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

Good afternoon, ladies and gentlemen. Thank you for joining us. We will have a presentation of the fourth quarter results followed by Q&A session. Christina Verchere, Chief Executive Officer, will provide the key highlights about the macroeconomic environment, operational performance and strategic focus areas this year. Alina Popa, Chief Financial Officer, will give you more details on our financial performance and a brief outlook. Afterwards, all 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 today. I hope you and your families are all safe and healthy. Please 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 fourth quarter of 2021. Brent oil price continued its growth to an average of USD 79.80 per barrel in the fourth quarter of 2021, more than 80% higher year-on-year. Within the quarter, we experienced high levels of volatility driven by OPEC+ quotas, fears over a potential coal and natural gas shortage over winter, Omicron-induced demand uncertainty and news regarding U.S. strategic petroleum reserve release. Urals traded at an average discount to Brent of USD 1.54 per barrel. In the fourth quarter of 2021 and on a year-on-year basis, the RON depreciated versus the US dollar by 6% and against the euro by 2%. OMV Petrom indicator refining margin reached USD 7.52 per barrel, significantly higher year-on-year, as a result of higher product spreads, mainly for gasoline and diesel. Compared to the third quarter of 2021, it improved by 5%. CEGH prices increased significantly in the fourth quarter to EUR 95.1 per megawatt-hour, double compared to the previous quarter, and almost 7x higher year-on-year. Among the reasons for the spike in European gas prices are a strong economic rebound, drained stockpiles following a cold and long winter and tighter than expected gas supply. Gas prices on the Romanian centralized markets also advanced strongly, in line with European prices, with day-ahead prices almost 7x higher year-on-year to EUR 90.1 per megawatt-hour. Base load electricity prices in Romania quadrupled year-on-year and almost doubled quarter-on-quarter, marking a record high in the 15 years of OPCOM's tracking. Despite this, market spark spreads remained similar to those in the fourth quarter of 2020, as record high electricity prices in 2021 were driven by historically high gas and CO2 prices. The CO2 price more than doubled year-on-year, in the context of a reduction in the number of CO2 allowances. Now looking at the Romanian environment, the country is currently facing a new COVID-19 wave. The state of alert is still in force and authorities are trying to keep the fifth wave under control by implementing local restrictions aimed mainly at non-vaccinated people. Being aware of our strategic role in ensuring energy supply for Romania, in OMV Petrom we continue to enforce strict health and safety measures and wherever possible, working from home and flexible working hours. Romanian GDP in the first 9 months of 2021 strongly increased by 6.9% year-on-year. In its autumn Economic Forecast, the European Commission estimated the GDP growth for 2021 at 7% year-on-year, and for 2022, an increase of 5.1%. Recent estimates are pointing to a downward evolution for the fourth quarter, but the estimated GDP growth is still expected to be above the European average of 5%. The inflation index in the month of December 2021 versus December 2020 was 8.2%, on an upward trend. Wage pressure and increase in energy prices are the main drivers, with impact in inflation expected to be felt at least until mid-2022. On the regulatory side, in December 2021, the Gas Release Program was amended, in the sense that part of the volumes initially allocated for 2022 were shifted to 2023. This reduces pressure on our summer 2022 gas sales, and we are waiting for clarifying details. In January 2022, authorities revised the measures initially approved in October 2021, aiming to further help consumers tackle the exceptional rise in gas and electricity prices. The main additional changes to the support scheme are the increase in the consumption level eligible for tariff caps, and consequently, the expansion of the support scheme to more consumers as well as the reduction of the price caps, for both gas and power. We are closely following the discussions regarding the government's interventions related to high gas and power prices. We support the need for governments intervene in these very unusual times but insist any interventions are temporary in nature. We are also watching for any further consequences to an already very poor investment climate for gas developments in Romania. Looking at the energy sector in the fourth quarter of 2021, the Romanian demand for our products recovered to pre-COVID levels. Demand for retail fuels increased by around 7% year-on-year and by 4% compared to the fourth quarter of 2019. Non-retail demand was 4% up year-on-year, and 9% higher versus the fourth quarter of 2019. Jet demand jumped 154% year-on-year, from a very low base, due to partial recovery in flights, but remained 29% below fourth quarter in 2019. Gas demand marginally increased in the fourth quarter compared to the fourth quarter of 2020, on similar weather conditions. Power demand was stable year-on-year, while domestic power production slightly decreased by 1% year-on-year, Romania remaining a net importer of power in the fourth quarter, same as last year. Power production from gas and coal increased year-on-year as hydro had a steeply decreasing contribution to the generation mix, due to a drier quarter. Both gas and power demand were above the levels registered in the fourth quarter of 2019. On Slide 5, we present the key highlights for the quarter. At group level, Clean CCS Operating Result was RON 1.5 billion had the highest quarterly result since the third quarter of 2018 and more than tripled year-on-year. Our operating cash flow increased by 62% year-on-year, to RON 2 billion, while Clean CCS return on average capital employed reached 12.7%age points. In Downstream Gas, the Brazi power plant had the highest quarterly production since the start of operations in 2012, covering 11% of the Romanian power generation, a record high share so far. In this context, the Clean CCS Operating Result of Downstream Gas was also higher than ever before. In Downstream Oil, Clean CCS Operating Result was the highest quarterly result ever recorded for a fourth quarter, reflecting the record refinery utilization rate of 101% and the excellent refined product sales. We continued our strategic focus on preparing OMV Petrom for capturing energy transition opportunities and in December 2021, we launched our Strategy 2030. It is built on 3 pillars: Transitioning to low and zero carbon; growing regional gas; and optimizing our traditional business and it sets out clear targets for emissions reduction and Clean CCS Operating Result more than doubling, underpinned by EUR 11 billion of CapEx that would contribute to reach the targets. At the same time, our 2030 Strategy enables a stronger commitment to dividend growth. Based on the preliminary results of 2021, the Executive Board proposes for the 2021 financial year a base dividend per share of RON 0.0341, 10% higher year-on-year. This is at the upper limit of the range announced as part of our Strategy 2030 and Alina will provide more details on this. In Downstream Oil, the integration of MyAuchan proximity shopping stores into the modernized Petrom branded filling stations continued. To the 92 stores operational at the end of September, we added 36 in the fourth quarter of 2021, slightly exceeding our target to open a total of 100 new stores in 2021. In December, we announced the expansion of our network of recharging stations for electric vehicles in Moldova and Serbia. Thus, we became the first energy company in the region with a network of recharging stations in 4 Southeastern European countries, Romania, Bulgaria, Moldova and Serbia. Also, in December, we finalized the transfer of 40 marginal fields to Dacian Petroleum. The fields divested had a daily production of 0.9 kboe/d, roughly 50% oil and 50% gas. On HSSE, the Total Recordable Injury Rate for the whole year 2021 was 0.53. Last year, we continued to pursue our initiatives to reduce carbon emissions. The GHG intensity further decreased by 3% year-on-year and 10% versus 2019 across all business segments. On Slide 6, I would like to present the operational performance and I will start with Upstream. Hydrocarbon production decreased by 9% year-on-year in Romania, mainly due to high natural decline, and by 13% in group level, also due to the divestment of production assets in Kazakhstan in the second quarter of 2021. For the full year, in Romania, the daily average production, excluding portfolio optimization, declined by 7.6% year-on-year. Production cost per barrel of oil equivalent increased by 12% year-on-year, to a level of USD 12.80. This was driven mainly by lower production available for sale and increased expenses, mostly for operational maintenance and other production support activities. In Downstream Oil, we had excellent refinery utilization rate of over 100%, supported by the strong fuel demand and the integration with our sales channels which allowed us to place the equity products in our operating region. Total refined product sales volumes recorded an 11% year-on-year increase. The 8% increase in our retail sales volumes is reflecting a return to pre-crisis activity levels following solid fuels demand. Non-retail sales increased by 14% also reflecting the partial recovery of the aviation business as well as market opportunities. In Downstream Gas, total gas volumes decreased by 7% year-on-year, in the context of lower equity gas production. Brazi net electrical output was 32% higher than in the fourth quarter of 2020, in the context of excellent availability of the power plant. Enabled by its high technical flexibility, the Brazi power plant played an important role on the balancing and ancillary services markets, capturing the price increases. Moving now to Slide 7, total organic CAPEX amounted to RON 2.8 billion in 2021, 7% lower year-on-year. The majority was directed to Upstream, where we finalized the drilling of 36 new wells and sidetracks and performed almost 700 workover jobs. In Downstream Oil, most of the investments were routed to ongoing projects in the tank farm area and to coke drums replacement at Petrobrazi refinery. For 2022, we plan investments, excluding acquisitions, of up to RON 4 billion, 40% higher year-on-year on the basis of an improved investment environment. The majority will be routed Upstream where we plan to increase our activity drilling to 60 new wells and sidetracks and performing around 600 workovers. Downstream investments will be mainly directed to Petrobrazi refinery, for the earlier mentioned projects and to projects connected with the 2023 turnaround. Also, in 2022 a 2-month planned shutdown of Brazi power plant is scheduled in the first semester of 2022. Ladies and gentlemen, as 2022 is the first year of our new strategic cycle, let me present to you what we plan to deliver this year. And I will start with the first pillar of our strategy; transition to low and zero carbon. On alternative mobility, as already mentioned, by the end of the year we plan to link the 4 countries in our retail operating region with a network of around 100 fast and ultra-fast charging stations. We plan to initiate photovoltaic projects in several locations, and we are making the first steps towards the production of second generation bioethanol. Moving to the second pillar of our strategy; grow regional gas. Our major project Neptun is waiting on amendments to the Offshore Law. In the context of a steep natural decline in the domestic gas production, we see Black Sea gas as the solution for securing Romania's energy independence. However, the amendment is critical for the project to be FID-ed in 2023, mainly -- meaning a draft law should be put up for public consultation as soon as possible. Any delay puts pressure on the project, threatens Romania's energy security and leads to higher gas imports. Regarding our other expansion areas in the Black Sea, we are progressing well and in Bulgaria, we plan to drill 1 offshore well, in late 2022 or 2023, while for Georgia, we plan to commence the 3D seismic offshore acquisition this year. In the third strategic pillar, optimize traditional business, we will capitalize on our integrated business model across all business segments, maximizing the value from our traditional asset base. Based on the very good results so far, we will accelerate the roll-out of our partnership with Auchan, by modernizing more than 100 stores this year. Our refinery is planned to have a utilization rate of more than 95%. As our overarching ambition is to reduce the carbon intensity of our operations by 30% by 2030 compared to 2019, in 2022, we will continue to put our efforts into this. At the same time, we will stick to our stronger commitment to increase the base dividend per share by 5% to 10% per annum on average by 2030. Please let me now hand over to Alina, who will go into the financials and the outlook in detail.

Thank you, Christina, and good afternoon also from my side. I will continue the presentation with Slide 10, starting with some highlights of the income statement, with focus on the developments of the fourth quarter of 2021 versus the similar period of 2020. Sales increased by 95% year-on-year, reflecting the higher sales of petroleum products in terms of both prices and volumes as well as the higher natural gas and power prices. These were partially offset by lower sales volumes of natural gas and electricity. Upstream Clean Operating Result increased to RON 588 million, from RON 26 million last year, in the context of higher oil prices. The effect of higher gas prices was offset by increased taxation, in the context of royalties and offshore supplementary tax on revenues being linked to CEGH. Downstream Clean CCS Operating Result increased by 97% year-on-year, reflecting the significant improvement of both Downstream Oil and Downstream Gas results. The clean consolidation line of minus RON 46 million in the fourth quarter of 2021 reflects mainly the unrealized profits elimination as a result of higher margin for petroleum products, due to higher quotations. Consequently, the Group Clean CCS Operating Result increased year-on-year by more than 3x to RON 1.5 billion. For the fourth quarter of 2021, we recorded inventory holding gains of RON 122 million due to the increase of crude prices over the quarter. In the fourth quarter of the previous year inventory holding gains amounted to RON 41 million. Special items of minus RON 129 million mainly refer to power forward contracts. For comparison, the fourth quarter of last year included a net special income of RON 31 million. The Clean CCS net income attributable to stockholders more than tripled year-on-year to almost RON 1.2 billion. It increased year-on-year to a lower extent than the Clean CCS Operating Result, and in the fourth quarter of 2021 the financial result reflected higher interest expenses in relation to the discounting of receivables. The reported net income attributable to stockholders was RON 1.2 billion, from RON 465 million in the fourth quarter of 2020. Let me go on to Slide 11, which shows the major building blocks for the development of Clean CCS Operating Result. I will start with Upstream, where Clean Operating Result significantly improved to RON 0.6 billion. The positive market effect deviation of RON 0.8 billion was triggered by the steep increase in oil price and favorable evolution of the US dollars versus RON. Gas market prices also recorded a high increase, but this was offset by gas supplementary taxes and effect of taxation being partly based on CEGH, which was significantly higher than the realized price. The negative volume deviation of RON 103 million is due to the 12% lower hydrocarbon sales. Clean exploration expenses increased by RON 65 million and other deviations include mainly higher production costs driven by lower production volumes and cost inflation. Looking at the lower chart, the Clean CCS Operating Result of Downstream almost doubled compared to the fourth quarter of 2020 due to the excellent result of both Downstream Oil and Downstream Gas. The positive market effect reflects the increasing refining margins as a result higher product spreads, mainly for gasoline and diesel. Operational effects in Downstream Oil reflect the higher year-on-year volumes for refined products as well as the better operational performance. In Downstream Gas, the power business recorded very strong result, generated by increasing power prices and higher revenues from balancing and ancillary services markets, which successfully compensated the negative impact from the power forward sales contracts concluded in previous periods. The gas business had a good contribution in the fourth quarter results in the context of significant market challenges. In the fourth quarter of 2021, the gas business also benefited from a reversal of bad debt provisions. On Slide 12, I would like to continue with the highlights of our cash flow statement. In the last quarter of 2021, we achieved an operating cash flow of RON 2 billion, 62% higher year-on-year, reflecting the positive trend of the Operating Result and the neutral net working capital changes. Regarding the evolution of the net working capital, in the fourth quarter of 2021 we recorded a cash inflow of RON 28 million compared to a cash inflow of RON 243 million in the fourth quarter of 2020. The inflow in the fourth quarter of 2021 was mainly due to the decrease in inventories due to lower quantities of gas and oil products in stock and to the increase in liabilities. This was almost entirely counterbalanced by the increase in trade receivables, reflecting the higher quantities and prices for the gas sales. Our net payments for investments amounted to RON 0.78 billion in the fourth quarter of 2021 versus RON 0.55 billion in the fourth quarter of 2020. The net cash position including leases increased to RON 9.4 billion at the end of the fourth quarter of 2021 versus RON 6.5 billion at the end of the fourth quarter of 2020. Moving now to Slide 13, let me remind you that in December we reinforced our dividend policy, with a stronger commitment, announcing our target to increase our base dividend per share by 5% to 10% per annum on average over the Strategy 2030 cycle. This shows that we, the Executive Board of OMV Petrom, are committed to deliver a competitive shareholder return, also by paying an attractive dividend. Based on the 2021 preliminary results, the Executive Board proposes a dividend of RON 0.0341 per share for the 2021 financial year, 10% higher year-on-year, at the high end of the range stated in our guidance. We believe that this proposal is competitive among regional peers from the perspective of dividend yield, 6.8%, calculated using the end year share price and payout ratio, 67% based on the 2021 preliminary consolidated net profit. This proposal is subject to the approval of the Supervisory Board and General Meeting of Shareholders, which will take place in April. Let me conclude our presentation with the outlook, on Slide 14. We expect Brent oil price in 2022 to be around USD 75 per barrel, which is higher than the range of USD 65 to 70 per barrel assumed in our strategy. Regarding production, in 2022, we aim to contain the year-on-year hydrocarbon production decline, excluding portfolio optimization, at around 7%, and we expect a lower decline for oil than for gas. Starting the second quarter of 2021, we witnessed an upward trend in costs for electricity, fuel and certain materials, coupled with fading supplier discounts based on oil price recovery, leading to higher costs. Therefore, we currently see production cost at around USD 13 per barrel of oil equivalent for 2022, possibly slightly higher in the first quarter of the year. In Downstream Oil, we estimate the 2022 refining margins to be around USD 6 per barrel, while the refinery utilization rate to be above 95% in 2022 and slightly below 90% in 2023, when we have scheduled a major turnaround, similar with the one we had in 2018. As Christina mentioned earlier, CapEx is expected to be up to RON 4 billion in 2022, of which RON 2.6 billion in Upstream. In 2022, we expect a positive free cash flow before dividends. In terms of demand, oil products are expected to be on a slightly increasing trend, power is expected to be similar to 2021, while gas to be lower than in 2021. Our total refined product sales are forecasted to be similar with 2021, while gas sales volumes and net electrical output are estimated to be lower. We currently do not expect new full lockdowns, but if this is the case, we have a good track record in managing our operations. With this, I close our presentation and thank you for your attention. We are now available for your questions.

Thank you. [Operator Instructions] We'll now take the first question from Oleg Galbur from Raiffeisen.

I hope you can hear me well.

Yes, very well.

I have 2 questions or in fact, 3 but 2 are combined in the first one. And it's about your production guidance for this year, where you assume a 7% decline, excluding divestment for optimization. I was wondering, first of all, if you could provide the actual level of daily production that you expect in 2022 as well as the split between oil and gas, so that we make sure that we make the calculation from the -- or we don't start from the wrong base? And also, I was trying to understand your guidance of 7% decline, putting it in the perspective of the recently announced strategy where you are targeting a 3% -- to reach a 3% decline by 2025. And also I looked at the last year's guidance for 2021 and '22, '23, where you were guiding for a 5% decline from the existing portfolio, yes? So I was wondering, is this 7% a new level of decline that we should expect at least in the medium term or this is rather an exceptionally high level of decline, and you are still targeting to reach the 3% by 2025? This would be my first question. And the second question is on CapEx guidance. If you could explain what is driving the almost 2x increase of the Downstream Oil CapEx this year?

Oleg, thank you for your questions. I think Chris is well prepared to take the questions on production, both what we saw last year, what we've seen this year versus what we put out in December last year as well as giving you some indication of the oil and gas nature of that, I think it becomes even more important, I think, in the context of some of the taxation levels that we're seeing here in Romania. And then Radu can jump in on CapEx increase.

Yes. Thank you, Oleg, for the question. Coming a little bit back on our production story, we have -- we're dealing with very mature fields. And specifically, our gas fields, which were until 2018 in full decline. And that's also triggered actually a little bit to ask a steeper decline what they see in last -- what we saw last year for -- and this led us to this 7.6% actually what was mentioned there. For 2022, we see this trend continuing. However, due to our higher investment volume what we have, so I think we assume to slow this trend down and we're drilling -- we heard already that we're drilling now 60 wells compared to 36 wells last year, and we hope that we can slow this trend down. However, these wells will not be fully operational already next year. So we will see the impact actually in the following year. And we recognize that this be communicated actually the 3% or 5%, excluding investment is a quite ambitious target. And this depends very much on the results of the drilling this year and the workovers, we have planned also some EOR projects, which should support actually this. And so up to now, we're still holding on these numbers. But the -- of course, the investment climate on the gas, and we heard about the tax ratio what we see makes a big competitive disadvantage for the gas projects. And this will be actually one thing. So we stick to the numbers. And maybe there's production volume for next year it's around 116,000, what we see.

And do you have also split between oil and gas, please?

Yes, sorry. The oil and gas is still roughly half-half, a little bit more weight on the gas side, but roughly 50-50. So this -- it depends very much on the economics of the project. And of course, we then now to move more investments to the oil side because the profitability of the gas side is much less due to the high taxation actually.

Oleg, coming back to your second question, there is an increase in CapEx in Downstream. It's actually roughly flat in Downstream Oil, but actually more in Downstream Gas the newly named the Gas & Power division, predominantly driven by the brand's 2 months shutting in the first half of this year.

The next question comes from Jonathan Lamb from Wood.

Can you hear me?

Yes, very well.

Part of my question was answered, but it's about CapEx. How much is going to be spent on the new PV projects? And how much is going to be spent on the Brazi shutdown?

Okay. Thank you for the question, Jonathan. So for the PV, we spent a bit below EUR 100 million -- sorry, RON 100 million. And that is for the shutdown in Brazi.

Next question comes from Irina Railean from Banca Transylvania.

My first question is regarding your view on the natural gas market. And when can we see a rebalancing or what should happen to see a rebalancing of the market? The second question is also regarding your activity as last resort supplier. I think -- announced something related to Petrom, but if you could just detail a little bit on how would this impact the company? And my third question is regarding the additional dividends or extra dividends? Could we expect something like this towards maybe the summer or second half of the year?

Gas prices, I think, is the question. I think everybody is asking it's highly volatile times. But Franck, over to you on the natural gases and the last resort suppliers and then Alina will touch in on special dividends.

Thank you, Christina. Thank you for the question. Yes, as you mentioned, we have seen quite a volatility on the gas price that we have never seen before last year and already on the very high prices and we see in December last year, price reaching EUR 180 per megawatt hour and same on the spot in Romania, even very close to RON 1,000 per megawatt hours. We have seen price at RON 900 megawatt hours, which is incredible as such. On how sustainable it is, we don't think these levels of price are sustainable because we still -- we will see some decrease on the demand side. Now it's a supply-demand issue. So we need to see more gas coming also from the different connection that Romania has. And that's really the geopolitical context, it's difficult to forecast anything on that due to when Upstream will start, what will happen to the crisis in Ukraine, et cetera, et cetera. So very hard to forecast, but we don't think it's sustainable to stay this high level, and that will be certainly -- we see certainly potentially a decrease. Now winter is not finished. We are still in the beginning of February. So far, the forecast is a rather mild winter, which will help, of course, also the gas price. But let's see, last year, we had some cold spell even in April. So if we stay with, I would say, mild winter, that will help, of course. And sorry, on the question on the last resort supplier, yes, we have been a part of the supplier of last resort. But it's capped -- there are a certain number of customers at 30% of your portfolio. So for us, we are more B2B supplier, 30% of our total portfolio is a limited number of customers. So it doesn't have so far you don't have any major impact on -- so we don't forecast any major impact on that. I hope it answered your question?

In regards to the third question, indeed, we have announced the possibility to have special dividends. This depends very much on the clarification of some uncertainties, which are still there in our strategy, so the biggest one being around timing of Neptun. So once we have clarified all these uncertainties, we will come back to the capital markets with the clarity around special dividends.

We'll now take questions from Raphael Dubois from Societe Generale.

I have one on the refining business. Can you maybe help us understand how much of a burden has been utility costs increase in Q4? That would be my first question. And still in downstream oil, would it be possible to have a better feel for how the non-refining part of this business has evolved on a year-on-year basis? That would be the second question. And sorry, but in Upstream, I still struggle to understand why those rising gas prices not bringing any extra contribution to your EBIT? It would appear that applying your sensitivity table, you are only -- we are only seeing an increase in EBIT in Upstream from the rising oil price and nothing from gas. I understand it's heavily taxed, but could you remind us of what's happening in there?

Thank you, Raphael. I think we will definitely shed light on what's going on with gas taxation because you have assumed it perfectly correct, there is no upside in the gas price reflected in our results, given the taxation position. Alina will go into more detail and also the advocacy work that we're doing to obviously get that changed. But in the meantime, let Radu jump in on the refining and retail questions.

Thank you very much for the question. On the utilities question, indeed, it was obvious for everybody that there was an impact in the industry. So from our perspective, as an indication, we can say that the impact on Q4 were on EUR 1 million in Q4 as an impact. Firstly, as a fact on nonfuel business, actually, when you're saying non-refining business as the commercial business or to the nonfuel business, just to make sure I understand the question?

Well, it's mostly the commercial part of your business, yes.

The commercial. So from this perspective, we had a good evolution. And we are -- we have, of course, the benefit of the increased economical recovery or the good recovery of the economy, which was, of course, in significant improvement of the demand. But it's important to understand our position. On the commercial business, we are partially covering our activities with equity production, and it is based on third-party supply. Therefore, we are not necessarily running for the volumes here, but rather for the margins. And on margins, we are definitely having a very contribution, which was effective in the very good results of our activity. As a conclusion, good evolution reflected in the demand effect in our results, but we are especially capitalizing here on margins. I hope it answers the question?

Yes, it does.

Okay. When it comes to the gas taxation, so I tried to explain the components of the gas taxation are basically 3: First one is royalties; second is onshore taxation and the third is offshore taxation. When it comes to royalty and offshore taxation, there is an element which is called reference price. And this means that all the taxes are paid on the reference price and not on realized price. What happened at the end of the year, the difference between reference price, which is fixed and realized price was huge from single to double in Q4. So this led to a taxation, which was significantly higher than in the past. And this will put now even more clear on our sensitivity slide that we have a sensitivity of EUR 10 million to EUR 15 million for a change in EUR 1 per megawatt of gas, but only if reference price is moving in the same way as the realized price. Otherwise, this can go to 0 or even negative levels. So it's quite hard to estimate and to assess how these 2 prices will evolve. But what we are doing is a significant advocacy with the authorities in Romania to change the basis for taxation because we strongly believe it should be realized price and not a basis which has nothing to do with the -- with our revenues. We are in contact with authorities as we speak, and we hope to see this change as it impacts the gas projects in Romania.

The next question comes from Alexander Burgansky from Renaissance.

I have 2 questions on the Upstream, please. So the first one is how many reserves did you lose by selling assets to of Kazakhstan? So what were the approved reserves of those assets that you sold? And secondly, what was the reserve replacement ratio in 2021, excluding this disposal?

Thank you, Alexander. Chris, I think the CapEx RTP ratios for you.

Yes. Unfortunately, this number, I have not at my hand at the moment.

I could go with the reserve replacement. Okay. So let me comment the second question to the reserve replacement ratio. So basically, that 3 -- now if we refer to Romania, so the 3 years result replacement ratio in Romania in 2021 was 27% and if we go in the single year, Romania was 41 -- 31%, sorry.

On the CapEx side, we'll come back offline if that's okay, Alexander?

You can. Sorry, can I just confirm you said 31% in one year?

31% -- yes, single year 2021, 31% in 3 years average. We published both numbers 3 years average also Romania 27%.

We have it in our Investor News Page 13.

13.

Page 13.

Yes. But if I look into your last year's results, I'm looking at your 2020 annual reports and the reserve replacement rates were 41% in 2020 and 49% in 2019. And if it is 31% in 2021, then how does that come to an average of 27?

Okay. Let's take the math offline, and I'll come back and clarify with you, yes? It should be okay, but we'll come and check that and come back to you if that's okay, Alexander, yes?

Thank you.

[Operator Instructions] The next question comes from Tamas Pletser from Erste Bank.

Yes. I got also 3 questions. First of all, you mentioned that the decline of the production is mainly due to natural gas. How does it split between offshore and onshore gas? Is it the same decline rate or do we have the experience higher on one of the field? That will be my first question. My second question is regarding your indicator margin I asked today when we -- whether the indicated margin includes the -- sorry, the cost of electricity and gas? And they said no, I mean, do you follow the same principle. Is your indicated margin also x utility costs? And finally, on the value upgrade, you mentioned that the large part of the gas CapEx go to Brazi upgrade. I mean can you elaborate why that costs are so high? That's a little bit surprising to me.

Maybe on the first on the -- yes, it's -- the decline rates are basically the same because all of these gas in the offshore and also onshore, they're all of the -- so more or less the declines are in the similar, of course, depending a little bit on each field one more or one less. But in general, yes, decline is the same for onshore and offshore.

Radu, do you want to cover the refining indicator margin question?

Sure. We do use the same rationale. So the way we build the refining margin, of course, the yields, the price that on the level of crude price used as a reference to the cost of the loss, which is specified in the -- but the utilities are not within the refining margin, utilities and the CO2 costs. But they are part of our effort to make sure that we are managing to service this to the market. But no, we do not include those. We call the same logic like the colleagues in West.

Do you want me to take the one on the CapEx? Yes. Tamas, and thank you for the question. Yes, in fact, you highlighted it would be the biggest turnaround that we are doing with the shutdown that we are doing with this power plant. It's 2 months. Usually, we have only 1 month shutdown. And here in 2 months, we are going to open the turbine. We are going to do some steam turbine renovation. So it's really the biggest overall that we have never done on the power plant, which is based on the long-term contract we have with GE in terms of maintenance. So nothing abnormal. It's in line with the contract we have with them on this maintenance contract.

But how much percentage of this maintenance is the cost of a new plant because it's like Franck, if I'm not mistaken it's like 10%, 20% of the cost of building a new plant almost then. Am I correct with this assumption or am I…

Yes, it's about EUR 30 million the budget for -- again, it's a budget. So we will see that we are usually we stay in budget. So say EUR 30 million, and it's -- the total term was much higher than that. We are talking about CapEx, which was above EUR 500 million at the time.

[Operator Instructions] Meanwhile, Alina, you want to follow-up on…

I would follow up on the 1P results of Kazakhstan end of 2020, 22 million BOE. That was Alexander question.

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