10 years ago, Petrom was the largest oil and gas company in Romania. It quickly became the leader of South-East Europe companies, position held unchallenged until 2015. In 10 years, Romania’s economy has grown, even if few million hard working people left the country. It went through two cycles of boom and bust, had eight prime ministers and nine governments, so that today, willy-nilly, to score the sixth successive year of growth. June 15 marks the 10 years anniversary since Mariana Gheorghe became the Chief Executive Officer of Petrom. In this decade, the company, and the world around it, changed several times. At the request of energynomics.ro, Mariana Gheorghe agreed to jointly look into a mirror of the past decade, to try to discover some of the signs of the future.

2006 Gheorge Constantinescu, CEO of Petrom before 15 June 2006, described you at the time as “a demanding person”, who knows how to talk to people. Two very useful features, in the post-privatization period, when Petrom went through massive restructuring, but also went from a loss of 974 million lei (2004), to a profit of 2.28 billion lei. Over the same period, turnover increased by 50%, and investment by 128%.

What do you think was decisive in your appointment in the position as CEO of Petrom?

In 2005, shortly after privatization, I was appointed Member of the Board of Directors of Petrom, at EBRD (European Bank for Reconstruction and Development) proposal, one of Petrom shareholders at that time. I had no executive powers, I was not involved in daily operations, but I had a good perspective on relevant decisions for the company. I think there was a combination of factors that led to my appointment as CEO of Petrom in 2006: I already knew the company, having monthly meetings both as a Board member and as a lender through EBRD and the Ministry of Finance, on one hand, but I also had the experience of the West, on the other hand. At EBRD I worked with a large variety of clients, state, private or joint com-panies, with local or foreign investors, from various industries, active in the South-East Europe. Thus, I had the unique opportunity to understand the phenomenon of transition to commercial companies, from operating in a state economy to operating a functioning market economy.

In addition, I was seeing the transition in Romania and the EU accession as a great opportunity for Romania and I had the confidence and ambition that during this period, the second half of the 2000s, one can write success stories. I wanted Petrom to be one of them.

2007 In February 2007, you expected a faster pace of economic growth, but warned “do not believe that all will be milk and honey”. It was the first full year at the helm of Petrom and you had a clear objective: in 2010, Petrom had to be “the largest integrated oil and gas producer in South-East Europe”. This has already happened in 2008, when the company was placed first in SEE Top 100, published by SeeNews, with a turnover of 5.47 billion euro.

What was the positive surprise in 2007? Was it just the external context, with crude oil prices rising and the exuberance of domestic consumption or were there any surprising developments within the company?

2007 was a historic year for Romania, the year we joined the European Union. For us, as a business, joining EU scored the certainty that Romania has embarked on a one way road with the free market principles as a finish line, but also with a set of European rules more detailed and more stringent in all fields. At the company level, it was the year we announced the first discoveries of oil and gas since privatization – Torcești gas deposit and Delta probe in the Black Sea – and the year the Supervisory Board approved building Brazi power plant. All these are large investments that provide hard evidence for the company’s commitment to the Romanian market. We reported good results, supported by favorable developments in oil prices, economic growth, but also by efficiency measures implemented internally.

2008 The year 2008 was a challenging one, marked by the emergence of the global financial crisis and the collapse of oil quotations. The company was affected by the crisis, and reported declining profits and reduced turnover. However, investments were maintained at a high level, over 6.75 billion lei and the partnership with ExxonMobil laid the groundwork for the exploration project in the Black Sea deep waters.

What experience remained with you after 2008? Perhaps an exercise of adaptation that has become current again during 2014-2015?

I remember that in 2008, as an ex-banker, I have followed with interest the events that announced the beginning of the global financial crisis, which started as a crisis of financial institutions. Soon, this engaged the rest of the economy, including the energy sector. The price of crude oil fell with more than 70% in a very short time span, from the second half of 2008 to the first quarter of 2009. In general, corporations are criticized for their slow response. We had to learn to move very quickly to be able to adapt to the new circumstances. At the moment, we were in the process of transforming the company, so a number of measures to increase efficiency and reduce cost, required in such moments, were already under implementation. In addition, we had a series of large-scale investment projects underway, for which we had to provide some funding: Brazi power plant, the start of exploration in deep waters of the Black Sea, Petrom City building and redevelopment of existing projects. The crisis of 2008-2010 was a good opportunity for operators to go back to economic and financial fundamentals, which is a management based on sound and rigorous. There are things that we have acquired then, in terms of competitiveness of the company, and that help us get through the crisis that began in 2014 and which obliges us to operate with oil prices below 50 dollars per barrel, compared to 120 just two years ago.

2009 Was the most difficult year of the global economic crisis that had reached Romania. Petrom reported a 20% decrease in turnover and a reduction of 7% in net profit compared to 2008. The company announced the closure of Arpechim refinery, and the number of employees was reduced by 19% . Still, major investment projects have continued. “It is important to bear in mind that the crisis will pass, it is temporary”, you said in April 2009.

Recent developments seem to faithfully reproduce the history of 5-6 years ago. How is Petrom in 2016 in comparison with the company in 2009? Is more crisis resilient today than it was then?

2009 was a year in which the company continued to feel the effects of the global economic crisis, but on the other hand, the effects of the measures to streamline the activity began to be visible. For example, just in terms of cost reduction, we are talking about hundreds of measures implemented, so a huge amount of work was necessary. In 2009, the entire economy was suffering the effects of the crisis and this was seen in the decline in fuel volumes sold to the market in Romania and the region. From this per-spective, the current situation is different.

Unlike 2008, when the oil price was down for a relatively short period of time, now we face a lower oil price which is not expected to recover soon. Another important difference is that this oil crisis that began in mid-2014 is taking place in a period of growth, and cheaper fuel has caused a further increase in demand in this market, with higher volumes sold and very good refining margins. So, unlike 2008-2009, the favorable market context for Downstream and the very good domestic performance of OMV Petrom helped to compensate for adverse developments in Upstream. Another fundamental difference compared to the period 2008-2009 is related to the situation of electricity and gas markets. If we look at the natural gas market, there is increased pressure due to falls in demand and prices, accentuated by the lack of interconnectivity with the European market. On the electricity market, there was a boom of generation capacity from renewable sources. In these circumstances, we have a low rate of use for Brazi power plant, the most modern production unit in Romania. Advantages that OMV Petrom have in this unfavorable context are related to the sound financial basis, to experience and to the fact that we have passed through a long process of transformation and restructuring, which strengthened us as an organization, and to the fact that we abide by the principles of market economy. I am very proud that, together with our partner ExxonMobil, we completed the second exploration drilling campaign in the Neptun Block. The results are sufficiently encouraging to continue to evaluate the commercial viability of developing the discovered resources.

2010 Amid a slight recovery in crude oil prices and in activity, OMV Petrom announced a new strategy for the period 2010-2015, focused on investments in Upstream, Petrobrazi refinery modernization and efficient use of the power plant in Brazi. Sales have recovered, the group reporting a 20% increased turnover, and the net profit returned to pre-crisis levels.

Today, the gas-fired power plant at Brazi remains a viable investment, as for Dorobanțu wind farm buyers are sought. Did OMV Petrom give up developing the green energy area?

OMV Petrom’s strategy for the period 2010-2015 meant maximizing the value of our Upstream portfolio and the optimization of Downstream. De-veloping our staff capabilities and our organizational culture, but also our sustainability initiatives are key elements for achieving our goals. The strategy was based on a sustained investment volume of about 1 billion euros annually, mainly oriented to Upstream, and these investments have performed. Three years later, we managed to stop the decline in production. Also, a novelty for that time was the entrance of OMV Petrom in the electricity production for extending the gas value chain in Romania. At the time, Romania’s production of electricity came almost exclusively from facilities built before the revolution, mostly coal plants, polluting and inefficient, and from hydropower installations. We entered the industry of electricity production based on the idea of having access to a new market for gas production, by converting it into electricity. Our main investment is Brazi power plant. This is the newest and most modern production capacity in Romania, with very good yield and limited environmental impact and, at the same time, the most important private investment in electricity generation.

Another approach, less far-reaching, was the acquisition of Dorobanţu wind farm, which at the time assured our presence this in an area with growth potential. After that, a boom in renewable energy in Romania followed (over 5,000 MWh installed capacity in 2015 vs 500 MWh in 2010). This boom, fueled by support schemes and securing supplies put us in a position to not be able to use the Brazi power plant to its full potential. If I had to summarize my vision at this time on green energy, it is that they have potential and can offer technological benefits, related to the security of energy supply and reduced environmental impact, but state interventions can produce distortions. The market should be allowed to develop on its own.

We are an oil company, so we will continue to focus on our core activities in a sustainable way. For us, sustainability means the company’s ability to generate value for all interested parties/stakeholders, now and in the future, operating responsibly, safely and effectively.

2011 The drilling of the first well in the Neptun Deep Block has started and the definitive closure of Arpechim refinery was decided. The company reported a 20% increase in turnover, and profits from current activity exceeded one billion euros. “We started punctual projects to increase energy efficiency, not only in refining and modernization, but also in exploration and production”, you were saying in August 2011.

Today, five years later, energy efficiency is one of the major themes of the industry. What are the targets for energy efficiency for OMV Petrom?

Because we operate in the energy field, we know how valuable these resources are and the fact that they are limited. We have numerous projects to in-crease energy efficiency, in all business lines. In Upstream, the indicator we follow and that measures energy consumption and losses recorded a reduction of 19,000 barrels/day in 2010 to 12,000 barrels/day in 2015. The projects for generating electricity from gas, G2P (Gas-to-Power) and CHP (Combined Heating and Power), now provides nearly half the electric-ity consumption of Upstream operations. In Refining, there is a similar indicator for consumption and losses. For example, Petrobrazi modernization program included investments of around 20 million euros in projects that have improved energy efficiency by 25% in 2014 compared to 2009. There are also smaller projects, but perhaps better known, as the re-placement of conventional lighting system in all OMV and Petrom stations with an LED system, with a much lower consumption, or the intelligent energy management systems implemented at Petrom headquarter – Petrom City. Extraction, transportation, refining and delivery of our products to consumers are energy intensive operations. Therefore, we implemented in 2014 a unified energy management system, certified according to ISO 50001, but our concerns for careful consumption monitoring dates back to 2010-2011, when we started implementing this standard.

2012 In 2012 OMV Petrom still leads the ranking of South-East Europe companies, and you are included in Fortune’s index for 50 most powerful women in the world. You said then that you still have 2-3 years to complete all the processes of transformation of the former state company.

Is this process realized today at Petrom?

My first memories related to Petrom are connected to the building in Calea Victoriei, the room where the Board meetings held in 2005. The Petrom at that time was a typical example of state company, characterized by lack of cash flow, lack of investment and difficult prospects for the future. Now we are in Petrom City campus, a symbol of our modernization and transformation.

It is difficult to summarize in a few words what it meant transforming Petrom, but I can say with conviction that nothing could have been achieved without the involvement of the people. There are several ways in which changes are visible. Working conditions have changed radically and so the attitude towards employees, who are the ones who create value in the company. Then, from a “petrified” state company, we have now the most important private investor in Romania. That means we encouraged initiative and acted on development opportunities.

Another area of transformation is related to the technology. In 2000, Petrom used to rely on largely on technology from the 1950s. In the last ten years we can take pride in not about one but about several world premieres for the use of new technologies, both in Upstream and in Downstream. Perhaps the biggest transformation is the organizational change and the employees focus on agility, performance and modernization. I cannot say that the transformation of Petrom is finished. The market is changing and we must adapt too. But I like to think that these ten years have been a step in the evolution of Petrom, a stage where we stripped the clothes of a state company and established a solid, healthy, company, functioning on the principles of market economy and has the business agility needed to cope with the market challenges.

2013 Another year in Fortune index, another year with solid results, both operationally and financially. Moreover, 2013 was probably the first year in which the voice of the leader of the local business community was heard strongly, with clear positions on sensitive issues: shale gas, energy strategy, public policy stability and the role of central and local government to support investors.

However, year by year these issues have become more press-ing for companies like OMV Petrom, which have strategic investment projects. Is the current status quo advantageous for you or the oil and gas industry’s prospects are threatened by the lack of clarity about the future?

I think my first official statements about the business community expectations from authorities date back over 10 years and have not changed since then. We need infrastructure for the economic development of Romania, be it highways, roads or the interconnection of electricity and gas networks with neighboring countries. We need efficient market mechanisms and implementation European democracy principles. We need long-term national strategies and strong public institutions capable of creating a framework for economic and social development of the private sector and implement successfully the adopted strategies, respecting the principles of stability and predictability. Also, the instability in the fiscal area can also be a problem, especially given that in oil and gas we speak of a very high level of investment, billions of euros, and a long investment cycle. In the last 2-3 years, were introduced several specific new taxes, and their cumulative impact is equivalent to doubling the royalties. I said it in the past and will continue to transmit the message that stability and predictability in taxation and regulations are essential to the attractiveness of the business environment in Romania.

2014 After the record profit posted a year before, OMV Petrom faced in 2014 a complicated context which led to lower financial indicators. However, the contribution to the state budget and the production has increased. There have been new discoveries of oil and gas and the modernization of Petrobrazi was completed successfully. As anticipated by you,It was necessary to have a “better control over costs and over investment of the company”.

What risks entail this situation for OMV Petrom, one of the few players capable to withstand this toxic climate?

Globally, the oil crisis has resulted, so far, in hundreds of billions of dollars of investment budgets cut, hundreds of thousands of lost jobs and declining budget revenues to producing states. The first ones hit by the effects of crisis were the service providers for the oil industry, those involved in exploration or development of new deposits which were either canceled or have reduced much in scale. On the other hand, integrated companies, with activities both in Upstream and in Downstream, were less impacted.

Fortunately, OMV Petrom is an integrated group. The impact of falling oil prices was partially offset by improved refining margins and increased sales. The existence of an integrated business model is a safety umbrella, especially in troubled times. Besides the protection offered by the business integration, what you can do in such situations is to streamline as much as possible your activity and reduce investment. But, reducing in-vestment is only a short term solution. In Romania, most of our fields are mature, producing for decades. In the absence of sustained investment, we could see an average decrease in production of 10% each year. So there will be consequences because in 2015 and 2016 investment is smaller and this will be reflected in the decrease in production in the coming years.

2015 The collapse of global oil prices took a heavy toll on OMV Petrom in 2015. Ural crude, of reference for Romania, fell by almost 50% in 12 months and the company reported investment 38% lower in 2015 than the previous year, and cost reduction measures were implemented.

Do you still hold, today, the conviction expressed in 2009 that “this crisis will pass, it is merely temporary”? Do you consider, for decades to come, a drastic repositioning of the group to other businesses or do you remain interested in oil and gas concessions?

Absolutely, this also is a temporary crisis. However, the current crisis is different from that of 2008, when prices began to recover after six months. If we look at predictions that are made regarding the oil price, I would say that we are dealing with a reconfiguration of the market context, not with just a crisis moment. The current context is based on an imbalance between supply and demand of crude oil, in the sense that there is an excess production. This is not due to other technologies replacing hydrocarbons as a primary energy sources. Moreover, international studies, including recent ones, show that hydrocarbons will continue to be the main energy source in the next 15-20 years. So the core business of OMV Petrom will continue to be hydrocarbons exploitation and exploiting the entire value chain – from exploration and production, to processing and distribution. That does not mean that we isolated ourselves in a crystal ball. We follow trends and transformations in technologies related to the energy sector and we will adopt new technologies if they are in demand and bring benefits.

My belief is that Romania still has potential in oil and gas and Upstream industry has an important impact from the economical and strategical point of view, in the current geopolitical context. OMV Petrom massive investments made in the past 11 years, we are talking here of over 12 billion euros, continue to show results and gave us the strength to go safely through the first two years of crisis. And last but not least, it is an advantage for Romania and OMV Petrom that we have access to skilled workforce in the oil and gas industry.

I hope that the people perceive OMV Petrom as a pioneer in the transition from a state company to a successfully private company, that we are also a model for the continuous development of people and that we demonstrated how one can act as a model of sustainable development. OMV Petrom has come a long way and I hope that in the next 10 years, OMV Petrom will be a billion dollars business, a strong presence in the regional market and a preferred partner for some of the largest oil and gas companies in the world.

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The full version of this article can be read in printed edition of energynomics.ro Magazine, issued in May 2016.

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