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 30 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.omvpetrom.com in the Investors section. These also include the cautionary statement regarding the 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, and thank you for joining us. We'll have a presentation followed by a Q&A session. Christina Verchere, Chief Executive Officer will provide the key highlights about the macroeconomic and regulatory environment; the first quarter operational activity; as well as our sustainability performance. Alina Popa, Chief Financial Officer, will give you more details on our financial performance and a brief outlook. Afterwards, they 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. It is a real pleasure to present to you today OMV Petrom's performance for the first quarter of 2023. Please let me first draw your attention to our legal disclaimer, which you can read in detail on Slide 2. Let me start by taking a look at the evolution of commodity prices and our main currencies in the first quarter of 2023. Brent price continued its decline in the first quarter and averaged $81 per barrel, 9% lower versus the previous quarter. In a year-on-year comparison, the average Brent price was down by 21%. In the first quarter of 2023 and on a year-on-year basis, the RON depreciated versus the U.S. dollar by 4% but remained broadly stable against the euro supported by the Central Bank interventions in the market. OMV Petrom indicator refining margin reached $16.61 per barrel in the first quarter, $1.70 lower compared with the Urals-based indicator refining margin from first quarter of 2022, also as a result of a decrease in product spreads, mainly for diesel. In the natural gas market, the European spot prices fell by more than 40% during the quarter due to high storage levels as well as a mild winter. At an average of EUR 56 per megawatt hour, the CEGH price was down by around 45% both quarter-on-quarter and year-on-year. Gas prices on the Romanian centralized market also decreased, with day-ahead prices 44% lower year-on-year to an average of EUR 55 per megawatt hour. Base load electricity prices in Romania, in euro terms, increased 41% versus the first quarter of 2022, however decreased by 43% from the high levels recorded in the fourth quarter of 2022. Average market spark spread was negative in the first quarter as electricity price decrease outpaced the gas price decrease. The average CO2 price reached a record high of EUR 87 per ton due to the upcoming compliance period. Moving to the macroeconomic environment, the latest available data shows that in the fourth quarter of 2022, Romanian GDP increased by 5% year-on-year, mostly supported by services and construction. In April, the IMF estimated the GDP growth for 2023 to be 2.4%, down from the previous forecast of 3.1% made in October last year. For 2024, the GDP growth was also slightly corrected to 3.7% from the previous forecast of 3.8%. Romania's economy is set to slow down due to high inflation, tighter of financial controls and the risks and uncertainties generated by the prolonged war in Ukraine and the related sanctions. The consumer price index in the month of March 2023 versus March 2022 was 14.5%, driven primarily by energy prices and their impact on associated goods and services. For 2023, the National Bank of Romania estimates a gradual decrease of the inflation rate being more significant in the second half, with an average of 7% for the full year. Looking at the energy sector in the first quarter of 2023 and in the context of the still high energy prices and inflation concerns, the demand for all our products decreased in Romania with a significant reduction for gas and power. Demand for retail fuels in Romania decreased by around 3% year-on-year, considering the high base effect from the first quarter of last year at the start of the Ukraine conflict, while the commercial market demand increased by 2% year-on-year. Jet demand continued to recover, increasing by 44% year-on-year and for the first time, exceeded pre-pandemic levels. According to our internal estimates, gas demand decreased by 13% year-on-year, the lowest level for a first quarter in the last 2 decades as a result of warm weather and low industrial demand. Power demand was lower by 10% year-on-year, while domestic power production increased by 4% year-on-year, Romania being a net exporter of power in the first quarter. Power production from hydro had a significantly higher contribution to the generation mix, gas was stable, while wind, coal and nuclear generation decreased year-on-year. In our previous calls, we mentioned the temporary measures implemented by the Romanian government to address the high gas and power prices applicable starting April 2022. These regulatory measures were in place for the whole first quarter of 2023. And as a result, almost 80% of our gas portfolio was subject to the new regulations. And for the full year 2023, we currently estimate that 90% of our gas portfolio will be regulated. When it comes to power, starting January 2023, given the regulatory framework, all our power sales in Romania are subject to some form of regulation or taxation. As mentioned previously, we recognize the need for the government to support consumers in these very unusual times. However, frequent interventions, particularly in the gas and power segments, and the lack of consultations bring volatility and instability for the market participants and increased risks of market dysfunctions, including related to the security of supply. Price caps may support demand but are a disincentive for investments in energy efficiency projects and send distorted signals to the market. Therefore, interventions should be temporary in nature, targeted mostly to vulnerable consumers and taken only after robust impact assessment. In the medium term, free market principles are fundamental for investments. The government Emergency Ordinance 186 of 2022, which transposed the EU regulations for a temporary solidarity contribution into Romanian legislation, is backed in the parliamentary approval process. On Slide 6, we present the key highlights for the quarter. At group level, Clean CCS operating result of RON 2.1 billion was 7% lower year-on-year. Our operating cash flow increased by 77% year-on-year to RON 4.7 billion, helped by changes in net working capital. The Clean CCS return on average capital employed significantly improved to 37 percentage points. The lower results in Exploration and Production reflects the decrease in oil and gas prices as well as lower sales volumes. The results in Refining and Marketing was broadly flat year-on-year, lower refining margins being almost offset by higher sales channels performance. In Gas and Power, the result was broadly similar to the first quarter of 2022, supported by strong margins from gas storage and power transactions outside Romania. In Exploration and Production, we reported lower production, reflecting the natural decline in the main fields, partly offset by the contribution of workovers and new wells. In Refining and Marketing, Petrobrazi refinery had a very good utilization rate of 98%, while our refined product sales increased year-on-year by 2%. In Gas and Power, total gas sales volumes increased by 3% year-on-year, driven by an overall resilient customer portfolio as well as sales to the regulated market and to the number of customers under the supply of last resort mechanism. Brazi power plant delivered a broadly similar net electrical output, with a higher contribution to balancing ancillary services markets. We have further focused on delivering on our 3 strategic directions and preparing OMV Petrom for capturing the energy transition opportunities. Regarding regional gas and our Neptun Deep strategic project, we reiterate the need for a stable and predictable fiscal and regulatory environment, which is fundamental to ensure future investments. In March, we signed a contract for natural gas delivery from the Black Sea to the National Transportation System with Transgaz. Assuming all key prerequisites are in place, we estimate the FID in mid-2023. As part of our transition to low and 0 carbon, we are progressing towards securing EU funding for various low and 0 carbon projects. In March, we received the approval for the financing through the recovery resilience national plan for building a green hydrogen production facility using water electrolysis. We also accessed an EU grant for further expanding our EV charging network, thus contributing to the creation of a corridor of fast-charging stations in our existing filling stations. We are also progressing with developing a renewable power portfolio and towards producing sustainable aviation fuel and second-generation bioethanol. On our third strategic pillar, optimizing our traditional business, in partnership with Auchan, we reached 316 stores in Petrom-branded filling stations at the end of March, and we aim to finalize the road map to 400 stores by year-end. On HSSE, the total reportable injury rate for the rolling period April 2022 to March 2023 was 0.43. Moreover, we further continued our efforts to reduce GHG intensity with projects in all 3 business divisions. On Slide 7, I would like to present the operational performance, and I will start with Exploration and Production. Hydrocarbon production decreased by only 4%, reflecting natural decline in the main fields, partly offset by the contribution of workovers and new wells. Production cost per barrel of oil equivalent increased by 2% year-on-year to a level of $14.48. This is mainly due to lower production available for sale and inflation on most cost items. These were partly offset by the favorable book foreign exchange evolution. We continue to focus on containing costs and counteracting the pressure coming from suppliers by intensifying our procurement activities. In Refining and Marketing, the refining utilization rate was well above the European average. Total refined product sales volumes recorded a 2% year-on-year increase, driven by higher nonretail sales. Our group retail sales volumes were lower by 3%, considering the high base effect from the first quarter of 2022 at the start of the Ukraine conflict. Nonretail sales increased by 9% year-on-year, mainly helped by the continuous recovery of the aviation business and increased exports. In Gas and Power, total gas sales volumes were 3% up year-on-year, while gas sales -- while gas volumes sold to third parties increased by 4% year-on-year. We have proved once more the resilience of our customer portfolio, with new customers brought in. We supplied natural gas to the regulated market, both households and heat producers for household consumption, as per received allocation as well as the last resort customers. The higher volumes extracted from storage compensated the lower gas supply from both equity and third-party sources. The Brazi power plant generated almost 1 terawatt hour in the first quarter, broadly flat year-on-year as the power plant was in planned outage for the entire capacity in both March 2022 and March 2023. Moving now to Slide 8. Total organic CapEx amounted to almost RON 1 billion in the first quarter of 2023, 52% higher year-on-year. More than 1/2 was directed to Exploration and Production, where we finalized the drilling of 8 new wells and sidetracks, including 1 exploration well and performed more than 130 workover jobs. In Refining and Marketing, most of the RON 0.4 billion investments were dedicated to preparations for the major turnaround, which is currently taking place at our Petrobrazi refinery as well as for ongoing projects such as coke drums replacement, a new crude tank oil and new aromatic complex. In Gas and Power, most investments were directed to the Brazi power plant planned maintenance shutdown. For 2023, we maintain our investment guidance of around RON 6 billion, approximately 70% higher year-on-year, with increased investments dedicated mainly to the Neptun Deep project, accelerated low and 0 carbon projects as well as the Petrobrazi refinery turnaround and related tie-in projects. Moving now to Slide 9. I'm happy to share with you our progress in terms of sustainability. Yesterday, we published our sustainability report for 2022, the first year since we started the implementation of our 2030 strategy with sustainability fully embedded. Our sustainability framework is built around 3 pillars: environment, social and governance, with a clear commitment to run responsible operations, foster people and communities and leverage innovation and digitalization. On our journey to reach net 0 operations by 2050, we aim for a 30% reduction in the carbon emissions from our operations by 2030 versus 2019. Last year, we decreased our Scope 1 and Scope 2 carbon intensity by 11% versus the 2019 baseline. In addition, we reduced our methane emissions intensity by 70%, progressing towards our target of less than 0.2% by 2030. We also continued our contribution to the largest privately funded forestation campaign and reached the goal of 2 million seedlings planted between 2020 and 2022. In addition, we launched the OMV Petrom Foundation with the aim to contribute decisively to the creation of a sustainable and fair society for all of us by supporting education, focusing on environmental protection and improving the health care system. With regards to our communities, we see ourselves as a strategic partner for their development. Last year, we spent EUR 40 million in projects for long-term development of the communities in Romania for 1 million direct beneficiaries. The revised remuneration policy for the Executive Board members was approved by the shareholders last year. The variable remuneration, which includes a long-term incentive plan and an annual bonus, is in line with its 2030 strategy and places a strong emphasis on sustainability performance, including additional ESG-related performance targets and increased weights compared to the previous year. Since 2020, when we became the first Romanian company to support recommendations of the Task Force on Climate-related Financial Disclosures, we have improved our disclosures in terms of climate-related risks and opportunities as well as related governance, strategy, risk management, metrics and targets. I want to highlight that our efforts to increase performance and disclosure in terms of ESG were recognized by an increasing number of rating agencies. For example, Sustainalytics included OMV Petrom in their 2023 top-related ESG Companies List, and ranked us in the top 5% of the oil and gas producers industry as of November 2022. The management of sustainability issues is rated as Strong and ranks OMV Petrom first of the Bucharest Stock Exchange-listed companies. 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 on Slide 11, starting with some highlights of the income statement, with focus on developments of the first quarter of 2023 versus the similar period of 2022. Sales decreased by 20% year-on-year, following lower commodity prices and lower sales volumes of electricity. These was partly compensated by slightly higher sales volumes of petroleum products and natural gas. Exploration and Production, clean operating result decreased to RON 985 million from RON 1.1 billion in the first quarter of last year. The lower oil and gas prices and lower sales volumes were only partly offset by lower E&P taxation, lower exploration expenses and favorable FX. Refining and Marketing Clean CCS operating result decreased by 2% year-on-year, reaching RON 616 million, mainly due to lower refining margin, partly offset by higher retail and commercial margins and higher sales volumes. Gas and Power clean operating result was broadly flat year-on-year at RON 723 million, reflecting good operational performance in both Gas and Power business lines in the context of increased regulatory intervention. The clean consolidation line of minus RON 205 million in the first quarter of 2023 reflects mainly the increase in the clean quantities of petroleum products to prepare for the refinery turnaround in the second quarter. Consequently, the group Clean CCS operating results decreased by 7% year-on-year to RON 2.1 billion. For the first quarter of 2023, we recorded inventory holding losses of RON 122 million, mainly reflecting the decrease of crude prices over the quarter. For comparison, in the first quarter of last year, we recorded inventory holding gains of RON 107 million. Net special charges of RON 356 million were recorded in the first quarter of 2023, mainly related to the net temporary losses from forward power contracts in the Gas and Power segment. For comparison, in the first quarter of 2022, the net special charges of RON 162 million were also related mainly to temporary losses from power forward contracts. The Clean CCS net income attributable to stockholders increased by 5% year-on-year to RON 1.9 billion. The reported net income attributable to stockholders was RON 1.5 billion, 15% lower year-on-year. Let me go on to Slide 12, which shows the major building blocks for the development of the Clean CCS operating result. I will start with Exploration and Production, where clean operating result decreased to RON 985 million. The market effect deviation of RON 164 million reflects the negative market effect of oil and gas prices and the positive effect from lower amount related to E&P taxes. For gas, last year, E&P taxes were based on abnormally high reference prices. By comparison, this year's taxes reflected high regulated sales quantities, which are exempted from over-taxation and for which royalties are calculated at capped prices instead of CEGH. The operational effects include mainly the negative volume deviation due to the 4% lower hydrocarbon sales. Looking at the lower chart, Refining and Marketing Clean CCS operating result slightly decreased by 2% compared to the first quarter of 2022. The negative market effect reflects the lower refining margin as a result of decreasing product spreads, mainly diesel. Operational effects in Refining and Marketing were overall positive, derived mainly from higher refined products sales as well as an improved performance in the nonfuel business margin. In Gas and Power, the clean operating result was broadly flat year-on-year. In the gas business, the very good contribution from gas volumes extracted from storage partly offset the lower margins from equity and third-party gas in the context of the highly regulated gas sales portfolio. The power business also has very good performance built on transactions outside Romania and strong captured spark spreads supported by contribution from balancing and ancillary services. On Slide 13, I would like to continue with the highlights of our cash flow statement. In the first quarter of 2023, we achieved an operating cash flow of RON 4.7 billion, 77% higher year-on-year, reflecting mainly the positive net working capital changes. Regarding the evolution of the net working capital in the first quarter of 2023, we recorded a cash inflow of RON 1.7 billion compared to a cash outflow of RON 0.6 million in the first quarter of 2022. The inflow in the first quarter of 2023 was mainly due to the decrease in trade receivables following lower sales volumes for electricity and petroleum products as well as lower prices for commodities. The inflow in the first quarter of 2023 also reflects the decrease in cash guarantees for transactions with energy products, which were built in the third quarter of 2022. The decrease in liabilities was mainly due to lower gas supplementary taxes, driven by lower volumes subject to gas over-taxation, lower royalties driven by CEGH prices as well as lower power over-taxation. In addition, inventories decrease driven mainly by natural gas extraction from storage, partly compensated by the buildup of the fuel products stocks in preparation for the upcoming turnaround in Petrobrazi. Our net payments for investments amounted to RON 1.4 billion in the first quarter of 2023, 88% higher year-on-year. The net cash position, including leases, increased to RON 16.7 billion at the end of the first quarter of 2023 versus RON 11.3 billion at the end of the first quarter of 2022. Our record-high dividends for the financial year 2022, amounting to RON 2.3 billion, will be paid starting June 7, 2023. Let me conclude our presentation with the outlook on Slide 14. We expect Brent oil price in 2023 to be above $80 per barrel, significantly above the average of $65 to $70 per barrel assumed in our strategy 2030. Our hydrocarbon production in 2023 is expected to be around 110,000 barrels of oil equivalent per day, excluding divestments. We expect inflationary pressure on our costs to persist throughout the year. However, the stronger dollar may support the production cost, estimated at around $15 per barrel of oil equivalent for the year 2023. In Refining and Marketing, we currently estimate an average refining margin higher than $9 per barrel in 2023. The refinery utilization rate is estimated to be above 85% in 2023, considering the scheduled major refinery turnaround. Petrobrazi refinery started a planned 6-weeks turnaround on April 21, with an estimated total impact in Clean CCS operating result of around RON 200 million, including OpEx and estimated margin loss. With regards to the Brazi power plant, the shutdown was prolonged until the end of June due to findings identified during inspections. Consequently, we expect the result of Gas and Power segment to reflect the full shutdown of the plant for the entire second quarter and also the unusual -- the usual seasonal gas injection period. As Christina mentioned earlier, CapEx is expected to be around RON 6 billion in 2023, of which RON 2.9 billion dedicated to E&P, including Neptun Deep, RON 2.2 billion in R&M and the rest in Gas and Power division. In 2023, we expect a positive free cash flow before dividends, lower compared to 2022 value of RON 8.2 billion, mainly due to higher investments. We estimate demand for retail fuel product in Romania to be slightly above 2022. Demand for gas and power is expected to be lower compared to the previous year. We expect total refined product sales to slightly decline compared to 2022 due to lower exports year-on-year, while our retail fuel sales are expected to slightly increase year-on-year. Our total gas sales volumes are envisaged to be lower, mainly on lower supplies, both in equity and third parties. Net electrical output is also expected to be lower year-on-year in the context of the longer than initially planned outage of the Brazi power plant. For 2024-2025, we maintain our guidance communicated in February. In conclusion, we continue our journey to deliver on our strategy 2030, including securing EU funds for low and 0 carbon projects that underpins our significant increase in investments and competitive shareholders' returns. With this, I close our presentation, and thank you for your attention. We are now available for your questions.

Thank you, Alina. [Operator Instructions]

Now we're going to take our first question. And the question comes from the line of Oleg Galbur from Raiffeisen Bank International.

Congratulations on the strong results. I hope you can hear me well.

Yes, very well, Oleg.

Yes. Yes. I have 2 questions. The first one is on Gas and Power segment. Could you please provide more details on the G&P segment's strong performance in the first quarter? For example, it would be very helpful for us to have an idea of the individual contribution of Gas and Power business in the first quarter as well as some guidance regarding the expected performance in the current and next quarters would also be helpful, especially when it comes to the Gas business. And secondly, on the special dividend, we have now a better idea of what is the intention of the Romanian authorities with respect to the windfall tax application. Assuming that the final text of the law is promulgated by the President without major changes to what has been seen by the market, how would you -- how would it change your thinking about the size of the special dividend, if at all?

Thank you, Oleg, for the questions. So I'll start with the first question on the Gas and Power results. So indeed, we had a very good result in Q1 for Gas and Power, and I'll try to explain a bit the main drivers for that. When it comes to gas, we had very good storage margins. On a higher extracted volume of gas, we really realized very good storage margin. And here also on gas, we are very, very regulated. So approximately 80% of our gas volumes is regulated. And when we say regulated, we refer not only to sale to households and district heating companies, but also industrial and consumer sales, which are at regulated supply margins and capped prices and sales to power plant. If we refer to the sales to households and district hearing, we indicated in our report approximately 4 terawatt to households and district heating. But coming to where is the driver for the rate performance, we would highlight really the storage margin. If we move to power, on the power plant, where power plant was utilized for the 2 months, we started the shutdown at the beginning of March. Nevertheless, we managed to have some good results from the power plant and also a very good result from balancing and ancillary services, which were obtained to do -- based on availability of the power plant. In addition to that, we had high power margins from transactions concluded outside Romania. But these would be the main things I would like to highlight. We do not give the split gas and power and I do recognize that it's hard to model. Nevertheless, if we look a bit into the next quarter, next quarter will be for gas and power significantly lower. And we need to have in mind the fact that the power plant has an extended outage. So the entire Q2 will be affected by this power plant outage for Q2. We expect an impact of such outage, of extended outage of up to RON 150 million on EBIT impact coming from that. And also, if we look on the gas side, of course, it's a seasonally lower quarter for gas and corroborated also with significantly lower prices if we compare to last year, but also with the previous quarter and in the context also of higher regulation. So I hope it was helpful a bit on guiding also on the next quarter. And maybe on the second…

Yes. And maybe just a follow-up on the power trading outside Romania. Is this something to be expected also in the current quarter? Or this is rather on an opportunistic basis and hard to predict how should we think about it?

This is something which we consider going forward. However, it's not so easy to secure. So we cannot say we do expect a similar impact. It's rather opportunistic. But we continue to look into such opportunities in the next quarters as well. Moving to the second question on the special dividends, and I think your question was corroborated with a solidarity contribution discussion. So let me start from the solidarity contribution. As you might have seen, the amendments to the law that were approved to -- that were proposed by the parliament have been rejected by the President due to unclarities, which was very much the case. It was a -- the level of clarities was very high in that draft. We do not know where this will be concluded. So the Parliament will start working on it next week. And we do not have at all any indication where the result will be. But definitely, when we have -- when we will have an updated law, we'll look at it, calculate and communicate the impact. Nevertheless, going to the special dividend, we have announced that we believe our balance sheet is strong enough and we should be in a position to pay special dividends middle of this year, announced mid of this year. Based on our cash position and the size of such special dividends will depend on 3 things. Number one is Neptun and in mid of the year, we will have a better understanding of the cost and timing related to Neptun. Second is regulatory and fiscal intervention. And here, some main topic is the solidarity contribution. Until then, we will know exactly what will be the final question. But -- and the third, of course, the market environment and financial performance of the [indiscernible]. We remain consistent with this message like we had it a quarter ago, and we look for mid of the year to give you more news about that.

The next question comes from the line of Ioana Andrei from Alpha Bank Romania.

Can you please disclose the gas delivery is at the regulated price allocated by NRA in the first quarter and maybe for the full year? And additionally, can you disclose the sales on the power side that should be realized via the centralized acquisition mechanism at around 450?

Okay. Thank you, Ioana, for the question. So when it comes to sales to households and district heating companies, in Q1, they were approximately 4 terawatt hour. And for the full year, we estimate more than double of the amount of last year, which was similarly 4 terawatt hour. Okay. That's on the households and district heating companies. On the sales on this mechanism, we do not disclose, but most of our sales will be subject to this starting the beginning of this year.

The next question comes from the line of Tamas Plester from Erste Group Research.

I got only 2 questions in my mind. First of all, on the Petrobrazi shutdown, can you tell us some details about the potential financial impact? And how do you manage the situation? And my second question would be just a follow-up on Iona's question on the gas and power side. Do we have a significant seasonality in the Gas and Power business going forward? And is the new requirement to fill 90% the storages, are these affecting your business positively? As far as I understand from your explanation, this is the case. So could we expect, let's say, again, much better earnings in the fourth and the first quarter coming forward.

Thank you, Tamas, for the question. So start with Petrobrazi shutdown. As we announced, we will have 6-weeks turnaround for Petrobrazi. This started 21st of April. The impact in the EBIT is approximately RON 200 million. Half of this impact is coming from maintenance cost that will be booked in P&L and the other half is coming from lost margin, not having the refinery available in these 6 weeks. I think that is clear. And of course, we do have CapEx that we spent for Petrobrazi in this period as well. On the gas and power, I tried to guide that Q2 we expect to be significantly lower due to the combination of both power and gas seasonality. On the Q3 and Q4, we talk about the significance and I mean you know the regulation is significant, 80%, 90% level of regulation on the gas and power side. So it's -- from that perspective, it's not much opportunity to do except for sales outside Romania or transactions outside Romania. On the storage side, I mean it depends a lot on the prices, on the evolution of the prices versus the moment when we put the gas into storage and the moment when we sell it out, which was favorable in Q1 now. We'll have to see how this goes. I cannot provide the guidance in this respect right now.

I was just going to add one thing to Alina's comment if that's all right, with regards to the Petrobrazi turnaround. Actually, this is the first time we've gone 5 years since our last turnaround. And prior to that, we were doing them almost every 2 to 3 years. So we're increasing the cycle time, which overall means that the utilization of the refinery over sort of a 5-year period is much higher than we'd had in the past.

[Operator Instructions]

And the question comes from the line of Iuliana Ciopraga from Wood & Company.

Just again on the gas and power. So there are no limits to the marginal storage because actually, trading is regulated and there, you're allowed [indiscernible] percent gain. Supply is regulated as well. So what -- I mean, how can you generate such a high profitability on the gas side? Is there a lot of trading outside of Romania as well? If you could explain this a bit.

Yes. No, indeed, Iuliana, thank you for the question. It's not so easy to generate additional profitability in gas and power going forward. I think my colleagues do a great job. They look at the regional in the region, and they try to see if they can have anything around Romania, so in the region. Also, they're looking to import possibilities to extend to LNG and with Greece as well as a [ half ] for that. So these type of things. But otherwise, if we look strictly into Romania, it's quite limited. Possibilities are quite limited considering the limitation and the regulation that you know very well.

But the result of the first quarter, did that come from Romania or outside of Romania on the gas side?

On the gas side, it came from storage margin, as I mentioned. We still had a good -- not that much from outside Romania on the gas side. On the power side, it came from outside Romania.

But on the gas side, on the storage, is there a fixed margin that you can add? Or how does that work?

I mean it's the margin that you achieved considering the cost of the gas that you have when you put it in the storage. So really, difference from that to the final price to the customers that you achieve. So it's -- yes, it's not necessarily a fixed product.

I see. I see. Okay. Okay. But it's basically a one-off, right? And secondly, on the power…

Yes, yes, please.

Secondly, on the power side, you had losses on the revaluation of the hedging contracts for power, RON 371 million, that do not affect the clean result. However, power prices declined significantly in the first quarter. I was wondering what generated the losses. I would have expected gains on that side.

These are forward contracts to purchase power. That's why they generate an unrealized loss.

Now we're going to take our next question. And the next question comes from the line of Oleg Galbur from Raiffeisen Bank International.

I have a follow-up question. Could you please provide some details with respect to the gas sales portfolio, the split of which you show on Slide #5. This is very helpful, but we are missing quantities or the volume based on which is the share of different segments or type of sales are presented here.

I mean what we disclose, Oleg, in details with regards to quantities are the sales to households and district heating companies which in Q1 was 4 terawatt hour. That's the level of sales to household and district heating companies. And then you might have also, of course, sales to power brands. This is -- you can deduct that from the utilization of the power slides as well.

Okay. But that was -- I was rather looking for the total volume of gas in the first quarter so that I can also calculate the volume sold on free market and on the regulated sales to third parties.

I think total gas sales volume we have in our report. I just open it now to tell you. 13 point -- 13 for the Q1 which is the total 13 terawatt hours, 13, 1-3 for Q1. Approximately 80% of that overall was regulated and the remaining, free market.

Okay. I don't know. It doesn't add up. If I take this, if I calculate 63% of 14 -- of 13 terawatts, I don't get to this 4 terawatts of gas sold to households and district heating companies, unless you include something else here or exclude something.

This is just a part of it. So 4 out of 13 represents the regulated sales to households and district heating companies; approximately 30% of that.

Okay. Okay, maybe then I'll follow up with your IR team to clarify this.

You're welcome.

Now we'll go and take our next question. And the next question comes from the line of Daniela Mandru-Petrovici from Swiss Capital.

I have a very quick and simple question regarding the regulated volumes. Just a clarification because I'm not sure if the volumes that I heard are correct. So you said that for this year, you are estimating 8 terawatts to be sold to -- at regulated prices for households and nonhouseholds. It's correct?

We said more than doubled. That is double is more than 8, yes?

More than double. Okay. But you sold 4 terawatts in the first quarter and for the full year, you estimate only 8?

More than 8.

More than 8 meaning that could be -- more than 8 could be 20. So more than 8, meaning this is the minimum amount that you estimate?

Yes.

Okay, good. Not 8, not -- so the minimum amount.

But of course, I mean, Daniela, it's Q1 and Q4 with the biggest quantities, yes?

Yes.

So Q1 was 4 and the rest of the year is more than 4. Yes?

But I noted, didn't publish the allocated volumes for this year?

Not entirely.

Now we'll go and take our next question. And the next question comes from the line of Iuliana Ciopraga from Wood & Company.

Coming back to the gas sales. Just very briefly, how much of these sales were done outside of Romania? I mean of the total 13 terawatts, how much was outside of Romania? Because that's actually what was the missing piece.

Yes. For Q1, Iuliana for Q1 2023, 0.9 terawatts were outside Romania.

And can I clarify? Are there any -- I mean, I guess, you also import gas into Romania because most likely there was more trading. What are the regulations on the import side? Is there a limit on the margin for imports? Or -- because there were some change on the regulations, I'm not sure now.

Yes, we do not have a limit on the imports. But otherwise, that is…

So there's no limit on what is for import? Okay.

Yes. Yes, free market principle.

And something very basic actually. What is the transfer between BCM and megawatts? Just to clarify. So you report production in BCM. What would be the...

It is around 11, but I will ask my colleagues in IR to follow up with you.

Now we're going to take our next question. And the question comes from the line of Tamas Pletser from Erste Group Research.

I would have also a follow-up, and sorry for my ignorance for this question. But when you talk about the storage business, basically, it means that you buy some gas from your gas and power segment, from your E&P segment during the summer, let's say, for 100. And you sell it later on, on the free market, let's say, in February, so during the first quarter, at 120. Let's say that. So is this the simple business model, what you talk -- when you talk about the storage margin and where we spoke about the gain on this? And is it only affecting the free market, if I'm correct?

Yes. In principal, it's -- most of the gas is bought from our E&P segment. We have some quantities also from third parties, which are put into storage. And on the sales side, we sell the best we can sell. I mean, if it is a free market, on free market, otherwise, we need to follow the regulations now.

So most of the margins you basically earn on your 22% sales during the quarter, which went to the free market, if I understand correctly.

Say again, Tamas. I didn't get this question.

Sorry. So are most of the margins what you gained during the first quarter 2023, you earned on this 22% free market sales?

Not only. I mean I cannot say only that. Yes? That's no.

That was the crucial part of that.

It was an important part on the free market, but not all of it, yes? We have also some sales which are cost plus, yes, which are on end users with bigger volumes. So it's -- that part also generated good result.

Okay. And what was the reason that you were able to increase this storage business so much? Was it because let's say, the -- your customers are afraid of the security of supply of issues and were they willing to pay some premium to you for this business? Or was there any reason -- particular reason in relation to the energy crisis to these good margins here?

First of all, we had a bigger obligation. Yes? Our obligation to storage was higher than in the past. And it was in the context of everybody was afraid of last winter, what will happen in the context of the geopolitical context. So from that perspective, yes. And also customers try to have secured volumes. That's why we were able to do contracts for the quantities from storage.

I see. I see. Okay. I think I try to get a little bit closer to understand how this works. Okay.

Thank you.

Thank you. There are no further questions.

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