Petrom - Petroleumclub.ro

Strategies for the Internationalization
of CEE Oil & Gas Companies
Werner Schinhan, DCEO
November 22, 2006
energy in central & eastern europe

From Austria to CEE – a unique opportunity for OMV
<strong>Petrom</strong> acquisition => OMV has the leading position in the CEE Market
1,500
1,000
Reserves (million boe) (1)
1,365
(2)
500
290
0
MOL
OMV & <strong>Petrom</strong>
Production (000 boe/d) (3)
400
338
300
200
100
100
0
MOL
OMV & <strong>Petrom</strong>
Refining Capacity (000b/d) (3)
600
531
400
200
273
350
0
Oil Product Sales (mt) (3)
23.0
18 .0
13 .0
8.0
3.0
MOL
PKN
11.4 12 .5
OMV & <strong>Petrom</strong>
-2.0
MOL PKN OMV & <strong>Petrom</strong>
Source: Company Reports
Data as at December 31, 2005
For PKN, the dates are at December 31, 2004
22
OMV Refineries <strong>Petrom</strong> Refineries
Other Large Refineries (>3.5 mn t or c.70,000 b/d)
Danube River
2 |energy in central & eastern europe

<strong>Petrom</strong> - OMV Hub for SE Europe and the Caspian Region
► <strong>Petrom</strong> is the hub for OMV in South Eastern Europe
with clear focus on Bulgaria, Serbia, Moldova and
Ukraine in the future in the downstream activity.
► The upstream activity includes the focus on Caspian
Region and Russia
► Romania is the core country for <strong>Petrom</strong>.
Romania– the core country for <strong>Petrom</strong>
Requirements for Coordination
Increase cooperation and coordination across the
businesses
Synergies in project management
Pursue projects from regional competence
centres (e.g. Caspian/Russia/Balkans out of
<strong>Petrom</strong>)
Leverage resources by drawing on functional
competences from the OMV Group
Utilise brand positioning of different
organisations (use OMV brand beyond
regional responsibility)
Czech Republic
Austria
PRAGUE
VIENNA
LJUBLJANA
Slovenia ZAGREB
Croatia
Hungary
Bosnia
Herzegovina
SARAJEVO
Slovakia
BRATISLAVA
Adriatic Sea Montenegr
PODGORICA o
Kazakhstan
Caspian area
Russia
BUDAPEST
BELGRADE
Serbia
Ukraine
Romania
BUCHAREST
SOFIA Bulgaria
Moldova
Black Sea
3 |energy in central & eastern europe

E&P – Undergoing a Substantial Transformation Program
• A substantial transformation program will cover the business organization, the redesign of
field operations and efficiency measures
• Romanian oil production decline expected to stabilize in 2007
• Natural decline to be mitigated by new drilling program
- Inherited drilling program stopped in 2005 due to low technical success rate and
HSEQ
- New production drilling program based on 3D seismic and data reinterpretation
commenced in HY2/06
• Shutdown of inefficient wells resulted in decline of 2,000 boe/d
• Higher level of interventions as technical equipment is upgraded
- Technical intervention of oil wells currently in average every 2-4 weeks
- Completion of subsurface modernization program expected at end of 2008
- Target: reduce interventions to 1 per year
4 |energy in central & eastern europe

Production rate in Romania will decline until 2006 and be
stabilized thereafter
► Production rate from existing
operations declined at CAGR -
2.8% between 1990 and 2005
► Further drop in 2006 due to
shut down of uneconomic
wells
Production rate Romania
Thousand boepd
350
300 320
-2.8%
► Business growth and
operation efficiency measures
will kick-in 2007
► Production benefits from
modern exploration starting
2007/08
250
200
150
244
229
220
216
stabilized
206 208 210 210 210
► Production rate Romania to be
stabilized around 210,000
boepd starting 2008
100
50
0
1990 1995 2000 2004 2005 2006 2007 2008 2009 2010
5 |energy in central & eastern europe

E&P Portfolio Has Significant Potential
Exploration program in Romania
2005: start of 3D seismic exploration with 3 campaigns
2006: 6 further 3D seismic campaigns and first well drilled based on results of 2005 3D program
2007: 6 further 3D seismic campaigns; annual exploration expenditure of EUR 110 mn for Romania and
international activities
Production concession area in Romania: 5,100 km² (Austria 400 km²)
Exploration acreage in Romania: 83,000 km² (Austria 5,000 km²)
<strong>Petrom</strong>‘s international E&P activities
Kazakhstan: Approval for development of oil field Komsomolskoe,
production of 10,000 boe/d expected for 2008 at investment of
USD 190 mn
Russia: Market entry with acquisition of 8 exploration licenses and
1 exploration & production license
6 |energy in central & eastern europe

The Way Forward: Strategic Priorities for 2010
Keep production level
stable at 210,000 boe/day
beyond 2010 in
Romania
Reduce operational bottlenecks
Mature field technologies
Develop existing proven & probable reserves
New Reservoir Management process & IOR Strategy
Reduce production costs
to 9 USD/boe in 2010
Efficiency programs & modernization
Mature field technologies
Benchmarking & Best Practice
Reach reserves
replacement rate of 70%
3D seismic – synergies with OMV
Provide Exploration budget of 100mm Euro per year
New IOR strategy
New Reservoir Management Process & Technologies
Develop the Caspian
region to a core region
Kazakhstan
Optimize Portfolio of existing Production, Development &
Exploration Projects
Caspian Region
New Exploration and acquisition of existing Reserves
Employer of Choice
HSEQ aware culture
7 |energy in central & eastern europe
Build HSEQ conform workplaces
Performance based remuneration
Career development Schemes

Gas
How close are we to a liberalized gas market in SEE ?
► Russian import price to Romania more than two times domestic producer price (Romgaz,
<strong>Petrom</strong>)
► Liberalization has been done to a high extent on consumers selecting their suppliers,
however not yet on gas price
► <strong>Petrom</strong> is aware of the social consequences of a dramatic gas price increase and has
proposed a timetable for liberalization of domestic price and social gas or a contribution to
a fund to protect households
► <strong>Petrom</strong>’s gas production is entirely sold in Romania
► Monitoring report of EU Commission (Sep/06) referring to Romania (art 2.2): “Economic
criteria: In order to strengthen competition within the internal market, the gap between
international and domestic producers' gas prices should be narrowed.”
8 |energy in central & eastern europe

Gas Price
Price for households: RON 912/1,000 m³
(Q4/06, without VAT)
The gap between domestic and imported gas
price
tax
storage
distribution
transportation
import
new gas
old gas
Average gas price, USD / 1000 cbm
300
250
200
150
100
50
Annual average
100
90
Import
130
Domestic
176
Domestic
Domestic
gas
gas
production
production
0
2003 2004 2005 2006
► New gas price: from 80% of the price for imported gas of the previous year to 10 USD/1000 cm above the
price for old gas. Starting from January 2007 the category of new gas will disappear completely, based on
current regulations
9 |energy in central & eastern europe

<strong>Petrom</strong> Gas Strategy pyramid
Vision
<strong>Petrom</strong> is a powerful player in the Romanian gas market and an
integrative element of OMV Gas international sales and trading
business
Strategy
orientation
Growth! We sell more than our own production
Offer value to customers
Main elements of
the competition
strategy
Optimize sales portfolio by sustainable channel mix via sales
vehicles (<strong>Petrom</strong>, <strong>Petrom</strong> Gas srl)
Optimise supply portfolio by combination of domestic supply and
imports
Investment policy
Review possible necessary investments, for example storage
10 |energy in central & eastern europe

The Way Forward: Reconfigure Refineries
Petrobrazi
Crude distillation expansion: 4,5 to 6 mn t/a
New hydrocracker (2.5 mn t/a) to increase
middle distillates, reduce HFO
New pipeline (crude and product)
connecting Petrobrazi with Arpechim
Arpechim
Investment restricted to
improvements of product quality,
energy efficiency and compliance
Steam cracker and LDPE as a
separate profit centre in 2007 for
possible market alliances
Maximize use of <strong>Petrom</strong> domestic crude processed;
Maximize use of <strong>Petrom</strong> domestic crude processed;
remaining
remaining
amounts:
amounts:
Black
Black
Sea
Sea
import
import
crude
crude
Increase Petrobrazi Refining capacity utilization to 95%
Increase Petrobrazi Refining capacity utilization to 95%
and optimize Arpechim refining capacity
and optimize Arpechim refining capacity
Supply 100% of <strong>Petrom</strong> domestic market; remaining
Supply 100% of <strong>Petrom</strong> domestic market; remaining
amounts
amounts
to
to
export
export
–
–
if
if
profitable
profitable
100% compliance with EU fuels specifications by end of
100% compliance with EU fuels specifications by end of
2008
2008
(2007
(2007
in
in
Romania)
Romania)
All other downstream petrochemicals at Arpechim and
All other downstream petrochemicals at Arpechim and
Petrobrazi
Petrobrazi
closed
closed
during
during
2007
2007
Arpechim
Arpechim
Petrobrazi
Petrobrazi
11 |energy in central & eastern europe

The Way Forward: Internationalization of Operations
Raise average throughput
ratio of fuel stations
to 3 mn ltrs/year
New highly frequented locations, the new design and enhanced service quality
as well as acquisitions on the domestic market support the 35% market share
The introduced full agency concept thrives towards a higher service level in
both oil and non-oil business
Internationalization of the
Refining and Marketing
activities
Supplying neighbouring retail markets – Balkans and Black Sea region
SAP fully implemented and
all staff trained
All processes running and monitor according to OMV SAP standards
Staff fully trained to operated systems and complying with defined
procedures
ISO 9001/200 implemented and certified
All stations under Full
Agency: 250 <strong>Petrom</strong>V
stations
Total marketing investment
of > EUR 500 mn 2007-2010
(incl. logistics)
12 |energy in central & eastern europe

What does <strong>Petrom</strong> do for Romania and its stakeholders
A.
B.
C.
Secure energy energy supply supply for for Romania through
investment in in oil oil and and gas gas production
Significant investments in in all all business segments
to to increase and and improve business
Significant contribution to the Romanian budget
Significant contribution to the Romanian budget
D.
Increase of the value of its shareholders
Increase of the value of its shareholders
E.
Know-how Transfer to <strong>Petrom</strong>
Know-how Transfer to <strong>Petrom</strong>
13 |energy in central & eastern europe

A. Secure energy supply for Romania through investment in
oil and gas production
Romania will remain in the EU one of the
best countries in energy autonomy and only
rely relatively modest on imported energy
►Gross inland consumption (incl. use for
electricity production)
►Oil
+2.7% p.a.
►Gas
+2.1% p.a.
►Electricity +5.3% p.a.
Final energy demand
Gross Inland Consumption
30000
'000 toe
30000
'000 toe
25000
20000
3,724
4,894
25000
20000
14,790
16,874
15000
10000
5000
10,259
8,351
8,155 9,609
15000
10000
5000
11,448
13,227
0
2005 2010
Crude Natural Gas Electricity
0
2005 2010
Crude
Natural Gas
Source: EU, European Energy and Transport, Trends for 2030, update 2005
14 |energy in central & eastern europe

B. Significant investments in all business segments
to increase and improve business
Strategy approved by the BoD: <strong>Petrom</strong> will invest in excess of EUR 3 billion over the next 4 years
Strategy approved by the BoD: <strong>Petrom</strong> will invest in excess of EUR 3 billion over the next 4 years
E&P: more than EUR 1.5 billion
►
►
Modernization of surface and subsurface
facilities
Reserve replacement
Refining: cca EUR 1 billion
►
►
Modernization of existing plants
New plants to improve yield structure and
reduce energy consumption
Marketing: cca EUR 500 million
►
Improvement of the network service to
customers
2400
2100
1800
1500
1200
900
600
300
0
Investments will pick up in 2006
RON mn
74
1073
9
634
2
585
1187
669
530
2004 2005 2006 E
E&P R&M Others*
*Others: Corporate, Doljchim investments
15 |energy in central & eastern europe

C. <strong>Petrom</strong> is the largest contributor to the State Budget
Evolution of taxes paid to the State Budget 1998 –2006E
RON mn
5200
5000
4604
4000
3639
3456 3567
3706
3000
2906
2000
1321
1000
484
0
1998 1999 200 2001 2002 2003 2004 2005 2006E
Taxes paid to the State Budget
16 |energy in central & eastern europe

D. Increase of the value of its shareholders
Dividends
RON / share
0.014
0.012
mn RON
800
700
0.01
600
0.008
500
400
0.006
300
0.004
200
0.002
100
0
0
1999 2000 2001 2003 2005
► The market capitalization
increased three times since
the privatization
► EPS 1-9/06: RON 0.035
MEC
30.86%
Property
Fund
9.89%
EBRD
2.03%
Private
investors
6.21%
OMV
51.01%
Dividend/share
Dividends approved to be paid
9.000
BET
closing of privat isat ion
RON
0,9000
8.000
contract, Dec/04
0,8000
7.000
0,7000
6.000
0,6000
5.000
0,5000
4.000
0,4000
3.000
0,3000
2.000
0,2000
1.000
0,1000
–
–
Sep/01
BET
Petr om shar e pr i ce
Nov/06
17 |energy in central & eastern europe

E. Know-how Transfer to <strong>Petrom</strong>
E&P:
E&P:
apply
apply
the
the
OMV
OMV
knowledge
knowledge
on
on
mature
mature
fields:
fields:
3D
3D
seismic,
seismic,
Infill
Infill
drilling,
drilling,
wellsite
wellsite
operations,
operations,
reservoir
reservoir
management
management
People
HR:
HR:
Training
Training
programs
programs
on
on
technical,
technical,
economic,
economic,
managerial
managerial
topics;
topics;
Career
Career
development:
development:
assignment
assignment
to
to
OMV
OMV
international
international
locations
locations
Refining:
Refining:
More
More
modern
modern
technology
technology
to
to
improve
improve
yield
yield
and
and
increase
increase
energy
energy
efficiency
efficiency
Marketing:
Marketing:
Sales
Sales
oriented
oriented
organization
organization
Process
Tech
nology
IT&Finance:
IT&Finance:
SAP
SAP
implementation,
implementation,
New
New
centralized
centralized
IT&Finance
IT&Finance
organization
organization
[<strong>Petrom</strong>
[<strong>Petrom</strong>
Solutions]
Solutions]
New
New
HSEQ
HSEQ
standards:
standards:
HSEQ
HSEQ
awareness,
awareness,
job
job
safety,
safety,
first
first
aid
aid
18 |energy in central & eastern europe

Growth and Targets for 2010
Strategic thrust: Significantly increase performance and cost position
ROACE 13%
E&P
R&M
Stabilise production level at 210,000 boe/day in Romania beyond
2010
Develop the Caspian region into a core region
Increase international production to 70,000 boe/day
Reduce production costs to 9 USD/boe in 2010
Reach reserve replacement ratio of 70% in 2010
Expand Petrobrazi capacity to 6 mn tons and improve the refining
cost position
Comply with EU product quality starting with 2007 and introduce
biofuel blends to Romanian market
Increase turnaround interval to 5 years
Raise average throughput of fuel stations to 3 mn ltrs/year
250 <strong>Petrom</strong>V stations until 2010
Achieve 35% market share in 2010 for <strong>Petrom</strong> SA
Knock-down and rebuild 10 major terminals by 2010
GAS
Achieve gas marketing volume of > 7 bn cm in Romania with a >
35 % market share
Develop the gas business beyond Romanian borders
Realize gas prices approximated to European level
Enhance competitiveness through own storage facilities
Enter power market
19 |energy in central & eastern europe

Positioning <strong>Petrom</strong> in Romania – “Socially Responsible”
We are committed to
long-term sustainable development
Economic
• secure long term energy
resources & better “reservoir
management”: independence
• create a “replicable” model for
“fast track” integration to EU –
European Strategic Investor
• contribution to economic growth,
large investments, large tax payer,
financial discipline, capital market
• developing an organization with a
customer focused management
Environmental
• implement top HSE European
standards and reduce carbon
emissions
• mitigate climate change impact
through increased effectiveness of the
use of energy by implementing
international industrial standards
• increase importance of gas as
lower carbon energy resource
• integrate biofuels into product
portfolio
Role model company/
responsible corporate citizen
in Romania
Social
• people development & creation of wealth
through education and sport for <strong>Petrom</strong>
employees and community at large
• contribute to increased confidence in the
EU integration process: <strong>Petrom</strong> City / “EU
Integration Box”
• restructuring program in a social
manner
• high health & safety standards and
projects – internal and external
• stakeholders dialogue
20 |energy in central & eastern europe

Thank you
21 |energy in central & eastern europe