OMV Petrom recorded a net profit of 408 million lei, after the first six months of the year, while procedeed to a drastic reduction of investments. “Value over volume” is the dictum at this time for the company management, and they expect the difficult market environment to persist in the second half of 2016.
The average price of crude oil continued to decline in T1 2016 to less than $30 a barrel, than increaded slightly during April-June to near 40 dollars per barrel. On average, the Urals reference fell by 33% in the first half of 2016, compared to the first half of 2015. Demand has remained modest and the refining margin fell, as it was anticipated.
The fiscal pressures have remained significant, mainly due to special charges (which totalled about 300 million lei), out of which the windfall profits tax represented more than half.
The reduction of the VAT rate and the solid economic growth encouraged OMV Petrom fuel sales (a plus of 5.6% estimated by OMV Petrom forthe whole market), which increased at a rate above the market average (6.1%). The Downstream sector recorded a slight increase in the EBIT CCA, while the Upstream sector brutally contracted (-76%).
In the same period, the number of employees dropped from 16.450 to 15.237, a decline that is mainly explained by the reduction in the exploration and production operations. The level of salaries for the employees of OMV Petrom has not been affected by these measures and will remain at present levels until the expiration of the collective labor contract, at least, sometime in 2017. In the first six months of 2016, OMV Petrom has invested about one billion lei, 45% less compared to the previous year, “as a result of the prioritization of the projects”. Compared to a schduled 30 re-development projects (FRDs), at the present there are only 10 in execution. The company decided to invest only in the so-called “high profitable barrels”, whici is the most efficient wells in the current financial context. After shuting down about 350 wells in 2015, OMV Petrom expects to shut down an additional 250 in 2016, out of a total of about 7.000 in operation. The cost of production fell by 11% compared to the first half of 2015 to about $12 per barrel.
“Value over volume” can be understoond as a label for OMV Petrom accepting production to decline (3-4% at annual level), smaller profits, reduced investments, cuts in the number of operated wells and in the number of employees; all in order to ensure the stability of the organization. A relevant factor in this regard is that in the first half of 2016 OMV Petrom managed to finance its investments from its own resources, which has contributed in reaching a slightly positive cash flow. “Effective management of costs and cash helped us maintain our solid financial position and a degree of indebtedness with an order of magnitude of a single figure,” said the company in a public statement.