Philip Stephenson
Deputy CEO
Washington, May 11th
The Rompetrol Group NV
A privatization success story
Table of Contents
1. The Rompetrol Group – profile
2. The turnaround of the Petromidia refinery
3. Challenges in the Romanian oil industry today• Overcoming myths
• Privatization of state–owned SNP Petrom
• Breaking the political-economic nexus
4. Rompetrol’s future
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The Rompetrol Group - profile
• Largest private company in Romania (2003 gross revenues of approximately $1.2 billion), representing roughly 2.5% of GDP
• 28% share of Romanian refined products market• Domiciled in Netherlands with worldwide operations and assets
(though mostly in Romania)• Owned 75% by management and 25% by OMV• Financed principally by international banks; audited to IAS standards• Active in upstream, refining, marketing and services• One of the country’s largest exporters and taxpayers ($ 416 million in
tax payments in 2003)• Achieved a landmark agreement with MOF in 4Q 2003 rescheduling
historic tax liabilities• Our online Investor Relations center (at www.rompetrol.com) provides
transparent information on company operations via our 2003 Annual Report, management presentations and a White Book on the 3-year post-privatization history of the Petromidia refinery
• Our largest subsidiary, Rompetrol Rafinare SA, was listed on theBucharest Stock Exchange on April 7th, 2004 and broke all trading records (and the IT system!) on the first day
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The turnaround of Rompetrol Rafinare -
3
The turnaround of Rompetrol Rafinare -
“We took command of an old, leaky boat, low on fuel that we had to steer through a storm, with pirate ships visible on the horizon. But with an excellent crew, we charted a course to a (relatively) safe harbor.”
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Privatization attempts
• Complexul Petrochimic Midia Navodari (the first name of Rompetrol Rafinare S.A) was a part of the large oil refining plants which appeared after 1975
• In 1991, the entity was changed into a stock company by taking over all of the assets of the former unit.
• The Romanian Government attempted three privatizations of Petromidia
– The first attempt was carried out in 1997 when the State Ownership Fund (SOF) had discussions with Daewoo, Glencore and Petromidia USA
– The second effort was made over July 1998 - January 1999 and resulted in a sales/purchase agreement for 65.323% in Petromidia’s share capital with Turkish investor Akmaya
• Due to the disagreements between the Romanian authorities and Akmaya regarding the additional incentives the Government re-slated the sale of a controlling interest in Petromidia
– In a third effort, SOF concluded an agreement with the Rompetrol Group N.V. on 31 October 2000. Actual transfer of the stake was subsequently performed on 26 January 2001
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The turnaround of Rompetrol Rafinare -
Crude Supply - considerations
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The turnaround of Rompetrol Rafinare -
Upgrade projects - ongoing
Nr.crt.
Project Investment value (USD)
Yearly savings (USD)
1 Digital Control System: automated installation monitoring
23,000,000 12,000,000
2 Upgrade of the raw material transportation main routes
1,300,000 900,000
3 Upgrade of the water supply system 550,000 290,000
4 Maximize MTBE flow 325,000 244,000
2003 investment projects- completed
1 In-line blending system 6,800,000 2,800,000
2 Upgrade Midia Port 4,000,000 4,500,000
3 Upgrade Coking installation 2,300,000 1,500,000
7Note: Short payback periods
The turnaround of Rompetrol Rafinare -
Types of crude used
Crude Oil Prices
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The turnaround of Rompetrol Rafinare -
Utilized capacity 3.3 mta – 2003
Planned capacity 4.0 mta - 2004
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The turnaround of Rompetrol Rafinare -
Production – additive and loss reduction
•MTBE averages $ 460/ton
•Saves $ 30 m/ year
•Evolution of total consumption and losses of materials from raw materials to finished products
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The turnaround of Rompetrol Rafinare -
Production – 100% sour crude into 100% euro standard fuels
Products Euro Products Sour CrudeSweet Crude
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The turnaround of Rompetrol Rafinare -
Production costs – US$ 22/ton in 2003
Objectives – US$ 18/ton in 2004
26.22
20.6817.44
33.80
20.0321.44 21.30 21.81
20.23 21.1223.93
20.4023.25
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
jan
feb
march
april
may
june
july
august
sept
oct
nov
dec
jan
Month/2003
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The turnaround of Rompetrol Rafinare -
No. Staff Rompetrol Rafinare
3554 35683373 3372
2943
2296 2240 22051961 1844 1843
1446 1446 1475 1467 1469 1467
3574
18361458
0
1000
2000
3000
4000
Ian 20
01Mar
ch May July
Sept
NovIa
n 2002
March May July
Sept
NovIa
n 2003
March May July
Sept
Nov DecIa
n 2004
Productivity and performance increase
9,005
46,470
46
313
1
10
100
1,000
10,000
100,000
2001 2003
Gross revenues/no. of employees Gross revenues/h/employee13
State of the industry and challenges
Industry Myths
• “Romania has over 24 mta of refining capacity.”• “Romania is a big oil producer.”• “Product prices are free in Romania.”• “Romania can sustain 5 big refineries.”
Industry Truths
• Romania’s actual utilized capacity is only 12.7 mta• Romania only produces ½ its own oil needs• Government ownership of market leader Petrom leads to low subsidized prices and the lowest refinery margins in Europe• Romania can sustain 3 big refineries
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Over-capacity vs. reality
Refineries:Real (2003) Nameplate
- Arpechim - Pitesti 2,7 3,5 Mio t/y Petrom- Astra - Ploesti 0,6 2,8 Mio t/y- Petrobrazi - Ploiesti 2,8 3,5 Mio t/y Petrom- Petrolsub - Bacau 0,35 0,4 Mio t/y Fertinvest Holding- Petromidia - Midia 3,3 4.8 Mio t/y Rompetrol- Petrotel - Ploiesti 0 3,8 Mio t/y Lukoil- Darmanesti 0,4 0,8 Mio t/y- Rafo - Onesti 2,0 3,5 Mio t/y Balkan Petroleum- Steaua - Cimpina 0,2 0,5 Mio t/y-Vega - Ploiesti 0,35 0,5 Mio t/y Rompetrol
TOTAL 12,70 24,2
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The turnaround of Rompetrol Rafinare -
Production vs. consumption
Romanian Oil Consumption and Production, 1989 - 2002
050
100150200250300350400450
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
000
Bar
rels
Per
Day Consumption Production
193
345
207
124
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The turnaround of Rompetrol Rafinare -
Difference in prices (crude, Romania, EU)
216237
411
186223
378
190231
397
219293
425
0 100 200 300 400 500
2000
2001
2002
2003
Crude prices Domestic sale price EU sale prices
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Pricing policies - outcomes
Difference of earnings in Romania and EU
8 2 ,5 7 4
16 0 ,2 6 8
3 5 5 ,2 3 43 8 2 ,2 5 5
4 7 ,6 16
9 4 ,5 5 0
2 0 6 ,6 9 8
2 6 3 ,5 3 1
2000 2001 2002 2003
EU earnings Domestic earnings
Loss due to state-controlled pricing policy (US$’000)
34,958
65,719
148,536
118,724
1 2 3 42000 2001 2002 2003 18
Survival of 3 out of 5
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Privatization of SNP Petrom
• SNP Petrom is 93 % owned by the GOR (MEC) • It is to be sold this June to a strategic investor after a transparent competitive bidding process. • Three candidates (of an original 15 who expressed interest in August 2003) submitted final bids on April 15th, 2004:
• OMV of Austria – considered best placed because of a well prepared, compliant bid• MOL of Hungary – has presented two bids including a share-swap and a traditional offer• Occidental of the USA – rumor has it that the company is only looking to Petrom’s Upstream business
• Privatization needs to be finished quickly and transparently• Privatization will end de facto state control on fuel prices, leading to free competition for all players in the field
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Investigations into privatization procedures
• Interest groups still active in Romania and receive strong political backing
• The PNA (GOR’s prosecuting body of corruption offences) has launched an investigation into the privatization of Petromidia
• Although we suspect the initiation of the investigation was politically motivated, Rompetrol will cooperate fully with the PNA all through the process, which we hope will be:
• Professional• Expeditious• Apolitical
• Conclusions expected to vindicate the Rompetrol Group and also to disarm special interest groups
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Rompetrol - strategy
Rompetrol Group strives to become, through organic growth and sensible low-cost acquisitions that integrate with its existing operations, the leading low-cost provider of petroleum products in the Balkans
We will do this by:• Upstream: gradually integrating “upstream” by
concentrating our E&P efforts in Romania, supported by our services expertise and equipment
• Midstream: Increasing the quantitative and qualitative performance of the Petromidia platform while upgrading to continue to EU quality standards (sulfur)
• Downstream: Maintaining an approximate 50-50 balance between internal and external markets, while establishing direct selling operations in regional countries and building the retail brand in Romania
• Services: using services companies synergistically with the group (Rominserv), with third parties (Rompetrol Logisitics) or divesting them as “non-core”
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