OMV Petrom S.A. (SNP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the OMV Petrom's Earnings Call. Today's presentation will last around 25 minutes and will be recorded. By now, you should have received the presentation by e-mail. The slides and the speech are also available online on www.omvpettrom.com in the Investors section. These also include the cautionary statements regarding forward-looking statements. Now let me hand over to Simona Crutu, Manager of the Investor Relations and Stakeholder Engagement Department, who will moderate the event.

Good afternoon, ladies and gentlemen. Thank you for joining us. We'll have a presentation of the second quarter results followed by a Q&A session. Christina Verchere, Chief Executive Officer, will provide the key highlights about the macroeconomic environment, our operational performance and strategy execution. Alina Popa, Chief Financial Officer, will give you more details on OMV Petrom's financial performance and a brief outlook for 2021. Afterwards, our Executive Board members will be available to answer your questions. [Operator Instructions] I'm now handing over to Christina.

Good afternoon, ladies and gentlemen, and a warm welcome from my side. Thank you for joining our call. Hope you are keeping well. Let me first draw your attention to our legal disclaimer, which you can read in detail on Slide 2. Let me start with some highlights regarding commodity prices and main currencies in the second quarter of 2021. Oil prices, both Brent and euros, increased during the quarter by more than 12% and more than doubled year-on-year supported by improved demand and strict OpEx cost discipline. The Brent price averaged $69 per barrel in the second quarter of this year. The euro traded at an average discount to Brent of $1.70 per barrel. The discount reached a 3-year high in April mainly due to poor product demand and a peak in refinery turnaround. In May, June, the discount started to decrease due to the end of the European maintenance season and demand recovery following easing of restrictions. In the second quarter of 2021 and on a year-on-year basis, the RON appreciated versus the U.S. dollar by 7% and depreciated against the euro by 2%. OMV Petrom indicator refining margin reached $4.27 per barrel, more than double year-on-year as a result of higher product spreads mainly for gasoline and middle distillates. Compared to the first quarter of 2021, this represents an improvement of 52%. European gas prices reflected on our graph by segment increased significantly in the first quarter to a level of EUR 24.8 per megawatt, approximately 37% higher compared to the previous quarter and almost 4x higher year-on-year. The substantial increase was driven by solid demand supported by reduced pipeline supply and late storage inventories following a long and cold winter, pushing up the demand for storage injection. European natural gas prices experienced the strongest quarterly surge in over a decade. Prices exceeding EUR 33 per megawatt hour as of the end of June 2021 had not been seen in Europe since 2008. The increase was also significant in the gas prices on the Romanian centralized market, which on a day-ahead basis increased by 148% year-on-year to EUR 23.8 per megawatt hour. Baseload electricity prices in Romania were more than double year-on-year and around 26% higher quarter-on-quarter. This strong increase supported the spark spread in the second quarter despite higher gas and CO2 prices, which saw a steep increase in the context of reduction in the number of CO2 allowances. Looking now at the Romanian environment. The state of alert was prolonged but with restrictions gradually eased. This loosening in the context of reduced number of new COVID cases and implementation of vaccination program has helped the economy. Romanian GDP in the first quarter of 2021 was flat year-on-year and increased by 2.9% quarter-on-quarter. For 2001, the European Commission upgraded the economic growth estimate from 5.1% to 7.4% year-on-year, higher than the European average of 4.8%. The inflation index in June 2021 versus June 2020 was 3.9% on an upward trend. Looking at the energy sector in the second quarter of 2021. The Romanian market seems to have recovered to pre-COVID levels. Total demand for fuels, namely gasoline and diesel, increased by 28% year-on-year and was 10% above pre-COVID levels. Demand for retail fuels increased by 37% compared to the second quarter of the previous year and by 5% compared to the second quarter of 2019. Nonretail demand was 12% up year-on-year and 21% above the second quarter of 2019. Jet demand almost tripled year-on-year from an extremely low base due to partial recovery of flights but remained at half the level of the same period in 2019. Gas demand increased by an estimated 12% in the second quarter versus the same period of 2020 mainly due to colder weather. Power demand was up by 14% while domestic power production increased by 23% year-on-year. Romania is switching from a net importer to a net exporter of power in the second quarter. Hydro and coal had a particularly high contribution to the generation mix. Both gas and power demand were above the levels registered in the second quarter of 2019. On Slide 5, we present the key highlights for the quarter. When making the year-on-year comparisons, we should remember the second quarter 2020 was extremely challenging for our industry due to the outbreak of the new coronavirus, resulting in economic slowdown causing a drop in fuel demand and in commodity prices. At the group level, Clean CCS operating result was almost RON 0.9 billion, more than 3x higher than in the second quarter of 2020. Our operating cash flow increased by 23% year-on-year to RON 1.5 billion while Clean CCS return on average capital employed reached 7.4 percentage points. In Upstream, we continued our drilling and workover program. Still, the natural decline of our mature fields was steeper than expected. In Downstream Oil, the utilization rate of 91% was strong, significantly above the average of around 76% estimated for European refineries. The group retail sales volumes decreased by 37% year-on-year, exceeding the pre-COVID levels ahead of our estimations. In Downstream Gas, the Brazi power plant had higher production year-on-year in the context of the planned shutdown performed this quarter. The power plant obtained additional revenue from a stronger contribution to the balancing and ancillary services market while continuing to play a key role for the security of the national energy system. In the second quarter, we continued our strategic focus on preparing OMV Petrom for capturing energy transition opportunities. Natural gas is essential for Romania's energy transition and the country has a chance to become one of the largest gas producers in Europe. Capitalizing on Black Sea gas remains critical, and OMV Petrom expects to see the offshore law amended by the end of 2021. Regarding our strategic project Neptun Deep and as already announced in the event that Romgaz becomes a partner in the project, OMV Petrom will be the operator of the block. In June, we announced our entry into the energy distribution market. Natural gas has multiple applications in the power production, transportation and industry and can also contribute to reducing emissions and strengthening energy security, and LNG represents a cleaner solution for the mobility sector. In May, we announced an electric mobility partnership with Renovatio to install at least 40 fast and ultra-fast recharging stations in the OMV and Petrom filling stations in Romania by the end of 2022. Considering also partnerships with Enel X and Eldrive signed in 2020, this will lead to a total of at least 80 EV charging points to be installed by the end of next year. In Downstream Oil, the integration of MyAuchan proximity shopping stores into modernized Petrom branded filling continued. To the 25 stores in operation at the end of last year, we added 35 stores during the first half of 2021 with a target to open in total 100 new stores by the end of this year. In Upstream, we closed the divestment of the production assets in Kazakhstan. The transaction is part of our strategy to focus on regional Black Sea -- expansion in the Black Sea area in search of the most profitable barrel. The impact from the transaction on our operational indicators is limited as Kazakhstan operations represented only a small part of our overall portfolio. On [indiscernible] the total recordable injury rate on a 12-month rolling basis was 0.43. We further pursued our initiatives to reduce carbon emission and the intensity continue to decrease year-on-year throughout all business segments. On Slide 6, I would like to present the operational performance, and I will start with Upstream. The hydrocarbon production decreased by 6.6% year-over-year in Romania mainly due to natural decline in the main field and by 9% at group level due to the divestment of production assets in Kazakhstan. OpEx per barrel of oil equivalent increased by 24% year-on-year to a level of $12.44. This was driven mainly by the lower production available for sale, the negative exchange rate impact as well as the early signs of increasing cost environment. On A quarter-on-quarter basis, the figure was marginally lower. In Downstream Oil, the refinery utilization rate was 91% higher year-on-year supported by the integration with our sales channels, which allowed us to place our equity products in our operating region. The increase in the group retail sales volumes reflected the relaxation of the mobility restrictions. Total refined product sales volumes recorded an 8% year-on-year increase driven by improved fuel demand. In Downstream Gas, the total gas volumes decreased by 14% year-on-year in the context of decreasing equity gas production and with large regulatory required sales volumes in the second quarter of 2020, creating a high base effect. Net electrical output was 23% higher than in the second quarter of 2020, benefiting from supportive spark spreads even with the plant shutdown performed in the second quarter of this year. Accounting for approximately 5% of Romania's power generation in the second quarter of 2021, the power plant played an important role in the balancing and ancillary services markets enabled by its high technical flexibility. Moving now to Slide 7. Total organic CapEx amounted to RON 1.2 billion in the first half of 2021, 23% lower year-on-year. The majority was directed to Upstream, where we finalized the drilling of 22 new wells and sidetracks and performed around 380 workover jobs. In Downstream Oil, most of the investments were routed to ongoing projects in the tank farm area and to preliminary works related to coke drums replacement and Petrobrazi refinery. At group level, for 2021, we maintained our guidance for investments, excluding acquisitions of [indiscernible]. Although the total amount remains unchanged, the CapEx for Upstream will increase with a corresponding decrease in downstream oil. In the first half of 2021, exploration expenditures of RON 39 million reflects mainly activities in Bulgaria, aiming at identifying potential drilling candidates for 2022, 2023 as well as geological and geophysical activities. In 2021, we expect exploration expenditure to be around RON 0.2 billion, similar to the 2020 level. The planned activities for the second part of the year includes drilling of one exploration well, a new large onshore 3D-seismic campaign, continuation of the seismic data processing from Bulgaria and preparations for an onshore 3D seismic acquisition campaign in Georgia. Please let me now hand over to Alina, who will go through the financials and the outlook in detail.

Thank you, Christina, and good afternoon also from my side. I will continue the presentation on Slide 9, starting with some highlights on the income statement with focus on the development of the second quarter of 2021 versus the similar period of 2020. Sales increased by 32% year-on-year, reflecting the higher revenues from petroleum products and electricity in terms of both prices and volumes. These were partially offset by lower gas sales volume. Upstream clean operating results increased to RON 473 million of profit from a loss of RON 130 million last year in the context of higher oil and gas prices. Downstream Clean CCS operating results increased by 5% year-on-year, a significant improvement of the Downstream Oil results, partially offset by the weaker result in Downstream Gas. The clean consolidation line of minus RON 77 million in the second quarter of this year reflects the intersegmental profit elimination and was driven mainly by the higher margins and quantities of crude oil and petroleum products in stock. Consequently, the group Clean CCS operating results increased year-on-year by more than 3x to RON 1 million. For the second quarter of 2021, we recorded inventory holding gains of RON 83 million due to the increase of crude prices over the quarter. For comparison, in the second quarter of the previous year, we recorded inventory holding losses in amount of RON 145 million. Special items of minus RON 403 million mainly referred to the forward contracts in Downstream Gas compared to the net special income of RON 12 million last year. The Clean CCS net income attributable to stockholders more than doubled year-on-year to RON 675 million. It increased year-on-year to a lower extent than the Clean CCS operating results as in the second quarter of 2020. The financial results reflected the interest income from clearance of the arbitration proceedings initiated by OMV against the Romanian Ministry of Environment, while the income tax reflected the fiscal credit from [indiscernible]. The reported net income attributable to stockholders was RON 406 million, 90% up year-on-year. Let me go on to Slide 10, which shows the major building loss for the development of the clean CCS operating result in the second quarter of 2021. I will start with Upstream, where clean operating results switched from a loss to a profit. The positive market effect deviation from RON 808 million was driven mainly by the steep increase in oil price. The negative volume deviation of RON 168 million is due to the 10% lower hydrocarbon sales. Exploration expenses were higher by RON 11 million mainly due to activities in Bulgaria. Other deviations include mainly higher production costs and depreciation charges. Looking at the lower chart, the Clean CCS operating result from Downstream increased by 5% compared to the second quarter of 2020 due to better results in Downstream Oil and partly offset by the weaker result in Downstream Gas. The positive market effect reflects the increasing refining margin as a result of higher product spreads mainly for gasoline and middle distillates. Operational effects in Downstream Oil reflect the higher year-on-year volume for refined products as well as the improved non-oil contribution. Last year's results also reflected the positive effect of RON 116 million from CO2 certificate transaction and also positive impact from refining hedges, which now turned negative. In Downstream Gas, we recorded a lower gas business result in the context of lower gas volumes sold. The power business was affected by the lower contribution of forward contracts in the context of increasing electricity prices partly compensated by the positive impact from balancing and ancillary services. Last year's result also included a one-off revenue representing the compensation for higher cost income in 2019 from the regulated power sales. On Slide 11, I would like to continue with the highlights of our cash flow statement. In the second quarter of 2021, we achieved an operating cash flow of RON 1.5 billion, 23% higher year-on-year as the positive trend of the operating results reflected in sources of funds was reduced by the net working capital changes. Regarding the evolution of the net working capital. In the second quarter, we reported a cash outflow of RON 169 million compared to a cash inflow of RON 455 million in the second quarter of 2020. The outflow in the second quarter of 2021 was mainly due to the higher trade receivable as a result of the higher selling prices in volume of petroleum products. Our net payment for investment amounted to RON 0.2 billion in the second quarter of 2021 as cash outflow for investment has been reduced by net proceeds from disposal of Kazakhstan assets amounting to around RON 0.5 billion. In the second quarter of 2020, cash flow from investing activities amounted to RON 0.7 billion. Most of our dividends for the financial year 2020 amounting to RON 1.7 billion were paid in June. Let me conclude our presentation with the outlook on Slide 12. We increased our forecast regarding Brent oil price in 2021 to a range between $65 and $70 per barrel, reflecting the latest development. Regarding production, we see a slightly higher natural decline of our main producing fields in Romania, which has led to a change in forecast. We aim to contain that year-on-year hydrocarbon production decline, excluding portfolio optimization of around 6%. And we expect a lower decline for oil than for gas. For 2022, 2023, we keep the previous guidance for production decline, excluding for portfolio optimization on average of 5% year-on-year. In the second quarter of 2021, we witnessed an upward trend in cost for electricity, fuel and certain materials, coupled with shrinking supplier discount based on oil price recovery leading to higher rates. We currently see OpEx between $12 and $13 per barrel of oil equivalent for 2021 to 2023, higher than the $11 per barrel of oil equivalent previously indicated. In Downstream Oil, we have slightly decreased our estimates regarding 2021 refining margin to around $4 per barrel given the evolution of the oil price while we have maintained our expectation in total refinery utilization rate. With regards to organic free cash flow after dividend, we expect it to be positive. In terms of demand, oil products and power are expected to be above 2020 while yet to be broadly similar to 2020. Our total refined product sales and net electrical output are forecasted to be higher than in 2020 while total gas sales volumes are estimated to be lower due to regulatory requirements in 2020. We currently do not expect new full lockdown. But if this will be the key, we have a good set record in managing our operations. With this, I close our presentation, and thank you for your attention. We are now available for your question.

[Operator Instructions] We will now take the first question from Tamas Pletser from Erste Bank.

I got two questions to you. First of all, Christina, can you tell me a little bit about OMV Petrom's position on the Neptun? You mentioned in the presentation that you expect by end of '21 the new offshore law. And you also mentioned that OMV Petrom is ready to be the operator of this project if it goes on. My question is would you be comfortable with the current setup. I mean you and potentially Romgaz making this project. Or would you be more confident or comfortable to take a third party who may have more knowledge, more expertise with deep offshore drilling and production. That was my first question. And my second question would be regarding the natural gas market in Romania. I mean how do you see the current market development and the current gas prices acceptable for the Romanian consumers? And what is your experience with the current centralized gas market issues and your obligation over there?

Thank you for your questions. Yes. With regards to Neptun, I mean I think, as you said, we do see and expect changes in the offshore law this year. And in part, we think that's obviously continued alignment by Romanian -- the Romanian state. But you see this natural resource developed particularly, I think, in the context of its role in Romania's energy transition overall and also as you can see, obviously, with Romgaz' interest to be in the project and given that it's a predominantly state-owned company with regards to that. We did announce that in the event that in the event that Romgaz enters into the joint venture that OMV Petrom will be the operator. And obviously, that's based on a high degree of confidence and be able to manage the operatorship of that. I'll make a couple of points on this, and then I'll hand over to Chris because he can go into a little bit more detail. But I think the main point obviously, we've been an operator in the Black Sea for 40 years, offshore. And so we have a lot of experience, I would say, in how to do that from a logistics perspective, boats, helicopters, all these aspects of it and obviously the development and drilling activity as well, combined with support from the main shareholder with regards to deepwater activity. So maybe I'll hand over to Chris and he'll actually add some further context behind that question.

Yes. Of course, we know that this development is one of the most important developments that we have, of course, Neptun for us and for Romania. And the operations is very effective for us to be taken. And as Christina said to everybody, we're building on 40 years of experience here, but we also draw our capabilities actually out of the pool of OMV, where OMV has experience in deepwater and other offshore development. That's actually how we would like to manage this project and deliver it in time and in budget..

Tamas, it's Franck speaking for your question on the gas. So first of all, I think what we've said about the Romanian gas prices is due to the increase of interconnection we have seen between Romania in the last years and the neighboring countries. We see now quite a correlation between the West European market and Romania. But still, that's on the spread between this market. You mentioned the gas release program. So it's a program which we started last year, we finish at the end of next year. It has an impact on the price because of the way it's built. And I don't want to go into details of the construction of this gas release program because it's quite complex. But it creates a price difference which is more -- lower than the Hungarian market, for example, which you see that on the forward price. On the spot, due to the correlation of the market, we are more quite close and it flows to the Hungarian market. And then we say that it really depends on the supply-demand situation on the day. But -- so you have the strong correlation on spot, less correlation on the forward. But still, the trends are similar, quite similar due to supply/demand and interconnection. I hope it answered your question.

Yes, it answers my question. Just a follow-up here, if I may, can you realize those prices which are on the exchange? Or -- because I know that the structure of the gas release program, you should start with a lower price than the previous market price. So can you, on average, realize those prices which are on the gas exchange? That is my question.

So the way that the gas exchange is working is you have a starting price for different products. And the starting price is based on average of the last 60 days of transaction of this product. So you have a time lag, let's say, but not that big, 60 days. So it will depend on that. So you tend to see a time lag on that. But the trend is upward as well on the GRP if you see the quotation at the moment. We are -- starting next year obviously, we will let you know, around EUR 25 per megawatt hour. So that's very close to -- a bit below CTF but not that far. Now we have also -- that's only part of the volume we are selling here. It's about 30% of the total volume on the gas release program. The rest, on the end user, there's a time lag as well because we sold it last year. Usually, we contract that from October to September. So we sold last year for this year till the end of September. So at the time these contracts were contracted, the prices were quite lower than what you see today in the market. But this -- again, when we see the renewal of these contracts starting 1st of October of this year, there should be, depending on when they will be signed but closer to the market, of course, because our pricing is based on the forward of the market.

I see. And just one more follow-up over here, if I may. Due to these high current spot prices, do you see any destruction of the demand for natural gas among those customers who buy on the spot market? And how is, let's say, the current storage level in Romania? Do you see any problems to fill up the storages for the winter period?

I mean demand is -- again, it's too early to say because, as I say, most of the customers contracted last year. So we have not seen yet the price increase. I think we will see -- if there is a demand disruption, I think we need to wait this winter to see if something happens especially on the -- I would say on the chemical sector. But at the moment, no, we don't see it. The GDP growth, as mentioned by Christina, is quite strong, so the economy and the pass-through of the cost of commodity in the market at the moment. So -- but let's see. We say it again, in wintertime, it will be more relevant to see there's an impact on demand. Concerning the storage, yes, we are quite below last year, 50% at the end of June. But that's also linked to the fact last year we were quite above previous years due to the Ukrainian-Russian crisis. I will say this year, we should finish below by the end of the end of the summer below, I would say, normal storage year mainly because summer prices are very high compared to winter price. So the spread is not always there but it's moving. So we need to wait if there is some opportunity on the market as well. But we've come so far, we've done well. So we are, end of June, quite in line with last year. And we will see by the end of the summer when we finish. We try to capture winter/summer spread when there are opportunity in the market.

The next question comes from Raphaël DuBois from Societe Generale.

My first question is on the CapEx guidance that you gave for '22, '23. It goes up. It would be great if you could remind us the reason why you expect to spend more money in the next 2 years, if you can give us a bit more color and also the split per division? And my second question, which is in fact related, is on the production decline. Putting aside the eventual start-up of Neptun, should we expect your base production to continue to decline every year? Or could you, at some stage, try to revert the decline by spending more money in Upstream?

Okay. Thank you for the question, Raphaël. I'll start with the CapEx. So for 2021, we have an estimation for CapEx of RON 2.9 billion. We kept our CapEx quite at a total level as we see a lot of volatility going on. Now moving further to '22, '23. Our guidance of around 3.8% will increase with approximately 30% to RON 3.8 billion for '22, '23. This will be -- this RON 3.8 billion will be received in Upstream around RON 2.5 billion, which means approximately 25% increase versus 2021. We will go up with the number of wells and sidetracks to around 60 wells per year and also with our workover operations. With regards to Downstream Oil, the guidance around Downstream Oil is around RON 1.2 billion and it goes forth to refinery segment. And we've got also some retail investment. So this will be from today's perspective around the CapEx we plan to spend.

Concerning the decline, we are actually fighting a natural decline in our mature fields of more than 10%. So -- and what we've seen, of course, CapEx is intended to be spent on it and drilling and workover is very essential to that. So that's why we also see a higher decline this year because we spent less last year and also this year. So on average, I would say, you should expect a further decline on it. There could be a positive impact coming from our [indiscernible] projects, what we're doing, but this is not in the next year. So in average, I would say, at 5%, we're aiming to stabilize this at about 5%. Of course, always depending on the business environment and the volatile oil price. So -- but it's exactly what Alina was mentioning. We are ramping up a little bit next year on the CapEx and increase also the drilling activity. That should actually stabilize a little bit more than we did it in the last 2 years.

Great. Maybe just one follow-up on the last topic, considering the better macro environment, the better oil price, your strong balance sheet, the fact you don't need immediately to deploy that money until Neptun is FID-ed. Will it not be possible to spend already a bit more money into Upstream to lower further the decline rate? I understand you already fight together lower decline rate from 10 to 5-ish percent but do not you have the resources to do more?

Definitely, we do have resources as you can see in our balance sheet. So what we have done, we have increased already the initial planned spending for Upstream. So we had RON 1.3 billion. Now we spend around RON 2 billion for Upstream. And we are preparing for next year to spend further.

The next question comes from Oleg Galbur from Raiffeisen.

I have -- I will start with a follow-up on your production guidance for this year. Could you please tell us what is the expected decline separately for crude oil and natural gas? That would be my first question. And second, just staying in the segment. If you could provide more details on the special items that you booked in the quarter and maybe explain the reason for the adjustments for the sale of assets in Kazakhstan as well as the personal restructuring charges that you mentioned. And the third question is a bit longer and more complex. So if you don't mind, I will ask it after you answer the first two.

Well, I will kindly encourage you to address it now if that's okay with you, of course.

Okay. So the third question refers to Petrom's realized gas prices. And I know that you don't disclose them but just to help us understand to which extent the company could benefit from the current environment of high gas prices. Could you please talk a bit about, first of all, how is the transfer price of gas between Upstream segment and Downstream Gas segment set? Because I understand that it is linked to the market price. But based on my calculation at least, I see quite big differences from quarter-to-quarter in terms of premiums or discount between Petrom's realized price and centralized market prices. And I would like to understand the reason for this big swing from quarter-to-quarter. And secondly, also help us understand how much flexibility with the gas pricing for your clients do we you for the second half of this year? In order to, again, help us understand if you could take advantage of the current environment of high gas prices. And here, of course, I refer to the Downstream Gas segment where you have different terms contracts. And of course, as it was already mentioned, some of them were signed last year when the prices were significantly lower.

Okay. Let me answer your first question on the decline. There's a significant difference actually between the oil production and the gas production. On oil, we see roughly about 2% and on gas 9%. This is mainly driven by the big gas fields are flat already since 2017, '18, somewhere around. And since that, actually, there's a full decline. That's why we see a bigger decline actually on the gas side.

And going forward, since you were talking also about the midterm or longer-term decline, would you still see oil production declining significantly less than the gas production?

Yes, because here, we are very much already in the long tail of the production scenario. This means the differences here are very -- the differences are very small actually from year-to-year. The uncertainty also in the reservoir performance is much less actually than in [indiscernible]. This is normal behavior that the decline is much faster at the end of the production base.

Moving first to your question related to special items. In Q2, we had RON 103 million net special loss. This was -- they were mainly by 2 segments: Upstream around RON 116 million and then RON 300 million in Downstream Gas. Now in Upstream and -- as I understood your question was rather towards the Upstream. In Upstream, there were 2 main businesses. One was a loss related to the Kazakhstan subsidiary. What we had there, we had foreign exchange differences recorded in other comprehensive income during the year, according to IFRS, which needs to be recycled to P&L divestment. Also, these foreign exchange losses recorded in equity were reflected in P&L and they were adjusted in the special items in the profit and loss account. And the second part of the special items was related to restructuring. We had a book restructuring cost related to our -- primarily our outsourcing activities in Upstream. Let me mention a bit also related to the special items in Downstream Gas as the amount is quite significant. So this is again related to the mark-to-market adjustment of our forward contracts for electricity booked in Downstream Gas. So we had basically a year ago forward contract for electricity. Now the electricity price is very high. We see that mark-to-market adjustment for this contract showed a loss, which is a special item, a realized loss treated as special item in the P&L presentation.

Oleg, this is Franck speaking. So concerning your question on Upstream, let me start with contract price. I mean it's nothing really rocket science. It's also price based on the commission as a sales agent for Upstream. So it's quite very -- I will not give you the details but there's nothing really unusual in that. In terms of the gas price, realized gas price gas, so as I mentioned, we have, first of all, the gas release program, which is quite a significant part of the sales. This volume is -- you have a 60-day delay due to this -- the way the product is calculated. So the trend is going up. But of course, we have what we sold last year for this year will have an impact. And what we expect now with next year is we will have some, of course, benefit from the increase of the gas prices as we start already to sell now with -- for next year, the product, we start to sell now. We are priced quite high. So we will see some positive news coming from Q4 and Q1 and especially calendar next year due to the move in the price. On the end user, we have also customers directly connected to our Upstream activity, more distribution companies. Here, the price, it depends when it will be fixed. But as I mentioned before, most of them were fixed last year. Most of them also we finished by the end of September. So we will see -- again, depending where the price is going, of course. But as we see, the trend is rather bullish. The price will be fixed based on the forward market. So that will be based on the market price we see at the time of signature. Of course, we believe in competition bid from the customer point of view.

The next question comes from Irina Railean from Banca Transilvania.

Just to follow up again on the gas prices. How sustainable do you think those prices we see now to actually... [Technical Difficulty]

Irina, I'm sorry to interrupt you but we can't really hear you. Could you please call again? I'm sorry to...

Sure. I will try... [Technical Difficulty]

Let's try one more and we'll take it from there. [Operator Instructions] The next question comes from [indiscernible].

This is [indiscernible]. I've got two questions for now. First of all, I think a lot has been asked about your Upstream production. Can I check with you given the latest status on both the oil and the gas production that the company plans to update your production guidance for 2021 and subsequent years? That will be my first question. The second question that I have is regarding your volume of gas sold. In the Upstream, we see that the amount of gas sold fell roughly about 2% from 61,500 barrel equivalent per day to 60,200 barrels equivalent per day. So there's about just 2% of decline over the last quarter. But in Downstream Gas, we see that the production fell by a lot sharper. And this is from 14.36 terawatt hours to 11.21 terawatt hour. I understand that you had placed some gas in storage which -- looking at the amount of gas that was in storage in the last quarter versus this quarter, that's roughly about 1 terawatt hour. So if we adjust -- if we add back this 1 terawatt hour to the amount of gas sold, we still get roughly a decline of 15% from Q1 to Q2. So this -- what I'm trying to say is that the amount of gas sold adjusted for storage, it's about 15% for Downstream, whereas in Upstream, we see that as just very minimal 2%. Can we have more information about the discrepancy between these 2 decline figures?

Maybe I'll answer the first question first. For the time being, we maintain our expectation to have Romanian production of around -- fast decline for the year 2023. So on average -- and we will update actually on the Capital Markets Day in end of the year.

I see. So you feel that the production for 2021 would still be achievable at a roughly 5% decline year-on-year rate?

I think if I understand it right, your question is about 2021. And I think in 2021, we've said 6% decline to 2021. But for '22 and '23, we maintain our guidance of 5%. So this year, because of the CapEx that you've seen last year and this year, we saw a slightly steeper demand than we anticipated. However, for 2022 and 2023, we will return to what was anticipated in the past.

This is Franck. For your question on Downstream Gas, we are selling also for Downstream Gas. So we are trading gas on top of the equity of our own production. So what we -- just to give you what our forecast for this year is to buy and sell [indiscernible] our gas on top of what we produce.

[Operator Instructions] Next question comes from Irina Railean from Banca Transilvania.

Do you hear me better now?

It is perfect. Thank you.

Sure. Sorry for that. There is a pretty heavy storm here in Cluj. So that's why we have problem with the connection. My first question is rather a follow-up question on the gas prices. And I'd like to ask you do you see them as sustainable for 2022 and in the long term, gas prices above 100 labor per megawatt hour. Is this sustainable in the long term? Or is it just a temporary imbalance on the market and that's why we see such high prices? And also, if you can tell us if the prices or the level of prices on the centralized market are representative? I mean do you -- do they mirror what happens on the OTC as well? Because we don't see the OTC market as bilateral contract, so that's why I'm asking. The second question is more a long-term question or strategic question. Considering the carbon-neutral targets and you -- we have seen that many oil and gas major players have already announced shift in their strategy. Does Petrom -- be able to start to shift towards renewal or other sources of energy? Or how exactly will Petrom adapt to this climate policies requirement? And my third question relates to MyAuchan project. You mentioned you plan to open 100 new stores by the end of the year. I'd like to ask you what impact should we expect for downstream oil of this project. If you could detail us on how much margin do you expect on the aggregate level or per store? It's a quite large project and it seems a bit difficult to estimate the impact without any figures guideline. That's why I'm asking.

I will start with your first question of gas. Is it sustainable or not? I think what we see at the moment is the gas price in Romania is still below our neighboring countries. So you will say they are competition for the industry but still benefit versus other countries. Now it will depend if the competition is coming from, I would say, outside of Europe. But at the moment, what we see is there's still a strong demand on the market. We see plus-8% consumption of gas the first 6 months. It's true, the weather was quite impacted. Now are we going to see some disruption of demand? I think it's too early to say. The winter time will really tell us in the calendar -- probably calendar next year. Now we are talking summer prices well [indiscernible]. Calendar of next year is around [indiscernible]. So we see a bit of decrease. But it will also develop, of course, in the winter, where the winter will behave as we'll have certainly lower storage. But at the moment, we don't see disruption on the price -- disruption of the gas price.

Okay. But it's a little bit strange like what's happening on the Romanian gas market. I mean we are also importers. I mean we know that our gas production, gas level, doesn't fully cover the demand for the entire year. So we are importing some quantities of gas. At the same time, oil prices are kind of lower than in the neighboring countries. So we are exporting gas. It's something quite strange because if we need to import gas, why are we exporting natural gas?

You're right, Irina. It's a bit...

We import next cold season, will you just -- will be importing at higher prices?

Maybe that's something which we highlighted already last year to the regulator with the gas release program, which creates the way the price starts. When you have the market price going up, you have a time lag because I'm looking at the average of about 60 days. And this time lag and the fact that not every customer has access to the gas release program. So again we don't have a full demand on the market coming through the gas release program. So you have a point about [indiscernible] supply in the gas release program. Not that much customers on the market. And people benefit the price, which is below the -- yes, across, I would say, the Hungarian, which is the closest market. And of course, it creates some trends, cross-border trends. But you have to keep in mind some of the main suppliers who are buying the gas resources also protect prices for the household market. So the price you see on the household today is well below the market price because they have both -- from the gas release program last year at quite a good price and even at the beginning of this year. So there is a time lag. Some of it is even more important for the domestic market than for the B2B, which is more reactive because the B2B will depend on the import price. But it's complex because of that, yes, you're right.

On your second question, Irina, with regards to sort of overall, I would say, carbon targets, decarbonization strategy, et cetera. I mean, I think, it's fair to say any energy company in -- particularly an oil and gas one is very focused on the transformation. And particularly, I think in the context of our markets because we are in the EU and this is the EU. I think it's looking to lead the way in the Fit for 55. But also, we need to take it in the context of Romania too and what will be the solution needed for Romania to be able to reach its Fit for 55 and beyond that. So in this context, I think what you can see, the gas is a focus for Romania and this clearly aligns with our existing strategy, too, with regards to Neptun Deep. And we see clear alignment with the Romanian state with regards to that. And we see that contributing to the decarbonization of Romania, both with replacement of coal but also with the balancing that's needed with the large amount of renewables that will come in also to replace coal. In addition, when you look at Downstream Oil, we do see a significant amount of fuel demand growth underpinned by pretty strong GDP that we expect. Obviously, Romania is coming from a relatively low base. But the increase in infrastructure, the increase in the [indiscernible], given the [indiscernible] is substantially below the average in Romania and overall economic improvement in prosperity, we do see full demand. So in that context, when we look at our sort of activities that we're looking at now, operationally, we have reduced our GHG intensity by 26% versus 2010 and that's almost ahead of our target. We plan to deliver 27% by 2025 so good progress on that. We are looking at renewable opportunities and we are looking at biofuels for our products as well. In addition, I think beyond 2030, but we are starting to look at carbon capture and storage, carbon capture and utilization as well as hydrogen. I think these are more in the research and pilot phase really to see how it can get into commerciality. But with regards to sort of the holistic nature of bringing it all towards you, our goal -- because we're working on a strategy update right now internally. And our goal plan right now is to bring that to the capital markets in the fourth quarter of this year. We have started doing some discrete actions and items that we can talk to you about, hopefully, by the end of this year.

This is Franck. Thank you for the question. Indeed, a very important project for the platform brand in Romania, not only from the size of investment, that is approximately EUR 50 million that we're going to invest together with Auchan but as well because it helps a lot the strong positioning of Petrom brand in Romania in the segment play for money, securing the 3 dimensions that we want to build on in these brands: Reliable fuels, affordable prices, both fuels and shops and as well very close to the Romanian sort of proximity of access. About the expected impact, I would say -- I would tell you that we have a vision to have an increase of approximately 30% of our nonfuel margin in 2025, but that includes Auchan as well as other initiatives. So specifically for Auchan, I can't go in detail but it's a very significant part of our vision in 2025.

Okay. 2025 compared to...

'19. 2019.

If there are no more questions, we want to thank you again for taking part in our conference call. For further information, please do not hesitate to contact Investor Relations team. Until our next quarterly earnings call, wish you all the best. Thank you, and stay safe.