"PETROM" POSTS A 14% INCREASE IN PROFIT Investors missed out by not buying shares in the SPO of SNP

• Hedging instruments caused a loss of 189 million lei

The largest Romanian company "OMV Petrom" (SNP), posted a net profit of 1.74 billion lei, after the first six months of the year, up 14% over the first semester of 2010, as it gained from the increase in the price of oil on the international markets, amid political unrest in Northern Africa and the Middle East.

The price of Ural crude, which is used as the reference price for Romania, reached 108.29 USD/barrel in the first semester, rising 42% YOY. However, the average crude price achieved by the Petrom Group in the first semester was 92.92 USD/bbl, up 36% YOY, but still below the international price.

The officials of "Petrom" have explained this situation through the negative effects of the hedging instruments used in oil: "In order to protect the company"s cashflow and to support the company"s investment program for this year, Petrom entered oil price swaps, which, for 25,000 bbl/day, locked in a price of around USD 97/bbl for a production volume of 25,000 bbl/day, until the end of the year."

The result of the hedging instruments had a negative impact, of -189 million lei, on the EBIT of the 1st semester, compared to the positive effect of 75 million lei it had in January-June 2010.

The group"s EBIT (earnings before interest and taxes), (2.41 billion lei) has increased 44% over the first half of 2010.

"Petrom has a conservative financial policy, and that is why we have resorted to hedging instruments", Daniel Turnheim, the CFO of the company said yesterday.

The officials of "Petrom" did not disclose their hedging counterparties, mentioning only that they were "major investment banks".

The company has sales of 10.27 billion lei, in the first part of the year, up 23% over H1 2010. Sales from the second quarter amounted to 5.29 billion lei, up 20% over the similar interval of 2010.

On the Exploration and Production segment (E&P), the company reported a 42% increase in the EBIT over H1 2010, excluding the special elements of 2.52 billion lei, amid the increase in the price of oil, of the volume of gas sold and reduced production costs, which were partially offset by the greater exploration and by the negative impact of the instruments used to hedge the price of crude, the representatives of "Petrom" said.

The gas and crude oil output of the "Petrom" group rose 2%, in the first quarter, to 187,000 bep/day.

"For the first time since the privatization, we have succeeded in increasing slightly the average daily production of the Group, for the fourth quarter in a row", said Mariana Gheorghe, the general manager of "Petrom".

On the "Refining and Marketing" segment, the company reported an EBIT of 3.92 million lei, down 97% over H1 2010, amid the increase in costs with crude consumption, the fall of the sales in marketing and the increased pressure on margins.

In the Gas and Energy (G&E) sector, the EBIT amounted to 24 million lei, excluding special elements, down 7% compared to H1 2010. The representatives of "Petrom" have explained the decrease by the rise of the supply costs, as a result of the increase in the quota and the price of imported gas and of the negative influence of the ANRE order, which requires the creation of a basket of imported and domestically produced natural gas for the non-technological domestic consumption.

The consolidated natural gas sales, of 2,653 million cubic meters, have increased 7% over H1 2010, the representatives of the company said.

• Mariana Gheorghe: "A discount of 2-3% of the sale offer of Petrom would have been more favorable in a normal economic climate"

Mariana Gheorghe, the CEO of "Petrom", yesterday said that there is a certain irony when it comes to the timing of the Secondary Public Offering for the sale of 9.8% of the company, which had been all the favorable circumstances, but failed because of the tension on the international markets. "Two days after the road-show began, the international markets began to worry about the sovereign debts of Italy and Spain, and investor sentiment began to change, even though we had all the favorable circumstances, due to the upgrade of Romania"s rating to investment grade, the company"s good results and the rise of the price of crude on the international markets", said Mariana Gheorghe.

The General Manager of "Petrom" claims that a discount of 2-3% on the offering for the sale of the block of 9.8% of the company would have been "favorable" under a normal market condition, but not in an economic context that was ruled by tension. The offer to sell 9.8% of the shares of SNP, out of the block owned by the Romanian government, failed on July 22nd, two weeks after it began, due to lack of buyers.

Yesterday, shares of SNP traded between 0.32 lei and 0.338 lei/share.