Analysts are already seeing the oil at $10 to $20, something that would have seemed impossible eighteen months ago. Back then, oil price was $115.
About 64% of the oil Romania used in 2014 was imported and almost all the rest drilled by OMV Petrom (SNP.RO), but analysts believe the percentage may increase since the Romanian producer may have to stop drilling some wells. OMV, Petrom’s owner, has already signaled start of strict cost control steps.
“I think they are very close to costs with their production and I don’t think the possibility of importing certain amounts to replace their own production should be ruled out,” says Daniela Mandru, analyst with brokerage firm Swiss Capital, commenting on Petrom.
The oil and gas producer does not publish total production costs, but only some figures that do not include its amortization and exploration expenses. Even so, they stood at $13.5 per barrel in the first nine months of 2015. The company officials did not comment on the information by press time.
“This price will also affect the natural gas business, which will put pressure on Romgaz and Petrom. Romania barely needs any natural gas imports due to consumption decline, which means we are dealing with a buyer’s market, and buyers will have greater bargaining power,” believes Mihai Caruntu, financial analyst with BCR.
He does not rule out Petrom ceasing to drill some of its wells, either.
“We may see some decommissioning. Each well will be reviewed by profitability and calculations will show drilling is not profitable for some of them. Only the best will remain in operation.”|
According to Petrom, more than 260 wells with a negative contribution to the cash flow were no longer in operation after the first nine months of 2015, while the sale process of 32 marginal wells continued. Petrom has 9,000 wells in 240 commercial oil and gas fields. It did not say how much of its production those wells accounted for but production definitely went down at the end of 2015.
The fast-paced oil price decline cost Petrom almost 40% of its market value. The company’s capitalization stood at about EUR3.1 billion on the Bucharest Stock Exchange on Tuesday.
(English version by Loredana Fratila-Cristescu)