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SUMMARY
point of view 51 52
Focus on LNG: Constanța Port, a transit hub for Europe Obama in Riyadh: The stories behind and aside the scene
interview pag. 58
54
Mark Besselink & Kees Cramer about Lubbers Logistics Group’s strategic moves in the Black Sea region
review & preview
pag. 64
60 61 62 63 64
New gas discovery in the Suceava area New contract for Conpet with Petrotel-Lukoil BP-SOCAR agreement to explore shallow water Absheron Peninsula Preliminary results from Moftinu-1002bis exploration well Schlumberger reports 7% revenue growth
special focus pag. 79
70
A look back in 2014: What will 2015 hold for CEE Oil & Gas sector?
oil & gas
pag. 81 50
80 82 85 86 88 90 94 96 98
Who is to win following gas market liberalisation for non-household clients? ANRE official point of view: The liberalisation of the natural gas market for non-household users Petromidia Refinery, historical milestone in 2014 Oltchim Petrochemical Complex, ready for reorganisation Five oil & gas companies themes to look out for in 2015 Facing crude prices spiral down: Challenges, risks, and countermeasures Qualified workforce shortage in the oil and gas industry Exxon Mobil’s outlook for energy: A view to 2040 Oil and gas: EY Financial reporting briefs www.petroleumreview.ro
point of view
FOCUS ON LNG
Constanța Port, a transit hub for Europe
I
n the new political situation in Europe, where the identification of suitable sources for providing the necessary natural gas supplies able to avoid Russia has become a zero degree priority, the introduction of liquefied natural gas (LNG) in the energy circuit represents a good opportunity. Sure, we cannot speak about a variant with the possibility of immediate effect, but it is a viable one, not to be neglected on medium and long term. If we talk about Romania, besides providing an important resource by using liquefied natural gas, our country could become in the future an important transit hub for Europe. On the old continent, this option is already taken into account and, moreover, the first plans have been drawn up. Thus, the Constanța Port may have, in the future, a liquefied natural gas terminal, the project being part of a master plan at European level. The future terminal is part of the European strategy for the funding of LNG master plan – on the Rhine-Main-Danube axis. The project is developed by a consortium consisting of 33 participants, the coordinator being the Rotterdam Port Administration for Rhine-Main and Pro Danube International, Austria, for the Danube area. The first phase is the start of a feasibility study and an overall technical project for the construction of an LNG terminal in Constanța Port. According to the initiators, an important chapter in drawing the feasibility study is the carrying out of an analysis on the possibilities of supply and estimating the demand for LNG related to this terminal. If there are enough customers willing to give up the classic fuel, the construction of a liquefied natural gas terminal in the Port of Constanța, particularly important transport hub for South Eastern Europe, will be justified. Under this new European plan, the liquefied natural gas would reach across Europe through a system of terminals located on the Danube. Also, to reduce the emissions, the gas can be used as fuel for ships, because emissions will be almost 30 percent lower than the ones from the ships running on classic fuel. In addition, the costs would be considerably lower, since the LNG price is half the cost of diesel fuel and 20 percent
lower than that of black oil. “Liquefied natural gas has great potential to become an important fuel. The price difference will be of at least 15-20 percent as compared with black oil,” said recently project coordinator Manfred Seitz. The future terminal is designed for a capacity of 5,000 cubic meters and, if all things go well, it should be completed in 2017 2018, the investment being financed with EU funds. After the port of Constanţa, the next important junction on the future of European LNG route is the Bulgarian port of Ruse, where there is already under construction a LNG terminal of 1,000 cubic meters. Another option for Romania is the AGRI project, 2015 could be decisive in regard of its future. The shareholders of natural gas producer Romgaz have approved in late January, at the shareholders meeting, the increase of the share capital of AGRI LNG Project Company Ltd. (responsible for the development of the namesake project for liquefied natural gas transport from the Caspian region to Europe) by EUR 80,000 and Romgaz’s participation with EUR 20,000 to this share capital increase. The feasibility study has been completed and, in the next period, most likely in February, is expected a decision on the next steps to be taken. In Georgia, the gas will be liquefied and transported to the Black Sea on specialized ships. The re-gasification process will take place at Constanța. Starting with Romania, the project would supply Hungary too. SC AGRI LNG Project Company SRL was set up in February 2011 and is associated with SOCAR (Azerbaijan), Oil and Gas Corporation (Georgia), MVM (Hungary) and Romgaz. The Romanian project to build a liquefied natural gas terminal in Constanța was declared as eligible by the European Commission for funding with European funds in 2013, as part of the gas interconnector on Azerbaijan-Georgia-Romania Interconnector (AGRI), in which is also included the Constanța-Arad-Csanadpalota (Hungary) gas pipeline project. The project’s cost is estimated to EUR 1.2 - 4.5 billion, depending on the capacity of terminals, which would range between 2 to 8 billion cubic meters annually. by Adrian Stoica 51
point of view
OBAMA IN RIYADH
The stories behind and aside the scene
U
S President Barack Obama paid a four-hour visit to Saudi Arabia on January 27. A huge delegation accompanied him, made up by 30 members, including officials and lawmakers, as well as senior officials from previous presidential administrations (former Secretaries of State James Baker and Condoleezza Rice) following the death of King Abdullah. The visit included a meeting with the new Saudi King Salman bin Abdulaziz. Although the agenda included talks on the oil market, information in this regard is scarce, almost null. The media focused on political issues, approach on Syria, bilateral relations, Middle East security, Iran, terrorism, even human rights. Official releases speak about the importance of a U.S.-Saudi alliance that extends beyond oil interests to regional security. Western media was mostly preoccupied by the scandal following the first lady Michelle Obama’s gesture to shake hands with the Saudi king, as Islamic law generally forbids men from touching women to whom they are not related. Michelle Obama also did not cover her head, eschewing strict religious and cultural customs in Saudi Arabia. Nevertheless, the strategic alliance between the US and Saudi Arabia remains solid. According to sources, the two leaders touched briefly the oil-market issues, the conclusion being that the US is not expecting changes in the Saudi position of maintaining high production, although the oil price has fallen by no less than 58 percent in the second half of 2014. “There was no discussion about oil prices,” an official said. However, things happen aside the political scene. During the past weeks Saudi Arabia has secretly increased its oil production to 9.8 million barrels per day, the highest level of output since last October. Sources say this is part of the attempt to regain the market share in the oil price war with the US shale drillers. Khalid Al-Falih, chief executive of Saudi Aramco state company, said the output 52
is higher by 300,000 barrels than the output measured by OPEC and time is needed to take the oil surplus off the international market. Analysts say the Aramco chief ’s statements might mean the Saudis intend to put pressure on rivals outside OPEC. Meanwhile, OPEC officials remain optimistic, betting the oil price will be back to USD 130-140 per barrel, but no timeframe is considered. On international scale, the fall in oil prices hit hard the industry in the field. For example, BP announced it will freeze salaries in 2015 for 80,000 employees, other companies operated layoffs. Meanwhile, Saudi Arabia is focused on two issues: not losing its worldwide market share and creating supply declined for non-OPEC countries. If some would say the first target is the US, well, this may be wrong. Russia is the first target. It may be the long discussed secret understanding with Washington to keep oil prices low in order to enhance the effects of western sanctions on Moscow. For certain is yet another target: making explorations in Siberia unattractive for companies. Availability of supply is increasing much more quickly than demand, so why not hit the new oil fields? Or even the older ones and countries such as Iran, Nigeria or Venezuela, dependent on oil exports. As Russia is not feeling well at all, the Saudis, Kuwait and the United Arab Emirates make the rules on the world market for now. Other sources maintain the US are the ultimate target for the Saudis. The US have reached an output of nine million barrels per day, one million short to reach the same level as Saudi Arabia. Lower prices might delay projects for shale drillers. Nevertheless, the Americans show optimism, saying they hold almost all best cards in this equation. The US economy is improving and the USD is appreciating www.petroleumreview.ro
point of view
by the day. However, no one knows how long this positive trend will hold. Analysts in Washington believe the Saudis are playing a losing game. But the Saudis may think the same way about the US. Saudi Arabia is not going to perish by losing percentage points of the world oil market after all. Nothing significant will happen to the US if their tactics fail. The losers are somewhere else. This brings us back to the first assumption. Those tempted to look only at the economic side should not forget that the US-Saudi relations are strategic for decades. Saudi Arabia is the US’s main ally in the region and this position will overcome the economic
issues. As CNN informs, the US-Saudi marriage of convenience was first initiated on February 14, 1945, on a US warship as it cruised in the Suez Canal. It was on the deck of the USS Quincy where President Franklin Delano Roosevelt first met with Saudi King Abdul Aziz to discuss areas of common interest. In the seven decades since that meeting, the relationship has largely worked well for both countries. Bearing this in mind, there can only be one big loser on the world oil market, at least in the near future. That one is the Russian Federation. by Victor Lupu
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3 Economic megatrends under the microscope: Are there green shoots of recovery and exploring the impacts on the chemical industry both now and in future
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Exploring the current state of shale gas development globally for feedstock Examining the present situation and forecasts for naphtha Regulatory change to change the fortunes of the petrochemicals industry
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Effectively addressing the energy crisis in Europe to enable chemical companies to be more competitive Investigating the latest developments in Russia, China, Middle East and Africa
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InterviEW
Mark Besselink & Kees Cramer about Lubbers Logistics Group’s strategic moves in the Black Sea region
Lubbers Logistics Group provides specialized international transport services for the Oil & Gas industry. With twelve operational bases covering seven countries, Lubbers is available seven days a week and 24 hours a day. In addition to road transport services, the company offers additional value added services including storage & handling, offshore container and basket rentals, manpower and completion of customs formalities. Mr. Kees Cramer, Sales Manager Black Sea Region, and Mr. Mark Besselink, Operations Manager Black Sea Region, told us about the biggest achievements in 2014 and Lubbers’s major goals for the future. 54
www.petroleumreview.ro
55
InterviEW Q: Which are the key dates and figures of Lubbers (turnover, fleet size, etc.)? A: Turnover 2014: EUR 62,8 Mil., fleet - 132 trucks, 295 trailers all suitable for the Oil & Gas Transportation. We expect 20% fleet increase and fleet renewal at group level in 2015. Q: We know that Lubbers provides a wide range of solutions for the industry. What are the most important dedicated logistic services to manage offshore and onshore tailor-made solutions for the oil &gas sector? A: We offer a wide variety of Value Added services for the Oil & Gas Industry such as offshore container & basket rental, turn-key rig moves, Oil & Gas manpower, storage & handling and specialized Oil & Gas transport solutions within a large pan-European network of bases at all main Oil & Gas locations in Europe. Already since 2008 Lubbers has been partner in the joint-venture KLP Rig moves. Dozens of well-trained employees, special trucks and heavy telescopic cranes are necessary to execute these complex logistic projects. As of the 1st of January 2015 the rig move activities are offered under the name Lubbers Rig Moves, and Mr. Herman Ruinemans who is currently Sales Director Germany, has been appointed as General Manager of Lubbers Rig moves. The combination of profound knowledge and expertise gained by years of experience together with the extensive international network of Lubbers Transport Group will lead to further professionalization, higher flexibility and even better service. Q: When and why did Lubbers start the activity in Romania? A: Operations commenced in February 2010. In 2012 Lubbers Romania moved to the new base in Aricestii Rahtivani (Ploiesti West Park).
56
Q: In August 2014 the company opened a new base in Constanta and announced the base in Ploiesti will double its size in the following three months. What is the current situation with regards to the expansion in Romania and how do you intend to expand your activity in the region? A: In February 2015 Lubbers Romania will inaugurate the new extended base in Ploiesti West Park and double the surface of the Aricestii Rahtivani base to 11,500 sqm. In August 2014 the new Constanta base has been officially opened where Lubbers Romania operates 1,750 sqm offshore base located next to Constanta Midia Offshore Port. Activities increased at the Constanta offshore base and we expect full occupancy in 2015. We foresee further integration of the Black Sea regional operations, which we strongly believe will be the future for the onshore and especially offshore business development. To strengthen our position in the Black Sea region Lubbers Transport Group will open a new base in Istanbul, Turkey beginning 2015. The Lubbers Turkey base will have a strong foothold in the Diyarbakir Region, the main hotspot for onshore Oil & Gas activities in Turkey. We aim at serving all Top Service Oil & Gas companies with efficient transport solutions from and to the Diyarbakir region. Q: The hydrocarbon potential of the deepwater Black Sea attracts new players interested in the exploitation of the reservoirs. How do you plan to take part in these upcoming developments? A: We plan to take part of this development by making our specialist equipment available on Black Sea Oil & Gas hotspots such as Constanta, Ploiesti, Istanbul/Haydarpasar Port. We are intensifying our Groupage lanes between these facilities and make storage space available for short- or long term offshore projects. Furthermore we will increase our stock levels of offshore containers and baskets in these
www.petroleumreview.ro
facilities. Since last year we are supplying DNV 2.7-1 units out of stock from Constanta and Ploiesti through our European partnership with OEG Offshore Ltd. Q: Which are the most reliable partners of Lubbers in Romania and abroad? A: We serve all main Oil & Gas Top Service companies and many different Oil & Gas Service Companies; Romanian registered companies as well as international companies. We also see an interesting development in smaller local Oil & Gas companies that through their flexibility obtain contracts with large operators for exploration activities in certain regions. Lubbers Transport Group is a quality driven company and has ISO 9001: 2008, OHSAS 18001, ISO 14001 and VCA certifications. Our drivers have full ADR training, which includes IMO classes 1 and 7. This enables Lubbers Transport Group to participate with large international tendering processes and offer efficient tailor-made logistics solutions for all Oil & Gas Service Companies. Q: The basic steps of your strategy to increase the company’s strength and coverage in the years to come are...? A: The opening of our Turkey base is an important step to strengthen our transport, storage and logistics services for the Oil & Gas Service Suppliers in the Black Sea region. Turkey is an important East-West Energy Hub. Turkey is located in or adjacent to regions where approximately threequarters of known deposits of crude oil and natural gas are found. We see Turkey as an investment for future expansion towards other important Oil & Gas regions such as Erbil and Baku. We can now benefit from Turkey’s strategic position with Oil & Gas overseas project shipments to Middle East hubs such as Dubai. Geographical expansion gives us the opportunity to further roll-out our Value Added services such as offshore container & baskets rental, onshore turn-key rig moves, Oil & Gas manpower and storage & handling. We will be supplying DNV 2.7-1 units out of stock from our Turkey base for Black Sea offshore activities in the Haydarpasar Port area. In 2014 Lubbers Transport Group invested heavily in new TMS, FMS and IVMS information systems, offering our customers transparent, real-time and seamless integrated supply chain data. At our base in Romania we implemented a dedicated Driver Safety Training Centre with a full-time Driver Safety Trainer under guidance of our Group Driver Safety Trainer at the Lubbers Headquarters in The Netherlands. Our drivers are trained monthly on safety and prevention of accidents. Offering high quality services by continuous increasing health and safety awareness is our utmost 57
InterviEW priority. Lubbers Transport Group has changed its name into Lubbers Logistics Group as of the 1st of January 2015. We have made this change to reflect the shifting focus of our services from mainly road transport to a more complete logistics offering with divisions including rig moves, projects and offshore basket & container rental. More of our customers are looking for a provider who can give them a complete logistics package that goes beyond simply transporting goods. Q: In your opinion what top essential elements should a successful sales plan include? A: The top 3 of most important actions in our sales plan are: • Being a fully-fledged Oil & Gas logistics provider offering integrated package of value added services at all main Oil & Gas hotspots where we operate bases. • Health & Safety first, continuous updating and improving QHSE procedures and strengthening our Training Centres. • Being close to Oil & Gas Service Companies with onshore and offshore bases located at the main Oil & Gas hotspots both in Europe and the Black Sea region. We offer immediate availability of specialist Oil & Gas equipment to customer’s onshore and offshore locations. Q: If oil price will continue to spiral downward what do you consider the first decisions to be taken in order to minimize the impact on business results? A: First decision is to continue improving logistics
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efficiency by decreasing for instance the shut down time of the Oil Rig through efficient rig move logistics planning. Another example is increasing the frequency of our trunk routes to and from all European Lubbers bases. Operate efficient Groupage lanes to important Oil & Gas regions like the offshore Black Sea Haydarpasar and Constanta regions and onshore Diyarbakir region; optimal utilization of equipment and lanes. Q: Compared to recent years, what are the significant achievements in 2014 and Lubbers’s major goals for the future? A: The opening of the Lubbers Offshore base in Constanta, doubling the surface of our base in Ploiesti, the opening of the new Lubbers Turkey branch, further integration of our Value Added services with as example spectacular growth in the offshore container & basket rental activities and continuous expansion of our rig move division are the main highlights for 2014. Besides this, we renewed 20% of our fleet in Romania and increased our fleet with 10%. Major goal for the coming years is to create synergies and efficient regional cross-border transport solutions in the whole Black Sea region, benefitting from each other’s strength and local expertise. The Lubbers Turkey organisation will be an integrated part of our Black Sea Team of logistics experts and we consider the Black Sea Lubbers Team in the Black Sea region as one. Our customers benefit from the typical Lubbers market approach, being close to the customer offering regional and local expertise complying with the highest QHSE standards.
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Head Office Leobersdorf Austria
Office Ploies‚ ti Romania
Office Vienna Austria
TECON Engineering SRL 16 Negru Voda Str. RO-100149 Ploiesti ‚ Tel.: + 40 (344) 401-333 Fax: + 40 (344) 401-334 romania@tecon.eu
Office Riyadh Kingdom of Saudi Arabia
www.tecon.eu 59
review & preview
New gas discovery in the Suceava area
R
affles Energy Ltd., wholly owned subsidiary of Raffles Energy Group, recently announced the discovery of new natural gas accumulations in the concession EIV-1 Suceava (Raffles 50 percent and the operator Zeta Petroleum 50 percent), in northeastern Romania. Ruda-1 drill, which followed an area with similar perspectives to that of Climauti gas deposit, has been drilled to a depth of approximately 600 meters. Conventional natural gas (containing over 98 percent methane) was found in a high quality grit stone reservoir in the Sarmatian sequence, which was tested at a rate of over 25,000 cubic meters per day with the 12 mm nozzle. Ruda-1 was completed as a production well and was put in conservation. It is planned to connect this new accumulations to the gas processing plant operated by Raffles in Bilca, through a pipeline
of about 750 meters connected to the existing pipeline between the Climauti deposit and Bilca. The Ruda discovery is expected to start experimental production in Q2 this year. Doru Morariu, executive director
with Raffles Energy Group, says the discovery of gas in Ruda offers a good opportunity for additional production to meet the local short-term natural gas consumption needs. “We are pleased to announce the discovery of new gas accumulations in the concession EIV-1 Suceava. This reconfirms the hydrocarbon potential of the Suceava perimeter, with evidence of the presence of modest conventional natural gas accumulations in the Sarmatian sequence located at depths between 500 metres and 1,000 metres. In the coming period, Raffles intends to continue the exploration activities in the concession EIV-1 Suceava, on the basis of a work program approved by the National Agency for Mineral Resources. The schedule of petroleum operations program is focused on complex evaluation through geological and geophysical methods of the prospective areas for gas accumulations in order to select the best locations to be explored by drilling,” Doru Morariu added.
Romgaz to start drilling in Slovakia
R
omgaz will begin in February the drilling for three exploration blocks under lease in Slovakia. Romgaz holds since 2008 a 25 percent share of the license on perimeters Svidnik, Medzilaborce and Snina in Slovakia. The exploration program of the three blocks initially provided the drilling of a well in 2013 to assess the likely amount of hydrocarbons, but the works were delayed due to the 60
withdrawal of the concession operator, the Irish company San Leon Energy. The discovery of new reserves would thus be a step to halt the decline in production and thus of the income from core business. The company’s turnover increased by 38 percent in the first nine months, but the advance was mainly due to higher prices of the natural gas, up by 28 percent, as a result of market liberalisation and less to the increase of
production, which rose just 7 percent. Romgaz’s plans to enter the foreign gas markets date back many years. Thus, from January 22, 2009 Romgaz became co-owner of the rights and obligations in two oil blocks in Poland and three blocks in Slovakia. In the exploration perimeters in Poland, Romgaz holds a participation share of 30 percent and in the exploration perimeters in Slovakia holds 25 percent. www.petroleumreview.ro
review & preview
New contract for Conpet with Petrotel-Lukoil
C
onpet SA, the conces sionaire of the national system of pipeline transport for crude and oil products, has signed a contract with Petrotel-Lukoil refinery for transport services of imported oil from Constanta to Ploiesti, the total value of the contract being EUR 9.5 million (RON 42.62 million). The contract is valid during January 1 – December 31, 2015 and aims the transport of Russian imported oil from the storage facilities at Constanta Oil Terminal to the Petrotel-Lukoil refinery in Ploiesti,
a release submitted to the Bucharest Stock Exchange reads. The security provided by the Russians for Conpet’s transport services amounts to RON 3.26 million. This is the second such contract signed by Conpet, after the one with OMV Petrom, worth some EUR 70 million. That contract, also valid for 2015, covers the transport of crude oil, rich gas and condensate. The National Agency for Mineral Resources (NAMR) has decided to maintain for 2015 the current regulated tariff charged by Conpet
for transport to the refineries of the domestic oil and, in turn, to increase by more than 20 percent the Conpet’s transport tariff charged for imported oil. At the end of 2013, the tariff for transport of domestic oil to refineries was increased by nearly 18 percent, up from EUR 66.79 per ton. During 2010 - 2012, the tariffs for domestic crude oil transportation, for gasoline, ethane and condensate charged by Conpet increased by 11.7 percent. Conpet manages a pipeline network with a length of about 3,800 kilometres, crossing 23 counties.
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review & preview
BP-SOCAR agreement to explore shallow water Absheron Peninsula
B
P and SOCAR (the State Oil Company of the Republic of Azerbaijan) signed a new production sharing agreement (PSA) to jointly explore for and develop potential prospects in the shallow water area around the Absheron Peninsula in the Azerbaijan sector of the Caspian Sea. This new agreement is part of the government’s plan to ensure that all of Azerbaijan’s offshore areas are fully explored. The PSA was signed by Rovnag Abdullayev, President of SOCAR, on behalf of the government of the Republic of Azerbaijan, and Gordon Birrell, BP’s Regional President for Azerbaijan, Georgia and Turkey. “The signing of this new PSA, which clearly deepens our partnership with BP, is an important milestone for all parties involved – the government, SOCAR
and BP. It marks the beginning of a new phase in our cooperation. This phase will enable us to work together to ensure the long term future for Azerbaijan’s oil and gas production through exploring new opportunities. We look forward to this
new opportunity that has a potential to contribute to maintaining oil production in Azerbaijan for many decades,” Mr. Abdullayev said. According to Mr. Birrell, “BP is proud to embark on this new era of exploration in the Caspian together with SOCAR. This new partnership is based on BP’s extensive experience in responsibly exploring and developing in shallow water areas around the world and our expertise in using the best technology available in the industry. So we thank the government and SOCAR for another opportunity to deploy our expertise and technology, this time in the shallow water.” The PSA contract area stretches along the margins of the Caspian basin to the south of the Absheron Peninsula. The acreage features water depths of up to 40 meters with potential reservoir depths of 3000 5000 meters.
OMV-Gazprom agreement on amendment to gas supply contract
I
n view of strengthening their longstanding partnership OAO Gazprom and OMV (through its subsidiary EconGas) have agreed recently on an amendment for the existing gas supply contract. The longterm contract has thereby been placed on a new footing that reflects changing market conditions. The amendment to the contract has 62
been signed in Vienna by Alexander Medvedev, Gazprom Deputy Chairman of the Management Committee, and OMV CEO Gerhard Roiss. Both parties have agreed not to disclose the contract details. According to Gerhard Roiss “Gazprom and OMV have taken an important step to secure long-term gas supplies to Austria; when signing the
document, both partners also underlined the role of Baumgarten as an essential hub for Russian gas exports.” OMV is a well-established European import partner to Gazprom and Austria has received natural gas from Russia since 1968. The party of the amendment contract for the Russian natural gas is OMV subsidiary EconGas, in which OMV holds a 64.25% stake. www.petroleumreview.ro
review & preview
Preliminary results from Moftinu-1002bis exploration well
S
erinus Energy recently an nounced the preliminary results from the Moftinu1002 bis exploration well in Romania. Moftinu-1002 bis is located in the Satu Mare Concession in northwest Romania and is the second of a two well 2014 drilling program by the company in that concession. It was spud in early December, and
drilled Moftinu-1001 will commence in mid-February and is expected to be complete in early March. These two wells, along with the 180 square kilometre 3D seismic program in the Santau area shot in late 2014 and associated filings to the Government, will fulfil both the Government and partner minimum work commitment for Satu Mare Concession, Phase 2.
reached a total depth of 2,083 metres on December 27, 2014. Open hole wireline logs, mud logs and/or drill cuttings indicate seven Cenezoic aged sandstones with an aggregate of 90.5 metres of hydrocarbon bearing rock, and 22 metres of potential net pay. Only a limited electric log suite was obtainable over three of the lower zones due to several well stabilization issues which resulted in hole collapse and washout. The net pay in those zones was determined primarily from strip logs, mud logs, and observation of fluorescence. The wellbore instability appears to be due to increased tectonic stress at the top of the structure. A liner has been set and cemented in place at a depth of 1,742 metres, and Serinus will now file a completion and testing program with the Romanian regulators. That approval is expected to be granted in or around early February. Completion and testing of both Moftinu-1002 bis and the previously
“Despite our inability to get a complete log suite over the entire wellbore, we are pleased with the overall results in Moftinu-1002 bis, and look forward to testing the various prospective zones. Pending successful testing of this well and Moftinu-1001, we hope that this will be the first commercial development for the company in Romania. We also anticipate increasing our inventory of prospects and leads in Satu Mare as we continue with the processing and interpretation of the recently acquired Santau 3D seismic data this year,� Jock Graham, Executive Vice President and Chief Operating Officer of Serinus, said. Satu Mare is a 765,000 acre exploration block located in northwest Romania which is 60% owned and operated by Winstar Satu Mare SRL, a wholly owned subsidiary of Serinus. The other 40% is owned by a subsidiary of KMG International, a company with a wide variety of interests in the Romanian energy sector. 63
review & preview
Schlumberger reports 7% revenue growth
F
rench oilfield engineering group Schlumberger announ ced full-year results for 2014 that the firm’s CEO described as demonstrating the resiliency of its business portfolio. Schlumberger reported that its revenue increased by seven percent last year to USD 48 billion. The firm’s pretax operating income was 13-percent greater at USD 10.6 billion. In a statement, Schlumberger CEO Paal Kibsgaard highlighted the firm’s North American operation as a key growth driver. North American revenue increased by 16 percent in 2014. Meanwhile, the firm Middle East & Asia Area revenue saw growth of four percent. “The strength of these results demonstrated the resiliency of our business portfolio in the face of activity challenges in 2014 in Brazil, Mexico, and China; reduced spending in deep-water, exploration and seismic activity; unrest in
Paal Kibsgaard
Libya and Iraq; international sanctions in Russia; and the accelerating fall in the price of oil toward the end of the year,” Kibsgaard said. The combination of these head winds reduced revenue growth by more than USD 1 billion, or 2 percent, yet revenue still increased 7 percent as a result of strong tailwinds in Argentina, Ecuador, Sub-Saharan Africa, Saudi Arabia, the United Arab Emirates, and North America that combined with market share gains, drove overall performance. Schlumberger’s record revenue performance in North America was thanks to continued efficiency
improvements and new technology uptake from clients using pressure pumping as well as the recovery of activity in the U.S. Gulf of Mexico. Kibsgaard added that Schlumberger was focusing on what it could control in response to the current uncertain business environment. “We have already taken a number of actions to restructure and resize our organization that has led us to record a number of charges in the fourth quarter,” he said. “We are convinced that performance must now be driven by an accelerated change in the way we work through our transformation program. The delivery of new technology that improves the performance of our customers’ reservoirs; the increases in efficiency and reliability that reduce overall finding, development and production costs; and the opportunities for growth from more integration - are all significant drivers of our own and our customers’ performance.”
Gazprom to reduce investments if oil price decline continues
R
ussia’s Gazprom announ ced that any further decline in crude oil prices may adversely affect its business and its investment program, after reporting a pre-tax profit for the nine months to September 30, 2014 that had fallen 31 percent to RUB 756.86 billion (USD 10.6 billion). Although Gazprom’s revenues 64
for the first nine months of 2014 increased 6.2 percent to RUB 4 trillion (USD 56.1 billion), the firm’s operating profit fell 15.6 percent to USD 14 billion. Gazprom blamed some of the fall in profit on the decline in the value of the rouble, but noted the significant decline in world market prices for crude oil had an effect on its export
revenues due to its long-term gas contracts being linked to oil product indices. “Any further decline may adversely affect our business, results of operations, cash flows, financial condition and potentially our capital program,” the group mentioned in a statement accompanying its nine-month results. www.petroleumreview.ro
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review & preview
OMV resilient in the current oil price environment
O
MV has adjusted its medium-term planning in light of the rapid fall of the oil price in recent months. Since the year high in mid-2014, the Brent oil price has fallen by approximately 58%. The Group has acted decisively to maintain profitability and its strong balance sheet. According to OMV CEO Gerhard Roiss, “there has been a seismic shift for the industry in recent months. OMV has a responsibility to react accordingly and with caution.” Adjusting the investment program and further cost cutting are at the heart of the measures, which have also been announced in a Trading Statement to the financial markets. OMV Group’s
annual investments have now been adjusted to a range of EUR 2.5 to 3.0 bn for the years 2015 to 2017, down from the previous investment plan, which aimed at annual investments of EUR 3.9 bn for the period 2014 to 2016. The majority of investment will continue to go to the Upstream business segment (Exploration and Production). The goal of positioning OMV as an integrated oil and gas company with a focus on Upstream remains unchanged, also mentioned Gerhard Roiss. “On a forward looking basis, we remain positive on our flagship projects in execution; however, we are reducing the speed of implementing certain projects which will inevitably lead to a delay in
reaching our previously stated 2016 production target of ~400 kboe/d.” Turbulence on the oil and gas markets has also led OMV to reappraise parts of the portfolio. Asset impairments and provisions totalling approximately EUR 700 mn have been applied in the fourth quarter 2014. These relate primarily to Petrol Ofisi in Turkey and the gas-fired power plant Brazi in Romania. “The steps we have taken, demonstrate OMV’s flexibility and ability to take appropriate measures. The entire OMV Executive Board is fully committed to these measures and devotes its full energy to implement these new steps to make OMV fit for the new oil price environment,” Roiss underlined.
Lukoil’s top priorities for 2015
T
he Lukoil Board of Directors held a meeting in Moscow to summarize the preliminary results of the company performance in 2014 and set priorities for 2015 and the near term. In 2014, as a result of prospecting, 14 fields were discovered, while 38 oil deposits were identified in the exploration areas and producing fields. In 2014, the company obtained 18 new licenses for subsoil use. The estimated oil production increased by 7% and totalled 97.2 million tons, including 86.3 million tons in Russia and 10.9 million tons overseas. The increase in overseas oil production is attributable to the 66
commissioning of West Qurna-2 oil field in Iraq. The 2014 volume of retail sales of petroleum and gas products totalled 15.2 million tons. In Russia, the volume of retail sales of fuel increased by 6% and totalled 9.7 million tons. The utilization coefficient of associated (petroleum) gas in the RF came to 89.9% in 2014, which is 2.2 percentage points higher than in 2013. According to the preliminary estimates, the total sum of tax and customs payments to the consolidated budget of the Russian Federation in 2014 will total RUB 1.2 trillion, an increase of 7.9% over 2013, mainly due to the increase in the income tax,
mineral-extraction tax and petroleumproduct excise-tax payments. The OAO Lukoil Board of Directors also set a number of priorities for 2015, including the following: to ensure the steady operation of the company, given the unfavourable macroeconomic conditions, and to preserve the company’s competitive positions within the international and national sectoral markets in terms of operational efficiency; to continue exploration in West Siberia, the Ural-Volga, the Timan-Pechora, and Romania in order to continue building up the company’s resource base. www.petroleumreview.ro
review & preview
Formation Evaluation| Well Construction | Completion | Production
Russia-Turkey offshore gas pipeline route approved
R
oute for the new gas pipeline across the Black Sea between Russia and Turkey was approved recently at working meeting between Alexey Miller, Chairman of the Gazprom Management Committee, and Taner Yildiz, Turkish Minister of Energy and Natural Resources held in Ankara. The four strings will have an aggregate capacity of 63 billion cubic meters a year. 660 kilometres of the pipeline’s route will be laid within the old corridor of South Stream and 250 kilometres – within a new corridor towards the European part of Turkey. Gazprom will submit a notice requesting a conduct of FEED operations for the new Turkish offshore section. Gazprom will be solely responsible for the construction of the offshore section. Turkish gas transportation facilities will be built jointly. The project stakes will be distributed in the course of the future talks. Botas is approved to represent the Turkish party. Alexey Miller noted: “The joint construction of the gas transportation facilities within such an important project would create the strategic infrastructure partnership between Gazprom and Botas. The talks were friendly and constructive. Both parties are keen to hit the target. Our priorities – to study the route’s options in Turkey, to define the location of the landfall facilities, gas delivery points for Turkish consumers and border crossings between Turkey and Greece. We agreed to plan our work in such a way that would allow us to sign an Intergovernmental Agreement on the gas pipeline in the second quarter this year, therefore the first gas would come to Turkey in December 2016. In this respect, the first string’s throughput capacity of 15.75 billion cubic
metres will be exclusively intended for Turkish consumers. Considering the state of readiness of the Russkaya compressor station and the pipeline’s offshore section, this deadline is absolutely real.” Turkey is Gazprom’s second largest sales market behind Germany. In 2014 Gazprom supplied Turkey with 27.4 billion cubic meters of natural gas. Turkey currently receives Russian natural gas via the Blue Stream and the Trans-Balkan gas pipelines. On December 1, 2014 Gazprom and Turkish company Botas Petroleum Pipeline Corporation signed the Memorandum of Understanding on constructing an offshore gas pipeline across the Black Sea towards Turkey. The gas pipeline will have a capacity of 63 billion cubic meters, with nearly 50 billion cubic metres to be conveyed to a gas hub on the border between Turkey and Greece. Gazprom Russkaya will be in charge of the gas pipeline construction.
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BOP Handling Systems Ingersoll Rand gear air motor is characterized by:
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BOP Handling Systems 25 - 200 t Load Capacity Our BOP Handling Systems are designed to meet or exceed the specifications of one or more of the following regulatory bodies; the Norwegian Petroleum Directorate (NPD), UK HSE, Lloyds. Register of Shipping (LRS), Det Norske Veritas (DNV), and American Bureau of Shipping (ABS) for the oil well drilling industry. All Ingersoll Rand BOP handling systems are designed and built in ISO 9001 certified factories. They are comprised of two trolley-mounted hoists; each of which is rated at one-half the complete system capacity. All models meet the requirements of the European standards FEM 9.511 and FEM 1001 for lifting as well the U.S. standard ASME/ANSI B30.7.
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BHS Series - Specific Features Designed to meet or exceed specifications of one or more of the following regulatory bodies - the Norwegian Petroleum Directorate (NPD), UK HSE, and Lloyds Register of Shipping (LRS), Det Norske Veritas (DNV), and American Bureau of Shipping (ABS) for the oil well drilling industry. All models meet the requirements of the European standards FEM 9.511 and FEM 1001 for lifting as well the U.S. standard ASME/ANSI B30.7.
Ingersoll Rand radial piston air motor is characterized by: • • • •
A positive starting torque; A variable speed control offering a precision spotting control at slow speeds; A superior reliability in harsh environments; Features internal splash lubrication.
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special focus A LOOK BACK IN 2014
What will 2015 hold for CEE oil & gas sector? The sharp fall in oil prices in late 2014 strongly pulled down the shares’ market price of the companies in the oil and gas sector in Central and Eastern Europe. The toughest times are not yet over for the relevant industry in CEE: financial results for last year are soon to be released, results that will include the oil price evolution in the Q4 last year, i.e. the very period when the oil price registered the steepest fall. And, as it happens in a context where pressures on the oil market will continue to manifest in 2015, both these companies and stock exchanges and investors will have lots of challenges. By Laurenţiu Roşoiu
T
he yeat 2014 brought to the stock markets the second largest downward movement in oil prices in the past 50 years. In this latest half a century (for this period there is an official and credible historical stock exchange lists) only the fall by almost 70 percent in 2008 (when the oil listing fell from USD 130 to USD 40 dollars per barrel in the second half of the year) exceeds the one registered last year. Thus, after a period of about two and a half years when the oil was traded with smaller or larger variations around the threshold of USD 100 per barrel (since 2011 - as it can be seen in the chart ‘Historical evolution of oil prices’, and up to the middle of last year), oil prices reached in December 2014 the level of USD 50 per barrel, describing a decline of over 50 percent. It should be noted that the largest part of this decrease occurred during the second half of the year (the decrease began in July - as can be seen in the chart ‘Evolution of oil prices in 2014’); and the maximum speed, or amplitude, on the slope of the falls was recorded even in the fourth quarter; i.e. only during the months of 70
October, November and December, an interval during which, relative to the values at the end of 2013, oil prices have marked an average decline of over 40 percent.
Falling stock indexes worldwide Following such a shock, the world’s capital markets could not remain insensitive. In their turn, stock indexes recorded decreases - more or less extensive, depending on the number and weight of oil and gas companies in their structure, but also according on the geographical area covered. But if the general indicators (reflecting the overall evolution of a basket of companies representative for the entire national or regional economy) have experienced a relatively moderate impact - because decreases of companies in the oil and gas sector were offset by the positive developments of companies from other sectors... the stock indexes reflecting the development of oil and gas sector (either on national or regional level) received www.petroleumreview.ro
Historical evolution of oil prices 2014 brought the world’s second largest drop in oil prices over the past 50 years.
The chart shows the evolution of oil prices in USD/barrel; values are monthly (at end of month); values are an average of the prices of different types of oil, calculated according to the World Bank methodology. Source: World Bank
The evolution of oil prices in 2014
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special focus the full blow; the power of these blows was directly proportional to the weight, importance and the number of companies with problems included in the respective indexes. It can be seen that the negative effects had a relatively small extent in the relevant indexes for the economically developed areas, but had an extensive enough influence on the indexes in which Russian companies have a share and a greater relevance, as in the case of indexes relevant for the evolutions (sectoral and general) in Central and Eastern Europe. Thus, taking into consideration the Stoxx 1800 Oil & Gas index – an index reflecting the overall evolution of the oil and gas sector for the developed economies (as a basket of shares of the oil and gas companies in these economies), it can be seen that, after a long period of side development, with modest positive and negative variations at around 470 points, it began to experience, since September 2014, the reverberations given by the increasingly steep declines in oil prices. From that very moment (September 2014), the Stoxx 1800 Oil & Gas index recorded a downward trend during which, along that baleful last quarter, it lost 10 percent of its value. In
contrast, the general index Stoxx 1800, which reflects the evolution of a basket of shares of the most important 1800 companies in all fields, in the developed economies (thus offering an overview on the evolution of the economy in these countries) recorded by year end, on the whole last quarter of 2014, an increase of about five percent (see the chart ‘Evolutions in the developed economies’). The steep drop in oil prices in the last quarter of last year, during which global oil listing fell by over 40 percent, had a stronger influence on Stoxx 600 Oil & Gas index’s evolution; an index that reflects the evolution of the oil and gas sector in Western Europe, which fell in the same time frame by almost 19 percent. For comparison, in the last quarter of 2014, the Western European economy as a whole (evolution reflected by the Stoxx 600 index – which includes shares of the 600 most important companies in all sectors in Western Europe) had managed to register a relatively balanced trend, recording a 0.2 percent deficit; the rest of the economy thereby offsetting the negative pressure coming from the decreases in the oil and gas industry (see the chart ‘Evolutions in Western Europe’). The fall in oil prices worldwide however, had the strongest
Evolutions in the developed economies In the last quarter of 2014, the oil and gas index fell by more than 10 percent.
The chart shows the evolution by points of the mentioned indexes from September 2013 to December 2014. Source: Stoxx Ltd
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www.petroleumreview.ro
effect in Central and Eastern Europe, where the effects were significantly stronger transmitted both in the overall index which reflects the evolution of the economy (Stoxx 300 - which includes shares of the largest 300 companies in the region, in all fields) and at the sectoral level. Thus the profile index, Stoxx 300 Oil & Gas, recorded in Q4 2014 a decrease of about 28 percent, while the parent index, Stoxx 300, lost nearly 19 percent (see the chart ‘Developments in CEE’). The broad correction was determined mainly by lower oil prices, but on the other hand seriously enhanced by a number of other influencing factors. These additional factors of influence include the complex situation given by the fact that many companies (and perhaps the most important ones!) in the Stoxx 300 Oil & Gas index are Russian companies that suffered heavy blows not only from the fall in prices (of oil and gas) but especially from the sanctions imposed by the US and the EU - sanctions that limited both their access to international markets financing and their access to the latest technologies and techniques in the field. Besides, these differences, given by the specificity of
the economies where companies included in one index or another operate and given the specific problems and challenges each entity faces, explain the differences of market price evolutions of the companies in the field in CEE. Thus, as it can be seen in the table ‘Winners and losers in the oil and gas sector in CEE’, in the top, registering the largest decreases of shares’ prices on the market, there are many Russian companies - such as Rosneft, Gazprom and Novatek (with drops of 15 to 25 percent during 12 months); for comparison, apparently paradoxically, the highest market price depreciation over the four quarters that ended in September 2014 were recorded by companies such as OMV and MOL. There are companies that didn’t have to deal with the same challenges as the Russian ones (which suffered directly as a result of the western sanctions), but whose business prospects are strongly deformed by a possible (and predictable!) continuation of the European policies aiming at remodelling (and reducing) of the relationships (and dependency!) of the European economy on Russian gas and oil. Therefore there were various kinds
Developments in Western Europe The index reflecting the evolution of the oil and gas sector in Western Europe fell in the last three months of 2014 by almost 19 percent.
The chart shows the evolution by points of the mentioned indexes from September 2013 to December 2014. Source: Stoxx Ltd
73
special focus Developments in CEE The index in the field recorded in the last quarter of last year fell by about 28 percent, while the general index lost nearly 19 percent.
The chart shows the evolution by points of the mentioned indexes from September 2013 to December 2014. Source: Stoxx Ltd
of pressures which the companies in the region had to face. And the list does not end thereof: thus, as another example, answering questions submitted by the Petroleum Industry Review, Goran Saravanja, chief economist of the Croatian group INA-Industrija nafte d.d., said: “INA had faced many challenges in 2014. Our refining operations locally continued to accumulate losses due to the revocation of the majority of our concessions, following a state decision in 2011. We were also exposed to serious financial losses due to unexpected changes in the regulatory framework. We had to pay retroactive taxes on refineries’ domestic consumption, state royalties have doubled, we were compelled to sell the company’s gas reserves and, following a change of the legal framework, the retail distribution segment was taken over by a state company”. It’s worth noting in this case the fact that, despite receiving some extremely powerful blows, the Croatian company INA still managed to achieve in the first nine months of 2014 a growing profit by about 19 percent (approx. EUR 76 million) against the one reported for the same period last year (EUR 64 million). Beyond the issues mentioned above, regarding the effects of other types of external inputs, both on shares prices and on the financial results 74
after nine months, it is clear that the fall of the oil prices in the second half of 2014 has sent strong reverberations worldwide. And especially on the evolution of the oil and gas companies’ listed on the stock exchanges; making a comparison between the indexes, we can say that these effects were reabsorbed in part and gradually on their way from outlying areas to the epicentre of the global economy - an epicentre represented by the developed countries. This type of propagation, with stronger effects in peripheral areas and weaker in developed economies is not only a result of falling oil prices but also derives from particularities of the companies in the index composition; the differences in the magnitude of the effects were also influenced by the structural particularities or by the regulating frameworks in the economies where the companies are involved. Strictly related to the negative trend in oil prices, however, it is clear that in developed economies, where economic mechanism is complex, the negative effects of lower oil prices may be counterbalanced by the rest of the economy, at least partially, by a possible future enhancement of demand. In contrast to the companies in the emerging world, www.petroleumreview.ro
Winners and losers in the oil and gas sector in CEE The vast majority of companies in the field in CEE registered massive declines in market prices in the first nine months of the year; there are however positive developments too. Company % share price (expressed and calculated in EUR)
30.09.2014 / 30.09.2013 (12 M)
1 Serinus Energy Inc
-40%
2 Unipetrol AS
-38%
3 Hellenic Petroleum SA
-35%
4 OMV AG
-29%
5 Dogan Sirketler Grubu Holding AS
-29%
6 MOL Hungarian Oil & Gas PLC
-26%
7 Turcas Petrol AS
-26%
8 Prosafe SE
-26%
9 Grupa Lotos SA
-23%
10 Rosneft OAO
-23%
11 Gazprom OAO
-16%
12 NOVATEK OAO
-16%
13 Slovnaft
-15%
14 Polish Oil & Gas PGNiG
-15%
15 Lukoil OAO
-14%
16 Motor Oil Hellas Corinth Refineries
-12%
17 Transneft
-10%
18 Gazprom Neft OAO
-8%
19 INA Industrija Nafte DD
-6%
20 PKN Orlean
-6%
21 Tatneft OAO
-3%
22 Aygaz AS
-2%
23 Latvijas Gaze AS
-2%
24 Turkyie Petrol Rafin TUPRAS
1%
25 NIS Nafta Industrija
2%
26 Surgutneftegas OAO
2%
27 OMV Petrom
6%
28 Romgaz
21%
29 TGN
28%
30 Petrol DD
47%
The table shows changes in the market prices of the shares of those companies during September 30, 2013 - September 29, 2014. Source: Bloomberg, local stock markets, author’s calculation
the negative effects of decreasing oil prices were and are often exacerbated by other specific phenomena of the respective economies - such as changes in the regulatory framework, domestic currency devaluation, reducing the share of international market profile or, not least, increase of financing costs needed in order to maintain liquidity flows and investments. Specifically, we can say that, if referring to Stoxx 1800 Oil & Gas index, the amplitude of the corrections was tempered by the fact that cheaper fuel can be an engine for economic growth and thus an incentive to increase demand; unlike it, in the case of Stoxx 300 Oil & Gas index, tensions induced by the decline in oil prices were amplified into the market price of some of the companies in the index (i.e. - the market price of Russian companies!) due to specific problems they face as a result of sanctions imposed by the West and to the massive depreciation of the domestic currency.
The CEE economy, facing the second wave The charts reveal the fact that, globally, in developed economies, companies in the field have already cashed in, in the market prices, part of the shock of the decrease in oil prices during the fourth quarter; general indicators sensed this, as it was otherwise normal, in a significantly lower extent than oil and gas sector indexes. The latter ones took, in their turn, differently the reverberations of the fall in oil prices, depending on the economic conditions specific to each area. Therefore, of all the three mentioned indicators, given the specific area, the index of the oil and gas sector in Eastern and Central Europe is not only the most affected so far, but also one that is facing the biggest challenges in 2015. This is because the evolutions of the index up to the end of last year were the result of only a first round of effects, determined by expectations, estimates or anticipations coming from investors and analysts on the future of the companies within. Estimates whose scenarios, from a fundamental perspective, are based on the published financial results for the first nine months of the year and the evolution of oil prices in the fourth quarter - their assessments are more or less realistic. And, as far as the published figures of some companies have not yet incorporated the oil price evolution in the fourth quarter, i.e. the worst time for the global market, countless surprises may occur. Altogether, at this moment, one can see that, for the first nine months of 2014 (as shown in the financial reports at the end of Q3) business activities of the companies in the CEE sectoral index were preserved, 75
special focus Growing revenues Revenues of the most important companies in the Stoxx 300 Oil & Gas index (most important in the CEE) have registered positive developments in the first nine months of 2014. Company (values converted in EUR) (millions) 1 Turcas Petrol AS
Revenues 9 Revenues 9 months 2013 months 2014
% Revenues
12.0
16.4
35.7%
2,472.3
3,318.6
34.2%
158,393.5
207,234.8
30.8%
74,344.7
95,290.5
28.2%
5 Gazprom Neft OAO
693,370.5
840,972.9
21.3%
6 Surgutneftegas OAO
446,563.1
536,824.8
20.2%
235.6
273.8
16.2%
56.1
64.7
15.4%
287.4
312.4
8.7%
21,092.0
21,926.0
4.0%
894.3
914.2
2.2%
2,913.2
2,972.4
2.0%
1.6
1.6
1.2%
5,433.5
5,458.4
0.5%
Motor Oil Hellas Corinth Refineries
6,983.9
6,971.2
-0.2%
16 MOL Hungarian Oil & Gas PLC
2,988.5
2,925.0
-2.1%
17 Tatneft OAO
7,636.7
7,432.3
-2.7%
18 PKN Orlean
20,361.2
19,598.1
-3.7%
19 Turkyie Petrol Rafin TUPRAS
11,163.1
10,657.1
-4.5%
7,447.0
7,095.6
-4.7%
86,094.7
81,525.5
-5.3%
22 Lukoil OAO
2,408.9
2,256.9
-6.3%
23 OMV Petrom
4,071.8
3,675.0
-9.7%
24 INA Industrija Nafte DD
2,731.8
2,461.8
-9.9%
12,815.7
11,472.5
-10.5%
2 Rosneft OAO 3 NOVATEK OAO 4 Unipetrol AS
7 TGN 8 Serinus Energy Inc 9 Prosafe SE 10 Grupa Lotos SA 11
Dogan Sirketler Grubu Holding AS
12 Petrol DD 13 NIS Nafta Industrjya 14 Polish Oil & Gas PGNiG 15
20 Hellenic Petroleum SA 21 Gazprom OAO
25 Transneft
The table includes results for the first nine months of the year, expressed in EUR. The conversion was made at the exchange rate of the national currency and EUR by the end of September 2014. Source: Companies websites and author’s calculation Notes: Gazprom OAO has not published the results of nine months 2014, the sum of the table is the result of adding the results published in the first two quarters with incomes in the third quarter of 2013. The figures are taken from unaudited reports of the companies; there may be differences in currency values coming both from currency conversion reported in EUR, also from some possible future accounting adjustments.
76
as they reported higher incomes than those reported for the nine months of 2013. Thus, as shown in the table ‘Growing incomes’, half of the companies included in the Stoxx 300 Oil & Gas index recorded sales revenues increases; four of the Russian companies in the index recorded revenues increases of over 20 percent (Rosneft, Novatek, Gazprom Neft and Surgutneftegas). During the same interval, the other half - companies that have registered falling revenues in the first nine months of 2014 - have had in most cases insignificant variations; only five of them registered falls in revenues of over five percent (with a maximum of 10 percent decrease, in the case of Transneft).
Affected profits On the other hand, the profit figures for the first nine months of the year, although noticeably affected, are not terribly bad. As one can see in chart ‘Profits hit by falling prices’, there are not at all few companies that, in the first nine months of 2014, have seen their results increased. In a standing ran according to the percentage change of the profits in September 2014 to September 2013, we can see impressive increases for MOL, Transgaz and for the Turkish company Dogan Holding (see the chart ‘Profits hit by falling prices’). Furthermore, things were not so bad neither for some of the largest Russian companies in the field: e.g. for nine months in 2014 as against nine months in 2013, Surgutneftegas’s profit increased by 87 percent, Novatek’s profit increased by 19 percent, while Tatneft’s profit increased by 14 percent. It is true that another important part of the Russian ‘heavyweight’ companies in the index were placed at the opposite extreme. Among them, Transneft, Gazprom OAO, Rosneft and Lukoil, whose profits fell in nine months of 2014 by www.petroleumreview.ro
Profits hit by falling prices Profits of the companies included in the Stoxx 300 Oil & Gas index were affected differently by the fall in oil prices in the first nine months of 2014. Company Values converted in EUR) (millions)
Profit 9 Profit 9 months 2013 months 2014
% Profits
1 MOL Hungarian Oil & Gas PLC
54.7
263.6
382%
2 TGN
36.3
84.9
134%
151,418.6
282,938.3
87%
42,753.2
51,081.4
19%
64.1
76.1
19%
1,367.2
1,558.3
14%
399.2
435.9
9%
104,346.4
110,458.4
6%
493.1
510.9
4%
10 Petrol DD
44.3
45.7
3%
11 Prosafe SE
103.1
101.2
-2%
0.3
0.3
-11%
837.0
702.6
-16%
2,934.7
2,329.9
-21%
19,998.4
14,525.5
-27%
16 Rosneft OAO
308.3
206.6
-33%
17 Lukoil OAO
177.8
114.8
-35%
0.3
0.2
-36%
19 Turcas Petrol AS
15.0
2.9
-80%
20 Serinus Energy Inc
13.9
(6.4)
-146%
21 Grupa Lotos SA
63.8
(189.0)
-396%
141.4
(1,099.2)
-877%
(706.1)
(1,153.7)
63%
(15.0)
(33.3)
122%
(174.0)
(140.8)
19%
3 Surgutneftegas OAO 4 NOVATEK OAO 5 INA Industrija Nafte DD 6 Tatneft OAO 7 Turkyie Petrol Rafin TUPRAS 8 Gazprom Neft OAO 9 Polish Oil & Gas PGNiG
12 Motor Oil Hellas Corinth Refineries 13 OMV Petrom 14 Transneft 15 Gazprom OAO
18 NIS Nafta Industrjya
22 PKN Orlean 23 Unipetrol AS 24 Dogan Sirketler Grubu Holding AS 25 Hellenic Petroleum SA
The table includes results for the first nine months of the year, expressed in EUR. The conversion was made at the exchange rate of national currency or the USD (depending on the currency in which the reports were made) and EUR by the end of September 2014. Source: Companies websites, author’s calculation Notes: Gazprom OAO has not published the results of nine months 2014, the sum of the table is the result of adding the results published in the first two quarters with incomes in the third quarter of 2013. The figures are taken from unaudited reports of the companies; there may be differences in currency values coming both from currency conversion reported in EUR, also from some possible future accounting adjustments. On the last places in the standing are the three companies that registered losses in nine months 2013 and remained at a loss during nine months of 2014.
20 percent to 35 percent. Divergent developments can be noticed also for other oil and gas companies in the region, whose shares are not included in the regional Stoxx 300 Oil & Gas index. As it can be seen in the chart ‘Other financial results in the region’, while the Romanian company Romgaz reported for the first nine months of 2014 a profit of about EUR 252 million (compared to EUR 178 million recorded in first nine months of 2013), the Austrian company OMV’s profit halved in the same interval (EUR 665 million) and recorded a spectacular fall in revenues (from EUR 32 billion to EUR 28 billion), while the Slovak company Slovnaft went from profits to losses, recording significantly reduced incomes. These trends should worry the financial markets and the investors. This is because the variation in profits for the first nine months of the year, when the decreases in the oil market were not the most spectacular, is a signal that the market would toughly experience the decline in oil prices in the last quarter of the year. The question mark remains only on the magnitude of these effects and the degree in which they are expected, being already included or not in the market prices.
Negative outlook for 2015 The situation is even more disturbing as the beginning of 2015 hasn’t showed good signs and oil prices continued to fall heavily. Thus, only until the end of the second decade of January, the WTI oil price (US reference) fell by about 14 percent, from USD 54 per barrel (in late 2014) to USD 46 per barrel, while the price of Brent crude oil (reference for Europe) fell by 15 percent, from USD 55 to USD 47 dollars per barrel. The negative outlook for the industry, given by the evolution of 77
special focus Other financial results in the region Developments were divergent in the first nine months of 2014, including for the companies not included in the Stoxx 300 Oil & Gas. Company (values converted in EUR) (millions)
Revenues 9 months 2013
Profit 9 months 2013
Revenues 9 months 2014
Profit 9 months 2014
1
Aygaz AS
1,602.2
71.2
1,862.0
75.1
2
Latvijas Gaze AS
417.8
13.9
333.6
12.9
3
Slovnaft
3,596.0
43.0
3,029.0
(1.0)
4
OMV AG
32,043.0
1,240.0
28,230.0
665.0
5
Romgaz
580.4
178.8
745.8
252.8
The table includes results for the first nine months of the year, expressed in EUR. The conversion was made at the exchange rate of national currency or the USD (depending on the currency in which the reports were made) and EUR by the end of September 2014. Source: Companies websites, author’s calculation Note: The figures are taken from unaudited reports of the companies; there may be differences in currency values coming both from currency conversion reported in EUR, also from some possible future accounting adjustments.
oil prices early this year, is confirmed by experts in the field. Thus, according to the latest report ‘Short-Term Energy Outlook’ released by the EIA (Energy Information Agency - an agency of the US Department of Energy) on January 13, 2015, the quantities of oil inventories held worldwide will continue to increase, which will put additional pressure on the prices. According to that report - which is the first report with forecasts for 2016 - the average price of Brent oil will drop to USD 58 per barrel, about USD 11 below the previous estimations (issued in December). The EIA forecasts, however, show that the price of Brent oil will trade in January and February at lows of about USD 49 per barrel; after reaching these thresholds, according to those projections, prices will go on an upward trend, so that in the last quarter of 2015 will reach an average of USD 67 per barrel, and in 2016 the average price will be of about USD 75 per barrel. The analysts of reputable financial institutions have also proceeded to spectacular revisions of previous estimates. The US investment bank Goldman Sachs has reduced its estimate for Brent oil price for Q1 2015 by half, from USD 80 per barrel, as it was the previous estimate, to USD 42 per barrel. Also, for the first half of 2015, the Brent oil price estimate was reduced by Goldman Sachs analysts from USD 85 per barrel (the previous estimate!) to USD 43 per barrel, and for the year 2015 from an average of USD 90 per barrel to USD 70 per barrel. As far as the WTI oil is concerned, adjustments were similar in magnitude: from USD 75 to USD 39 dollars per barrel for the first six months of the year and from USD 80 to USD 65 per barrel for the entire year 2015. The same major revisions for oil price for the next 78
period and an even more pessimistic perspective is found in the Société Générale reports - one of the largest European players in the field. According to the French bank analysts, the average price of WTI oil for 2015 would be approximately USD 51 per barrel - significantly adjusted against the level originally estimated, which had been of USD 65 dollars per barrel; estimations for Brent oil in 2015 point to USD 55 as against USD 70 per barrel in the previous forecast. Somehow more optimistic than the French bank specialists, for all of 2015, are the Austrian Raiffeisen Bank analysts. According to them, the average oil price this year will be of USD 58 per barrel (and of USD 77 per barrel in 2016) - and in this case, however, one can observe a massive adjustment to the previous forecast, which was of USD 80 per barrel (USD 90 per barrel in 2016).
End of the downward trend? The first thing that stands out for most of the above mentioned forecasts is the magnitude of revisions to the targets - decreases of about 50 percent of recent estimates against previous estimates. But by following results matching values by approximately the same threshold (about USD 50 per barrel), we can say that we have a clue that the major players on the financial market anticipate (and/or are betting on!) on the drawing to a close of the aggressive downward trend - at least for the next few months. And the outlook seems to be shared by companies in the field. “We believe that the decline in oil prices is nearing the end. In the second half of this year we expect oil to begin recovering from the lows reached in Q1 2015 as the global production begins to decline,” said for www.petroleumreview.ro
the Petroleum Industry Review, Goran Saravanja, chief economist of the Croatian group INA-Industrija nafte d.d. “I do not believe either in a rebound in prices to the level of Q1 2014,” he said, arguing that it takes time to adjust production, especially in an environment dominated by weak economic development. But even if the decline ends and eventually the oil price is stabilized, it remains the main challenge for the industry for the next period. “PGNiG is closely monitoring the movements of oil prices on the market and the estimates of its development for the coming years,” said the Małgorzata Olczyk (responsible for the relationship with the press) for Petroleum Industry Review; the PGNiG specialists do not regard the phenomenon exclusively in terms of negative effects it can generate. “The drop in oil prices lead to lower acquisition prices for the assets in the field”, she added, by referring to a new direction in which the reverberations of the drop in oil prices may be transmitted in the next period, i.e. the area of mergers and acquisitions. “The financial results for nine months were not greatly affected, because the price of oil below USD 100 per barrel occurred in September, but the predictable
volatility of the prices is one of the most challenging elements for us, through the influence it can have on PGNiG activities,” Olczyk underlined.
Instead of conclusions In such a context, the spring of 2015 will be a real litmus paper test for the oil and gas industry worldwide as well as for the Central and Eastern Europe. It will represent the moment to see the impact of oil price fall during Q4 last year and to see each company’s ability (the management teams’ skills as well) to counter this blow and concrete results of such measures. In fact, the spring of 2015 will draw a line between companies that can and those that can’t cope with such challenges... and, consequently, between those which deserve or those which do not deserve the investors’ money. The way in which falling oil prices will be reflected in the financial results of companies and their management responsiveness capacity will make the difference between companies that will give the first signs of stabilization and those showing premises to re-enter a new downtrend. 79
oil & gas
Who is to win following gas market liberalisation for non-household clients? The way transition takes place from the regulated market to a free market for non-household consumers is marked by the dominant position of the suppliers (which have sold gas on regulated prices to non-household consumers until December 31, 2014) against the non-household clients. By Dumitru Chisăliţă
T
he Law on Electric Power and Natural Gas no. 123/2012 set, two and a half years ago, the date of January 1, 2015 as the threshold for moving from the regulated market for nonhousehold consumers to the free market for the natural gas. Two and a half years ago the ‘Master Plan’ was agreed upon for the gradual transition from the regulated market to a free market, which included two directions: • The gas deregulating schedule meant to provide a gradual increase of the price, starting from the regulated price on the market. This schedule was put into force by the Romanian government by several government decisions. • The dissemination and informing plan for the clients, in order to get them prepared for January 1, 2015, which included obligations for the gas market regulator (ANRE) during 2012 - 2014, that haven’t been met. The natural gas market liberalisation started two and a half years ago, having clients’ preparedness on January 1, 2015 as main component of the ‘Master Plan’; this paving of the way 80
hasn’t been carried out. On November 6, 2014 (less than 30 working days until the deadline for the coming into force of the free market for non-household consumers) ANRE imposed the suppliers that were delivering gas on the regulated market to nonhousehold clients the condition to inform the customers they are compelled to join the free market on December 31, 2014 at the latest, or to accept a six-month extension of the contract with the supplier for a price suggested (imposed) by the supplier. Naturally, in order to prevent losing the clients, the suppliers carried out a ‘formal’, incomplete and scarce informing of the clients, letting them understand an extension of the contract would be the most advantageous choice. Delivering incomplete information, the short interval for negotiations between the suppliers and the nonhousehold clients, as well as the lack of mediation for the disagreements between the former regulated nonhousehold consumers and the gas suppliers – have all been premeditated instruments that offered a dominant
position to the suppliers on January 1, 2015. After ‘convincing’ the clients about the liberalisation process, the suppliers have submitted disadvantageous gas offers for their non-household clients in December 2014, counting on the following: a) Even if aware and able, the clients would not have enough time to negotiate due to the days off during December 2014; b) According to the Law on Gas if contracts were not concluded by December 31, 2014, a double illegality was registered – gas supply without contract on behalf of the supplier and fraudulent consumption without contract on behalf of the client, the suppliers being thus compelled to cease gas deliveries. c) According to the Law on Gas, ANRE cannot interfere in mediating (pre-commercial) problems between the gas suppliers and the nonhousehold clients forced to become eligible by January 1, 2015, although the divergences between suppliers and clients have come up due to: - The compulsory transition from the regulated market to the free www.petroleumreview.ro
oil & gas
market; - The process unfolded during winter holidays, thus a period lacking economic activity; - The information delivered and the offers for the gas volumes for 2015 were sent less than 30 working days before December 31, 2014, the deadline for contracts to expire; - The transition process took place during winter and any supply limitation would have led to potential losses; - not applying the information dissemination programme regarding the transition from the regulated market to a free market (according to the memorandum for deregulating regulated prices and applying the Master Plan’ to inform consumers, an
obligation that wasn’t met); - The setting up of a semi-regulated period of six months imposed by ANRE (January 1 – June 30, 2015) to provide graduated transition from the regulated market to a deregulated one in order to protect the non-household clients and assure the continuity for gas supply. As a consequence, the clients have only one option, to accept the offers submitted by the suppliers, or else face the risk of being disconnected from the natural gas network during winter. Thus, natural gas liberalisation for non-household clients has been transformed from an opportunity for the clients into an opportunity for the suppliers.
www.dumitruchisalita.ro
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ANRE OFFICIAL POINT OF VIEW
The liberalisation of the natural gas market for non-household users
T
he liberalisation of the natural gas market has as main outcome the increasing competition on the market. The liberalisation of the natural gas market concretely involves the fact that the National Regulatory Authority for Energy (ANRE) is no longer setting the price of natural gas supplied to endusers, as on the competitive market for natural gas the prices are the result of offer and demand ratio, as a result of competition mechanisms. Thus, the supplier sells natural gas to the end-user at the price and on commercial terms agreed by negotiation or, on instance, at the price and on commercial terms in the standard-form offer for which the end-user has opted. Hence, as a greater number of end-users join the competitive market, the competition between the natural gas suppliers will grow in view of extending the number of clients, acting as a stimulant to offer quality services at affordable prices. Concurrently, the end-users need to have access to information regarding the offers from the natural gas suppliers in order to choose the most advantageous offers from the economic point of view, according to their own user profile. Under the circumstances, an essential measure allowing them to carry their own assessments and comparisons between offers, to have the choice of concluding a contract for natural gas supply in full awareness, is to deliver the end-users the most varied means of information. Thus, having in view the liberalisation 82
of the domestic natural gas market for non-household consumers on January 1, 2015 - according to the provisions of art 179, paragraph (2), letter (a) of the Law on electric power and natural gas no. 123/2012, all subsequent amendments and completions included, and taking into consideration the need to conclude by this date the sale-buying contracts for natural gas supply in negotiated terms, by the ANRE Order no. 107/2014 for agreeing on decisions regarding the supply of natural gas to non-household users in view of eliminating regulated prices, published in the Romania’s Official Monitor, Part I, no. 780/27.10.2014 - a series of legislative measures regarding the supply of natural gas to nonhousehold consumers have been agreed upon in view of eliminating the regulated prices for this category of end-users. The above mentioned regulatory document has mainly targeted, on one hand, to have the non-household consumers on the regulated market informed by the suppliers on the steps and implications of the liberalisation of the natural gas market, on the basis of monthly notifications. On the other hand, it targeted the rules to be set up regarding the contract basis in which the non-household users are part of, on the background of the transition from the regulated market to a competitive market, in view of assuring continuity in the supply of natural gas during the
cold season for the non-household users that haven’t concluded a negotiated sale-buying contract until the moment of market liberalisation. We also mention that the ANRE President’s Order no. 107/2014 was on a public debate to which representatives of the Competition Council and the National Authority for Consumers’ Protection also took part. Moreover, by official message, ANRE has informed the Ministry of Economy – Department for Energy regarding its approach. No proposals and observations were registered by the time the public debates were concluded. As a consequence we emphasize that: • The non-household users on the regulated market were notified on monthly basis by their suppliers during November 1 – December 31, 2014. • The above mentioned users were informed, through the means of the notification, regarding the cessation of regulated prices applicability on January 1, 2015 and on the need to conclude, until December 31, 2014, the sale-buying negotiated contracts for natural gas supply, on the commercial offer submitted by their supplier and have received information regarding the non-household user’s options if turning down the supplier’s offer; • In view of delivering fair, complete and accurate information to the nonhousehold users on the regulated market, the ANRE President’s Order www.petroleumreview.ro
oil & gas
107/2014 has set the obligation of the suppliers, which have in their portfolio non-household users from the regulated market, to submit to the ANRE, in five working days from the date this order was going into force (November 1, 2014), their own notification form including all the demanded information. • According to the order, ANRE furthermore is to monitor the suppliers to carry out the notification obligations to all the non-household users from the regulated market, as well as the data regarding the supply during the transition period January 1 – June 30, 2015, the suppliers being compelled to deliver the information. We also mention the following: • Having in view that the liberalisation deadline for nonhousehold users is January 1, 2015, the ANRE President’s Order 107/2014 is setting a transition period during January 1, 2015 – June 30, 2014, during which is provided the continuity of natural gas supply during the cold season for the non-household users that haven’t concluded a negotiated sale-buying contract by the liberalisation deadline; • If the non-household user turns down the offer coming from the current supplier, there is no risk of being disconnected from the natural gas supply during January 1- June 30, 2015, the user having the following options: - the option to exert the eligibility right by concluding a new contract following negotiations with the current supplier, to accept its standard form offers or to replace the natural gas supplier. We underline that the “list of economic operators, natural gas supplier license holders” as well as “links to the standard-form offers posted on the internet pages of the suppliers” are posted on the ANRE internet page: http://www.anre.ro/ro/gaze-
naturale/informatii-de-interes-public/ furnizori-gaze-naturale;
- ensuring the natural gas supply by the current supplier on the basis of the supply contract in force (concluded on the basis of the framework-contract for regulated supply of natural gas, approved by ANRE) at the price included in the offer submitted by the supplier, starting from January 1, 2015 until the date of concluding a new sale-buying negotiated contract by the non-household user for natural gas supplying, no later than June 30, 2015. All natural gas suppliers have had practically the obligation to notify, on monthly basis, during November 1 – December 31, 2014, the nonhousehold users on the regulated market in their portfolio, in regard to the implications of the liberalisation of the natural gas market by January 1, 2015. By notifications, the above mentioned supplier of the nonhousehold user has submitted also an offer in the event that the nonhousehold user chooses to exert its eligibility right and to conclude a salebuying negotiated contract for natural gas supply, having also specified the non-household user’s options in the circumstance of turning down the offer. Thus, the user is entitled to choose a natural gas supplier and to negotiate with it its contract or to accept its standard form offer. In the circumstance that the nonhousehold user on the regulated market did not conclude, until December 31, 2014 at the latest, a sale-buying contract with the current supplier or another supplier, either by negotiation of the price and of the commercial terms or by accepting a standard form offer, he is to be provided with natural gas supply by the current supplier at the price included in the submitted offer starting on January 1, 2015 until the date of concluding by the user of a negotiated supply contract, but no later than June 30, 2015. Besides, by notification, the users were informed that the “list
of economic operators, natural gas supplier license holders” is posted on the National Regulatory Authority for Energy’s site. At the same time, in order to provide the end-users access to information regarding commercial terms for supplying natural gas, the ANRE Order no. 107/2014 for agreeing on decisions regarding the supply of natural gas to non-household users in view of eliminating regulated prices, published in the Romania’s Official Monitor, Part I, no. 780/27.10.2014, has been elaborated and approved. In this regard, in order to provide the end-user with the option to compare several offers, the supplier has been compelled to draw up standardform offers for the categories of endusers included in their portfolio, part of the A1-A2 and B1-B4 categories. The standard-form offers have been posted by the supplier on its internet pages and at the joint contact point, while upon the end-user’s request they are to be provided for free in printed form or in electronic form. The standard-form offers were to include a minimum amount of information, so that they can be compared. In order to support the users, ANRE has posted on its internet page the “links to the standard-form offers posted on the internet pages of the suppliers” http://www.anre.ro/ro/gazeon
naturale/informatii-de-interes-public/ furnizori-gaze-naturale.
By enforcing to the natural gas suppliers the obligation to provide information, ANRE intended to provide the end-users’ easy access to information regarding the offers on the market, updated and including enough details regarding price/service on offer. Such information provide the endusers a proper volume of information, so that they have the option to chose, in full awareness, the natural gas supplier in the context of increased competition between suppliers. 83
PEFTEC partners with the Port of Antwerp PEFTEC 2015 (the petroleum, refining and environmental techno logies conference and exhibition) has announced a partnership with the Port of Antwerp. PEFTEC organizer Marcus Pattison says: “This is a major announcement because the Port of Antwerp is the leading European integrated maritime and logistics hub and the second largest seaport in Europe. As such, the port is situated at the heart of Europe’s industrial community, so the support of the Port of Antwerp is a major boost for the show, providing visitors and exhibitors with confidence that PEFTEC 2015 will be an essential
date in the diaries of anyone involved with monitoring, sampling and analysis in the petrochemical field.” Taking place on the 18th and 19th November 2015, at the Antwerp Expo centre, PEFTEC will be situated at the centre of the world’s largest cluster of petrochemical companies outside of the United Sates. The world’s 10 largest chemical producers are present in Antwerp, either with their supply chain or with a production unit, so the area is a magnet for world trade. Companies with major facilities in the Port of Antwerp include BASF, Air Liquide, Monsanto, Bayer and 3M,
and both Total and ExxonMobil have refineries in the port. PEFTEC 2015 is a new Confe rence and Exhibition created specifi cally for organisations involved in testing and monitoring in the Petrochemical and Refining sectors, covering applications such as process monitoring, quality control and environmental monitoring. As a partner with PEFTEC 2015, the Port of Antwerp will help publicise the show locally and provide speakers for the main conference. Further information on the event is available at www.Peftec.com
Port of Antwerp
84
www.petroleumreview.ro
oil & gas
Petromidia Refinery, historical milestone in 2014
T
he Petromidia Refinery, part of Rompetrol Rafinare and KMG International, reached a historical milestone of processed raw materials – more than 5 million tonnes. The total amount processed since 1979 – the commissioning year and up to now exceeded 100 million tonnes. “Thanks to the investments carried out by KMG International and KazMunayGas in the upgrade and processing capacity increase, together with investments for the development of the petrochemistry sector, the supply of crude oil and the nation-wide and regional distribution of fuels, the Black Sea refinery achieved operational historic records in 2014. With the completion of the wide modernization refining capacity increase programme in 2012, our strategy and ambition is and remains aimed at the optimization of productions processes, lower processing costs and increased energy efficiency”, said Yedil Utekov, general manager of Rompetrol Rafinare, the company operating the Petromidia refinery. Some of the historic records of the company in 2014 are the increase in Diesel fuel production – 2.43 million tonnes (1.91 million tonnes in 2013 and 1.6 million tonnes in 2012), Diesel fuel yields – 48.8% (46% in 2013, 39.6% in 2012), but also white products yields – 85.7% (85.5% in 2013, 85.4% in 2012). At the same time, the refinery achieved an improved energy efficiency index - 99.8 (102.8 in 2013, 115 in 2012). Through petrochemical division, Rompetrol Rafinare reached the full capacity of polypropylene – 90 thousand tonnes in 2014 (79,8
thousand tonnes in 2013 and 86,3 thousand tonnes in 2012). The refinery operated at peak capacity last year, without any scheduled or accidental stop (365 days), the processed raw materials reaching 13,800 tonnes/day. This production level was also reflected in the company tax revenues of the state – USD 1.8 billion (USD 1.4 billion – 2013, USD 1.2 billion in 2012). The total amount of investments at the Petromidia platform reached approximately USD 1.4 billion between 2007 (the year of the takeover by and integration into KazMunayGas) and 2014, of which USD 380 million was earmarked for the large scale modernization of the Petromidia Năvodari refinery. It mostly involved the building of five new plants and the upgrade/extension of other existing four, with the objectives to boost refining capacities to more than 5 million tonnes of raw
materials/year, modify and align the product basket to the market needs, move to the exclusive production of Euro 5 fuels, and also to comply with European environment requirements. Alongside the processing capa city increase programme, KMG International also developed other supporting projects – building of the Black Sea offshore oil terminal (maximum transfer capacity – 24 million tonnes/year), achieved a threefold increase of oil products transit through Pier 9 of the Midia Port, overhauled the crude oil and finished product farm tank, and built the liquefied petroleum gas importexport terminal. In its more than 35 years of existence, the Petromidia refinery processed more than 100 million tonnes of raw materials (95.7 tonnes of crude oil), the largest oil quantity ever processed by a Romanian refinery. More than 32% of this amount was processed in the past seven years (2007 - 2014). The Rompetrol Rafinare company, the main asset of KMG International (the former Rompetrol Group), operates the Petromidia Năvodari and Vega Ploieşti refineries, and is also the only Romanian polymer producer. Fully owned by the national oil and gas company of Kazakhstan – KazMunayGas, KMG International is active in 12 countries and is one of the most powerful Romanian companies and a major player in the Black Sea and Mediterranean regions, where it owns and carries out significant operations in fields such as refining, petrochemistry, retail, trading, up stream and industrial services. 85
oil & gas
Oltchim Petrochemical Complex, ready for reorganisation The turnover of the Oltchim Petrochemical Complex Ramnicu-Valcea has increased to EUR 141.19 million last year, as compared to EUR 112.68 million in 2013, while the losses during exploitation have dropped from EUR 46.1 million to EUR 9.3 million. On the background of these positive results, on February 9 the plant’s reorganisation plan is to be released. by Adrian Stoica
T
he reorganisation plan for Oltchim complex has been finalised and is to be published on February 9, so that during March 2-10 the plan should be voted by the assembly of creditors. Besides, the bankruptcy judge is to pass confirmation of the reorganisation plan within 15 days after the submission of the assembly of creditors’ report in court, report by which the plan has received the go-ahead. The reorganisation strategy to be submitted for approval to the creditors requires further improvement of the economic and financial results, the strengthening and the preserving of the plant’s financial balance, as well as the plant’s sale to an eligible buyer. The administrators are considering, through the reorganisation programme, techno logical improvements, mainly targeting the membrane electrolysis equipment. “These works will improve the economic and financial results by cutting down specific consumptions (mainly of electric power) will improve the quality of manufactured products (liquid caustic soda) and will increase the use of production capacity,” a 86
report submitted to the Bucharest Stock Exchange reads. In the event of finding and attracting viable funding sources, the Oltchim
The reorganisation plan for Oltchim complex has been finalised and is to be published on February 9; during March 2-10 the plan should be voted by the assembly of creditors.
administrators intend to restart the phthalic anhydride and the dyoctil phthalate facilities, this decision being expected to lead to further growth in the utilization of the production capacities, to turnover and profitability upsurge.
Growing turnover According to the report on the 2014 preliminary financial results,
published by the administrators of Oltchim plant, the plant’s turnover increased to EUR 141.19 million, against EUR 112.68 million reported in 2013. Besides, the export sales increased last year by 44 percent up to EUR 100 million. Administrators say that EBITDA (earnings before interest, taxes, depreciation and amortisation) calculated strictly for production, has improved by EUR 36.8 million. Thus, the plant recorded last year an operational loss amounting to EUR 9.3 million against EUR 46.1 million losses reported in 2013. Oltchim’s export sales have also increased by 44.08 percent, from EUR 69.406 million to EUR 100.005 million. “Oltchim’s activity has recorded positive results, positive monthly EBITDA starting October 2014. These positive results were recorded mainly due to the combined efforts of the current management team and of the employees, materialised in regaining confidence of the foreign clients that the company is able to deliver flawless and superior quality products under the contract and, to a lower extent, due to the fall of oil prices,” the report sent to the stock exchange reads. www.petroleumreview.ro
oil & gas
Debts of over EUR 800 million
Other creditors in this category include Electrica with RON 227 million, OMV Petrom with RON
The Oltchim Petrochemical Complex has total debts of RON 3.45 billion (EUR 800 million), of which RON 900 million are secured, debts to the budget of RON 1.28 billion and RON 1.25 billion unsecured debts, according to the table of debts released by the Oltchim judicial administrators, Rominsolv and BDO Restructuring in the Insolvency Bulletin. Among the creditors with secured claims, the largest ones are the banks - BCR being the first, with RON 230 million, a quarter of all secured debts, second is Banca Transilvania with RON 160 million, representing 18 percent of the total secured debts.
Oltchim complex has shifted in the fourth quarter of last year to operating profit and reached a load factor of 27 percent.
55 million or Salrom National Salt Company with RON 17 million. There are 268 unsecured creditors, companies and individuals who find it almost impossible to recover claims
amounting to RON 1.26 billion. At this point, Oltchim privatisation is to be considered completed, the plant will not be offered for sale for three years, during the implementation of the reorganisation plan. This plan is to be adopted by the Creditors Committee on March 10, 2015, whilst until then SPV Oltchim will be set up. SPV is an Oltchim 2, which will bring together the factory viable assets, including petrochemicals from Arpechim. Unsecured debts will burden the old Oltchim and, most likely, their recovery will be made only to a very limited extent. The plant has shifted in the last quarter of last year to operational profit amounting to EUR 336,000 in October and EUR 400,000 in November, and reached a load factor of 27 percent.
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Five oil & gas companies themes to look out for in 2015
W
ood Mackenzie’s cor po rate upstream re search team assesses the challen ges facing the Majors, Independents and National Oil Companies (NOCs) in 2015, identifying five themes to look out for which will shape the oil & gas corporate landscape:
1. The financial challenge of low prices Lower oil prices pose the biggest threat to oil and gas industry earnings and financial solidity since the financial crash of 2008. Brent is now 50% below the 2014 average of USD 99 a barrel (USD/bbl). More evidence of how this is affecting performance and strategy will appear in the Q4 results and further pared-back 2015 investment plans. The financial performance in Q1 will deteriorate, as the impact of a full quarter of low price realizations flows through to earnings. Crude hedging programmes will provide temporary protection for some for a quarter or two; as will lagged oil index LNG and European gas contracts which will start to adjust to December/January crude prices by Q3.
20% (USD 53 billion) since 2010 (excluding conglomerates). The cost of new capital for smaller companies will rise sharply in 2015. Asset writedowns will lead to higher leverage ratios and increased financial stretch for some companies. Refinancing could prove difficult in certain cases and covenants based on reserves, cash flow and market cap ratios could come into play.
3. Intense cost cutting The Oil & Gas industry will plunge into full-on capital discipline after dipping its toes in 2014. We estimate companies need to cut costs by USD 170 billion or 37% to maintain net debt at 2014 levels at a Brent oil price of USD 60 a barrel. Cuts will be spread across: investment in new projects; exploration budgets; operating costs; and shareholder distributions. In 2013/2014 companies were making strategic choices related to messaging around value versus volume as they tried to increase their appeal to investors; capital discipline in 2015 will be less about choice and more about survival for some players. The effects could last well beyond 2015.
2. Debt management is a critical priority
4. Potential for a buyers’ market in M&A in 2015
The fall in revenue for the oil and gas sector will be exacerbated by higher net debt across much of the sector. Total net debt for the 46 IOCs in Wood Mackenzie’s Corporate Service has risen by
Distressed sales – asset and corporate – could precipitate the emergence of a true buyers’ market in 2015. Selling assets into a market with few buyers will be a last resort. Financially strong players will put
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rationalisation programmes on hold but some companies will find themselves with little choice, unable to achieve the cuts in discretionary spend required to balance the books. Large-scale corporate consolidation is more likely than at any point since the late-1990s. History shows that value creation through M&A is largely driven by commodity prices: for buyers that believe in long-term oil above USD 80-90/bbl, 2015 will be a year to go long.
5. Is this a golden opportunity for longterm resource capture?
It will not be a vintage year for exploration, but a window of opportunity will open to capture high-impact acreage and discovered resource opportunities. Playopening discoveries will be few and far between as scarcer capital is reallocated towards appraisal and higher returning incremental prospects. Exploration budgets will fall sharply, although lower costs will be an offsetting factor. But a big unknown is how much and for how long costs will fall – many companies will hold fire on expensive frontier drilling in anticipation that lower drilling and appraisal costs could materially improve full cycle economics. The opening up of Mexico will also herald a new wave of resource access and an opportunity for financially strong Majors, Large Caps and NOCs to establish new growth platforms for the next up-cycle. www.petroleumreview.ro
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FACING CRUDE PRICES SPIRAL DOWN
Challenges, risks, and countermeasures In general, the impact of falling oil prices on oil and gas companies operating in Romania, but not only, resulted in delaying the projects or even in giving up some important hydrocarbons exploration and production projects, be them conventional or unconventional, in reducing investments, in losses, in downsizing and layoffs, etc. Facing the effects of this phenomenon, the companies in the field have evaluated the risks and have developed concrete action plans for the next period. By Lavinia Iancu
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n the international scale the fall in oil prices has hit the industry in the field. Examples are numerous, but there are also companies like ExxonMobil, for which the situation does not seem so dramatic. “ExxonMobil is in a strong financial position resulting from our proven business strategies and resilient competitive advantages including our integrated model, feedstock flexibility and balanced portfolio. ExxonMobil is uniquely positioned to invest in new energy supplies throughout the business cycle. Our capital spending plans are unaffected by the recent reduction in oil prices. We use a range of pricing to evaluate our investments,” the officials of the largest US energy company told us.
The main negative effects “The first effects have already occurred 90
– by giving up or by postponing some large projects for exploration and production of unconventional resources: oil and gas from shale, tar sands, and the ultradeepwater resources or the ones in Arctic basins. We are also witnessing the daily announcements of large companies of significant investment cuts in conventional production projects. As the size of this exhaustible source of energy is continuously decreasing - regardless of the drastic reduction of oil barrel quotation - we will witness a resumption of price increases in the near future,” estimates Bogdan Popescu, Non-Executive Director with Zeta Petroleum, specialist with an extensive international experience in the oil and gas industry and ANRM expert. Negative effects were felt also in the service providers for the companies in the field. “We have seen a slowdown in investment by delaying or postponing
the projects already planned or those in the early stages of development,” stated Valentin Ilie, Regional Sales Manager Balkans Area Pentair Thermal Management. Moreover, it seems that the challenges the oil and gas sector that have undergone in 2014 will continue this year. “It is clear that 2015 will be a challenging year for the industry. As a result of the weakening outlook, during the fourth quarter of 2014 we took a USD 129 million restructuring charge to temper the impact of anticipated activity declines. Halliburton has successfully weathered multiple industry cycles. We are confident that we have the right people, technology, and strategies in place to outperform throughout this cycle too, and emerge as a stronger company,” concluded Dave Lesar, Chairman and Chief Executive Officer. www.petroleumreview.ro
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In turn, the oil giant Schlumberger decided to lay off 9,000 employees, which is equivalent to expenditure cuts of USD 296 million. Thus, “in response to lower commodity pricing and anticipated lower exploration and production spending in 2015, Schlumberger decided to reduce its overall headcount to better align with anticipated activity levels for 2015,” says Paal Kibsgaard, CEO of Schlumberger. “The decrease in oil prices will certainly affect the profitability level of mature fields; at a low price it will be very difficult to justify a short or medium term investment for a deposit, which a few months ago had been already at the limit of profitability, when the oil price was around USD 100. This situation ought to be recognized by the government, which should take measures to reduce taxation on the production activity in these mature fields; otherwise the upstream investments, which have decreased lately anyway, will be further reduced with particularly negative effect on the domestic production of hydrocarbons. Taking out of production many mature fields placed on the edge of profitability will be in most cases irreversible,” warns Tudor Gafton, General Manager of Amromco Energy. “A low price per barrel has, of course, a negative effect on the implementation of policies aimed at ensuring energy
independence for many countries which, although they still have hydrocarbon resources, cannot «compete» with the major producers which have very low production costs,” he added.
The estimated level of losses Whether we are talking about diminished financial results and/ or image impact due to the blocking or the delay of certain projects/ investments or other unforeseen circumstances, some companies in the oil and gas sector have already begun to account losses due to chain effects of the collapse in oil prices. “The losses will be easy to evaluate for Zeta by the launching on the London Stock Exchange, launching we hope to take place in the first quarter of 2015. It is possible that distrust in industry may result in less money than planned, which would have been obtained through IPO,” Bogdan Popescu estimates. For Industrial MD Trading, the impact of falling oil prices could result in “loss in turnover of several million euros in 2015, and in terms of profit in several hundreds of thousands,” said Horia Enciu, General Director of the company. Ion Andronache, CEO of SYSCOM
-18, says there were no negative effects felt by the company during September - December 2014. “We assume that in 2015 and 2016 Romanian oil and gas companies’ budgets will be significantly reduced, but this will happen also globally. Of course, this will have a negative impact on our turnover,” he opined. Also, Pentair Thermal Management provides, for the following period, reductions of approximately 25-30 percent in the expected turnover. Although Le Gaz Integral has no losses presently, the company expects delays on prospects in the 2nd half of 2015 and later, Filippo Rossati, Director General, mentioned.
Protective measures in the event of persistent low prices
As concerning the safeguard decisions, the range is quite wide. While some companies have adopted plans to restrict expenditures, have operated staff cuts, have frozen the wages, have reduced investments, others focus on finding new products for the same customers, on broadening the customer base in sectors not directly related to the oil and gas industry, on increas ing competitiveness, on additional 91
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measures to streamline the production etc. However, we are only at the beginning of 2015.
Forecasts related to oil market developments There are voices saying that the oil price will start to climb by the second half of the year, others estimate worrying decreases. “If no force majeure events take place, we see no reasonable grounds for major fluctuations in oil prices, capable to affect to a greater extent than now the investment market in this sector,” opines Valentin Ilie. “In the current context when the major economies in the North Atlantic and European areas face recession at the macro level, a low price of oil should, in principle, contribute to re-launching
and to sustaining a start of significant economic growth. On the other hand, maintaining a low price of oil on medium and long term will discourage investments in exploration and production sectors, especially in the offshore area, resulting in a lower replacement rate of hydrocarbon reserves. At the same time, the low price of oil barrel will discourage investments in alternative/unconventional energy. This combination will lead, at some point, to a sudden increase in hydrocarbons prices. The cyclical evolution of the hydrocarbons price is an economic phenomenon that should not surprise anyone, but large fluctuations can lead to sharp imbalances that adversely affect global growth,” says Tudor Gafton. “The oil price could reach USD 25 per barrel, half of the current value and less than a quarter of the quotation during the summer of 2014,” estimated
on January 16 Vaghit Alekperov, the CEO of Lukoil, Russia’s largest private oil company. His prediction is alike to a chorus of similar warnings, as at the same time the International Energy Agency (IEA) was saying that oil prices will continue to fall, while the representatives of American investment bank Merrill Lynch estimated that Brent oil prices will reach USD 31 per barrel before April. According to Alekperov, Brent crude will recover, however, its value being expected to reach to USD 70 - 80 per barrel by the end of the year. No one knows how low the market’s threshold is, but for certainly the fall in oil prices has major and intensely debated consequences. The recovery might not be imminent, but there are signs that “the tide will turn,” the IEA report says.
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Qualified workforce shortage in the oil and gas industry The shale gas industry, despite a few hiccups here and there, is moving forward in Europe. Of course, the situation is nowhere near what’s been achieved by the USA, but they do have years of experience, exploratory drills and long research to back their current shale gas production. However, we shouldn’t think that just because it’s not happening now, it’s not going to happen at all. It will obviously take time, planning, relevant regulations and considerations regarding execution (for example Europe is much more densely populated and this needs to be addressed when searching for shale) but the right conditions are there – the industry is growing. And not only is it growing but already suffering from shortages of qualified people. by Zuzanna Marchant
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ccording to last year’s research by Manpower Group, the fourth hardest vacancy to fill in Europe was a technician (in Poland, technicians ranked eighth but engineers, second). According to Commodity Appointments, who specialise in commodity sector talent acquisition, the lack of trained workforce means that it can take months to fill a vacancy.
Who will replace the retiring baby-boomers? One of the big problems for the industry might be the fact that the baby-boomers are now preparing to retire and yet they outnumber the people who might be able to replace them. This could be most 94
problematic in countries with very large oil and gas industries, so it would seem that it’s the best time to train or re-train and look for work in this field. According to Commodity Appointments: “It has long been recognised there is an entire generation of professionals missing from the oil & gas industry. Bluntly there is a lack of 40 - 50 year olds to replace the retiring baby boomers. Oil & Gas is also one of the few industries where people in their 50’s are highly sought after. You don’t entrust a 35 year old with a project costing billions of dollars. Engineering is not an especially popular degree as it is technically difficult. Moreover the cultural shift in the West to the growing environmentalist stance means the oil & gas industry does not always appeal to the younger demographic although we would argue this is changing.”
What’s a young engineer to do? Keeping all of the above in mind, what’s the best course of action for someone with an engineering degree but not much experience? Commodity Appointments’ advice is to “Go where the action is. i.e. Middle East, onshore USA, Australia (until recently), Brazil”. And once you have your foot in the door, it’s worth remembering that “Most employers take a degree of comfort hiring someone who has begun their career in a supermajor such as Shell, Exxon, BP, Conoco, etc.” The importance of continuous training and learning should be stressed here. The industry changes and grows, while innovations are sought constantly to improve company performance - business www.petroleumreview.ro
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representatives attend seminars and conferences (like the CENTRAL AND EASTERN EUROPE SHALE GAS SUMMIT) to build new relationships and learn about recent developments in the industry. Learning new ways of doing things might not be such a big deal but it would seem that “Exxon and Shell are usually held up as the standard bearers for the industry in terms of ongoing professional development. Statoil as well.” The right degree is just the beginning for someone willing to keep learning. But the training is the first, most important step in this growing industry.
The right degree So what should the European
school-leavers decide to study, if they wish to be a part of this growing market? What should students concentrate on? And what skills should engineers and other graduates hone and polish to land good positions? Especially since the UK is planning a new National College for oil and gas, banking on the development of the industry in the country and abroad. According to Redcar & Cleveland College, they are working with Tees Valley Unlimited to create a new £7.4m oil and gas academy on its campus. So when it comes to the most valuable degrees, Commodity Appointments commented: “In our experience: chemical and mechanical engineering at undergraduate level. At a higher level: petroleum engineering
specific MSc or PhD. At a certain level it is difficult to go any higher without gaining Chartered Engineer status (Professional Engineer in the USA).”
Looking ahead We can see that the growing shale gas business - in the Americas and Europe – might soon be really suffering from a serious qualified workforce shortage. What’s more, according to ManpowerGroup and Commodity Appointments it’s already quite hard to fill vacancies in the energy sector, so maybe the Redcar & Cleveland College have the right idea in planning a new academy? However, how quickly can we train – and train well – the much needed workforce?
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Exxon Mobil’s Outlook for Energy
A View to the year 2040 Significant growth in the global middle class, expansion of emerging economies and an additional 2 billion people in the world will contribute to a 35 percent increase in energy demand by 2040, according to a new report released recently by ExxonMobil.
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s demand increases, the world will continue to become more efficient in its energy use, according to the 2015 Outlook for Energy: A View to 2040. Without efficiency gains across economies worldwide, energy demand from 2010 to 2040 would be headed toward a 140 percent increase instead of the 35 percent forecast in the report. ExxonMobil’s Outlook for Energy projects that carbon-based fuels will continue to meet about three quarters of global energy needs through 2040, which is consistent with all credible projections, including those made by the International Energy Agency. The outlook shows a shift toward lower-carbon fuels in the coming decades that, in combination with efficiency gains, will lead to a gradual decline in energy-related carbon dioxide emissions. Wind, solar and biofuels are expected to be the fastest-growing energy sources, increasing about 6 percent a year on average through 2040, when they will be approaching 4 percent of global energy demand. 96
Renewables in total will account for about 15 percent of energy demand in 2040. Nuclear energy, one of the fastest-growing energy sources, is expected to nearly double from 2010 to 2040, with growth in the Asia Pacific region, led by China, accounting for about 75 percent of the increase. “This research offers important perspective about the factors that will drive the world’s energy needs in the coming decades,” said Rex W. Tillerson, chairman and chief executive officer of ExxonMobil Corporation. “Helping individuals, businesses and governments to better understand the elements that shape future energy supply and demand around the world is essential to aid investments and create effective energy policy.” The Outlook for Energy provides ExxonMobil’s long-term view of global energy demand and supply. Its findings help guide the company’s investments, which support its business strategy. The outlook is developed by examining energy supply and demand trends in 100 countries, 15 demand sectors covering
all manner of personal and business needs and 20 different energy types. The global middle class is expected to climb from about 2 billion in 2010 to almost 5 billion people by 2030, representing more than half of the world’s population, according to the Brookings Institution. As projected, that middle class expansion - largely in India and China - will be the largest in history and will have a profound impact on energy demand. Along with income gains, on-going societal changes such as expanded infrastructure, electrification and urbanization will contribute to greater energy use. The Outlook for Energy identifies a significant evolution in the trade of oil and other liquids. A major shift is seen as North America will likely become a net exporter of liquids by 2020 as supplies of so-called tight oil, natural gas liquids and bitumen from oil sands increase. This is expected to open new trading opportunities as Asia Pacific’s net imports are projected to rise by nearly 80 percent by 2040. Africa’s liquids exports are expected to decline as local demand more than www.petroleumreview.ro
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doubles. In Latin America, growth in supplies is anticipated to outpace demand as supplies of deepwater and unconventional liquids expand. North America unconventional gas production will nearly triple by 2040 and the region is expected to surpass the combined output of Russia and the Caspian region as the largest gasproducing area. In Asia Pacific, gas production is seen doubling by 2040, driven partly by unconventional production technologies. Demand in the region is expected to climb by about 170 percent, according to the outlook, and as a result, Asia Pacific will likely overtake Europe as the world’s largest gas importer. Natural gas is expected to be the fastest-growing major fuel source during the outlook period as demand increases by about 65 percent. Half of that increase will come from the Asia Pacific region, led by China. Utilities and industrial operations are expected to account for about 80 percent of the demand increase worldwide, as operators increasingly choose natural gas because of its lower emissions and versatility as a fuel and feedstock. By 2040, natural gas is expected to account for more than a quarter of global energy use, surpassing coal in the overall mix. Demand for coal is expected to rise through 2025 and then decline as China’s economic growth gradually slows and it follows the shift seen in Organisation for Economic Co-operation and Development (OECD) countries toward cleaner fuels. Still, over time, global coal demand is expected to remain most prominent in Asia Pacific, primarily to support growing power-generation requirements. Other key findings of the outlook include: • Non-OECD countries will represent 70 percent of global energy demand by 2040, but
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energy demand per person in these nations will remain well below OECD levels. Energy required to meet rising electricity demand will account for about half of total demand growth. Technologies that unlock new unconventional oil and gas supplies will help enable oil and natural gas to meet about 65 percent of global energy demand growth. Progress on curbing carbon dioxide emissions through 2040 will be led by OECD nations as energy demand declines and a shift to lower-carbon fuels occurs. Energy-related carbon dioxide emissions in those countries are projected to be about 10 percent below 1980 levels, even though they will have about 40 percent more people and significantly larger economies. Across OECD nations, the outlook assumes the implied cost of policies to reduce greenhouse gas emissions will reach about USD 80 per tonne in 2040. Oil is expected to remain the No. 1 energy source and demand will increase by nearly 30 percent, driven by expanding needs for transportation and chemicals. By 2040, abundant sources other than conventional crude and condensate will account for about 45 percent of global liquids production, compared with less than 25 percent in 2010. Remarkably, estimates of remaining recoverable crude and condensate relative to current demand have risen from about 60 years in 1981 to about 150 years as of 2013. Rising natural gas demand will be met with abundant new supplies and significant expansion in trade as unconventional gas production nearly quadruples and LNG trade triples by 2040.
Head Office Leobersdorf | Austria Office Riyadh | Kingdom of SA Office Vienna | Austria Office Ploies‚ ti | Romania TECON Engineering SRL RO-100149 Ploiesti ‚ Tel.: + 40 (344) 401-333 romania@tecon.eu
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EY Financial reporting briefs
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he December 2014 EY Financial reporting briefs — oil and gas highlights the latest developments in financial reporting for the oil and gas industry and alerts you to some important considerations for 2014. Representatives of the Securities and Exchange Commission (SEC or Commission), the Financial Accounting Standards Board (FASB or Board) and the International Accounting Standards Board (IASB) (collectively, the Boards) and the Public Company Accounting Oversight Board (PCAOB) shared their views on various accounting, financial reporting and auditing issues at the annual AICPA National Conference on Current SEC and PCAOB Developments in Washington, DC.
Highlights included: Declining oil prices - The SEC staff reminded oil and gas registrants to consider whether the recent changes in oil prices would affect management’s discussion and analysis of known trends or uncertainties due to potential changes in planned exploration and production, risk factor disclosures or reserves estimates as of fiscal year end. The staff also pointed registrants to the SEC’s definition and related interpretations of proved undeveloped reserves (PUDs) that state that proved reserves can be recorded for undeveloped sites only if a formal development plan has been adopted and a final investment decision has been made that will cause the reserves to be developed within five years of when the PUDs are initially recognized, with only limited exceptions. 98
Another possible IFRS alterna tive for US registrants - James Schnurr, the new SEC Chief Accountant, said he is exploring the possibility of allowing US registrants to voluntarily disclose IFRS financial information as a supplement to their US GAAP financial statements and asked for feedback. He said he hopes to make a recommendation to the Commission in the near future about whether and how to further incorporate IFRS into the US financial reporting system. New revenue recognition stan dard - Representatives of the SEC, the FASB and the IASB discussed efforts to implement the new revenue recognition standard that the FASB and the IASB issued earlier this year. Many have raised specific application questions that they would like addressed before making the necessary process and system changes. The Boards are reaching out to companies to better understand implementation challenges and the FASB is considering whether to propose delaying the effective date of its standard. Disclosure effectiveness and simplification - Representatives of the SEC provided an update on the Commission’s disclosure effectiveness initiative, highlighting key focus areas related to Regulations S-X and S-K. FASB officials discussed the Board’s simplification and disclosure initiatives and discussed how the Board analyzes costs and benefits of new standards. In several panels, preparers, auditors, lawyers and standard setters discussed ways to make disclosures more effective under existing rules. PCAOB matters - PCAOB representatives discussed recent
standard-setting efforts related to both audit performance and auditor reporting standards. SEC representatives questioned the slow pace of the PCAOB’s standardsetting process and urged the PCAOB to focus on audit performance standards. PCAOB representatives said they are looking for ways to make their standard-setting process more efficient. They also provided updates on audit firm inspections, enforcement matters and initiatives to measure audit quality. A PCAOB representative also indicated that audit firm inspections will include a focus on how auditors evaluated affected entities’ assessment of the risks of declining oil prices. Internal control over financial reporting - SEC representatives discussed internal control over financial reporting and emphasized the need for management to appropriately evaluate control deficiencies. SEC representatives continued to question whether companies are identifying all material weaknesses and whether they are identifying and evaluating control deficiencies appropriately. They said companies should carefully consider the potential magnitude of undetected errors that could have occurred. www.ey.com www.eyromania.ro
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