SNGN Romgaz SA (SNG) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to our conference call for discussing the results recorded by Romgaz Group in the first half of 2025. After introducing the speakers, Mr. Razvan Popescu, Chief Executive Officer, will make an opening speech. Thereafter, the Q&A session will take place. Please be advised that this conference is being recorded for internal purposes. On behalf of the company, the following speakers attend this conference. Mr. Razvan Popescu, Chief Executive Officer; Mr. Aristotel Jude, Deputy Chief Executive Officer; Ms. Gabriela Tranbitas, Chief Financial Officer; Mr. Robert Chirca, Exploration Production Director; Mr. Ion Foidas, Production Department Director and our Investor Relations department. Now I would like to give the floor over to Mr. Razvan Popescu, who will open the conference call with an opening speech.

Good afternoon, ladies and gentlemen, and thank you for joining our conference call to discuss the results recorded by the Romgaz Group in the first half of this year. Today, we released the Board of Directors report, which comprises a detailed presentation of our economic performance and the consolidated interim financial statements. Also, an overall presentation of the group is available on our website in the Investors section. . I will start by highlighting some aspects of the gas market environment in the first half of 2025 compared to the same period of the previous year. We estimate that natural gas consumption in Romania increased by around 4% to 58 tera while imported volumes grew significantly by over 60% and increased their weight to 26% in total gas consumption. On the Central European Gas Hub,, the average reference price advanced by over 45% according to the data provided by the national authority for regulation with the mining oil and CO2 geological storage activities. Similarly, we assess that on the Romanian Commodities Exchange, the wholesale average price spot forward and a segment increase significantly in the first 6 months, The market still having a reliquidity as a result of the current regulation in force. Regarding the Gas and Energy Center registration in Romania, Romgaz activities continue to be influcence mainly by GO #27 issued in March 22, valid for the first quarter of 2025 and government Geo#6 issued in 2025 in force starting first of April 2025. The main legal provision applicable to the gas producers include regulated gas selling price of RON 120 per megawatt hour for the gas lot household and supplier of household heat producers and their suppliers for the production of thermal energy and also the transportation of operator and distributors for a maximum of 75% of their demagogical consumption. The price level is applied starting in April 2024 and will be valid until the end of March 20. For the gas holder regulated prices, payment of the win for profit tax is exempt, and gas royalties are concluded based on these regulated prices instead of the reference prices. Regarding the operational and financial performance reported by Romgaz in the first half of 2025, we can highlight the following results. Natural gas amounted to 2.49 bcm, adjust marginally by 0.1% year-on-year, but elevated by 1% compared to the semestrial average recorded over the 3 previous years. In the second quarter alone, we succeeded to increase our gas production by 0.4% compared to the same period of 2024 to 1.2 bcm. The 6 months performance was achieved through steady efforts aiming to consolidate the potential for reduction which includes specific activities of intervention, recompletion operations that allows us to resume production at 85 inactive wells and improved production by over 100 million cubic meters. Continuous rehabilitation projects of our main mature gas fields, optimization of gas field exploitation and investment intent production infrastructure and connect new films to it. Regarding investments in our production facilities, you can point out that we perform drilling preparation for 1 production well. while other wells are in different drilling preparation stages. We finalized 5 surplus facilities have 7 in execution and 20 others are in different preparation stages. We perform reactivation and capital [indiscernible] reverse for 105 production wells. We can also highlight that all of these measures led to a significant [indiscernible] increase in our condensate production to over 25,000 tonnes in the first half due mostly to a higher production level in our Caragele commercial field. Regarding the Caragele field, worlds are progressing with 76 Rosetti and 54 Damianca well in execution and 17 Rosetti well in production and other 7 wells in different stages of drilling preparation. We continue to improve our significant position already under the domestic gas market. In the first 6 months, our market share reached 47% of total gas deliveries in Romania. Regarding gas consumption covered from domestically produced gas, we are strongly posistioned with a 64 estimated share significantly over 54% held in the first half of 2024. We succeeded to increase our total revenues from gas sold by 9.4% year-on-year to over RON 3.7 billion compared to RON 3.4 billion in the first half. The strong result was due to gas volume sold significantly higher by 12.6% year-over-year to 2.5 bcm in age when compared to 2.24 bcm a year before. Based on the optimum management of our gas flows, thus lower volumes injected into underground authorities and higher volumes withdrawn from storage this year. These revenues from storage services were filed by 8% year-on-year, amounting to RON 276 million, with capacity reservation, a 54% weight reserve capacity was 93.76% at the end of June 2025 with a falling rate of a little over of 56%. Revenues from electricity adjusted by 1.5% year-on-year and adding RON 177 million in revenues. Production from our old power plant, which operates only 1 unit has unexpectedly declined to 342 [indiscernible] in the first half of 2025 still supporting the security of supply in the energy market of Romania. Overall, the Romgaz Group reported total revenues of RON 4.25 billion higher by 9% compared to RON 3.9 billion in the previous year base, especially on the contribution of our gas sales segment. Regarding the expenses, the windfall profit tax increased by 24% to RON 475 million in the first half of 2025 compared to RON 383 million last year in the same period. This is due to the high expense that we recorded in the first quarter of 2025. Gas new GS royalties increased by 6% to RON 292 million, mostly due to higher expense in the first quarter. Altogether, these taxes, including the duty to the energy transition fund were higher by 18% year-on-year and represents an expense RON 781 million compared to RON 664 million from last year, with a negative effect on our profitability. This was the cumulative effect of increased as volume sales, higher weight of gas folder regulated prices and also gas pricing. Bottom line, we achieved a net profit of RON 1.68 billion, lower by 9% compared to the historically high value of RON 1.84 billion recorded in the first half of last year. All profitability rates extension EBITDA margin extending at 54%, every 46% and net profit rate at over 39%. On the CapEx side, Romgaz Group invested a total consolidated amount of RON 1.89 billion in the first half of this year. Of this amount, RON 1.42 billion represents the investment of and RON 447 million, the investment made by Romgaz alone, mainly in the onshore exploration and production modernization. Regarding our strategic project that indeed the project made in 25 is in line with the at-progresbudget and with the execution challenge. In the first quarter, wise, the first gas production well was spudded and we are currently drilling on the Pelican South, although a total number of 10 wells, 4 are to be drilled in the [indiscernible] and the 6 other wells on the Domino field. In the second quarter, closer to shore, we started a word for the microtuble that will connect the pipeline to the land near Tula or Sanson. Also, work is in progress at a natural gas metering station, another key element of this development. Offshore infrastructure is also advancing in Italy fertigation on the jackets underway and in Indonesia, the work continues on the oxide module. As a result of this significant development, Roses partner are on track to see deliver the full gas on in 2027, and the project remains within the up to RON 4 billion guidance for the total investment. Another strategic objective is the CCGT power plant in. At the end of July 25, the total work progress of the investment of the Turkey project stands at 98% related only to the new EPC contract that started August 2023, the total progress of the investment was around -- in the first 6 months, work or carried out of the electrical automation side mainly and some tests were preferred on the Demomechanical side. However, I would like to highlight some of the recent difficulties encountered during the execution of the project. So the contractor is currently facing financial hat being involved in a pre insolvency procedure in a 1 country that distress also affected the progress of the works on our power plant despite the fact that Romgaz paid on time, all invoices have meant the fable criteria, having no outstanding debt the contractor unable to support the execution of the works, incurring overdue liabilities towards the subcontractors on site. The hardship faced by the contractor also call a lot lower organization than we expected on site. And the contractor failed to meet intermediate deadlines to achieve the contractual commissioning date. This delay was drag repeatedly by Romgaz in the site supervisor to the contractor. Although the contractor benefited from the auction to extend the duration of the world by 6 months, they still could not recover these delays. Among other drawbacks, that you can mention was the partial in possibility of entering the site for a period of around 25 days due to some floods caused by the Molise rivers in some areas that also had a negative effect on the progress. Romgaz does undertake all efforts to support the contractor and find the best legal and technical solution to finalize the plan as soon as possible. I would like to also mention dividends distributing this year. We remind you that on April 29, the shareholders of Romgaz decided that for total gross dividends of RON 604 million which resulted into a total payout ratio of 20% for the last year and will allow Lomas to partially finance in significant investment plans. At the end of this presentation, I would like to highlight the strong performance recorded by Romgaz shareholder Nuclear Stock Exchange. SMB share price boosted by over 65% this year and by almost 50% over the past 6 months period. We believe that the positive stance of investors view among others to the significant investment strategy of our company, solid position on the market and good perspectives for the energy set. With this, I would like to close our presentation, and thank you for your attention.

[Operator Instructions] Ms. Ioana Andrei, you may now address your question.

I have a couple of questions. First, regarding the volumes sold at the regulated price over the next quarter, if you could please disclose the grid volumes for each of the following quarters and for the first quarter of 2026? Second, regarding the Gernot power plant update, I understand the difficulties. But in the last call, you mentioned the commercial production until the end of the year. Is this still possible? And if not, when we expect it. And third, if you could please give us an update regarding the Azomures? that's all from my side.

Is. I will start with the first one. So the volume sold in this half year of 2025 at regulated prices was 77%. A. And for the next quarters. So for the entire year 2025, it's around 84% of total sales are unregulated prices. And for the first quarter of 2026, there will be over 87%. Does that answer your question on the quantities.

Yes.

Thank you. On the empower plant, we have encountered some expected problem with the subcontractor, Romgaz has done everything that stands in our power to have direct payments made to critical of contract that keeping them on site. Unfortunately, our contractor decided to send us a letter last week in which they are looking to suspend the works on the power plant. This is contrary to our contract we have sent them a corresponding letter in which we do not agree with such approach. And right now, we are analyzing both internally to compares and with the interesting priorities. The actual, let's say, options that Romgaz has, but we need to take into account the fact that Romgaz mainly able to finalize this power plant without this contractor. But of course, this will probably recur an additional time and also maybe additional costs.

Okay. But could you actually give us a guidance, the postponement should be, I don't know, first half of 2026? .

This year it's very hard to say we are looking to this year to be able to enter the first megawatt in the system. So we are looking by the end of the year to try and enter the first megawatt from the new power plant in the system. -- as part of the final testing because basically, part of the testing has been done and we need to have the final testing done regarding the injection of metals.

Okay. And one more question related to entice the first megawatt is into the system, we could expect that -- the full -- that's the power plant will start operating at full capacity.

There are a few months to be tested. And that's why it's a little bit hard for us to express a certain answer. But exactly, as van said, we would like to start the testing before the end of this year. And as the case may be based on the testing to allow the market to know when the production for the entire year on plant will start. Everything gets subject to the testing period.

Regarding the Azomures, we attributed the contract KPMG and Jooste happening is in the evaluation -- we've already had the first meeting on site last week with the consultants together with the Romgaz team. as we are starting the proper analysis, both technical and economical of the possibility of taking over the Azomures.

Ms. Daniela Mandru, please activate your microphone and you may address your question.

Can hear me?

We can hear you, yes, but .

Several follow-up questions on the previous questions, of course. And I have also my own questions. So regarding your note, -- so from my understanding of what you said before, is that we are not everything is onset. So you are in the testing period, correct?

No. There are a few words have been done. -- because at the moment, we are at 95% from the total execution and also under this 2% are the testing, but certain works has to be finished. And Razvan has said that part of the testing is part of this 2%. And at the moment due to the fact that AngrePrenor has some problem in its own cash flow and with its subcontractors. We are analyzing how we will finish the year of our plan. option one is with the actual tenor and the second to none gas itself to finish the remaining works to be executed and the testing. Because for us, putting in function any new power plant it is priority.

Yes. Because I've read that if you slip the commissioning date after 30 June of 2026, you have to repay the grant?

Such situation will be analyzed case by case and based on the actual facts and situation in our perspective, if the testing stands we will discuss also with Pan commission in order to extend the timing. So that's the case -- that's the case.

So there is a possibility to postpone this commissioning after June from my understanding. There is a possibility?

The actual due date under the penny is December 2025. as the case may be, will be prolonged, but it's subject to the for discussion with the very commission and our authority, namely energy minister. Okay.

And now also regarding your note, given this testing period -- how would you see the production of your in the following quarters? So first, in the first half, okay, the production declined by 24%. In the second half, to assume the same percentage decrease? Or what are the plans here?

The you can assume similar to the first half. It depends a lot on the time when we're going to start testing of the new part because you cannot work together. So the moment that we start testing an injection in the system from the new power plant, the whole 1 will have to be shut.

So if you -- for example, if you start testing in Q4, the production there will be close to 0 or 0, something like this.

Not exactly 0, but...

But very low. Okay. Good. Now I have several questions regarding the first half results. What I've noticed that you record FX losses from debt revaluation and other gains and losses. So you -- I do not understand why you report these losses -- so you understate the operating profit and overstate the financial costs. This is a question, so I didn't see up to now the debt revaluation losses, FX losses reported as this. But anyway, please detail for half -- for the first half because you don't have any note the financial costs and also the third parties and other cost split, please? Because in your report, there is no note on this cost. So finance costs for the first half of the year and third parties costs also for the first half of the year.

Regarding finance costs, we include here the interest charge on the existing liabilities, meaning the loan, we took in 2022 when we acquired the current ones ex and the bonds -- on the bonds that we issued last year. ForEx, we always presented in other gains and losses. Regarding third-party services and other costs, the increase is due mainly to transportation costs charged by the system operator.

I know all these things, yes. I know also because you have some -- I know what it cost contains, what I want, I won the figures. So split, for example, finance cost. It was the interest expense. I want the commission unwinding of the commissioning expenses also for third parties, you should report there transmission capacity booking costs and something -- so for us, it's hard to guess what is there. You present a total and we need to estimate it.

Yes, just a second, please.

Please, this is a kind request, if it's possible to present such note in your reports. So finance costs and third parties a split, please.

Yes, we will take into consideration your request for this first half year, interest expense was at RON 53 million and the unwinding of the decommissioning provision of RON 13 million.

Okay. And for the third parties?

For third parties, gas capacity reservation and transport was RON 180 million. Then we had other operating expenses, movement in provisions in the decommissioning provision, insurance costs...

Yes, you see there are a lot of details that we do not have access to. So please take my request into consideration. Now -- okay. So I will ask the IR for details to have all the split for the first half of the year. Also, regarding asset impairment, I've seen not significant, but quite large asset impairment in the first half of the year. What is the outlook for the second half of the year? So to expect the same amount to expect these asset impairments to continue these levels.

No, this is not a regular event that happens. Some of the wells we drilled that were not successful. So we recorded an impairment, but it doesn't have to be every quarter. we didn't record an impairment based on an impairment as we didn't identify any impairment indicators.

Mr. Oleg Galbur. You may now address your question. Mr. Oleg Galbur, please activate your microphone. So we continue with Mrs. Laura Simion. Please activate your microphone and you may address your question.

So I have a couple of follow-up questions. First one, also regarding Gernot. I hope that you consider finishing the works with some other company. But if I remember correctly, this was a problem when you first canceled the contract with the Duferco because you lose the warranties for the work done. So this risk, I think it's still there if you will decide to finish the works with someone else?

We never said that we're going to finish with another company. We said that Romgaz might finish the works and Romgaz will be the EPC of finalizing networks. Indeed, we did have that issue before. And not only this should extend from the old works contract that was signed in 2018, but for us, given the analysis that we have done and that we are currently doing. It wouldn't be a big difference to have a EPC company that's in bankruptcy and not having any type of guarantees where Romgaz taking over the site. So in this respect, we'll definitely inform the market when we have taken a decision regarding this we are currently in analysis.

Okay. And then referring also to the ForEx gains, which Daniela referred to, are expecting the fall ForEx losses because of your euro bonds and the euro-denominated loans, but you also registered so ForEx gains about RON 50 million, and I was wondering where what generates this ForEx gains?

We didn't use money we collected from the bonds immediately. So some of the cash was placed in bank deposits. These generated the pricing.

Okay. So there were some assets in Europe. Okay. Just to find my document, and I put the questions. For the second bond issue, initially, the plan was for this autumn -- is this still in place? Or you will delay the second bond issue?

It depends on the market for third month -- we both have very stringent cash necessities at the moment, and we are looking we are looking at the market and seeing how it will evolve. If the timing for us will be correct. We will be in the market by end of this year. is not maybe next year, but it depends a lot on the market conditions.

Next year -- sorry, next year in the first quarter or?

Yes, in the first quarter.

We continue with Mr. Oleg Galbur. If you can hear us now, please turn on your microphone.

Can you see me now, please?

Yes.