Good afternoon, welcome to our conference call for discussing the results recorded by Romgaz Group in the first quarter of 2023. After introducing the speakers, Mr. Răzvan Popescu, Chief Executive Officer, will make an opening speech. Thereafter, the Q&A session will take place. Please be advised that this conference is being recorded for internal purposes. On behalf of the company, the following speakers attend this conference: Mr. Răzvan Popescu, Chief Executive Officer, Ms. Gabriela Trâmbițaș, Chief Financial Officer, Mr. Marius Veza, Accounting Department Director, Mr. Andrei Bobar, Finance Director, Mr. Ion Foidaș, Production Department Director, Mr. Radu Moldovan, Energy Trading Director, Mr. Róbert Király, Exploration-Production Director, and our Investor Relations Department. Now, I would like to give the floor over to Mr. Răzvan Popescu, who will be opening the conference call with an opening speech. Thank you.
Good afternoon, ladies and gentlemen, and thank you for joining our conference call to discuss the results recorded in the first quarter of 2023. We released the quarterly report of the Romgaz Group at the end of last week, and this includes the presentation of our economic and financial performance and the consolidated intermediary financial statements. A presentation of the group activities is available on our website in the investor section. I would like to emphasize some aspects regarding the gas market environment and also to highlight the group's performance. Let me start with some aspects regarding the market context in the first quarter of this year. According to our assessments, natural gas consumption in Romania decreased by 12% year-on-year in Q1.
Imported gas volumes recorded a significant decline, reaching an 8% contribution in total consumption compared to the high rate of 29% reported in the similar period of 2022. On the Central European Gas Hub, the average reference price dropped by 17% compared to the same period of 2022, according to the data provided by the National Agency for Mineral Resources. As is expected, the Romanian Commodities Exchange spot and forward and balancing markets recorded a weak liquidity due to the regulation in force, with the average price in the period reverting to the level recorded the year before. These price are considered as of the month of delivery for transaction concluded on this market segment. Regarding the fiscal environment, Romgaz activities continue to be influenced mainly by the Government Emergency Ordinance number 27, issued in March 2022, and subsequently amended and supplemented.
The main provision applicable to gas producers include the following: Regulated gas selling price at RON 150 per MWh for the gas sold to household suppliers starting with April 1, 2022, and directly to or to suppliers of heat producers for the production of thermal energy for households as of September 1, 2022. For the gas sold at regulated prices, revenues are exempt from the windfall profit tax and gas royalties. Gas royalties are computed based on these regulated prices instead of the CEGH reference prices starting with April 1, 2022.
The ordinance also states that gas suppliers have capped selling prices for some categories of end consumer, maximum RON 310 per MWh for households and maximum of RON 370 per MWh for heat producers and for industrial clients with consumption below 50,000 MWh in the previous year. As of 1st of September, 2022, energy producers which started operation before this date are required to contribute to the energy transition fund the full amount exceeding 450 LEI per MWh. Certain deductions do apply. In addition, gas and energy traders owe contributions to this fund for the profit in excess of 2% over the acquisition price.
Gas storage is also mandatory for gas suppliers and heat producers to secure the maximum between 30% of the estimated consumption of final clients during November 2023, March 2024 and 90% of the underground storage capacity. In addition, the Government Emergency Ordinance No. 186, issued in December 2022, imposed for the 2022 and 2023 fiscal years, a 60% solidarity contribution applied to the amount of the annual taxable profit that exceeds by 20% the average value of the taxable profits recorded during 2018, 2021. Regarding the operational and financial performance recorded by Romgaz Group in the first 3 months of 2023, we can point out the following aspects.
Natural gas production amounted to 1.24 billion cubic meters, as we succeeded to exceed by 0.7% our quarterly budget. The output was at a 5% adjustment for the high level recorded in the first quarter of 2022 and also 1% below Q4 2022.
We continue to take efficient measures to develop our onshore gas output, here I could mention only a few specific activities such as workover and recompletion programs in inactive or low productivity wells, continuous rehabilitation projects of the main mature gas fields, optimization of the gas well production and completion of investment to extend production infrastructure and connect new wells to this infrastructure. Regarding the investment made in our gas production facilities, I can mention that we're completing the works of surface facilities to stream into production 5 wells and are in progress with investment of surface facilities to stream into production another 14 wells. We performed intervention works of a total of a number of 40 production wells. Our position on the Romanian gas market continues to be significant.
We achieved a market share of 38% of total gas delivered in Romania, higher compared to the same period of 2022, and we held almost 42% of consumption covered from domestically produced gas, according to our estimates. With respects to the gas sales to third parties, volume declined by 5.6% year-over-year in the first quarter, representing nevertheless a better performance than the drop of the domestic gas consumption over the period, as I mentioned earlier. Compared to the fourth quarter of last year, we succeeded to record an increase of 6.8% in the gas volume sold in the first quarter this year. Total revenues from gas sold amounted to RON 2.57 billion, lower by 25% compared to the historical high reported last year as a result of a lower average realized gas selling price.
Compared to the fourth quarter of last year, total gas revenues were elevated by 26% quarter on quarter due to higher volume and prices. Total revenues from storage services grew by 71% year on year to RON 151 million, mainly due to higher revenues from capacity reservation and withdrawal services. Revenues from electricity added RON 121 million, well below the level reported last year as a result of production lower by 6% and fiscal frame regarding prices higher than RON 450 per MWh . Overall, in the first quarter of 2023, we reported total revenues of RON 2.91 billion, 26% below from the historical quarterly high reported in the first quarter of last year.
If we compare with Q4 2022, we can note that total revenues recorded a positive performance with a 14% increase in Q1 this year. On the expenses side, the two main taxes included in the other expenses item in the profit and loss statement recorded a decline with a positive effect. Windfall profit tax amounted to RON 477 million on lower gas prices and volume sold, and gas and UGS royalties totaled RON 150 million, mostly due to lower gas prices on CEGH and in Romania, and also due to lower production. The solidarity contribution, which is recorded as a tax expense starting Q4, amounted to RON 538 million.
Altogether, these three taxes represented a substantial expense of RON 1.16 billion and accounted for 40% of total revenues in Q1, albeit lower compared to the 59% weight recording in the first quarter of last year. Bottom line, we reported a net profit at a high level of RON 970 million at a marginal decrease of 1% year-on-year. Compared to the previous quarter, the net profit in Q1 was higher over 3 times as the solidarity contribution due for the entire year 2022 was fully expensed in the last quarter of last year.
All profitability rates recorded a strong advance in Q1 2023, an EBITDA margin reached 64.7%, EBIT margin at 59.9%, both rates being more than double year-on-year. NP margin stood at a high level of 33.3%. On the CapEx side, Romgaz Group invested a total amount of RON 223 million in the first quarter of 2023, split 50% in equipment upgrades, 16% in the storage segment, 12% in geological exploration. 12% represented the investment in Romgaz Black Sea Limited. 2% balanced in the electricity segment.
With respect to the strategic objective of Romgaz, we remind that these included the development of our onshore and offshore hydrocarbon resources and reserve portfolio focused on resilient hydrocarbons, the production of energy with low CO2 emission, and also mitigation of the effects of climate change. As the latest development, on May 10th, the shareholders' meeting approved the settlement between Romgaz and Duro Felguera, and on April 3rd, the procurement contract has been signed with the objective to finalize the works and commission the new power plant located in Iernut. In the end of the presentation, I would like to mention the approval of dividends to be paid this year.
On April 26th, the shareholders' meeting decided upon a total gross dividend of RON 1.32 billion, or a total gross dividend per share of RON 3.42, resulting in a total payout ratio of 52% for the last year. Dividends will be paid to shareholders in the registry on July 6th and will be distributed during July. With this, I would like to close our presentation and thank you for your attention.
Thank you. The line is now open to take questions. I would like to remind you that you have two options to address your questions. Either to raise your hand and turn on your microphone or to write a question. We have the first hand raised from Ms. Ioana Andrei. Please turn on your microphone and address the question. Ms. Ioana Andrei, if you would like to turn on your microphone and address the question.
Can you hear me?
No, we cannot hear you. Until Ms. Ioana Andrei solves the problem, Ms. Iuliana Ciopraga, please turn on your microphone and address the question. Ms. Iuliana Ciopraga, if you have a question, please.
Now I can... I guess you can hear me now. Following the decline in production in the first quarter, do you still see it possible a decline in production of up to 2.5% as per the strategy? That's the first question. Secondly, how much was sold at regulated prices in the first quarter out of total sales? Also, if you could give some guidance for the rest of the year, how much you expect to sell at regulated prices, over to, from the second quarter to the fourth? This would be a first batch of questions.
Can you please repeat the first question?
No, no, I understood.
Okay.
it's fine. yes, because in the first quarter, we had workovers and capital repairs to a number of wells that were delayed from last year. Given our production profile, we still expect to be in the 2.5% decline for the entire year versus last year. Regarding to the structures of the volume sold, we are looking at in Q1 at around 90% regulated prices, and we're looking for around the same amount with a couple of points of plus or minus for the entire year of 2023, actually up to March 24th, end of March 24th.
You mean that you expect to sell 90% of total volumes for this year at regulated prices? Is this what I should understand?
Yes.
Okay. 90% of the total volume sold in 2023 will be at regulated prices.
Yes. Around 80% to be more exact.
Also, actually that's more a question related to the budget, your budget for this year. In the budget, we're seeing significant increases in costs. Actually you're budgeting a decrease in profitability for this year compared with 2022. That's not what we're seeing in the results that you've just released for the first quarter. What should we expect to see? I mean, should we expect to see in the following quarters significant increases in cost, or were you just cautious in the budget?
Not necessarily. As you know, Romgaz's budget is done quite cautious because we don't want to overestimate. The increases in cost are due to the fact that we have not budgeted such a big proportion of gas being issued under the ordinance. This is a part of explanation for what you are asking. We are of course striving to have the best cost versus income profile. We are looking to improve our profitability rates, as you may well see in our Q1 data.
Basically what you're saying is that you built the budget on the assumption that you would be selling less at regulated prices, right?
Yeah. Exactly.
Thank you.
Ms. Ioana Andrei, you may now address your question.
Thank you. Can you hear me now?
Yes, we can hear you.
Okay, great. I have a question regarding the average realized gas price. From my computation, it stands below the first quarter of 2022, but it was higher compared to the last quarter of 2022. Considering you had similar regulated volumes, how was this possible and prices did not increase in this same period?
Yeah.
Okay.
Let me answer the first question. Indeed, you are correct. This is possible because in the last quarter of last year, our entire production was under the ordinance. Almost our entire production was distributed this way, and the realized gas price was lower. In the first quarter of 2023, there was some production that was available to sell on the free market, and that's why the average realized price of gas was higher than the one in Q4.
When you're talking about some production, you are actually referring to the 10% of.
Around 10%, yes.
Okay, thank you. My second question was regarding the power segment. Based on my computation, your average realized power price stood below RON 450, actually below RON 400 per MW. Again, can you explain how it is possible in the first quarter?
From our calculations, it was not below LEI 450.
You had actually RON 121 million from power sales, and you had a volume of 320 something GW, right?
No, no, that was the volume of electricity produced.
Okay.
The volume of electricity sold was 259.
Okay. Thank you.
actually, the realized price is RON 467.
Okay. Can you please explain a little bit, how much did you sold via this centralized mechanism?
250.
Everything, right?
From 259, so 97%.
I see. Okay. Okay, thank you.
You're welcome.
We received a written question from Mr. Thomas Fletcher. Hi, what was the reason that your final, fourth quarter 2022 result contains different numbers than the preliminary results of the fourth quarter for 2022?
Preliminary information is issued before final results are accounted for. Besides, preliminary information is not audited, so auditors may have some adjustments.
Written question from Mr. Oleg Galbur. What was the volume of gas sold in the first quarter of 2023, which was subject to windfall tax payment? The answer would be 1.6 TWh. The second question from Mr. Oleg Galbur: What was the total volume of gas sold to households and thermal energy producer in the first quarter of 2023? The structure of gas sold to households was 69.49% at 150 LEI per MWh. 18.78% to heat producers, to suppliers of heat producers and heat producers at 150 LEI per MWh. 0% to households, that means for 310 LEI per MWh. 8.12% for non-households for 370 LEI per MWh.
3.61%, the difference. Another written question from Mr. Oleg Galbur. How much of the 80%, as per your earlier comment, of gas projected to be sold at regulated prices in 2023, do you project at RON 150 per MWh?
88% of production will be sold at RON 150 per MWh.
Another written question from Andrei. How does the Q1 results compare to what you have budgeted for Q1, in line, above and below?
Regarding the Q1 results, comparison with our budget, practically, we have exceeded our net profit with, 17.1%, but of what we have budgeted for the first quarter of 2023. Thank you.
Another written question from Andrei. In Q1, Romgaz reached almost 40, 50% for the budgeted net profit for the entire year. Should we expect for Romgaz to obtain a higher net profit than the one you budgeted?
The market's expectation will probably be viewed in the evolution of the share price of the company. As we said, the budget was constructed on a very realistic basis. As you can see, the market is quite volatile. Prices are quite volatile. We are striving to do our best to keep the company as profitable as possible. We also have to take into account that we have a lot of expenses going forward, a lot of investments to be made in the last three quarters of the year.
Another written question from Andrei. At what prices will Romgaz sell the gas bought from import operations? Do you expect that the Romanian government to cap the price at which Romgaz can sell the imported gas? If yes, this could result in losses since Romgaz pays the market price for the imported gas.
In case Romgaz will import gas, we will only sell it at market prices and will not take any losses, or we will not assume any negative difference between the import price and the final selling price of the gas.
We received three, four questions from Mr. Florin Jurca in the Romanian language. They'll be translated. Have you thought of hedging on gas prices if the futures market will be open at Bucharest Stock Exchange? Have you thought of proposing derivatives on weather conditions?
This is something that we have taken into account and something that is going to be analyzed by our commercial department, but it's not something that we are doing at the moment.
The next question: When do you expect the produced resources to be depleted?
According to our latest audit, we still have explorable resources of over 55 billion cubic meters. Romgaz is a company that will always replace it and replenish its resources. That's why we are conducting seismic operations, and we are trying to find new possibilities and new resources that are going to be extracted. This is our main focus right now is the Neptun Deep project that could bring an addition to Romgaz's reserves. Romgaz's reserve is not something that will be depleted in a number of years or can give such a calculation, because we are always replenishing those resources and reserves.
The third question from Mr. Florin Jurca. You have substantial losses, actual and probable, from receivables. Can these be avoided in the future?
The provisions that have been recorded for receivables relate to old pending debt. Currently our commercial policy says that we can only sell gas to customers, to clients who provide a guarantee or who pay gas in advance. These provisions shouldn't go any higher.
The last question from Mr. Florin Jurca. Have you thought of exploring other related activity fields such as gas engines or LNG?
Yes, we have. Romgaz is constantly looking for new ways to expand its business and also new ways to have down the supply chain, more added value for the gas that we extract. Right now we are in a JV with SOCAR to explore the possibility of having a commercial relationship with them regarding an LNG terminal in Romania.
We have a written question from Miss Ioana Andrei . Just a follow-up question on the power side. You mentioned that volumes sold are lower than the ones produced. Do you disclose the volumes sold somewhere?
At the moment, we are not disclosing the volume sold, but we are discussing internally that we should disclose them in the future. Thank you.
Miss Iuliana Ciopraga, you have hand raised. Turn on your microphone.
Yes. Yes.
Okay.
Just to clarify, should we expect 80% or 90%? I understand 88% sold at RON 150 for the full year. Is that right? Did I understand correctly?
That is the estimation that we have at this point in time.
Okay. If you can provide us an update on Iernut and when it will become operational. Also, regarding salaries, I hear they've increased around 36% in the first quarter compared with the first quarter of 2022. Should we expect something similar for the full year? Thank you. That's all.
To the second question, no. To the first question, so the Iernut power plant, as we've informed our, the market and our shareholders on tenth of May, Our general shareholders have approved on the transaction. Romgaz and Duro Felguera have signed the contract to finalize the power plant. The time to finish the power plant and put it into production is 16 months from the date that the works will start.
Okay. Regarding salaries, what should we expect then for this year? If it's not 26%, how much should we expect? What kind of growth should we expect for the salaries?
Regarding the salaries expense, we believe that they will not exceed the budgeted ones, which are RON 1.06 billion for 2023.
Thank you.
Thank you.
If there are any other questions. We received a written question from Mr. Cristian Petre. Hi, can you give more details on Trident project, FID volumes?
No. At this time, we cannot give any extra information than that what has been published. We are in the midst, and the operator is reprocessing the seismic data, and they will probably come with the new investment profile and investment structure. When we will have more information, we'll announce according to all market regulation in force.
Another written question from Iuliana Ciopraga. Regarding solidarity tax, what was the average EBT for 2018-2021 taken into account for the calculation of the tax? Our investor relation team will answer to this question later. If there are any other questions. If there are no further questions, we will conclude this conference call. Thank you very much for your questions. If you need further information, please contact our investor relation team. The conference is now concluded. On behalf of Romgaz team, thank you for attending today's conference call. Goodbye.