2015-2025 Development Strategy (general principles) · 2015-2025 Development Strategy (general...

2015-2025 Development Strategy (general principles)

NNootteeThe document entitled “2015-2025 Development Strategy” presents for each of SNGN Romgaz S.A. (Romgaz) main activities the development directions aiming at fulfilling the performance indicators and criteria. The document contains information/estimation/forecasts which may be influenced by subsequent development of the business environment and of changes in the applicable legislation. Due to the aforementioned and as of the date thereof, this document represents an estimation of the company’s performance based on conditions and input data taken into account upon estimating the indicators, and on centralized data gathered from specialized compartments within the company. “2015-2025 Development Strategy” is an anticipative statement and therefore it cannot be regarded as commitment, nor can it be the basis of a contractual relationship. Therefore, Romgaz is not liable for any damages which may arise from using any information contained herein.


“SNGN ROMGAZ SA is a company which accepts performance and is determined to generate performance by undertaking the optimum efforts for fulfilling its objectives”.

Board of Directors

“The mission of SNGN Romgaz SA is to produce and supply natural gas and to supply UGS-related services under quality, safety, continuity and flexibility conditions, and to efficiently use material, human, financial and information resources for achieving profit over the long-term”.

Director General

DDrraaffttiinngg RReeqquuiirreemmeennttss RRoommggaazz AArrttiicclleess ooff IInnccoorrppoorraattiioonn

According to the provisions of article 12 paragraph (3): “The General Meeting of Shareholders (GMS) has the power to decide upon any issues in connection with the company’s activity, except for those provided by law in the power of the extraordinary general meeting of shareholders”;

GGeenneerraall MMeeeettiinngg ooff SShhaarreehhoollddeerrssThe Extraordinary General Meeting of Shareholders (EGMS) no.8 of October 21, 2014 “The Board of Directors approves the drafting by the end of 2014 of the 2015-2025 Development Strategy aligned with the company’s governance plan prepared by the Board of Directors”;

BBooaarrdd ooff DDiirreeccttoorrssResolution no.22 of October 30, 2014 – article 22, paragraph c) provides that “For the purpose of drafting by the end of 2014 of the 2015-2025 Development Strategy aligned with the company’s governance plan prepared by the Board of Directors Messrs. Lucian Stancu – Director of Corporate Management, Quality and Environment Direction and Radu Costică Moldovan, counsellor of the Director General shall prepare and present to the members of the Board proposals for a set of general principles to be included in the strategy, with elements to be made available to shareholders.”.

RROOMMGGAAZZ


AA ccoommppaannyy ooff nnaattiioonnaall iinntteerreesstt,, lliisstteedd aatt BBVVBB aanndd LLSSEERomgaz is a company of national interest having as main scope of activity (1) natural gas exploration and production (2) natural gas supply (3) UGS activity and (4) power generation and supply. Shareholders’ structure on September 30, 2014 is indicated in the table below and as graph:

NNoo.. ooffsshhaarreess %%

Romanian State1 269,823,080 70.01Fondul Proprietatea 38,542,960 10.00Legal persons 69,209,265 17.95Natural persons 7,847,095 2.04TToottaall 338855,,442222,,440000 110000..0000

As of November 12, 2013, the company’s shares are listed on the regulated market managed by Bucharest Stock Exchange and on the regulated market managed by London Stock Exchange.

TThhee llaarrggeesstt hhoollddeerr ooff rreesseerrvveess,, ggaass pprroodduucceerr aanndd ssuupppplliieerr iinn RRoommaanniiaaThe company’s history began more than 100 years ago, in 1909 when the first natural gas reservoir was discovered in the Transylvanian Basin. Due to this extensive tradition, Romgaz has a vast experience in the field of gas exploration and production. According to the report prepared by DeGolyer&MacNaughton, Romgaz holds on June 30, 2013 significant onshore reserves:

o 63 BCM (1P); o 74 BCM (2P).

After making several investments, Romgaz succeeded to arrest the natural production decline, being able to constantly produce more than 5.6 BCM from its more than 140 gas fields: 2011 – 5.64 BCM, 2012 – 5.66 BCM and 2013 – 5.65 BCM. Romgaz is the largest gas producer in Romania, which had in 2013 a 50.63% and in H1 2014 a 50.22% market share.

1 Ministry of Economy through the Department of Energy

Romanian State

70.01%

Fondul Proprietatea

10.00%Legal Persons 17.95%

Natural persons,

2,.4%


MMaarrkkeett SShhaarree ooff NNaattuurraall GGaass PPrroodduucceerrss

Source: NARE, Annual Report on Monitoring the Domestic Natural Gas – 2013 NARE, Monthly Report on Monitoring the Domestic Natural Gas – July 2014

In terms of volumes supplied on the Romanian market, in 2013 Romgaz held a 42.5% market share. The evolution of Romgaz supplies both from internal production and import volumes and its market share during 2007-2013 are indicated below.

Source: ANRE, Annual Reports on Monitoring the Domestic Gas Market, Romgaz

Romgaz holds and operates 6 of the 7 operational UGSs existing in Romania. The company holds for this activity a 90% market share consisting of a total UGS capacity of 3.925 BCM, total working capacity of 2.760 BCM and a maximum daily withdrawal rate of approximately 30 million cm.

50.63%

46.72%2.40%

0.25%

22001133

ROMGAZ OMV Petrom Amromco Others

50.22%

46.63%2.92%

0.23%

SSeemmeessttrruull II 22001144

ROMGAZ OMV Petrom Amromco Others

5 569 5 572 5 563 5 5135 200 5 156 5 034

1 030343 304 680

1 018 606310

41%36%

48%48% 45%

42% 43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 000

2 000

3 000

4 000

5 000

6 000

7 000

2007 2008 2009 2010 2011 2012 2013

mill

ion

cubi

c met

ers

Production Import Market Share against the Total Supply


ssttrroonngg ffiinnaanncciiaall ppoossiittiioonnThe company constantly achieved significant financial results which allowed for the implementation of investment programs, the pay-out of consistent dividends to its shareholders, the paying of high amounts to the state and local budget in form of taxes and of decent wages for its employees. Below is a summary of the main financial indicators of 2011-2014 (million lei):

22001111 22001122 22001133 99 mmoonntthhss22001144

TToottaall rreevveennuuee 5,147.7 4,517.2 4,846.4 3,473.4RReevveennuuee 4,195.5 3,837.9 3,894.3 3,286.8TToottaall eexxppeennsseess 3,805.2 3,121.6 3,545.7 2,066.2GGrroossss pprrooffiitt 1,342.5 1,395.6 1,300.6 1,407.2PPrrooffiitt ttaaxx 154.8 276.5 305.1 293.2NNeett pprrooffiitt 1,187.7 1,119.2 995.6 1,114.0EEBBIITTDDAA 1,940.1 1,854.0 1,959.8 1,917.7IInnvveessttmmeennttss 609.2 519.1 848.2 751.0 NNeett pprrooffiitt ppeerr sshhaarree 3311..0011 2299..2222 22..5588 22..8899DDiivviiddeenndd yyiieelldd ((%%)) 79.0% 94.7% 99.5% n.a.NNuummbbeerr ooff sshhaarreess 33,303,838 33,303,838 385,422,400 385,422,400

DDiivviiddeenndd ppeerr sshhaarree ((lleeii//sshhaarree)) 24.49 27.68 2.57 n.a.


IInntteerrnnaattiioonnaall,, RReeggiioonnaall aanndd NNaattiioonnaall CCoonntteexxtt ooff RRoommggaazz AAccttiivviittyyEEnneerrggyy CCoonnssuummppttiioonn22

The primary energy consumption grew during 2004-2013 by approximately 22% from 10,428.2 million toe to 12,730.4 million toe, the most obvious increases being recorded in Asia-Pacific area (56.6%), Middle East (49.2%) and Central and South America (32.8%) while the European Union recorded a decrease from 7.9% from 1,819 million toe to 1,676 million toe.

According to the data presented in the annual statistics drafted by the National Institute for Statistics, in Romania the primary energy consumption decreased during 2004-2013 by approximately 19% from 38,950 thousand toe and the natural gas consumption decreased by approximately 28% from 12,476 thousand toe to 9,892 thousand toe. “Natural gas consumption” refers to the natural gas quantities consumed at national level, except for those quantities used for heating production.

2 Source: BP Statistical Review of World Energy 2014 - 22 August 2014

2 000

4 000

6 000

8 000

10 000

12 000

14 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

mill

ion

toe

EEvvoolluuttiioonn ooff pprriimmaarryy eenneerrggyy ccoonnssuummppttiioonn dduurriinngg 22000044--22001133

Asia-Pacific North America European UnionEurope, excluding EU and Eurasia Central and South America Middle EastAfrica


In 2013, the global energy consumption is dominated by fuel, followed by oil (32.9%), coal (30.1%) and natural gas (23.7%).

Below is a comparison between the international, the EU and Romania’s energy consumption in 2013:

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

mii

toe

RRoommaanniiaa''ss pprriimmaarryy eenneerrggyy ccoonnssuummppttiioonn dduurriinngg 22000044--22001133

Total Natural gas

32.87%

30.06%

23.73%

6.72%

4.42% 2.19%

SSttrruuccttuurree ooff 22001133 GGlloobbaall EEnneerrggyy CCoonnssuummppttiioonn

Oil

Coal

NATURAL GAS

Hydro Power

Nuclear Power

Energie regenerabila


Against the global consumption, the European Union consumes higher level of nuclear power, of oil and of renewable energy. Romania, as compared to the European Union, records higher consumption of natural gas and of hydro power, the least consumed being oil, nuclear power and renewable energy. The global demand for energy and fuel, CO2 emissions during 1990-2012 and the forecasts until 2035 are indicated below:

11999900 22000000 22001122** 22002200 22002255 22003300 22003355 22001122--22003355****

Oil 3,231 3,663 4,158 4,469 4,545 4,600 4,666 0.5%Gas 1,668 2,072 2,869 3,234 3,537 3,824 4,127 1.6%Coal 2,230 2,357 3,796 4,137 4,238 4,309 4,398 0.6%Nuclear Energy 526 676 642 869 969 1,051 1,118 2.4%Hydro Energy 184 225 313 391 430 466 501 2.1%Bio-Energy*** 893 1,016 1,318 1,488 1,598 1,718 1,848 1.5%Other renewables 36 60 142 311 432 566 717 7.3%TTOOTTAALL ((MMttooee)) 88,,776699 1100,,007700 1133,,224400 1144,,889999 1155,,774499 1166,,553344 1177,,337766 11..22%%Share of fossil fuels 81% 80% 82% 79% 78% 77% 76% n.a.Non-OECD countries 4,047 4,506 7,606 9,019 9,859 10,623 11,406 1.8%OECD countries 4,522 5,292 5,271 5,478 5,461 5,455 5,484 0.2%CCOO22 EEmmmmiissssiioonnss ((GGtt)) 2200..99 2233..77 3311..55 3344..33 3355..44 3366..22 3377..22 00..77%%

* preliminary data; ** Annual average compounded growth rate; *** includes traditional usage and modern biomass usage. Source: World Energy Investment Outlook, Special Report 2014 – International Energy Agency

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

International Level European Union Romania

6.72% 4.89% 10.33%4.42% 11.84%

7.90%2.19%

6.60% 3.34%

32.87%

36.11%27.36%

30.06%17.03%

17.02%

23.73% 23.53%34.04%

Hydro Power Nuclear Energy Renewable Energy Oil Coal NATURAL GAS


By 2035, the global demand for primary energy increases by almost one third, due to increasing demand in China, India, ASEAN (Association of Southeast Asian Nations) and Middle East. The oil and coal consumption increases far more slower than the global energy demand (12% and 16%), while the demand for natural gas, nuclear energy and modern renewables increases far more rapid (44%, 74% and 134%). In spite of the fact that energy sources with reduced carbon emissions or with zero emissions reach 45% of the primary energy demand, the share of fossil fuels in the primary energy demand decreases only gradually from 82% to 76% by 2035. The global level of CO2 emissions increase on average by 0.7% per year, slower than the annual energy demand growth rate of 1.2%, yet exceeding the share set for the long-term limitation of global average temperature increase to two degrees Celsius, target which has been internationally agreed.

IInnvveessttmmeennttss rreeqquuiirreedd uunnttiill 2200335533

more than USD 1,600 billion is annually worldwide invested for supplying consumers with energy; realistically speaking, this figure more than doubled as compared to 2000, however, in 2013 an additional amount of USD 130 billion was spent for improving the efficiency of energy end-use as compared to 2012.

Almost USD 1,000 billion of current investments in energy supplies for the supply of primary fuels - mainly oil and gas - and approximately USD 650 million is invested in the power sector. In 2000, expenses related to renewable energy sources increased suddenly so that today it stands at USD 250 billion. i.e. 15% against the total.

By 2035, the yearly required investments for fulfilling the global energy demand constantly increase to USD 2,000 billion and the annually investment levels for increasing energy efficiency climb to USD 550 billion. This means a cumulated global investment exceeding USD 48 trillion, out of which approximately USD 40 trillion are for energy supply and the remaining USD 8 trillion go to increasing the energy efficiency.

The investments in the field of energy supply are dominated by the requirements of the electrical power sector (USD 16.4 trillion), followed by the oil sector (USD 13.7 trillion) and the gas sector (USD 8.8 trillion). More than half of these investments are required only for maintaining the current level e.g. for compensating the decline of oil and gas fields and of electrical power plants and of other fixed assets which reach the end of the operation cycle. The increase of investments in the field of energy supply is mainly generated by countries outside the OECD and China.

The consistent part of investments in the field of increasing energy efficiency, USD 8 trillion, is firstly for gas transmission and then for thermal insulation of buildings, investments mainly required in the European Union, North America and China.

3 World Energy Investment Outlook, Special Report 2014 – International Energy Agency


HHooww mmuucchh iinnvveessttmmeenntt iiss rreeqquuiirreedd ffoorr mmaaiinnttaaiinniinngg tthhee ccuurrrreenntt lleevveell ooff ssuuppppllyy??44

International Energy Agency estimates that only for keeping the current level of energy supply - provided that the current energy mix remains constant - the required investment shall amount USD 24 trillion in 2035. This means that less than half of the total investment in energy supply required according to the new Policy Scenario is oriented to satisfying the energy consumption increase. The graph below shows the share of investments required for maintaining supplies at their current level in relation to the investment level required according to “New Policies Scenario” during 2014-2035:

In the oil and gas E&P sector more than 80% of the investments is required for compensating the decline of the existing field. Such situations represent a major challenge for politicians and for the industry, yet is gives the opportunity to change the energy system by introducing new technologies and fuels into the mix.

We can state that natural gas is playing and will play an important part in the global energy mix. Many global uncertainties which affect the energy sector may turn into opportunities in the natural gas sector. Consequently, natural gas:

produces lower CO2 emission than any other fossil fuels; allows the diversification of electrical power supply sources contributing to

the improvement of energy safety; may offer “back-up” capacities and flexibility in generating electrical power

especially against the increase of share of renewable energy in the energy mix;

is an attractive fuel for the countries experiencing a strong economic growth which endeavor to satisfy their increasing energy requirements (e.g. China).

But there are also uncertainties which obstruct the anticipation of the path the natural industry will follow.

4 World Energy Investment Outlook, Special Report 2014 – International Energy Agency

0% 20% 40% 60% 80% 100%

Electrical powerproduction

Oil and Gas E&P

Investments for maintaining the current supply level Investments for satifying the growing demand


Although natural gas is the “greenest” fossil fuel, its production development is closely tied to the availability, competition and ability to compete on traditional sectors and to enter new ones. Such factors are largely governed by the market forces, by the companies’ resolutions and by the investments. Governmental policies also play and important part in determining the future natural gas demand. For example, in China the gas demand is strongly encouraged, while in the USA the government supports a wider range of natural gas applications. Japan’s decision for the future in terms of nuclear energy shall definitely impact the future LNG demand. On the other hand, the current European environmental policies, especially the ETS (Emission Trading Scheme), do not regard natural gas as the cleanest fossil fuel. In the absence of a corresponding price for CO2 emissions it is probable that for the future the coal is the main fuel in terms of electric power generation as it is cheaper than natural gas. Also, unstable regulation, politics and the decisions to favor other (domestic) energy sources will negatively impact the future natural gas demand. The global gas demand is foreseen to reach 3,962 BCM in 2018 and 3,868 BCM in 2017. The table below shows the gas demand split by regions:

22001100 22001122 22001144 22001166 22001188 22001188//22001122((%%))

EEuurrooppee 556677 551133 550066 551188 552255 00,,44America 850 893 903 942 977 1.5Asia-Oceania 198 229 238 248 261 2.2Africa 105 113 133 146 154 5.3Asia 283 286 299 333 360 3.9China, including Hong Kong 109 149 189 237 295 12.1 FSU (non OECD Europe) 681 677 688 699 709 0.8Latin America 152 160 166 178 190 2.9Middle East 370 407 433 458 492 3.2TTOOTTAALL 33,,331155 33,,442277 33,,555555 33,,775599 33,,996622 22..44

Source: GAS Medium-Term Market Report 2013, Market Trends and Projections to 2018 –International Energy Agency

The global gas demand is highly directed by non-OECD countries which represent 76% of the growth in spite of descending reviews for Asia, China and FSU/non-OECD Europe. Out of these regions, China is by far the region with the highest development rate, having an annual growth rate of 12%, which is more than double than the second-ranking growth rate in terms of regions, namely Africa. Middle East, Asia and Latin America are also characterized by relative high growth rates.

According to the data presented below, in Romania the tendency is for hydro, wind and nuclear power and for oil-generated energy to maintain the trend and for the coal-generated energy demand to decrease because of increasing gas-generated power demand.


Source: National Prognosis Committee, FFoorreeccaasstt ooff tthhee EEnneerrggyy BBaallaannccee dduurriinngg 22001133--22002200 (November 2013)

Presently, there is the premise for considering that natural gas demand will increase in all regions and in every sector. BP Energy Outlook 2035 published in January 2014, estimates an annual increase of the global natural gas consumption of 1.9% by 2035. Global natural gas resources may support this growing demand because:

proven conventional gas reserves in 2013 equal the current consumption for approximately 55 years5;

conventional gas will largely contribute to the global production, but the unconventional gas have an increasing potential. However, in several regions the future of unconventional gas is still not certain.

5 BP Statistical Review of World Energy, June 2014

6.4% 5.1% 4.8% 6.1% 6.5% 6.8% 6.9% 6.9% 7.0%

10.4% 10.5% 10.4% 10.8% 11.0% 11.0% 11.0% 10.9% 10.6%

14.6% 13.4% 14.8%16.3% 16.2% 16.2% 16.2% 16.2% 15.7%

15.3%15.0% 14.4%

14.9% 14.8% 14.7% 14.5% 14.3% 14.1%

21.6% 24.2% 23.4% 17.9% 17.1% 16.7% 16.4% 16.2% 15.9%

31.7% 31.8% 32.2% 34.0% 34.4% 34.6% 35.0% 35.5% 36.7%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2010 2011 2012 2013 2014 2015 2016 2017 2020

Hydro and Wind Power Nuclear Power Other resources Oil Coal Natural Gas


FFaaccttoorrss iinnfflluueenncciinngg tthhee eexxtteerrnnaall eennvviirroonnmmeennttThe figure below presents the main categories of factors significantly impacting the company:

Technological Factors technological upgrading of most

activities; technological developments in the field

of exploration, geological research and development of new technologies for natural gas production;

information system for economic, commercial and resource management;

development of information, internet and telecommunication system;

evolution and development of commercial instruments.

Economic Factors$ economic expansion/contraction;$ improvement of the business

environment;$ decreasing the country risk, increasing

the stakeholders interest;$ inflation/deflation;$ variation of RON/USD exchange rate

and of boe price;$ the evolution of gross domestic

product;$ fiscality;$ living standard;$ level of investments (foreign and/or

local);$ capitalization of companies.

Environmental impact mandatory compliance with laws

applicable in this field (green certificate, recycling etc.);

change in climate factors (warm air,

Policies and regulations stability of the political and regulatory

environment; existing energy strategy, accepted by

Macro Environment(reaction)

Operating environment

(influence)

ROMGAZ

(control)

Technological factors

Social factors Political and

regulatory factors

Economic factors

Environmental impact factors

EXTERNALENVIRONMENTEXTERN

Suppliers Clients

Buyers Competition


ensuring thermic comfort); development of energy substituent

products; adjusting the clients’ technological

processes to the applicable environment and energy efficiency legislation.

all political forces; primary and secondary legislation in

this field; privatization; aligning national legislation with EU

legislation; operation under competition

conditions; the level of policy involvement in

protecting certain consumer categories.

The oil and gas industry is a mature industry, but a profitable one, natural gas still playing an important role in the global, European and national balance. In order to satisfy the growing natural gas demand (44% growth by 2035) a considerable investment effort is required both for resources exploration (high-risk investments) and for reserves production and marketing. Technological innovation shall continue to greatly impact this industry both in terms of current reserves production and of discovery of new conventional and/or unconventional resources, and of their exploitation. Because the industry is a constant subject of legislative (especially in the field of environment protection and fiscal sector), regulatory, technical and technological, political etc. pressures, an adequate risk management is mandatory for the survival and development of companies active in this field of activity, representing a challenge for such companies’ management.


IInntteerrnnaall AAnnaallyyssiissSSWWOOTT AAnnaallyyssiissSTRENGTHS the largest gas reserves holder and

gas producer in Romania; important natural gas resources at

national level; RROOMMGGAAZZ is a powerful brand,

acknowledged throughout the business environment;

strong financial position (reduced level of debt, high profit rate, available cash flow);

important resources and assets, qualified human resources, professional management;

management and operation teams with vast experience in Romania’s energy sector;

UGS-services provide stability and support for production operations and for diversification;

diversified low-risk reserves portfolio and long operating history.

OPPORTUNITIES liberalization of gas prices and market

deregulation; development of access conditions on

the regional energy market; holding UGSs which may be used for

commercial or technological purposes; increase of gas demand in Romania

against the economic recovery; accessing frontier areas: high onshore

depths and deep water in the Black Sea;

purchases and alliances that gain new skills or access to new resources and/or markets;

programs focused on employee training and retention;

strategic outsourcing; investments in innovation and in

R&D.

WEAKNESSES natural decline of reserves and a

subunitary replacement rate; non-operatorship on external markets; high-risk investments, very specific for

the industry; development of investment projects

takes a long time; lack of coherent control, assessment

and risk management policies.

THREATS decrease of demand on the Romanian

market due to price increase; social pressure due to increase in

price; deficit in qualified labor force, aging of

labor force; instability and/or worsening of fiscal

environment; insecurities in connection with the

national energy policy; natural gas price volatility which may

affect long term investments; occurrence of legal and/or regulatory

constraints in connection with environment protection, health and labor protection;

access to resources or markets (increased competition in terms of acquisitions of resources; access to other markets due to delays of


infrastructure projects interconnections);

competition from new or renewable energy sources;

increase in complexity and size of investment projects;

security in terms of cybernetics and IT systems.

KKeeyy SSuucccceessss FFaaccttoorrss iinn tthhee IInndduussttrryy

DDiissttiinnccttiivvee CCaappaabbiilliittiieess

Human resource competencies, especially in highly specialized areas (geophysycists, geologists etc.)

Available financial resources, given the specifics of investment projects (capital intensive)

Technology and access to technology

Fulfillment of safety and environment requirements all along the discovery - marketing value chain

Extensive experience on the Romanian gas market, related to exploration, production and trading

Exploration peformances in

Romania, proven by the volume of

discovered resources

Identification and development of underground gas storages in depleted

reservoirs

Well workover specialized services

integrated in the company's structure


NNaattiioonnaall EEnneerrggyy SSttrraatteeggyy – GGeenneerraall PPrriinncciipplleessThe Energy Department, in charge for elaboration of a new national energy strategy for 2014-2035, benefiting from EBRD technical assistance (according to the press release posted on its website on March 25, 2014), elaborated a first set of principles as the basis of the new strategy. These principles were published in a press release posted on the Energy Department’s website on May 7, 2014. Below is presented the first set of principles representing basis for the elaboration of the new national energy strategy, according to the quoted source:

- “For Romania, maintaining aa bbaallaanncceedd eenneerrggyy mmiixx is an important strategic point, as a good condition for securing the country’s energy safety.

- There are true perspectives for improving Romania’s eenneerrggyy iinnddeeppeennddeenncceeor even for becoming energy independent around 2020, especially due to the Black Sea fields, even though it will most probably continue to depend, in some respect, on crude oil import.

- Between 2014-2024, Romania should encourage pprruuddeenntt ddeevveellooppmmeenntt ooffrreenneewwaabbllee eenneerrggyy, oriented on biomass, taking into account that wind and photovoltaic power investments faced lately an unsustainable development, at very rapid pace. Installation of new wind and photovoltaic power generation capacities in the next years could cause significant problems in system operation. At the same time, a priority in the area of renewable energy might be the identification of an alternative fuel for transportation.

- DDeevveellooppmmeenntt ooff nnuucclleeaarr eenneerrggyy is essential for fulfilling the European objectives on the reduction of greenhouse gas emissions.

- Coal could continue to be an important source for Romania’s security ofeenneerrggyy ssuuppppllyy,, although its share in the energy mix will decrease, as the energy consumption will increase.

- Romania has high potential for eenneerrggyy eeffffiicciieennccyy that should be efficiently exploited, including for buildings.

- Romania’s energy market could be integrated around 2019--22002200 iinn tthheeEEuurrooppeeaann UUnniioonn MMaarrkkeett,, if the project for creating a European energy policy is accelerated.

- IImmpplleemmeennttaattiioonn ooff ccoorrppoorraattee ggoovveerrnnaannccee rruulleess iinn tthhee ssttaattee oowwnneeddccoommppaanniieess has to be accelerated and, simultaneously, supplemented by performing an analysis of the opportunity to consolidate the Romanian energy industry in a way that is economically viable and in consideration of Romania’s medium and long term strategic orientation in the region.

- RRoommaanniiaa hhaass ttoo eennccoouurraaggee eenneerrggyy iinnvveessttoorrss to maintain their interest for the local energy industry, by providing a stable and predictable business climate.

- … Currently, RRoommaanniiaa has the required premise to become a rreeggiioonnaalleenneerrggyy ppllaayyeerr”.


According to “Romania’s Energy Strategy” draft published for public debate on December 5th 2014, the “new energy strategy shall consider the following objectives:

sseeccuurriittyy ooff eenneerrggyy ssuuppppllyy aanndd eennssuurriinngg eeccoonnoommiicc--ssoocciiaall ddeevveellooppmmeenntt, against the background of a future increase of the energy demand;

eennssuurriinngg eeccoonnoommiicc ccoommppeettiittiioonn by maintaining an affordable price for the end-consumers;

eennvviirroonnmmeenntt pprrootteeccttiioonn by limiting the effects of climate change”.

According to the National Agency for Energy Regulation, the natural gas market development over the next years takes into consideration the following: development of competition between gas suppliers; continuing the implementation of new tariff methodologies; diversification of import sources.


22001155--22002255 SSttrraatteeggiicc DDeevveellooppmmeenntt PPllaattffoorrmmRomgaz strategy aims at consolidating its top position in the natural gas industry and its role in satisfying responsibly the national demand. The company’s aim is the economic growth, securing the cash flow required to support performance and competitiveness, securing the dividend payment to the shareholders in order to confirm the confidence granted to our company by the financial environment. As the competition for access to resources increases, the pressure for substitution products increases against the gas price increase, we consider that technology and innovation related to marketing mix offer and operational excellence will make the difference on the natural gas market. Under these terms we intend to allocate about 80% of the investment capital in exploration and production. Thus, we will focus on the exploration of new blocks for discovery of new resources and reserves, as well as on the development of major projects where technology and know-how we benefit from would add value to the reserve recovery factor. We will also focus on the employment of selective growth policies in order to generate financial and operational performance. For certain, we will focus our attention and efforts on the increase of our production assets life time in order to increase their efficiency. The company will continue to invest in a responsible manner in environment protection and will place social responsibility in the center of its activities. With respect to the energy efficiency, we intend to improve it for our own operations, and we state our support to the consumers who opt responsibly for technologies that lead to increased efficiency and reduction of CO2 emissions.

The company’s strategy is to benefit from its competitive advantages and to seek for opportunities to increase value for the shareholders through the established directions, which can be summarized as follows: maintaining the Romanian natural gas market share; accessing new markets as soon as the technical conditions are created; development of the underground gas storage activity.


SSttrraatteeggiicc DDiirreeccttiioonnss11.. IInnccrreeaassiinngg tthhee ggaass rreessoouurrcceess aanndd rreesseerrvveess ppoorrttffoolliioo bbyy ddiissccoovveerryy ooff nneeww

rreessoouurrcceess aanndd iinnccrreeaassee ooff rreesseerrvvee rreeccoovveerryy ffaaccttoorr..Exploration: intensified research-exploration works in the concessioned blocks and

concession of new blocks, including off-shore; intensive exploration of pre-salt and high depth areas; intensified actions to obtain external blocks; improved portfolio management in order to choose the best investment

options; implementing project management in order to shorten the time between

resource discovery and start of production, with optimum results and fit in the allocated budget.

The results of measures taken for fulfilling these directions will be the increase of reserves replacement ratio, and the optimization of resource discovery and development costs. Exploration investment efforts will focus on the geological research drilling, 2D and 3D seismic survey, magnetotelluric survey and geochemical surface sampling.

Enhanced recovery and development of existing reserves: Maximum valorization of the existing potential with the aim to maximize

recoverable natural gas volumes and production and reduction of production decline, implicitely;

Development of rehabilitation projects and process optimization to provide long-term poduction;

Continuing the upgrade of surface facilities and infrastructure and compressor stations;

Implementing SCADA system in the view of increasing the security and safety level, surface facilitites and compressor stations interoperability.

Investment efforts in gas industry will focus on production well drilling, well recompletions/reactivation, construction of dehydration stations, well head compressors, technological surface facilities, compressor stations upgrading, 3D seismic profiling and SCADA system implementation.


22.. UUGGSS aaccttiivviittyy ooppttiimmiizzaattiioonn,, ddeevveellooppmmeenntt aanndd ddiivveerrssiiffiiccaattiioonn

increasing the UGS daily delivery capacity; UGS capacity increase depending on the market demand; increasing UGS operation flexibility; increasing UGS operation safety; increasing UGS activity efficiency subject to maintaining reservoir

integrity.

33.. SSttrreennggtthheenniinngg tthhee ppoossiittiioonn oonn tthhee eenneerrggyy ssuuppppllyy mmaarrkkeettssNatural Gas: maintaining the current market share over the next 4 years; resizing the client portfolio.

Electric Power: increasing efficiency by investments in the development of power plant

efficiency to minimum 55%, fulfilment of environment requirements and increased operation safety;

increasing the market share; Next-Day power market and balancing market offers.

44.. IInnccrreeaassee ooff ccoommppaannyy ppeerrffoorrmmaannccee Optimizing company procedures and policies (monitoring and reporting):

proper use of financial resources by substantiating, monitoring and analyzing the budget execution;

increasing activity efficiency by efficient use of material, human and financial resources;

optimizing the operating expenditures and maintaining their rate of increase below the operating revenue increase rate;

improving the procurement process for goods, works and services by dynamic planning and prioritization, in order to provide in due time the required quantities of goods and services for performance of current activity and for investments;

continuous increase of the employees’ professional training degree and of their motivation in the view of increasing the company performance and implicitly, the labor productivity.

obtaining economic success through ethical means, respecting the people, community and environment, according to corporate social responsibility principles;


Risk and control management: because most of the companies consider risk management as an

integral part of the decision making process, Romgaz intends to develop and implement within the company a highly performant risk management system;

IT systems: increasing the performance of the information technology services

which contribute to the efficient use of information and human resources, as follows:

o consolidation and extension of the implemented systems in order to achieve the functionality required to support the organization activities;

o implementing policies and measures required for the safe operation and high availability of information systems;

integration of existing information systems in order to optimize the information flow and to create comprehensive management tools;

continuous improvement and updating of policies and procedures related to cyber security.

2015-2025 Development Strategy (general principles) · 2015-2025 Development Strategy (general...

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