 800 MW comprising six energy groups: four 100 MW groups of Czechoslovakian manufacturing and two 200 MW groups of Soviet manufacturing. The groups were commissioned between 1963 and 1967. Taking into consideration the investment works at the new power plant and the need to ensure proper conditions for works at the related cooling system, in November 2019, the 200 MW group 6 was permanently withdrawn from operation. Groups 2 and 3 of 100 MW were permanently withdrawn from operation in January 2019, followed by group 1 (100 MW) in November 2019, all groups were withdrawn for non-compliance with environmental conditions. Therefore, at the end of 2020, SPEE Iernut held commercial licence for two groups: one 100 MW group and one 200 MW group. The evolution of works at the new power plant allowed at the beginning of 2020 operation with both licenced groups (group 4 and group 5). Contract no. 13384/31.10.2016 “Development of CTE Iernut by building a thermal power plant with combined cycle gas turbines” is in progress and has the following characteristics: installed power: 430 MW; capacity: 56.42 % at base load and under normal temperature and pressure conditions; maximum NOx emissions: 50 mg/Ncm and CO: 100mg/Ncm. 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. Page 17 of 80 2020 Consolidated Board of Directors’ Report 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. 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 18 of 80 2020 Consolidated Board of Directors’ Report Changes to the organizational structure The organizational structure underwent a series of changes in 2020: BoD Resolution No.32 of August 26, 2020 established a position as Deputy CEO with mandate, namely having duties delegated by the BoD; BoD Resolution No. 36 of September 18, 2020 established Sucursala Drobeta-Turnu Severin a new branch within SNGN Romgaz SA. No mergers of the company took place in financial year 2020. 3.4.1. Overall Performance The Group’s revenues are generated mainly from gas production and deliveries (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 electricity and from other specific services. * RON thousand * Item no 0 1 2 3 4 5 6 7 Description 2019 2020 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 5,235,436 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 3 4,133,888 4,085,969 47,919 4,074,893 2,708,710 2,692,628 16,082 1,330 1,426,508 (178,604) 1,247,904 Ratio (2020/2019) 4=3/2x100 -21.04% -21.34% 17.57% -19.79% -31.63% -31.47% -50.46% -9.8% 11.87% -3.75% 14.53% The total income of 2020 decreased by 21.04% as compared to 2019. Below are the compared economic-financial indicators for 2019 and 2020 and their detailed structure split by activity: Compared economic-financial indicators Description 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 2019 restated*) 2 5,080,482 * RON thousand * Variance (2020/2019) 4=(3/2-1)x100 2020 3 4,074,893 (107,800) (18,617) 38,124 7,519 (81,221) 80,008 (76,048) 47,845 (6,534) 17,551 (16,151) (58,282) -19.79% -82.73% 25.50% -186.90% -121.61% -120.19% -23.36% Page 19 of 80 2020 Consolidated Board of Directors’ Report 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 (1,451,766) (670,408) (24,740) (1,636) 1,474 (672,063) (767,251) (17,000) (26,509) 1,330 (1,551,642) (1,158,143) 32,834 1,275,180 (185,557) 25,439 1,426,508 (178,604) -53.71% 14.45% -31.29% 1520.35% -9.77% -25.36% -22.52% 11.87% -3.75% Profit for the year 14.53% *) – restated: Since 2020, the Group presents the release to income of the impairment for non-current assets written-off as a decrease of the expense generated by the write-off of the respective assets, as “other gains and losses” or as “exploration expense”. Previously, the release to income was presented as “depreciation, amortization and impairment”. For comparability purposes, 2019 was restated. 1,247,904 1,089,623 Structure of indicators split by activity-2019 Gas production and deliveries TOTAL 2019*) Description including: 1 Revenue 2 5,080,482 Cost of commodities sold (107,800) Underground Gas Storage Electricity * RON thousand * Settlement Other between activities segments 4 454,370 5 237,759 6 288,883 7 (610,325) (3) (22,452) (1,017) 3 4,709,795 (84,328) 116 (3,657) 38,124 7,519 (81,221) (81,208) 80,008 78,675 12 37,548 (791) 12,471 (6) (7) 464 (501) - - (76,048) (51,100) (31,215) (955) (10,071) 17,293 59 1,274 - (1,451,766) (941,770) (485,078) (7,160) (17,758) (670,408) (416,635) (62,412) (39,187) (152,174) Investment Income Other gains and losses Net losses from impairment of trade receivables Changes in inventories Raw materials and consumables Depreciation, amortization and impairment Employee benefit expense Finance cost (24,740) (21,170) (3,045) Exploration Expenses Share of associates’ result (1,636) 1,474 (1,636) - - - - - - (541) - 1,474 Other Expenses Other Income Profit before tax (1,551,642) (1,703,856) (198,547) (154,849) (88,165) 593,775 32,834 30,887 264 64 2,362 (743) 1,275,180 1,514,113 (325,703) 12,494 74,279 Income tax expense (185,557) - (7,741) - (177,816) Profit for the year 1,089,623 1,514,113 (333,444) 12,494 (103,537) *) – restated: see the comment made at the consolidated statement of the global result - (16) (3) - - - 16 - - (3) - (3) Structure of indicators split by activity-2020 * RON thousand * Description 1 Revenue TOTAL 2020, including: 2 Gas production and deliveries 3 4,074,893 3,690,235 Underground gas storage Electricity Other activities Settlement between segments 4 333,939 5 261,112 6 376,937 7 (587,330) Page 20 of 80 2020 Consolidated Board of Directors’ Report Cost of commodities sold Investment income Other gains and losses Loses from impairment of trade receivables Changes in inventories Raw materials and consumables Depreciation, amortization and impairment Employee benefit expense Finance cost Exploration expense Share of associates’ result Other expenses Other income Profit before tax Income tax expense Profit for the year (18,617) 47,845 (6,534) 17,551 (16,151) (58,282) (7,726) 107 (8,641) 18,221 (17,757) (38,212) (2) (10,375) (514) - 1,018 (951) - - 152 67,699 (21,131) (174) (638) 3,232 (32) 35 1,571 - - - (19,225) (1,481) (9,936) 10,572 (672,063) (547,414) (5,804) (21,761) (25,514) (71,570) (767,251) (465,561) (70,733) (50,866) (180,091) (17,000) (26,509) 1,330 (14,862) (26,509) - (1,582) - - - - - (590) - 1,330 - 34 - - (1,158,143) (1,230,603) (169,289) (210,677) (124,900) 577,326 25,439 24,531 1,426,508 (178,604) 1,375,809 - 1,247,904 1,375,809 61 67,432 (8,718) 58,714 34 1,403 (590) (34,639) 110,595 (92,689) - (169,886) - (34,639) (59,291) (92,689) Compared revenue and the revenue weight on activity segments is shown in the table below: Description 2018 2019 2020 Gas production and delivery UGS activity Electricity generation and delivery Other activities Settlement between branches TOTAL Revenue RON mil 4,522.6 355.1 388.5 356.5 -618.4 5,004.2 % R 90.37 7.09 7.76 7.12 -12.35 100.00 RON mil 4,709.8 454.4 237.8 288.9 -610.3 5,080.5 % R 92.70 8.94 4.68 5.69 -12.01 100.00 RON mil 3,690.2 333.9 261.1 376.9 -587.3 4,074.9 % R 90.56 8.19 6.41 9.25 -14.41 100.00 The financial income is higher by 17.57 % than recorded in the previous year. Financial income consists mainly of interests from cash in bank deposits and in state bonds. Description Year 2019 Year 2020 Ratio 1 Operating expenses Financial expenses Total expenses Financial Expenses (RON thousand) 2 3,929,265 32,465 3,961,730 (RON thousand) 3 2,692,628 16,082 2,708,710 (2020/2019) 4=3/2x100 -31.47% -50.46% -31.63% Financial expenses incurred in 2020 are lower by 50.46% as compared to the previous year. Chapter 7 shows more details on the different expenses categories and a comparative assessment thereof. Page 21 of 80 2020 Consolidated Board of Directors’ Report Compared economic-financial results are shown in the table below (RON thousand): Description 2019 2020 1 Operating results Financial results Share of associates’ result Gross result Income tax Net Result 2 1,265,414 8,292 1,474 1,275,180 185,557 1,089,623 3 1,393,341 31,837 1,330 1,426,508 178,604 1,247,904 Ratio (2020/2019) 4=3/2x100 10.11% 283.95% -9.75% 11.87% -3.75% 14.53% Gross result for January – December 2020 in amount of RON 1,426,507 thousand is higher by 11.87% than the gross result of the similar period of 2019. 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: 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 Calculation Formula M.U. 2019 2 Clt-Af = E+Lnc+Pr+Si-Af 3 RON mil 4 1,863 (Ast-L+Pp) - (Lcrt-Crst+Idf) WC-WCR = L-Crst Pg/Cltx100 Pn/Ex100 Pg/Rx100 RON mil RON mil % % % Pn/Ax100 Pg+Exi-Ir EBIT+Am EBIT/Cempx100 Ac/Lc E/Lx100 % RON mil RON mil % - % 1,499 364 16.59 15.19 25.10 13.20 1,237 2,698 16.10 4.28 86.92 2020 5 2,656 2,239 417 16.59 16.02 35.01 13.47 1,379 2.051 16.03 5.01 84.08 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 Page 22 of 80 2020 Consolidated Board of Directors’ Report 3.4.2. Sales The entire gas quantity traded by Romgaz was sold on the internal market. Romgaz traded quantities delivered on free market both by bilateral negotiation and on centralized markets. Quantities supplied in 2020 on the competitive market have been traded 46.9% on Romanian centralized markets. Description unit 2018 2019 2020 2019/2018 2020/2019 Delivered gas mil.cm 5,602.7 5,132.1 4,688.1 Sales to third parties mil.cm 5,276.0 4,959.1 4,406.2 -8.40% -6.01% -8.65% -11.15% Gas for electricity production in own power plant mil.cm 346.1 173.0 281.9 -47.05% +62.95% From the total gas quantities supplied to third parties the following available means of trade have been used: gas delivered under contracts on the regulated market: 12.83 TWh; gas delivered under contracts on centralized markets: 21.35 TWh; gas delivered under bilateral contracts on the competitive market: 11.27 TWh. Romgaz gas production dropped by 14% as compared to 2019 and volumes supplied in 2020 decreased by 7.7%. With regard to gas deliveries from own production, these decreased by 6.9% as compared to 2019. Gas supplied to third parties recorded a decrease of 10%. It is worth mentioning that no import gas volumes were traded in 2020. At the same time, gas volumes used by CET Iernut increased by 58% as compared to 2019. Deliveries and sources are shown in the table at pages 4-5. As regards trading on Romanian centralized markets, Romgaz’s weight was significant, approximately 36% of the total of gas traded on these markets with delivery in 2020 was sold by Romgaz. In terms of quantity, Romgaz traded over 19.7 TWh with delivery in 2020 on centralized markets, from the total volume of approx. 55.5 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, Romgaz sold on these markets approximately 0.7 TWh. 2020 gas sales perspectives are characterized by: concluding in 2019 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 consumers and heat producers, as well as the other measures provided in GEO No. 114/20187 will terminate according to GEO No.1/2020, as of July 1, 2020; according to current legislation, ANRE Order No.79/2020, amended by ANRE Order No. 143/2020 (Gas Release Program – GRP), gas producers that record an annual production higher than 3,000,000 MWh have to trade 40% of the production on centralised markets at a required price, that can be determined (maximum 95% from CEGH for the period the product refers to) for several products: monthly, quarterly, seasonal, half year and annual product. The program started on June 1, 2020 and ends on December 31, 2022; Implementation of projects that will increase gas export capacities from Romania to other countries (especially to Hungary and Bulgaria), which would lead to a proper interconnection 7 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 23 of 80 2020 Consolidated Board of Directors’ Report of gas transmission networks from Romania and would represent an alternative in terms of gas trade. This matter must be viewed in line with the regulation framework that will be prepared by applying GEO No. 114/2018. In the last year, a series of negative factors influenced the Romanian gas market. On one hand, we have the current situation, the state of emergency triggered by COVID-19 crisis and on the other hand, the effective laws, namely, ANRE Order No.79/2020 amended and repealed by ANRE Order No. 143/2020, the obligation to offer a significant gas quantity on a pre-set schedule and at a low starting price given by the state of the market adding thereto a 5% discount. In 2019, the Romanian gas market continued to progress as regards liquidity increase and reselling on centralized markets, as well as the positive trends 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 the gas market, when it comes to sources, 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 the Romanian market for such sources. According to the company’s estimates, the national gas consumption rose by approximately 5% as compared to 2019. Romgaz market share in the national consumption recorded a decrease of 10.5% compared to 2019 (internal gas for consumption). The table below shows average gas delivery prices between 2018-2020: Description 1 Average price of gas sold from internal production8 Average import gas delivery price M.U. 2 RON/1000 m3 RON/MWh RON/1000 m3 2018 3 783.42 74.94 2019 4 882.2 83.7 1,134.84 1,468.8 RON/MWh 105.65 136.9 2020 5 751.3 73.3 - - National electricity production, according to preliminary data of the system operator, was 54,775,402 MWh. Romgaz had a market share of 1.69% increasing by 70.71% as compared to last year. The yearly evolution of electricity production and market share: Description 2018 (MWh) 2019 2020 (MWh) (MWh) 2019/2018 (%) 2020/2019 (%) Domestic production 63,933,510 59,454,280 55,519,195 Romgaz production 1,165,189 590,129 937,500 Romgaz market share 1.822 1.00 1.69 -7.64 -49.35 -45.12 -6.61 58.86 70.71 As regards electricity generation sources, in 2020, these were as follows9 : 30% hydro; 22 % coal; 18 % nuclear; 15% gas; 15 % renewable sources and other producers 8 including commodity gas and gas from Schlumberger joint venture less storage costs 9 approximate levels - Source ANRE, market reports. Note: on the date of preparing the Report, ANRE did not publish the annual report containing the energy label. Page 24 of 80 2020 Consolidated Board of Directors’ Report The Romanian gas market situation allowed the company to have an extended portfolio of customers both on centralized markets and as regards contracts by direct negotiation. Moreover, the company has a balanced portfolio as regards the ratio between the final consumers market (especially power plants) and the 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 are 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. 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, repealed 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. ANRE Order No. 14 of February 13, 2019 is currently in effect, approving the Methodology to establish regulated tariffs for natural gas underground storage services. Storage tariffs applied for the two compared periods are those approved by ANRE Order No. 58 of March 29, 2018 (between April 1, 2018 and March 31, 2019), ANRE Order No. 44 of March 29, 2019 (between April 1, 2019 and March 31, 2020) and ANRE Order No. 24 of March 23, 2020 (starting with April 1, 2020) respectively. Government Emergency Ordinance No. 106/2020 amending Gas and Electricity Law No. 123/2012 cancelled the provision on regulating the storage activities. Therefore, after the withdrawal cycle 2020- 2021, the storage activity is no longer a regulated activity. The table below shows the storage tariffs: Tariff component M. U. Volumetric component for gas injection Fixed component for capacity reservation Volumetric withdrawal component for gas RON/MWh RON/MWh/ storage cycle RON/MWh Tariffs (01.01.2018- 31.03.2019) 1.68 9.90 Tariffs (01.04.2019- 31.03.2020) 1.90 9.98 1.67 1.61 Tariffs (as of 01.04.2020) 3.67 7.58 2.03 Natural Gas Supply The final gas price for the customer is the sum of the weighted average price for gas acquisition, the tariffs for transmission, storage and distribution, and the trading component, according to the following formula: Final price = Weighted average gas acquisition price + 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. Page 25 of 80 2020 Consolidated Board of Directors’ Report The table below shows the average gas supply prices between 2018-2020: Description 1 Average supply price for internal gas production10 M. U. 2 RON/1000 cm RON/MWh 2018 3 783.42 74.94 2019 4 882.2 83.7 Average price for import gas RON/1000 cm 1,134.84 1,468.8 RON/MWh 105.65 136.9 2020 5 751.3 73.3 - - Natural Gas Distribution Distribution tariffs and final regulated prices valid during the analysed period are approved by ANRE Orders, as follows: 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); 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); 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 1, 2019); Order No. 56/2020 on setting the unitary tariff for regulated supply services between January 1- June 30, 2020 and on approving regulated gas prices for Societatea Naţională de Gaze Naturale "ROMGAZ" - S.A. Medias (as of January 1, 2020); Order No. 122/2020 on approving regulated tariffs applicable to distribution services for Societatea Naţională de Gaze Naturale "ROMGAZ" - S.A. Medias (as of July 1, 2020). The table below shows tariffs and prices: Description 01.08.’18- 30.06.2019 01.07.’19- 31.12.2019 01.01.’20- 30.06.2020 01.07.’20- present Distribution tariffs (RON/MWh): *B1 consumption up to 23.25 MWh *B2 annual consumption between 23.26-116.28 MWh *B3annual consumption between 116.29-1,116.78 MWh *B4 annual consumption between 1,116.79-11,627.78 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 52.75 47.96 47.07 46.26 Final regulated prices (RON/MWH): *B1 consumption up to 23.25 MWh *B2 annual consumption between 23.26-116.28 MWh 152.23 147.44 Final regulated prices (RON/MWh): *C1 consumption up to 280 MWh 52.87 0.00 50.00 52.87 0.00 50.00 52.52 46.17 41.29 139.24 122.71 10 Including commodity gas and gas from Schlumberger joint venture less storage costs Page 26 of 80 2020 Consolidated Board of Directors’ Report 3.4.4. Human Resources On December 31, 2020 Romgaz Group had 6,188 employees and SNGN Romgaz SA had 5,673 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, 2018 – December 31, 2020, is shown in the table below: Description 2018 2019 2020 1 Employees at the beginning of the year Newly hired employees Employees who terminated their labour relationship with the company Group Romgaz 3 6,198 Romgaz Group Romgaz 3 6,214 4 6,198 Romgaz Group Romgaz 5 6,251 4 5,688 286 270 241 751 264 227 238 188 198 261 Romgaz 6 5,738 177 242 Employees at the end of the year 6,214 5,688 6,251 5,738 6,188 5,673 The structure of SNGN Romgaz SA employees at the end of 2020 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 25.54 % 29.04% 2.80 % 32.43 % 10.19 % 4.76 % 13.13 % 31.89 % 40.82 % 9.40 % 70.02 % 12.00 % 1.41 % 9.41 % 7.16 %. Distribution of Romgaz employees by headquarters and by branches is shown in the figure below: Page 27 of 80 2020 Consolidated Board of Directors’ Report Iernut Branch 7% STTM 10% SIRCOSS 12% 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 Drobeta Turnu Severin Branch 2 39 1,433 1,319 495 390 250 3 87 50 47 16 41 Administrative Employees 4 482 342 299 139 128 115 1 Total 5 521 1,862 1,668 681 534 406 1 TOTAL 3,926 241 1,506 5,673 In 2020, professional trainings were meant to increase competitiveness and to improve professional performance. 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 1,316 employees were trained during 2020 and the costs of such professional trainings were RON 1,665,985. The annual training program was implemented as follows: 505 persons participated in professional training programs on job related subject matters; 588 persons participated in training courses to obtain authorization/re-authorization in accordance with their position; 223 persons participated in internal training courses; The 2020 professional training plan, as regards the number of participants, was fulfilled 32.57%, due to the SARS-COV2 pandemic. There were no professional training courses during the state of emergency. During the state of alert, because of restrictive measures that had to be taken with respect to organisational matters and because of the employees’ fear to get the disease, the number of training course decreased and so did the number of participants. Page 28 of 80 2020 Consolidated Board of Directors’ Report For 2020, 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 5,850 members; “Sindicatul Extracţie Gaze şi Servicii”, consisting of 5 members; “Sindicatul Filiala Inmagazinare DEPOGAZ”, consisting of 299 members. Thus, the total number of union members within Romgaz is 6,151 as compared to 6,188 representing the total number of employees. The ration between union members and the total number of employees is 99.40%. 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 the Territorial Labour Inspectorate Sibiu under No. 18161/04.12.2019, valid as of December 29, 2019 until December 28, 2021 inclusive. 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, paragraph 3.4.7). In 2020, 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: Increasing 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 competent authorities; Rendering efficiency to the environment protection activity which supports the management process. The environment protection activities during 2020 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 8 units the company required and obtained the review of the permits, for 17 units reauthorisation was requested and obtained, for 49 units the annual endorsement was requested and obtained, for 36 units documents for abandoning gas production wells were submitted; Complying with legal requirements regarding waste water management permits, for: 67 units, for which the conformity degree is 100% with the mention that for 20 units re-authorization documents were submitted, 36 units related to reservoir water injection systems/wells, out of which 13 are in process of obtaining re-authorization. A company-wide application is under development to monitor environment/water/injection permits, permanently analysing and continuously supervising compliance with legal requirements on environment protection; Page 29 of 80 2020 Consolidated Board of Directors’ Report Management of waste generated from own activity, according to the legal requirements in force. In 2020, the company managed a quantity of 2,787.86 tons of waste from its own activity, out of which 772.15 tons were recycled and co-incinerated (759.30 tons were recycled and 12.85 tons were co- incinerated), 67.25 tons of waste were disposed by incineration and 1,948.45 tons of waste were disposed by storage. AMOUNT OF WASTE MANAGED IN 2020 (2,787.860 tons) 67 772 1,948 6 000 5 500 5 000 4 500 4 000 Quantity disposed by storage Quantity recycled and co incinerated Quantity disposed by incineration In 2020, 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 https://www.romgaz.ro/ro/content/program-de-prevenire-si-reducere- the following cantitatilor-de-deseuri. link 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 compliance with legal requirements on environment protection. In 2020 Romgaz did not exceed the limits permitted by regulations in force, with the effluents discharged into surface water bodies or sewage networks; In 2020, 2 external environment complaints were recorded, as follows: Environmental discomfort at the property limit of the residential area generated by gas compression machines at gas compression station Cristuru Secuiesc. An approved laboratory pertaining to NCDO-INOE 2000 Institute, ICIA Cluj-Napoca Subsidiary carried out measurements to determine the sound level at Cristur compression station; Environmental discomfort at the property limit of industrial premises generated by gas compression machines at gas compression station Cristuru Secuiesc. Services were purchased from SC Enviro Consult to carry out a sound level study. For the purposes of reducing noise pollution at Cristuru Secuiesc working point an acquisition of design and execution services for sound insulation is in progress; In 2020, Romgaz continued to monitor 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.; Page 30 of 80 2020 Consolidated Board of Directors’ Report Planning and organizing the internal environmental inspection activity in order to verify compliance with the legal requirements applicable to inspected activities. In 2020, 45 internal environmental inspections were planned while 35 were actually conducted by Romgaz headquarters environmental inspectors due to national and company-level circumstances, at the authorized units of branches, following which 1 non-conformity report was prepared, being closed within the deadline. Thus, Romgaz activity complies with the applicable legal environmental requirements, the conformity degree identified following the implementation of a procedural assessment method for 2020 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 2020; Accomplishing the actions/measures programs for prevention and/or limitation of the impact on the environment for 2020, by modernizing the reservoir water storages, mounting waste water systems, transforming abandoned wells in reservoir water injection wells etc. In 2020, the Environmental Guard and the Water Basins Administrations carried out 22 inspections at Romgaz locations. Following such inspections, the company had no sanctions. CO2 Certificates - SPEE Iernut 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, in 2017, launched the investment from the National Investment Plan. Therefore, pursuant to Annex No.1 of the Order, free of charge transitory allocation of certificates is made for the period between 2016-June 30, 2019, while in 2020 free of charge transitory certificates are no longer allocated. 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 year following the year for which greenhouse gas emissions were monitored, a number of greenhouse gas emission certificates equal to the total number of emissions from such installations. For 2020, CO2 emissions equal 531,072 tons which is equivalent to 531,072 certificates. In order to comply with the legal requirements, SPEE Iernut must acquire a number of 525,067 certificates (531,072 – 6,005 = 525,067), where 6,005 represents the number of certificates remaining in the Registry from the previous year. The acquisition must be finalized before April 14, 2021. At the beginning of 2020 acquisition procedure concerning flu vaccines was finalized by awarding the contract to Farmexim Bucharest. Farmexim did not deliver the flu vaccines so that the situation is now under review and a decision will be made whether to terminate the contract or the contracted flu vaccines to be eventually delivered. The company also takes into account filing an action to appropriate competent courts in order to settle this matter. Page 31 of 80 2020 Consolidated Board of Directors’ Report According to the Collective Labour Agreement, additional voluntary health insurances were acquired for all employees, a framework agreement being signed for three years with the insurance-reinsurance association Societatea de Asigurare-Reasigurare ASITO Kapital SA and SC Medical Ocupational SRL. During this period, the company finalised acquisition procedures regarding personal protective equipment necessary for the working personnel and 53 types of personal protective equipment were purchased. During 2020 RT-PCR testing medical services were acquired in order to diagnose employees infected with SARS-COV2 virus. SARS-COV2 illnesses within S.N.G.N. Romgaz S.A. Medias Since the beginning of the pandemic and up to December 31, 2020, 279 employees were infected with SARS-COV2 and six of them died. The two charts below show the evolution of COVID-19 cases within Romgaz during March-December 2020, broken down on branches and headquarters and in total, respectively. Evolution of COVID-19 cases within Romgaz 45 40 35 30 25 20 15 10 5 0 s e s a c f o r e b m u N 0 0 2 0 0 0 0 0 1 2 1 0 0 0 0 0 0 0 0 0 0 0 0 1 1 2 1 0 1 1 1 1 0 0 4 0 1 3 1 3 2 4 8 6 16 12 6 6 42 25 20 20 10 11 9 22 15 10 3 5 March April May June Headquarter July Medias Branch August September October November December Tg. Mures Branch Evolution of COVID-19 cases within Romgaz 95 97 54 2 4 0 1 6 6 14 100 50 0 s e s a c f o r e b m u N Our company paid and is still paying particular attention to fight against the SARS-COV2 virus, by drafting and implementing the necessary measures and procedures to minimize the impact on the company as well as by permanently carrying out inspections to verify their implementation. Page 32 of 80 2020 Consolidated Board of Directors’ Report The summarized breakdown of litigations in which Romgaz is involved as of December 31, 2020 is the following: A total number of 380 litigations are recorded in company’s records, out of which: 183 cases where Romgaz is plaintiff; 188 cases where Romgaz is defendant; 6 cases where Romgaz is civil party/injured party; The total value of litigations amounts RON 3,375,391,260.62; The (approximate) total value of the files where Romgaz is plaintiff amounts RON 2,908,120,587.43 The (approximate) total value of the files where Romgaz is defendant amounts RON 468,405,920.4711; The (approximate) total value of the files where Romgaz is civil party amounts RON 286,344,946.55. The detailed list of litigations can be viewed on Romgaz website www.romgaz.ro Investor Relations Annual Reports 2020. Pursuant to article 52 paragraph (6) of GEO no. 109/2011 “The legal acts concluded under paragraph (1) and (3) shall be specified in the half-yearly 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 enterprise with: …………………………………………………………………………………………… b) another public enterprise 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. 24/201712 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 cumulative 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 Supervisory 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 also include legal acts concluded in accordance with the provisions of article 52 of GEO No. 109/2011. Taking into consideration that current reports as mentioned above are public documents, posted on Bucharest Stock Exchange website, as well as that the current half-yearly reports with the legal acts concluded in each half-year, reports audited by the company’s financial audit, are published on 11 defendant: RON 468,402,340.99 in 188 cases + EUR 73,350; RON 357,581.25 in 3 cases. 12 Law No. 24 of March 21, 2017 on issuers of financial instruments and market operations Page 33 of 80 2020 Consolidated Board of Directors’ Report company’s website, for more details on concluded legal acts please access company’s website at www.romgaz.ro, under Investor Relations – News and Events – Current Reports-Contracts (“Auditor Report”). Page 34 of 80 2020 Consolidated Board of Directors’ Report IV. GROUP’S TANGIBLE ASSETS 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 exploitation of natural gas reservoirs is a particularly complex system today that needs to ensure continuous collection, circulation, conditioning and metering of gas produced by wells ensuring the quality parameters provided in applicable regulations. As a whole, the infrastructure of the company developed continuously upon discovery and exploitation of new reservoirs. The maximum intensity of the rate of development of production capacities was reached between 1970-1980, when the annual production was extremely high both due to the consumption demand in those times and to the great volumes of resources and reserves in most of the newly discovered gas fields. Production capacities of company’s infrastructure are summarized as follows: 1. natural gas producing wells and wells for reservoir water injection; 2. gathering pipelines connecting wells and well clusters; 3. collecting pipelines connecting well clusters and the NTS; 4. Gas heaters (radiators); 5. Underground and surface gas separators; 6. Flow metering panels (for technological and fiscal metering located at the interface with the NTS); 7. Gas dehydration (conditioning) stations; 8. Gas compression units: low capacity portable compressors installed at the well head or at the well cluster; booster compressors for one or more gas fields; gas compressor stations, usually consisting of two or more high capacity compression units, which can be intermediate or final compressor stations (outlet to the NTS); 9. Industrial or reservoir water pumping stations; 10. Other facilities (buildings, workshops, storehouses, electric lines, well access roads etc.). Utilisation of production capacities depends on gas sales volume, generally being close to 100%. During 2020, due to an overlap of commercial, economic, sanitary as well as regulatory factors resulting in a reduction in gas sales in Q2 and Q3, utilisation of production capacities was lower (approximately 85%). In order to keep these production capacities in operation, under safety and efficiency conditions, Romgaz carries out extensive and continuous efforts focused on workover and special operations in wells, maintenance and rehabilitation of pipes, maintenance and modernisation of gas compression stations and dehydration stations as well as of commercial (fiscal) gas delivery panels. Page 35 of 80 2020 Consolidated Board of Directors’ Report In 2020, Romgaz, as sole titleholder, carried out petroleum operations in 140 gas fields out of which 128 are well defined blocks and the rest of 12 are blocks with experimental production. Production from these fields is obtained through more than 3,050 wells and through almost the same number of technological surface facilities consisting mainly of gathering pipelines, gas heaters (where applicable), liquid separators and gas flow technological metering panels. Pressure and flow limits of production wells are maintained by 18 compression stations (in which 86 compressor units are installed), 17 booster compressors and 9 well cluster compressors. One technical demand required by applicable laws is the quality of gas, which is 100% fulfilled by means of 67 gas dehydration stations. Depogaz holds Licence No. 1942/2014 for the operation of 5 underground gas storages, developed in depleted gas fields, their aggregate capacity representing about 90.5 % of the total storage capacity of Romania. The capacity of the underground gas storages operated by Depogaz, by storages, is shown in the table below: Storage Active capacity Withdrawal capacity Injection capacity Balaceanca Bilciuresti Ghercesti Sarmasel Urziceni Total [Mil.St m3/cycle] 50 1,310 150 900 360 2,770 [GWh/cycle] 545.0 14.2 1.6 9.5 3.9 29.8 [Mil.St m3/cycle] 1.2 14.0 2.0 7.5 4,5 29.2 [GWh/day] [Mil.St m3/cycle] [GWh/day] 13.1 151.9 21.4 79.4 49.4 315.1 1.0 10.0 2.0 6.5 3.0 22.5 10.9 108.5 21.4 68.8 32.9 242.5 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 collecting pipelines; 4 separators; 4 technological gas metering facilities; 1 gas dehydration station; 15 gas heaters; communication system and fibre-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 collecting pipelines for 57 injection/withdrawal wells; Page 36 of 80 2020 Consolidated Board of Directors’ Report 50 gas heaters; 24 separators; 14 technological gas metering facilities; 37.5 km collecting 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 collecting pipelines for 79 injection/withdrawal wells; 22.6 km collecting pipelines; 13 separators; 12 technological gas metering facilities; 1 gas dehydration station; communication system and fibre-optic data acquisition system; bi-directional fiscal metering system. 4. Sarmasel 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 collecting pipeline for 63 wells; 13.8 km collecting pipelines; 59 separators; 3 dehydration stations; bi-directional fiscal metering system. 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 collecting pipelines for 32 wells; 3.3 km of collecting pipelines; 6 technological gas metering facilities; 31 gas heaters; 1 gas dehydration station; optic fibre data acquisition system; bi-directional fiscal metering system. Page 37 of 80 2020 Consolidated Board of Directors’ Report 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. On December 31, 2020, the car fleet of STTM consists of 721 motor vehicles as follows: Passenger carriers: cars 92, minibuses 16, buses 2 and large buses 2; passengers and goods utility cars - 226 are < than 3.5 t and 29 are > than 3.5 t; vehicles for goods transportation: dumpers 22, cesspit emptier 42, platform trucks 28, tank trucks 3; vehicles for heavy transportation: truck-tractors 3 and semitrailer trucks 17; lifting and handling machinery: auto cranes 25 and hook and ladder trucks 5; other special vehicles: mobile laboratory for equipment testing and checking 1; heavy machinery: bulldozers 8, caterpillar shovels 2, wheel loaders 15, motor grader 3, compactor 3, front end loaders 12; other machinery: tractor trucks 70, fork lift trucks 11, motorized cleaning vehicles 3; other vehicles: trailers for heavy transportations, trailers and semitrailers for tractors 81. Considering the dynamics of 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. Out of the 721 vehicles existing in STTM fleet on December 31, 2020: 58 motor vehicles were approved for decommissioning; 22 motor vehicles are proposed for decommissioning. CTE Iernut is an important junction point of the NPG (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 gas and industrial water sources and power discharge facilities. CTE Iernut is operated by Romgaz through Sucursala de Productie Energie Electrica (SPEE). CTE Iernut has an installed power of 800 MW and comprises 6 power units: 4 100 MW units of Czechoslovakian manufacturing and 2 200 MW units of Soviet manufacturing. These units were commissioned between 1963 and 1967. Taking in consideration the start of investment works at the 430 MW CCGT Power Plant and the necessity to ensure appropriate conditions for the execution of works at the related cooling circuit, unit 6 of 200 MW was decommissioned in November 2019. Page 38 of 80 2020 Consolidated Board of Directors’ Report In January 2019, units 2 and 3 of 100 MW were decommissioned followed by unit 1 (of 100 MW) in November 2019; all units were decommissioned on the grounds of non-compliance with the environmental conditions. Thus, at the end of 2020, SPEE Iernut has license to commercially operate 2 power units: 1 100 MW unit and 1 200 MW unit. The development of investment works carried out in the new part of CTE Iernut allowed both commercially licensed units to function (Unit 4 of 100 MW and Unit 5 of 200 MW) in the first part of 2020. The “Development of CTE Iernut though the construction of a new combined cycle gas turbine power plant “ project is currently under development, with the following characteristics: Installed power: 430 MW; efficiency: 56.42 % at nominal load and under normal temperature and pressure conditions; Maximum NOx emissions: 50 mg/Ncm and CO: 100mg/Ncm. 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 are located far from each other and from the National Transmission System (NTS). Therefore, gas from wells Palatca 1, Vaida 2 is used as fuel gas for 2 x 1.5 MW electric power generation units. Investments play an important part in maintaining the production decline, which is achieved by discovering new reserves, by improving the current recovery rate, and by rehabilitation, development and modernization of existing facilities. In 2020, Romgaz Group invested RON 637.3 million, that is 28.5% (RON 254.3 million) lower than 2019 investments, representing approx. 71% of the scheduled investments. The Company invested during 2016-2020 RON 3.89 billion, as follows: Year 2016 2017 2018 2019 2020 Total Value (thousand RON) 497,716 781,768 1,150,349 866,218 601,800 3,897,851 For 2020, Romgaz forecasted the achievement of an investment program with a total budget of RON 853.00 million, based mostly on objectives aiming to compensate the natural decline and electricity generation, such as: Continue geological research works by performing new exploration drillings for the discovery of new gas reserves; development of production potential by adding new facilities on existing structures (drilling of production wells, surface facilities, dehydration stations, compressor stations, compression in gas fields), improving the performance of facilities and equipment to increase operational 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 to the core activity; procurement of specific machinery to ensure the technological transportation and maintenance of core activities and maintaining road infrastructure in gas fields in optimal conditions. In absolute figures, the investment costs for 2020 reached RON 601,800 thousand, representing: 69.5% as compared to the achievements in 2019; Page 39 of 80 2020 Consolidated Board of Directors’ Report 70.6% 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 Gas Turbine 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/permits, 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 333.74 million. The table below shows the investments made in 2020, as compared to those scheduled and accomplished in 2019, the table is similar to Annex 4 to the Income and Expenditure Budget: Item no. Investment Chapter 2019 2020 *RON thousand* % 0 1. 1 Investments in progress – total, out of which: 1.1 Natural gas exploration, production works 1.2 Maintaining UGS capacity 1.3 Environmental 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 Investment in existing tangible assets Equipment (other acquisitions of tangible assets) Other investments software, financial assets etc.) (studies, licenses, 3. 4. 5. * Program 3 Achieved 4 2 547,104 545,917 0 1,187 88,797 88,444 0 353 188,138 39,903 309,797 308,942 0 855 139,171 132,840 0 6,331 249,548 124,930 ’20/’19 5=4/2x100 44.02 240,843 203,990 37.37 0 0.0 853 71.86 105,196 118.47 105,000 0 118.72 0.00 196 55.52 206,677 109.85 77,270 193.64 2,276 29,554 7,814 343.32 TOTAL 866,218 853,000 601,800 69.47 The table below shows the achieved investments according to Romgaz Investment Program for 2020: *RON thousand* Investment Chapter Program 2020 1 I. Geological exploration works to discover new gas reserves 2 198,220 % Achieved on December 31, 2020 3 159,479 4=3/2x100 80.46% II. Exploitation drilling works, putting into production of wells, infrastructure and utilities and electricity generation 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 243,562 149,511 61.39% 7,186 249,548 124,930 29,554 853,000 1,049 206,677 77,270 7,814 601,800 14.60% 82.82% 61.85% 26.44% 70.55% Page 40 of 80 2020 Consolidated Board of Directors’ Report The chart below shows the structure of investments for 2020: 34,57% 0,18% 24,34% 12,93% 1,31% I. Geological exploration for the discovery of new natural gas reserves II. Gas field production, infrastructure and utilities, electricity generation IV. Environmental protection V. Retrofitting and revamping of installations and equipment VI. Independent equipment and installations VII. Consultancy, studies and projects, software and licenses 26,68% A summary of outcomes show that, to a large extent, investments were completed: Main Physical Objectives Planned Results Item No. 1. Drilling, exploration 16 wells 2. Drilling design 19 wells 3. 4. Development drilling Construction of surface facilities – at shut-in wells 5. Well recompletion operations, reactivation and capitalizable repairs 6. Electricity generation 7. Partnerships/Associations 4 wells 4 surface facilities under construction – for putting into production 6 wells; 13 new surface facilities – for bringing into production shut-in wells; Budget to prepare 48 surface facilities –for putting into production of wells; Works at approx. 160 wells, correlated with the annual program agreed by ANRM Continuing works at CTE Iernut Raffles Energy SRL: - land preparation and obtaining authorisations for well 1 Voitinel; - acquisition of generator for well 1 Voitinel; - surface facilities; 9 wells: completed; 4 wells: in progress; 4 wells drilling works procurement in progress; 18 wells with completed technical design, in the process of obtaining approvals, lands and organization of drilling procurement procedure 12 wells design or design acquisition in progress 1 completed well 8 surface facilities completed for putting into production 10 wells; 6 surface facilities under construction for putting into production 5 wells; 15 surface facilities for connecting 19 wells, pending land/permits, agreements, authorisations; Technical design is currently prepared for surface facilities to connect 15 wells In EIII-1 Brodina block – Bilca In 2020 works were performed for 168 wells (94 wells at Medias Branch and 74 wells at Tg. Mureş Branch), works performed in-house by S.I.R.C.O.S.S. Continuing the performance of the execution contract - gas area Through Bilca E III-1 Group processing facilities only the gas processing activity was carried out, processed gas almost entirely coming from Suceava block. - for well 1 Lilieci; Generator operating mode at Lilieci was established at 12h/day, out of which 5 In Bacau Block– power generator Page 41 of 80 2020 Consolidated Board of Directors’ Report Item No. Main Physical Objectives Planned Results In EIII-1 Brodina Block- Non- hours between 7:00-12:00 and 7 hours between 15:00 – 22:00. Time intervals correspond to the maximum prices for electricity capitalization through sale on PZU platform. In 2020 the generator functioned according to the forecasted program with small interruptions due to maintenance. - Bilca Area - Well 1 Voitinel Preparation of a solution study regarding connection to the medium voltage system was launched and the Certificate of Urbanism was obtained. The contract for technical surface installation design was signed. In the last quarter of 2019 drilling of well Trinity 1-X was completed in 30 EX Trident Block, while in the first quarter of 2020 the results of drilling continued to be analysed based on production tests and well investigations in order to make a decision on future operations in said block. Titleholders of Petroleum Agreement (Lukoil and Romgaz) requested ANRM to suspend the agreement for 8 months. ANRM ‘s reply provides that suspension is not possible but a possible extension of this agreement was analysed. Thus, the OCM representative of the association confirmed that no new drilling campaign was carried out in 2020. The Building Permit was obtained for well 122 Balta Albă ; - for well 117 Frasin-Brazi – well workover performed in February 2020 (up-hole recompletion to Da II c1, interval : 1585-1586.5=1.5 m, with a positive result, well in experimental production since February 19, 2020); - For well 210 Bibești – well workover carried out in January 2020 (up-hole recompletion to Me VII b1b2c East- complex VII b1(L#28), drilled interval: 1212-1213= 1 m, with a positive result; well in production since January 25, 2020) - considering the opposition of institutions and population to drilling wells in the area of interest analysis were performed in order to withdraw from this association. Page 42 of 80 Lukoil: - continuing drilling of Trinity 1X exploration well in 30EX Trident Block Amromco: - drilling wells; - surface facilities; - well recompletion operations; - well abandonment expenses Slovakia: - By means of Resolution No. 2 / March 25, 2020 of the Ordinary General Meeting of Shareholder Romgaz withdrawal from Slovakia Association was approved (Svidnik block); the budget was approved only for January-April 2020. 2020 Consolidated Board of Directors’ Report 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%, complying with the environmental requirements (NOx, CO2) and increasing the exploitation safety”. Therefore, a very important objective is the “The Development of CTE Iernut by building a new combined cycle gas turbine power plant”, with a deadline for completion the end of 2020. In 2020 performance of works continued (sewage and fire-fighting water networks; gas compressor casings and a series of equipment was delivered (automation system, software and instrumentation; cabinets for the new 6 kV station equipment; manual valves for all circuits; roof panels; front panels; connecting pipes from gas compressors to cooling system; telephone and telecommunication systems etc.). For this year the followings are planned: delivery of equipment for commissioning and endurance tests (Diesel units; rainwater pumps; isolating valves for drained water circuit rainwater and wastewater pumping; medium and low voltage transformers, gas compressor electric station etc.), completion of remaining works, performing technological tests and commissioning. Works performance deadline was 36 months but it was successively changed, as follows: Addendum No.10/13384/January 23, 2020 extended the dead-line to 40 months, with commissioning on May 26, 2020; Addendum No.15/May 26, 2020 extended the deadline to 47 months, with commissioning on December 26, 2020. On December 3rd and 17th, 2020 negotiations took place between Romgaz and the Consortium representatives regarding extension of deadline and costs relating to completion of the Plant. On December 22, 2020, the Consortium sent a letter requesting an extension of the dead-line and significant additional costs. Under these circumstances, Romgaz Board of Directors consistent with Romgaz executive management, by Resolution No. 56 of December 23, 2020: ,,does not agree to amend the Works Contract concluded between SNGN ROMGAZ SA and the general contractor DURO FULGUERA SA and ROMELECTRO SA Consortium, for the development of CTE Iernut, as regards amendment of the dead-line and adjustment of the contract price, as well as amendment of any other provision that would result in the amendment of the two previously mentioned contractual elements”. Asa a result, on December 30, 2020, Romgaz informs the Consortium on the decision regarding the non- extension of the dead-line and non-acceptance of additional costs, “delay penalties will be charged pursuant to the Contract starting with December 27, 2020 and until effective fulfilment of obligations …”. The main reasons causing delays in meeting the objectives included in the 2020 investment program, with a direct impact on the achievements were the following: - - drilling works were not completed on time due to difficulties encountered during drilling of scheduled wells; the occurrence of CORONAVIRUS (COVID-19) pandemic which generated delays of 3-4 months in the achievement of investment objectives, delays in performance of the activity of branches in relation to various institutions granting approvals as well as decrease in gas sales and implicitly of proceeds; - Failure to perform a new drilling campaign within the partnership with Lukoil as a result of suspending the petroleum agreement for a period of 8 months; - Delays in delivery of fixed assets by contractors (suppliers) generated by the SARS COV 2 pandemic; - Extended periods of carrying out acquisition procedures; Page 43 of 80 2020 Consolidated Board of Directors’ Report - Extended periods for carrying out redesign activities, especially for the acquisition of drilling works; - Obtaining the approvals and agreements issued by competent authorities (mainly from the Environment and Romanain Waters Authorities ) after extremely long periods exceeding the legal terms; - Restarting certain acquisition procedures because of non-compliant or inacceptable tenders exceeding the estimated values or the absence of tenders; - Impossibility to conclude land renting/purchase contracts due to numerous legislative amendments as well as due to the absence of ownership deeds; - Limited competition between domestic suppliers; - Lack of Romanian producers on the market; - Difficulties in obtaining lands (lack of ownership deeds and/or refusal of the owners to rent or sell lands) in order to carry out modernization, recompletion and reactivation works at planned wells. Investment objectives that were not achieved or that were delayed during 2020 will continue to be fulfilled in 2021. In 2020, Depogaz Subsidiary had an approved investment program of RON 42,168 thousand and achieved investments of RON 35,447.33 thousand, representing 84% as follows: Description Program Results Gas fields and UGSs exploitation, infrastructure and utilities in fields and underground storages Underground gas storage activities 2. 3. Modernisation and upgrading of installations and equipment, surface facilities, utilities Independent equipment and machines Costs with consultancy, studies and projects, software, licences and patents etc. TOTAL 4. 5. * 300 1,100 163.4 256.9 31,730 29,921.0 3,131 5,907 1,973.4 3,762.7 42,168 35,447.4 Item No. 1. The investments were financed entirely from own sources. For the reporting period, fixed assets were commissioned in amount of RON 27,263.3 thousand. The main objectives recording achievements in 2020 were: Modernisation of wells: RON 24,031,703.70. Works were required due to the low performance of wells in the injection/withdrawal process affecting the daily injection capacity and especially the daily withdrawal capacity. Moreover, operating safety will be improved by installing safety valves. These works are required both for improving storage performances and by the provisions of safety reports drawn up in accordance with Law No. 59/2016; Oil separator discharge automation: RON 470,478.08. the work is necessary to provide safety conditions for the operating personnel while discharging oil separators and to prevent oil from leaking to the reservoir; Feasibility study for Sărmășel underground storage: RON 2,818,334.08. The study aims at developing the underground storage in Sarmasel from 900 million cm/cycle to approximately 1,550 million cm/cycle (an increase by 650 million cm/cycle), increasing the injection capacity by 4 million cm/day, to a total of 10 million cm/day, increasing the withdrawal capacity by 4 million cm/day, to a total of 12 million cm/day; Modernisation of electric engines control system: RON 400.27 thousand. Works to optimize the control system of electric engines driving compressors (MCC1 and MCC2 UCM Resita –Butimanu Compressor Station; Triethylene glycol dehydration station, Group 145 Bilciuresti: RON 1,770 thousand. Works began at this dehydration station which will provide conditions to increase the daily gas delivery capacity Page 44 of 80 2020 Consolidated Board of Directors’ Report of the underground storage to 20 million cm/day. Works were fully contracted and will be completed in 2021. Page 45 of 80 2020 Consolidated Board of Directors’ Report V. SECURITIES MARKET Government Decision No. 831/201013 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 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”. Item No. 1. Description 2013 2014 2015 2016 2017 2018 2019 2020 Number (x1000) of shares 385,422.4 385,422.4 385,422.4 385,422.4 385,422.4 385,422.4 385,422.4 385,422.4 2. Market capitalization14 *million RON *million EUR 3. Maximum price (RON) 4. Minimum price (RON) Year-end price (RON) Net profit per (RON) share 2.58 13,178 2,952 14,018 3,127 10,483 2,315 35.60 33.80 34.19 36.37 32.41 35.36 3.66 36.55 26.30 27.20 3.10 9,636 2,122 27.55 21.60 25.00 2.66 12,064 2,589 10,714 2,297 14,299 2,992 10,830 2,224 33.95 25.10 31.30 4.81 38.20 27.80 27.80 3.53 38.40 27.35 37.10 2.83 37.70 25.75 28.10 3.24 Gross dividend per share (RON) Dividend yield (7./5.x100) Exchange rate (RON/EUR) 2.57 3.15 2.70 5.761) 6.852) 4.172) 1.614) 1.795) 7.5% 8.9% 9.9% 23.04% 21.88% 15.00% 4.34% 5.85% 4.4639 4.4834 4.5285 4.5411 4.6597 4.6639 4.7785 4.8694 5. 6. 7. 8. 9. 1) 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 per share, the additional gross dividend of RON 1.42 per share resulted from the distribution of retained earnings and the additional dividend of RON 1.94 per 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. 2) 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, the additional gross dividend of RON 0.65 per share resulted from the distribution of retained earnings and the additional dividend of RON 1.86 per 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. 3) The gross dividend per share of 4.17 RON is composed of the gross dividend per share for financial year 2018 in amount of RON 3.15 per share, the additional gross dividend of RON 0.08 per share resulted from the distribution of retained earnings and the additional dividend of RON 0.94 per share assigned under the provisions of Article 43 of Government Emergency Ordinance No 114/2018. 4) Proposed dividend of RON 1.61 is composed of the gross dividend per share for financial year 2019, in amount of 1.39 RON per share and the additional gross dividend of 0.22 RON per 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 year 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. 5) The proposed gross dividend of RON 1.74 is composed of the gross dividend per share for the financial year 2020 in amount of RON 1.63 per share and the additional gross dividend of RON 0.16 per share resulted from the 13 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. Medias and of the mandate of the public institution involved in the development of such process. 14 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 80 2020 Consolidated Board of Directors’ Report distribution of retained earnings representing the impairment value of fixed assets and the value of fixed assets and abandoned investment projects in the reporting year 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 2020, trading prices of shares and GDRs were negatively influenced partly by the evolution of COVID-19 pandemic and the decrease in oil price (trend noticeable mostly at the end of Q1 2020) and partly by the declining financial results recorded in HI and Q3 2020 compared to previous periods. Thus, in the first two months of 2020, the trading price of Romgaz shares followed a slightly oscillating trend, increasing in January, up to a maximum of RON 37.70 per share reached on January 17, 2020 (which was also the year peak). Starting with March 2020, pursuant to WHO’s declaration of COVID- 19 pandemic worldwide as well as the decrease in oil price, Romgaz share recorded significant decreases down to a minimum of RON 25.80 per share on March 23, 2020. In Q2 2020, share prices progressed positively reaching a maximum of RON 32.40 per share on June 17, 2020 following GMS’ approval of S.N.G.N. ROMGAZ S.A Development/Investment Strategy for 2020-2025. In H2 2020, shares recorded a decrease in price mainly on 2019 dividend registration date and following publication of Reports on key operational results for HI 2020 and Q3 2020 which showed a decrease in gas production and in gas delivered to third parties. Hence the shares reached a minimum threshold of the year on October 30, 2020. Romgaz shares on Bucharest Stock Exchange had an annual average price of RON 30.08 and at the end of 2020 a price of RON 28.10, 23.75% lower than the price at the beginning of the year. GDRs trading price recorded a similar trend on London Stock Exchange during the analysed period, recording an annual average price of USD 6.99/GDR. Starting with the first trading day of the year when GDR was quoted at USD 8.80 (which is also the maximum of the analysed period), its price dropped significantly especially in the last month of Q1 down to a minimum of USD 5.70/GDR, also recorded on March 23, 2020 similar to Romgaz share (which is also the minimum of the year). Moreover, similar to shares, in Q2 2020 and HII 2020, GDRs price followed an oscillating-increasing trend, reaching USD 7.30/GDR on June 17, 2020 and decreasing thereafter on the above mentioned dates. For GDRs, 2020 closed at USD 6.85, 22.16% lower than the maximum price recorded in the first day of the year. 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 2020, as follows: - Third place by market capitalization, in the top of Premium BVB issuers. With a market capitalization amounting to RON 10,830.36 million, respectively EUR 2,224.16 million on December 31 2020, Romgaz is the third largest listed company in Romania, being preceded by Banca Transilvania with a capitalization of RON 12,909.82 million, respectively EUR 2,651.21 million and OMV Petrom with a capitalization of RON 20,590.13 million, respectively EUR 4,228.47 million; - Fourth place as regards the total amount of transactions in 2020 in the top of local issuers in the main segment of BVB (RON 976.98 million), ranked after Banca Transilvania, Fondul Proprietatea and OMV Petrom; - Weight of 8.73% and 8.55% in BET index (top 15 issuers) and namely BET-XT index (top 25 issuers), 25.73% in BET-NG index (energy and utilities) and 8.73% in BET-TR index (BET Total Return). Performance of Romgaz shares between listing and December 31, 2019, respectively in 2020 compared to the BET index, is shown below: Page 47 of 80 2020 Consolidated Board of Directors’ Report 45 40 35 30 April 12, 2013 - September 30, 2020 . 4 1 0 2 0 1 3 2 . . 4 1 0 2 2 1 0 1 . 5 1 0 2 / 3 / 2 5 1 0 2 / 0 2 / 3 5 1 0 2 / 3 1 / 5 5 1 0 2 / 1 / 7 5 1 0 2 / 7 1 / 8 5 1 0 2 / 2 / 0 1 5 1 0 2 / 8 1 / 1 1 6 1 0 2 / 3 1 / 1 6 1 0 2 / 9 2 / 2 6 1 0 2 / 4 1 / 4 6 1 0 2 / 1 / 6 6 1 0 2 / 9 1 / 7 6 1 0 2 / 5 / 9 6 1 0 2 / 0 2 / 0 1 6 1 0 2 / 8 / 2 1 7 1 0 2 / 0 3 / 1 7 1 0 2 / 6 1 / 3 7 1 0 2 / 4 / 5 7 1 0 2 / 3 2 / 6 7 1 0 2 / 9 / 8 7 1 0 2 / 6 2 / 9 SNG 7 1 0 2 / 0 1 / 1 1 8 1 0 2 / 4 / 1 8 1 0 2 / 1 2 / 2 8 1 0 2 / 2 1 / 4 8 1 0 2 / 1 3 / 5 8 1 0 2 / 8 1 / 7 8 1 0 2 / 4 / 9 8 1 0 2 / 9 1 / 0 1 8 1 0 2 / 6 / 2 1 9 1 0 2 / 9 2 / 1 9 1 0 2 / 5 1 / 3 9 1 0 2 / 6 / 5 9 1 0 2 / 1 2 / 6 9 1 0 2 / 7 / 8 9 1 0 2 / 4 2 / 9 9 1 0 2 / 8 / 1 1 BET January 3, 2020 - December 30, 2020 e r a h s / N O R 25 20 15 . 4 1 0 2 9 0 5 0 . . 4 1 0 2 7 0 8 1 . . 4 1 0 2 6 0 2 0 . 4 1 0 2 / 8 / 4 . 4 1 0 2 2 0 0 2 . . 4 1 0 2 1 0 6 0 . 10 5 0 3 1 0 2 / 2 1 / 1 1 e r a h s / N O R 40 35 30 25 20 15 10 5 0 12000 10000 8000 6000 4000 2000 0 9 1 0 2 / 0 3 / 2 1 0 2 0 2 / 9 1 / 2 0 2 0 2 / 6 / 4 0 2 0 2 / 6 2 / 5 0 2 0 2 / 4 1 / 7 0 2 0 2 / 8 2 / 8 0 2 0 2 / 2 / 2 1 0 2 0 2 / 4 1 / 0 1 12000 10000 8000 6000 4000 2000 0 Performance of GDRs traded on London Stock Exchange and RON/USD exchange rate movements are shown below: SNG BET 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 R D G / D S U 3 1 0 2 / 2 1 / 1 1 . 4 1 0 2 1 0 9 0 . . 4 1 0 2 2 0 8 2 . 4 1 0 2 / 3 2 / 4 . 4 1 0 2 6 0 9 1 . 4 1 0 2 / 8 / 8 . 4 1 0 2 0 1 2 0 . . 4 1 0 2 1 1 1 2 . 5,00 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00 D S U / N O R 5 1 0 2 / 1 2 / 1 5 1 0 2 / 2 1 / 3 5 1 0 2 / 7 / 5 5 1 0 2 / 0 3 / 6 5 1 0 2 / 9 1 / 8 5 1 0 2 / 9 / 0 1 5 1 0 2 / 2 / 2 1 6 1 0 2 / 8 2 / 1 6 1 0 2 / 8 1 / 3 6 1 0 2 / 1 1 / 5 6 1 0 2 / 4 / 7 6 1 0 2 / 4 2 / 8 6 1 0 2 / 4 1 / 0 1 6 1 0 2 / 7 / 2 1 7 1 0 2 / 3 / 2 7 1 0 2 / 7 2 / 3 7 1 0 2 / 2 2 / 5 7 1 0 2 / 4 1 / 7 7 1 0 2 / 5 / 9 7 1 0 2 / 5 2 / 0 1 7 1 0 2 / 8 1 / 2 1 8 1 0 2 / 3 1 / 2 8 1 0 2 / 0 1 / 4 8 1 0 2 / 1 1 / 6 8 1 0 2 / 1 3 / 7 8 1 0 2 / 1 2 / 9 8 1 0 2 / 2 1 / 1 1 9 1 0 2 / 8 / 1 9 1 0 2 / 8 2 / 2 9 1 0 2 / 3 2 / 4 9 1 0 2 / 0 2 / 6 9 1 0 2 / 9 / 8 9 1 0 2 / 2 / 0 1 9 1 0 2 / 1 2 / 1 1 0 2 0 2 / 7 1 / 1 0 2 0 2 / 0 1 / 3 0 2 0 2 / 4 / 5 0 2 0 2 / 5 2 / 6 0 2 0 2 / 4 1 / 8 0 2 0 2 / 5 / 0 1 0 2 0 2 / 4 2 / 1 1 USD/GDR RON/USD Page 48 of 80 2020 Consolidated Board of Directors’ Report The General Meeting of Shareholders determines the value of dividends to be distributed to shareholders considering the specific legal provisions. Therefore, Government Ordinance No. 64/200115 approved by Law No. nr.769/2001 as amended and supplemented, provides at Article 1, par. (1), let. f) that the profit after the deduction of profit tax is distributed in proportion of minimum 50% as dividends. 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 to the competent fiscal authorities. According to Government Emergency Ordinance No. 29/201716: “The amounts distributed in the previous years to other reserves under the provisions of Art. 1 par. (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). The table below shows the status of dividends for years 2018-2020: Description 2018 2019 Dividends Gross dividends per share (RON/share) Dividend distribution rate (%) Number of shares 1,607,211,408 4.17*) 117.64 620,530,064 1.61**) 56.95 385,422,400 385,422,400 385,422,400 *) The gross dividend per share of RON 4.17 is composed of the gross dividend per share for financial year 2018 in amount of RON 3.15 per share, the additional gross dividend of RON 0.08 per share resulted from the distribution of retained earnings and the additional dividend of RON 0.94 per share assigned under the provisions of Article 43 of Government Emergency Ordinance No.114/2018. **) The gross dividend per share of RON 1.61 is composed of the gross dividend per share for financial year 2019 in amount of RON 1.39 per share and the additional gross dividend of RON 0.22 per 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 year that were financed from “the share of expenses necessary for the development and modernization of gas production” according to GD No.168/1998, as subsequently amended and supplemented. ***) The proposed gross dividend of RON 1.74 is composed of the gross dividend per share for the financial year 2020 in amount of RON 1.63 per share and the additional gross dividend of RON 0.16 per 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 year 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. 15 Government Ordinance No. 64/August 30, 2001 on distribution of profit in majority state-owned companies as well as in autonomous regies 16 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 profit 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 80 2020 Proposal 689,906,096 1.79***) 55.29 2020 Consolidated Board of Directors’ Report 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”. Page 50 of 80 2020 Consolidated Board of Directors’ Report VI. COMPANY MANAGEMENT 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 enterprises, 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, 2020 were as follows: Item No 1 Name Stan-Olteanu Manuela- Petronela Position in the Board chairperson 2 Jude Aristotel Marius member 3 Harabor Tudorel member 4 Marin Marius-Dumitru member 5 Balazs Botond member 6 7 Ciobanu Romeo Cristian member Jansen Petrus Antonius Maria member Status*) non-executive non- independent non-executive non- independent non-executive independent non-executive independent non-executive non- independent non-executive independent non-executive independent Professional Qualification legal adviser General Secretariat of Institution of Employment the Government MBA legal adviser SNGN Romgaz SA economist - PhD engineer MDM Consultancy Deva legal adviser SNGN Romgaz SA PhD engineer Universitatea Tehnica Iasi London School of Business and Finance economist *) - members of the Board of Directors submitted the independent statements in compliance with the provisions of Romgaz Corporate Governance Code. In 2020, the Board of Directors underwent several changes. Thus, on June 25, 2020, by OGMS Resolution No. 8/2020, the company shareholders appointed the following persons as interim members of the Board: Stan Olteanu Manuela-Petronela Jude Aristotel Marius Simescu Nicolae Bogdan Marin Marius-Dumitru Botond Balazs. Thus, beginning with June 26, 2020 the Board of Directors had the following composition: Item No. 1 Name Stan-Olteanu Manuela- Petronela Position in the Board chairperson 2 Jude Aristotel Marius member 3 Simescu Nicolae Bogdan member 4 Marin Marius-Dumitru member 5 Balazs Botond member Status*) non-executive non- independent non-executive non- independent non-executive non- independent non-executive independent non-executive non- independent Professional Qualification legal adviser General Secretariat of Institution of Employment the Government MBA legal adviser SNGN Romgaz SA engineer SNGN Romgaz SA PhD engineer MDM Consultancy Deva legal adviser SNGN Romgaz SA Page 51 of 80 2020 Consolidated Board of Directors’ Report 6 7 Ciobanu Romeo Cristian member Jansen Petrus Antonius Maria member non-executive independent non-executive independent PhD engineer Universitatea Tehnica Iasi London School of Business and Finance economist *) - 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. 12 of October 23, 2020, to extend the mandates of interim board members by two months from the date of their expiration, in compliance with article 641 par. (5) of GEO No. 109/2011. The Board of Directors gathered on November 3 and acknowledged expiration of the chairperson mandate of Ms. Stan-Olteanu Manuela-Petronela and appointed Mr. Jude Aristotel Marius as Chairperson of the Board of Directors. On December 21, 2020, by OGMS Resolution No. 14/2020, company’s shareholders appointed, for a 4 months mandate, the following persons as interim members of the Board: Jude Aristotel Marius Marin Marius-Dumitru Stan Olteanu Manuela Petronela Balazs Botond Simescu Nicolae Bogdan. Thus, the Board of Directors has the following composition: Item no. 1 Name Jude Aristotel Marius Position in the Board chairman 2 Marin Marius-Dumitru member 3 Stan-Olteanu Manuela- Petronela member 4 Balazs Botond member 5 6 7 Simescu Nicolae Bogdan member Ciobanu Romeo Cristian member Jansen Petrus Antonius Maria member Status*) non-executive non- independent non-executive independent non-executive non- independent non-executive non- independent non-executive non- independent non-executive independent non-executive independent Professional Qualification MBA legal adviser Institution of Employment SNGN Romgaz SA PhD engineer MDM Consultancy Deva legal adviser General Sectretariat of the Government legal adviser SNGN Romgaz SA engineer SNGN Romgaz SA PhD engineer Universitatea Tehnica Iasi London School of Business and Finance economist *) - 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 – 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, 2020, among the members of the Board Mr. Simescu Nicolae Bogdan – holds 30 shares in the company, representing 0.00000778% of the share capital and Mr. Balazs Botond – holds 11 shares in the company, representing 0.00000285% of the share capital. Page 52 of 80 2020 Consolidated Board of Directors’ Report 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. Deputy Director General The Board of Directors appointed Mr. Pena Daniel Corneliu as Deputy Director General of the Company for 2 months (interim mandate) by Resolution No. 32 of August 26, 2020, his appointment being effective as of August 28, 2020. By Resolution No. 41 of October 14, 2020 the Board of Directors approved the 120 days extension of the interim mandate of Mr. Pena Daniel Corneliu as Deputy Director General (by mandate), namely until February 24, 2021. Chief Financial Officer (CFO) The Board of Directors appointed Mr. Bobar Andrei as Chief Financial Officer by Resolution No. 39 of August 28, 2018, for a limited period, from August 28, 2018 until November 2nd, 2021. Mr. Bobar Andrei unilaterally terminated the Contract of Mandate by giving Notification no. 28593 on 22 August 2019. The Board of Directors appointed Mr. Popescu Razvan as interim Chief Financial Officer for 4 months starting with December 14, 2020, by Resolution No.50 of December 9, 2020. Other persons discharging managerial responsibilities: Name ROMGAZ - headquarters Tataru Argentina Chircă Robert Stelian Grecu Marius Rareş Paraschiv Nelu Veza Marius Leonte Bobar Andrei Dediu Mihaela Carmen Boiarciuc Adrian Lupa Leonard Ionuţ Chertes Viorel Claudiu Ciolpan Vasile Ioo Endre Toader Mihaela Virginia - Mediaş Branch Totan Constantin Ioan Achimeţ Teodora Magdalena Radu Gheorghe Cristian Man Ioan Mihai Târgu Mureş Branch Baciu Marius Tiberiu Dîmbean Cătălin Graţian Rusu Ştefan Ioan Iernut Branch Balazs Bela Haţegan Olimpiu Sorin Oprea Maria Aurica Bircea Angela Position Deputy Director General Deputy Director General Human Resources Director Director of Drilling Department Accounting Director Finance Director Exploration-Appraisal Director Information Technology Director Acquisitions Director Director of Regulations Department Energy Trade Director Legal Department Director Strategy, International Relations, European Funds Director HQSE Director Branch Director Economic Director Production Director Technical Director Branch Director Economic Director Production Director Technical Director Branch Director Economic Director Trading Director Technical Director Page 53 of 80 2020 Consolidated Board of Directors’ Report Name SIRCOSS Rotar Dumitru Gheorghe Bordeu Viorica Gheorghiu Sorin STTM Alexa Ovidiu Obreja Dan Nicolae - Branch Director Economic Director Technical Director Branch Director Economic Director Technical Director Position The members of the upper management, except the chief executive officer, deputy chief executive officer (with interim mandate) 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 Subsidiary 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 Company shares held by the members of the upper management as of December 31, 2020: Item No. 0 1 2 3 4 5 Name 1 Stefan Ioan Obrejan Dan Nicolae Dinca Ispasian Ioan Andrea Nicolae Balasz Bela Atila Number of shares held Weight in the share capital (%) 2 2,945 1,400 1,165 200 38 3 0.00076410 0.00036324 0.00030227 0.00005189 0.00000986 Therewith, from Depogaz upper management the following members hold shares in the Company: Mr. Carstea Vasile – 412 shares, representing a weight of 0.00010690% in the share capital and Mr. Vecerdea Dan-Adrian – 45 shares, representing a weight of 0.00001168% in the share capital. 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 and litigations on Labour Law No. 235/102/2020 and 2751/85/2019(*) (see “Litigations” posted on Romgaz website at www.romgaz.ro - Investor Relations - Annual Reports – 2020). Page 54 of 80 2020 Consolidated Board of Directors’ Report VII. CONSOLIDATED FINANCIAL-ACCOUNTING INFORMATION 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, 2020: Indicator 0 31.12.2018 (thousand RON) 1 31.12.2019 (thousand RON) 2 31.12.2020 (thousand RON) 3 Variance (2020/2021) 4=(3-2)/2*100 ASSETS Non-current assets Property, plant and equipment 6,279,748 5,543,177 5,613,122 Other intangible assets Investments in associates Deferred tax assets Other financial assets Right of use asset Total non-current assets Current asset Inventories Trade and other receivables Contract costs Other financial assets Other assets Cash and cash equivalent Total current assets TOTAL ASSEST EQUITY AND LIABILITIES Equity Issued capital Reserves Retained earnings TOTAL EQUITY Non -current liabilities Retirement benefit obligation Provisions Deferred income Lease liability Total non-current liabilities Current liabilities 4,970 23,298 127,491 9,812 - 9,164 24,772 14,774 26,102 230,947 275,328 5,388 8,590 5,378 7,915 6,445,319 5,822,038 5,942,619 245,992 311,013 244,563 826,046 638,158 592,875 583 312 651 881,245 1,075,224 1,995,523 168,878 566,836 2,689,580 42,485 363,943 2,431,135 68,023 416,913 3,318,548 9,134,899 8,253,173 9,261,167 385,422 385,422 385,422 1,824,999 1,587,409 2,251,909 5,458,196 5,201,222 5,149,919 7,668,617 7,174,053 7,787,250 139,254 510,114 21,128 - 114,876 366,393 21,244 8,285 670,496 510,798 128,690 538,931 136,308 7,845 811,774 1.26% 61.22% 5.37% 19.22% -0.19% -7.86% 2.07% -21.37% -7.10% 108.65% 85.59% 60.11% 14.55% 36.50% 12.21% 0.00% 41.86% -0.99% 8.55% 12.03% 47.09% 541.63% -5.31% 58.92% Trade payables and other liabilities 186,702 109,910 89,132 -18.90% Page 55 of 80 2020 Consolidated Board of Directors’ Report Indicator 0 Contract liabilities Current tax liabilities Deferred income Provisions Lease liability Other liabilities Total current liabilities TOTAL LIABILITIES 31.12.2018 (thousand RON) 1 46,381 31.12.2019 (thousand RON) 2 42,705 31.12.2020 (thousand RON) 3 81,318 68,001 8,442 93,645 - 392,615 795,786 64,342 3,729 82,701 694 264,241 568,322 1,466,282 1,079,120 59,831 10,899 156,415 767 263,781 662,143 1,473,917 9,261,167 Variance (2020/2021) 4=(3-2)/2*100 90.42% -7.01% 192.28% 89.13% 10.52% -0.17% 16.51% 36.59% 12.21% TOTAL EQUITY AND LIABILITIES 9,134,899 8,253,173 NON CURRENT ASSETS The total of non-current assets increased by 2.07% by the end of 2020, compared to the end of 2019, meaning by RON 120.58 million, from RON 5,822.04 million on December 31, 2019 to RON 5,942.61 million, on December 31, 2020. In 2020 the Group invested a total of RON 637.25 million, representing 71.19% of the investment budget. Of the net increase of RON 69.95 million recorded in non-current assets during 2020 RON 136.04 million relates to the increase of the decommissioning provision. As mentioned above, the increase in this provision is caused by the decrease of 10-year government bonds yield, this rate being used as a discount factor. 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. 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. The increase in the deferred tax asset is mainly caused by the increase in the decommissioning provision (which generated an increase in the deferred tax asset of RON 28.28 million) and the bankruptcy of one of the Group’s clients (which generated an increase in the deferred tax asset of RON 36.2 million). CURRENT ASSETS Current assets increased by RON 887.4 million on December 31 2020, due to the increase of cash, cash equivalents and other financial assets by RON 973.3 million; this increase is due to a lower level of investments, cost reductions and lower dividends distributed to shareholders. Inventories Inventories decreased at the end of 2020, as compared to December 31, 2019 by 21.37% as a result of the decrease of gas stock in storages (367.8 million m3 were extracted, while only 225.9 million m3 were injected in storages). Trade and other receivables Page 56 of 80 2020 Consolidated Board of Directors’ Report Trade receivables decreased in 2020 as compared to December 31, 2019 by 7.10% as a result of lower prices charged for gas deliveries in 2020 compared to 2019. NON-CURRENT LIABILITIES At the end of 2020, non-current liabilities increased by 58.92% as compared to December 31, 2019, mainly due to the increase of the decommissioning provision for wells with 45.99% (RON 176.7 million, of which RON 4.2 million related to the short-term portion) and from RON 115 million received from the National Investment Plan (“NIP”) for Iernut Power Plant construction – the NIP amounts received are a government grant and will be recorded as income as the plant depreciates. CURRENT LIABILITIES Current liabilities increased with RON 93.82 million from RON 568.32 million recorded on December 31, 2019 to RON 662.14 million at the end of 2020. Trade payables and other liabilities Trade payables decreased compared to December 31, 2019 by 18.90% due to lower payables to non- current assets suppliers (-RON 25.6 million) because of the lower level of investments in 2020. Contract liabilities These liabilities represent advances received from customers on December 31, 2020 for 2021 deliveries. Other liabilities Other liabilities recorded a small decrease of 0.17% as compared to December 31, 2019. Most of these liabilities are liabilities to state budget that are due in January 2021, according to regulations, and liabilities to employees. Provisions On December 31, 2020, current provisions recorded an increase of 89.13% as compared to December 31, 2019. This increase is due, mainly, to the provision for greenhouse gas emission certificates (RON 81.2 million at December 31, 2020, the equivalent of 525,067 certificates compared to RON 23.4 million at December 31, 2019, the equivalent of 181,277 certificates). The Group did not issue bonds or other debt instruments in financial year 2020. The Group profit and loss account summary for the period January 1 – December 31, 2020, as compared to the similar period of the years 2018 and 2019, is shown below: Indicator 0 Revenue Cost of commodities sold Investment income Other gains and losses Impairment losses on trade Changes in inventories Raw materials and consumables used Depreciation, amortization and impairment expenses Year 2018 (thousand RON) 1 5,004,197 (245,020) 53,279 (102,989) (19,941) (32,180) (75,460) (708,142) Year 2019*) (thousand RON) 2 5,080,482 (107,800) 38,124 7,519 (81,221) Year 2020 (thousand RON) 3 4,074,893 (18,617) 47,845 (6,534) 17,551 80,008 (76,048) (1,451,766) (16,151) (58,282) (672,063) Variance (2020/2019) 4=(3-2)/2*100 -19.79% -82.73% 25.50% -186.90% -121.61% -120.19% -23.36% -53.71% Page 57 of 80 2020 Consolidated Board of Directors’ Report Employee benefit expense Finance cost Exploration expense Share of associates’ result Other expenses Other income Profit before tax Income tax expense Profit for the period (621,330) (29,724) (247,123) 622 (1,409,447) 18,442 1,585,184 (219,016) (670,408) (24,740) (1,636) 1,474 (1,551,642) 32,834 1,275,180 (185,557) 1,366,168 1,089,623 (767,251) (17,000) (26,509) 1,330 (1,158,143) 25,439 1,426,508 (178,604) 1,247,904 14.45% -31.29% 1,520.35% -9.77% -25.36% -22.52% 11.87% -3.75% 14.53% *) – restated: Since 2020, the Group presents the release to income of the impairment for non-current assets written-off as a decrease of the expense generated by the write-off of the respective assets, as “other gains and losses” or as “exploration expense”. Previously, the release to income was presented as “depreciation, amortization and impairment”. For comparability purposes, 2019 was restated. Revenue In 2020, Romgaz records consolidated revenues of RON 4.1 billion as compared to RON 5.1 billion achieved in 2019. The decrease resides in a 24.48% fall of revenue from sales of gas produced by Romgaz and of gas purchased for resale, as well as gas from joint ventures. On the other hand, consolidated revenue from storage services increased by 13.32% and revenue from electricity sales increased by 29.90%. Please note that consolidated storage revenues include revenue from services invoiced by Romgaz; non- consolidated storage revenue are down 3.87% compared to 2019. Cost of Commodities Sold In 2020, cost of commodities sold decreased by 82.73% as compared to the previous year, mainly due to the fact that no gas was imported in 2020. Investment Income Investment income represent income from placing Group’s liquidities in bank deposits or in state bonds. Other Gains and Losses The largest items recorded in Other Gains and Losses are losses from write-offs of non-current assets (RON 65.7 million) mainly representing abandoned gas wells as dry holes. Net Impairment losses on trade receivables The Group records impairments for trade receivables depending on non-collection risks. In 2020, the Group recorded a net gain from impairment of trade receivables of RON 17.6 million. Non-collection risk estimated in 2019 was reduced for one of the clients undergoing an insolvency procedure due to timely collection of receivables, which led to a decrease of the impairment recorded for this client. Changes in Inventory During 2020 the gas quantity withdrawn from storages was higher than the quantity injected in storages, thus generating negative changes in inventory (loss), unlike the year 2019 when the injected quantity was higher than the withdrawn quantity generating a favourable change in inventories (income). The quantity of gas injected in storage by the Company in 2020 as compared to 2019 decreased by 57.1% while the withdrawn quantity increased by 42.7%. Raw materials and consumables used The decrease of raw materials and consumables is due to a volume of technological consumption 19.3% lower (- 40.1% in terms of value) and 31.5% lower fuel expenses during 2020 as compared to 2019. Depreciation, amortization and impairment The depreciation, amortization and impairment of non-current assets expenses dropped by 53.71% due to a reduction by 13.9% of depreciation expenses and a 75.97% decrease in fixed assets impairment. Page 58 of 80 2020 Consolidated Board of Directors’ Report Due to existing market conditions the Group identified impairment indicators for assets used in the gas segment. The Group ran an impairment test which did not result in any additional impairment. In 2020, the Group only recorded impairments for specific assets, for abandoned wells as dry holes. Exploration expenses Exploration expenses recorded in 2020 of RON 26.51 million increased by 1,520.45% compared to the previous year. The increase is due to higher exploration expenses (seismic works) by RON 24.2 million. Exploration expenses also include the costs of wells written off. In 2020 the cost of these decommissioned investments was of RON 836 thousand, compared to RON 23.1 million in 2019. Other expenses In 2020 other expenses decreased by 25.36% as compared to 2019. The decrease of RON 393.49 million is mainly due to lower windfall tax and lower royalties. In 2020, other expenses include net expenses with provisions of RON 90.7 million compared to 2019 when there was a net income from provisions of RON 57.2 million. The most significant provision expenses are: - CO2 certificates used in 2020 that will be acquired in 2021 (the net expense of RON 57.8 million is influenced by the use in 2020 of the provision recorded for this purpose in 2019); - increase in the decommissioning provision (net expense of RON 24.3 million), following a lower discount rate used in the computation (4.41% in 2019; 2.97% in 2020); this rate considers the yield of 10-year government bonds. Other income Other income decreased by 22.52% in the year ended December 31, 2020 as compared to the same period of 2019, due to the decrease of income from penalties for uncollected amounts according to contract terms or incompliance by suppliers with execution terms. Statements of cash flows recorded in the period 2018 – 2020 are shown in the table below: INDICATOR 2018 *thousand RON* 2020 2019 restated*) 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 non-current assets Depreciation and amortization Amortization of contract costs Impairment of investments in associates Net impairment of other financial assets (Gains)/(Losses)on financial investments evaluated at fair value through profit or loss Losses from disposal of other financial investments 1,366,168 1,089,623 1,247,904 219,016 (622) - 29,724 (53,279) 62,961 (34,390) 30,152 (118,809) 149,620 235,661 591,290 1,291 - - 40,782 - 185,557 (1,474) 543 24,197 (38,124) (2,542) (51,760) (5,402) 231,278 123 699,531 520,957 651 - - 4,424 - 178,604 (1,330) 593 16,407 (47,845) 7 24,273 66,467 97,695 836 125,997 448,371 795 - - 10 - Page 59 of 80 2020 Consolidated Board of Directors’ Report INDICATOR Losses from trade receivables and other receivables Other gains and losses Net impairment of inventories Income from liabilities written off Income from subsidies Cash generated from operations before movement in working capital Movements of working capital (Increase)/Decrease in inventories (Increase)/Decrease in trade and other receivables (Increase)/Decrease in trade and other liabilities Cash generated from operational activities Interest paid Income tax paid Net cash generated by operating activities Cash flows from investing activities Bank deposits set up and acquisition of state bonds Bank deposits and state bonds matured 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 Subsidies reimbursed Net cash used in financing activities Net Increase/(Decrease) in net cash and cash equivalents Net Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 2018 2019 restated*) 20,048 - (2,052) (58) (269) 67,297 (52) 5,125 (89) (81) 2020 (19,700) - 8,427 (368) (7) 2,537,234 2,729,782 2,147,136 143,114 (8,156) (194,681) 2,477,511 - (334,324) 2,143,187 - 1,917,569 49,338 961 (948,588) (205,371) - 813,909 (38,428) 116,143 (78,115) 2,729,382 - (297,059) 2,432,323 58,516 38,311 17,600 2,261,563 (3) (224,796) 2,036,764 (2,591,658) 2,387,686 43,470 1,305 (694,349) (173,563) - (1,027,109) (2,964,757) 2,060,925 38,601 1,733 (547,215) (66,516) - (1,477,229) (2,638,535) (1,607,246) (620,346) 21,108 - - (2,617,427) 339,669 227,167 566,836 - (861) - (1,608,107) (202,893) 566,836 363,943 115,027 (1,196) (50) (506,565) 52,970 363,943 416,913 *) see the comment in the statement of consolidated comprehensive income. Page 60 of 80 2020 Consolidated Board of Directors’ Report VIII. CORPORATE GOVERNANCE 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 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 approved by the Board of Directors on August 28, 2018; 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; as a consequence, the Romgaz remuneration policy will be reviewed and summited for the approval of the Ordinary General Meeting of Shareholders; Page 61 of 80 2020 Consolidated Board of Directors’ Report 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; Starting the procedures necessary for adopting and implementing 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”. Among the measures to be implemented, we mention: the review of the remuneration policy for the members of the Board and the executive management following the legislative changes on issuers of financial instruments and market operations and submission for the approval of the Board of Directors; Conclusion of professional liability insurance for members of the board and directors and appointment of a person to monitor these contracts. 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. 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 convened 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; Page 62 of 80 2020 Consolidated Board of Directors’ Report 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; to discuss, approve or request, as the case may be, the addition or review of the company’s management plan, under legal provisions; c) 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; h) to approve contracting bank loans, whose value exceeds, individually or cumulated with other i) 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: to change company’s legal form; a) b) to move the headquarters; c) d) to establish companies, as well as conclude or amend incorporation documents of the companies to change the Company’s scope of activity; where Romgaz is partner; to conclude or amend joint venture contracts where the company is contracting party; to increase the share capital; e) 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; the anticipated winding up of the company; to convert shares from a category into the other; 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; 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 componence on December 31, 2020 is presented in Chapter VI “Company management”. According to the independency declarations sent to the company, three board members Page 63 of 80 2020 Consolidated Board of Directors’ Report declared to be independent and four 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, 2020, the Board of Directors did not make a self- assessment for 2020. 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. 162/210717 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. 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, 2020, the advisory committees’ structure was the following: I) Nomination and Remuneration Committee: Ciobanu Romeo Cristian (chairman) Balazs Botond Jansen Petrus Antonius Maria Jude Aristotel Marius Marin Marius Dumitru II) Audit Committee Marin Marius Dumitru (chairman) Balazs Botond Ciobanu Romeo Cristian Jansen Petrus Antonius Maria Jude Aristotel Marius III) Strategy Committee Jansen Petrus Antonius Maria (chairman) Balazs Botond 17 Law No. 162 of July 15, 2017 on the statutory audit of annual financial statements and of annual consolidated financial statements and of amending pieces of legislation Page 64 of 80 2020 Consolidated Board of Directors’ Report Jude Aristotel Marius Ciobanu Romeo Cristian Simescu Nicolae Bogdan Information regarding the Board of Directors’ meetings and the Advisory Committees meetings held in 2020 The Board of Directors held in 2020 a number of 37 meetings, in compliance with the legal and statutory provisions, out of which: 26 meetings with physical attendance of board members; 3 conference-call meetings; and 8 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. % Stan Manuela Petronela Marin Marius Ciobanu Romeo Cristian Jansen Petrus Antonius Maria Jude Aristotel Marius Balazs Botond Simescu Bogdan Hărăbor Tudorel 37 37 37 37 37 37 20 15 37 14 36 34 37 37 37 14 100.0 93.33 97.29 91.98 100.0 100.0 100.0 93.33 1 3 2.71 8.11 1 6.67 where: P = participate PA = power of attorney NP = did not participate Board members’ attendance at Advisory Committees’ meetings: Nomination and Remuneration Committee: 9 meetings First name and last name Balazs Botond Stan-Olteanu Manuela-Petronela Ciobanu Romeo Cristian Jansen Petrus Antonius Maria Simescu Bogdan Hărăbor Tudorel physical attendance 9 9 8 8 8 2 Audit committee: 21 meetings First name and last name Jansen Petrus Antonius Maria Marin Marius Dumitru Jude Aristotel Marius Ciobanu Romeo Cristian Balazs Botond Hărăbor Tudorel physical attendance 21 21 21 16 16 9 Page 65 of 80 2020 Consolidated Board of Directors’ Report Strategy Committee: 6 meetings First name and last name physical attendance Jude Aristotel Marius Balazs Botond Harabor Tudorel Marin Marius Stan Olteanu Manuela Petronela 6 6 4 3 3 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: 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; Page 66 of 80 2020 Consolidated Board of Directors’ Report 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; fulfils any accessory duties, namely any acts and special operations necessary and useful for achieving the above mentioned duties. By Resolution No. 32/ August 26, 2020, The Board of Directors appointed Mr. Pena Daniel Corneliu as Deputy Chief Executive Officer with an interim mandate of two months, from August 26 until October 26, 2020. By Resolution no. 41, October 14, 2020, the Board of Directors approved the extension by 120 days of the interim mandate, until February 24, 2021, respectively. By Resolution No. 32/ August 26, 2020, the Board of Directors delegated to the deputy chief executive officer the following duties: a) Endorses legal acts on behalf, in the interest and on the account of the Company, in compliance with the Articles of Incorporation, Board of Directors’ Resolutions, General Meeting of Shareholders’ Resolutions, company’s scope of activity and objectives; b) Monitors the way the accounting and financial control policies are carried out and approves the financial statements and financial planning reports; c) Endorses the Company’s’ organizational and functional chart and any amendments to it as well as the other internal documents which regulate the Company’s’ activity at employees level; d) Negotiates together with the Chief Executive Officer the Collective Labour Agreement e) Endorses the personnel’s competencies, attributions, duties and responsibilities on departments, except for executive board members and managers that signed a contract of mandate; f) Endorses the documents required and useful for the personnel selection, hiring, awarding, sanctioning and dismissal, as the case may be, in order to ensure an optimal performance of the activity, in compliance with the provisions of labour legislation and labour contract; g) Endorses the appointment, suspension and/or dismissal of the units’ managers and executive directors hired by the company; h) Endorses the Organisation and Operating Regulation, the organizational structure i) prospects, together with the Chief Executive Officer, the business opportunities with partners inside and outside the country for the Company’s interest; j) Ensures efficiency of the internal control system and the management system in compliance with legal provisions and corporate regulation in force; k) ensures and promote the company’s image; l) any other duties delegated by the Board of Directors, except those which may not be delegated by the Board of Directors, in accordance with the law and the Articles of Incorporation; Page 67 of 80 2020 Consolidated Board of Directors’ Report The Chief Executive Officer and the Deputy Chief Executive Officer have 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, and 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; 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 drafted and 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 2020 No. 40819/November 26, 2019, endorsed by the Audit Committee and approved by the Chief Executive Officer in 2020, the audit mission consisted of 7 assurance audit missions for confirming regularity/conformity of procedures and operations with the Page 68 of 80 2020 Consolidated Board of Directors’ Report regulatory framework, by comparing reality with the established reference system in order to provide identify the obstacles that hinder the normal course of processes, to establish causes, determine the consequences and to provide solutions for eliminating such obstacles. In 2020, the material interim changes were transposed in the annual plan by including ad-hoc missions requested and disposed; these missions were approved by the upper management. Therefore, in 2020, 14 audit missions have been performed, as follows: 5 missions planned in accordance with 2020 annual plan 1 advisory missions 7 ad-hoc missions 1 audit mission planned for 2019, started on December 2019 and completed on February 2020. The missions have been performed in the following fields: information technology; public procurement; human resources; specific functions; management internal control system The level of fulfilment of the internal audit plan for 2020 was of 75% due to accomplishment of seven ad-hoc audit missions, both by the upper management and Board of Directors and due to requirement to comply with health measures generated by the COVID -19 pandemic. 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 2020, as follows: Item No. Audited activity Global Assessment Result 1. Verify the manner of managing spare parts that damaged during the warranty. 2. 3. 4. Analyse the situation related to ANRE fines in 2018 and 2019, namely the measures undertaken by the executive management Assess the activity related to acquisition of lands to ensure building and operability of objectives Substantiate the procurement of “Ford” auto vehicles started in 2017 and analyse the status of spare parts stock related to the fleet car replaced through this procurement 5. Analyze the causes leading to the necessity of concluding a contract with third parties to perform the general overhaul/ maintenance at dehydration stations operated by Târgu Mures Branch 6. 7. Assess the status regarding the steps undertaken to supervise and ensure the integrity of gathering pipe 10 ¾” N-V Târgu Mureș related to wells cluster 26 and 162. Verify the compliance with the fulfilment of tasks in relation to drafting SNGN Romgaz SA Board of Directors’ Report and Report of Managers with a mandate from SNGN Romgaz SA Mission Type Ad-hoc Ad-hoc Planned Ad-hoc Ad-hoc Ad-hoc Ad-hoc Page 69 of 80 2020 Consolidated Board of Directors’ Report Item No. 8. 9. 10 11 12 Audited activity Global Assessment Result Assess the activity related to carrying out direct procurements Analyse the addendums to contract related to the “The Development of CTE Iernut Power Plant by building a new combined cycle CCTG power plant” concluded in 2020. Manner of organizing management the activity of human resources Assess the procurement contracts in the IT sector Assess the activity related to well overhaul and repair 13 Verify the settlement of drilling works carried out due to the occurrence of some events or accidents 2019-2020. 14 Verify the activity related to the organization and management of decisions record – advisory mission Mission Type Planned Ad-hoc Planned Planned Planned Planned Planned High assurance level Medium assurance level Low assurance level 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. 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; Page 70 of 80 2020 Consolidated Board of Directors’ Report 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 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 coordinates the management process within the respective direction/department/division; 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. Risk exposure Page 71 of 80 2020 Consolidated Board of Directors’ Report 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 85.41% from the net receivables balance on December 31, 2020 (the largest four clients: 85.10% on December 31, 2019). 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. The risks related to the evolution of macroeconomic environment (macroeconomic indicators) providing indications on natural gas industrial consumption become important taking into account the current situation generated by COVID 19. Among the opportunities offered, due to their lack of adjustment to market condition, sale tactic and strategy represent a risk which must be regularly assessed and mitigated by specific marketing actions to optimize the sales result. 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 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 Page 72 of 80 2020 Consolidated Board of Directors’ Report 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. The current interconnection technical conditions demand to take into consideration the regional sources (status of neighbouring storages), new LNG projects (Krk-Croaia, Alexandroupolis-Greece), so as to avoid to become a competition for the company’s production. In order to reduce the risk, the company assesses 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 management internal 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 SGG18 Order No. 600/2018. 2020 internal management control system development/enhancement actions: to raise awareness on employees, the company made available a Guideline on internal rules related to each internal control standard and the actions necessary to be undertaken by every head of organization unit in order to implement the standards; in order to raise awareness on the regulations with respect to internal management control system, the Internal management control Office initiated between January 1st, 2020 and March 06, 2020 an action for implementing the internal management control system and the anticorruption strategy19; Involvement in the implementation of SR ISO 37001standard - Anti bribery management system at the level of Romgaz, an action coordinated by the ethic counsellor. Participation in the working groups meetings on “IMCS enhancement project” Reanalysing the internal processes and drafting the proposal to update them in “IMCS enhancement project” 18 General Secretariat of Government 19 National Anticorruption Strategy Page 73 of 80 2020 Consolidated Board of Directors’ Report Analysing and identifying the sensitive job positions at every organisational unit in compliance 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, following the debates and the final vote, drafted the Inventory of sensitive job positions and the List of persons in these positions; Drafting and updating Romgaz Risk Register. According to the self-assessment results for the implementation of Internal/Management Control System, in 2020 (in relation to the 16 internal/management control standards provided in Order no. 600/2018), the Internal/Management Control System is compliant. Non-achievements: the action of methodological guidance initiated every year by the Management Internal Control Office was made online. The Company tried to comply with all the measures to prevent the spread of COVID-19. Lack of professional training courses organized by external lecturers for all employees belonging to the executive management which would have raised the awareness of the importance of management internal control, but which could not be carried out due to health situation (COVID- 19). In order to improve the activity, starting with July 1st, 2020 the upper management appointed an ethic counsellor. Romgaz’s Code of Conduct which was first prepared in 2013 suffered many amendments, the latest was on November 2020, resulting the Ethics and Integrity Code of SNGN Romgaz SA- November 2020, approved by the Board of Directors Resolution No. 48/ November 20, 2020. By this Ethics and Integrity Code, the company comply with the provisions of Standard 1 of Internal Management Control mentioning the importance of knowledge and support of ethical values and integrity. The Ethics and Integrity Code protects the company’s integrity and brings the ethical values both to the fore of professional and people to people relations within the company and the external relations with the clients, suppliers, investors, partners, public authorities and with the community as well. The code regulates the following important aspects: safety and health at the work place, fight against corruption, avoidance of conflict of interest and incompatibility, protection of the company’s image, the efficient use of resources, confidentiality of authorities/business partners/community, transparency etc. information, harassment, relations with The Ethics and Integrity Code was brought to the attention of Romgaz personnel by training sessions and, in order to assess the implementation of employee’s professional conduct rules, actions will be carried out annually. In order to monitor the compliance with the conduct rules by Romgaz’s personnel, the ethic counsellor prepares analyses and quarterly reports on aspects indicated by the Chief Executive Officer. The reports and analyses shall be sent for information to the monitoring and coordinating committee on implementation and development of internal management control system and Audit Committee. The Ethics and Integrity Code can be accessed by any interested person 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. Page 74 of 80 2020 Consolidated Board of Directors’ Report 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 2020, 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: o For Sports Clubs Sponsorships for other actions and activities – Article XIV letter c) 23,499,999 12,700,000 9,400,000 5,425,000 1.399,999 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 2020 published on www.romgaz.ro at “Investor Relations - Corporate Governance - Social Responsibility”. The projects carried out in 2020 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 interested parties. When supporting/performing projects, actions, social responsibility initiatives, Romgaz took into consideration the provisions of Sponsorship Policy and Sponsorship Guide applicable in 2020, 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; Page 75 of 80 2020 Consolidated Board of Directors’ Report 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 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; 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 concluded with the Chief Financial Officer for a limited period starting from August 28, 2018 until November 02, 2021. Resolution No. 39/November 4, 2019 of the Board of Directors appointing the interim Chief Financial Officer until December 28, 2019; Resolution No. 5/April 13, 2020 of the Ordinary General Meeting of Shareholders approving the extension of the Board’s members mandate by two months starting with the expiration date; Resolution No. 8/June 25, 2020 of the Ordinary General Meeting of Shareholders approving the form and content of the Directors’ Agreement to be concluded with the interim members; Resolution No. 32/August 26, 2020 of the Board of Directors appointing the interim deputy chief executive officer for a two months mandate starting from August 28, 2020 until October 20, 2020; Resolution No. 39, September 30, 2020 of the Board of Directors approving the contract of mandate for the interim deputy chief executive officer; Resolution No. 41/October 14, 2020 of the Board of Directors extending the mandate of the interim deputy chief executive officer by 120 days, namely until February 24, 2021; Resolution No. 12/October 23, 2020 of the Ordinary General Meeting of Shareholders approving the extension of the interim directors’ mandate by 2 months starting with the expiration date; Resolution No. 50/December 9, 2020 of the Board of Directors appointing the interim Chief Financial Officer for a 4 months mandate starting from December 14, 2020; Resolution No. 53/December 14, 2020 of the Board of Directors approving the contract of mandate of the interim Chief Financial Officer; Resolution No. 14/December 21, 2020 of the Ordinary General Meeting of Shareholders approving the form and content of the contract of mandate to be concluded with the interim directors for a 4 months mandate. For compliance with the Requirements of BVB Corporate Governance Code and GEO no. 109/2011 and Law no. 158/2020 amending and supplementing Law no. 24/2017 on issuers of financial instruments and market operations, the Policy on remuneration shall be reviewed and submitted for approval of the Ordinary General Meeting of Shareholders. Page 76 of 80 2020 Consolidated Board of Directors’ Report 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 2020 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 2020 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. 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 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 2020 was set at a monthly gross allowance up to 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. Thus, for the Chief Executive Officer the monthly fixed allowance was six times the average, for the interim Chief Financial Officer the monthly fixed allowance was four times the average and for the interim Deputy Chief Executive Officer it has been modified during his mandate from 4 times the average to 5.2 times the average. 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 2020 the Chief Executive Officer, the Deputy Chief Executive Officer and the Chief Financial Officer did not benefit of variable remuneration. Page 77 of 80 2020 Consolidated Board of Directors’ Report NON-FINANCIAL STATEMENT Romgaz prepares a separate report for financial year 2020, that will be public on the company’s website by the end of June 2021, according to the Finance Minister Order no. 2844/201620 (chapter 7, item 42, para (1)). 20 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 78 of 80 2020 Consolidated Board of Directors’ Report IX. PERFORMANCE OF DIRECTORS’ AGREEMENTS/CONTRACTS OF MANDATE Directors Agreements Board members appointed by the General Meeting of Shareholders in 2018 for a 4 year mandate had effective directors agreements in 2019, as well as directors agreements of interim board members that were appointed in 2019 and 2020, respectively. The directors 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”. 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 General Meeting of Shareholders appointed following the cumulative vote, by Resolution No.8/June 25, 2020 the members of the Board of Directors, set the fixed monthly gross allowance and approved the contract of mandate for interim board members. By Resolution no. 14/December 21, 2020, the Company’s shareholders appointed the interim members of the Board of Directors, set the fixed monthly gross allowance and approved the contract of mandate for interim board members. The director agreement does not include key financial and non-financial performance indicators, therefore the board members do not benefit from the variable component. Contract of Mandate Chief Executive Officer 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. Deputy Chief Executive Officer By Resolution no. 32/August 26, 2020, the Board of Directors appointed Mr. Pena Gabriel Corneliu as Deputy Chief Executive Officer of SNGN Romgaz SA for an interim mandate of two months, from August 28 until October 26, 2020 and by Resolution No. 41/October 14, 2020, the Board of Directors extended the interim mandate by 120 days, until February 24, 2021, respectively. Chief Financial Officer By Resolution No. 39/ August 28, 2018, the Board of Directors appointed Mr. Bobar Andrei 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 Notification no. 28593 on August 22, 2019. By Resolution No. 50/December 9, 2020, the Board of Directors appointed Mr. Popescu Razvan as interim Chief Financial Officer for a four months period starting with December 14, 2020. Page 79 of 80 2020 Consolidated Board of Directors’ Report The contracts of mandate concluded between the Board of Directors and the Chief Executive Officer, the Deputy Chief Executive Officer and the Chief Financial Officer, respectively, do not provide for performance indicators and criteria. These will be negotiated and included in the contracts of mandate, by an addendum after completion and approval of the Governing Plan. SIGNATURES: Chairman of the Board of Directors, DRĂGAN DAN DRAGOȘ Chief Executive Officer, JUDE ARISTOTEL MARIUS Chief Financial Officer, POPESCU RAZVAN …………………………………… …………………………………… …………………………………… Page 80 of 80 Board of Directors’ Report 2020 Annex1 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 positions non-profit 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 Corporate Governance Statement in the Annual Report of the Board Directors includes specifications on the BoD evaluation. of Board of Directors’ Report 2020 BVB CGC Provisions Compliance 1 2 purpose, criteria and frequency of the evaluation process. Noncompliance / Partial compliance 3 Reason for noncompliance/ Explanation on compliance 4 Board A Evaluation Policy was prepared by Romgaz it was and approved by BoD on 2019. 12, March Following approval, the Policy was published on the company’s website. the 2020, no BoD In evaluation was performed because in 2020 there were three Boards of Directors, appointed and were members provisional. The composition of one of the BoDs included provisional members, with modified composition (the NRC composition was modified as two committees). well, in 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 precise number of the independent members of the Board of Directors. The BoD should set up a nomination committee comprised of non-executives, which will lead the nomination process for new 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 Page 2 of 7 Board of Directors’ Report 2020 BVB CGC Provisions Compliance 2 x x 1 B.3 Among its responsibilities, the Audit Committee should perform an annual assessment of the internal control system. B.4 B.5 the Board, 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 management’s and responsiveness and effectiveness in dealing with the failures and weak points identified during the internal control, and submit relevant reports to the Board. The Audit Committee should review conflicts of interests in transactions of the company and its subsidiaries with affiliated parties. Noncompliance / Partial compliance 3 x partially B.6 The Audit Committee should evaluate the effectiveness of the internal control system and the risk management system x 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 Audit Committee Rules of Procedure. The Audit Committee assessed internal the control system for 2020. See explanation in section B.3 This provision is already mentioned in Article 8, par. 2 of Romgaz CCG. The Audit Committee the Rules approved by BoD in the meeting of May 14, 2018 includes provisions such obligation. on Moreover, a Policy on related party transactions was by developed Romgaz, and it obtained BoD approval on March 20, 2019. Following approval it was published the company’s website. on of responsibility for The the monitoring the effectiveness company’s internal control, internal audit and risk management systems is specified in the Audit Committee Rules. The Audit Committee assessed the effectiveness of the internal control and risk management system for 2020. Page 3 of 7 Board of Directors’ Report 2020 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 Audit Committee should monitor the application of statutory and generally accepted standards of internal auditing. The Audit Committee should receive and evaluate the reports of the internal audit team. The 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 are events requiring disclosure. 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 as part of the management obligations to monitor and mitigate risks, the Internal Audit Department should report directly to the Director General. formulated so as The company should publish the Remuneration Policy on its website. 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 Remuneration Policy during the annual period under review. implementation of the 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 The provision is already mentioned in Article 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. Following approval, the policy was published on the company’s website. The provision is already mentioned in Article 11, par. 5 of ROMGAZ CCG. The section on Corporate Governance Statement in the Annual Report of the Directors Board of the includes details on implementation of the Remuneration Policy as well as the remuneration of the BoD members and the directors. A separate document on Remuneration Policy was drafted and obtained BoD approval on March 12, 2019, and then published on the company’s website. Page 4 of 7 Board of Directors’ Report 2020 BVB CGC Provisions Compliance 1 D.1 The company should establish an Investors Relation Department - indicating to the public the responsible person/persons or the organizational unit. 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; 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 at item D.8 - including current reports with detailed to non- compliance with the Bucharest Stock Exchange Code of Corporate Governance; information related D.1.4 D.1.5 Information related to GMS: the agenda and supporting materials; the Board of Directors election procedure; the arguments in support of the proposal of candidates to the Board of Directors together with their professional CVs; shareholders’ questions related to the agenda and the company’s answers, including decisions taken; 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 due course of time so as to allow 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; 2 x x x x x x Noncompliance / Partial compliance 3 Reason for noncompliance/ Explanation on compliance 4 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. x partially on Items the GMS organization are presented to shareholders at each meeting. Page 5 of 7 Board of Directors’ Report 2020 BVB CGC Provisions Compliance 1 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 D.8 D.9 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 or not made public. The Policy on forecasts should determine the frequency, period and content of the forecasts and should be published on the company’s website. GSM rules should not restrict the participation of shareholders in general meetings and should not limit the exercise of their rights. The modification of rules will become effective no sooner than the following shareholders’ meeting. The external auditors those shareholders’ meetings where their reports are presented. should attend The BoD should submit to the GMS a brief assessment of the internal control and significant risk management systems, as well as opinions on matters to be submitted to the GMS for decision. 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 The quarterly and semi-annual financial reports, in the Romanian and English languages, should include information on the key drivers influencing the change in sales, operating profit, net profit and other relevant financial indicators, on a quarter-on- quarter and year-on-year basis. 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. 2 x x x x x x x x x Noncompliance / Partial compliance 3 Reason for noncompliance/ Explanation on compliance 4 are auditors External invited those to attend GMS meetings where their reports are presented. Page 6 of 7 Board of Directors’ Report 2020 BVB CGC Provisions Compliance D.10 1 sport cultural expression, If the company supports various forms of artistic activities, and educational or scientific activities, and considers that their resulting impact on the innovativeness and competitiveness of the company is part of its business mission and development strategy, the company should publish the policy guiding its activity in such field. 2 x Noncompliance / Partial compliance 3 Reason for noncompliance/ Explanation on compliance 4 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 S.N.G.N. ROMGAZ S.A. GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTED BY THE EUROPEAN UNION AND THE ORDER OF THE MINISTRY OF PUBLIC FINANCE 2844/2016 CONTENTS: PAGE: Independent auditor’s report Statement of consolidated comprehensive income for the year ended December 31, 2020 Statement of consolidated financial position as of December 31, 2020 Statement of consolidated changes in equity for the year ended December 31, 2020 Statement of consolidated cash flow for the year ended December 31, 2020 Notes to the consolidated financial statements for the year ended December 31, 2020 1. Background and general business 2. Significant accounting policies 3. Revenue and other income 4. Investment income 5. Cost of commodities sold, raw materials and consumables 6. Other gains and losses 7. Depreciation, amortization and impairment expenses 8. Employee benefit expense 9. Finance costs 10. Other expenses 11. Income tax 12. Property, plant and equipment 13. Exploration and appraisal for natural gas resources 14. Other intangible assets. Right of use assets 15. Inventories 16. Accounts receivable 17. Share capital 18. Reserves 19. Provisions 20. Deferred revenue 21. Trade and other current liabilities 22. Financial instruments 23. Related party transactions and balances 24. Information regarding the members of the administrative, management and supervisory bodies 25. Investment in associates 26. Other financial investments 27. Segment information 28. Cash and cash equivalents 29. Other financial assets 30. Commitments undertaken 31. Commitments received 32. Contingencies 33. Joint arrangements 34. Auditor’s fees 35. Events after the balance sheet date 36. Approval of financial statements 1 2 4 5 7 7 7 18 19 19 19 20 20 20 21 21 23 25 26 27 27 29 30 30 32 33 33 35 36 37 39 40 43 43 43 44 44 45 45 45 45 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, 2020, 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, 2020 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. 2 Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the 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 impairment testing and 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. 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; The estimation of gas reserves requires the Group’s management and engineers to make significant judgement and assumptions and therefore it was considered to be a key audit matter 3 - 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”); - 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, as at 31 December 2020 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 in amount of RON 2,225 million as at 31 December 2020, 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 assessment of the recoverability of the carrying value of property, plant and equipment of the cash generating unit for which triggering events were identified; International Financial Reporting Standards require an entity to assess,at least at each reporting date, whether indicators of impairment or reversal of impairment previously recorded exist. Management considered that the recent changes brought by new legislation in 2020, as well as recent changes in market conditions due to Covid- 19 pandemic effects, constitute impairment indicators and, consequently, has carried out an impairment test for the production assets in the Upstream Gas segment which resulted in no additional impairment being recognised. Considering the above, we determined that Impairment testing of production assets in the Upstream Gas segment is a key audit matter. 4 - 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 2020 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 Group’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; - We analysed the assumptions used in the cash flow projection considering the recent changes brought by new legislation in 2020, as well as changes in market conditions due to Covid-19 pandemic; - 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, the discount rates used, future natural gas sales prices, etc) - We evaluated the management’s sensitivity analysis over key assumptions in the future cash flow model in order to assess the potential impact of possible changes We also assessed the adequacy of the Group’s disclosures in the financial statements. 5 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 significant to our audit because of its magnitude (carrying value of RON 538.9 million at 31 December 2020) 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 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. 6 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), and Corporate responsibility and sustainability report but does not include the consolidated financial statements and our auditors’ report thereon. We obtained the Annual Report prior to the date of our auditor’s report, and we expect to obtain the Corporate responsibility and sustainability report, as part of a separate report, after the date of our auditor’s report. Management is responsible for the other information. Our audit opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of 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. 7 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. 8 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 communicate to them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. Report on Other Legal and Regulatory Requirements Reporting on Information Other than the consolidated financial statements and Our Auditors’ Report Thereon In addition to our reporting responsibilities according to ISAs described in section “Other information”, with respect to the Directors’ Consolidated 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, 2020; 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, 2020, 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, 2020. Total uninterrupted engagement period, for the statutory auditor, has lasted for three years, covering the years ended December 31, 2018, 2019 and 2020. 9 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 23 March 2021. Provision of Non-audit Services No prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No. 537/2014 of the European Parliament and of the Council were provided by us to the Group and we remain independent from the Group in conducting the audit. In addition to statutory audit services and 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. FA77 Name of the Auditor/ Partner: Alexandru Lupea Registered in the electronic Public Register under No. AF273 Bucharest, Romania 23 March 2021 S.N.G.N. ROMGAZ S.A. GROUP STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2020 Note 3 5 4 6 16 5 7 8 9 13 25 10 3 11 Year ended December 31, 2020 '000 RON 4,074,893 (18,617) 47,845 (6,534) Year ended December 31, 2019 '000 RON restated * 5,080,482 (107,800) 38,124 7,519 17,551 (81,221) (16,151) (58,282) (672,063) (767,251) (17,000) (26,509) 1,330 (1,158,143) 25,439 80,008 (76,048) (1,451,766) (670,408) (24,740) (1,636) 1,474 (1,551,642) 32,834 1,426,508 1,275,180 (178,604) (185,557) 1,247,904 1,089,623 19 c) (16,877) 27,411 11 2,700 (4,387) (14,177) 23,024 (14,177) 23,024 1,233,727 1,112,647 0.0032 0.0028 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 Finance cost Exploration expense Share of profit of associates Other expenses Other income Profit before tax Income tax expense Profit for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss Actuarial gains/(losses) on post-employment benefits Income tax relating to items that will not be reclassified subsequently to profit or loss Total items that will not be reclassified subsequently to profit or loss Other comprehensive income for the year net of income tax Total comprehensive income for the year Basic and diluted earnings per share Year ended December 31, 2019 '000 RON restatements * - - - 70,588 Year ended December 31, 2019 '000 RON as reported 5,080,482 (107,800) 38,124 (63,069) - - - (93,516) - - 22,928 - - - - - - - - - - - - (81,221) 80,008 (76,048) (1,358,250) (670,408) (24,740) (24,564) 1,474 (1,551,642) 32,834 1,275,180 (185,557) 1,089,623 27,411 (4,387) 23,024 23,024 1,112,647 0.0028 *) Starting 2020, the Group presents the release to income of the impairment for non-current assets written-off as a decrease of the expense generated by the write-off of the respective assets, as “other gains and losses” or as “exploration expense”. Previously, the release to income was presented as “depreciation, amortization and impairment”. For comparability purposes, 2019 was restated. These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 1 S.N.G.N. ROMGAZ S.A. GROUP STATEMENT OF CONSOLIDATED FINANCIAL POSITION AS OF DECEMBER 31, 2020 ASSETS Non-current assets Property, plant and equipment Other intangible assets Investments in associates Deferred tax asset Right of use asset Other financial assets 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 Share capital Reserves Retained earnings Total equity Non-current liabilities Retirement benefit obligation Deferred revenue Lease liability Provisions Total non-current liabilities Note 12 14 25 11 14 26 15 16 a) 29 16 b) 28 17 18 19 20 19 December 31, 2020 '000 RON December 31, 2019 '000 RON 5,613,122 14,774 26,102 275,328 7,915 5,378 5,942,619 244,563 592,875 651 1,995,523 68,023 416,913 3,318,548 9,261,167 385,422 2,251,909 5,149,919 7,787,250 128,690 136,308 7,845 538,931 811,774 5,543,177 9,164 24,772 230,947 8,590 5,388 5,822,038 311,013 638,158 312 1,075,224 42,485 363,943 2,431,135 8,253,173 385,422 1,587,409 5,201,222 7,174,053 114,876 21,244 8,285 366,393 510,798 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 2 S.N.G.N. ROMGAZ S.A. GROUP STATEMENT OF CONSOLIDATED FINANCIAL POSITION AS OF DECEMBER 31, 2020 Note December 31, 2020 '000 RON December 31, 2019 '000 RON Current liabilities Trade payables Contract liabilities Current tax liabilities Deferred revenue Provisions Lease liability Other liabilities Total current liabilities Total liabilities Total equity and liabilities 21 20 19 21 89,132 81,318 59,831 10,899 156,415 767 263,781 662,143 1,473,917 9,261,167 109,910 42,705 64,342 3,729 82,701 694 264,241 568,322 1,079,120 8,253,173 These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 3 S.N.G.N. ROMGAZ S.A. GROUP STATEMENT OF CONSOLIDATED CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2020 Balance as of January 1, 2020 Profit for the year Allocation to dividends *) Increase in legal reserves Allocation to other reserves Increase in reinvested profit reserves Other comprehensive income for the year Balance as of December 31, 2020 Balance as of January 1, 2019 Profit for the year Allocation to dividends *) Increase in legal reserves Allocation to other reserves Increase in reinvested profit reserves Other comprehensive income for the year Balance as of December 31, 2019 Share capital '000 RON Legal reserve '000 RON Other reserves (note 18) '000 RON Retained earnings **) '000 RON 385,422 - - - - - - 385,422 385,422 - - - - - - 385,422 79,921 - - 3,616 - - - 83,537 77,487 - - 2,434 - - - 79,921 1,507,488 - - - 598,840 62,044 - 2,168,372 1,747,512 - (362,297) - 106,265 16,008 - 1,507,488 5,201,222 1,247,904 (620,530) (3,616) (598,840) (62,044) (14,177) 5,149,919 5,458,196 1,089,623 (1,244,914) (2,434) (106,265) (16,008) 23,024 5,201,222 Total '000 RON 7,174,053 1,247,904 (620,530) - - - (14,177) 7,787,250 7,668,617 1,089,623 (1,607,211) - - - 23,024 7,174,053 *) In 2020 the Group’s shareholders approved the allocation of dividends of RON 620,530 thousand (2019: RON 1,607,211 thousand), dividend per share being RON 1.61 (2019: RON 4.17). **) Retained earnings include the geological quota reserve set up in accordance with the provisions of Government Decision no. 168/1998 on the establishment of the expense quota for the development and modernization of oil and natural gas production, refining, transportation and oil distribution. Following the Group’s transition to IFRS, the reserve existing as of December 31, 2012 was transferred to retained earnings. This result is allocated based on the depreciation, respectively write-off of the assets financed using this source, based on decision of General Meeting of Shareholders. As of December 31, 2020 the geological quota reserve is of RON 927,499 thousand (December 31, 2019: RON 1,081,148 thousand). These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 4 S.N.G.N. ROMGAZ S.A. GROUP STATEMENT OF CONSOLIDATED CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2020 Cash flows from operating activities Net profit Adjustments for: Income tax expense (note 11) Share of associates’ result (note 25) Interest expense (note 9) Unwinding of decommissioning provision (note 9, note 19) Interest revenue (note 4) Net loss on disposal of non-current assets (note 6) Change in decommissioning provision recognized in profit or loss, other than unwinding (note 19) Change in other provisions (note 19) Net impairment of exploration assets (note 7, note 12, note 13) Exploration projects written off (note 13) Net impairment of property, plant and equipment and intangibles (note 7, note 12) Depreciation and amortization (note 7) Amortization of contract costs Change in investments at fair value through profit and loss (note 6) Net receivable write-offs and movement in allowances for trade receivables and other assets Other gains and losses Net movement in write-down allowances for inventory (note 6, note 15) Liabilities written off Subsidies income (note 20) Movements in 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 taxes paid Net cash generated by operating activities Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON restated * 1,247,904 1,089,623 178,604 (1,330) 593 16,407 (47,845) 7 24,273 66,467 97,695 836 125,997 448,371 795 10 (19,700) - 8,427 (368) (7) 2,147,136 58,516 38,311 17,600 2,261,562 (3) (224,796) 2,036,763 185,557 (1,474) 543 24,197 (38,124) (2,542) (51,760) (5,402) 231,278 123 699,531 520,957 651 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 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 5 S.N.G.N. ROMGAZ S.A. GROUP STATEMENT OF CONSOLIDATED CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2020 Cash flows from investing activities Bank deposits set up and acquisition of state bonds Bank deposits and state bonds matured Interest received Proceeds from sale of non-current assets Acquisition of non-current assets Acquisition of exploration assets Net cash used in investing activities Cash flows from financing activities Dividends paid Repayment of lease liability Subsidies reimbursed Subsidies received (note 20) 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 Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON restated * (2,964,757) 2,060,925 38,601 1,733 (547,215) (66,516) (1,477,229) (620,346) (1,196) (50) 115,027 (506,565) 52,969 363,943 416,912 (2,591,658) 2,387,686 43,470 1,305 (694,349) (173,563) (1,027,109) (1,607,246) (861) - - (1,608,107) (202,893) 566,836 363,943 *) Please see the comment in the statement of consolidated comprehensive income. These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 6 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 1. BACKGROUND AND GENERAL BUSINESS Information regarding S.N.G.N. Romgaz S.A. Group (the “Group”) The Group is formed of S.N.G.N. Romgaz S.A. (”the Company”/"Romgaz"), as parent company, its fully owned subsidiary S.N.G.N. ROMGAZ S.A. - Filiala de Înmagazinare Gaze Naturale DEPOGAZ Ploiești S.R.L. (“Depogaz”) and its associates – S.C. Depomures S.A. (40% of the share capital) and S.C. Agri LNG Project Company S.R.L. (25% of the share capital). Romgaz is a joint stock company, incorporated in accordance with the Romanian legislation. The Company’s headquarter is in Mediaş, 4 Constantin I. Motaş Square, 551130, Sibiu County. The Romanian State, through the Ministry of Economy, Energy and Business Environment, is the majority shareholder of S.N.G.N. Romgaz S.A. together with other legal and physical persons (note 17). The Group has as main activity: 1. 2. 3. 4. 5. geological research for the discovery of natural gas, crude oil and condensed reserves; operation, production and usage, including trading, of mineral resources; natural gas production for: ensuring the storage flow continuity; technological consumption; delivery in the transmission system. underground storage of natural gas provided by Depogaz and Depomures; commissioning, interventions, capital repairs for wells equipping the deposits, as well as the natural gas resources extraction wells, for its own activity and for third parties; 6. electricity production and distribution. 2. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The consolidated financial statements (“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 (EU) and Ministry of Finance Order 2844/2016 to approve accounting regulations in accordance with IFRS (MOF 2844/2016). For the purposes of the preparation of these financial statements, the functional currency of the Group is deemed to be the Romanian Leu (RON). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the International Accounting Standards Board (IASB), however, the differences have no material impact on the Group’s financial statements for the periods presented. Basis of preparation The financial statements have been prepared on a going concern basis. The principal accounting policies are set out below. Accounting is kept in Romanian and in the national currency. Items included in these financial statements are denominated in Romanian lei. Unless otherwise stated, the amounts are presented in thousand lei (thousand RON). These financial statements are prepared for general purposes, for users familiar with the IFRS as adopted by EU; these are not special purpose financial statements. Consequently, these financial statements must not be used as sole source of information by a potential investor or other users interested in a specific transaction. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 “Inventory” or value in use in IAS 36 “Impairment of assets”. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 7 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance to the Group of the inputs to the fair value measurement, which are described as follows: level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date; level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and level 3 inputs are unobservable inputs for the asset or liability. Basis for consolidation Subsidiaries The Company controls an entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when it loses control of that subsidiary. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group. All intra-group assets and liabilities, income and expenses relating to transactions between members of the Group are eliminated in full on consolidation Associated entities An associate is a company over which the Company exercises significant influence through participation in decision making on financial and operational policies of the entity invested in. Investments in associates are recorded using the equity method of accounting. By this method, the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the Group’s share of the investee’s net assets. The Group’s profit or loss includes its share of the investee’s profit or loss and the Group’s other comprehensive income includes its share of the investee’s other comprehensive income. Joint arrangements A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint ventures. Joint operations The Group recognizes in relation to its interest in a joint operation: its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output arising from the joint operation; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly. As joint operator, the Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses. If the Group participates in, but does not have joint control of, a joint operation it accounts for its interest in the arrangement in accordance with the paragraphs above if it has rights to the assets, and obligations for the liabilities, relating to the joint operation. If the Group participates in, but does not have joint control of, a joint operation, does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it accounts for its interest in the joint operation in accordance with the IFRSs applicable to that interest. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 8 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Joint ventures As a partner in a joint venture, in its financial statements, the Group recognizes its interest in a joint venture using the equity method of accounting. Standards and interpretations valid for the current period The following standards and amendments or improvements to existing standards issued by the IASB and adopted by the EU have entered into force for the current period: Amendments to IFRS 3 Business Combinations (effective for annual periods beginning on or after January 1, 2020); Amendments to References to the Conceptual Framework in IFRS Standards (effective for annual periods beginning on or after January 1, 2020); Amendments to IAS 1 and IAS 8: Definition of materiality (effective for annual periods beginning on or after January 1, 2020); Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform (effective for annual periods beginning on or after January 1, 2020); Amendments to IFRS 16 Covid-19-Related Rent Concessions (effective for annual periods beginning on or after June 1, 2021). The adoption of these amendments, interpretations or improvements to existing standards has not led to changes in the Group's accounting policies. Standards and interpretations issued by IASB not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from IFRS adopted by the IASB except from the following standards, amendments or improvements to the existing standards and interpretations, which were not endorsed for use in EU as at date of publication of financial statements: IFRS 17 Insurance Contracts including Amendments to IFRS 17 (effective for annual periods beginning on or after January 1, 2023); Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non- current and Classification of Liabilities as Current or Non-current - Deferral of Effective Date (effective for annual periods beginning on or after January 1, 2023); Amendments to IFRS 3 Business Combinations (effective for annual periods beginning on or after January 1, 2022); Amendments to IAS 16 Property, Plant and Equipment (effective for annual periods beginning on or after January 1, 2022); Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (effective for annual periods beginning on or after January 1, 2022); Annual Improvements 2018-2020 (effective for annual periods beginning on or after January 1, 2022); Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (effective for annual periods beginning on or after January 1, 2021). The Group is currently evaluating the effect that the adoption of these standards, amendments or improvements to the existing standards and interpretations will have on the financial statements of the Group in the period of initial application. Standards and interpretations issued by IASB and adopted by the EU, but not yet effective At the date of issue of the financial statements, the following standards were adopted by the EU, but not yet effective: Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9 (effective for annual periods beginning on or after January 1, 2021). The Group did not adopt these standards and amendments before their effective dates. The Group does not expect these amendments to have a material impact on the financial statements. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 9 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Segment information The information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on the upstream segment, gas storage, electricity production and distribution, and other activities, including headquarter activities. The Directors of the Group have chosen to organize the Group around differences in activities performed. Specifically, the Group is organized in the following segments: upstream, which includes exploration activities, natural gas production and trade of gas extracted by Romgaz or acquired from domestic production or import, for resale; these activities are performed by Medias, Mures and Bratislava branches; storage activities, performed by Depogaz and Depomures; electricity production and distribution activities, performed by Iernut branch; other activities, such as technological transport, operations on wells and corporate activities. Transactions between the companies within the Group are at current market prices. Unrealized profits are eliminated in the financial statements. Transactions between Groups segments within the same company are at cost. Revenue recognition a) Revenue from contracts with customers The Group recognizes customer contracts when all of the following criteria are met: the parties to the contract have approved the contract and are committed to perform their respective obligations; the Group can identify each party’s rights regarding the goods or services to be transferred; the Group can identify the payment terms; the contract has commercial substance; it is probable that the Group will collect the consideration to which it will be entitled in exchange for the goods delivered or the services provided. Revenue from contracts with customers is recognized when, or as the Group transfers the goods or services to the customer, respectively, the client obtains control over them. Depending on the nature of the goods or services, revenues are recognized over time or at a point in time. Revenue is recognized over time if: the customer receives and consumes simultaneously the benefits provided by obtaining the goods and services as the Group performs the obligation; the Group creates or enhances an asset that the customer controls as the asset is created or enhanced; the Group`s performance does not create an asset with an alternative use to the Group. All other revenues that do not meet the above criteria are recognized at a point in time. For revenue to be recognized over time, the Group assesses progress towards meeting the execution obligation, using output methods or input methods, depending on the nature of the good or service transferred to the client. Revenues are recognized only if the Group can reasonably assess the result of the execution obligation or, if it cannot be estimated, only at the level of the costs it is expected to recover from the customer. Revenue from contracts with customers mainly relates to gas sales, electricity supply and related services, storage services. Revenue from these contracts are recognized at a point in time on the basis of the actual quantities at the prices fixed in the contracts concluded or at the rates set by the regulatory authority, as the case may be. Contracts concluded by the Group do not contain significant financing components. b) Other revenue Rental revenue for operating lease contracts where the Group operates as lessor is recognized on an accrual basis in accordance with the substance of the relevant agreements. Interest income is recognized periodically and proportionally as the respective income is generated, on accrual basis. Dividends are recognized as income when the legal right to receive them is established. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 10 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Exploration expenses The costs of seismic exploration, geological, geophysical and other similar exploration activities are recognized as exploration expenses in the statement of comprehensive income in the period in which they arise. Exploration expenses also include the cost of exploration assets that have not identified gas resources and have been written-off. Foreign currencies The functional currency is the currency of the primary economic environment in which the Group operates and is the currency in which the Group primarily generates and expends cash. The Group operates in Romania and it has the Romanian Leu (RON) as its functional currency. In preparing the financial statements of the Group, transactions in currencies other than the functional currency (foreign currencies) are recorded at the exchange rates prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Exchange differences are recognized in the statement of comprehensive income in the period in which they arise. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Employee benefits Benefits granted upon retirement In the normal course of business, the Group makes payments to the Romanian State on behalf of its employees at legal rates. All employees of the Group are members of the Romanian State pension plan. These costs are recognized in the statement of comprehensive income together with the related salary costs. Based on the Collective Labor Agreement, the Group is liable to pay to its employees at retirement a number of gross salaries, according to the years worked in the gas industry/electrical industry, work conditions etc. To this purpose, the Group recorded a provision for benefits upon retirement. This provision is updated annually and computed according to actuary methods based on estimates of the average salary, the average number of salaries payable upon retirement, on the estimate of the period when they shall be paid and it is brought to present value using a discount factor based on interest related to a maximum degree of security investments (government securities). As the benefits are payed, the provision is reduced together with the reversal of the provision against income. Gains or actuarial losses, are recognized in other comprehensive income. These are changes in the present value of the defined benefit obligation as a result of statistical adjustments and changes in actuarial assumptions. Any other changes in the provision are recognized in the result of the year. The Group does not operate any other pension scheme or post-retirement benefit plan and, consequently, has no obligation in respect of pensions. Employee participation to profit The Group records in its financial statements a provision related to the fund for employee participation to profit in compliance with legislation in force. Liabilities related to the fund for employee participation to profit are settled in less than a year and are measured at the amounts estimated to be paid at the time of settlement. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Greenhouse gas provisions The Group recognizes a provision for the deficit between actual CO2 emissions and certificates held, measured at the best estimate of expenditure required to settle the obligation. Provisions for decommissioning of wells Liabilities for decommissioning costs are recognized due to the Group’s obligation to plug and abandon a well, dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made. The Group recorded a provision for decommissioning wells. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 11 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 This provision was computed based on the estimated future expenditure determined in accordance with local conditions and requirements and it was brought to present value using the interest rate on long term treasury bonds. The rate is updated annually. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognized. The item of property, plant and equipment is subsequently depreciated as part of the asset. The Group applies IFRIC 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities” related to changes in existing decommissioning, restoration and similar liabilities. The change in the decommissioning provision for wells is recorded as follows: a. b. c. subject to b., changes in the liability are added to, or deducted from, the cost of the related asset in the current period; the amount deducted from the cost of the asset does not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the statement of comprehensive income; if the adjustment results in an addition to the cost of an asset, the Group considers whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the Group tests the asset for impairment by estimating its recoverable amount, and accounts for any impairment loss. Once the related asset has reached the end of its useful life, all subsequent changes of debt are recognized in the income statement in the period when they occur. The periodical unwinding of the discount is recognized periodically in the comprehensive income as a finance cost, as it occurs. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax Deferred tax is recognized on the differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in associates and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 12 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current tax for the period is recognized as an expense in the statement of comprehensive income. Deferred tax for the period is recognized as an expense or income in the statement of comprehensive income, except when they relate to items credited or debited directly to equity, in which case the tax is also recognized directly in equity, or where it arises from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquirer’s identifiable assets, liabilities and contingent liabilities over cost. Property, plant and equipment (1) Cost (i) Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of any decommissioning obligation. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. (ii) Gas cushion This is a quantity of natural gas constituted as a reserve at the level of gas storages, physically recoverable, which ensures the optimum conditions necessary to maintain their technical-productive flow characteristics. The gas cushion is recorded as an item of property, plant and equipment in the Storage segment. (iii) Development expenditure Expenditure on the construction, installation and completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including the commissioning of wells, is capitalized within property, plant and equipment and is depreciated from the commencement of production as described below in the property, plant and equipment accounting policies. (iv) Maintenance and repairs The Group does not recognize within the assets’ costs the current expenses and the accidental expenses for that asset. These costs are expensed in the period in which they are incurred. The cost for current maintenance are mainly labor costs and consumables and also small inventory items. The purpose of these expenses is usually described as “repairs and maintenance” for property, plant and equipment. The expenses with major activities, inspections and repairs comprise the replacement of the assets or other asset’s parts, the inspection cost and major overhauls. These expenses are capitalized if an asset or part of an asset, which was separately depreciated, is replaced and is probable that they will bring future economic benefits for the Group. If part of a replaced asset was not considered as a separate component and, as a result, was not separately depreciated, the replacement value will be used to estimate the net book value of the asset which is replaced and is immediately written-off. The inspection costs associated with major overhauls are capitalized and depreciated over the period until next inspection. The cost for major overhauls for wells are also capitalized and depreciated using the unit of production depreciation method. All other costs with the current repairs and usual maintenance are recognized directly in expenses. (2) Depreciation The depreciable amount of a tangible asset is the cost less the residual value of the asset. The residual value is the estimated value that the Group would currently obtain from the disposal of an asset, after deducting the estimated costs associated with the disposal if the asset would already have the age and condition expected at the end of its useful life. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 13 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 For directly productive tangible assets (natural gas resources extraction wells), the Group applies the depreciation method based on the unit of production in order to reflect in the statement of comprehensive income, an expense proportionate with the production obtained from the total natural gas reserve certified at the beginning of the period. According to this method, the value of each production well is depreciated according to the ratio of the natural gas quantity extracted during the period compared to the proved developed reserves at the beginning of the period. Assets representing gas cushion are not depreciated, as the residual value exceeds their cost. For indirectly productive tangible assets and storage assets, depreciation is computed using the straight–line method over the estimated useful life of assets, as follows: Asset Specific buildings and constructions Technical installations and machines Other plant, tools and furniture Years 10 - 50 3 - 20 3 – 30 Land is not depreciated as it is considered to have an indefinite useful life. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at historical cost, less any recognized impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Items of tangible fixed assets that are disposed of are eliminated from the statement of financial position along with the corresponding accumulated depreciation and impairment. Any gain or loss resulting from such retirement or disposal is included in the result of the period. For items of tangible fixed assets that are retired from use, but not yet written off by the reporting date, an impairment adjustment is recorded for the carrying value at the time of retirement. (3) Impairment Non-current assets must be recognized at the lower of the carrying amount and recoverable amount. If and only if the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset should be reduced to be equal to its recoverable amount. Such a reduction represents an impairment loss that is recognized in the result of the period. Thus at the end of each reporting period, the Group assesses whether there is any indication of impairment of assets. If such indication is identified, the Group tests the assets to determine whether they are impaired. The Group’s assets are allocated to cash-generating units. The cash-generating unit is the smallest identifiable asset group that generates independent cash inflows to a large extent from cash inflows generated by other assets or asset groups. The Group considers each commercial field as a separate cash-generating unit. All gas storages held by the Group are considered as part of a single cash-generating unit, as the regulatory authority sets regulated tariffs by analyzing the storage activity as a whole, not every single storage. In 2020, the Group conducted an impairment test in the Upstream segment, as the conditions existing when the previous test was conducted changed; the results of the impairment test are presented in note 12. In 2020, no indications of impairment were observed for storage assets.. Recoverable amount is the largest of the fair value of an asset or a cash-generating unit less costs associated with disposal and its value in use. Considering the nature of the Group's assets, it was not possible to determine the fair value of the cash-generating units, being determined only the value in use of the assets. Exploration and appraisal assets (1) Cost Natural gas exploration (other than seismic, geological, geophysical and other similar activities), appraisal and development expenditure is accounted for using the principles of the successful efforts method of accounting. Costs directly associated with an exploration well are initially capitalized as an asset until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, drilling costs and payments made to contractors. If potentially commercial quantities of hydrocarbons are not found, the exploration well is eliminated from the statement of financial position, by recording an impairment, until National Agency for Mineral Resources (Agentia Nationala pentru Resurse Minerale – ANRM) approvals are obtained in order to be written off. If hydrocarbons are found and, subject to further appraisal activity, are likely to be capable of commercial development, the costs continue to be carried as an asset. Costs directly associated with appraisal activity, undertaken to determine the size, characteristics and commercial potential of a reservoir following the initial The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 14 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalized as an asset. All such carried costs are subject to technical, commercial and management review at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, an impairment is recorded for the assets, until the completion of the legal steps necessary for them to be written off. When proved reserves of natural gas are determined and development is approved by management, the relevant expenditure is transferred to property, plant and equipment other than exploration assets. (2) Impairment At each reporting date, the Group's management reviews its exploration assets and establishes the necessity for recording in the financial statements an impairment loss in these situations: the period for which the Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; substantive expenditure on further exploration for and evaluation of gas resources in the specific area is neither budgeted nor planned; exploration for and evaluation of gas resources in the specific area have not led to the discovery of commercially viable quantities of gas resources and the Group has decided to discontinue such activities in the specific area; sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Other intangible assets (1) Cost Licenses for software, patents and other intangible assets are recognized at acquisition cost. Intangible assets are not revalued. (2) Amortization Patents and other intangible assets are amortized using the straight-line method over their useful life, but not exceeding 20 years. Licenses related to the right of use of computer software are amortized over a period of 3 years. Inventories Inventories are recorded initially at cost of production, or acquisition cost, depending on the case. The cost of finished goods and production in progress includes materials, labour, expense incurred for bringing the finished goods at the location and in the existent form and the related indirect production costs. Write down adjustments are booked against slow moving, damaged and obsolete inventory, when necessary. At each reporting date, inventories are measured at the lower of cost and net realizable value. The net realizable value is estimated based on the selling price less any completion and selling expenses. The cost of inventories is assigned by using the weighted average cost formula. Financial assets and liabilities The Group’s financial assets include cash and cash equivalents, trade receivables, other receivables, loans, bank deposits and bonds with a maturity from acquisition date of over three months and other investments in equity instruments. Financial liabilities include interest-bearing bank borrowings and overdrafts and trade and other payables. For each item, the accounting policies on recognition and measurement are disclosed in this note. Management believes that the estimated fair values of these instruments approximate their carrying amounts. Cash and cash equivalents include petty cash, cash in current bank accounts and short-term deposits with a maturity of less than three months from the date of acquisition. The Group recognizes a financial asset or financial liability in the statement of financial position when and only when it becomes a party to the contractual provisions of the instrument. Upon initial recognition, financial assets are classified at amortized cost or measured at fair value through profit or loss. The classification depends on the Group's business model for managing the financial assets and their contractual cash flows. The Group does not have financial assets measured at fair value through other comprehensive income. On initial recognition, financial assets and financial liabilities are measured at fair value plus or minus, in the case of assets measured at amortized cost, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 15 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Receivables resulting from contracts with customers represent the unconditional right of the Group to a consideration. The right to a consideration is unconditional if only the passage of time is required before payment of the consideration is due. These are measured at initial recognition at the transaction price. The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments plus or minus cumulative depreciation using the effective interest method for each difference between the initial amount and the amount at maturity and, for financial assets, adjusted for any impairment. Any difference between the entry amount and the reimbursement amount is recognized in the income statement for the period of the borrowings using the effective interest method. Financial instruments are classified as liabilities or equity in accordance with the nature of the contractual arrangement. Interest, dividends, gains and losses on a financial instrument classified as a liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are recorded directly in equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and discharge the obligation simultaneously. Impairment of financial assets Financial assets, other than those at fair value through profit and loss, are assessed for indicators of impairment at each reporting period. Except for trade receivables, the Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk associated with the financial instrument, has increased significantly since initial recognition. If, at the reporting date, the credit risk for a financial instrument has not increased significantly since the initial recognition, the Group measures the loss allowance for that financial instrument at a value equal to 12-month expected credit losses. The loss allowance on trade receivables resulting from transactions that are subject to IFRS 15 is measured at an amount equal to lifetime expected credit losses. The Group considers the risk or probability of a default occurring, reflecting the possibility of a default to occur or not to occur, even if the possibility of a credit loss is very low. The Group measures the expected credit losses of a financial instrument in a manner that reflects reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The carrying amount of the financial asset, other than those at fair value through profit or loss, is reduced through the use of an allowance account. De-recognition of financial assets and liabilities The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. Reserves Reserves include (note 18): legal reserves, which are used annually to transfer to reserves up to 5% of the statutory profit, but not more than 20% of the statutory share capital of the companies within the Group; other reserves, which represent allocations from profit in accordance with Government Ordinance no. 64/2001, paragraph (g) for the Company’s development fund; reserves from reinvested profit, set up based on the Fiscal Code. The amount of profit that benefited from tax exemption under the fiscal legislation less the legal reserve, is distributed at the end of the year by setting up the reserve; development quota reserve, non-distributable, set up until 2004. Development quota reserve set up after 2004 is distributable and presented in retained earnings. Development quota set up after 2004 is allocated together with the profit allocation, as approved by the General Meeting of Shareholders, based on depreciation, respectively write-off of the assets financed using the development quota; other non-distributable reserves, set up from retained earnings representing translation differences recorded at transition to IFRS. These reserves are set up in accordance with MOF 2844/2016. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 16 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Subsidies Subsidies are non-reimbursable financial resources granted to the Group with the condition of meeting certain criteria. In the category of subsidies are included grants related to assets and grants related to income. Grants related to assets are government grants for whose primary condition is that the Group should purchase, construct, or otherwise acquire long-term assets. Grants related to income are government grants other than those related to assets. Subsidies are not recognized until there is reasonable assurance that: (a) (b) the Group will comply with the conditions attaching to it; and subsidies will be received. Grants related to assets are presented in the statement of financial position as “Deferred revenue”, which is then recognized in profit or loss on a systematic basis over the useful life of the asset. Grants related to income are recognized in the statement of profit or loss under "Other income", as the related expenses are recorded. Until the time the expense occurs, the grant received is recognized as “Deferred revenue”. Use of estimates The preparation of the financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the end of reporting date, and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgments that the management has made in the process of applying the Group’s accounting policies, and that have the most significant effect on the amounts recognized in the financial statements. Estimates related to impairment losses on trade receivables At each period end, the Group evaluates the risks attached to current and overdue receivables and the probability of such risks to materialize. The Group’s receivables are generally due in maximum 30 days from the date of issue. However, the Group may be forced by court decisions to sell gas to insolvent clients deemed “captive” according to insolvency legislation. Invoices issued to these clients for gas delivered are due in 90 days from the date of issue. Based on the information available at period end related to such clients and previous experience, the Group estimates the lifetime expected credit loss of receivables, both current and overdue, and records appropriate impairment losses (note 16). Estimates related to the exploration expenditure on undeveloped fields If field works prove that the geological structures are not exploitable from an economic point of view or that they do not have hydrocarbon resources available, an impairment is recorded. The impairment assessment is performed based on geological experts’ technical expertise (note 7). Estimates related to the developed proved reserves The Group applies the depreciation method based on the unit of production in order to reflect in the income statement an expense proportionate with the production obtained from the total natural gas reserve at the beginning of the period. According to this method, the value of each production well is depreciated according to the ratio of the natural gas quantity extracted during the period compared to the gas reserve at the beginning of the period. The gas reserves are updated annually according to internal assessments that are based on certifications of ANRM (note 7). Estimates related to the decommissioning provision Liabilities for decommissioning costs are recognized for the Group’s obligation to plug and abandon a well, dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made. This provision is computed based on the estimated future expenditure determined in accordance with local conditions and requirements and it is brought to present value using the interest rate on long term treasury bonds. The rate is updated annually (note 19). The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 17 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Estimates related to the retirement benefit obligation Under the Collective Labor Agreement, the Group is obliged to pay to its employees when they retire a multiplicator of the gross salary, depending on the seniority within the gas industry/electricity industry, working conditions etc. This provision is updated annually and calculated based on actuarial methods to estimate the average wage, the average number of employees to pay at retirement, the estimate of the period when they will be paid and brought to present value using a discount factor based on interest on investments with the highest degree of safety (government bonds) (note 19). The Group does not operate any other pension plan or retirement benefits, and therefore has no other obligations relating to pensions. Contingencies By their nature, contingencies end only when one or more uncertain future events occur or not. In order to determine the existence and the potential value of a contingent element, is required to exercise the professional judgment and the use of estimates regarding the outcome of future events (note 32). Comparative information For each item of the statement of financial position, the statement of comprehensive income and, where is the case, for the statement of changes in equity and for the statement of cash flows, for comparative information purposes is presented the value of the corresponding item for the previous period ended, unless the changes are insignificant. In addition, the Group presents an additional statement of financial position at the beginning of the earliest period presented when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in the financial statements, which has a material impact on the Group. 3. REVENUE AND OTHER INCOME Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Revenue from gas sold - domestic production Revenue from gas sold – other arrangements Revenue from gas acquired for resale – import gas Revenue from gas acquired for resale – domestic gas Revenue from storage services-capacity reservation Revenue from storage services-extraction Revenue from storage services-injection Revenue from electricity Revenue from services Revenue from sale of goods Other revenues from contracts Total revenue from contracts with customers Other revenues Total revenue Other operating income *) Total revenue and other income 3,226,448 66,915 - 15,545 282,363 43,151 49,343 189,289 175,877 18,192 367 4,067,490 7,403 4,074,893 25,439 4,100,332 4,151,626 128,737 77,867 23,368 265,962 22,410 42,418 145,714 184,564 30,243 402 5,073,311 7,171 5,080,482 32,834 5,113,316 *) Other operating income relates mainly to penalties charged to clients for late payment. Revenue from contracts with customers is recognized as or when the Group satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when the customer obtains control of that good or service. The transfer of control of goods sold by the Group usually coincides with title passing to the customer and the customer taking physical possession. Revenues from gas and electricity are recognized when the delivery has been made at the prices fixed in the contracts with customers. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 18 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Revenues from storage services are recognized when they are provided at the rates set by the regulatory authority. Usually, injection services are provided in the period April – October, and those for extraction in October – April. The capacity reservation services are being provided each month of the storage cycle, which begins on April 1 and ends on March 31 of the next year. In measuring the revenue from gas, electricity and storage services, the Group uses output methods. According to these methods, revenues are recognized based on direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The Group recognizes the revenue in the amount it has the right to charge. The Group does not disclose information about the remaining performance obligations, applying the practical expedient in IFRS 15, as the contracts with the customers are generally signed for periods of less than one year and the revenues are recognized at the amount which the Group has the right to charge. 4. INVESTMENT INCOME Interest income Total Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 47,845 47,845 38,124 38,124 Interest income is derived from the Group’s investments in bank deposits and government bonds. 5. COST OF COMMODITIES SOLD, RAW MATERIALS AND CONSUMABLES Consumables used Technological consumption Cost of gas acquired for resale, sold – import Cost of gas acquired for resale, sold – domestic Cost of electricity imbalance Cost of other goods sold Other consumables Total 6. OTHER GAINS AND LOSSES Forex gain Forex loss Net loss on disposal of non-current assets Net allowances for other receivables (note 16 c) Net write down allowances for inventory (note 15) Net gain/(loss) on financial assets at fair value through profit or loss (note 26) Other gains and losses from lease contracts Losses from other debtors Total Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 35,005 19,257 - 7,650 10,375 592 4,020 76,899 40,338 32,143 74,410 9,863 22,414 1,114 3,566 183.848 Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 52 (291) (7) 2,151 (8,427) (10) - (2) (6,534) 2,579 (2,029) 2,542 13,926 (5,125) (4,424) 52 (2) 7,519 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 19 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 7. DEPRECIATION, AMORTIZATION AND IMPAIRMENT EXPENSES Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Depreciation and amortization *) out of which: - depreciation of property, plant and equipment - amortization of intangible assets - amortization of write-of use assets Net impairment of non-current assets (note 12) **) Total depreciation, amortization and impairment 448,371 445,327 2,130 914 223,692 672,063 520,957 517,833 2,376 748 930,809 1,451,766 *) The decrease in the depreciation expense for property, plant and equipment is due to a reduction in natural gas production, as they are depreciated using the unit of production method, as mentioned in note 2. **) Net impairment of non-current assets have decreased as compared to the previous year as in 2020 the Group did not record any impairment losses from impairment tests unlike 2019. More information on the impairment test performed in 2020 is presented in note 12. 8. EMPLOYEE BENEFIT EXPENSE Wages and salaries Social security charges Meal tickets Other benefits according to collective labor contract Private pension payments Private health insurance Total employee benefit costs Less, capitalized employee benefit costs Total employee benefit expense 9. FINANCE COSTS Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 798,382 28,044 23,231 20,613 11,763 5,980 888,013 (120,762) 767,251 717,927 20,589 19,044 29,865 10,783 - 798,208 (127,800) 670,408 Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Interest expense Unwinding of the decommissioning provision (note 19) Total 593 16,407 17,000 543 24,197 24,740 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 20 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 10. OTHER EXPENSES Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Energy and water expenses Expenses for capacity booking and gas transmission services Expenses with other taxes and duties *) (Net gain)/Net loss from provisions movement (note 19) Other operating expenses **) Total 40,945 167,937 633,160 90,740 225,361 1,158,143 61,428 164,142 1,070,181 (57,162) 313,053 1,551,642 *) In the year ended December 31, 2020, the major taxes and duties included in the amount of RON 633,160 thousand (year ended December 31, 2019: RON 1,070,181 thousand) are: RON 414,943 thousand represent windfall tax resulting from the deregulation of prices in the natural gas sector according to Government Ordinance no. 7/2013 with the subsequent amendments for the implementation of the windfall tax following the deregulation of prices in the natural gas sector (year ended December 31, 2019: RON 716,908 thousand); RON 196,875 thousand represent royalty on gas production and storage activity (year ended December 31, 2019: RON 342,992 thousand). **) At the start of 2020, the monetary contribution from license holders in the electric power and natural gas sectors of 2% from revenues obtained from the activities under the scope of licenses granted by the Romanian Regulatory Authority for Energy (“ANRE”), as introduced by Government Emergency Ordinance no. 114/2018, was repealed. The 2019 operating expenses of RON 313,053 thousand included this contribution of RON 86,975 thousand. In 2020 the contribution paid to ANRE was of RON 12,883 thousand. In 2020 other operating expenses of RON 225,361 thousand include an expense of RON 24,284 thousand representing dividends deemed by ANAF as payable to the Romanian state according to the provisions of Government Emergency Ordinance no. 114/2018. The Company did not agree with the conclusions of the report and started legal actions against it. The deemed dividends attributable to the main shareholder and related penalties were offset by ANAF against receivables of the Company from ANAF, although the Company requested the receivables to be offset against other tax liabilities when due. As there is no shareholders’ decision to allocate additional dividends, the amount offset by ANAF was expensed. 11. INCOME TAX Current tax expense *) Deferred income tax (income)/expense Income tax expense Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 220,285 (41,681) 178,604 293,400 (107,843) 185,557 *) The 2020 current tax expense of RON 220,285 thousand includes additional income tax of RON 6,923 thousand, as determined by ANAF following a tax audit for the period 2014-2018; the Company filed a complaint against the report. The tax audit report included penalties of RON 37,941 thousand, which were written-off due to facilities introduced by Government Emergency Ordinance no. 69/2020. The tax rate used for the reconciliations below for the year ended December 31, 2020, respectively year ended December 31, 2019 is 16% payable by corporate entities in Romania on taxable profits. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 21 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 The total charge for the period can be reconciled to the accounting profit as follows: Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Accounting profit before tax (Profit)/loss of activities not subject to income tax Accounting profit subject to income tax Income tax expense calculated at 16% Effect of income exempt of taxation Effect of expenses that are not deductible in determining taxable profit Effect of current income tax reduction, due to tax facilities Effect of tax incentive for reinvested profit Effect of legal reserves Effect of the benefit from tax credits, used to reduce current tax expense Effect of deferred tax relating to the origination and reversal of temporary differences Effect of the benefit from tax credits, used to reduce deferred tax expense Effect of the previous years’ tax expense Income tax expense Components of deferred tax (asset)/liability: 1,426,508 6,298 1,432,806 229,249 (39,800) 68,978 (11,023) (9,950) (579) 27,362 (57,632) (34,924) 6,923 178,604 1,275,180 1,821 1,277,001 204,320 (44,977) 171,689 (15,054) (2,746) (390) 28,791 (145,040) (11,036) - 185,557 December 31, 2020 December 31, 2019 Cumulative temporary differences '000 RON Deferred tax (asset)/ liability '000 RON Cumulative temporary differences '000 RON Deferred tax (asset)/ liability '000 RON Provisions Property, plant and equipment Exploration assets *) Financial investments Inventory Trade receivables and other receivables Right of use asset Deferred revenue Lease liability Other intangible assets (736,102) 274,492 (828,989) (977) (29,817) (395,488) 474 9 (507) (3,900) (117,776) 43,919 (132,638) (156) (4,771) (63,278) 76 1 (81) (624) (540,560) 236,238 (928,679) (977) (17,940) (191,509) 554 17 (567) (86,490) 37,798 (148,589) (156) (2,870) (30,641) 89 3 (91) Total (1,720,805) (275,328) (1,443,423) (230,947) Change, out of which: - - in current year’s result in other comprehensive income 44,381 41,681 2,700 103,456 107,843 (4,387) *) According to the Fiscal Code applicable in Romania, expenses related to location, exploration, development or any preparatory activity for the exploitation of natural resources, which, according to the applicable accounting regulations, are recorded directly in the result, are recovered in equal rates for a period of 5 years, starting with the month in which the expenses are incurred. Also, for fixed assets specific to the exploration and production of gas resources, the carrying tax value of fixed assets written-off is deducted using the tax depreciation method used before their write-off for the remaining period. All of these costs are treated as assets only from a tax point of view and generate a deferred tax asset. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 22 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 12. PROPERTY, PLANT AND EQUIPMENT Land and land improvements '000 RON Buildings '000 RON Gas properties '000 RON Plant, machinery and equipment '000 RON Fixtures, fittings and office equipment '000 RON Storage assets '000 RON Tangible exploration assets '000 RON Capital work in progress '000 RON Total '000 RON Cost As of January 1, 2020 109,368 909,979 6,730,173 1,017,465 104,110 1,693,062 402,445 1,794,654 12,761,256 Additions Transfers Disposals 8,049 254 - 1 7,477 (1,342) 130,268 259,441 (16,051) 9 82,079 (8,928) - 10,876 (286) 9,819 20,109 (506) 66,516 (4,690) 554,384 (375,546) 769,046 - (130,665) (58,493) (216,271) As of December 31, 2020 117,671 916,115 7,103,831 1,090,625 114,700 1,722,484 333,606 1,914,999 13,314,031 Accumulated depreciation As of January 1, 2020 Charge *) Disposals As of December 31, 2020 Impairment - - - - As of January 1, 2020 8,255 Charge Transfers Release - - - 30,872 (839) (3,014) 358,880 4,325,133 40,306 1,664 - (382) 493,729 85,085 25,804 (50,993) 328,847 4,022,145 646,360 77,281 648,959 306,002 66,428 (8,882) 703,906 7,141 (286) 84,136 56,536 (69) 705,426 - - - - - - - - 5,723,592 466,979 (13,090) 6,177,481 80,567 1,148 378,332 245,532 246,618 1,494,487 557 2,374 (400) 76 - (19) (11,341) 100,189 - - (656) (132,323) 106,849 (28,178) (69,365) 283,079 - (254,138) As of December 31, 2020 8,255 41,588 553,625 83,098 1,205 366,335 213,398 255,924 1,523,428 Carrying value As of January 1, 2020 101,113 540,826 2,214,299 290,538 25,681 665,771 156,913 1,548,036 5,543,177 As of December 31, 2020 109,416 515,647 2,225,073 303,621 29,359 650,723 120,208 1,659,075 5,613,122 *) The amounts include depreciation of tangible assets used in the production of other fixed assets, capitalized in their cost, amounting to RON 21,649 thousand. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 23 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Land and land improvements '000 RON Buildings '000 RON 108,954 374 40 - 892,035 18 18,209 (283) Gas properties '000 RON 6,454,087 16,346 466,419 (206,679) Plant, machinery and equipment '000 RON 984,695 25 41,290 (8,545) Fixtures, fittings and office equipment '000 RON 102,099 21 4,124 (2,134) Storage assets '000 RON 1,718,601 - 9,035 (34,574) Tangible exploration assets '000 RON 332,457 210,521 (117,482) (23,051) Capital work in progress '000 RON 1,565,368 673,880 (421,635) (22,959) Total '000 RON 12,158,296 901,185 - (298,225) Cost As of January 1, 2019 Additions Transfers Disposals As of December 31, 2019 109,368 909,979 6,730,173 1,017,465 104,110 1,693,062 402,445 1,794,654 12,761,256 Accumulated depreciation As of January 1, 2019 Charge *) Transfers Disposals As of December 31, 2019 Impairment As of January 1, 2019 Charge Transfers Release 297,747 3,671,297 590,345 72,921 589,044 - - - - - 31,348 - (248) 370,794 5,906 (25,852) 64,108 - (8,093) 328,847 4,022,145 646,360 3,180 5,075 - - 31,523 11,893 931 (4,041) 390,424 179,095 24,890 (100,680) 71,226 4,526 6,808 (1,993) 80,567 6,463 - (2,103) 77,281 909 288 279 (328) 68,617 (5,906) (2,796) 648,959 3,521 375,073 - (262) - - - - - - - - - - 37,266 231,409 (84) (23,059) 119,145 192,449 (32,824) (32,152) 5,221,354 541,330 - (39,092) 5,723,592 657,194 999,808 - (162,515) 1,148 378,332 245,532 246,618 1,494,487 As of December 31, 2019 8,255 40,306 493,729 Carrying value As of January 1, 2019 105,774 562,765 2,392,366 323,124 28,269 1,126,036 295,191 1,446,223 6,279,748 As of December 31, 2019 101,113 540,826 2,214,299 290,538 25,681 665,771 156,913 1,548,036 5,543,177 *) The amounts include depreciation of tangible assets used in the production of other fixed assets, capitalized in their cost, amounting to RON 23,498 thousand. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 24 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Impairment of property, plant and equipment Note 2 contains information on the conditions under which impairment losses for individual assets are recognized. Impairment of assets in the Upstream segment Based on the current market conditions (the effects of the COVID-19 pandemic on Romanian economy, 2020 gas production 14% lower compared to previous year, lower gas prices), the Group identified impairment indicators for its upstream assets. Based on its assessment, the Group considered each commercial field a separate cash-generating unit. The infrastructure common to several gas fields (e.g., compression stations, drying stations) was allocated to each field according to the quantities processed for each field served. The corporate assets were allocated to each field according to the estimated revenue to be earned by each field in the total revenue over the period considered in the impairment test. The impairment test took into account the economic life of the fields, according to the latest studies approved by the National Agency of Mineral Resources, but no later than 2043, this being the limit year of the concession agreements, according to the legislation in force. Following the impairment test, there was no additional impairment identified. In the impairment test the following assumptions were used: Weighted average cost of capital: 10%; The inflation rate for the years 2021-2023 was the one reported by the National Prognosis Commission in the 2021 winter forecast. For the period 2024-2043 a constant inflation rate of 2.4% was used; Average estimated price for the period was 87.51 lei/MWh. 13. EXPLORATION AND APPRAISAL FOR NATURAL GAS RESOURCES The following financial information represents the amounts included within the Group’s totals relating to activity associated with the exploration for and appraisal of natural gas resources. All such activities are recorded within the Upstream segment. Exploration assets written off (note 12) Seismic, geological, geophysical studies Total exploration expense Net movement in exploration assets’ impairment (note 12) (net income)/net loss Net cash used in exploration investing activities Exploration assets (note 12) Liabilities Net assets Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON (836) (25,673) (26,509) 97,695 (66,516) (123) (1,513) (1,636) 231,278 (173,563) December 31, 2020 '000 RON December 31, 2019 '000 RON 120,208 (5,285) 114,923 156,913 (49,270) 107,643 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 25 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 14. OTHER INTANGIBLE ASSETS. RIGHT OF USE ASSETS a) Other intangible assets 2020 '000 RON 2019 '000 RON Cost As of January 1 Additions Disposals As of December 31 Accumulated amortization As of January 1 Charge Disposals As of December 31 Carrying value As of January 1 As of December 31 b) Right of use assets Cost As of January 1 Implementation of IFRS 16 “Leases” Additions Effects of rent index updates Disposals As of December 31 Accumulated amortization As of January 1 Charge Disposals As of December 31 Carrying value As of January 1 As of December 31 186,136 7,990 (7,227) 186,899 176,972 2,130 (6,977) 172,125 9,164 14,774 179,658 6,593 (115) 186,136 174,688 2,376 (92) 176,972 4,970 9,164 2020 '000 RON 2019 '000 RON 9,275 - - 239 - 9,514 685 914 - 1,599 8,590 7,915 - 4,959 5,036 - (720) 9,275 - 748 (63) 685 - 8,590 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 26 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 15. INVENTORIES Spare parts and materials Finished goods (gas) Other inventories Write-down allowance for spare parts and materials Write-down allowance for other inventories Total 16. ACCOUNTS RECEIVABLE a) Trade and other receivables Trade receivables Allowances for expected credit losses (note 16 c) Accrued receivables Allowances for expected credit losses on accrued receivables (note 16 c) Total December 31, 2020 '000 RON December 31, 2019 '000 RON 171,990 123,638 686 (51,747) (4) 244,563 170,030 183,842 465 (43,323) (1) 311,013 December 31, 2020 '000 RON December 31, 2019 '000 RON 1,561,742 (1,279,164) 312,991 (2,694) 592,875 1,554,652 (1,252,267) 382,915 (47,142) 638,158 Trade receivables from gas deliveries are generally due within 30 days of invoice issue. These must be guaranteed by customers through bank letters of guarantee. If customers do not provide such a guarantee, they must ensure that natural gas is paid in advance. The Group is forced by court orders to sell gas to insolvent clients considered “captive” by the insolvency law. These clients provide no guarantees, do not pay for deliveries in advance and have a payment term of 90 days from invoice issue date. Trade receivables from the sale of electricity are generally due within 7 days of the date of invoice transmission. These must be guaranteed by customers through bank letters of guarantee. If customers do not provide such a guarantee, they must ensure that electricity is paid in advance. Trade receivables from storage services are due within 15 days of invoice issue. Customers must provide a 5% guarantee for the services value. b) Other assets Advances paid to suppliers Joint operation receivables Other receivables *) Allowance for expected credit losses other receivables (note 16 c) *) Other debtors Allowance for expected credit losses for other debtors (note 16 c) Prepayments VAT not yet due Other taxes receivable Total December 31, 2020 '000 RON December 31, 2019 '000 RON 18,374 2,384 64,471 (28,981) 50,079 (49,016) 5,808 4,898 6 68,023 386 2,125 62,343 (33,703) 47,529 (46,445) 3,911 6,339 - 42,485 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 27 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 *) During May 13, 2014 – September 30, 2014 the National Agency for Tax Administration (Agentia Nationala de Administrare Fiscala - ANAF) ran a tax investigation at Romgaz regarding the tax statements and/or operations relevant for the investigation as well as the organization and management of tax and accounting evidence. The period under control was 2008 – 2013 for income tax and 2009 – 2013 for VAT. Following the tax inspection, an additional liability was established for Romgaz of RON 22,440 thousand, representing income tax, VAT, penalties and related interest. Of the total amount, Romgaz paid RON 2,389 thousand. For the remaining amount of RON 20,051 thousand, Romgaz performed a legal assessment which concluded that the additional tax, penalties and interest are not correct. Romgaz filed an appeal to the Ministry of Public Finance. The appeal was partially rejected for the amount of RON 15,872 thousand. For RON 4,179 thousand a new fiscal control was ordered, which resulted in a tax burden of RON 2,981 thousand. The appeal filed to ANAF was rejected. In 2015, Romgaz sued the Ministry of Finance to cancel the above mentioned administrative acts, including the partial cancelation of the decision issued for the appeal. The payment made in 2016 generated additional penalties of RON 13,697 thousand, also paid. Considering the disagreement regarding the conclusions of the tax control, the Company recorded a receivable and an allowance. In 2019, the Company won some of the points claimed in the case filed against ANAF and the allowance of RON 18,499 thousand was reversed against income. The Company took action to recover the amount paid, but the amounts were not received by December 31, 2020. During the period December 2016 - April 2017 ANAF resumed the tax inspection on VAT for the period December 2010 – June 2011 and on income tax for the period January 2010 – December 2011, regarding the discounts granted by Romgaz to interruptible clients for deliveries during 2010 - 2011. This status was attributed to companies by Transgaz, the Romanian natural gas transmission operator. Following the tax inspection, additional tax obligations of RON 15,284 thousand were determined, and also penalties and late payment charges in amount of RON 3,129 thousand. The tax decision and the tax inspection report were appealed to ANAF. Romgaz paid the additional tax obligation and the late payment charges and based on the appeal, the Company recorded a receivable for which it recorded an allowance. The total receivable impaired in connection with this control is RON 28,981 thousand. c) Changes in the allowance for expected credit losses for trade and other receivables and other assets At January 1 Charge in the allowance for other receivables (note 6) Charge in the allowance for trade receivables Release in the allowance for other receivables (note 6) Release in the allowance for trade receivables At December 31 2020 '000 RON 1,379,557 2,792 61,595 (4,943) (79,146) 1,359,855 2019 '000 RON 1,312,262 4,641 84,783 (18,567) (3,562) 1,379,557 As of December 31, 2020, the Group recorded allowances for expected credit losses, of which Interagro RON 271,621 thousand (December 31, 2019: RON 275,137 thousand), GHCL Upsom of RON 68,103 thousand (December 31, 2019: RON 60,183 thousand), CET Iasi of RON 46,271 thousand (December 31, 2019: RON 46,271 thousand), Electrocentrale Galati with RON 226,338 thousand (December 31, 2019: RON 222,075 thousand), Electrocentrale Bucuresti with RON 576,080 thousand (December 31, 2019: RON 616,330 thousand), G-ON EUROGAZ of RON 14,848 thousand (December 31, 2019: RON 14,848 thousand) and Electrocentrale Constanta of RON 58,227 thousand (December 31, 2019: RON 39,113 thousand) due to existing financial conditions of these clients as well as ongoing litigating cases related to these receivables or exceeding payment terms. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 28 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 d) Credit risk exposure for trade receivables December 31, 2020 Current receivables, including accrued receivables less than 30 days overdue 30 to 90 days overdue 90 to 360 days overdue over 360 days overdue Total trade receivables December 31, 2019 Current receivables, including accrued receivables less than 30 days overdue 30 to 90 days overdue 90 to 360 days overdue over 360 days overdue Total trade receivables 17. SHARE CAPITAL Gross carrying amount '000 RON Expected credit loss rate % Lifetime expected credit losses ‘000 RON 584,068 13,874 4,861 23,890 1,248,040 1,874,733 0.89 3.91 86.85 99.81 100.00 5,210 542 4,222 23,844 1,248,040 1,281,858 Gross carrying amount '000 RON Expected credit loss rate % Lifetime expected credit losses ‘000 RON 673,695 14,820 1,460 25,203 1,222,389 1,937,567 7.01 22.24 95.62 99.71 100.00 47,198 3,296 1,396 25,130 1,222,389 1,299,409 December 31, 2020 ‘000 RON December 31, 2019 ‘000 RON 385,422,400 fully paid ordinary shares Total 385,422 385,422 385,422 385,422 The shareholding structure as at December 31, 2020 is as follows: No. of shares Value ‘000 RON Percentage (%) The Romanian State through the Ministry of Economy, Energy and Business Environment Legal persons Physical persons Total 269,823,080 95,612,507 19,986,813 385,422,400 269,823 95,612 19,987 385,422 70.01 24.81 5.18 100 All shares are ordinary and were subscribed and fully paid as at December 31, 2020. All shares carry equal voting rights and have a nominal value of RON 1/share (December 31, 2019: RON 1/share). The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 29 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 18. RESERVES Legal reserves Other reserves, of which: - Company’s development fund - Reinvested profit - Geological quota set up until 2004 - Other reserves Total 19. PROVISIONS Decommissioning provision (note 19 a) Retirement benefit obligation (note 19 c) Total long term provisions Decommissioning provision (note 19 a) Litigation provision (note 19 b) Other provisions *) (note 19 b) Total short term provisions Total provisions December 31, 2020 '000 RON December 31, 2019 '000 RON 83,537 2,168,372 1,371,257 291,002 486,388 19,725 2,251,909 79,921 1,507,488 772,417 228,958 486,388 19,725 1,587,409 December 31, 2020 '000 RON December 31, 2019 '000 RON 538,931 128,690 667,621 22,027 1,380 133,008 156,415 824,036 366,393 114,876 481,269 17,843 1,337 63,521 82,701 563,970 *) On December 31, 2020, other provisions of RON 133,008 thousand include the provision for employee’s participation to profit of RON 36,938 thousand (December 31, 2019: RON 34,412 thousand), the provision for taxes of RON 6,716 thousand and the provision for CO2 certificates of RON 81,217 thousand (December 31, 2019: RON 23,410). Regarding the CO2 provision, starting 2020 the mechanism for free of charge transitory allocation of greenhouse gas emissions certificates is no longer available. a) Decommissioning provision Decommissioning provision movement At January 1 Additional provision recorded against non-current assets Unwinding effect (note 9) Recorded in profit or loss Decrease recorded against non-current assets At December 31 2020 '000 RON 384,236 139,913 16,407 24,273 (3,871) 560,958 2019 '000 RON 530,466 16,342 24,197 (51,760) (135,009) 384,236 The Group makes full provision for the future costs of decommissioning natural gas wells on a discounted basis upon installation. The provision for the costs of decommissioning these wells at the end of their economic lives has been estimated using existing technology, at current prices or future assumptions, depending on the expected timing of the activity, and discounted using a rate of 2.97% (year ended December 31, 2019: 4.41%). While the provision is based on the best estimate of future costs and the economic lives of the wells, there is uncertainty regarding both the amount and timing of these costs The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 30 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 The increase with 1 percentage point of the discount rate would decrease the decommissioning provision with RON 105,546 thousand. The decrease with 1 percentage point of the discount rate would increase the decommissioning provision with RON 139,304 thousand. b) Other provisions At January 1, 2020 Additional provision in period Provisions used in the period Unused amounts during the period, reversed At December 31, 2020 At January 1, 2019 Additional provision in the period Provisions used in the period Unused amounts during the period, reversed At December 31, 2019 c) Retirement benefit obligation Movement of the retirement benefit obligation At 1 January Interest cost Cost of current service Payments during the year Actuarial (gain)/loss for the period At December 31 Litigation provision ‘000 RON Other provisions ‘000 RON 1,337 730 (684) (3) 1,380 63,521 146,673 (75,759) (1,427) 133,008 Litigation provision ‘000 RON Other provisions ‘000 RON 229 2,184 (1,076) - 1,337 73,064 70,091 (75,589) (4,045) 63,521 2020 '000 RON 114,876 2,642 5,904 (11,609) 16,877 128,690 Total ‘000 RON 64,858 147,403 (76,443) (1,430) 134,388 Total ‘000 RON 73,293 72,275 (76,665) (4,045) 64,858 2019 '000 RON 139,254 3,994 6,686 (7,647) (27,411) 114,876 With the exception of actuarial gains/losses, all other movements in the retirement benefit obligation are recognized in the result of the period. In determining the retirement benefit obligation, the following significant assumptions were used: No layoffs or restructurings are planned; Average discount rate: 3.21%; Average inflation rate: 2.00%. Sensitivity analysis The discount rate has a significant effect on the obligation. Isolated change in assumptions with 1 percentage point would have the following effect on the obligation: Increase of 1% in assumptions '000 RON Decrease of 1% in assumptions '000 RON Average discount rate Average inflation rate (12,283) 13,860 14,356 (12,099) The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 31 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Maturity analysis of payment cash flows Up to 1 year 1-2 years 2-5 years 5-10 years Over 10 years 20. DEFERRED REVENUE Amounts collected from NIP *) Other deferred revenue Other amounts received as subsidies Total long term deferred revenue Other amounts received as subsidies Other deferred revenue Total short term deferred revenue Total deferred revenue Benefit payments '000 RON 7,827 5,224 14,248 53,549 47,842 December 31, 2020 '000 RON December 31, 2019 '000 RON 136,021 167 120 136,308 8 10,891 10,899 147,207 20,994 123 127 21,244 58 3,671 3,729 24,973 *) In Government Decision no. 1096/2013 approving the mechanism for free allocation of greenhouse gas emission allowances to electricity producers for the period 2013-2020, Annex no. 3 "National Investment Plan", S.N.G.N. ROMGAZ S.A. is included with the investment "Combined Gas Turbine Cycle". For this investment, Romgaz signed in 2017 a financing agreement with the Ministry of Energy, whereby the Ministry of Energy undertakes to grant a non-reimbursable financing of RON 320,912 thousand, representing a maximum of 25% of the total value of eligible expenditure of the investment. By December 31, 2020 the Group collected RON 136,021 thousand. Amounts received under this contract will be transferred to income based on the depreciation rate of the investment. By Government Decision no. 1070/2020 the deadline until the investments financed from the National Investment Plan must be put into operation has been extended until June 30, 2021. By December 31, 2020, the Group submitted two other reimbursement requests amounting to RON 140,498 thousand. As the term of the contract for the realization of the investment was not extended, the Group is in the process of identifying solutions for completing the works. Amounts collected from NIP '000 RON Other amounts received as subsidies '000 RON At January 1, 2020 Received Other decreases (reimbursements) Amounts in revenue At December 31, 2020 20,994 115,027 - - 136,021 185 - (50) (7) 128 Total '000 RON 21,179 115,027 (50) (7) 136,149 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 32 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 January 1, 2019 Received Other increases Amounts in revenue December 31, 2019 Amounts collected from NIP '000 RON Other amounts received as subsidies '000 RON 20,994 - - - 20,994 257 - 9 (81) 185 Total '000 RON 21,251 - 9 (81) 21,179 21. TRADE AND OTHER CURRENT LIABILITIES December 31, 2020 '000 RON December 31, 2019 '000 RON Accruals Trade payables Payables to fixed assets suppliers Total trade payables Payables related to employees Royalties Social security taxes Other current liabilities VAT Dividends payable Windfall tax Other taxes Total other liabilities Total trade and other liabilities 22. FINANCIAL INSTRUMENTS Financial risk factors 30,861 20,491 37,780 89,132 67,922 63,222 26,489 6,000 64,921 2,047 31,842 1,338 263,781 352,913 32,553 13,953 63,404 109,910 48,055 67,865 22,145 5,489 57,990 2,231 59,095 1,371 264,241 374,151 The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, inflation risk, interest rate risk), credit risk, liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance within certain limits. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements. The Group does not use derivative financial instruments to hedge certain risk exposures. (a) Market risk (i) Foreign exchange risk The Group is exposed to currency risk as a result of exposure to various currencies. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities. As at December 31, 2020, the official exchange rates were RON 3.9660 to USD 1 and RON 4.8694 to EUR 1 and (December 31, 2019: RON 4.2608 to USD 1 and RON 4.7793 to EUR 1). The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 33 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 The Group is mainly exposed to currency risk generated by EUR and USD against RON. The currency risk is not significant, as the Group has limited foreign exchange transactions. (ii) Inflation risk The official inflation rate in Romania, during the year ended December 31, 2020 was under 10% as provided by the National Commission for Statistics of Romania. The cumulative inflation rate for the last 3 years was under 100%. This factor, among others, led to the conclusion that Romania is not a hyperinflationary economy. (iii) Interest rate risk The Group is exposed to interest rate risk, due to retirement benefit obligations and the decommissioning provision. The Group’s sensitivity to changes in the discount rate is detailed in note 19. Bank deposits and treasury bills bear a fixed interest rate. (b) Credit risk Financial assets, which potentially subject the Group to credit risk, consist principally of trade receivables. The Group has policies in place to ensure that sales are made to customers with low credit risk. Also, sales have to be secured, either through advance payments, either through bank letters of guarantee. The carrying amount of accounts receivable, net of bad debt allowances, represents the maximum amount exposed to credit risk. The Group has a concentration of credit risk in respect of its top 4 clients, which together amount to 85.41% of net trade receivable balance at December 31, 2020 (top 4 clients: 85.10% as of December 31, 2019). In spite of the policies described above, the Group is forced by court orders to deliver gas to insolvent clients deemed “captive” by insolvency legislation. In respect of these clients, the Group makes estimates of the lifetime expected credit losses and records appropriate impairment losses. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group beyond the bad debt allowance already recorded. (c) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to minimize the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the dividend policy, issue new shares or sell assets to reduce debt. The Group’s policy is to only resort to borrowing if investment needs cannot be financed internally. (d) Fair value estimation Carrying amount of financial assets and liabilities is assumed to approximate their fair values. Financial instruments in the balance sheet include trade receivables and other receivables, cash and cash equivalents, other financial assets, short-term loans and borrowings and trade and other payables. The estimated fair values of these instruments approximate their carrying amounts. The carrying amounts represent the Group’s maximum exposure to credit risk for existing receivables. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 34 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 e) Maturity analysis for financial assets and financial liabilities at amortized cost December 31, 2020 Trade receivables Bank deposits Treasury bonds Due in less than a month ‘000 RON 158,907 137,000 - Due in 1-3 months ‘000 RON 123,643 376,259 270,000 Due in 3 months to 1 year ‘000 RON 28 412,157 797,505 Total 295,907 769,902 1,209,690 Trade payables (52,811) Lease liabilities (58) (52,869) (5,458) (145) (5,603) (2) (564) (566) Due in 1-5 years ‘000 RON Due in over 5 years ‘000 RON Total ‘000 RON 282,578 925,416 1,067,505 2,275,499 (58,271) (8,612) (66,883) - - - - - (4,480) (4,480) - - - - - (3,365) (3,365) (3,365) Total Net Total Net 243,038 764,299 1,209,124 (4,480) 2,208,616 December 31, 2019 Trade receivables Bank deposits Treasury bonds Due in less than a month ‘000 RON 126,906 265,000 - Due in 1-3 months ‘000 RON 175,446 566,254 - Due in 3 months to 1 year ‘000 RON 33 91,000 149,560 Total 391,906 741,700 240,593 Trade payables (73,180) Lease liabilities (52) (73,232) (4,172) (254) (4,426) (5) (510) (515) Due in 1-5 years ‘000 RON Due in over 5 years ‘000 RON - - - - - - - - - - (2,998) (2,998) (5,165) (5,165) Total ‘000 RON 302,385 922,254 149,560 1,374,199 (77,357) (8,979) (86,336) 318,674 737,274 240,078 (2,998) (5,165) 1,287,863 f) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Group’s management, which has established an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and current cash flows and by matching the maturity profiles of financial assets and liabilities. 23. RELATED PARTY TRANSACTIONS AND BALANCES (i) Sales of goods and services Romgaz’s associates Total Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 10,551 10,551 14,024 14,024 Transactions with other companies controlled by the Romanian State are not considered transactions with related parties, for financial statements purposes. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 35 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 24. INFORMATION REGARDING THE MEMBERS OF THE ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES The remuneration of executives and directors The Group has no contractual obligations on pensions to former executives and directors of the Group. During the years ended December 31, 2020 and December 31, 2019, no loans and advances were granted to executives and directors of the Group, except for work related travel advances, and they do not owe any amounts to the Group from such advances. Salaries paid to executives (gross) of which, bonuses and variable component (gross) Remuneration paid to directors (gross) of which, variable component (gross) Salaries payable to executives Salaries payable to directors Year ended Dec 31, 2020 '000 RON 17,754 1,327 2,831 491 Year ended Dec 31, 2019 '000 RON 18,241 786 2,079 - December 31, 2020 '000 RON December 31, 2019 '000 RON 552 117 385 96 In addition to the above, on December 31, 2020 the Group recorded a provision for bonuses for executives and directors of RON 1,299 thousand (December 31, 2019: RON 870 thousand). The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 36 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 25. INVESTMENT IN ASSOCIATES The Company’s investments in associates are accounted using the equity method. The shares are not quoted on the stock exchange. No dividends were received in the years ended December 31, 2020, respectively, December 31, 2019. The Company’s investment in Agri LNG Project Company is not material. The investment is fully impaired. Name of associate Main activity Place of incorporation and operation SC Depomures SA Tg.Mures SC Agri LNG Project Company SRL Storage of natural gas Feasibility projects Romania Romania Proportion of ownership interest and voting power held (%) December 31, 2020 December 31, 2019 40 25 40 25 Name of associate SC Depomures SA Tg.Mures SC Agri LNG Project Company SRL Total Cost as of December 31, 2020 ’000 RON Impairment as of December 31, 2020 ’000 RON Carrying value as of December 31, 2020 ’000 RON Cost as of December 31, 2019 ’000 RON Impairment as of December 31, 2019 ’000 RON Carrying value as of December 31, 2019 ’000 RON 26,102 977 27,079 - (977) (977) 26,102 - 26,102 24,772 977 25,749 - (977) (977) 24,772 - 24,772 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 37 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Summarized financial information for significant investments in associates (Depomureş) December 31, 2020 '000 RON December 31, 2019 '000 RON Non-current assets Current assets, out of which: - Cash and cash equivalents Non-current liabilities, out of which: - Long term financial liabilities Current liabilities, out of which: - Short term financial liabilities Revenue Interest income Amortization and depreciation Interest expense Income tax expense Net profit from continued operations 72,868 11,928 7,113 12,461 12,461 4,011 3,435 77,325 8,108 5,179 15,892 15,892 4,832 3,436 Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 28,994 20 (3,959) (723) (133) 3,325 40,348 17 (3,941) (859) (830) 3,684 2019 '000 RON 23,298 1,474 24,772 Reconciliation of net book value for the significant investments in associates January 1 Interest in the total comprehensive income of significant investments in associates December 31 2020 '000 RON 24,772 1,330 26,102 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 38 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 26. OTHER FINANCIAL INVESTMENTS Other financial investments are measured at fair value through profit or loss. Except for the investment in Patria Bank, which is a level 1 financial investment, all other investments are included in level 3 category, according to IFRS 13. Company Principal activity Place of incorporation and operation Proportion of ownership interest and voting power held (%) December 31, 2020 December 31, 2019 Electricity and thermal power producer Other activities – financial intermediations Services related to oil and natural gas extraction, excluding prospections Manufacture of other chemical, anorganic base products Petroleum exploration operations Romania Romania Romania Romania Romania Electrocentrale București S.A. Patria Bank S.A. Mi Petrogas Services S.A. GHCL Upsom Lukoil association Company Electrocentrale București S.A.*) Patria Bank S.A.**) Mi Petrogas Services S.A. GHCL Upsom Lukoil association Total 2.49 0.03 10 4.21 12.2 2.49 0.03 10 4.21 12.2 Fair value as of December 31, 2020 ’000 RON Fair value as of December 31, 2019 ’000 RON - 91 60 - 5,227 5,378 - 101 60 - 5,227 5,388 *) The fair value of the investment in Electrocentrale Bucuresti at December 31, 2020 was reduced to zero, due to the difficulties encountered in implementing the restructuring plan in the insolvency procedure. The investment in Electrocentrale Bucuresti is not quoted. **) Patria Bank's shares being quoted, the fair value at the end of the period is determined by taking into account the closing quotation of the share. The variation between the amount at December 31, 2020 and the amount at December 31, 2019 was recorded in the result of the period. The accompanying notes form an integrant part of these financial statements This is a free translation of the original Romanian version. 39 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 27. SEGMENT INFORMATION a) Segment assets and liabilities December 31, 2020 Property, plant and equipment Other intangible assets Investments in associates Other financial investments Deferred tax asset Other financial assets Inventories Other assets Trade and other receivables Contract costs Cash and cash equivalents Right of use asset Net investments in leasing Upstream '000 RON Storage '000 RON Electricity '000 RON Other '000 RON Consolidation adjustments '000 RON Total '000 RON 3,113,584 797,012 1,182,021 592,102 (71,597) 5,613,122 2,680 743 - - - - 212,453 14,893 556,565 651 33,177 - - - - 2,616 20,016 14,619 11,998 41,867 - 24,056 474 - - - - - - 2,193 2,329 6,994 - 371 - - 11,350 26,102 5,378 272,712 1,975,507 15,298 38,803 10,714 - 359,309 7,442 495 1 - - - - - - (23,265) - - (1) (495) 14,774 26,102 5,378 275,328 1,995,523 244,563 68,023 592,875 651 416,913 7,915 - Total assets 3,934,003 913,401 1,193,908 3,315,212 (95,357) 9,261,167 Retirement benefit obligation Contract liabilities Provisions Trade payables Current tax liabilities Deferred revenue Lease liability - 81,314 531,234 49,045 - 294 - 9,257 - 54,604 21,336 1,941 - 507 Other liabilities 147,207 11,631 - - 83,740 8,670 - 136,021 - 6,104 119,433 4 25,768 33,346 57,890 10,892 8,600 98,839 - - - (23,265) - - (495) - 128,690 81,318 695,346 89,132 59,831 147,207 8,612 263,781 Total liabilities 809,094 99,276 234,535 354,772 (23,760) 1,473,917 The accompanying notes form an integrant part of these financial statements This is a free translation of the original Romanian version. 40 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 December 31, 2019 Upstream '000 RON Storage '000 RON Electricity '000 RON Other '000 RON Consolidation adjustments Property, plant and equipment Other intangible assets Investments in associates Other financial investments Deferred tax asset Other financial assets Inventories Other assets Trade and other receivables Contract costs Right of use asset Cash and cash equivalents 3,153,636 974,927 1,086,221 328,393 2,447 1,034 - - - - 279,069 6,594 - - 1,110 5,933 14,871 1,679 604,394 56,052 312 - - 554 - - - - - 2,339 2,423 2,688 - - 5,683 24,772 5,388 229,837 1,069,291 14,734 31,789 713 - 8,039 46,592 40,837 2,958 273,556 - - - - - - - - (25,689) - (3) - Total '000 RON 5,543,177 9,164 24,772 5,388 230,947 1,075,224 311,013 42,485 638,158 312 8,590 363,943 Total assets 4,093,044 1,096,997 1,096,629 1,992,195 (25,692) 8,253,173 Retirement benefit obligation Contract liabilities Provisions Trade payables Current tax liabilities Deferred revenue Lease liability - 8,718 42,703 364,514 91,144 - 257 - - 42,682 25,272 4,907 - 567 Other liabilities 164,308 13,432 - - 25,634 3,669 - 20,994 - 4,268 106,158 2 16,264 15,514 59,435 3,722 8,958 82,233 - - - (25,689) - - (546) - 114,876 42,705 449,094 109,910 64,342 24,973 8,979 264,241 Total liabilities 662,926 95,578 54,565 292,286 (26,235) 1,079,120 The accompanying notes form an integrant part of these financial statements This is a free translation of the original Romanian version. 41 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 b) Segment revenues, results and other segment information Year ended December 31, 2020 Upstream '000 RON Storage '000 RON Electricity '000 RON Other '000 RON Adjustment and eliminations '000 RON Total '000 RON 3,690,235 333,939 261,112 376,937 (587,330) 4,074,893 Third party revenue 3,614,241 266,182 (75,994) (67,757) 107 (3) - 1,018 - - (72,203) 188,909 152 - - (371,376) 587,330 5,561 46,602 - 1,330 - (34) - - - 4,074,893 47,845 (3) 1,330 (340,435) (5,804) (4,468) (26,095) (71,569) (448,371) (265,458) 58,480 - - (17,482) (139) 189 718 - - (283,079) 59,387 1,375,809 67,432 (34,639) 110,595 (92,689) 1,426,508 *) The amount of RON 71,569 thousand representing adjustments of the depreciation and amortization expense stands for depreciation of assets used in the storage segment. This depreciation expense is not recorded in the accounting records of any of the Group’s companies, being a consolidation adjustment. Upstream '000 RON Storage '000 RON Electricity '000 RON Other '000 RON Adjustment and eliminations '000 RON Total '000 RON 4,709,795 454,370 237,759 288,883 (610,325) 5,080,482 (65,048) (171,865) (92,281) (281,131) 610,325 Third party revenue 4,644,747 282,505 145,478 116 464 12 7,752 37,548 - (16) - 5,080,482 38,124 - - - 1,474 - 1,474 (405,163) (96,016) (2,375) (17,403) (604,257) (389,069) (6,289) (813) 67,650 7 1,504 458 - - - (520,957) (1,000,428) 69,619 1,514,113 (325,703) 12,494 74,279 (3) 1,275,180 The accompanying notes form an integrant part of these financial statements This is a free translation of the original Romanian version. 42 Revenue Less: revenue between segments Interest income Interest expense Share of profit of associates Depreciation and amortization *) Impairment losses recognized during the period in profit or loss Impairment losses reversed during the period in profit or loss Segment result before tax profit/(loss) Year ended December 31, 2019 Revenue Less: revenue between segments Interest income Share of profit of associates Depreciation and amortization Impairment losses recognized during the period in profit or loss Impairment losses reversed during the period in profit or loss Segment result before tax profit/(loss) S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 In the year ended December 31, 2020, the Group's three largest clients each individually represents more than 10% of revenue, sales to these clients being of RON 808,818 thousand, RON 863,538 thousand, RON 694,827 thousand, (in the year ended December 31, 2019 the Group's four largest customers represented individually, over 10% of revenue, sales to these clients being of RON 1,107,526 thousand, RON 1,050,066 thousand, RON 561,811 thousand, respectively RON 531,026 thousand), together totaling 58.09% of total revenue (year ended December 31, 2019: 63.9%). Of the total revenue generated by those three clients, 6.08% are shown in the "Storage" segment and 93.92% in the "Upstream" segment (year ended December 31, 2019: 5.37% in the "Storage" segment, 94.63% in the "Upstream" segment). 28. CASH AND CASH EQUIVALENTS Current bank accounts in RON *) Current bank accounts in foreign currency Petty cash Term deposits in RON Restricted cash **) Amounts under settlement Total December 31, 2020 '000 RON December 31, 2019 '000 RON 95,066 174 56 319,203 2,412 2 416,913 95,454 602 19 180,000 87,867 1 363,943 *) Current bank accounts include overnight deposits. **) At December 31, 2019 restricted cash included bank accounts used strictly for VAT transactions, as Romgaz opted in to the application of the split-VAT system. In 2020, the split-VAT system was terminated. At December 31, 2020 restricted cash refers to bank accounts used only for dividend payments to shareholders, according to stock market regulations (December 31, 2020: RON 2,412 thousand; December 31, 2019: RON 2,652 thousand). 29. OTHER FINANCIAL ASSETS Other financial assets represent mainly treasury bonds and deposits with a maturity of over 3 months, from acquisition date. Treasury bonds in RON Bank deposits in RON Accrued interest receivable on bank deposits Accrued interest on bonds Total other financial assets 30. COMMITMENTS UNDERTAKEN Endorsements and collaterals granted Total December 31, 2020 '000 RON December 31, 2019 '000 RON 1,045,593 925,416 2,602 21,912 1,995,523 144,923 922,254 3,410 4,637 1,075,224 December 31, 2020 '000 RON December 31, 2019 '000 RON 224,063 224,063 52,729 52,729 In 2020, Romgaz signed an addendum to the credit agreement with BCR SA representing a facility for issuing letters of guarantee, and opening letters of credit for a maximum amount of USD 100,000 thousand. On December 31, 2020 are still available for use USD 44,204 thousand. As of December 31, 2020, the Group’s contractual commitments for the acquisition of non-current assets are of RON 419,104 thousand (December 31, 2019: RON 433,200 thousand). The accompanying notes form an integrant part of these financial statements This is a free translation of the original Romanian version. 43 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 31. COMMITMENTS RECEIVED Endorsements and collaterals received Total December 31, 2020 '000 RON December 31, 2019 '000 RON 1,524,480 1,524,480 1,498,056 1,498,056 Endorsements and collateral received represent letters of guarantee and other performance guarantees received from the Group’s clients. 32. CONTINGENCIES (a) Litigations The Company is subject to several legal actions arisen in the normal course of business. The management of the Company considers that they will have no material adverse effect on the results and the financial position of the Company. On December 28, 2011, 27 former and current employees were notified by DIICOT regarding an investigation related to sale contracts signed with one of the Company’s clients for allegedly unauthorized discounts granted to this client during the period 2005-2010. DIICOT mentioned that this may have resulted in a loss of USD 92,000 thousand for the Company. On that sum, an additional burden to the state budget consists of income tax in amount of USD 15,000 thousand and VAT in amount of USD 19,000 thousand. The internal analysis carried out by the Company’s specialized departments concluded that the agreement was in compliance with the legal provisions and all discounts were granted based on Orders issued by the Ministry of Economy and Finance and decisions of the General Shareholders’ Board and Board of Directors. The management of the Company believes the investigation will not have a negative impact on the financial statements, to justify the registration of an adjustment. The Company is fully cooperating with DIICOT in providing all information necessary. On March 18 2014, Romgaz received an address from DIICOT, by which the investigators ordered an accounting expertise, indicating the objectives of the expertise. Romgaz was notified that, as injured party, it may submit comments relating to objectives of the expertise (additions/changes), and may appoint an additional expert to participate in the expertise. Thus, Romgaz proceeded to identify and appoint an expert with accounting and financial expertise that can participate to the expertise. After the report was completed, the parties could submit objections by November 2, 2015. On March 16, 2016, DIICOT – Central Structure informed the persons involved in the cause about the start of legal actions against them. At the request of investigators, the Company announced that in case of a prejudice being established during the investigation, the Company will join the case as civil party. In November 2016, DIICOT informed the Company the prejudice established in amount of RON 282,630 thousand. Following this request, Romgaz announced that will join the case as a civil party for the amount of RON 282,630 thousand to recover this amount from the respective client and any other person that may be found guilty for causing the prejudice. In June 2017, DIICOT issued a press release announcing the referral to court of several persons involved in the case. In January 2018, the High Court of Cassation and Justice ruled that the indictment prepared by DIICOT was not legal; the ruling is not final. At the date of endorsement of these financial statements the case in which Romgaz is a civil party a ruled by the High Court of Cassation and Justice. By the date the financial statements were endorsed for issue, no court decision was issued. (b) Taxation The Romanian taxation system is undergoing a process of consolidation and harmonization with the European Union legislation. However, there are still different interpretations of the fiscal legislation. In various circumstances, the tax authorities may have different approaches to certain issues, and assess additional tax liabilities, together with late payment interest and penalties. In Romania, tax periods remain open for fiscal verification for 5 years. The Group’s management considers that the tax liabilities included in these financial statements are fairly stated. The accompanying notes form an integrant part of these financial statements This is a free translation of the original Romanian version. 44 S.N.G.N. ROMGAZ S.A. GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (c) Environmental contingencies Environmental regulations are developing in Romania and the Group has not recorded any liability at December 31, 2020 for any anticipated costs, including legal and consulting fees, impact studies, the design and implementation of remediation plans related to environmental matters, except the amount of RON 560.958 thousand (December 31, 2019: RON 384,236 thousand), representing the decommissioning liability. (d) Controls by The Romanian Court of Accounts In 2016, the Company came under scrutiny from the Romanian Court of Accounts. One of the Romanian Court of Accounts’ conclusions was that during 2013-2015 Romgaz delivered gas on the regulated market over the quantities it was legally allowed to, according to the existing legislation. The price on the regulated market being lower than the one on the free market, The Romanian Court of Accounts issued Decision number 26/01.06.2016 and ordered Romgaz to determine and to recover the prejudice as a price difference on gas quantities delivered on the regulated market over its legal obligation, having January 2017 as due date for implementation. The alleged prejudice estimated by the Court of Accounts is over RON 160 million. Romgaz appealed the decision, but the Court of Accounts dismissed the appeal. Subsequently, the Company started legal proceedings against the Court of Accounts’ decision no. 26/01.06.2016 and, also, contracted legal services for the annulment of the Court of Accounts’ decision and to carry out the measures ordered by the Court of Accounts’ decision. The legal case against the Court of Accounts was resolved by the Court of Appeal Alba Iulia, maintaining the findings and measures of Decision no. 26/2016 issued by the Court of Accounts, except for one measure. The Company’s management respects the decision taken by the Court of Appeal Alba Iulia and started legal actions to implement the measures established by the Court of Accounts. The deadline for implementing these measures was extended to June 30, 2021. 33. JOINT ARRANGEMENTS In January 2002, Romgaz signed a petroleum agreement with Amromco for rehabilitation operations in order to achieve additional production in 11 blocks, namely: Bibeşti, Strâmba, Finta, Fierbinți-Târg, Frasin-Brazi, Zătreni, Boldu, Roșioru, Gura-Șuții, Balta-Albă and Vlădeni. For the base production, Romgaz holds a share of 100% and for the additional production, Romgaz owns a share of 50% and Amromco Energy SRL - 50%. As the agreement was signed to execute rehabilitation operations to obtain additional production, the mandatory work program is in accordance with the studies approved by ANRM. Accordingly, the annual work program, which includes both works provided in the studies and other works necessary and proposed by the partners, is approved annually by the Board of the joint arrangement before the start of each year. The duration of the joint arrangement is in line with the time frame of each individual concession agreement of the 11 perimeters stated above, which differs for each block. 34. AUDITOR’S FEES The fee charged by the Group’s statutory auditor, S.C. Ernst & Young Assurance Services S.R.L. for the statutory audit of the 2020 annual financial statements is RON 370 thousand. The fees charged for other assurance services in 2020 are RON 170 thousand. 35. EVENTS AFTER THE BALANCE SHEET DATE No events after the balance sheet date were identified. 36. APPROVAL OF FINANCIAL STATEMENTS These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements This is a free translation of the original Romanian version. 45 Societatea Naţională de Gaze Naturale Romgaz S.A. – Mediaş - România STATEMENT in accordance with the provisions of art. 63 (2) c) of Law No. 24/2017 regarding issuers of financial instruments and market operations _______________________________________________________________________________ Entity: Societatea Nationala de Gaze Naturale ROMGAZ S.A. County: 32--SIBIU Address: MEDIAŞ, 4 C.I. Motaş Square, tel. +40374401020 Registration Number in the Trade Register: J32/392/2001 Form of Property: 26- Companies with both state and private capital foreign and domestic (State capital >=50%) Main activity (CAEN code and denomination): 0620—Natural Gas Production Tax Identification Number: 14056826 The undersigned, ARISTOTEL MARIUS JUDE as Chief Executive Officer and RAZVAN POPESCU as Chief Financial Officer, hereby confirm that according to our knowledge, the annual consolidated financial statements for the year ended December 31, 2020, prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union, and Order of Ministry of Public Finance no. 2844/2016 for the approval of Accounting regulations in accordance with International Financial Reporting Standards, offer a true and fair view of the assets, liabilities, financial position, statement of profit and loss of the Group and that the Board of Directors’ report comprises a fair analysis of the development and performance of the Group, as well as a description of the main risks and incertitudes specific to its activity. The Group is a going concern. Chief Executive Officer, ARISTOTEL MARIUS JUDE Chief Financial Officer, RAZVAN POPESCU Capital social: 385.422.400 lei CIF: RO 14056826 Nr. Ord.reg.com/an : J32/392/2001 RO08 RNCB 0231 0195 2533 0001 - BCR Mediaş RO12 BRDE 330S V024 6190 3300 - BRD Mediaş S.N.G.N. Romgaz S.A. 551130, Piața C.I. Motaş, nr.4 Mediaş, jud. Sibiu - România Telefon: 004-0374 - 401020 Fax: 004-0269-846901 E-mail: secretariat@romgaz.ro www.romgaz.ro S.N.G.N. ROMGAZ S.A. INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION AND MINISTRY OF FINANCE ORDER 2844/2016 CONTENTS: PAGE: Independent auditor’s report Statement of individual comprehensive income for the year ended December 31, 2020 Statement of individual financial position as of December 31, 2020 Statement of individual changes in equity for the year ended December 31, 2020 Statement of individual cash flow for the year ended December 31, 2020 Notes to the individual financial statements for the year ended December 31, 2020 1. Background and general business 2. Significant accounting policies 3. Revenue and other income 4. Investment income 5. Cost of commodities sold, raw materials and consumables 6. Other gains and losses 7. Depreciation, amortization and impairment expenses 8. Employee benefit expense 9. Finance costs 10. Other expenses 11. Income tax 12. Property, plant and equipment. 13. Exploration and appraisal for natural gas resources 14. Other intangible assets. Right of use assets 15. Inventories 16. Accounts receivable 17. Share capital 18. Reserves 19. Provisions 20. Deferred revenue 21. Trade and other current liabilities 22. Financial instruments 23. Related party transactions and balances 24. Information regarding the members of the administrative, management and supervisory bodies 25. Investment in subsidiaries and associates 26. Other financial investments 27. Cash and cash equivalents 28. Other financial assets 29. Assets held for disposal and related liabilities 30. Commitments undertaken 31. Commitments received 32. Contingencies 33. Joint arrangements 34. Auditor’s fees 35. Events after the balance sheet date 36. Approval of financial statements 1 2 4 5 7 7 7 19 19 20 20 20 21 21 21 22 24 26 27 28 28 30 31 31 33 34 35 37 37 38 39 39 40 40 41 41 41 42 42 42 42 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, 2020 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, 2020 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. 2 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. 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 and therefore it was considered to be a key audit matter 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; 3 - We tested whether significant increases or reductions in gas reserves were made in the period in which the new information became available and if the adjustments were made in compliance with the standards of the National Agency for Mineral Resources (“ANRM”); - 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 also 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, as at 31 December 2020 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, in amount of RON 2,225 million, is significant. International Financial Reporting Standards require an entity to assess, at least at each reporting date, whether indicators of impairment or reversal of impairment previously recorded, exist. Management considered that the recent changes brought by new legislation in 2020, as well as recent changes in market conditions due to Covid- 19 pandemic effects, constitute impairment indicators and, consequently, has carried out 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 assessed 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 an impairment test for the production assets in the Upstream Gas segment, which resulted in no additional impairment being recognised.. Considering the above, we determined that Impairment testing of production assets in the Upstream Gas segment is a key audit matter. 4 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 2020 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; - We analysed the assumptions used in the cash flow projection considering the recent changes brought by new legislation in 2020, as well as changes in market conditions due to Covid-19 pandemic; - 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, the discount rates used, future natural gas selling prices etc) - We evaluated the management’s sensitivity analysis over key assumptions in the future cash flow model in order to assess the potential impact of possible changes We also assessed the adequacy of the Company’s disclosures in the financial statements. 5 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 significant to our audit because of its magnitude (carrying value of RON 538.9 million at 31 December 2020) and because management makes estimates and judgments in determining the respective provision. 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 of 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. 6 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) and Corporate responsibility and sustainability report, but does not include the financial statements and our auditors’ report thereon. We obtained the Annual Report prior to the date of our auditor’s report, and we expect to obtain the Corporate responsibility and sustainability report, as part of a separate report, after the date of our auditor’s report. Management is responsible for the other information. Our audit opinion on the 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. 7 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 communicate to them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. 8 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, 2020; 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, 2020, 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, 2020. Total uninterrupted engagement period, for the statutory auditor, has lasted for three years, covering the years ended December 31, 2018 and 2019 and 2020. 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 23 March 2021. 9 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. FA77 Name of the Auditor/ Partner: Alexandru Lupea Registered in the electronic Public Register under No. AF273 Bucharest, Romania 23 March 2021 S.N.G.N. ROMGAZ S.A. STATEMENT OF INDIVIDUAL COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2020 Note Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON restated * Year ended December 31, 2019 '000 RON restatements * Year ended December 31, 2019 '000 RON as reported 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 Finance cost Exploration expense Other expenses Other income Profit before tax Income tax expense Profit for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss Actuarial gains/(losses) on post-employment benefits Income tax relating to items that will not be reclassified subsequently to profit or loss Total items that will not be reclassified subsequently to profit or loss Other comprehensive income for the year net of income tax Total comprehensive income for the year 3 5 4 6 16 5 7 8 9 13 10 3 11 3,926,034 (18,615) 67,957 (5,583) 4,924,880 (107,798) 37,676 8,024 17,551 (81,221) (16,151) (49,629) (594,689) (696,518) (16,999) (26,509) (1,163,456) 25,378 80,007 (62,126) (1,448,827) (607,996) (24,738) (1,636) (1,524,607) 32,585 1,448,771 1,224,223 (169,886) (177,816) 1,278,885 1,046,407 19 c) (16,172) 27,792 11 2,588 (4,446) (13,584) 23,346 (13,584) 23,346 1,265,301 1,069,753 - - - 70,588 - - - (93,516) - - 22,928 - - - - - - - - - - 4,924,880 (107,798) 37,676 (62,564) (81,221) 80,007 (62,126) (1,355,311) (607,996) (24,738) (24,564) (1,524,607) 32,585 1,224,223 (177,816) 1,046,407 27,792 (4,446) 23,346 23,346 1,069,753 *) Starting 2020, the Company presents the release to income of the impairment for non-current assets written-off as a decrease of the expense generated by the write-off of the respective assets, as “other gains and losses” or as “exploration expense”. Previously, the release to income was presented as “depreciation, amortization and impairment”. For comparability purposes, 2019 was restated. These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 1 S.N.G.N. ROMGAZ S.A. STATEMENT OF INDIVIDUAL FINANCIAL POSITION AS OF DECEMBER 31, 2020 ASSETS Non-current assets Property, plant and equipment Other intangible assets Investments in subsidiaries Investments in associates Deferred tax asset Net lease investment Right of use asset Other financial investments Total non-current assets Current assets Inventories Note 12 14 25 a) 25 b) 11 14 26 15 Trade and other receivables 16 a) Contract costs Other financial assets Other assets Net lease investment 28 16 b) Cash and cash equivalents 27 December 31, 2020 '000 RON December 31, 2019 '000 RON restated *) December 31, 2019 '000 RON restatements * December 31, 2019 '000 RON as reported 4,888,163 4,782,576 14,030 66,056 120 294,268 424 7,442 5,378 8,130 66,056 120 251,695 481 8,039 5,388 - - - - 220,046 - - - 4,782,576 8,130 66,056 120 31,649 481 8,039 5,388 5,275,881 5,122,485 220,046 4,902,439 229,945 574,273 651 296,141 618,319 312 1,975,507 1,069,291 56,025 71 392,857 40,806 65 323,107 - - - - - - - - 296,141 618,319 312 1,069,291 40,806 65 323,107 2,348,041 Total current assets 3,229,329 2,348,041 Assets held for disposal 29 710,944 701,113 (198,189) 899,302 Total assets 9,216,154 8,171,639 21,857 8,149,782 EQUITY AND LIABILITIES Equity Share capital Reserves Retained earnings Total equity Non-current liabilities Retirement benefit obligation Deferred revenue Lease liability Provisions Total non-current liabilities 17 18 19 20 19 385,422 2,219,941 5,140,902 385,422 1,579,902 5,136,170 7,746,265 7,101,494 119,432 136,308 7,844 493,176 756,760 106,158 21,244 8,273 331,812 467,487 - - - - - - - - - 385,422 1,579,902 5,136,170 7,101,494 106,158 21,244 8,273 331,812 467,487 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 2 S.N.G.N. ROMGAZ S.A. STATEMENT OF INDIVIDUAL FINANCIAL POSITION AS OF DECEMBER 31, 2020 Note December 31, 2020 '000 RON December 31, 2019 '000 RON restated *) December 31, 2019 '000 RON restatements * December 31, 2019 '000 RON as reported Current liabilities Trade payables Contract liabilities Current tax liabilities Deferred revenue Provisions Lease liability Other liabilities Total current liabilities Liabilities directly associated with the assets held for disposal 21 20 19 21 91,060 81,318 57,890 10,899 147,566 757 252,150 641,640 110,327 42,705 59,436 3,729 74,600 685 250,807 542,289 29 71,489 60,369 Total liabilities 1,469,889 1,070,145 Total equity and liabilities 9,216,154 8,171,639 - - - - - - - - 21,857 21,857 21,857 110,327 42,705 59,436 3,729 74,600 685 250,807 542,289 38,512 1,048,288 8,149,782 *) The 2019 financial statements contained an error in the allocation of the deferred income tax related to assets held for disposal. The error was corrected by restating the December 31, 2019 balances. The elements restated are the deferred tax asset, assets held for disposal and related liabilities. These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 3 S.N.G.N. ROMGAZ S.A. STATEMENT OF INDIVIDUAL CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2020 Balance as of January 1, 2020 Result for the year Allocation to dividends *) Allocation to other reserves Increase in reinvested profit reserves Other comprehensive income for the year Balance as of December 31, 2020 Balance as of January 1, 2019 Result for the year Allocation to dividends *) Allocation to other reserves Increase in reinvested profit reserves Other comprehensive income for the year Balance as of December 31, 2019 Share capital '000 RON Legal reserve '000 RON 385,422 - - - - - 385,422 385,422 - - - - - 385,422 77,084 - - - - - 77,084 77,084 - - - - - 77,084 Other reserves (note 18) '000 RON 1,502,818 - - 580,630 59,409 - 2,142,857 1,746,603 - (362,297) 106,265 12,247 - 1,502,818 Retained earnings **) '000 RON 5,136,170 1,278,885 (620,530) (580,630) (59,409) (13,584) 5,140,902 5,429,843 1,046,407 (1,244,914) (106,265) (12,247) 23,346 5,136,170 Total '000 RON 7,101,494 1,278,885 (620,530) - - (13,584) 7,746,265 7,638,952 1,046,407 (1,607,211) - - 23,346 7,101,494 *) In 2020 the Company’s shareholders approved the allocation of dividends of RON 620,530 thousand (2019: RON 1,607,211 thousand), dividend per share being RON 1.61 (2019: RON 4.17). **) Retained earnings include the geological quota reserve set up in accordance with the provisions of Government Decision no. 168/1998 on the establishment of the expense quota for the development and modernization of oil and natural gas production, refining, transportation and oil distribution. Following the Company’s transition to IFRS, the reserve existing as of December 31, 2012 was transferred to retained earnings. This result is allocated based on the depreciation, respectively write-off of the assets financed using this source, based on decision of General Meeting of Shareholders. As of December 31, 2020 the geological quota reserve is of RON 927,499 thousand (December 31, 2019: RON 1,081,148 thousand). These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 4 S.N.G.N. ROMGAZ S.A. STATEMENT OF INDIVIDUAL CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2020 Cash flows from operating activities Net profit Adjustments for: Income tax expense (note 11) Interest expense (note 9) Income from dividends (note 4) Unwinding of decommissioning provision (note 9, note 19) Interest revenue (note 4) Net loss on disposal of non-current assets (note 6) Change in decommissioning provision recognized in profit or loss, other than unwinding (note 19) Change in other provisions (note 19) Net impairment of exploration assets (note 7, note 12, note 13) Exploration projects written off (note 13) Net impairment of property, plant and equipment and intangibles (note 7, note 12) Depreciation and amortization (note 7) Amortization of contract costs Change in investments at fair value through profit and loss (note 6) Net receivable write-offs and movement in allowances for trade receivables and other assets Other gains and losses Net movement in write-down allowances for inventory (note 6, note 15) Liabilities written off Subsidies income (note 20) Movements in 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 taxes paid Net cash generated by operating activities Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON restated * 1,278,885 1,046,407 169,886 592 (21,097) 16,407 (46,860) 7 24,248 66,134 97,695 836 125,997 370,997 795 10 (19,700) - 7,488 (368) (7) 177,816 541 - 24,197 (37,676) (2,564) (51,760) (8,814) 231,278 123 699,531 518,018 651 4,424 67,297 (55) 4,652 (89) (81) 2,071,945 2,673,896 59,201 47,383 20,914 2,199,443 (3) (211,720) 1,987,720 (39,163) 119,433 (84,085) 2,670,081 - (292,392) 2,377,689 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 5 S.N.G.N. ROMGAZ S.A. STATEMENT OF INDIVIDUAL CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2020 Cash flows from investing activities Bank deposits set up and acquisition of state (2,877,758) (2,553,777) Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON restated * bonds Bank deposits and state bonds matured Interest received Proceeds from sale of non-current assets Dividends received Acquisition of non-current assets Acquisition of exploration assets Collection of lease payments Net cash used in investing activities Cash flows from financing activities Dividends paid Repayment of lease liability Subsidies reimbursed Subsidies received (note 20) 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 1,988,026 37,565 1,733 21,097 (515,667) (66,516) 103 (1,411,417) (620,346) (1,184) (50) 115,027 (506,553) 69,750 323,107 392,857 *) Please see the comment in the statement of individual comprehensive income. These financial statements were endorsed by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer 2,355,685 43,039 1,780 - (669,459) (173,563) 41 (996,254) (1,607,246) (850) - (1,608,096) (226,661) 549,768 323,107 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 6 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 1. BACKGROUND AND GENERAL BUSINESS Information regarding S.N.G.N. Romgaz S.A. (the “Company”/“Romgaz”) S.N.G.N. Romgaz S.A. is a joint stock company, incorporated in accordance with the Romanian legislation. The Company’s headquarter is in Mediaş, 4 Constantin I. Motaş Square, 551130, Sibiu County. The Romanian State, through the Ministry of Economy, Energy and Business Environment is the majority shareholder of S.N.G.N. Romgaz S.A. together with other legal and physical persons (note 17). Romgaz has as main activity: 1. 2. 3. 4. geological research for the discovery of natural gas, crude oil and condensed reserves; operation, production and usage, including trading, of mineral resources; natural gas production for: ensuring the storage flow continuity; technological consumption; delivery in the transmission system. commissioning, interventions, capital repairs for wells equipping the deposits, as well as the natural gas resources extraction wells, for its own activity and for third parties; 5. electricity production and distribution. 2. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The individual financial statements (“financial statements”) of the Company have been prepared in accordance with the provisions of the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and Ministry of Finance Order no. 2844/2016 to approve accounting regulations in accordance with IFRS (MOF 2844/2016). For the purposes of the preparation of these financial statements, the functional currency of the Company is deemed to be the Romanian Leu (RON). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the International Accounting Standards Board (IASB), however, the differences have no material impact on the Company’s financial statements for the periods presented. Basis of preparation The financial statements have been prepared on a going concern basis. The principal accounting policies are set out below. Accounting is kept in Romanian and in the national currency. Items included in these financial statements are denominated in Romanian lei. Unless otherwise stated, the amounts are presented in thousand lei (thousand RON). These financial statements are prepared for general purposes, for users familiar with the IFRS as adopted by EU; these are not special purpose financial statements. Consequently, these financial statements must not be used as sole source of information by a potential investor or other users interested in a specific transaction. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 “Inventory” or value in use in IAS 36 “Impairment of assets”. In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance to the Company of the inputs to the fair value measurement, which are described as follows: level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date; The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 7 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and level 3 inputs are unobservable inputs for the asset or liability. Subsidiaries A subsidiary is an entity controlled by the Company. In establishing the existence of control, the Company analyses the following: if it has authority over the invested entity; if it is exposed to, or has rights to variable returns from its involvement in the invested entity; if it has the ability to use its authority over the invested entity to affect these returns. The investment in a subsidiary is recognized at cost less accumulated impairment. Associated entities An associate is a company over which the Company exercises significant influence through participation in decision making on financial and operational policies of the entity invested in. Investments are recorded at cost less accumulated impairment. Joint arrangements A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint ventures. Joint operations The Company recognizes in relation to its interest in a joint operation: its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output arising from the joint operation; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly. As joint operator, the Company accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses. If the Company participates in, but does not have joint control of, a joint operation it accounts for its interest in the arrangement in accordance with the paragraphs above if it has rights to the assets, and obligations for the liabilities, relating to the joint operation. If the Company participates in, but does not have joint control of, a joint operation, does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it accounts for its interest in the joint operation in accordance with the IFRSs applicable to that interest. Joint ventures As a partner in a joint venture, in its financial statements, the Company recognizes its interest in a joint venture as investment, at cost, if it has joint control. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 8 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Standards and interpretations valid for the current period The following standards and amendments or improvements to existing standards issued by the IASB and adopted by the EU have entered into force for the current period: Amendments to IFRS 3 Business Combinations (effective for annual periods beginning on or after January 1, 2020); Amendments to References to the Conceptual Framework in IFRS Standards (effective for annual periods beginning on or after January 1, 2020); Amendments to IAS 1 and IAS 8: Definition of materiality (effective for annual periods beginning on or after January 1, 2020); Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform (effective for annual periods beginning on or after January 1, 2020); Amendments to IFRS 16 Covid-19-Related Rent Concessions (effective for annual periods beginning on or after June 1, 2021). The adoption of these amendments, interpretations or improvements to existing standards has not led to changes in the Company's accounting policies. Standards and interpretations issued by IASB not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from IFRS adopted by the IASB except from the following standards, amendments or improvements to the existing standards and interpretations, which were not endorsed for use in EU as at date of publication of financial statements: IFRS 17 Insurance Contracts including Amendments to IFRS 17 (effective for annual periods beginning on or after January 1, 2023); Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non- current and Classification of Liabilities as Current or Non-current - Deferral of Effective Date (effective for annual periods beginning on or after January 1, 2023); Amendments to IFRS 3 Business Combinations (effective for annual periods beginning on or after January 1, 2022); Amendments to IAS 16 Property, Plant and Equipment (effective for annual periods beginning on or after January 1, 2022); Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (effective for annual periods beginning on or after January 1, 2022); Annual Improvements 2018-2020 (effective for annual periods beginning on or after January 1, 2022); Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (effective for annual periods beginning on or after January 1, 2021). The Company is currently evaluating the effect that the adoption of these standards, amendments or improvements to the existing standards and interpretations will have on the financial statements of the Company in the period of initial application. Standards and interpretations issued by IASB and adopted by the EU, but not yet effective At the date of issue of the financial statements, the following standards were issued, but not yet effective: Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9 (effective for annual periods beginning on or after January 1, 2021). The Company did not adopt these standards and amendments before their effective dates. The Company does not expect these amendments to have a material impact on the financial statements. Segment information The information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on the upstream segment, electricity production and distribution, and other activities, including headquarter activities. The Directors of the Company have chosen to organize the Company around differences in activities performed. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 9 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Specifically, the Company is organized in the following segments: upstream, which includes exploration activities, natural gas production and trade of gas extracted by Romgaz or acquired from domestic production or import, for resale; these activities are performed by Medias, Mures and Bratislava branches; electricity production and distribution activities, performed by Iernut branch; other activities, such as technological transport, operations on wells and corporate activities. Transactions between Company segments occur at cost. Considering the insertion of individual and consolidated financial statements in a single annual financial report, the Company does not disclose segment information in the individual financial statements. Revenue recognition a) Revenue from contracts with customers The Company recognizes customer contracts when all of the following criteria are met: • • • • • the parties to the contract have approved the contract and are committed to perform their respective obligations; the Company can identify each party’s rights regarding the goods or services to be transferred; the Company can identify the payment terms; the contract has commercial substance; it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods delivered or the services provided. Revenue from contracts with customers is recognized when, or as the Company transfers the goods or services to the customer, respectively, the client obtains control over them. Depending on the nature of the goods or services, revenues are recognized over time or at a point in time. Revenue is recognized over time if: the customer receives and consumes simultaneously the benefits provided by obtaining the goods and services as the Company performs the obligation; the Company creates or enhances an asset that the customer controls as the asset is created or enhanced; the Company`s performance does not create an asset with an alternative use to the Company. All other revenues that do not meet the above criteria are recognized at a point in time. For revenue to be recognized over time, the Company assesses progress towards meeting the execution obligation, using output methods or input methods, depending on the nature of the good or service transferred to the client. Revenues are recognized only if the Company can reasonably assess the result of the execution obligation or, if it cannot be estimated, only at the level of the costs it is expected to recover from the customer. Revenue from contracts with customers mainly relates to gas sales, electricity supply and related services. Revenue from these contracts are recognized at a point time on the basis of the actual quantities at the prices fixed in the contracts concluded or at the rates set by the regulatory authority, as the case may be. Contracts concluded by the Company do not contain significant financing components. b) Other revenue Rental revenue for operating lease contracts where the Company operates as lessor is recognized on an accrual basis in accordance with the substance of the relevant agreements. Interest income is recognized periodically and proportionally as the respective income is generated, on accrual basis. Dividends are recognized as income when the legal right to receive them is established. Exploration expenses The costs of seismic exploration, geological, geophysical and other similar exploration activities are recognized as exploration expenses in the statement of comprehensive income in the period in which they arise. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 10 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Exploration expenses also include the cost of exploration assets that have not identified gas resources and have been written-off. Foreign currencies The functional currency is the currency of the primary economic environment in which the Company operates and is the currency in which the Company primarily generates and expends cash. The Company operates in Romania and it has the Romanian Leu (RON) as its functional currency. In preparing the financial statements of the Company, transactions in currencies other than the functional currency (foreign currencies) are recorded at the exchange rates prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Exchange differences are recognized in the statement of comprehensive income in the period in which they arise. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Employee benefits Benefits granted upon retirement In the normal course of business, the Company makes payments to the Romanian State on behalf of its employees at legal rates. All employees of the Company are members of the Romanian State pension plan. These costs are recognized in the statement of comprehensive income together with the related salary costs. Based on the Collective Labor Agreement, the Company is liable to pay to its employees at retirement a number of gross salaries, according to the years worked in the gas industry/electrical industry, work conditions etc. To this purpose, the Company recorded a provision for benefits upon retirement. This provision is updated annually and computed according to actuary methods based on estimates of the average salary, the average number of salaries payable upon retirement, on the estimate of the period when they shall be paid and it is brought to present value using a discount factor based on interest related to a maximum degree of security investments (government securities). As the benefits are payed, the provision is reduced together with the reversal of the provision against income. Gains or actuarial losses, are recognized in other comprehensive income. These are changes in the present value of the defined benefit obligation as a result of statistical adjustments and changes in actuarial assumptions. Any other changes in the provision are recognized in the result of the year. The Company does not operate any other pension scheme or post-retirement benefit plan and, consequently, has no obligation in respect of pensions. Employee participation to profit The Company records in its financial statements a provision related to the fund for employee participation to profit in compliance with legislation in force. Liabilities related to the fund for employee participation to profit are settled in less than a year and are measured at the amounts estimated to be paid at the time of settlement. Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Greenhouse gas provisions The Company recognizes a provision for the deficit between actual CO2 emissions and certificates held, measured at the best estimate of expenditure required to settle the obligation. Provisions for decommissioning of wells Liabilities for decommissioning costs are recognized due to the Company’s obligation to plug and abandon a well, dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made. The Company recorded a provision for decommissioning wells. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 11 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 This provision was computed based on the estimated future expenditure determined in accordance with local conditions and requirements and it was brought to present value using the interest rate on long term treasury bonds. The rate is updated annually. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognized. The item of property, plant and equipment is subsequently depreciated as part of the asset. The Company applies IFRIC 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities” related to changes in existing decommissioning, restoration and similar liabilities. The change in the decommissioning provision for wells is recorded as follows: a. b. c. subject to b., changes in the liability are added to, or deducted from, the cost of the related asset in the current period; the amount deducted from the cost of the asset does not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the statement of comprehensive income; if the adjustment results in an addition to the cost of an asset, the Company considers whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the Company tests the asset for impairment by estimating its recoverable amount, and accounts for any impairment loss. Once the related asset has reached the end of its useful life, all subsequent changes of debt are recognized in the income statement in the period when they occur. The periodical unwinding of the discount is recognized periodically in the comprehensive income as a finance cost, as it occurs. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax Deferred tax is recognized on the differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in associates and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 12 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current tax for the period is recognized as an expense in the statement of comprehensive income. Deferred tax for the period is recognized as an expense or income in the statement of comprehensive income, except when they relate to items credited or debited directly to equity, in which case the tax is also recognized directly in equity, or where it arises from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquirer’s identifiable assets, liabilities and contingent liabilities over cost. Property, plant and equipment (1) Cost (i) Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of any decommissioning obligation. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. (ii) Gas cushion This is a quantity of natural gas constituted as a reserve at the level of gas storages, physically recoverable, which ensures the optimum conditions necessary to maintain their technical-productive flow characteristics. (iii) Development expenditure Expenditure on the construction, installation and completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including the commissioning of wells, is capitalized within property, plant and equipment and is depreciated from the commencement of production as described below in the property, plant and equipment accounting policies. (iv) Maintenance and repairs The Company does not recognize within the assets’ costs the current expenses and the accidental expenses for that asset. These costs are expensed in the period in which they are incurred. The cost for current maintenance are mainly labor costs and consumables and also small inventory items. The purpose of these expenses is usually described as “repairs and maintenance” for property, plant and equipment. The expenses with major activities, inspections and repairs comprise the replacement of the assets or other asset’s parts, the inspection cost and major overhauls. These expenses are capitalized if an asset or part of an asset, which was separately depreciated, is replaced and is probable that they will bring future economic benefits for the Company. If part of a replaced asset was not considered as a separate component and, as a result, was not separately depreciated, the replacement value will be used to estimate the net book value of the asset which is replaced and is immediately written-off. The inspection costs associated with major overhauls are capitalized and depreciated over the period until next inspection. The cost for major overhauls for wells are also capitalized and depreciated using the unit of production depreciation method. All other costs with the current repairs and usual maintenance are recognized directly in expenses. (2) Depreciation The depreciable amount of a tangible asset is the cost less the residual value of the asset. The residual value is the estimated value that the Company would currently obtain from the disposal of an asset, after deducting the estimated costs associated with the disposal if the asset would already have the age and condition expected at the end of its useful life. For directly productive tangible assets (natural gas resources extraction wells), the Company applies the depreciation method based on the unit of production in order to reflect in the statement of comprehensive income, an expense proportionate with the production obtained from the total natural gas reserve certified at the beginning of the period. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 13 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 According to this method, the value of each production well is depreciated according to the ratio of the natural gas quantity extracted during the period compared to the proved developed reserves at the beginning of the period. Assets representing the gas cushion are not depreciated, as the residual value exceeds their cost. For indirect production tangible assets and other assets, depreciation is calculated at cost using the straight-line method over the estimated useful life of the asset as follows: Asset Specific buildings and constructions Technical installations and machines Other plant, tools and furniture Years 10 - 50 3 - 20 3 – 30 Land is not depreciated as it is considered to have an indefinite useful life. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at historical cost, less any recognized impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Items of tangible fixed assets that are disposed of are eliminated from the statement of financial position along with the corresponding accumulated depreciation and impairment. Any gain or loss resulting from such retirement or disposal is included in the result of the period. For items of tangible fixed assets that are retired from use, and have not been written off at the data of financial statements, an impairment adjustment is recorded for the carrying value at the time of retirement. (3) Impairment Non-current assets must be recognized at the lower of the carrying amount and recoverable amount. If and only if the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset should be reduced to be equal to its recoverable amount. Such a reduction represents an impairment loss that is recognized in the result of the period. Thus at the end of each reporting period, the Company assesses whether there is any indication of impairment of assets. If such indication is identified, the Company tests the assets to determine whether they are impaired. Company’s assets are allocated to cash-generating units. The cash-generating unit is the smallest identifiable asset group that generates independent cash inflows to a large extent from cash inflows generated by other assets or asset groups. The company considers each commercial field as a separate cash-generating unit. All gas storages held by the Company leased to Depogaz are considered as part of a single cash-generating unit, as the regulatory authority sets regulated tariffs by analyzing the storage activity as a whole, not every single storage. In 2020, the Company conducted an impairment test in the Upstream segment, as the conditions existing when the previous test was conducted changed; the results of the impairment test are presented in note 12. In 2020, no indications of impairment of storage assets were identified. Recoverable amount is the largest of the fair value of an asset or a cash-generating unit less costs associated with disposal and its value in use. Considering the nature of the Company's assets, it was not possible to determine the fair value of the cash-generating units, being determined only the value in use of the assets. Assets held for disposal Non-current assets classified as held for disposal are non-current assets whose carrying amount will be recovered through a disposal rather than through continuing use. They are measured at the lower of its carrying amount and fair value less costs to dispose. Immediately before the initial classification of the assets as held for disposal, the carrying amounts of the assets are measured in accordance with applicable IFRSs. Non-current assets classified as held for disposal are no longer depreciated. In the 2020 financial statements, assets held for disposal are the assets used in the storage activity which will be transferred to increase the subsidiary’s share capital. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 14 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Exploration and appraisal assets (1) Cost Natural gas exploration (other than seismic, geological, geophysical and other similar activities), appraisal and development expenditure is accounted for using the principles of the successful efforts method of accounting. Costs directly associated with an exploration well are initially capitalized as an asset until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, drilling costs and payments made to contractors. If potentially commercial quantities of hydrocarbons are not found, the exploration well is eliminated from the statement of financial position, by recording an impairment, until National Agency for Mineral Resources (Agentia Nationala pentru Resurse Minerale – ANRM) approvals are obtained in order to be written off. If hydrocarbons are found and, subject to further appraisal activity, are likely to be capable of commercial development, the costs continue to be carried as an asset. Costs directly associated with appraisal activity, undertaken to determine the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalized as an asset. All such carried costs are subject to technical, commercial and management review at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, an impairment is recorded for the assets, until the completion of the legal steps necessary for them to be written off. When proved reserves of natural gas are determined and development is approved by management, the relevant expenditure is transferred to property, plant and equipment other than exploration assets. (2) Impairment At each reporting date, the Company's management reviews its exploration assets and establishes the necessity for recording in the financial statements an impairment loss in these situations: the period for which the Company has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; substantive expenditure on further exploration for and evaluation of gas resources in the specific area is neither budgeted nor planned; exploration for and evaluation of gas resources in the specific area have not led to the discovery of commercially viable quantities of gas resources and the Company has decided to discontinue such activities in the specific area; sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Other intangible assets (1) Cost Licenses for software, patents and other intangible assets are recognized at acquisition cost. Intangible assets are not revalued. (2) Amortization Patents and other intangible assets are amortized using the straight-line method over their useful life, but not exceeding 20 years. Licenses related to the right of use of computer software are amortized over a period of 3 years. Inventories Inventories are recorded initially at cost of production, or acquisition cost, depending on the case. The cost of finished goods and production in progress includes materials, labour, expense incurred for bringing the finished goods at the location and in the existent form and the related indirect production costs. Write down adjustments are booked against slow moving, damaged and obsolete inventory, when necessary. At each reporting date, inventories are measured at the lower of cost and net realizable value. The net realizable value is estimated based on the selling price less any completion and selling expenses. The cost of inventories is assigned by using the weighted average cost formula. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 15 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Financial assets and liabilities The Company’s financial assets include cash and cash equivalents, trade receivables, other receivables, loans, bank deposits and bonds with a maturity from acquisition date of over three months and other investments in equity instruments. Financial liabilities include interest-bearing bank borrowings and overdrafts and trade and other payables. For each item, the accounting policies on recognition and measurement are disclosed in this note. Management believes that the estimated fair values of these instruments approximate their carrying amounts. Cash and cash equivalents include petty cash, cash in current bank accounts and short-term deposits with a maturity of less than three months from the date of acquisition. The Company recognizes a financial asset or financial liability in the statement of financial position when and only when it becomes a party to the contractual provisions of the instrument. Upon initial recognition, financial assets are classified at amortized cost or measured at fair value through profit or loss. The classification depends on the Company's business model for managing the financial assets and their contractual cash flows. The Company does not have financial assets measured at fair value through other comprehensive income. On initial recognition, financial assets and financial liabilities are measured at fair value plus or minus, in the case of assets measured at amortized cost, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Receivables resulting from contracts with customers represent the unconditional right of the Company to a consideration. The right to a consideration is unconditional if only the passage of time is required before payment of the consideration is due. These are measured at initial recognition at the transaction price. The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments plus or minus cumulative depreciation using the effective interest method for each difference between the initial amount and the amount at maturity and, for financial assets, adjusted for any impairment. Any difference between the entry amount and the reimbursement amount is recognized in the income statement for the period of the borrowings using the effective interest method. Financial instruments are classified as liabilities or equity in accordance with the nature of the contractual arrangement. Interest, dividends, gains and losses on a financial instrument classified as a liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are recorded directly in equity. Financial instruments are offset when the Company has a legally enforceable right to set off and intends to settle either on a net basis or to realize the asset and discharge the obligation simultaneously. Impairment of financial assets Financial assets, other than those at fair value through profit and loss, are assessed for indicators of impairment at each reporting period. Except for trade receivables, the Company measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk associated with the financial instrument, has increased significantly since initial recognition. If, at the reporting date, the credit risk for a financial instrument has not increased significantly since the initial recognition, the Company measures the loss allowance for that financial instrument at a value equal to 12 month expected credit losses. The loss allowance on trade receivables resulting from transactions that are subject to IFRS 15 is measured at an amount equal to lifetime expected credit losses. The Company considers the risk or probability of a default occurring, reflecting the possibility of a default to occur or not to occur, even if the possibility of a credit loss is very low. The Company measures the expected credit losses of a financial instrument in a manner that reflects reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The carrying amount of the financial asset, other than those at fair value through profit or loss, is reduced through the use of an allowance account. De-recognition of financial assets and liabilities The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 16 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Reserves Reserves include (note 18): legal reserves, which are used annually to transfer to reserves up to 5% of the statutory profit, but not more than 20% of the statutory share capital of the Company; other reserves, which represent allocations from profit in accordance with Government Ordinance no. 64/2001, paragraph (g) for the Company’s development fund; reserves from reinvested profit, set up based on the Fiscal Code. The amount of profit that benefited from tax exemption under the fiscal legislation less the legal reserve, is distributed at the end of the year by setting up the reserve; development quota reserve, non-distributable, set up until 2004. Development quota reserve set up after 2004 is distributable and presented in retained earnings. Development quota set up after 2004 is allocated together with the profit allocation, as approved by the General Meeting of Shareholders, based on depreciation, respectively write-off of the assets financed using the development quota; other non-distributable reserves, set up from retained earnings representing translation differences recorded at transition to IFRS. These reserves are set up in accordance with MOF 2844/2016. Subsidies Subsidies are non-reimbursable financial resources granted to the Company with the condition of meeting certain criteria. In the category of subsidies are included grants related to assets and grants related to income. Grants related to assets are government grants for whose primary condition is that the Company should purchase, construct, or otherwise acquire long-term assets. Grants related to income are government grants other than those related to assets. Subsidies are not recognized until there is reasonable assurance that: (a) the Company will comply with the conditions attaching to it; and (b) subsidies will be received. Grants related to assets are presented in the statement of financial position as “Deferred revenue”, which is then recognized in profit or loss on a systematic basis over the useful life of the asset. Grants related to income are recognized in the statement of profit or loss under "Other income", as the related expenses are recorded. Until the time the expense occurs, the grant received is recognized as “Deferred revenue”. Use of estimates The preparation of the financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the end of reporting date, and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgments that the management has made in the process of applying the Company’s accounting policies, and that have the most significant effect on the amounts recognized in the financial statements. Estimates related to impairment losses on trade receivables At each period end, the Company evaluates the risks attached to current and overdue receivables and the probability of such risks to materialize. The Company’s receivables are generally due in maximum 30 days from the date the invoice is issued. However, the Company may be forced by court decisions to sell gas to insolvent clients deemed “captive” according to insolvency legislation. Invoices issued to these clients for gas delivered are due in 90 days from the date of issue. Based on the information available at period end related to such clients and previous experience, the Company estimates the lifetime expected credit loss of receivables, both current and overdue, and records appropriate impairment losses. Estimates related to the exploration expenditure on undeveloped fields If field works prove that the geological structures are not exploitable from an economic point of view or that they do not have hydrocarbon resources available, an impairment is recorded. The impairment assessment is performed based on geological experts’ technical expertise. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 17 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Estimates related to the developed proved reserves The Company applies the depreciation method based on the unit of production in order to reflect in the income statement an expense proportionate with the production obtained from the total natural gas reserve at the beginning of the period. According to this method, the value of each production well is depreciated according to the ratio of the natural gas quantity extracted during the period compared to the gas reserve at the beginning of the period. The gas reserves are updated annually according to internal assessments that are based on certifications of ANRM. Estimates related to the decommissioning provision Liabilities for decommissioning costs are recognized for the Company’s obligation to plug and abandon a well, dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made. This provision is computed based on the estimated future expenditure determined in accordance with local conditions and requirements and it is brought to present value using the interest rate on long term treasury bonds. The rate is updated annually. Estimates related to the retirement benefit obligation Under the Collective Labor Agreement, the Company is obliged to pay to its employees when they retire a multiplicator of the gross salary, depending on the seniority within the gas industry/electricity industry, working conditions etc. This provision is updated annually and calculated based on actuarial methods to estimate the average wage, the average number of employees to pay at retirement, the estimate of the period when they will be paid and brought to present value using a discount factor based on interest on investments with the highest degree of safety (government bonds). The Company does not operate any other pension plan or retirement benefits, and therefore has no other obligations relating to pensions. Contingencies By their nature, contingencies end only when one or more uncertain future events occur or not. In order to determine the existence and the potential value of a contingent element, is required to exercise the professional judgment and the use of estimates regarding the outcome of future events (note 32). Comparative information For each item of the statement of financial position, the statement of comprehensive income and, where is the case, for the statement of changes in equity and for the statement of cash flows, for comparative information purposes is presented the value of the corresponding item for the previous period ended, unless the changes are insignificant. In addition, the Company presents an additional statement of financial position at the beginning of the earliest period presented when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in the financial statements, which has a material impact on the Company. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 18 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 3. REVENUE AND OTHER INCOME Revenue from gas sold - domestic production Revenue from gas sold – other arrangements Revenue from gas acquired for resale – import gas Revenue from gas acquired for resale – domestic gas Revenue from electricity Revenue from services Revenue from sale of goods Other revenues from contracts Total revenue from contracts with customers Revenues from rental activities (see below) Total revenue Other operating income *) Total revenue and other income Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 3,235,949 66,915 - 15,545 189,294 288,328 18,189 366 3,814,586 111,448 3,926,034 25,378 3,951,412 4,166,522 128,737 77,867 23,368 145,715 237,869 30,239 400 4,810,717 114,163 4,924,880 32,585 4,957,465 *) Other operating income relates mainly to penalties charged to clients for late payment. Revenue from contracts with customers is recognized as or when the Company satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when the customer obtains control of that good or service. The transfer of control of goods sold by the Company usually coincides with title passing to the customer and the customer taking physical possession. Revenues from gas and electricity are recognized when the delivery has been made at the prices fixed in the contracts with customers. In measuring the revenue from gas and electricity, the Company uses output methods. According to these methods, revenues are recognized based on direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The Company recognizes the revenue in the amount it has the right to charge. The Company does not disclose information about the remaining performance obligations, applying the practical expedient in IFRS 15, as the contracts with the customers are generally signed for periods of less than one year and the revenues are recognized at the amount which the Company has the right to charge. Revenues from rental activities mainly includes the revenue from renting the fixed assets used in the storage activity by Depogaz and Depomureș. 4. INVESTMENT INCOME Income from dividends Interest income Total Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 21,097 46,860 67,957 - 37,676 37,676 Interest income is derived from the Company's investments in bank deposits and government bonds. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 19 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 5. COST OF COMMODITIES SOLD, RAW MATERIALS AND CONSUMABLES Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Consumables used Technological consumption Cost of gas acquired for resale, sold – import Cost of gas acquired for resale, sold – domestic Cost of electricity imbalance Cost of other goods sold Other consumables Total 6. OTHER GAINS AND LOSSES 31,390 14,541 - 7,650 10,375 590 3,698 68,244 35,110 24,156 74,410 9,863 22,414 1,111 2,860 169,924 Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Forex gain Forex loss Net loss on disposal of non-current assets Net allowances for other receivables (note 16 c) Net write down allowances for inventory (note 15) Net gain/(loss) on financial assets at fair value through profit or loss (note 26) Other gains and losses Losses from other debtors Total 52 (279) (7) 2,151 (7,488) (10) - (2) (5,583) 2,581 (2,024) 2,564 13,926 (4,652) (4,424) 55 (2) 8,024 7. DEPRECIATION, AMORTIZATION AND IMPAIRMENT EXPENSES Year ended December 31, 2020 Year ended December 31, 2019 Depreciation and amortization out of which: - depreciation of property, plant and equipment*) - amortization of intangible assets - amortization of write-of use assets Net impairment of non-current assets (note 12) **) Total depreciation, amortization and impairment '000 RON 370,997 368,193 1,977 827 223,692 594,689 '000 RON 518,018 515,073 2,238 707 930,809 1,448,827 *) The decrease in the depreciation expense for property, plant and equipment is due to a reduction in natural gas production, as they are depreciated using the unit of production method, as mentioned in note 2. **) Net impairment of non-current assets have decreased as compared to the previous year as in 2020 the Company did not record any impairment losses from impairment tests unlike 2019. More information on the impairment test performed in 2020 is presented in note 12. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 20 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 8. EMPLOYEE BENEFIT EXPENSE Wages and salaries Social security charges Meal tickets Other benefits according to collective labor contract Private pension payments Private health insurance Total employee benefit costs Less, capitalized employee benefit costs Total employee benefit expense 9. FINANCE COSTS Interest expense Unwinding of the decommissioning provision (note 19) Total 10. OTHER EXPENSES Energy and water expenses Expenses for capacity booking and gas transmission services Expenses with other taxes and duties *) (Net gain)/Net loss from provisions movement (note 19) Gas storage services Other operating expenses **) Total Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 733,979 26,132 21,260 19,138 10,791 5,980 817,280 (120,762) 696,518 661,456 19,297 17,452 27,700 9,891 - 735,796 (127,800) 607,996 Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 592 16,407 16,999 541 24,197 24,738 Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 16,322 167,937 623,012 90,382 67,757 198,046 1,163,456 17,101 164,142 1,058,976 (60,574) 64,874 280,088 1,524,607 *) In the year ended December 31, 2020, the major taxes and duties included in the amount of RON 623,012 thousand (year ended December 31, 2019: RON 1,058,976 thousand) are: 414,943 RON thousand represent windfall tax resulting from the deregulation of prices in the natural gas sector according to Government Ordinance no. 7/2013 with the subsequent amendments for the implementation of the windfall tax following the deregulation of prices in the natural gas sector (year ended December 31, 2019: RON 716,908 thousand); 186,857 RON thousand represent royalty on gas production (year ended December 31, 2019: RON 332,501 thousand). **) At the start of 2020, the monetary contribution from license holders in the electric power and natural gas sectors of 2% from revenues obtained from the activities under the scope of licenses granted by the Romanian Regulatory Authority for Energy, as introduced by Government Emergency Ordinance no. 114/2018, was repealed. The 2019 operating expenses of RON 280,088 thousand included this contribution of RON 79,860 thousand. In 2020 the contribution paid to ANRE was of RON 11,439 thousand. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 21 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 In 2020 other operating expenses of RON 198,046 thousand include an expense of RON 24,284 thousand representing dividends deemed by ANAF as payable to the Romanian state according to the provisions of Government Emergency Ordinance no. 114/2018. The Company did not agree with the conclusions of the report and started legal actions against it. The deemed dividends attributable to the main shareholder and related penalties were offset by ANAF against receivables of the Company from ANAF, although the Company requested the receivables to be offset against other tax liabilities when due. As there is no shareholders’ decision to allocate additional dividends, the amount offset by ANAF was expensed. 11. INCOME TAX Current tax expense *) Deferred income tax (income)/expense Income tax expense Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 210,174 (40,288) 169,886 286,025 (108,209) 177,816 *) The 2020 current tax expense of RON 210,174 thousand includes additional income tax of RON 6,923 thousand, as determined by ANAF following a tax audit for the period 2014-2018; the Company filed a complaint against the report. The tax audit report included penalties of RON 37,941 thousand, which were written-off due to facilities introduced by Government Emergency Ordinance no. 69/2020. The tax rate used for the reconciliations below for the year ended December 31, 2020, respectively year ended December 31, 2019 is 16% payable by corporate entities in Romania on taxable profits. The total charge for the period can be reconciled to the accounting profit as follows: Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON Accounting profit before tax (Profit)/loss activities not subject to income tax Accounting profit subject to income tax Income tax expense calculated at 16% Effect of income exempt of taxation Effect of expenses that are not deductible in determining taxable profit Effect of current income tax reduction, due to tax facilities Effect of tax incentive for reinvested profit Effect of the benefit from tax credits, used to reduce current tax expense Effect of deferred tax relating to the origination and reversal of temporary differences Effect of the benefit from tax credits, used to reduce deferred tax expense Effect of the previous year tax expenses Income tax expense 1,448,771 6,298 1,455,069 232,811 (71,772) 85,643 (10,424) (9,506) 27,374 (56,239) (34,924) 6,923 169,886 1,224,223 1,821 1,226,044 196,167 (44,598) 170,899 (15,054) (1,960) 28,805 (145,407) (11,036) - 177,816 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 22 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Components of deferred tax (asset)/liability: December 31, 2020 December 31, 2019 Cumulative temporary differences '000 RON (671,907) 88,006 (828,989) (977) (29,817) (395,488) (1,839,172) 184,986 Deferred tax (asset)/ liability '000 RON (107,505) 14,081 (132,638) (156) (4,771) (63,279) (294,268) 29,598 Cumulative temporary differences '000 RON (489,160) 55,175 (928,679) (977) (17,940) (191,509) (1,573,090) 175,115 Deferred tax (asset)/ liability '000 RON (78,266) 8,827 (148,589) (156) (2,870) (30,641) (251,695) 28,019 (50,269) (8,044) (38,512) (6,162) 134,717 (1,704,455) 136,603 (1,436,487) 21,554 (272,714) 42,876 40,288 2,588 21,857 (229,838) 103,763 108,209 (4,446) Provisions Property, plant and equipment Exploration assets *) Financial investments Inventory Receivables and other assets Total Assets held for disposal Liabilities directly associated with Assets held for disposal Total for assets held for disposal and associated liabilities Total General Change, out of which: - - In current year’s result in other comprehensive income *) According to the Fiscal Code applicable in Romania, expenses related to location, exploration, development or any preparatory activity for the exploitation of natural resources, which, according to the applicable accounting regulations, are recorded directly in the result, are recovered in equal rates for a period of 5 years, starting with the month in which the expenses are incurred. Also, for fixed assets specific to the exploration and production of gas resources, the carrying tax value of fixed assets written off is deducted using the tax depreciation method used before their write-off for the remaining period. All of these costs are treated as assets only from a tax point of view and generate a deferred tax asset. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 23 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 12. PROPERTY, PLANT AND EQUIPMENT Land and land improvements '000 RON 88,688 8,049 - - - 96,737 Buildings '000 RON 686,882 1 3,510 - (1,342) Gas properties '000 RON 6,730,173 130,268 259,441 - (16,051) 689,051 7,103,831 - - - - 266,495 4,022,145 22,928 (839) 306,002 (3,014) 288,584 4,325,133 Cost As of January 1, 2020 Additions Transfers Assets held for disposal Disposals As of December 31, 2020 Accumulated depreciation As of January 1, 2020 Depreciation *) Disposals As of December 31, 2020 Impairment Plant, machinery and equipment '000 RON Fixtures, fittings and office equipment Storage assets Tangible exploration assets '000 RON '000 RON '000 RON Capital work in progress '000 RON 1,794,140 522,699 (348,369) - (58,493) Total '000 RON 10,841,649 727,540 - 7,338 (216,186) 206,470 - - 7,338 (421) 402,445 66,516 (4,690) - (130,665) 213,387 333,606 1,909,977 11,360,341 7,565 4,200 (4,000) 7,765 - - - - - - - - 4,953,319 389,844 (17,021) 5,326,142 841,835 7 81,377 - (8,928) 914,291 585,471 51,014 (8,882) 627,603 91,016 - 8,731 - (286) 99,461 71,643 5,700 (286) 77,057 As of January 1, 2020 3,180 32,353 493,729 80,464 1,121 2,757 245,532 246,618 1,105,754 Charge Transfers Assets held for disposal Release - - - - 1,664 - - (382) As of December 31, 2020 3,180 33,635 85,085 25,804 - (50,993) 553,625 557 2,374 - (400) 82,995 76 - - (19) (11,341) - 11,341 (656) 100,189 - - (132,323) 106,850 (28,178) - (69,366) 283,080 - 11,341 (254,139) 1,178 2,101 213,398 255,924 1,146,036 Carrying value As of January 1, 2020 85,508 388,034 2,214,299 175,900 As of December 31, 2020 93,557 366,832 2,225,073 203,693 18,252 21,226 196,148 156,913 1,547,522 4,782,576 203,521 120,208 1,654,053 4,888,163 *) The amounts include depreciation of tangible assets used in the production of other fixed assets, capitalized in their cost, amounting to RON 21,649 thousand. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 24 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Land and land improvements '000 RON 108,849 374 7 - Buildings '000 RON 890,706 18 11,224 (283) Gas properties '000 RON 6,454,088 16,345 466,419 (206,679) Plant, machinery and equipment '000 RON 983,784 25 39,901 (8,545) Fixtures, fittings and office equipment '000 RON 98,608 21 2,933 (2,134) Storage assets '000 RON 1,698,008 - (16,738) (34,574) Tangible exploration assets '000 RON 332,457 210,521 (117,482) (23,051) Capital work in progress '000 RON 1,553,904 649,459 (386,264) (22,959) Total '000 RON 12,120,404 876,763 - (298,225) (20,542) (214,783) - (173,330) (8,412) (1,440,226) - - (1,857,293) Cost As of January 1, 2019 Additions Transfers Disposals Transfer to assets held for disposal (note 29) As of December 31, 2019 88,688 686,882 6,730,173 841,835 91,016 206,470 402,445 1,794,140 10,841,649 Accumulated depreciation As of January 1, 2019 Depreciation *) Transfers Disposals Transfer to assets held for disposal (note 29) As of December 31, 2019 Impairment As of January 1, 2019 Charge Transfers Release Transfer to assets held for disposal (note 29) As of December 31, 2019 Carrying value - - - - - - 3,180 5,075 - - (5,075) 3,180 297,740 3,671,297 590,318 31,231 - (248) (62,228) 266,495 370,794 5,906 (25,852) - 4,022,145 31,523 390,424 11,893 931 (4,041) (7,953) 32,353 179,095 24,890 (100,680) - 63,933 - (8,093) (60,687) 585,471 71,226 4,526 6,808 (1,993) (103) 493,729 80,464 72,906 5,929 - (2,103) (5,089) 71,643 909 288 279 (328) (27) 1,121 589,043 66,682 (5,906) (2,796) (639,458) 7,565 - - - - - - - - - - - - 5,221,304 538,569 - (39,092) (767,462) 4,953,319 3,521 37,266 119,145 657,194 375,073 - (262) (375,575) 231,409 (84) (23,059) 192,449 (32,824) (32,152) 999,808 - (162,515) - - (388,733) 2,757 245,532 246,618 1,105,754 As of January 1, 2019 105,669 561,443 2,392,367 322,240 24,793 1,105,444 295,191 1,434,759 6,241,906 As of December 31, 2019 85,508 388,034 2,214,299 175,900 18,252 196,148 156,913 1,547,522 4,782,576 *) The amounts include depreciation of tangible assets used in the production of other fixed assets, capitalized in their cost, amounting to RON 23,498 thousand. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 25 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 Impairment of property, plant and equipment Note 2 contains information on the conditions under which impairment losses for individual assets are recognized. Impairment of assets in the Upstream segment Based on the current market conditions (the effects of the COVID-19 pandemic on Romanian economy, 2020 gas production 14% lower compared to previous year, lower gas prices), the Group identified impairment indicators for its upstream assets. Based on its assessment, the Company considered each commercial field as a separate cash-generating unit. The infrastructure common to several gas fields (e.g. compression stations, drying stations) was allocated to each field according to the quantities processed for each field served. The corporate assets were allocated to each field according to the estimated revenue to be earned by each field in the total revenue over the period considered in the impairment test. The impairment test took into account the economic life of the fields, according to the latest studies approved by the National Agency of Mineral Resources, but no later than 2043, this being the limit year of the concession agreements, according to the legislation in force. Following the impairment test, there was no additional impairment identified. In the impairment test the following assumptions were used: Weighted average cost of capital: 10%; The inflation rate for the years 2021-2023 was the one reported by the National Prognosis Commission in the autumn forecast for 2021. For the period 2024-2043 a constant inflation rate of 2.4% was used; Average estimated price for the period was 87.51 lei/MWh. 13. EXPLORATION AND APPRAISAL FOR NATURAL GAS RESOURCES The following financial information represents the amounts included within the Company’s totals relating to activity associated with the exploration for and appraisal of natural gas resources. Exploration assets written off (note 12) Seismic, geological, geochemical studies Exploration expenses Net movement in exploration assets’ impairment (note 12) (net income)/net loss Net cash used in exploration investing activities Exploration assets (note 12) Liabilities Net assets Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON (836) (25,673) (26,509) 97,695 (66,516) (123) (1,513) (1,636) 231,278 (173,563) December 31, 2020 '000 RON December 31, 2019 '000 RON 120,208 (5,285) 114,923 156,913 (49,270) 107,643 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 26 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 14. OTHER INTANGIBLE ASSETS. RIGHT OF USE ASSETS a) Other intangible assets 2020 '000 RON 2019 '000 RON Cost As of January 1 Additions Disposals Transfer to assets held for disposal (note 29) As of December 31 Accumulated amortization As of January 1 Charge Disposals Transfer to assets held for disposal (note 29) As of December 31 Carrying value As of January 1 As of December 31 b) Right of use assets Cost As of January 1 Implementation of IFRS16 leases Additions Effects of rent index updates Disposals As of December 31 Accumulated amortization As of January 1 Charge Disposals As of December 31 Carrying value As of January 1 As of December 31 184,797 7,877 (7,840) - 184,834 176,667 1,977 (7,840) - 170,804 8,130 14,030 179,409 6,124 (695) (41) 184,797 174,674 2,238 (219) (26) 176,667 4,735 8,130 2020 '000 RON 2019 '000 RON 8,657 - - 230 - 8,887 618 827 - 1,445 8,039 7,442 - 4,929 5,036 - (1,308) 8,657 - 707 (89) 618 - 8,039 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 27 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 15. INVENTORIES Spare parts and materials Finished goods (gas) Other inventories Write-down allowance for spare parts and materials Write-down allowance for other inventories Total 16. ACCOUNTS RECEIVABLE a) Trade and other receivables December 31, 2020 '000 RON December 31, 2019 '000 RON 155,965 123,638 681 (50,335) (4) 229,945 154,691 183,842 459 (42,850) (1) 296,141 December 31, 2020 '000 RON December 31, 2019 '000 RON Trade receivables Allowances for expected credit losses (note 16 c) Accrued receivables Allowances for expected credit losses on accrued receivables (note 16 c) Total 1,553,276 (1,279,164) 302,855 (2,694) 574,273 1,547,917 (1,252,267) 369,811 (47,142) 618,319 Trade receivables from gas deliveries are generally due within 30 days of invoice issue. These must be guaranteed by customers through bank letters of guarantee. If customers do not provide such a guarantee, they must ensure that natural gas is paid in advance. The Company is forced by court orders to sell gas to insolvent clients considered “captive” by the insolvency law. These clients provide no guarantees, do not pay for deliveries in advance and have a payment term of 90 days from invoice issue date. Trade receivables from the sale of electricity are generally due within 7 days of the date of invoice transmission. These must be guaranteed by customers through bank letters of guarantee. If customers do not provide such a guarantee, they must ensure that electricity is paid in advance. b) Other assets Advances paid to suppliers Joint operation receivables Other receivables *) Allowance for expected credit losses other receivables (note 16 c) *) Other debtors Allowances for expected credit losses for other debtors (note 16 c) Prepayments VAT not yet due Other taxes receivable Total December 31, 2020 '000 RON December 31, 2019 '000 RON 7,934 2,384 63,638 (28,981) 50,072 (49,016) 5,719 4,269 6 56,025 386 2,125 61,177 (33,703) 47,528 (46,445) 3,784 5,954 - 40,806 *) During May 13, 2014 – September 30, 2014 the National Agency for Tax Administration (Agentia Nationala de Administrare Fiscala - ANAF) ran a tax investigation at Romgaz regarding the tax statements and/or operations relevant for the investigation as well as the organization and management of tax and accounting evidence. The period under control was 2008 – 2013 for income tax and 2009 – 2013 for VAT. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 28 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Following the tax inspection, an additional liability was established for Romgaz of RON 22,440 thousand, representing income tax, VAT, penalties and related interest. Of the total amount, Romgaz paid RON 2,389 thousand. For the remaining amount of RON 20,051 thousand, Romgaz performed a legal assessment which concluded that the additional tax, penalties and interest are not correct. Romgaz filed an appeal to the Ministry of Public Finance. The appeal was partially rejected for the amount of RON 15,872 thousand. For RON 4,179 thousand a new fiscal control was ordered, which resulted in a tax burden of RON 2,981 thousand. The appeal filed to ANAF was rejected. In 2015, Romgaz sued the Ministry of Finance to cancel the above mentioned administrative acts, including the partial cancelation of the decision issued for the appeal. The payment made in 2016 generated additional penalties of RON 13,697 thousand, also paid. Considering the disagreement regarding the conclusions of the tax control, the Company recorded a receivable and an allowance. In 2019, the Company won some of the points claimed in the case filed against ANAF and the allowance of RON 18,499 thousand was reversed against income. The Company took action to recover the amount paid, but the amounts were not received by December 31, 2020. During the period December 2016 - April 2017 ANAF resumed the tax inspection on VAT for the period December 2010 – June 2011 and on income tax for the period January 2010 – December 2011, regarding the discounts granted by Romgaz to interruptible clients for deliveries during 2010 - 2011. This status was attributed to companies by Transgaz, the Romanian natural gas transmission operator. Following the tax inspection, additional tax obligations of RON 15,284 thousand were determined, and also penalties and late payment charges in amount of RON 3,129 thousand. The tax decision and the tax inspection report were appealed to ANAF. Romgaz paid the additional tax obligation and the late payment charges and based on the appeal, the Company recorded a receivable for which it recorded an allowance. The total receivable impaired in connection with these controls is RON 28,981 thousand. c) Changes in the allowance for expected credit losses for trade and other receivables and other assets At January 1 Charge in the allowance for other receivables (note 6) Charge in the allowance for trade receivables Release in the allowance for other receivables (note 6) Release in the allowance for trade receivables At December 31 2020 '000 RON 1,379,557 2,792 61,595 (4,943) (79,146) 1,359,855 2019 '000 RON 1,312,262 4,641 84,783 (18,567) (3,562) 1,379,557 As of December 31, 2020, the Company recorded allowances for doubtful debts, of which Interagro RON 271,621 thousand (December 31, 2019: RON 275,137 thousand), GHCL Upsom of RON 68,103 thousand (December 31, 2019: RON 68,103 thousand), CET Iasi of RON 46,271 thousand (December 31, 2019: RON 46,271 thousand), Electrocentrale Galati with RON 226,338 thousand (December 31, 2019: RON 222,075 thousand), Electrocentrale Bucuresti with RON 576,080 thousand (December 31, 2019: RON 616,330 thousand), G-ON EUROGAZ of RON 14,848 thousand (December 31, 2019: RON 14,848 thousand) and Electrocentrale Constanta of RON 58,227 thousand (December 31, 2019: RON 39,113 thousand), due to existing financial conditions of these clients as well as ongoing litigating cases related to these receivables or exceeding payment terms. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 29 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 d) Credit risk exposure for trade receivables December 31, 2020 Current receivables, including accrued receivables less than 30 days overdue 30 to 90 days overdue 90 to 360 days overdue over 360 days overdue Total trade receivables December 31, 2019 Current receivables, including accrued receivables less than 30 days overdue 30 to 90 days overdue 90 to 360 days overdue over 360 days overdue Total trade receivables Gross carrying amount '000 RON Expected credit loss rate % Lifetime expected credit losses ‘000 RON 573,446 5,878 4,877 23,890 1,248,040 1,856,131 0.91 9.22 86.57 99.81 100.00 5,210 542 4,222 23,844 1,248,040 1,281,858 Gross carrying amount '000 RON Expected credit loss rate % Lifetime expected credit losses ‘000 RON 664,761 3,924 1,451 25,203 1,222,389 1,917,728 7.10 84.00 96.21 99.71 100.00 47,198 3,296 1,396 25,130 1,222,389 1,299,409 17. SHARE CAPITAL December 31, 2020 ‘000 RON December 31, 2019 ‘000 RON 385,422,400 fully paid ordinary shares Total 385,422 385,422 The shareholding structure as at December 31, 2020 is as follows: The Romanian State through the Ministry of Economy, Energy and Business Environment Legal persons Physical persons Total No. of shares 269,823,080 95,612,507 19,986,813 385,422,400 Value ‘000 RON 269,823 95,612 19,987 385,422 385,422 385,422 Percentage (%) 70.01 24.81 5.18 100 All shares are ordinary and were subscribed and fully paid as at December 31, 2020. All shares carry equal voting rights and have a nominal value of RON 1/share (December 31, 2019: RON 1/share). The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 30 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 18. RESERVES Legal reserves Other reserves, of which: - Company’s development fund - Reinvested profit - Geological quota set up until 2004 - Other reserves Total 19. PROVISIONS Decommissioning provision (note 19 a) Retirement benefit obligation (note 19 c) Total long term provisions Decommissioning provision (note 19 a) Litigation provision (note 19 b) Other provisions *) (note 19 b) Total short term provisions Total provisions December 31, 2020 '000 RON December 31, 2019 '000 RON 77,084 2,142,857 1,353,047 283,697 486,388 19,725 2,219,941 77,084 1,502,818 772,417 224,288 486,388 19,725 1,579,902 December 31, 2020 '000 RON December 31, 2019 '000 RON 493,176 119,432 612,608 17,846 1,380 128,340 147,566 760,174 331,812 106,158 437,970 13,912 1,337 59,351 74,600 512,570 *) On December 31, 2020, other provisions of RON 128,340 thousand include the provision for employee’s participation to profit of RON 33,848 thousand (December 31, 2019: RON 31,525 thousand), the provision for taxes of RON 6,716 thousand and the provision for CO2 certificates of RON 81,217 thousand (December 31, 2019: RON 23,410 thousand). Regarding the CO2 provision, starting 2020 the mechanism for free of charge transitory allocation of greenhouse gas emissions certificates is no longer available. a) Decommissioning provision (i) Decommissioning provision movement At January 1 Additional provision recorded against non-current assets Unwinding effect (note 9) Recorded in profit or loss Change recorded against non-current assets Provision directly associated with the assets held for disposal (note 29) At December 31 2020 '000 RON 345,724 130,094 14,860 24,130 (3,786) - 511,022 2019 '000 RON 530,466 16,342 24,197 (51,760) (135,009) (38,512) 345,724 The Company makes full provision for the future cost of decommissioning natural gas wells on a discounted basis upon installation. The provision for the costs of decommissioning these wells at the end of their economic lives has been estimated using existing technology, at current prices or future assumptions, depending on the expected timing of the activity, and discounted using a rate of 2.97% (year ended December 31, 2019: 4.41%). While the provision is based on the best estimate of future costs and the economic lives of the wells, there is uncertainty regarding both the amount and timing of these costs. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 31 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 The increase with 1 percentage point of the discount rate would decrease the decommissioning provision with RON 99,099 thousand. The decrease with 1 percentage point of the discount rate would increase the decommissioning provision with RON 131,707 thousand. (ii) Decommissioning provision movement for assets held for disposal At January 1 Additional provision recorded against assets held for disposal Unwinding effect (note 9) Recorded in profit or loss Change recorded against assets held for disposal Transfer to liabilities directly associated with assets held for disposal (nota 29) At December 31 b) Other provisions 2020 '000 RON 38,512 9,843 1,547 118 (85) - 49,935 At January 1, 2020 Additional provision recorded in the result of the period Provisions used in the period Unused amounts during the period, reversed At December 31, 2020 At January 1, 2019 Additional provision recorded in the result of the period Provisions used in the period Unused amounts during the period, reversed At December 31, 2019 c) Retirement benefit obligation Movement for retirement benefit obligation At January 1 Interest cost Current service cost Payments during the year Actuarial (gain)/loss of the period At December 31 Litigation provision ‘000 RON Other provisions ‘000 RON 1,337 730 (684) (3) 1,380 59,351 142,034 (71,618) (1,427) 128,340 Litigation provision ‘000 RON Other provisions ‘000 RON 229 2,184 (1,076) - 1,337 72,103 65,942 (75,303) (3,391) 59,351 2020 '000 RON 106,158 2,441 5,438 (10,777) 16,172 119,432 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 32 2019 '000 RON - - - - - 38,512 38,512 Total ‘000 RON 60,688 142,764 (72,302) (1,430) 129,720 Total ‘000 RON 72,332 68,126 (76,379) (3,391) 60,688 2019 '000 RON 131,120 3,718 6,157 (7,045) (27,792) 106,158 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 With the exception of actuarial gains/losses, all other movements in the retirement benefit obligation are recognized in the result of the period. In determining the retirement benefit obligation, the following significant assumptions were used: No layoffs or restructurings are planned; Average discount rate: 3.21%; Average inflation rate: 2.00%. Sensitivity analysis The discount rate has a significant effect on the obligation. Isolated change in assumptions with 1 percentage point would have the following effect on the obligation: Average discount rate Average inflation rate Maturity analysis of payment cash flows Increase of 1% in assumptions '000 RON Decrease of 1% in assumptions '000 RON (11,498) 13,400 13,449 (11,669) Up to 1 year 1-2 years 2-5 years 5-10 years Over 10 years 20. DEFERRED REVENUE Amounts collected from NIP *) Other deferred revenue Other amounts received as subsidies Total long term deferred revenue Other amounts received as subsidies Other deferred revenue Total short term deferred revenue Total deferred revenue Benefit payments '000 RON 6,693 4,645 12,795 50,728 44,571 December 31, 2020 '000 RON December 31, 2019 '000 RON 136,021 167 120 136,308 8 10,891 10,899 147,207 20,994 123 127 21,244 58 3,671 3,729 24,973 *) In Government Decision no. 1096/2013 approving the mechanism for the free allocation of greenhouse gas emission allowances to electricity producers for the period 2013-2020, Annex no. 3 "National Investment Plan" (NIP) at Item 22, S.N.G.N. ROMGAZ S.A. is included with the investment "Combined Gas Turbine Cycle". For this investment, Romgaz signed a financing agreement with the Ministry of Energy in 2017, whereby the Ministry of Energy undertakes to grant a non-reimbursable financing of RON 320,912 thousand, representing a maximum of 25% of the total value of the eligible expenditure of the investment. By December 31, 2020 the Group collected RON 136,021 thousand. Amounts received under this contract will be transferred to income based on the depreciation rate of the investment. By Government Decision no. 1070/2020 the deadline until the investments financed from the National Investment Plan must be put into operation has been extended until June 30, 2021. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 33 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Until December 31, 2020, the Company has submitted two reimbursement requests amounting to RON 140,498 thousand. As the term of the contract for the realization of the investment was not extended, the Company is in the process of identifying solutions for completing the works. Amounts collected from NIP '000 RON Other amounts received as subsidies '000 RON At January 1, 2020 Received Other decreases (reimbursements) Amounts in revenue At December 31, 2020 20,994 115,027 - - 136,021 185 - (50) (7) 128 Amounts collected from NIP '000 RON Other amounts received as subsidies '000 RON At January 1, 2019 Received Other increases Amounts in revenue 20,994 - - - At December 31, 2019 20,994 21. TRADE AND OTHER CURRENT LIABILITIES 257 - 9 (81) 185 Total '000 RON 21,179 115,027 (50) (7) 136,149 Total '000 RON 21,251 - 9 (81) 21,179 Accruals Trade payables Payables to fixed assets suppliers Total trade payables Payables related to employees Royalties Social security taxes Other current liabilities VAT Dividends payable Windfall tax Other taxes Total other liabilities Total trade and other liabilities December 31, 2020 '000 RON December 31, 2019 '000 RON 28,268 27,315 35,477 91,060 30,535 18,242 61,550 110,327 December 31, 2020 '000 RON December 31, 2019 '000 RON 63,452 60,714 24,341 5,711 62,740 2,047 31,842 1,303 252,150 343,210 44,268 64,760 20,226 4,700 54,189 2,231 59,095 1,338 250,807 361,134 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 34 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 22. FINANCIAL INSTRUMENTS Financial risk factors The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, inflation risk, interest rate risk), credit risk, liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance within certain limits. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements. The Company does not use derivative financial instruments to hedge certain risk exposures. (a) Market risk (i) Foreign exchange risk The Company is exposed to currency risk as a result of exposure to various currencies. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities. As at December 31, 2020, the official exchange rates were RON 3.9660 to USD 1 and RON 4.8694 to EUR 1 and (December 31, 2019: RON 4.2608 to USD 1 and RON 4.7793 to EUR 1). The Company is mainly exposed to currency risk generated by EUR and USD against RON. The currency risk is not significant, as the Company has limited foreign exchange transactions. (ii) Inflation risk The official inflation rate in Romania, during the year ended December 31, 2020 was under 10% as provided by the National Commission for Statistics of Romania. The cumulative inflation rate for the last 3 years was under 100%. This factor, among others, led to the conclusion that Romania is not a hyperinflationary economy. (iii) Interest rate risk The Company is exposed to interest rate risk, due to retirement benefit obligations and the decommissioning provision. The Company’s sensitivity to changes in the discount rate is detailed in note 19. Bank deposits and treasury bills bear a fixed interest rate. (b) Credit risk Financial assets, which potentially subject the Company to credit risk, consist principally of trade receivables. The Company has policies in place to ensure that sales are made to customers with low credit risk. Also, sales have to be secured, either through advance payments, either through bank letters of guarantee. The carrying amount of accounts receivable, net of bad debt allowances, represents the maximum amount exposed to credit risk. The Company has a concentration of credit risk in respect of its top 4 clients, which together amount to 85.14% of net trade receivable balance at December 31, 2020 (top 4 clients: 85.19% as of December 31, 2019). In spite of the policies described above, the Company is forced by court orders to deliver gas to insolvent clients deemed “captive” by insolvency legislation. In respect of these clients, the Company makes estimates of the lifetime expected credit losses and records appropriate impairment losses. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Company beyond the bad debt allowance already recorded. (c) Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to minimize the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the dividend policy, issue new shares or sell assets to reduce debt. The Company’s policy is to only resort to borrowing if investment needs cannot be financed internally. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 35 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (d) Fair value estimation Carrying amount of financial assets and liabilities is assumed to approximate their fair values. Financial instruments in the balance sheet include trade receivables and other receivables, cash and cash equivalents, other financial assets, short-term loans and borrowings and trade and other payables. The estimated fair values of these instruments approximate their carrying amounts. The carrying amounts represent the Company’s maximum exposure to credit risk for existing receivables. e) Maturity analysis for financial assets and financial liabilities at amortized cost Due in less than a month ‘000 RON Due in 1-3 months ‘000 RON December 31, 2020 Trade receivables Bank deposits Treasury bonds Total Trade payables Lease liabilities Total Net December 31, 2019 Trade receivables Bank deposits Treasury bonds 138,091 137,000 - 275,091 (60,271) (57) (60,328) 214,763 Due in less than a month ‘000 RON 106,087 265,000 - Due in 3 months to 1 year ‘000 RON 28 397,157 797,505 1,194,690 (2) (556) (558) Due in 3 months to 1 year ‘000 RON 33 91,000 149,560 240,593 (5) (503) (508) 135,993 371,259 270,000 777,252 (2,519) (144) (2,663) Due in 1-3 months ‘000 RON 189,530 560,354 - (3,964) (252) (4,216) 774,589 1,194,132 Due in 1-5 years ‘000 RON Due in over 5 years ‘000 RON - - - - - - - - - - (3,364) (3,364) (3,364) (4,480) (4,480) (4,480) Due in 1-5 years ‘000 RON Due in over 5 years ‘000 RON - - - - - (2,986) (2,986) (2,986) - - - - - (5,165) (5,165) (5,165) Total ‘000 RON 274,112 905,416 1,067,505 2,247,033 (62,792) (8,601) (71,393) 2,175,640 Total ‘000 RON 295,650 916,354 149,560 1,361,564 (79,792) (8,958) (88,750) 1,272,814 Total 371,087 749,884 Trade payables Lease liabilities Total Net (75,823) (52) (75,875) 295,212 f) Liquidity risk management 745,668 240,085 Ultimate responsibility for liquidity risk management rests with the Company’s management, which has established an appropriate liquidity risk management framework for the management of the Company’s short, medium and long- term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and current cash flows and by matching the maturity profiles of financial assets and liabilities. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 36 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 23. RELATED PARTY TRANSACTIONS AND BALANCES i. Sales of goods and services Subsidiaries Associates Total Year ended Dec 31, 2020 '000 RON 117,322 17,584 134,906 Year ended Dec 31, 2019 '000 RON 126,917 23,374 150,291 Transactions with other companies controlled by the Romanian State are not considered transactions with related parties, for financial statements purposes. ii. Purchase of goods and services Subsidiaries Total iii. Trade receivables Subsidiaries Total iv. Trade payables Subsidiaries Total Year ended Dec 31, 2020 '000 RON 67,757 67,757 Year ended Dec 31, 2019 '000 RON 64,874 64,874 December 31, 2020 '000 RON December 31, 2019 '000 RON 15,371 15,371 19,111 19,111 December 31, 2020 '000 RON December 31, 2019 '000 RON 8,389 8,389 (7,125) (7,125) 24. INFORMATION REGARDING THE MEMBERS OF THE ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES The remuneration of executives and directors The Company has no contractual obligations on pensions to former executives and directors of the Company. During the years ended December 31, 2020 and December 31, 2019, no loans and advances were granted to executives and directors of the Company, except for work related travel advances, and they do not owe any amounts to the Company from such advances. Salaries paid to executives (gross) of which, bonuses (gross) Remuneration paid to directors (gross) of which, variable component (gross) Year ended December 31, 2020 '000 RON Year ended December 31, 2019 '000 RON 15,509 775 1,629 - 15,757 613 1,404 - The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 37 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 Salaries payable to executives Salaries payable to directors December 31, 2020 '000 RON December 31, 2019 '000 RON 520 81 352 70 25. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES a) Investment in subsidiaries Subsidiaries’ name Main activity Country of residence and operations Percentage of interest held (%) December 31, 2020 December 31, 2019 SNGN ROMGAZ SA – Filiala de Înmagazinare Gaze Naturale DEPOGAZ Ploiesti SRL Natural gas storage Romania 100 100 SNGN ROMGAZ SA – Filiala de Înmagazinare Gaze Naturale DEPOGAZ Ploiesti SRL Total b) Investment in associates Cost at December 31, 2020 ’000 RON Cost at December 31, 2019 ’000 RON 66,056 66,056 66,056 66,056 Name of associate Main activity Place of incorporation and operation SC Depomures SA Storage of natural Tg.Mures SC Agri LNG Project Company SRL gas Romania Feasibility projects Romania Proportion of interest held (%) December 31, 2020 December 31, 2019 40 25 40 25 Name of associate SC Depomures SA Tg.Mures SC Agri LNG Project Company SRL Total Cost as of December 31, 2020 Impairment as of December 31, 2020 Carrying value as of December 31, 2020 Cost as of December 31, 2019 Impairment as of December 31, 2019 Carrying value as of December 31, 2019 ’000 RON ’000 RON ’000 RON ’000 RON ’000 RON ’000 RON 120 - 120 120 - 120 977 1,097 (977) (977) - 120 977 1,097 (977) (977) - 120 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 38 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 26. OTHER FINANCIAL INVESTMENTS Other financial investments are measured at fair value through profit or loss. Except for the investment in Patria Bank, which is a level 1 financial investment, all other investments are included in level 3 category, according to IFRS 13. Company Principal activity Electricity and thermal power producer Other activities – financial intermediations Services related to oil and natural gas extraction, excluding prospections Manufacture of other chemical, anorganic base products Petroleum exploration operations Electrocentrale București S.A. Patria Bank S.A. Mi Petrogas Services S.A. GHCL Upsom Lukoil association Company Electrocentrale București S.A. *) Patria Bank S.A.**) Mi Petrogas Services S.A. GHCL Upsom Lukoil association Total Place of incorporation and operation Proportion of ownership interest and voting power held (%) December 31, 2020 December 31, 2019 Romania Romania Romania Romania Romania 2.49 0.03 10 4.21 12.2 2.49 0.03 10 4.21 12.2 Fair value as of December 31, 2020 ’000 RON Fair value as of December 31, 2019 ’000 RON - 91 60 - 5,227 5,378 - 101 60 - 5,227 5,388 *) The fair value of the investment in Electrocentrale Bucuresti at December 31, 2020 was reduced to zero, due to the difficulties encountered in implementing the restructuring plan in the insolvency procedure. The investment in Electrocentrale Bucuresti is not quoted. **) Patria Bank's shares being quoted, the fair value at the end of the period is determined by taking into account the closing quotation of the share. The variation between the amount at December 31, 2020 and the amount at December 31, 2019 was recorded in the result of the period. 27. CASH AND CASH EQUIVALENTS Current bank accounts in RON *) Current bank accounts in foreign currency Petty cash Term deposits in RON Restricted cash **) Amounts under settlement Total December 31, 2020 '000 RON December 31, 2019 '000 RON 101,014 174 53 289,203 2,412 1 392,857 64,621 602 16 170,000 87,867 1 323,107 *) Current bank accounts include overnight deposits. **) At December 31, 2019 restricted cash included bank accounts used strictly for VAT transactions, as the Company opted in to the application of the split-VAT system; in 2020 the split-VAT system was terminated. At December 31, 2020 restricted cash refers to bank accounts used only for dividend payments to shareholders, according to stock market regulations (December 31, 2020: RON 2,412 thousand; December 31, 2019: RON 2,652 thousand). The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 39 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 28. OTHER FINANCIAL ASSETS Other financial assets represent mainly treasury bonds and deposits with a maturity of over 3 months, from acquisition date. Treasury bonds in RON Bank deposits in RON Accrued interest receivable on bank deposits Accrued interest on bonds Total other financial assets December 31, 2020 '000 RON December 31, 2019 '000 RON 1,045,593 905,416 2,586 21,912 1,975,507 144,923 916,354 3,377 4,637 1,069,291 29. ASSETS HELD FOR DISPOSAL AND RELATED LIABILITIES As of April 1 2018, natural gas storage was transferred from Romgaz to SNGN ROMGAZ SA – Filiala de Înmagazinare Gaze Naturale DEPOGAZ Ploiesti SRL. The transfer of activity occurred as a result of the Company's legal obligation to achieve separation of natural gas storage activity from natural gas production and supply in accordance with Directive 2009/73 / EC of the European Parliament and of the Council of July 13, 2009 and the provisions of art. 141 align (1) of Law 123/2012. The transfer involved the transfer of the license to the storage subsidiary, transfer of employees and the transfer of the unfinished acquisitions until 31 March 2018. The transfer did not involve a sale. As a result of the transfer of activity, the fixed assets were not transferred and they were leased to Depogaz. At the end of 2018, the shareholders of the Company approved, in principle, to increase the share capital of Depogaz with the assets used in the storage activity. Based on this decision, in 2019 the Company’s assets were measured in order to determine the value of the share capital increase. In December 2019, the Company’s majority shareholder called for a meeting to take a final decision on the increase; the final decision was taken in January 2020. Based on the call of the majority shareholder in December 2019, the assets to be transferred, according to the Company’s Board of Directors’ decision in February 2020, together with other related assets and liabilities were classified as held for disposal as of December 31, 2020. The transfer of assets has not been completed until the date of approval of the financial statements, as all legal formalities have not been completed. The major classes of assets and liabilities classified as held for disposal as of December 31, 2020 are: December 31, 2020 '000 RON December 31, 2019 '000 RON Property, plant and equipment Other intangible assets Assets held for disposal Provisions Deferred tax liabilities Liabilities directly associated with the assets held for disposal Net assets directly associated with the disposal group 710,929 15 710,944 49,935 21,554 71,489 639,455 701,098 15 701,113 38,512 21,857 60,369 640,744 The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 40 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 30. COMMITMENTS UNDERTAKEN Endorsements and collaterals granted Total December 31, 2020 '000 RON December 31, 2019 '000 RON 224,063 224,063 52,729 52,729 In 2020, Romgaz signed an addendum to the credit agreement with BCR SA representing a facility for issuing letters of guarantee, and opening letters of credit for a maximum amount of USD 100,000 thousand. On December 31, 2020 are still available for use USD 44,204 thousand. As of December 31, 2020, the Company’s contractual commitments for the acquisition of non-current assets are of RON 379,808 thousand (December 31, 2019: RON 431,382 thousand). 31. COMMITMENTS RECEIVED Endorsements and collaterals received Total December 31, 2020 '000 RON December 31, 2019 '000 RON 1,508,192 1,508,192 1,496,152 1,496,152 Endorsements and collateral received represent letters of guarantee and other performance guarantees received from the Company’s clients. 32. CONTINGENCIES (a) Litigations The Company is subject to several legal actions arisen in the normal course of business. The management of the Company considers that they will have no material adverse effect on the results and the financial position of the Company. On December 28, 2011, 27 former and current employees were notified by DIICOT regarding an investigation related to sale contracts signed with one of the Company’s clients for allegedly unauthorized discounts granted to this client during the period 2005-2010. DIICOT mentioned that this may have resulted in a loss of USD 92,000 thousand for the Company. On that sum, an additional burden to the state budget consists of income tax in amount of USD 15,000 thousand and VAT in amount of USD 19,000 thousand. The internal analysis carried out by the Company’s specialized departments concluded that the agreement was in compliance with the legal provisions and all discounts were granted based on Orders issued by the Ministry of Economy and Finance and decisions of the General Shareholders’ Board and Board of Directors. The management of the Company believes the investigation will not have a negative impact on the financial statements, to justify the registration of an adjustment. The Company is fully cooperating with DIICOT in providing all information necessary. On March 18 2014, Romgaz received an address from DIICOT, by which the investigators ordered an accounting expertise, indicating the objectives of the expertise. Romgaz was notified that, as injured party, it may submit comments relating to objectives of the expertise (additions/changes), and may appoint an additional expert to participate in the expertise. Thus, Romgaz proceeded to identify and appoint an expert with accounting and financial expertise that can participate to the expertise. After the report was completed, the parties could submit objections by November 2, 2015. On March 16, 2016, DIICOT – Central Structure informed the persons involved in the cause about the start of legal actions against them. At the request of investigators, the Company announced that in case of a prejudice being established during the investigation, the Company will join the case as civil party. In November 2016, DIICOT informed the Company the prejudice established in amount of RON 282,630 thousand. Following this request, Romgaz announced that will join the case as a civil party for the amount of RON 282,630 thousand to recover this amount from the respective client and any other person that may be found guilty for causing the prejudice. In June 2017, DIICOT issued a press release announcing the referral to court of several persons involved in the case. In January 2018, the High Court of Cassation and Justice ruled that the indictment prepared by DIICOT was not legal; the ruling is not definitive. At the date of endorsement of these financial statements the case in which Romgaz is a civil party a ruled by the High Court of Cassation and Justice. By the date the financial statements were endorsed for issue, no court decision was issued. The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 41 S.N.G.N. ROMGAZ S.A. NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020 (b) Taxation The Romanian taxation system is undergoing a process of consolidation and harmonization with the European Union legislation. However, there are still different interpretations of the fiscal legislation. In various circumstances, the tax authorities may have different approaches to certain issues, and assess additional tax liabilities, together with late payment interest and penalties. In Romania, tax periods remain open for fiscal verification for 5 years. The Company’s management considers that the tax liabilities included in these financial statements are fairly stated. (c) Environmental contingencies Environmental regulations are developing in Romania and the Company has not recorded any liability at December 31, 2020 for any anticipated costs, including legal and consulting fees, impact studies, the design and implementation of remediation plans related to environmental matters, except the amount of RON 560,958 thousand (December 31, 2019: RON 384,236 thousand), representing the decommissioning liability. (d) Controls by The Romanian Court of Accounts In 2016, the Company came under scrutiny from the Romanian Court of Accounts. One of the Romanian Court of Accounts’ conclusions was that during 2013-2015 Romgaz delivered gas on the regulated market over the quantities it was legally allowed to, according to the existing legislation. The price on the regulated market being lower than the one on the free market, The Romanian Court of Accounts issued Decision number 26/01.06.2016 and ordered Romgaz to determine and to recover the prejudice as a price difference on gas quantities delivered on the regulated market over its legal obligation, having January 2017 as due date for implementation. The alleged prejudice estimated by the Court of Accounts is over RON 160 million. Romgaz appealed the decision, but the Court of Accounts dismissed the appeal. Subsequently, the Company started legal proceedings against the Court of Accounts’ decision no. 26/01.06.2016 and, also, contracted legal services for the annulment of the Court of Accounts’ decision and to carry out the measures ordered by the Court of Accounts’ decision. The Court of Accounts litigation was resolved by the Court of Appeal Alba Iulia, maintaining the findings and measures of Decision no. 26/2016 issued by the Court of Accounts, except for one measure. The Company’s management respects the decision taken by the Court of Appeal Alba Iulia and started legal actions to implement the measures established by the Court of Accounts. The deadline for implementing these measures was extended to June 30, 2021. 33. JOINT ARRANGEMENTS In January 2002, Romgaz signed a petroleum agreement with Amromco for rehabilitation operations in order to achieve additional production in 11 blocks, namely: Bibeşti, Strâmba, Finta, Fierbinți-Târg, Frasin-Brazi, Zătreni, Boldu, Roșioru, Gura-Șuții, Balta-Albă and Vlădeni. For the base production, Romgaz holds a share of 100% and for the additional production, Romgaz owns a share of 50% and Amromco Energy SRL - 50%. As the agreement was signed to execute rehabilitation operations to obtain additional production, the mandatory work program is in accordance with the studies approved by ANRM. Accordingly, the annual work program, which includes both works provided in the studies and other works necessary and proposed by the partners, is approved annually by the Board of the joint arrangement before the start of each year. The duration of the joint arrangement is in line with the time frame of each individual concession agreements of the 11 perimeters stated above, which differs for each block. 34. AUDITOR’S FEES The fee charged by the Company’s statutory auditor, S.C. Ernst & Young Assurance Services S.R.L. for the statutory audit of the 2020 annual financial statements is RON 305 thousand. The fees charged for other assurance services in 2020 are RON 150 thousand. 35. EVENTS AFTER THE BALANCE SHEET DATE No events after the balance sheet date were identified. 36. APPROVAL OF FINANCIAL STATEMENTS These financial statements were approved by the Board of Directors on March 23, 2021. Aristotel Marius Jude Chief Executive Officer Răzvan Popescu Chief Financial Officer The accompanying notes form an integrant part of these financial statements. This is a free translation of the original Romanian version. 42 Societatea Naţională de Gaze Naturale Romgaz S.A. – Mediaş - România STATEMENT in accordance with the provisions of art. 63 (2) c) of Law No. 24/2017 regarding issuers of financial instruments and market operations _______________________________________________________________________________ Entity: Societatea Nationala de Gaze Naturale ROMGAZ S.A. County: 32--SIBIU Address: MEDIAŞ, 4 C.I. Motaş Square, tel. +40374401020 Registration Number in the Trade Register: J32/392/2001 Form of Property: 26- Companies with both state and private capital foreign and domestic (State capital >=50%) Main activity (CAEN code and denomination): 0620—Natural Gas Production Tax Identification Number: 14056826 The undersigned, ARISTOTEL MARIUS JUDE as Chief Executive Officer and RAZVAN POPESCU as Chief Financial Officer, hereby confirm that according to our knowledge, the annual financial statements for the year ended December 31, 2020, prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union, and Order of Ministry of Public Finance no. 2844/2016 for the approval of Accounting regulations in accordance with International Financial Reporting Standards, offer a true and fair view of the assets, liabilities, financial position, statement of profit and loss of the Company and that the Board of Directors’ report comprises a fair analysis of the development and performance of the Company, as well as a description of the main risks and incertitudes specific to its activity. The Company is a going concern. Chief Executive Officer, ARISTOTEL MARIUS JUDE Chief Financial Officer, RAZVAN POPESCU Capital social: 385.422.400 lei CIF: RO 14056826 Nr. Ord.reg.com/an : J32/392/2001 RO08 RNCB 0231 0195 2533 0001 - BCR Mediaş RO12 BRDE 330S V024 6190 3300 - BRD Mediaş S.N.G.N. Romgaz S.A. 551130, Piața C.I. Motaş, nr.4 Mediaş, jud. Sibiu - România Telefon: 004-0374 - 401020 Fax: 004-0269-846901 E-mail: secretariat@romgaz.ro www.romgaz.ro
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