5.SNP - SSIF Broker - 20.05.2013

May 20, 2013
RESUMING OF COVERAGE
A nice mix of short and long term triggers

We resume coverage on OMV Petrom, which is one of our favourites in terms of valuation, triggers, financial standing and corporate governance, with a Buy rating and a 12M TP of RON 0.52/share. Petrom currently trades at unwarranted 45-48% discounts to its peers, and we believe that the stocks low liquidity could justify only part of this discount. Petrom currently enjoys two main triggers, of which only one is near to midterm and one is for the longer run, however both making the story worth watching. First is the natgas prices liberalization, with all its positive implications, second is the potential large discovery from the Black Sea. Petrom will most likely see a major increase in royalties starting 2015, but until then it can capture a material part of the natgas price increases resulting from the liberalization process.
Oil & gas / Romania

Resuming of coverage
OMV Petrom
12M target price (RON) Current price (17 May) (RON) Potential upside (%)
Buy
0.52 0.4105 26.7
Natgas price liberalization and taxation are the game changers: liberalization now has a timetable and first two steps have already been made towards a full convergence, by 2014 for industrial consumers and 2019 for households. February brought a windfall tax for the natgas producers, but was more benign than most of us feared. We asses that Petrom will retain some 43-45% of the additional revenues in 2014. Major off-shore upside, with benefits for both long and short run. Expected to materialize in the next decade, but enhances already Petroms negotiation power. In a recent update on the Neptun Block, following the preappraisal evaluation of Domino-1 well, Petrom spoke of an initial estimate of potential gas production of approx. 630 mn cf/d. This would exceed Petroms current natgas production by some 20%. Constantly strong financial performance over the past five years, decent dividend play. Petrom is a decent dividend play this year with a 6.1% yield (at announcement), and a RON 0.028 gross DPS (-9.7% yoy), after reporting another record high net profit in 2012. Its guidance for 2013 encourages us to expect another top financial performance. Main shortcoming is the low stock liquidity. It seems that the State is currently not considering the re-launch of Petrom SPO, therefore we view as a positive the 1.12% stake sale out of FPs holding in Petrom, done at RON 0.39/share, although the deal size is not as impressive as we hoped. Very undemanding valuation. Petrom is attractively priced at 5.6x-5.1x P/E and 3.3x-2.9x EV/EBITDA on our 2013E-2014E assumptions, trading at still wide discounts to CEE peers of 40-54% (45-48% adjusted for outliers).
2011 2012 26,258 8,514 5,662 3,953 0.070 0.028 14.6 5.5 3.1 0.9 2.8 3.3 8.6 7.9 2013E 21,833 8,151 5,186 4,182 0.074 0.022 12.7 5.6 3.7 0.9 3.3 4.4 13.7 5.4 2014E 23,929 8,792 5,677 4,558 0.080 0.024 12.9 5.1 3.4 0.8 2.9 3.9 8.7 5.9 2015E 22,981 7,742 4,524 3,689 0.065 0.020 9.8 6.3 3.8 0.7 3.3 4.3 6.7 4.8 22,614 7,766 4,936 3,757 0.066 0.031 13.7 5.4 3.3 1.0 2.9 3.8 11.4 8.7
Key data
Bloomberg ticker Reuters ticker MCap (EUR mn) Free float (%) Shares outstanding (bn) Average daily vols. (EUR mn) Shareholders OMV AG Ministry of Economy Fondul Proprietatea EBRD Free-float SNP RO SNPP.BX 5,358.3 7.73 56.6 255.5 % 51.01 20.64 18.99 1.62 7.73
Upcoming events
1H13 OMV trading statement 1H13 financial result 3Q13 OMV trading statement 3Q13 financial results 24 Jul 2013 13 Aug 2013 18 Oct 2013 7 Nov 2013
SNP RO share price performance

180 160 140 120 100 80 60
Sales (RON mn) EBITDA (RON mn) EBIT (RON mn) Net income (RON mn)* EPS reported (RON) DPS (RON) ROCE (%) P/E (x) P/CF (x) P/BV (x) EV/EBITDA (x) EV/DACF (x) Net gearing (%) Dividend yield (%)
SNP RO
BET Index
* Rebased chart
Analyst: Carmen Arsene, CFA

+40 364 260 765 carmen.arsene@ssifbroker.ro
* attributable to shareholders NB: Historical multiples based on avg. prices
Source: OMV Petrom, SSIF Broker estimates
May 20, 2013
BROKER DAILY BRIEF
February 13, 2013
Highlights on the investment case

We resume coverage on OMV Petrom, which is one of our favourites in terms of valuation, story, managements abilities and corporate governance, with a Buy rating and a 12M TP of RON 0.52/share. Petrom currently trades at unwarranted 45-48% discounts to its peers, and we believe that the stocks low liquidity could justify them only partly. Our assumptions incorporate a 5.8% and 9% EPS growth for 2013 and 2014, respectively. Petrom is a more attractive story these days than in the recent past, thanks to its off-shore major upside potential and its near term supportive taxation regime, expected to allow for a better netback from natgas prices liberalization, higher than most of the analysts expected for the domestic natgas producers, Petrom and Romgaz. Petrom will most likely see a major increase in royalties starting 2015 (or even earlier), but until then it can capture a material part of the natgas price increases resulting from the liberalization process (as long as they happen as scheduled). We see the stock as a great combination of short and long term triggers and undemanding valuation. It is one of the best in our universe in terms of corporate governance, constantly improving financial performance, being at the same time a decent dividend play. Strong crude prices environment is highly supportive for this virtually 100% upstream company. One main shortcoming is the stocks low liquidity. It seems that the State is currently not considering the re-launch of Petrom SPO, therefore we view as a positive the 1.12% stake sale of FPs holding in Petrom , although the stake sold is below what FP initially announced as available for sale and the increase in free-float is not impressive.
Main short and mid-term triggers are about prices liberalization and taxation
Legislative changes may have limited impact on profitability in 2013
but could be more material in 2014 and going forward, provided they remain in place
Main piece of news on Petrom in the beginning of 2013 was about taxation the windfall tax enforced in February was more benign than we would have hoped for, as natgas producers would be allowed to retain a significant stake (we estimate it at around 45% of net earnings in 2014) of the liberalization benefits Most of the market participants expected a neutral effect from prices liberalization, i.e. the benefits of liberalization to be wiped out by the windfall tax. The Government decided to apply a 60% tax, which given the capex (up to maximum 30% of additional revenues) and approx. 8% royalty deductibility goes down to 42% at EBIT level, according to our estimates. As for the bottom line impact, we estimate the stake of additional revenues that would remain with the Romanian state at 55 -57%, if we refer to 2014 and also account for the 0.5% tax on natural resources (crude in Petroms case) (some 51% w/o the tax). As detailed below, we estimate that Petrom will register additional revenues of RON 235mn in 2013 and RON 826mn in 2014. Therefore the impact in 2013 is likely to be less material, while for 2014 it all depends on how much the Government would stick to the liberalization schedule. Our calculations currently account for a one year and a half delay in the overall schedule for non-household customers, until mid 2016. In fact, given that the law allows for the prolonging of the liberalization for industrial users by one year (untill end 2015), our delay is of 6 months, which may prove optimistic. The risk would increase in case Romania will not renew its agreement with the IMF post June this year, given that the liberalization was a main subject in the Governments talks with the IMF. It is obvious that Petroms negotiation power in its dialogue with the Romanian officials increased, most likely as a consequence of the potentially major discovery from the Black Sea, which could be a major step towards Romanias energy independence. We therefore expect a reasonable position of the Romanian government regarding the increase in royalties to be implemented starting 2015. We account for an increase from approx. 8% currently to 20%, which may be overcautious and we note that we see the risk on the downside. We do not exclude an earlier revision of the royalties, scenario that we associate with a lower level of royalty, more towards 16%, but we stick to our 20% scenario for now and only indicate this as a possibility. If to choose between scenarios, we believe Petrom would be better off with a lower rate even if applied one year earlier.
However, we expect the new taxes to be replaced with a higher royalty
Major off-shore upside, with benefits for both long- and short-run
The potentially sizeable offshore upside brought a major change in Petroms negotiation power in the relationship with Romanian authorities
The second major Petroms trigger is expected to materialize in the next decade, but enhances Petroms negotiation power, as it could bring Romanias independence from natgas imports Given that the potential discovery in the Black Sea (Neptun Block, a 50%/50% JV with Exxon Mobil) might change Romanias energy sector in the next decade, Petrom now has materially more ammunition in its discussions with the Romanian officials. Recent legislative changes come to confirm our statement
BROKER DAILY BRIEF
February 13, 2013
and we hope to see the confirmation in the royalty negotiations result. Preliminary estimated resources for Domino, the first deep water exploration well drilled in the Neptun Block, are 1.5 3 tcf (42 84 bcm) of natgas. Additionally, the pre-appraisal evaluation of Domino-1 well results communicated by Petrom in early April this year indicate an initial estimate of potential gas production of approx. 630mn cf per day, the equivalent of roughly 6bcm per year, more than its current production (5.3bcm in 2012, at OMV Petrom Group level). Petrom will finalize in 2Q13 a sizeable 3D acquisition and next well drilling is scheduled for end 2013. Conclusion of the appraisal phase of the Neptun block is estimated for 2016. Exxon/Petrom partnership increased its presence in the Black Sea by acquiring new exploration acreage, via a 85% interest in the Midia Block (transfer agreement was signed in Oct 12 and is subject to the fulfillment of several conditions). It also gave an option to Romgaz, the state-owned domestic natgas producer to purchase 10% of the participating interest in Midia Deep, which we believe it was a smart move as it is good to have a state-owned partner in such a venture. Also in the Black Sea, a production sharing agreement for Skifska block (Ukraine) is currently being negotiated with the Ukrainian Government. OMV Petrom has a 15% stake in the wining consortium. Current offshore production accounts for approximately 17% of the domestic production, produced mainly (70%) in shallow waters.
Natags prices liberalization and taxation

Current tax regime would allow Petrom to capture more than we have thought of the liberalization benefits, but all depends on the liberalization process speed
Liberalization schedule we currently account for a 6-months delay, which may prove optimistic There is a liberalization timetable approved by ANRE together with the Romanian Government, providing for dates and the pace of the process. The intention is to achieve convergence of the industrial end-user prices to a European market level by end 2014 (a one year deadline extension is also taken into account) and of the households prices by end 2018. Industrial users account for roughly 70% in total consumption. Natgas market opening degree was 54.61% as at Dec 12.
Households
End-user price increase (%( 5 5 5 3 18 4 5 5 4 18 0.0 47 49 52 54 56 60 64 66 69 73 78 81 83 89 97 100 56.1 58.9 62 64.1 67.1 71.7 76.5 78.5 82 86.9 93 96.5 99.2 106.3 115.1 119 38 41 44 46 50.6 51.8 53.3 54.6 Convergence degree % Wellhead price (RON/ MWh) 45.7 45.7 48.5 49.8 Well-head price increase (%) 0.0 0.0 6.1 2.7 9.0 1.6 2.4 2.9 2.4 9.6 2.7 5.0 5.3 3.4 17.4 119 119 119 119 119 119 119 119 119 119 119 119 4.7 6.9 6.7 2.6 22.5 4.5 6.0 7.0 3.8 22.9 2.8 7.2 8.3 3.4 23.3 End-user price increase (%) 0 0 8 2 10 2 2 3 3 10 2 3 4 3 12 3 3 3 3 12 2 2 5 3 12 3 3 3 3 12 113.1 115.2 117.8 119.0 1,224 1,248 1,276 1,289 366 372 381 385 0.7 1.9 2.3 1.0 5.0 107.9 109.4 111.2 112.3 1,169 1,184 1,204 1,216 349 354 359 363 1.0 1.4 1.7 0.9 103.4 104.8 106.3 106.9 1,120 1,135 1,151 1,157 334 339 343 345 0.9 1.3 1.4 0.6 100.1 101.0 101.9 102.5 1,084 1,094 1,104 1,110 324 326 329 331 0.5 0.8 0.9 0.6 65.6 78.1 92.3 99.7 710 846 1,000 1,080 212 253 298 322 4.5 19.1 18.1 8.0
TABLE: OFFICIAL NATGAS PRICES LIBERALIZATION SCHEDULE

Industrial consumers
Convergence degree % Wellhead price (RON/ MWh) 49 55.3 63.4 68.3 72 89.4 109 119 119 119 119 119 Well-head price increase (%) 7.2 12.9 38.7 7.7 49.5 55 71 91 100 100 5.4 24.2 21.9 9.2 74.2 0.0
Weighted average (70% industrial / 30% households)

RON/ MWh RON/ '000 m3 USD/ '000 m3 Well-head price increase (%) 5.0 9.2 12.4 6.5
Dec-12 Apr-13 Jul-13 Oct-13 2013 Jan-14 Apr-14 Jul-14 Oct-14 2014 Jan-15 Apr-15 Jul-15 Oct-15 2015 Jan-16 Apr-16 Jul-16 Oct-16 2016 Jan-17 Apr-17 Jul-17 Oct-17 2017 Jan-18 Apr-18 Jul-18 Oct-18 2018
35 40 47 51
33 33 36 37
48.0 52.4 58.9 62.8
520 568 638 680
155 169 191 203
NB: USD prices calculated using USDRON 3.35 for the entire time horizon
Source: ANRE, Petrom, SSIF Broker
BROKER DAILY BRIEF
February 13, 2013
Our base case accounts for the conclusion of the natgas price alignment by mid 2016 instead of end 2014, but the risk is for further delays
The first step in the liberalization process was made with a delay (Feb 2013 vs. Dec 2012), caused probably not only by the parliamentary elections that took place last winter, but also by the negotiations and discussion with the power market regulator and key sector players. In April, ANRE announced that it stuck to the liberalization schedule but it managed to keep end-users price unchanged by modifying the import/domestic weightings in the natgas basket. However, going forward, we believe that the pressure from industrial end-users will become increasingly difficult to manage, especially during colder seasons. We adjusted with a year and a half (until mid 2016) the liberalization schedule we used in building our natgas wellhead price assumptions. We account for one more price increase taking place in 2013, of +8.5% to RON 60/MWh, instead of two increases, in July and October to 68.3 RON/MWh, as officially planned. For 2014, we assume an overall price raise of 28.3%, which compares to 74.2% in the official schedule. As we previously mentioned, the risks to our scenario are to be too optimistic, in which case the impact on Petroms financials will be less material, although still positive.
TABLE: OUR ASSUMPTIONS FOR THE NATGAS PRICES LIBERALIZATION PROCESS - POSTPONEMENT UNTILL MID 2016
Industrial consumers
Convergence degree (%) Wellhead price (RON/ MWh) Well-head price increase (%) Convergence degree (%)
Households
Wellhead price (RON/ MWh) Well-head price increase (%) RON/ MWh
Weighted average (70% industrial / 30% households)

RON/ '000 m3 USD/ '000 m3 average yearly price (RON/ '000 m3) average yearly price (USD/ '000 m3) yoy (%)
Feb-13 Apr-13 Jul-13 Oct-13 2013 Jan-14 Apr-14 Jul-14 Oct-14 2014 Jan-15 Apr-15 Jul-15 Oct-15 2015 Jan-16 Apr-16 Jul-16 Oct-16 2016 Jan-17 Apr-17 Jul-17 Oct-17 2017 Jan-18 Apr-18 Jul-18 Oct-18 2018 2019 2020 2021 2022
35 40 45 45 47 51 55 60 63 71 71 76 76 81 81 91 91 100 100 100
49 55.3 60 60 63.4 68.3 72 77 81 89.4 89.4 95 95 100 100 109 109 119 119 119 119 119 119 119 119
7.2 12.9 8.5 0.0 31.3 5.7 7.7 5.4 6.9 28.3 5.2 10.4 0.0 6.3 23.4 0.0 5.3 0.0 9.0 14.7 0.0 9.2 0.0 0.0 9.2
33 33 33 36 37 38 41 44 46 47 49 52 54 56 60 64 66 69 73 78 81 83 89 97 100
45.7 45.7 45.7 48.5 49.8 50.6 51.8 53.3 54.6 56.1 58.9 62 64.1 67.1 71.7 76.5 78.5 82 86.9 93 96.5 99.2 106.3 115.1 119
0.0 0.0 0.0 6.1 6.1 2.7 1.6 2.4 2.9 9.9 2.4 2.7 5.0 5.3 16.3 3.4 4.7 6.9 6.7 23.4 2.6 4.5 6.0 7.0 21.6 3.8 2.8 7.2 8.3 23.8 3.4
48.0 52.4 55.7 56.6 59.3 63.0 65.9 69.9 73.1 79.4 80.3 85.1 85.7 90.1 91.5 99.3 99.9 107.9 109.4 111.2 112.3 113.1 115.2 117.8 119.0
520 568 603 612 642 682 714 757 791 860 869 922 928 976 991 1,075 1,081 1,169 1,184 1,204 1,216 1,224 1,248 1,276 1,289
155 169 180 183 574 192 204 213 226 699 236 257 259 275 861 277 291 296 321 993 323 349 354 359 1,160 363 366 372 381 1,241 385 1,289 1,289 1,289 1,289 370 385 385 385 385 7.0 3.9 346 16.8 296 15.3 257 23.1 209 20.1 174 17.5
NB: USD prices calculated using USDRON 3.35 for the entire time horizon
Source: ANRE, Petrom, SSIF Broker estimates

3
Based on the above time table, Petroms natgas selling price would reach USD 385/000 m by 2019. At 3 an estimated sales of 4.4-4.5bn m , the price convergence would add in 2019 RON 3.1 3.2bn (USD 1.01 1.04bn) to the current level of revenues, or a net of roughly RON 2.5-2.6bn if we account for a 20% royalty charge.
BROKER DAILY BRIEF
February 13, 2013
OUR EXPECTATIONS FOR NATGAS WELLHEAD PRICES CONVERGENCE

450 400 350 300 250 200 150 100 50 0 296 346 385 370 385 385 385
257 188
209 174 162 155 162 143
Wellhead natgas prices (USD/ '000 m3)

Source: Petrom, SSIF Broker estimates Please note than in a scenario of further delays in liberalization for nonhouseholds, the impact on EBIT could drop to 2% in 2013 and 7% in 2014
As for the impact on EBIT and net profit in 2013 and 2014, our base case scenario is for a plus of 3% for EBIT and 2% for the net profit in 2013, going up to 8% in 2014 (at EBIT level). However, in a gloomier scenario of no more price increases in 2013 for non-households and a 21.3% increase in the first half of 2014 (to 67 RON/MWh), average wellhead prices would be USD 168/000 m3 in 2013 and USD 197/000 m3 in 2014 and the impact would drop to 2% on EBIT and 1% on net earnings in 2013, and 7% and 6% respectively in 2014. New mineral resources tax, i.e. 0.5%, would apply only to crude oil production and not to natgas we estimate a negative impact of 0.6-0.7% of EBIT The new taxation regime enforced by Government in Feb 13 includes also a mineral resources tax applied to all types of resources excluding natgas. This tax will apply until end-2014, when the fiscal stability clause that keeps royalties for mineral resources unchanged expires. In Petroms case, based on our current estimates for crude oil production, this tax would wipe off some RON 46mn pre-tax in 2013, decreasing to RON 42mn in 2014 and towards RON 30mn by the end of our forecast time horizon. This is the equivalent of approximately 0.6%-0.7% of our EBIT estimates, so the impact is actually minor.
ESTIMATED IMPACT OF NATGAS PRICES LIBERALIZATION AND TAXATION ON PETROMS P&L
2013 Natgas sales (bn m3) Price post liberalization (RON/'000 m3) (average) Price difference (RON/ '000 m3) Additional revenues (RON mn) Windfall tax (RON mn) Impact on Petrom's EBIT (RON mn) % of total additional revenues captured by Petrom (at EBIT level) as % of EBIT Net impact Petrom (RON mn) Amounts remaining with the State (RON mn) 0.5% tax on natural resources (crude oil), RON mn Net impact Petrom, accounting for the tax on natural resources (RON mn) % of net profit 4.82 574 48.8 235.1 87.5 135.9 57.8 3 114 121 46 68 2 2014 4.75 699 173.9 826.1 307.3 477.3 57.8 8 401 425 42 359 8
We assess the impact of the newly introduced tax on mineral resources at 0.6%0.7% of EBIT going forward, and therefore minor
Source: SSIF Broker estimates
Going forward, we see royalty as the main taxation tool to be used by the Government We see highly likely that all these fiscal changes would be removed and replaced by the more straight forward royalty tax. Given that the local authorities can adjust the royalty starting with 2015, we believe they will do so in such a way to allow Petrom to retain part of the liberalization benefits.
BROKER DAILY BRIEF
February 13, 2013
Other legislative changes of relevance for Petrom

The renewable-power subsidies are relevant for the economics of the G&P segment, but to a limited extent
More visibility on legislative changes for the renewable sector would be relevant for Petrom as well, but only up to a certain extent Given that Romania currently offers one of the most advantageous legal framework for the investors in renewable energy, offering them a very high number of green certificates, which, on turn, burden the end user price, the Government is considering some legislative changes for scaling back renewable-power subsidies. While it initially spoke of a reduction in the number of green certificates granted per MWh of energy produced and of lowering the upper end of the price interval for these certificates, the Government decided to go only for a postponement of the use of part of the certificates received by the green power producers. For example, the wind power producers would still be receiving 2 certificates per 1 MWh but would be allowed to monetize only one until 2017, when the other certificate could also be sold. Solar power companies may receive 4 certificates instead of the current 6 until mid-2016, and the Government would gradually restore incentive use subsequently. Apparently, the postponement is based on the assumption that market prices for green certificates would continue their downward trend entered in 2H12 and this measure would not only mean a delay of the burden on electricity end-user prices of the renewable-power subsidies, but also its reduction. Overall, the approach seems much milder than we would have expected. This could mean that the Government fears legal cases started by the market players. It seems that in any case the measures would refer only to new or technologically upgraded power plants. On the other hand, on 29 March, ANRE, the power market regulator published a report on the renewableenergy sector overcompensation and recommended the reduction of green certificates, for new wind farms from 2 to 1.5 certificates per 1 MWh, for technologically upgraded wind farms from 2 to 1.3 certificates per 1 MWh, for solar power plants from 6 to 3 certificates and for micro hydro power plants (new) from 3 to 2.3 certificates per 1 MWh. However the reduction is for now only a recommendation of ANRE and needs a Government Decision for its enforcement. According to Bursa daily, the reduction would be envisaged from 2014 for solar power producers and from 2015 for the rest. In the meantime, on 13 March, ANRE approved higher tariffs for the green certificates, given the EU imposed yearly inflation indexing. Consequently, now the green certificates can be traded at prices between RON 129.64 (EUR 28.9) and RON 264.1 (EUR 58.8) per certificate, which compare to RON 121.9-248.3 previously.
Natgas export is possible now only in theory, as the necessary logistics are not in place; we suspect that price liberalization reduces Petroms interest for export
Natgas export is now legally possible, but not physically Another legislative change with relevance for Petrom was published by ANRE on 30 March and allows the natgas exports to EU countries, provided there is the necessary interconnection between the transportation grids. This came as a consequence of the infringement procedure against Romania started by the European Commission in Nov 2012, for not abiding by the EU regulations that forbid any quantitative export restrictions or other measures with similar effect. The ANRE order says that exchanges with non-EU countries are also not forbidden provided the necessary logistics are in place. The restriction on natgas exports was a limitation on Petroms options for natgas monetization (given the low level of the recommended price for domestic natgas producers) and of its negotiation power in discussions with the Romanian authorities. Therefore, this change is, theoretically, a positive, although we cant estimate how much would Petrom make use of this option now, in the context of domestic natgas prices liberalization and a relatively supportive taxation regime in force. At the same time, we note that the export through the interconnections with Hungary and Moldova is physically not possible at present (natgas pressure in the interconnection point allows only one way transfer of natgas, namely into the Romanian grid), so for the time being the regulatory change is useless.
BROKER DAILY BRIEF
February 13, 2013
Prospects of the main business segments

In Exploration & Production, Petrom is fighting for achieving production volumes stabilization
Petroms focus on E&P is high and increasing, including significant production stabilization efforts drilling of development wells In Feb 13, Petrom signed a farm-out agreement with Repsol by which the latter acquires a 49% working interest for the area deeper than 2,500 3,000 m of four onshore exploration blocks located south of the Southern and Eastern Carpathians. Petrom had already performed an intense 3D seismic program in the area, as a result of which the Totea gas discovery was reported in July 2011 (potentially the most important on-shore discovery of the past 7 years and currently Petroms largest natgas and condensate on-shore well (still an exploration well) in production volume terms, initially 3,200 boe/d). Together with Repsol will now evaluate the data obtained during seismic programs to determine exploration drilling opportunities. The company estimates that in the next two years, the OMV Petrom Repsol partnership will invest around EUR 50mn for exploration drilling.
field redevelopment
In order to ensure production stability in Romania, Petrom set-up several field redevelopment projects focusing on drilling, workovers, water and steam injection, most of them in partnership with specialists such as Petrofac, Petrol Santander and Expert Petroleum. For 2013, Petrom plans to have five field redevelopment projects in implementation phase by year-end. In Kazakhstan, there is need for implementing a water injection scheme in Komsomolskoe field and carry out field re-development for TOC (Tasbulat, Aktas, Turkmenoi).
In Gas & Power, the contribution of the relatively new Power segment is to increase but stay below the initial profitability targets
Power segment challenging environment in the power market; natgas prices liberalization expected to pressure segments margins Romanian power market is currently going through several changes. Not only liberalization of the enduser prices, changes in legal framework but also the structure of the power mix is changing, with the renewable accounting for much more than in the past. We saw unusual situations YTD, such as lower prices on the spot market than on the bilateral longer-term contracts market, mainly as a consequence of increased power supply. Hidroelectrica restored its production levels to normal and wind farms enjoyed favourable weather conditions. Brazi power plant, which started commercial operations in August 2012, is already a major player on the power market, given its flexibility for quick shut down and restart. It covered 5% of the domestic electricity production in 1Q13, with a 0.78 TWh production (0.78 TWh in 3Q12 and 0.75 TWh in 4Q12). In 1Q13, it sold 44% of its output on the regulated market (45% in 4Q12). For 2013, ANRE requires Petrom to sell on the regulated market up to 1.5 TWh at RON 169/MWh. Companys guidance for 2013 indicates expectations for total electricity sales of 6.41 TWh (which may prove optimistic given the currently oversupplied electricity market). A one month shutdown of Brazi power plant for the installation of a gas treatment unit took place in April 2013. Dorobantu wind park generated 0.09 TWh in 2012, for which Petrom received 182,784 green certificates (the equivalent of EUR 10.1mn @ 55 EUR/certificate). From September 2012 onwards, Brazi power plant was supplied with equity gas only. This was a positive for its margins, given that previously the basket of domestic and imported gas was imposed on all industrial producers. However, going forward, natgas prices liberalization will gradually pressure power plants margins, while the profit will be booked by the E&P division. As mentioned above, the electricity market is also undergoing a liberalization process, expected to offset the pressure on margins generated by natgas prices liberalization. It will depend on the timing of the two liberalization processes.
In Refining & Marketing, a EUR 600mn technological upgrade of Brazi refinery is to be concluded by end 2014
In R&M, the focus is on finalizing Brazi refinerys technologic al upgrade In R&M, Petrom works on finalizing the upgrade at Brazi power station, to further optimize its operational performance. The aim is to commission the refinery coker unit upgrade and the new gas desulfurization unit, and to finalize Bacau terminal modernization and commence operations by end of the year. The upgrade implemented by Petrom in its refining segment over the past years should result in yields structure improvement (some benefits already kicked in last year), the target for 2014 being to have middle distillates at 45% vs. 35% in 2011, while cutting own crude consumption from 12% to 10% over the same horizon. Going forward, we expect the R&M segment to continue to bring a positive contribution to Petroms EBIT, however without becoming a major contributor to companys profitability, not even after the technological upgrade.
BROKER DAILY BRIEF
February 13, 2013
Petrom continues the row of record high financial results and is a decent dividend play
Petrom remains one of the most constant performers in our universe in terms of profitability
Strong 2012 results but less impressive dividend proposal Petrom registered another robust financial performance in 2012. Sales revenues advanced by 16.1% yoy to RON 26.3bn, while the EBIT margin remained flat at 21.6%. 2012 EBIT amounted to RON 5.7bn, 14.7% up yoy. Petrom booked in 4Q12 RON 209mn special charges related to a fiscal review that increased its financial losses. However, its FY 2012 net earnings amounted to RON 3,953mn (+5.3% yoy), another record high reported by the company. Petrom will distribute a gross DPS of RON 0.028, 9.7% lower than the one paid out of 2011 net earnings, translating into a 40.1% payout ratio, which compares to 47.6% a year ago. Implied dividend yield was 6.1% at announcement. Registration date was 14 May, meaning that the stock went ex-dividend on 10 May, when the share price adjusted by less than the dividend. 1Q13 financial results revealed another strong quarter, in line with market expectations. OMV Petrom reported 1Q13 financial results that show EBIT of RON 1,582mn, 11.8% down yoy, mainly on the higher exploration expenses resulted from the intensive off-shore seismic campaign (clean CCS EBIT was RON 1,579mn, 4% down yoy). Some pressure also came from lower natgas sales, given the much milder winter. 1Q13 net profit amounted to RON 1,330mn, 3.9% down yoy and 26% up qoq and very much in line with market expectations (Reuters consensus, median).
The stock went ex-dividend on 10 May
1Q13 clean CCS net earnings amounted to RON 1,328mn, 5% up yoy
We expect 2013 to bring another record high net profit; companys guidance is supportive
Companys guidance for 2013 looks encouraging, given Petroms history of beating the budget
2013 company budget shows expectations for a flat EBIT (+1.2%) but net earnings 15% higher yoy; Petrom estimates a 31% yoy increase in total capex (mostly in E&P) Petroms budget for 2013 (unconsolidated, Romania only) incorporates expectations for a lower turnover (excluding excises), but 15% higher net earnings, of RON 4.4bn. EBIT is estimated to remain relatively flat (+1.2% yoy), and most likely the impact on net earnings comes from lower one-offs versus 2012 (when a RON 209mn special charge for alleged late interest payments following the result of a 2009-2010 fiscal review was booked). As for the operating indicators provided as guidance, hydrocarbons production in Romania is expected to remain flat at 62.4mn boe, as a result of a minor increase in the crude oil and condensate production (+1%yoy) associated with a decrease, also minor, in natgas production. As for electricity sales, Petrom estimates a total volume of 6.41 TWh, meaning that it expects a very good year for Brazi power plant (which, as we previously said, may prove optimistic given the currently oversupplied electricity market). Given that historically Petrom exceeded its budget, we are encouraged by the guidance published by the company.
OMV PETROMS GUIDANCE FOR 2013 (IFRS, UNCONSOLIDATED)

RON mn Turnover (excluding excises) EBIT EBIT margin (%) Net profit NB: A is actual, B is budget Petrom estimates a 35% higher yoy E&P capex in 2013, most likely on higher off-shore exploration costs 2010A 13,953 3,202 22.9 1,799 2011B 12,692 2,763 21.8 2,316 2011A 16,184 4,660 28.8 3,730 2012B 15,796 4,392 27.8 3,784 2012A 19,123 5,068 26.5 3,851 2013B 17,216 5,129 29.8 4,430 yoy (%) -10.0 1.2 3.3pp 15.0
Source: OMV Petrom, SSIF Broker
As for capex, Petrom expects to spend 35% more in E&P in 2013 as opposed to a year ago, mainly on onshore fields redevelopment and offshore 3D seismic prospecting and new drillings. The bulk of capex is to go to E&P, in line with previous company statements.
OMV PETROMS 2013 CAPEX PLAN

RON mn E&P R&M G&P Headquarters & other Total NB: budget for 2013 is for Romania only (unconsolidated) 2010 2,774 758 1,211 120 4,863 2011 3,254 980 515 54 4,803 2012 3,753 899 221 57 4,930 2013B 5,076 1,108 72 189 6,445 yoy (%) 35.3 23.2 -67.4 231.6 30.7 % in total 78.8 17.2 1.1 2.9 100.0
BROKER DAILY BRIEF
February 13, 2013
As for our estimates, we expect Petrom to register another record high net profit in 2013
As for our estimates, for 2013 we expect another record high net profit, of RON 4.2bn, to come mainly from a good E&P result. We account for a smaller decrease of the total hydrocarbon production than in 2012, of 0.5% yoy vs. 1.3% a year ago, a slightly weaker crude price environment but a higher realized natgas price (no negative hedging impact). In R&M, we expect the refining margins to remain weak and the pressures on the marketing business to continue to hinder the segments result . We account however for the benefits of the upgrades concluded at the refinery in 2012 (which resulted in better yields and lower energy consumption). In G&P, we expect a difficult year for the power segment, although Brazi power plant will have a FY of functioning. Supply pressures drove electricity market prices down YTD and the gradual market liberalization will only partly compensate the effects of lower free-market prices.
Share price performance

Petrom shares largely underperformed the parent company and the oil&gas peers, probably on lower liquidity, but also on the recent FPs stake sale
OMV Petrom shares largely underperformed the ones of the parent company, OMV, which had an amazing ride YTD. Although we consider that most of OMV storys upside resides with Petrom, we admit that the much lower liquidity of the SNP shares remains a major drawback. Recent sale out of Fondul Proprietateas stake had a major contribution to the share price drop over last week. Given that a month ago Petrom shares were among the best performers in our universe, we view the current price weakness as a good buying opportunity. Fondul Proprietatea stake sale. There was a downward pressure on the price recently, due to the ABB for 1.77% of Petrom shares announced by Fondul Proprietatea, expected by the market to take place at a small discount. Following the completion of the book building process, FP announced that the final number of the offered shares was of 632,482,000 (1.12% of total Petrom shares) and the price was RON 0.39/share. Any other Petrom shares (held by FP) not sold in the placing will be subject to a 180 day lockup. Given that the number of shares placed was lower than planned, we were disappointed by the result, also bearing in mind the high need for improved liquidity to materialize Petrom shares upside potential. The 1.12% placed by FP accounts for 17% of the current free float of 6.62%, which could results in some liquidity improvement but it may not be enough to support the stock in closing the valuation gap vs. peers.
OMV PETROM SHARES LARGELY UNDERPERFORMED THE SHARES OF THE PARENT COMPANY
(%) 1M 3M 6M YTD SNP RO -9.1 -3.3 7.9 BET Index 0.9 0.1 19.2 MSCI Emerging Markets (MXMU Index) 6.9 0.5 7.2 0.3 OMV AV 14.3 29.9 46.6 42.1 Relative to BET -10.1 -3.4 -11.3 -9.8 Relative to MXMU -16.0 -3.9 0.7 Relative to OMV -23.4 -33.2 -38.7
-1.9 7.9 NB: performance is computed in EUR terms; prices as of 17 May
-2.1 -43.9 Source: Bloomberg, SSIF Broker
IF COMPARED TO OTHER OIL&GAS STOCKS, PETROM SHARES HAVENT ENJOYED THE RIDE OF SOME OF ITS PEERS
(%) MOL OMV PKN Tupras Unipetrol INA LOTOS PGNiG Petrol Ofisi OMV Petrom 1W 0.8 5.1 6.7 0.0 0.0 2.6 3.9 3.5 -2.7 -5.6 1M 4.4 12.3 2.8 3.7 0.0 1.0 0.2 6.7 4.0 -11.0 3M -4.5 28.5 1.8 6.7 0.0 3.5 8.0 4.2 -6.6 -4.3 6M -10.2 44.1 14.5 17.1 3.0 2.2 21.2 35.6 30.6 3.9 12M 5.7 75.6 56.1 45.4 1.2 17.6 68.7 51.2 26.2 19.2 YTD -5.9 42.1 4.3 0.5 -1.7 10.1 -0.4 13.4 22.9 -4.1
NB: performance is computed in local currency terms; prices as of 17 May
Source: Bloomberg, SSIF Broker
BROKER DAILY BRIEF
February 13, 2013
Valuation
DCF valuation
We asses our 12M target price for OMV Petrom based on a 10Y DCF approach. We use a risk free rate for Romania 5.75% and a 5% ERP. We also use a levered beta for Petrom of 1.2. We derived a 12M TP of RON 0.52/share, offering 26.7% potential upside; thus we resume our coverage on the stock with a Buy rating.
10Y DCF VALUATION
RON mn Revenues Expenditures Operating profit Tax NOPLAT Depreciation Change in net working capital Capex FCF PV FCF 2013E 21,833 -16,647 5,186 -830 4,356 2,965 -198 -6,500 624 662 2014E 23,929 -18,252 5,677 -908 4,769 3,115 -94 -4,500 3,289 3,152 2015E 22,981 -18,458 4,524 -724 3,800 3,218 -72 -4,300 2,646 2,289 2016E 21,293 -17,021 4,272 -684 3,588 3,317 -807 -4,000 2,098 1,640 2017E 21,465 -16,725 4,740 -758 3,982 3,317 -17 -4,000 3,282 2,316 2018E 21,869 -16,965 4,903 -785 4,119 3,317 -40 -4,000 3,396 2,163 2019E 22,277 -17,346 4,931 -789 4,142 3,317 -41 -4,000 3,419 1,967 2020E 22,945 -18,095 4,851 -776 4,075 3,317 -67 -4,000 3,325 1,728 2021E 23,634 -18,867 4,766 -763 4,004 3,317 -69 -4,000 3,252 1,526 2022E 24,343 -19,657 4,686 -750 3,936 3,317 -71 -4,000 3,183 1,493
DCF SUMMARY AND WACC CALCULATION

I. perpetuity (g= -2%) Sum of PV of FCF PV of Terminal value Total EV Net debt (end 2012)* Equity value (RON mn) Equity value (USD mn) per share (RON) 12M target (RON) * as per end 2012 adjusted for dividends 18,935 9,365 28,300 -3,591 24,708 7,487 0.436 0.483 II. Exit EV/EBITDA at 4x 18,935 12,933 31,867 -3,591 28,276 8,569 0.499 0.553 WACC calculation Risk-free rate (Romanian EUR-bond) ERP Levered beta Cost of equity Tax rate After-tax cost of debt % of Debt % of Equity WACC 5.75% 5.00% 1.23 11.9% 16.0% 6.1% 20.0% 80.0% 10.74%
Relative valuation
Petrom trades at undemanding valuation and offers interesting short and long term triggers
Discounts to CEE peers between 45% and 48% seem unjustified Petrom is trading at 40-54% discounts to its peers in 2013E-2014E P/E terms and 51-53% in EV/EBITDA terms. If we exclude outliers (including Tupras from EV/EBITDA calculations), discounts go to 45 48% for both multiples. Its current discounts to peers are roughly similar to the historical ones in EV/EBITDA terms, however the stock triggers improved significantly (i.e. offshore potential, natgas prices liberalization). One downside still in place is the low liquidity, solvable through either FP or the Government selling part of their stakes. At present, the former seems more likely than the latter.
PEER GROUP COMPARISON (USD-BASED)

MCap Company CEE/SEE peers* OMV MOL PKN Tupras Unipetrol INA Median Petrom Petrom vs. CEE/SEE (%) * consensus estimates RO 5,358.3 0.4105 AT HU PL TR CZ CR 12,600 5,916 5,228 5,553 1,198 5,647 38.9 16,700.0 52.0 52.3 172.0 4,318.1 5.4 7.9 5.9 7.1 n/a 26.2 7.1 5.5 -22.8 8.6 8.3 12.4 10.9 -23.9 10.1 9.3 5.6 -40.5 8.5 7.4 11.7 11.2 29.5 n/a 11.2 5.1 -54.3 2.8 5.8 5.1 8.4 9.1 12.9 7.1 2.8 -60.8 3.7 4.9 6.3 10.8 7.6 7.3 6.8 3.3 -51.4 3.6 4.4 6.2 10.6 6.5 n/a 6.2 2.9 -52.5 Country USD mn Price (LC) 17 May 2013 2012 P/E (x) 2013E 2014E 2012 EV/EBITDA (x) 2013E 2014E
Source: Bloomberg, OMV Petrom, SSIF Broker estimates
10
BROKER DAILY BRIEF
February 13, 2013
Forecasts and estimates

Revenues assumptions
In spite of companys efforts to stabilize production, we still account for a 1.7% p.a. decline over the long term
We expect a gradual decline of hydrocarbon production over the long run Having less to almost no capex requirements for G&P and R&M segments, Petrom has intensified its already high focus on E&P, with the main target being production stabilization, either through fields redevelopment or new developments. However, in spite of companys efforts, given the high natural decline rate (10%), we prefer a conservative approach and account for decreasing production over the long run. Our current assumptions incorporate a 0.5% yoy decrease in total production in 2013, and we continue to build our estimates for 2014 and onwards on a decreasing trend of production (decreasing by an average 1.7% p.a., the decline coming more from crude than from natgas production). Upside potential can come from Petroms off-shore exploration efforts, which so far have confirmed a potentially major natgas presence. However, further tests are required to gather information on the hydrocarbon potential and whether this will prove commercial or not depends on several factors. We currently dont account for this upside potential, we however underline it as being major.
E&P PRODUCTION VOLUME ASSUMPTIONS

2012 Crude production (mn bbl) Natgas production (bn m3) Total production (boe/day) Yoy (%) 32.5 5.27 182,700 -1.6 2013E 32.3 5.24 182,373 -0.5 2014E 31.7 5.16 179,195 -1.7 2015E 31.1 5.09 176,073 -1.7 2016E 30.4 5.01 173,007 -1.7 2017E 29.8 4.94 169,995 -1.7 2018E 29.2 4.86 167,036 -1.7 2019E 28.6 4.79 164,130 2020E 28.1 4.72 161,276 2021E 27.5 4.65 158,472 2022E 27.0 4.58 155,718
-1.7 -1.7 -1.7 -1.7 Source: OMV Petrom, SSIF Broker estimates
Crude prices remain supportive for an upstream company such as Petrom
Crude price forecasts We basically followed the futures curve to build our assumptions for crude prices. Our LT price forecast is USD 90/bbl (2019 onwards). Sensitivity to LT crude price assumption is material to Petroms valuation, as a 5% change in our LT price (USD 4.5/bbl) would cut/add 3.7% from/to our 12M target price. From our analysis it looks that, based on our forecasts, Petroms current market price incorporates a USD 7 0/bbl LT crude price.
CRUDE PRICE ASSUMPTIONS

USD/bbl Brent forecasts Ural forecasts 2012 111.60 110.76 2013E 105.60 104.30 2014E 102.70 101.20 2015E 96.70 95.20 2016E 94.00 92.50 2017E 92.00 90.50 2018E 91.00 2019E 90.00 2020E 90.00 2021E 90.00 2022E 90.00
89.50 88.50 88.50 88.50 88.50 Source: Bloomberg, OMV Petrom, SSIF Broker estimates
12MTP (RON) SENSITIVITY TO LT CRUDE PRICE ASSUMPTION

0.581 0.602
0.70
2013 EBIT AND NET PROFIT SENSITIVITY TO CRUDE PRICE

8,000
0.539
0.560
0.518
0.497
0.434
0.455
0.476
5,186
5,659
0.60 0.50 0.40 0.30 0.20
7,000
6,132
6,605
4,713
6,000
5,405 4,998
3,766
5,000
4,239
4,590 4,182
3,293
4,000 3,000 2,000
3,776 3,368
2,961
2,554
0.10
1,000
0.00
100.0
105.0
110.0
75.0
80.0
95.0
70.0
85.0
90.0
85.6
95.6
100.6
105.6
120.6
12M TP (RON) at various LT crude price assumptions (USD/bbl)
2013 EBIT (RON mn)
2013 Net earnings (RON mn)
125.6
90.6
110.6
115.6
7,078
5,812
11
BROKER DAILY BRIEF
February 13, 2013
In our base case, we assume a 20% hike of royalties, which may prove conservative
Royalty regime Petrom was granted a mild royalty regime by the privatization contract, which is to expire at the end of 2014. Negotiation talks have already been started and we expect the Romanian Government to operate a major change, which will increase the royalty paid by Petrom from the current 8% average towards the 20% level. In fact, this is our base case scenario for 2015 onwards. This compares to the European level although would be a bit harsher (various sources give European level to be anywhere between 13% and 20%). We therefore note that our assumption may prove over-conservative and that the risk is on the downside. We dont 100% exclude an early implementation of the change, e.g. in 2014 vs. 2015, but in this case we expect a lower hike (to approx. 16%, which could add around 12% to our 12M TP, all others left unchanged). Petroms valuation is highly sensitive to the royalty regime. We assessed that a royalty tax 1pp higher than in the base case for 2015 onwards would cut 3% from our 12M target price.
2013 EBIT AND NET PROFIT SENSITIVITY TO ROYALTY TAX
5,186 5,059
6,000
12M TP (RON) SENSITIVITY TO ROYALTY TAX ASSUMPTION

0.579 0.564
0.700 0.600 0.500 0.400 0.300 0.200 0.100 0.000
0.549
4,931
0.533
4,804
0.518
4,677
0.503
4,550
0.487
4,423
0.472
0.456
4,182 4,000 3,000 2,000 1,000 0
4,073
3,963
3,854
3,744
3,634
3,524
3,414
16.0
17.0
19.0
20.0
24.0
18.0
22.0
21.0
23.0
8.0
10.0
12.0
13.0
15.0
12M TP (RON) at various royalty tax levels for 2015 onwards (%)
2013 EBIT (RON mn)
2013 Net earnings (RON mn)
Performance of the main business segments We expect E&P to remain the engine of Petroms EBIT, especially in the context of natgas prices liberalization, as the additional margin is booked by E&P and not by G&P, as it was the case in 2012, when the realized price was better than the price recommended by ANRE. For R&M, we assume a 95% LT capacity utilization for Petrobrazi refinery, based on the new nameplate capacity of 4.2 mn t/y (since 3Q12, previously 4.5mn t/y). We also assume a yield improvement after 2014, following the conclusion of the refinery modernization works, due for this year. Yields have already improved after the modernization of the vacuum distillation unit that was done in 3Q12, which together with a lower energy consumption supported the R&M EBIT in 4Q12. Refining margins are expected to be weak in 2013 and we dont expect any impressive recovery going forward, as the gap between demand and supply may continue to exert a negative pressure. The same sluggish demand would also limit improvements in the marketing business. As for G&P, we see some pressure on the gas demand going forward due to the liberalization process. We expect the Brazi power plant to be in the short and possibly midterm clearly below the target 13% ROIC; and therefore to contribute less than initially hoped for (even half). FX rates: USDRON rate is an important variable for Petroms valuation. At now, we use 3.35 RON/USD average rate for 2013-2015 and 3.10 RON/USD going forward.
EBIT BREAKDOWN BY SEGMENT
RON mn E&P R&M Gas & Power Corporate & others (incl. provisions) EBIT EBIT margin (%) 2008 2,931 -1,800 109 -35 1,205 6.0 2009 2,468 -618 71 -299 1,622 10.1 2010 3,012 106 164 -297 2,986 16.0 2011 5,236 -187 149 -262 4,936 21.8 2012 5,467 138 360 -302 5,662 21.6 2013E 5,011 203 414 -442 5,186 2014E 5,397 280 443 -442 5,677 2015E 4,118 264 474 -332 4,524
23.8 23.7 19.7 Source: OMV Petrom, SSIF Broker estiamtes
16.0
14.0
11.0
9.0
4,168
3,305
5,000
4,296
12
BROKER DAILY BRIEF
February 13, 2013
4Q12 results review

4Q12 results: very strong EBIT (+41.6% yoy), bottom line slightly affected by unfavorable financial result Petroms 4Q12 results were in line with markets expectations at EBIT and EBITDA level (even slightly above, by 2% at EBIT and 7.6% at EBITDA level), but lagged the expectations for net earnings, on higher FX losses but also a RON 209mn special charge related to a fiscal review. EBIT amounted to RON 1,673mn, up 30.1% qoq and 41.6% yoy. Clean CCS EBIT amounted to RON 1,824mn, up 6.7% yoy.
In E&P, EBIT amounted to RON 1,281mn, lower by 12.3% yoy, mainly due to higher exploration expenses and OPEX (the latter 6% higher yoy in RON terms due to increased personnel expenses subsequent to the conclusion of the new collective labour agreement), partly offset by weaker RON vs. USD. Group hydrocarbon production was 16.84mn boe in 4Q12, vs. 17.08mn boe in 4Q11 and 16.75 mn boe in 3Q12. In Romania, production contracted by 2% yoy due to natural decline, caused mainly by a 3% lower crude oil production while natgas output remained roughly unchanged. Clean E&P EBIT was RON 1,329mn. In G&P, the yoy decrease in natgas sales volumes was more than compensated by the positive contribution of Dorobantu wind power and Brazi gas-fired power plant, as well as by the better terms for gas sales. Brazi power plant generated 0.75 TWh, of which 45% sold on the regulated market. In 4Q12, Brazi power plant covered some 5% of the domestic electricity production. Dorobantu park generated 0.02 TWh, for which it received 44,183 green certificates (34% more yoy and 16% qoq). In R&M, the refining margins improved and refinery utilization rate increased to 93% from 76% in 3Q12. Clean CCS EBIT amounted to RON 80mn, 29% higher yoy, supported also by improvements in the yields structure (after the 6-weeks shutdown for technological upgrades in 2Q12). Marketing volumes decreased by 12% yoy, on the back of an unfavourable market environment.
As expected, a positive effect on EBIT came at the consolidation line level, due to a substantial realization of intercompany profits (RON 313mn) (due to the decrease in crude inventories and a seasonal decline in the gas stored). Financial losses were higher yoy and qoq, burdened by a RON 209mn special charge for alleged late interest payments following the result of a 2009-2010 fiscal review and negative FX effect on receivables and loans to Kazakh subsidiaries. 4Q12 net income amounted to RON 1,056mn, higher by 26.3% yoy, but 15% below market expectations which most probably assumed a better financial result. FY2012 net earnings amounted to RON 3.953mn (+5.3% yoy), another record high reported by Petrom. Capex in 2012 amounted to EUR 1.1bn, of which 76% went to E&P. In 2012, reserves continue to decrease: proved and probable (2P) reserves amounted to 1,091mn boe, down 3% yoy, while proved (1P) reserves were 775mn boe (of which 770mn boe in Romania), down by 4.6% yoy. Reserves replacement ratio dropped significantly from 70% in 2011 to 44% (42% in Romania).
4Q12 RESULTS REVIEW (IFRS)
RON mn Sales revenues Total operating costs EBIT by segments: E&P R&M Gas & Power Corporate & Others EBIT EBIT margin (%) Net financials Pre-tax profit Income tax Net income* EBITDA Depreciation * atributable to stockholders 1,704 86 136 -133 1,794 29.9 -138 1,655 -271 1,384 2,410 616 1,192 -198 29 -114 909 14.7 -116 793 -150 643 1,619 710 1,289 266 59 -329 1,286 18.4 -237 1,049 -185 870 2,035 749 1,281 -18 135 274 1,673 23.7 -344 1,329 -275 1,056 2,450 777 -0.6 n.m. 128.5 -183.4 30.1 5.2 45.0 26.7 48.8 21.4 20.4 3.8 -12.3 -95.3 19.8 n.m. 41.6 5.2 241.7 22.9 13.0 26.3 27.9 5.9 -14.9 7.6 22.1 2.0 -0.9 5,466 137 360 -302 5,661 21.6 -838 4,826 -880 3,953 8,514 2,852 5,236 -187 149 -262 4,936 21.8 -327 4,609 -850 3,757 7,766 4.4 n.m. 141.3 15.1 14.7 -0.3 156.3 4.7 3.6 5.3 9.6 -4.5 2.1 0.6 1Q12 6,005 -4,211 1,794 2Q12 6,197 -5,288 909 3Q12 6,983 -5,697 1,286 4Q12 7,073 -5,400 1,673 qoq (%) 1.3 -5.2 30.1 yoy (%) 10.7 3.7 41.6 vs. cons (%) 5.8 7.1 2.0 2012 26,258 -20,596 5,662 2011 22,614 -17,677 4,936 yoy (%) 16.1 16.5 14.7 vs. cons (%) 1.5 1.8 0.6
2,830 0.8 5.2 Source: OMV Petrom, SSIF Broker
13
BROKER DAILY BRIEF
February 13, 2013
1Q13 OMV trading statement

In 1Q13, Petroms hydrocarbon production stabilized at 183,000 boe/d
OMVs trading statement indicates a decently good quarter for Petrom, without major surprises On 26 April, OMV published its 1Q13 trading statement incorporating some operational data on Petrom as well, picturing a good quarter, without anything too spectacular. The hydrocarbon production stabilized at 183,000 boe/d, same as in 4Q12, 0.5% down yoy. Exploration expenses remained similar to 4Q12 at OMV group level, but increased at Petrom level due to ongoing 3D seismic activities. Natgas sales contracted by 5% yoy, in line with the market demand. Power output increased 5.1% to 0.82 TWh from 0.78 TWh in 4Q12. In R&M, OMVs refining margin indicator continued to decrease (on weaker middle distillates and naphta spreads), while its marketing business continued to face subdued demand and margin pressure, which we suspect it applies to Petrom as well. Crude price was supportive in 1Q13 if compared to the previous quarter, as Brent was up 2.3% qoq, but it contracted versus 1Q12 by 5.1%. No oil hedges have been entered into for 2013 by OMV. On the other hand, the RON appreciated against the USD on average by some 4.9% qoq and remained almost unchanged vs. the average of 1Q12.
1Q11 2Q11 187,000 11.97 3Q11 184,000 9.47 4Q11 186,000 16.23 1Q12 184,000 17.32 2Q12 182,000 11.16 3Q12 182,000 9.24 0.78 4Q12 183,000 14.4 0.78 1Q13 183,000 16.4 0.82 qoq (%) 0.0 13.5 5.1 yoy (%) -0.5 -5.4
OMV 1Q13 TRADING STATEMENT - PETROM DATA

Production (boe/d) Gas sales (TWh) Total net electrical output (TWh) 186,000 16.5 -
Source: OMV, SSIF Broker
PRODUCTION VOLUMES (BOE/D)

195,000
190,000 185,000 180,000 175,000 170,000
CRUDE VS. NATGAS PRODUCTION (MN BOE)

18.0
16.0
9.0
8.6
8.6
14.0
12.0 10.0 8.0 6.0
8.6
8.6
8.4
8.6
8.4
8.5
8.7
8.8
8.6
8.3
8.5
8.6
8.7 8.1 4Q 2012
8.5
8.4
8.4
8.4
8.4
8.3
8.3
8.3
8.3
8.3
8.2
8.3
8.2
8.1
8.1
4.0 2.0 0.0
2Q 2009
3Q 2009
4Q 2009
1Q 2010
3Q 2010
4Q 2010
1Q 2012
2Q 2012
4Q 2012
3Q 2012
2Q 2010
1Q 2009
1Q 2013
1Q 2011
2Q 2011
3Q 2011
1Q 2011
4Q 2011
2Q 2011
3Q 2011
1Q 2009
2Q 2009
4Q 2009
1Q 2010
2Q 2010
4Q 2011
1Q 2012
Total production (boe/day)
Oil production (mn boe)
Natgas (mn boe)
NATGAS PRODUCTION AND SALES VOLUMES (BN M3)

2.00
REALIZED CRUDE PRICE VS. URALS (USD/BBL)

120 110 100 90 80 70 60 50 40 30 20 10 0 20.0 18.0 16.0
1.80
1.60 1.40 1.20 1.00 0.80 0.88 1.48 1.44 1.55
1.66 1.54 1.52 1.11
1.62 1.34
1.53
14.0 12.0 10.0

8.0 6.0 4.0 2.0 0.0
1.04
0.94
0.77
1.03
0.88
0.86
0.60 0.40
0.20 0.00
Natgas production volumes (bn cm)
Natgas sales volumes (bn cm)
Urals crude price (US$/bbl) Realisation gap (rh side)
Realised crude price (US$/bbl)
14
1Q 2013
3Q 2010
4Q 2010
2Q 2012
3Q 2012
3Q 2009
8.0
8.5
BROKER DAILY BRIEF
February 13, 2013
1Q13 results review

1Q13 results: a solid quarter, in line with expectations, with E&P EBIT slightly pressured by exploration expenses (off-shore 3D seismic campaign) OMV Petrom reported 1Q13 financial results that show EBIT of RON 1,582mn, 11.8% down yoy, mainly on the higher exploration expenses resulted from the intensive off-shore seismic campaign (clean CCS EBIT was RON 1,579mn, 4% down yoy). Some pressure also came from lower natgas sales, given the much milder winter. 1Q13 net profit amounted to RON 1,330mn, 3.9% down yoy and 26% up qoq and very much in line with market expectations (Reuters consensus, median).
1Q13 clean CCS EBIT dropped 4% yoy on smaller sales (especially natgas) and higher exploration expenses
E&P: total hydrocarbon production remained relatively constant, showing a slight 1% yoy contraction to 16.46mn boe (183,000 boe/d, of which 171,000 boe/d in Romania) from 16.71mn boe (184,000 boe/d) in 1Q12 (annual production comparison slightly distorted by the fact that 2012 was a leap year). The drop in production refers to the domestic operations, as the oil and gas production in Kazakhstan remained almost stable. Crude prices remained supportive and average realized price increased by 1% to USD 99.37/bbl, as there were no hedging losses in 1Q13 (no hedges entered by the company for 2013). OPEX decreased by 3% yoy to USD 14.92/boe (same decrease was registered in RON terms as well), however there was a major increase in exploration expenses (to RON 190mn from RON 18mn in 1Q12) due the 3D seismic campaign started in December in the Black Sea and, to a small extent, to the write-off of two unsuccessful onshore exploration wells. E&P EBIT amounted to RON 1,417mn, 16.8% down yoy and 10.6% up qoq. G&P: clean EBIT amounted to RON 155mn and advanced by 13% yoy on higher contribution from the power business and better natgas sales terms. Net electrical output of Brazi power plant was 0.78 TWh, of which 44% was sold on the regulated market at RON 169/MWh. Day-ahead market prices were RON 155/MWh for base load and RON 200/MWh for peak load in 1Q13, according to Petrom. Starting 30 March, the power plant entered a 30 days planned shut down for the installation of a gas treatment plant. In 1Q13, Dorobantu wind farm generated 0.04 TWh, 15% higher yoy, and overall, Petrom covered 5% of Romanias electricity production in 1Q13. Downward pressure came mainly from lower natgas sales volumes (-5% yoy). Segment EBIT amounted to RON 113mn (clean EBIT 155mn, 13% up yoy), some 17% down yoy and qoq, reflecting a RON 42mn net special charge related to a non-core assets impairment. R&M: the segment remained profitable with a clean CCS EBIT of 52mn and EBIT of RON 96mn, enjoying the benefits of the vaccum distillation unit modernization done in 2012, which resulted in improved yields. The indicator refining margin improved to USD -0.88/bbl versus USD -3.58bbl in 1Q12, on higher gasoline cracks and lower crude quotations. Marketing sales volume contracted by 8% yoy, but the segment had a higher contribution thanks to improved retail margins and cost management.
Net debt decreased to RON 1.4bn from RON 2bn at end-Dec 2012, although capex remained elevated at RON 1bn (which compares to RON 1.1bn in 1Q12). Capex dropped significantly in G&P and R&M and was mainly directed towards E&P (87% or RON 872mn, while its share in total was 75% in 1Q12).
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1Q13 RESULTS REVIEW (IFRS)

RON mn Sales revenues Total operating costs EBIT by segments: E&P R&M Gas & Power Corporate & Others EBIT EBIT margin (%) Net financials Pre-tax profit Income tax Net income** EBITDA Depreciation * Reuters consensus (median) ** attributable to stockholders 1,261 -53 33 -49 1,192 23.9 -181 1,011 -170 840 1,868 676 1,170 57 -9 6 1,224 23.1 -103 1,121 -218 903 1,984 760 1,344 185 12 -203 1,338 22.5 57 1,395 -219 1,175 1,999 661 1,461 -376 113 -16 1,182 18.5 -101 1,081 -243 837 1,915 733 1,704 86 136 -133 1,794 29.9 -138 1,655 -271 1,384 2,410 616 1,192 -198 29 -114 909 14.7 -116 793 -150 643 1,619 710 1,289 266 59 -329 1,286 18.4 -237 1,049 -185 870 2,035 749 1,281 -18 135 274 1,673 23.7 -344 1,329 -275 1,056 2,450 777 1,417 96 113 -44 1,582 27.3 2 1,584 -252 1,330 2,361 779 10.6 n.m. -16.5 n.m. -5.4 3.7 n.m. 19.2 -8.2 25.9 -3.6 0.3 -16.8 11.6 -16.9 -66.9 -11.8 -2.5 n.m. -4.3 -6.9 -3.9 -2.0 26.4 1,328 2,323 699 1,625 1Q11 4,978 -3,786 1,192 2Q11 5,293 -4,069 1,224 3Q11 5,953 -4,614 1,338 4Q11 6,390 -5,208 1,182 1Q12 6,005 -4,211 1,794 2Q12 6,197 -5,288 909 3Q12 6,983 -5,697 1,286 4Q12 7,073 -5,400 1,673 1Q13 5,789 -4,207 1,582 qoq (%) -18.2 -22.1 -5.4 yoy (%) -3.6 -0.1 -11.8 1Q13 Cons* 6,168 -4,543 1,625
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Company snapshot
Exploration & Production (E&P)
OMV Petrom is virtually an upstream company, highly sensitive to crude and natgas prices
OMV Petrom is mainly an upstream company, proven also by the sensitivity analyses we presented earlier in our report. E&P division generates the bulk of its EBIT and attracts most of its capex (76% in 2012, 79% budgeted for 2013). It produces virtually all Romanias crude production, i.e. 4 mn toe in 2012. Petrom Groups production was 4.5 mn toe crude oil and NGL, of which 0.5mn toe were produced by Petroms Kazakhstani subsidiary. The main shortcoming is the fact that its fields are fragmented and mature, meaning Petrom consequently faces high lifting costs and a high natural decline of production (10% as per Petroms management).
OMV PETROM 2012 PRODUCTION AND RESERVES DATA
Production (mn boe) Region Romania Kazakhstan TOTAL Oil 29 4 32 Gas 34 1 34 Proved (1P) Reserves Oil 383 21 404 Gas 368 3 371 Source: OMV Petrom
Groups 2P hydrocarbon reserves at end 2012 were 1.09bn boe, down from 1.13bn boe a year ahead.
42% RRR in 2012
Reserves replacement ratio (RRR) dropped last year to 42% from 70% in 2011 (past 3Y average was 61%). However, the high replacement ratio registered in 2011 and 2010 came mainly from reserves revision subsequent to various geological studies. Fields redevelopment. As we mentioned above, Petrom had to find ways to stabilize its production in Romania, one main way being field redevelopment projects. It signed partnerships for its on-shore fields with specialized partners (Petrofac, PetroSantander, Expert Petroleum) and JVs for deeper, frontier areas (with Hunt Oil and Repsol). Estimated recoverable resources are 150mn boe. Projects in the development phase are estimated to require approximately EUR 400mn capex and would add 2P reserves of roughly 70 mn boe of oil and associated gas. Projects in the appraisal phase are expected to add EUR 100mn in capex and a cumulative production of 90 -110mn boe of oil and gas. Offshore activities: Romanian Black Sea exploration in near shore areas started in 1969, with the first production registered in 1987. Petroms production currently comes from onshore fields, only 17% of total being generated by the offshore operations. However, deep-water perimeters are highly underexplored. Currently, Petroms presence in the Black Sea consists mainly of:
Some 150mn boe are estimated as recoverable through field redevelopment projects
While currently accounting for 17% of hydrocarbons production, offshore potential is huge
Neptun Deep: a 50%/50% JV with Exxon Mobil. Preliminary estimated resources for Domino, the first deep water exploration well drilled at over 9,843 feet (3,000 m), are 1.5 3 tcf (42 84 bcm) of natags. Petrom will finalize in 1Q13 a sizeable 3D acquisition, and next well drilling is scheduled for end 2013. Conclusion of the appraisal phase of the Neptun block is estimated for 2016. Neptun Shallow: operated 100% by Petrom. Exploration started before 2005 and intensified since 2008. Past exploration activities included the drilling of two wells (not commercially feasible) and a 2D seismic campaign. A 60 days 3D seismic campaign conducted on 1,600 square km was started in Dec 12 and was completed in the meantime. Midia Block: Exxon/Petrom partnership increased its presence in the Black Sea by acquiring new exploration acreage, via an 85% interest in the Midia Block, adjacent to Neptun Block, from Sterling Resources and Petro Ventures Europe. The transfer agreement was signed in Oct 12 and is subject to the fulfillment of several conditions, including relevant authorities approval. It also gave an option to Romgaz, the state-owned domestic natgas producer to purchase 10% of the participating interest in Midia Deep, conditional upon the above mentioned transfer agreement becoming effective and an announcement of a commercial discovery. Ukraine exploration ventures: a production sharing agreement for Skifska block (Ukraine) is currently being negotiated with the Ukrainian Government. OMV Petrom has a 15% stake in the wining consortium (together with ExxonMobil (40%), Shell (35%), and Nadra Ukrainy (10%)).
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Gas & Power (G&P)

Petrom is the second largest natgas market player, with a 47.3% share of 2012 production
Gas: Petrom is one of the few main players on the Romanian natgas market supplying mainly domestic gas. In 2012, it covered 47.3% of the domestic production (after Romgaz with 50.1%), while the domestic production covered 75.7% of consumption. It also had a 6.6% share of Romanias imports. It delivers to large industrial customer (38% market share), chemicals producers (39% market share) and heat &power producers (32% market share).
ROMANIAN NATGAS MARKET (2012, %)
2 4.84 24
NATGAS PRODUCTION AND SALES VOLUMES (BN M3)

6.00 5.00 5.55 5.30 4.85 4.92
5.06
4.00
38 3.00 2.00
1.00
0.00 36
Natgas production volumes (bn cm)
Natgas sales volumes (bn cm)
Import
Petrom
Romgaz
Others
Source: OMV Petrom, ANRE, SSIF Broker After building an 860 MW gas-fired power plant, Petrom became a significant player on the electricity market as well
Power: to monetize some 20% of its natgas production, Petrom started in 2009 to build an 860 MW CCPP state-of-the art natgas fired power plant, with a 57% efficiency factor. Capex was EUR 530mn. The plant commenced commercial operations in Aug 2012 and covered some 5% of Romanias electricity production over 1Q13. Companys guidance for 2013 indicates total electricity sales of 6.41 TWh . In 4Q12, it sold 45% of its output on the regulated market. For 2013, ANRE requires it to sell on the regulated market up to 1.5 TWh, or 23% of the maximum theoretical output. From September 2012 onwards, Brazi power plant was supplied with equity gas only. Petrom also has a 45 MW wind park, purchased in early 2011 and commercially operational since 4Q11, which has an incomparably lower production (but contributes to costs optimization thanks to the green certificates received (currently 2 per each MWh produced). In 2012, Dorobantu wind park generated a net electrical output of 0.09 TWh for which the company received 182,784 green certificates (translating into some EUR 10mn revenues at EUR 55/certificate).
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Refining & Marketing (R&M)

The refining business has been resized and is being modernized to help the R&M segment improve its contribution to Groups EBIT
Refining: Petrom currently operates one refinery, Petrobrazi with a nameplate capacity of 4.2 mn t per annum (reduced in 2012 from 4.65mn t), after it closed its other refinery, Arpechim, in 2011 and resized Petrobrazi to process its entire Romanian equity crude. Petrobrazi is currently undergoing a EUR 600mn technological upgrade programme, started in 2010 and aimed to be completed in 2014, targeting significant yield structure improvements: middle distillates to increase from 35% in 2011 to 45% in 2014, while own crude consumption to drop to 10% from 12%. Another target of the modernization programme was for the refinery to process the entire equity crude, target already achieved last year. Marketing: Petrom leads the Romanian market with a 36% market share and a network of 546 filling stations at end 2012 (545 in 2011), and 798 for the overall Petrom group (including 98 in the Republic of Moldova, 93 in Bulgaria and 61 in Serbia).
EVOLUTION OF THE REFINING INPUT

7.00 6.18 6.00 5.00 4.15 6.51 5.46
ROMANIAN MARKETING BUSINESS

45 40 35 34 37 42 6.0
39 4.9
4.6 4.7
37 4.50
36 4.40
5.0 4.0
30
3.79 3.34
4.00
3.00 2.00
25
3.6 3.0
20
15 10 2.0 1.0
1.00
0.00 2007 2008 2009 2010 Refining input (mn t) 2011 2012
5
0 2007 2008 2009 2010 2011 2012
Romanian market share (%) Thropughput per filling station (mn l/year)
0.0
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Financials
INCOME STATEMENT (IFRS)
RON mn Net sales Total operating costs EBIT By segment E&P R&M Gas & Power Provisions, others EBIT EBIT margin (%) Net financials Pretax profit Income tax Net income Depreciation EBITDA EBITDA margin (%) 2,931 -1,800 109 -35 1,205 6.0 -80 1,129 -233 978 -2,670 3,875 19.3 2,468 -618 71 -299 1,622 10.1 -457 1,169 -336 860 -2,489 4,110 25.5 3,012 106 164 -297 2,986 16.0 -387 2,605 -416 2,201 -2,811 5,797 31.1 5,236 -187 149 -262 4,936 21.8 -330 4,609 -850 3,757 -2,830 7,766 34.3 5,467 138 360 -302 5,662 21.6 -838 4,826 -880 3,953 -2,852 8,514 32.4 5,011 203 414 -442 5,186 23.8 -210 4,979 -797 4,182 -2,965 8,151 37.3 5,397 280 443 -442 5,677 23.7 -253 5,427 -868 4,558 -3,115 8,792 36.7 4,118 264 474 -332 4,524 19.7 -134 4,392 -703 3,689 -3,218 7,742 33.7 2008 20,127 -18,922 1,205 2009 16,089 -14,469 1,620 2010 18,616 -15,630 2,986 2011 22,614 -17,678 4,936 2012 26,258 -20,596 5,662 2013E 21,833 -16,647 5,186 2014E 23,929 -18,252 5,677 2015E 22,981 -18,458 4,524
BALANCE SHEET (IFRS)

RON mn Fixed assets Inventories Receivables Other current assets Current assets Trade and other payables Net working capital Net capital employed Share capital Retained earnings/other reserves Profit for the year Shareholders' equity LT debt ST debt Total debt Cash & Cash equivalents Net debt/(cash) Provisions Net capital employed Total assets 2008 23,293 2,759 1,205 62 4,026 -3,368 659 23,952 18,983 -3,038 0 15,945 1,468 357 1,825 -1,598 227 7,735 23,952 28,917 2009 25,915 2,583 1,332 60 3,975 -2,823 1,152 27,067 18,983 -2,804 0 16,180 2,810 188 2,998 -636 2,362 8,515 27,067 30,527 2010 28,459 2,500 2,001 77 4,578 -3,931 647 29,107 18,983 -498 0 18,486 3,466 391 3,857 -1,727 2,129 8,518 29,107 34,765 2011 31,022 2,349 2,176 76 4,601 -3,594 1,007 32,028 18,983 2,119 0 21,102 2,322 943 3,265 -866 2,399 8,553 32,028 36,488 2012 32,777 2,251 2,179 173 4,602 -3,645 957 33,734 18,983 4,455 0 23,438 1,885 885 2,771 -766 2,005 8,323 33,734 38,145 2013E 36,360 2,183 2,074 173 4,430 -3,275 1,155 37,515 18,983 3,269 4,182 26,434 2,600 2,023 4,623 -1,000 3,623 7,491 37,515 41,790 2014E 37,795 2,393 2,273 173 4,839 -3,589 1,250 39,045 18,983 6,196 4,558 29,738 2,000 1,598 3,598 -1,000 2,598 6,742 39,045 43,635 2015E 38,930 2,298 2,183 173 4,654 -3,332 1,322 40,252 18,983 9,387 3,689 32,060 1,600 1,558 3,158 -1,000 2,158 6,068 40,252 44,585
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SUMMARY CASH FLOW STATEMENT (IFRS)

RON mn Net profit Depreciation Provisions, other non-cash items Cash earnings Capital investment Acquisition/asset disposal Previous year dividend Outflows from operations Net flows from operations Working capital change Other Finance need/excess Capital contribution Change in net debt 2008 978 2,670 -528 3,120 -6,759 0 -933 -7,692 -4,572 1,793 0 -2,779 0 -2,779 2009 860 2,489 -1,535 1,813 -4,219 0 -15 -4,234 -2,420 -494 0 -2,914 0 -2,914 2010 2,201 2,811 -191 4,822 -4,863 67 0 -4,796 26 505 0 531 0 531 2011 3,757 2,830 -383 6,204 -4,803 172 -1,003 -5,633 570 -360 0 211 0 211 2012 3,953 2,852 150 6,956 -4,930 74 -1,756 -6,612 344 50 0 394 0 394 2013E 4,182 2,965 -930 6,217 -6,500 50 -1,186 -7,636 -1,419 -198 0 -1,617 0 -1,617 2014E 4,558 3,115 -850 6,823 -4,500 50 -1,255 -5,705 1,119 -94 0 1,024 0 1,024 2015E 3,689 3,218 -778 6,541 -4,300 50 -1,368 -5,618 924 -72 0 440 0 440
UPSTREAM ASSUMPTIONS AND FORECASTS

2008 Brent crude (USD/bbl) Urals (USD/bbl) Ural-Brent differential (USD/bbl) RON/USD avg. Crude production (mn tons) Natgas production (bn m3) Total production (mn boe) Total production (boe/day) Natgas sales (bn m3) Revenue side Realized crude price (USD/bbl) Wellhead gas price (USD/'000 m3) Oil revenues (USD mn) Gas revenues (USD mn) Total revenues (USD mn) Cost side Opex (USD/boe) Depreciation (USD/boe) Royalty (USD/boe) Other, incl. exploration (USD/boe) Total lifting costs (USD/boe) Operating profits EBIT (USD mn) EBIT/boe (USD) 1,200 16.89 809 11.83 948 14.14 1,718 25.35 1,575 23.55 1,509 1,624 1,241 22.67 24.82 19.31 Source: OMV Petrom, SSIF Broker estimates -18.0 -7.0 -4.5 -2.5 -32.1 -15.1 -6.2 -3.2 -2.8 -27.2 -16.7 -9.8 -3.7 -2.8 -33.1 -16.2 -10.4 -4.7 -3.0 -34.2 -15.4 -8.8 -4.6 -3.0 -31.8 -16.8 -9.0 -4.6 -3.0 -33.3 -16.4 -9.8 -4.7 -3.1 -34.0 -16.2 -10.5 -12.4 -3.1 -42.1 84.11 187.9 2,893 1,094 3,987 55.23 162.6 1,857 866 2,723 68.72 155.8 2,291 843 3,134 93.30 155.8 3,086 866 3,952 94.00 151.3 3,054 806 3,860 89.70 174.0 2,900 896 3,796 90.57 209.0 2,870 1,001 3,871 85.20 257.0 2,646 1,327 3,972 97.01 94.01 -3.0 2.52 4.77 5.62 71.08 194,708 5.30 2009 61.60 60.80 -0.8 3.05 4.66 5.33 68.29 187,431 4.85 2010 79.50 78.28 -1.2 3.18 4.62 5.16 67.08 183,707 4.92 2011 111.31 109.64 -1.7 3.05 4.59 5.31 67.77 185,619 5.06 2012 111.6 110.8 -0.8 3.47 4.51 5.27 66.87 182,700 4.84 2013E 105.6 104.3 -1.3 3.35 4.48 5.24 66.57 182,373 4.82 2014E 102.7 101.2 -1.5 3.35 4.39 5.16 65.41 179,195 4.75 2015E 96.7 95.2 -1.5 3.35 4.31 5.09 64.27 176,073 4.69
DOWNSTREAM ASSUMPTIONS AND FORECASTS

RON mn Crude oil throughput ('000 tons) Crude oil throughput (mn bbl) Capacity nameplate CUR (%) (nameplate) Total output ('000 tons) Domestic Export Export (%) Total sales Ural-MED ref. margin (USD/bbl) Downstream EBIT/bbl (USD/bbl) 2008 6,121 44.9 8,000 76.5 5,448 3,800 1,648 30.3 5,448 5.54 -5.31 2009 5,161 40.0 8,000 65.0 4,982 4,670 1,510 24.4 6,180 1.94 -5.06 2010 3,902 30.4 8,000 49.0 3,780 3,780 1,130 23.0 4,910 2.88 1.10 2011 3,567 30.4 8,000 79.0 3,580 4,070 1,160 22.2 5,230 1.15 -2.21 2012 3,146 27.8 4,500 73.0 3,060 3,830 1,180 23.6 5,010 2.50 1.62 2013E 3,560 27.7 4,200 90.0 3,402 3,945 357 8.3 4,302 3.50 2.19 2014E 3,760 29.2 4,200 95.0 3,631 3,945 586 12.9 4,531 4.00 2.86 2015E 3,760 29.2 4,200 95.0 3,631 3,945 586 12.9 4,531 4.00 2.69
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DISCLAIMER
Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness and accuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. We reserve the right to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice. This analysis is for information purposes only and (i) does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any financial, money market or investment instrument or any security, (ii) is neither intended as such an offer for sale or subscription of or solicitation of an offer to buy or subscribe for any financial, money market or investment instrument or any security nor (iii) as an advertisement thereof. The investment possibilities discussed in this report may not be suitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments. Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investment instrument or security under discussion is not explained in their entirety. This information is given without any warranty on an "as is" basis and should not be regarded as a substitute for obtaining individual advice. Investors must make their own determination of the appropriateness of an investment in any instruments referred to herein based on the merits and risks involved, their own investment strategy and their legal, fiscal and financial position. As this document does not qualify as an investment recommendation or as a direct investment recommendation, neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Investors are urged to contact their bank's investment advisor for individual explanations and advice. Neither SSIF Broker SA nor any of its respective directors, officers or employees nor any other person accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. This analysis is being distributed by electronic and ordinary mail to professional investors, who are expected to make their own investment decisions without undue reliance on this publication, and may not be redistributed, reproduced or published in whole or in part for any purpose. SSIF Broker SA may hold financial instruments presented in this report and/or have contractual relationships with the issuers presented. Also, SSIF Broker SA can also act as market maker for some financial instruments presented in this report. To prevent the conflicts of interest, SSIF Broker has established the appropriate organizational arrangements (Chinese Walls), by restricting communication between Research Department and other Departments of the SSIF Broker SA, in compliance with rules and regulations with regards to the confidential information and market abuse. SSIF Broker disclosures
Company Agromec SA Scornicesti Anteco SA BancaTransilvania SA Bucovina SA Cemacon SA Conpet SA Ploiesti Conted SA Dorohoi Electroprecizia SA Sacele Fondul Proprietatea Mindo SA Dorohoi Napochim SA Petal SA Remat Maramures SA SIF Muntenia SA SIF Moldova SA Socim SA Suceava Stirom SA Bucuresti SUT SA Oradea Transchim SA Note: 1. 2. 3. 4. 5. 6. 7. 8. SSIF Broker SA is an insider in the company (holds more than 10% of the share capital) SSIF Broker SA act as market maker or liquidity provider in relation to securities issued by this company The company is a significant shareholder of SSIF Broker SA (holds more than 10% of the share capital) The company is shareholder of SSIF Broker SA (holds less the 10% of the share capital) The company currently is a client of SSIF BROKER SA for the provision of corporate services In the last 12 months SSIF Broker SA has been lead manager, co-lead manager or co-manager of a public offering of the companys financial instruments In the last 12 months SSIF Broker SA has received compensations for the corporate services from this company A director, officer or agent of SSIF BROKER SA is an officer, director, or serve as an advisor or board member of this company Ticker AHNL ANTE TLV BUCS CEON COTE CNTE ELZY FP MINO NACH PETY REMM SIF4 SIF2 SOCI STIB SUTB TRAI Disclosures 7 1, 8 4 1 1, 8 5 7 5 2 5 1, 8 1 1, 8 3, 2 4 5 7 5 1
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February 13, 2013
CONTACTS:
SSIF BROKER SA Institutional Clients Division 16 Splaiul Unirii, 8th floor, rooms 802-804, sector 4 040035 Bucharest institutional@ssifbroker.ro RESEARCH Adriana Marin Institutional Clients Division Manager & Head of Research Tel: +40 21 387 3505 / +40 364 260 766 Mobile: +40 740 008 015 Email: adriana.marin@ssifbroker.ro Carmen Arsene, CFA Senior Equity Analyst Tel: +40 21 387 3459 / +40 364 260 765 Mobile: +40 745 040 077 Email: carmen.arsene@ssifbroker.ro Dr. Andrei Radulescu Senior Investment Analyst Tel: +40 21 387 3456 Mobile:+40 730 727 516 Email: andrei.radulescu@ssifbroker.ro LEGAL & CORPORATE ACTIONS Catalin Nae-Serban Legal & Corporate Actions councillor Tel: +40 364 260 763 Mobile: +40 741 060 098 Email: catalin.nae@ssifbroker.ro Nicoleta Banica Head of Sales Tel: +40 364 260 764 Mobile: +40 741 535 228 Email: nicoleta.banica@ssifbroker.ro SALES & TRADING Serban Marin Head of Trading Tel: +40 364 260 761 Mobile: +40 741 060 000 Email: serban.marin@ssifbroker.ro Daniel Gavrila Senior Trader Tel: +40 364 260 762 Mobile: +40 745 466 251 Email: daniel.gavrila@ssifbroker.ro Alexandru Preda Trader Tel: +40 213 873 456 Mobile: +40 749 026 083 Email: alexandru.preda@ssifbroker.ro
SSIF Broker S.A. Calea Motilor nr. 119 Cluj-Napoca tel 0364 401 709 fax 0364 401 710 email secretariat@ssifbroker.ro www.ssifbroker.ro
ANSPDCP nr. nreg. 1187-2009 Decizia CNVM 3097/10.09.2003 Capital social 84.670.466,75 lei Nr. nreg la ORC J12/3038/1994 | CUI 6738423 RO22BRDE130SV07791571300 BRD Suc. Cluj-Napoca
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5.SNP - SSIF Broker - 20.05.2013

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5.SNP - SSIF Broker - 20.05.2013

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May 20, 2013

A nice mix of short and long term triggers

Oil & gas / Romania

0.52 0.4105 26.7

SNP RO share price performance

Analyst: Carmen Arsene, CFA

* attributable to shareholders NB: Historical multiples based on avg. prices

Source: OMV Petrom, SSIF Broker estimates

May 20, 2013

BROKER DAILY BRIEF

February 13, 2013

Highlights on the investment case

However, we expect the new taxes to be replaced with a higher royalty

BROKER DAILY BRIEF

February 13, 2013

Natags prices liberalization and taxation

TABLE: OFFICIAL NATGAS PRICES LIBERALIZATION SCHEDULE

Weighted average (70% industrial / 30% households)

48.0 52.4 58.9 62.8

520 568 638 680

155 169 191 203

Source: ANRE, Petrom, SSIF Broker

BROKER DAILY BRIEF

February 13, 2013

Weighted average (70% industrial / 30% households)

35 40 45 45 47 51 55 60 63 71 71 76 76 81 81 91 91 100 100 100

Source: ANRE, Petrom, SSIF Broker estimates

BROKER DAILY BRIEF

February 13, 2013

OUR EXPECTATIONS FOR NATGAS WELLHEAD PRICES CONVERGENCE

Wellhead natgas prices (USD/ '000 m3)

Source: SSIF Broker estimates

BROKER DAILY BRIEF

February 13, 2013

Other legislative changes of relevance for Petrom

BROKER DAILY BRIEF

February 13, 2013

Prospects of the main business segments

BROKER DAILY BRIEF

February 13, 2013

The stock went ex-dividend on 10 May

1Q13 clean CCS net earnings amounted to RON 1,328mn, 5% up yoy

OMV PETROMS GUIDANCE FOR 2013 (IFRS, UNCONSOLIDATED)

Source: OMV Petrom, SSIF Broker

OMV PETROMS 2013 CAPEX PLAN

Source: OMV Petrom, SSIF Broker

BROKER DAILY BRIEF

February 13, 2013

Share price performance

-1.9 7.9 NB: performance is computed in EUR terms; prices as of 17 May

-2.1 -43.9 Source: Bloomberg, SSIF Broker

NB: performance is computed in local currency terms; prices as of 17 May

Source: Bloomberg, SSIF Broker

BROKER DAILY BRIEF

February 13, 2013

Source: SSIF Broker estimates

DCF SUMMARY AND WACC CALCULATION

Source: OMV Petrom, SSIF Broker estimates

PEER GROUP COMPARISON (USD-BASED)

Source: Bloomberg, OMV Petrom, SSIF Broker estimates

BROKER DAILY BRIEF

February 13, 2013

Forecasts and estimates

E&P PRODUCTION VOLUME ASSUMPTIONS