SNGN Romgaz SA ($SNG)

Good afternoon. Welcome to our conference call for discussing the results recorded by Romgaz Group in the first quarter of 2026. After introducing the speakers, Mrs. Gabriela Tranbitas, Chief Financial Officer, will make an opening speech. Thereafter, the Q&A session will take place. Please be advised that this conference is being recorded for internal purposes. On behalf of the company, the following speakers attend this conference. Mrs. Gabriela Tranbitas, Chief Financial Officer; Mr. Ion Foidas, Production Department Director; Mrs. Cornelia Sardan, Head of Pricing Department; Mr. [indiscernible], Head of Quantities, Contracting and Management Department; and the Investor Relations team. Now I would like to give the floor over to Mrs. Gabriela Tranbitas, who will open the conference call with an opening speech.

Good afternoon, ladies and gentlemen. Thank you for joining our conference call to discuss the results reported by Romgaz Group in the first quarter of 2026. We released today the quarterly report and the financial statements at March 31, 2026, which included the presentation of our economic and financial performance. Also, a presentation of Romgaz Group is available on our website in the Investors section. I would like to emphasize some aspects regarding the gas market environment and also to highlight the group's performance. Let me start with some aspects regarding the gas market context in the first quarter of 2026. According to our assessment, natural gas consumption in Romania advanced by 5.4% to 44 terawatt hour, mostly based on volumes sold from the domestic production. Imported gas volumes were roughly flat and maintained a 20% weight in total consumption, almost the same as last year. On the Central European Gas Hub, the average reference price declined by 28% year-on-year according to data provided by the National Authority for regulation of the mining coal and CO2 geological storage activities. On the Romanian Commodities Exchange, the wholesale markets reported a similar trend in Q1 2026 with a still weak liquidity due to the regulation in force. Regarding the fiscal environment in 2026, Romgaz activities continue to be influenced mainly by ordinances issued to regulate gas prices. The main legal provisions applicable to gas producers include regulated gas selling price of RON 120 per megawatt hour applied until March 31 of this year for the gas sold to household consumers, to heat producers for the production of thermal energy for households and to the transmission operator and gas distributors for a maximum 75% of their technological consumption. New regulated price of RON 110 per megawatt hour is applied during April 1, 2026, and March 31, 2027, for the first two mention categories of clients. For the gas sold at regulated prices, payment of the windfall profit tax is exempted and gas royalties are concluded based on these regulated prices instead of CEGH reference prices. Regarding the operational and financial performance reported by Romgaz Group in the first 3 months of 2026, we can point out the following main effects. Natural gas production amounted to 1.24 bcm, adjusted by 3.9% compared to Q1 2025 or by 0.3% from the quarterly average reported in 2025. The upper level in the first 3 months was a result of the natural decline in our main production fields, while we continue to take specific measures to consolidate our portfolio of onshore resources, which included interventions and recompletion operations aimed to resume production at some active wells, ensuring optimal operation of all compression and dehydration stations, optimize operations to remove water from wells, continuous rehabilitation projects of the main mature gas fields. Also, we performed workover operations at 53 wells, finalized one surface facility, while other surface facilities are in execution aiming to stream into production of the well number -- 42 wells. We can also underline that our condensate production increased by 4.3% in Q1 to the level of 12,752 tonnes based on high production in our Caragele field. Regarding Caragele commercial field, it stands as the second largest field operated by Romgaz. In Caragele Deep, we have a 76 Rosetti well successfully tested with gas and waiting for tie-in, 78 Rosetti well in production, 54 Damianca well in production test and 56 Damianca well for which the execution contract was signed and is now preparing for drilling. Six more wells are in different stages of drilling preparations. The continuous program undertaken to consolidate our portfolio of gas resources in line with the development strategy of Romgaz Group led us to achieve a favorable reserve replacement ratio of 60% in 2025 according to our assessment. We continue to hold a strong position on the Romanian gas market. Romgaz represents the leading gas supplier with a substantial contribution of 39% in gas consumption covered from domestic production according to our estimates. Also, we are strongly positioned in total gas deliveries in Romania, holding a significant share of 31% in Q1 according to our assessment. We reported total revenues from the gas sold from production of RON 1.83 billion, lower by 11.6% compared to RON 2.07 billion in Q1 2025 based also on lower volumes extracted and sold from storages. Revenues from storage services increased by over 15% to RON 156 million compared to RON 136 million in Q1 2025, with withdrawal services higher by 31% and weighing 50% of the total storage revenues. Revenues from electricity were roughly steady year-on-year at RON 110 million, while production of our old power plant almost halved year-on-year to 107 gigawatt hour in Q1 2026 compared to 200 gigawatt hour in Q1 2025. Overall, Romgaz Group reported total revenues of RON 2.14 billion, adjusted by 10% compared to RON 2.38 billion in the previous year based on the contribution of the gas sales segment. On the expenses side, the windfall profit tax reported a decrease of 26% to RON 237 million compared to RON 322 million recorded in Q1 last year due to a higher weight of volumes sold to households. Gas and UGS royalties declined by 17% to RON 133 million, mostly due to lower gas production and prices. Altogether, these taxes decreased by 23% with a positive effect on our profitability. Bottom line, we reported a consolidated profit of RON 973 million, exceeding by 2.3%, the value of RON 951 million reported in Q1 2025. In Q1, all profitability rates remained at substantial levels. EBITDA margin at 56.7%, EBIT margin at 50.2% and net profit rate at 45.5%. On the CapEx side, Romgaz Group invested a total consolidated amount of almost RON 1 billion in Q1 2026, of which investments in sub ROMGAZ Black Sea Limited represented RON 769 million. With regards to our flagship projects, Neptun Deep, the progress reported this year is in line with the budget and with the execution calendar. The Transocean Barents Rig located in Domino field is currently drilling and completing 6 production wells. Construction of the Neptun Alpha offshore production platform is ongoing. Construction works on the 160-kilometer offshore pipeline that will transport gas from offshore to shore has kicked off in May, representing an essential milestone in the development of Neptun Deep project. As we already informed the market in 2026, we will make significant progress in Romania by installing the offshore pipeline, subsea equipment and the production platform. The installation work will mobilize a fleet of around 50 vessels, up to 10 of which are involved in the pipeline installation works. All activities are carried out to the highest safety and quality standards. As a result of these significant developments, Romgaz and OMV Petrom are on track to safely deliver the first gas from Neptun Deep in 2027, and the project remains within the up to EUR 4 billion guidance for total investment. Another strategic objective is the combined cycle gas turbine power plant in Iernut standing at a 98% completion rate. Following the termination of the contract with the former contractor on October 13, 2025, we took over the role of an EPC contractor. Currently, public procurement procedures are being carried out or are in process to be initiated to support the completion of the plant. Please note that there are constraints related to the public procurement of specific to the majority state-owned companies, which influences steps related to the public acquisition procedure. With respect to dividend distribution, I would like to mention that on the 29th of April, the shareholders decided upon total gross dividends of RON 606 million or a total gross dividend per share of RON 0.157. This dividend level will allow Romgaz to partially finance its ambitious investment and development plans. In the end of this presentation, I will also mention the release of the consolidated Board of Directors report for 2025. This includes the consolidated sustainability reporting for 2025, which was prepared in accordance with the Corporate Sustainability Reporting Directive and represents an important tool for investors in Romgaz shares and bonds. With this, I would like to close our presentation, and thank you for your attention.

[Operator Instructions] We give the floor to Ioana Andrei.

Okay. Great. First, I have a question regarding the production guidance. You previously guided around 4.9 bcm for 2026. Q1 was low. The budget points to a 5.7% decline. Can you please provide an updated view on the expected volumes for 2026? Should I go further with my other questions?

No, we will take this one.

Okay.

For 2026, we estimate that the production will be somewhere around 4.8 billion cubic meters. In 2025, we had a significant production during the first quarter due to some unexpected events in Q1, as you may remember, due to technical difficulties, some quantities could not be extracted from the gas storages. Due to this situation in order to meet the demand and our contractual obligations, we had to increase the level of production to the maximum extent possible, of course, without affecting the safety of the equipments and the installations. However, due to this, some maintenance programs or repairs were postponed. These have to be executed during this year. So this explains the production, which is slightly lower than the 2.5% target that we have in our strategy.

Okay. And second, can you please share the ANRE volumes for the remaining quarters of 2026 for the volumes sold at the capped prices and for Q1 '27?

Yes. In -- for the period April 2026-March 2027, we will sell at regulated prices, 35,276 gigawatt hour.

So 35 terawatt hour for...

Yes, 35 terawatts, yes.

For the remaining period, starting April to April '27. And for the fourth quarter of 2027, can you give us a hint so we can compute what's going on for 2026? For the volumes for the full year 2026.

For the first quarter of 2027, it will be around 10 terawatt hour -- 10.4 terawatt hour.

Okay. And my third question is regarding the Iernut power plant. So you actually had just 1 month from the period of functioning. Can you explain a little bit what happened? Do you plan to restart the power plant this year? And my second question goes to whether you expect commercial operations -- when do you expect the commercial operations for the new plant?

Yes, as you pointed out, Iernut only functioned 1 month this year in January. In February, the plant broke down, remaining broke down and we are working on fixing it. Our estimate is that starting June, it should be back in operation. As for the new power plant, we are working with the target of completing the plant by the 31st December of this year. Of course, this depends on how we will sign the contracts still needed to complete the works.

Okay. But for the old power plant, in the budget, you had expected an increase of the electricity produced for the year because of the difficulties, okay, you actually are working only on half a year for the Iernut power plant. Do you have an estimate for the production -- an updated estimate for the production?

We estimate that around 731,000 megawatt hours will be produced and sold in 2026.

700,000, is that right?

Yes.

Okay. And my last question is regarding Azomures. It would be very helpful if you could share some details regarding the transaction, maybe something on the acquisition price or at least something for Azomures regarding its operational status at 2025 net debt and EBITDA? Some CapEx guidance also would be helpful. This is an important strategic transaction and investors are quite expecting some details here.

Yes, I understand the interest of investors in this transaction, which, as you said, is a very important one for Romgaz. Currently, we are still negotiating with Azomures. We cannot make available too much information on this transaction. We expect that in about 2 weeks' time, we will have the authorization of the Board of Directors to go ahead with the transaction, and then we will appoint a shareholders' meeting. And in the documents that will be published on our website for that shareholder meeting that will approve the transaction, we will make available more information on it, including the price and conditions. Regarding net debt of Azomures, I would like to point out that we are not buying the company. We are buying the assets. So the net debt that Azomures has will remain on their books. We will not take over that.

Okay. And for CapEx? Who's paying the CapEx you are actually, don't you?

The CapEx that will be invested after the takeovers, yes, we will pay for it. It will include the maintenance and modernization of the current plants. I cannot give a guidance on this at the moment.

We have also some questions from [indiscernible]. I think we already answered this question, but anyway, I will repeat them. Congratulations on the results. Could you please tell me how the acquisition of [ Azomures ] will be reflected in the Romgaz business? And secondly, what is the value of that acquisition?

The acquisition of Azomures will be recorded in the stand-alone financial statements for Romgaz. We will take over the plants and the equipment. We will take over the inventory they have regarding to the plants of spare parts, raw materials that will still be in stock at the closing date of the transaction. Depending on the valuation that accounting regulations require for recording such a transaction in the financial statements, the transaction will either generate or a bargain purchase. It depends on the results of this valuation. On the value of the acquisition, I'm sorry, I cannot give any guidance at the moment.

We are giving the floor to Laura Simion.

I have some follow-up questions for the Iernut plant. So you had a volume half compared to Q1 2025. And if you could detail a bit how -- what is behind the revenue, which was nearly flat. Did you have some revenues from balancing market or a significant share of trading? And also when do you register the cost with acquired energy in your P&L?

The revenue from electricity sold indeed remained pretty much the same as the one recorded in Q1 2025. About half of the electricity that we sold in 2026 in the first quarter was electricity bought from the market. So we bought it and we sold it. The contract -- the electricity is in the cost of goods sold in the P&L.

We have a question from [ Vladimir Davis ]. You please repeat what percentage of your gas sales in Q1 2026 were done at regulated prices?

In the first quarter, we sold at 78.78% of gas at regulated prices.

We are giving the floor over to Irina Railean.

A follow-up question on Azomures, if I may. So just to correctly understand that you will not buy the company, only the assets, right?

That's right, yes.

Yes, because in the public statement, you said transfer of going concern, and I was thinking that it is a business takeover, but...

It is a business takeover, but the assets and the people and -- that make up the business, but not the company.

Okay. So you -- okay, I understand. And how -- from your due diligence process, what is the value of assets, equipment and I think that's what you are actually buying because if you're not buying liabilities or debt, employees will go as an expense probably. How is the value of assets and equipment you are buying compared to their accounting value? Will we see here some, I don't know, impairments or contrary, we can see some gains here, if you could provide some color from your current assessment?

It's too early to talk about impairments on the plant that we are going to buy. It depends on the valuation that will be performed to our accounting standards. As for the value of the assets that we are buying, again, I cannot offer any information on the price or any other information that was not yet materialized.

Okay. And given the fact that right now, Azomures is a loss-making company, how do you see it integrating in Romgaz business? Or how do you plan to make it profitable?

Azomures is loss-making due to the price of the gas. However, as we are going to buy the assets and not another company, which will be a subsidiary, so it will be a branch of Romgaz. The activity will benefit from the onshore gas that we are going to produce. So in our accounting -- on the accounting standards, we cannot recognize internal profits from activities generated within the company. So the gas will be that -- produced by Romgaz and it will be accounted for in the financial statements at Azomures.

Okay. And how do you see actually the margin that you will gain there compared to the margin you are actually obtaining on the gas market, if you have any indication here?

This is a fluctuating business. It depends a lot on the market conditions. As you saw, gas prices and fertilizers prices have increased dramatically due to the war in Iran. So it's hard to tell.

Okay. And one more follow-up question on the production and the deliveries on the gas market. I saw that the actual demand on the market has increased a bit, while Romgaz deliveries have declined. What actually happened? Because I saw the decline is both due to gross production and due to volumes from storage. What actually happened on the storage, if you could detail a bit?

Our storage obligations for last year and this year were pretty low as most -- as an important share of the gas produced had to go to the regulated segment of the market. We were allocated marginal quantities for storage. So in 2025, we had storage obligation of 345 gigawatt hour and in 2026, only 19,000 gigawatt hour. So we don't expect -- we don't have available capacity to inject more. The capacity was distributed to other players in the market.

That's why you reduced your own production just to match with the storage capacity?

That's right.

We have some more minutes. There is time for another question. [Operator Instructions] I give the floor to Ioana Andrei.

I have a follow-up question regarding the electricity production for this year. If I understood correctly, you mentioned that around 700 gigawatts for this year, right?

That's right, yes.

But how is that possible if you are expecting to start operation only in June? You had last year a full year and you barely had 750, if I remember correctly.

Last year was also affected by several breakdowns of the plant. We expect the repairs that we are in the process of making to be sufficient to have the plant running for the rest of the year.

Okay. So this is it around 700 gigawatts for the full year, right?

Yes.

Are there any questions? If there are no further questions, we will conclude this conference call. Thank you for your questions. If you need further information, please contact our Investor Relations team. The conference is now concluded. On behalf of Romgaz' team, thank you for attending today's conference call.