Good afternoon, ladies and gentlemen, and welcome to the OMV Petrom's earnings call. Today's presentation will last around 30 minutes and will be recorded. By now, you should have received the presentation by email. The slides and the speech are also available online on www.omvpetrom.com in the Investors section. These also include the cautionary statement regarding forward-looking statements. Now let me hand over to Simona Cruțu, Manager of the Investor Relations and Stakeholder Engagement Department, who will moderate the event.
Good afternoon, ladies and gentlemen, and thank you for joining us. We'll have a presentation of the second quarter results, followed by a Q&A session. Christina Verchere, Chief Executive Officer, will provide the key highlights about the macroeconomic environment, our second quarter operational performance, and our progress in terms of strategy. Alina Popa, Chief Financial Officer, will give you more details on our financial performance and a brief outlook. Afterwards, all executive board members will be available to answer your questions. We recommend you to register for the Q&A session during the presentation by pressing star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. You can also register during the Q&A session itself. I'm now handing over to Christina.
Good afternoon, ladies and gentlemen, and a warm welcome from my side. Thank you for joining our call. It is a real pleasure to present to you today OMV Petrom's performance for the second quarter of 2022. Please let me first draw your attention to our legal disclaimer, which you can read in detail on slide two. Let me start with some highlights regarding commodity prices and main currencies in the second quarter of 2022. Brent oil price continued its growth to an average of $114 per barrel in the second quarter of 2022, 65% higher year-on-year. The development of the oil price was highly volatile, with concerns over demand, most notably in China, combined with Russian supply risks.
The price range during the quarter went from just under $100 per barrel after a release of strategic reserve in early April to above $120 per barrel at the end of May, when China loosened its COVID restrictions and the EU agreed to a ban on seaborne Russian oil imports. Other conflicting factors such as Libyan supply reductions and a strengthening U.S. dollar further added to oil price volatility. During the quarter, the average Brent price rose by more than 9% from $110 per barrel to $120 per barrel. Urals differentials versus Brent collapsed over the second quarter to a record discount of around $35 per barrel as European buyers continued to self-sanction Russian oil.
The EU also agreed to an embargo on most Russian oil imports, with around 90% of oil imports from Russia to be cut by the end of this year. In the second quarter of 2022, and on a year-on-year basis, the rand depreciated versus the U.S. dollar by 14%, but was stable against the euro. In the context of extraordinarily high Urals-Brent differential triggered by the geopolitical context, starting from the second quarter of 2022, the transfer price between Exploration & Production and Refining & Marketing was adjusted to Brent instead of Urals as the Urals is no longer a relevant reference. OMV Petrom indicator refining margin in the second quarter, reflecting the change in reference crude price from Urals to Brent, reached $24.44 per barrel, a record high. This was as a result of the higher product spreads, mainly for diesel and gasoline.
On the natural gas side, prices eased during the first two months of the second quarter as a consequence of mild weather and increased energy availability for Europe, the latter due to Chinese COVID lockdowns and warm weather in Northeast Asia that lowered local demand. These developments offset the effects stemming from lower Russian deliveries that started with a supply cut for Poland and Bulgaria. June saw prices rallying again, mainly driven by further reductions of Russian natural gas supplies to Europe. Consequently, the second quarter ended higher than it started for many of the European hub-based price benchmarks. Gas prices on the Romanian centralized market also increased, with day-ahead prices more than four times higher year-on-year to an average of 102 EUR/MWh and in line with CEGH. Baseload electricity prices in Romania tripled year-on-year, but decreased by 7% quarter-on-quarter.
Market spark spreads were negative in the second quarter of 2022 as higher electricity prices were offset by historically high gas and CO2 prices. The CO2 price increased by 67% year-on-year in the context of a reduction in the number of CO2 allowances. In the context of the Russia-Ukraine conflict, an energy supply security crisis has unfolded, sending commodity prices to new highs with wider implications for the global economy. The EU embargo on imports of Russian crude oil, crude and oil products is increasing the pressure as market players focus on securing alternative supplies ahead of the year-end deadline. Unlike other countries in the region, Romania has a relatively low degree of dependency on energy imports.
In 2021, the country ensured domestically approximately 35% of the crude oil, 60% of fuel products, 80% of its natural gas, and more than 90% of its electricity needs. Our most important goal remains to provide energy for our customers, for the industry and population, and to ensure the security of supply. We have not experienced any disruptions in our business, and we are prepared in case of further developments. We fully comply with sanctions. Since mid-March, we self-sanctioned to no longer import crude oil and diesel from Russia. Approximately 30% of the crude we process in Petrobrazi is imported, most of it being supplied from Russia or through Russian ports in the past.
For imported crude, we are now using a mix of crude oil grades from within the Black Sea, mainly CPC and Azeri, as well as North Africa grades. We are closely monitoring potential risks related to Novorossiysk CPC terminal. Thus, we are also considering alternative supply sources and routes such as Mediterranean, West Africa, and North Sea. As for diesel and jet, we have increased imports from non-Russian sources. Worth mentioning is that these alternative sources come with a price premium to Russian products. For 2022, our LPG gas production covers the majority of the current needs of our customers. Most third-party acquisitions in Romania are from domestic sources, with limited imports being around 5% of total gas sales. We are also looking to diversify our supply sources and supply chains. We are exploring options for future years that include LNG supply and capacity booking.
Overall, so far functioning sanctions have had no significant negative impact on our business performance. We mentioned last quarter the temporary measures decided by the Romanian government to address the high gas and power prices applicable between April 2022 and March 2023. In addition, the government adopted temporary measures for the fuels market applicable between July and September. We voluntarily comply with these measures, and we decrease the fuel prices at Petrom and OMV filling stations by 50 bani, half of the amount being covered by the state. We expect the impact of our results to be in the mid-double-digit EUR range. Mid-double-digit million EUR range. Apologies. We recognize the need for the government to support consumers in these very unusual times.
However, the frequent interventions, particularly in gas and power segments, bring volatility and instability for the market participants and increased risks of market dysfunctions, including increased risk of security of supply. Therefore, they should be temporary in nature and with robust impact assessment. Also, on the regulatory side, the amended Offshore Law entered into force on the 25th of May. It contains improved fiscal and stability clauses, but certain free market related provisions still need to be clarified. Moving to the macroeconomic environment, in the first quarter of 2022, Romanian GDP increased by 6.4% year-on-year, above the European average of 5.2%.
The growth in the first quarter exceeded expectations and triggered in June an upward revision of the IMF estimate of Romania's GDP growth for both 2022 and 2023 to 3.5%-4.5% year-on-year from the previous April estimate of 2.2% for 2022. In its revision, IMF referred to the strong rebound after the COVID wave in autumn 2021, noting also the new pressures and risks posed by the war in Ukraine and rising inflation. The consumer price index in the month of June 2022 versus June 2021 was 15.1%. Wage pressure and increase in energy prices are the main drivers, with official forecasts from the National Bank of Romania estimating the peak of inflation to be in the second quarter of 2022.
Looking at the energy sector in the second quarter of 2022, the Romanian demand for our products generally decreased. Demand for retail fuel decreased by around 2% year-on-year, while the commercial market demand increased by almost 7% year-on-year. Jet demand continued to recover, increasing by 107% year-on-year from a low base due to continued strong recovery in flights, and exceeded for the first time pre-COVID levels by 1%. Gas demand, as per internal estimations, decreased by 19% year-on-year as consumption was impacted by high energy prices. Moreover, last year's unusually high consumption due to cold weather led to a high base effect. Power demand was lower by 6% year-on-year, while domestic power production decreased by 10% year-on-year.
Romania being a net importer of power in the second quarter of 2022 compared to a net exporter position in a similar period last year. Power production from hydro had a decrease in contribution to the generation mix due to dry weather. In addition, nuclear power was lower due to a planned outage. This was partly compensated by an increase in gas and renewable production. On slide five, we present the key highlights for the quarter. At group level, Clean CCS operating result of RON 3.7 billion was the highest quarterly result ever recorded and more than quadrupled year-on-year on good operational performance in an unprecedentedly favorable market context with high but volatile commodity prices.
Our operating cash flow increased by 148% year-on-year to RON 3.7 billion, with Clean CCS return on average capital employed reaching 26.9 percentage points. All our business segments recorded record quarterly clean results. In exploration and production, this was supported by higher realized commodity prices and improved production costs. In refining and marketing, by record refining margins and the strong refined product sales. In gas and power, by the excellent result of international gas transactions, with volumes acquired at lower prices in previous periods and increased power production. We continued our strategic focus on preparing OMV Petrom for capturing the energy transition opportunities announced in our Strategy 2030. On the twenty-sixth of July, the general meeting of shareholders approved the proposal for distribution of special dividends of 0.045 RON per share.
The RON 2.5 billion will be paid starting the second of September, translating into a record high amount to be paid this year as base dividends and special dividends totaling RON 4.5 billion. Regarding our Neptune Deep strategic project, the closing of the transaction to Romgaz and ExxonMobil is expected in the third quarter. Once finalized, OMV Petrom will become the operator of the Neptune Deep Block, as agreed in April last year. We welcome the amended Offshore Law. However, clarifications are still needed from the authorities. Assuming key prerequisites will be in place, FID is expected in mid-2023. In June, we announced the production of the first batch of sustainable aviation fuel in Petrobrazi.
With this, we are progressing towards our goal to reach an annual combined production of sustainable aviation fuel and hydrotreated vegetable oil of about 450,000 tons by the end of the decade. In retail, the integration of MyAuchan proximity shopping stores into the modernized Petrom-branded filling stations continue. In June, we reached 204 stores opened in petrol filling stations, half of the total number agreed with our partner to be opened by end of 2023. This year, about 80 more proximity stores will be inaugurated. In gas and power, we are progressing towards our target of reaching 1 gigawatt photovoltaic installed capacity by 2030. Negotiations with our intended partner, Complexul Energetic Oltenia, are in progress, and we expect to sign a shareholders agreement for the special purpose entities in the third quarter.
Together, we aim to build four photovoltaic parks with a total installed capacity of 455 MW. On HSSEC, the Total Recordable Injury Rate for the 12-month rolling period, July 2021 to June 2022, was 0.49. The GHG intensity slightly decreased with lower index levels in exploration and production, and at the Brazi Power Plant, reflecting our ongoing initiatives to reduce carbon emissions. On Slide 6, I would like to present the operational performance, but I will start with exploration and production. Hydrocarbon production decreased by 10% due to the divestment of production assets in Kazakhstan in the second quarter of 2021, the divestment of the 40 marginal fields and Dacian Petroleum in the fourth quarter of 2021, and the high natural decline in the main fields in Romania.
Excluding portfolio optimization, production in Romania decreased by 7.6%. Compared to the first quarter, the production decreased by 1%. Production cost per barrel of oil equivalent decreased by 12% year-on-year to a level of $10.91. This was driven mainly by a one-off effect related to a tax audit and the favorable Forex evolution, partly offset by lower production available for sale. We continue to focus on containing costs and counteracting the pressure coming from suppliers by intensifying our procurement activities. In the refining and marketing, our refining utilization rate was 86% impacted by the April plant shutdown. Total plant product sales volumes recorded a 6% year-on-year increase. The retail sales volumes only slightly increased, reflecting a slowdown in fuels demand starting in June.
Non-retail sales increased by 14% year-on-year, mainly helped by the improved commercial sales, supported by the partial recovery of the aviation business. In gas and power, total g-gas volumes were slightly down year-on-year in the context of lower market demand and supported by higher fair price of supply, which almost compensated our decreasing equity gas production. This presents very good performance considering the current context with gas supply tightness. In the second quarter, we increased our share in Romanian gas consumption to 51% compared to 44% in the second quarter of last year. Starting this quarter, we've delivered to the regulated market households as well as heat producers for household consumptions the gas quantities as per received allocation.
In the second quarter, the quantity subjected to capped prices represented a very small portion of the total gas sales, as where the ordinance 27 was introduced, most of our volumes were already contracted. Brazi net electrical output was 62% higher year-on-year, covering 8% of Romanian generation mix. The power plant was in a planned outage for half of its capacity in April 2022 versus being at full capacity in 2021. Moving now to slide seven. Total organic CapEx amounted to RON 1.4 billion in the first half of 2022, 15% higher year-on-year. The majority, RON 1 billion, was directed to exploration production, where we finalized the drilling of 21 new wells and sidetracks and performed over 320 workover jobs. In refining and marketing, most of the investments were for ongoing major projects at the Petrobrazi Refinery.
In gas and power, the majority of investments were directed to the Brazi Power Plant maintenance shutdown. For 2022, we maintain our estimated CapEx of around RON 4 billion, approximately 40% higher year-on-year. Regarding our E&A activities, in offshore Bulgaria, we plan to spud 1 exploration well in 2023 and continue prospectivity and evaluation. In the Georgia Block II, the seismic acquisition tendering is ongoing, with the timing still to be determined. Moving now to slide 8. I am happy to share with you our progress in terms of sustainability, which is a very important topic on our board's agenda. For us, 2021 was a milestone year with the launch of our Strategy 2030 and our ambitious target to transform for a lower carbon future.
We put forward the largest private investment plan in the Romanian energy sector, totaling EUR 11 billion, of which around 35% will go to low and zero carbon solutions. On our journey to reach net zero operations by 2050, we aim for a 30% reduction in the carbon emissions of our operations by 2030 versus 2019. In 2021, we managed to decrease scope one and scope two carbon intensity by approximately 10%, a downward trend which continued this year. In exploration and production, the gas to power and combined heat and power installed capacity increased to around 70 MW. These small power plants mainly exploit the energy of the associated gases that otherwise cannot be used and ensure around 70% of exploration and production annual electricity consumption. Overall investments in energy efficiency projects amounted to EUR 36 million, 17% higher year-on-year.
Last year, we also continued our contribution to the largest privately funded forestation campaign and planted another 600,000 seedlings, paving the way to reach our goal of 2 million seedlings in total by the end of 2022. Moving now to the social aspects of our business, we keep a relentless focus on safety and health and genuine respect for diversity. We also want to be a strategic partner for the development of our communities. Last year, we spent EUR 11 million for social projects in our sites, almost double versus the previous year. With regards to governance, in April this year, we published our first remuneration report, which has as key design principles a high-performance orientation and share-based long-term incentives. By including sustainability targets in terms of monitoring of safety metrics as well as CO2 reductions, we underline our commitment to sustainability.
In the end, I want to highlight that our efforts to increase performance and disclosure in terms of ESG will recognize the important rating agencies. For example, Sustainalytics placed us among the top 3% performing peer companies and improved our score and ratings versus previous assessment. Please let me now hand over to Lena, who will go into the financials and outlook in detail.
Thank you, Christina, and good afternoon also from my side. I will continue the presentation with slide 10, starting with some highlights of the income statement, which focus on the development of the second quarter of 2022 versus the similar period of 2021. Sales increased by 160% year-on-year, reflecting higher commodity prices and higher sales volume for petroleum products and electricity, as well as relatively stable gas sales volumes. Exploration and production clean operating result increased to RON 1.9 billion from RON 0.5 billion in the second quarter of last year in the context of higher commodity prices and favorable exchange rates. This effect was partly offset by the increased taxation and lower volumes. Refining and marketing clean CCS operating results almost tripled year-on-year, reaching RON 1.2 billion, following significantly higher refining margin, partly offset by lower retail margins.
Gas and power clean operating result increased to RON 816 million from RON 61 million in the second quarter of last year, reflecting strong performance in both gas and power businesses. The clean consolidation line of -RON 228 million in the second quarter of 2022 reflects mainly the unrealized profits elimination as a result of higher margin for crude oil and petroleum products due to higher quotations. Consequently, the group clean CCS operating results increased year-on-year by 330% to RON 3.7 billion. For the second quarter of 2022, we recorded inventory holding gains of RON 322 million compared to RON 83 million in the second quarter of last year. In both periods, they reflect the increase of crude prices over the quarter.
Net special charges of RON 450 million were recorded in the second quarter of 2022 compared to RON 403 million in the second quarter of last year. In both periods, they mainly refer to net temporary losses from power forward contracts. The Clean CCS net income attributable to stockholders more than quadrupled year-on-year to almost RON 3 billion. The reported net income attributable to stockholders was RON 2.9 billion from RON 406 million in the second quarter of 2021. Let me go on to slide 11, which shows the major building blocks for the development of the Clean CCS operating results. I will start with exploration and production, where clean operating results significantly improved to RON 1.9 billion.
The positive market effect deviation of almost RON 1.4 billion was triggered by the steep increase in the oil and gas prices and favorable evolution of the U.S. dollar versus RON. Nevertheless, gas market price increase was offset to a large extent by the specific exploration and production gas tax. Driven by high supplementary taxation and further increased by the current methodology of royalties being partly based on set price, which was significantly higher than the realized price. The negative volume deviation of minus RON 28 million is due to the 10% lower hydrocarbon sales. Clean exploration expenses decreased by RON 14 million and other deviations include lower production costs, driven by a one-off effect related to a tax audit, overcompensating both cost inflation and higher depreciation.
Looking at the lower chart, refining and marketing's Clean CCS operating result almost tripled compared to the second quarter of 2021. The positive market effects reflects the record high refining margin as a result of higher product spreads. Operational effects in refining and marketing were overall positive and mainly reflect higher year-on-year volumes for refined products and improved commercial performance, partly counterbalanced by lower retail margins. In gas and power, the Clean CCS operating results significantly increased year-on-year, reaching a record high for these lines of business. The gas business recorded a very strong result, driven by positive effect of increasing prices on international gas transactions with volume sourced in the previous period at lower prices. The power business also had a good contribution to the second quarter of 2022 results, built on an environment with increasing prices and higher power production.
These positive effects were only partly offset by the negative impact from the power forward sales contract concluded in the previous period and the newly introduced power over taxation. On slide 12, I would like to continue with the highlights of our cash flow statement. In the second quarter of 2022, we achieved an operating cash flow of RON 3.7 billion, 148% higher year-on-year, reflecting the positive trend of the operating results and the negative net working capital changes. Regarding the evolution of the net working capital in the second quarter of 2022, we recorded a cash outflow of RON 762 million compared to RON 169 million in the second quarter of 2021.
The outflow in the second quarter of 2022 was due to the increase in inventories driven by higher unit costs following the increase in quotation, as well as by higher quantities of crude oil, petroleum products, and natural gas in stock. Receivables also increased due to higher price environment. This was partly counterbalanced by the increase in liabilities, mainly due to higher acquisitions of imported crude oil, petroleum products, and materials in order to cover market needs. Our net payment for investments amounted to RON 0.72 billion in the second quarter of 2022, significantly higher year-on-year as the second quarter of last year reflected the net proceeds from the disposal of Kazakhstan assets amounting to around RON 0.5 billion. Our base dividends for the financial year 2021 amounting to RON 1.9 billion were paid in June.
The net cash position including leases increased to RON 12.3 billion at the end of the second quarter of 2022, versus RON 6.5 billion at the end of the second quarter of 2021. The special dividend approved by the General Meeting of the Shareholders on 26th of July in total amount of RON 2.5 billion will be paid starting 2nd of September. Let me conclude our presentation on slide 13. We expect Brent oil price in 2022 to be above $100 per barrel, higher than our previous assumption of $95 per barrel and significantly above the range of $65-$70 per barrel assumed in our strategy.
Regarding production, in 2022, we aim to contain the year-on-year hydrocarbon production decline, excluding portfolio optimization, at below 7%, and we expect a lower decline for oil than for gas. We expect inflationary pressure on our costs to persist throughout the year. Therefore, we currently see production costs above $13 per barrel of oil equivalent for the year 2022. In refining and marketing, we expect extreme market volatility for both crude and product prices. We currently estimate the 2022 refining margins to higher than $15 per barrel, reflecting the exceptionally high margins in the first half of the year. The refinery utilization rate is estimated to be above 95% in 2022.
As Christina mentioned earlier, CapEx is expected to be around RON 4 billion in 2022, of which RON 2.6 billion in exploration and production and RON 0.8 billion in refining and marketing. In 2022, we expect a positive free cash flow even after the payment of both base and special dividends. Retail demand is expected to be broadly flat year-on-year, while gas and power are expected to be lower than 2021. Our total refined product sales are forecasted to be similar with 2021. Total gas sales volumes are estimated to be lower, while the net electrical output is expected to be higher given the high utilization of the power plant in the first half of the year. We currently do not expect new full lockdowns, but if this is the case, we have a good track record in managing our operations.
The outlook figures are also based on the assumptions of no significant supply disruptions. With this, I close our presentation and thank you for your attention. We are now available for your questions.
Thank you, Alina. Let me remind you that if you want to ask a question, you need to press star one one on your telephone keypad. We'll take as many questions as time permits. Once again, to ask a question, please press star one one. We'll pause for a moment to assemble the queue.
Thank you. We'll now take our first question. Please stand by. This is from the line of Tamas Pletser from Erste Group. Please go ahead. Your line is open.
Yes. Thank you very much. Good afternoon. I got two questions. First of all, you mentioned in the report that your refinery utilization was down to 86%. What was the reason that it went down? Did you have some maintenance shutdowns or any other works as basically, you know, the environment is very encouraging and very strong, so I suppose you should have had a higher utilization. That would be my first question. My second question is, I think you probably mentioned during the presentation, I didn't really listen to that one, that your operating cost in E&P went down due to a one-off issue, a one-off item. Can you just elaborate what it was and what would have been the operating expense without this one-off? Yeah, thank you very much.
Tamas, thank you for your questions and thank you for joining us today. Radu will answer the question on refinery utilization, why it was down, and Alina with regards to the one-off in the E&P operating costs.
Hello, Tamas. Thank you very much for the question. Refinery utilization indeed level 86%, in the context of the planned shutdown. We are in the cycle of a five-year shutdown and therefore this was a necessary maintenance shutdown meant to help us running high till the big shutdown which we are going to have in 2023. It was a planned shutdown. This is the reason why we were running on 86%. Right now we have all the technical prerequisites in place to run high till next spring. Thank you.
Sorry, just. Can I have just a follow-up here? Will this maintenance shutdown affect also the third quarter period, or did you finish this during the second quarter?
No, it was just in the second quarter. Reflected in the result, in the numbers set for the second quarter.
That means that in the third quarter you should have basically a full capacity utilization.
We see all the incentives to run on the highest level, yes.
Okay, good. Thank you very much.
Thank you.
I will continue with the second question related to the one-off in E&P. It is related to a fiscal audit which covered the previous period between 2014 and 2016, quite old period, in which we managed to recover some money which had a positive impact on the production cost. This had an impact approximately $2.2 per barrel. Yeah? So without this, it was close to $11, so it would be around $13.2 per barrel production cost.
Yep, that's clear. Thank you.
Thank you.
Thank you. We'll now take our next question. Please stand by. The question is from the line of Irina Railean from BT Capital Partners. Please go ahead.
Good afternoon and thank you for the presentation. I have several questions. The first one is regarding the Offshore Law. You have mentioned that you still need some clarifications regarding the Offshore Law, and I'd like to know what you still need to make clear from the authorities. Also, I'd like to ask regarding, is there do you see any chances to reverse some of the impairments you have registered in 2020 given the current market context and favorable energy prices? The third question relates to the international gas transaction you have mentioned in your report. I'd like here to know are these imports, exports or how could you detail here a little bit? I mean, is Petrom importing or exporting gas?
Yeah, you have mentioned something like 5% of sales are there from imports. If you could just, can you detail a little bit here? Thank you.
Okay. Thank you, Irina. I will take your first question with regards to the Offshore Law. Irina will cover impairments, and Franck will talk about the international gas transactions that we mentioned. Let me just take a moment on Neptune overall. Romgaz and ExxonMobil, we believe are close to having the deal completed actually in this quarter. We are ready with our team and international team set up to take over operatorship of the block. The Offshore Law changes did absolutely bring some improvements, and we welcome them. However, we do see the need for clarification, particularly on the aspects of the free market provisions. Once we are the operator and we see these clarifications provided by the Romanian state, then it will be 9-12 months for FID, which is why we're estimating mid-2023.
In some way, the main areas that we're looking for is clarifications with regards to right to freely market. If I just take you back, there were three kind of key prerequisites that we needed with regards to the Offshore Law or changes in the Offshore Law. One, improvement of fiscal terms, the second was stability around those fiscal terms, and third was the right to freely market. In the context of the current very challenging environment, there are aspects of the Offshore Law that have been put in place that we need to understand further.
Mm-hmm. How should this clarification, I mean, look like? Should they be like something of a guarantee that the price or the market will be liberalized and no longer will be regulated again? Or what exactly should it look like to meet your expectations?
Yeah. At this point in time.
What forms may it have?
At this point in time, we're just looking for clarifications to understand what has been put in the Offshore Law and therefore how they will be implemented in that. We've had whole articles about it to understand that. How those clarifications come about will be up to the authorities in that, so.
What will happen, do you estimate, I mean, to even postpone the final investment decision? You mentioned something like mid-2023. I'm asking just because the context is of this high energy prices is that the governments all around Europe, I think, are trying to compensate or somehow to limit this growth in energy prices with different kind of measures for particular states. That's why I'm asking how you approach, because it may still take some time for the governments to properly liberalize the markets, just because they somehow try to compensate and help consumers. How is your approach here? Will you wait until the market will be properly liberalized, or how do you see the situation?
I think you touched on a few very important points there. First of all, I think it's definitely fair to say that Neptune Deep is a very strategic project for the company, but also for the country, especially in the current geopolitical context. The strong need for, I would say, non-Russian or indigenous European gas to be produced. I think in that context we have seen improvements and therefore we are looking for clarifications of it. We also have seen a change, I think, in pace, which we welcome as well. But I think your points are exactly right. We are seeing lots of interventions into the free market at this point in time.
That's why we're searching for clarifications, because this gas, if we're able to stick to the timeline, will come on, in five years' time and actually will be in production for over 20 years. Just really understanding this, and making sure that we understand this despite some of the interventions that are going on in the market right now. This is why we need some clarifications of that. Our goal remains to get those clarifications and move the project forward as quickly as possible. Everybody is incentivized to do that, and we are definitely part of that. Can I-
Thank you.
Thank you. To your question on impairments for Irina.
I will continue with the impairments. From today's perspective, we do not see any impairment situation. The reason for that being that this high crude prices that we see right now, we believe are temporary. The long-term assumptions for crude price remain unchanged from our perspective. Of course, we look at this on a quarterly basis and we'll continue trying to understand and reevaluate if there is any trigger. From today's perspective, there is no trigger for reversal of impairment.
Could you remind us what is the long-term assumption for the oil price?
Somewhere between $60-$70 per barrel.
60 to 7. Okay, thank you. Thank you very much.
You're welcome.
Good afternoon, Irina. It's Franck speaking. For some of your questions, or maybe to go back a bit to the history, three years ago, we know we started to develop a trading position and a trading portfolio, mainly looking at Southeast Europe, so not just Romania, you know, from Hungary to Greece, including Moldova. We are starting to build position in these different countries to diversify our position from Romania with our equity gas.
First of all equity gas is sold in Romania. What the international trading we are talking about is mainly buy and sell we are doing abroad. From LNG to Greece, from Greece to gas on MGP in Hungary. That's where this international trading is coming from.
Okay, thank you. That's basically trading activity, not necessarily exporting actual production or importing volume. Understand. Thank you.
Thank you. We'll now take your next question. Please stand by. The question is from the line of Oleg Galbur from Raiffeisen Bank. Please go ahead.
Yes. Good afternoon, and thank you for the presentation. I hope you can hear me well.
Very well, Oleg.
Excellent. I have three set of questions, and I'll start with the upstream segment. I was wondering whether the new Offshore Law was already having an impact on your second quarter results, and if yes, maybe you could share with us what was the magnitude of this impact. Also regarding the new Offshore Law, it is talking about the so-called deep onshore gas, which is also subject to a more favorable taxation. Could you tell us what is the percentage of a totally produced onshore gas which would qualify as a deep onshore gas at Petrom? Then on refining, clearly refining margins have been very supportive during the second quarter. However, you have guided for lower levels in the second half of this year of approximately $15 per barrel, according to my calculation.
Could you please explain why do you expect the European refining margins to decline while the European oil embargo on Russia is still not taking a full effect, which means probably even less export or import of oil products from Russia till the end of the year? Maybe you can share with us what level of refining margins do you see or have you seen in July, and how do they compare with the second quarter average? Lastly, it's a bit more challenging on the gas and power segment.
While I understand that OMV Petrom has strongly benefited from a favorable market environment in both power and gas business, without a proper split, it is, as you understand, very difficult for us to properly analyze how much of the second quarter results was driven by, let's say, one-off developments, such as gains on the trading activities that you just were talking about. Could you please provide, hopefully, some details on the key earnings drivers in the segment? For example, what was the rough, at least, split of earnings between gas and power, and what was the level of earnings contributed by, let's put it, non-repeatable, activities? Thank you.
Oleg, thank you very much for your questions. Alina is going to touch on the impact of the Offshore Law in the second quarter results. Maybe I'll just do a quick one on the deep onshore. You're absolutely right. It's an Offshore Law, but it touches on the onshore as well on the deep onshore. Right now we're absolutely still waiting for clarifications from the regulator on this. We've submitted a list of fields, but I think what we would say at maximum, it's about 15% of our total gas production in Romania. But I would say still waiting on clarification from that. Alina, maybe do you want to touch on the Offshore Law impact in the second quarter?
Yes. Basically, the Offshore Law has been approved and adopted at the end of May. We had just the June month, which was covered within new Offshore Law, and we had a positive impact, single-digit million EUR for June.
Radu, would you like to address the questions with regards to refining margins?
Yes.
If you have, what was July like?
Yeah. Hi, Oleg. It's Radu from my side. Thank you for the question. Let me start with the last part of, or maybe last question from the one related to the refining margin. When you talk about the July indication, so we see in July indication lower under the average of Q2. In this context, I would be going to why do we go for an indication level of 15, above 15 for the rest of the year. It's because we've been seeing in Q2 record margins in the context of very high quotations for the diesel and gasoline. We've been seeing a complete decoupling of those quotations versus the crude.
Indeed, you're right, even though we are going to see in the next period further restrictions from for the product and the crude from from Russia, we already recognize that majority of the players are trying to find solutions, alternative solutions for supplying supplying products from different sources, on one hand. On the other hand, because of the high prices, we recognize in the end of Q2, and there is a trend as we see also in July, some demand destruction. In this context, we believe that it's reasonable to assume still a very pretty high Q3, but a relatively lower versus what we've been seeing so far Q4, and therefore the indications of above 15% for the year.
I hope this answers your questions. Thank you.
Oleg, you're right. We don't provide more granularity with regards to gas and power. I think the way Frank would indicate it, I think, is roughly that we would say two-thirds gas, one-third power at this point in time. We'll come back and have a look at whether we're ready to give more transparency, but at this point in time, that would be the indication that we would give. Thank you for your question, Oleg.
Thank you.
Thank you. We'll now take our next question. Please stand by. Question is from the line of Iuliana Ciopraga from Wood & Company. Please go ahead.
Hi. Good afternoon. Two questions on my side. First, can you comment on the gas price expectations for the following quarters on the upstream segment? I mean, what we've seen in the second quarter, there was a decrease compared with the first quarter, if you could explain that as well. Also related to gas, if you could give us some insight into potential sales to households and heating producers in first quarter of 2023. Also regarding retail margins for refining, are you seeing an improvement now after the recent decrease in oil prices? Thank you. That's all on my side.
Could you repeat the last question please?
Luliana, hi. How are you, by the way? Nice to hear from you. Excuse me. The last one, it was a bit fast, sorry.
On retail margins, are you seeing an improvement now in retail margins for refining? I mean, on the refining and marketing side from the lower crude price?
Okay.
We are seeing.
Thank you.
a decrease in fuel prices, and I was wondering if you see an improvement in margins coming from that?
Thanks. Franck, would you like to touch on sales to household and district heating? I think you were saying 1Q23. Is that correct, Luliana?
Yes.
Sorry, it was a bit fast. Okay.
Yes.
Gas expectations, and then, retail margin. Radu, yeah.
I think I don't have the value for Q1 2023, I have to say, but for the full year 2022, it's about 3.4 TWh for total gas for this segment. It's linked to the fact, you know, when the regulation came in place, we had already contracted some of our gas, and therefore it was what was available. I will say for Q1, it will be certainly the same ratio with what we had in 2022.
As per expectation.
Same ratio means, you mean percentage?
Yeah, percentage.
Which was quite low because I think you guided 10% of sales from April to December. You still-
Yeah.
You keep that 10% in first quarter of 2023, right?
Yes.
That's-
Yeah, because, you know, we had also some gas sold to the Gas Release Program, the previous program before the
Mm-hmm
... the new regulations. We had also about 6 terawatt-hours on the Gas Release Program for 2022.
I think you should, Luliana-
On the gas-
Take over on the gas price.
On the gas price, yes. On Q2 we have an impact with the cap on the gas price of course, that had a consequence on the sales through upstream. Expectation for Q3, I would say, you know, we expect a slight increase because regulation have changed again in July, so we have another change in July. I expect an increase due to the fact the way the new regulation has been drafted in July, so slight increase.
Thanks. Can you comment what-
Um-
Happened in July? Sorry.
They put in, you know, beginning of July, there was a modification of the emergency ordinance where the cap price for producer will apply to any customers, which would have been quite an impact, because it means even for B2B, we'll have to sell at the cap price. This has been canceled now, so we don't have to sell anymore at the cap price, but market price through B2B customer.
I see.
Radu, on the retail margin?
On retail margin, Luliana, I would say that I would just mention the fact that our pricing policy is a moderate pricing policy. In times when we have an increasing pricing environment, our retail margin is under pressure, and that's something that we were feeling strongly in Q2, and that's the reason why the retail margin was under pressure at the time. If we are seeing now these days a different, slightly different trend, that is definitely helping the retail margin. At the end of the day, it's a very high volatility, so very difficult to predict how this will go.
Again, if we see, we'll see in the next period a decreasing trend on quotations, this will definitely help to improve the retail margin. I just wanna check, did you refer as well to the refining margin or only retail margin?
Retail.
Retail. Yeah. That's gonna part retail. Thank you.
Thanks a lot. It is surprising, I mean, just as a follow-up to the first question on the gas price, I mean, this is a bit surprising because Romgaz was guiding that they would sell 80% at regulated price in the first quarter of 2023, and that's. You're confirming that you expect to sell just 10% of first quarter volumes at regulated prices?
I'm saying I don't have the figure with me for Q1 next year. I mentioned the figure for 2022. You know, the difference with Petrom is with the own gas, sorry, and I cannot really comment own gas figures of course, as you can imagine. We have a gas power plant running. It's quite a big internal consumer. We have end user portfolio, which will be hedged for the gas year. It's quite significantly already hedged when the regulation came in place, yeah.
Thank you.
Let me remind you that if you want to ask a question you need to press star one one on your telephone keypad. We now can take the next question.
Thank you. The next question is from the line of Laura Simion from BRD Groupe Société Générale. Please go ahead.
Good afternoon, everyone, and congratulations for the result. Part of my question is already answered. I will put a follow-up question on regulated gas market. You mentioned this quarter the quantities were small. For the rest of the year, you expected to sell about 3.4 TWh. Is this correct?
Yes. For full year 2022.
another short question on the windfall tax for power. Did you pay the windfall tax for power in Q2? If you could give an indication about the amount. Thank you.
Is there any other questions that you have? I just want to check, otherwise then we'll.
No, no. That's all. Thank you.
Okay. Thanks, Laura. Alina will address your windfall tax question.
Yes. I can confirm that windfall tax for power was applicable in the second quarter, and we had paid. We do not disclose exactly the amount. We had a disclosure when it comes to the entire implementation of the Ordinance 27, which was mid double-digit million EUR overall from the impact. This includes the windfall tax for power.
For the whole year?
No, for the Q2.
Okay.
It's for the entire year, sorry. Starting from the beginning of Q2 to the end of the year. Apologies.
Okay, thank you. We'll now take the next question. Please stand by. This from the line of Cristian Petru from NN Pensii. Please go ahead.
Hello. Congratulations for the good results. Just, if you can comment on the demand destruction and if you see any slowdown in the after this high due to this high prices. Thank you.
Demand destruction. Cristian, thank you for your question. Maybe we'll split products then. I wasn't sure if you were interested in one particular product or not, but maybe we talk a little bit on the demand destruction that we were seeing in the second quarter with regards to fuels. After that go to the gas and power markets, if that's okay. Radu, maybe you just touch on this.
Yes. Thank you for the question, Cristian. Indeed, as I was mentioning, we see demand destruction on products, on finished products, especially, at the end of Q2, in the context of the high prices. That trend, it stays as well in July. On one hand, on the other hand, if you look to the commercial business here, we see still solid demand. That will stay solid as well, most probably for the rest of the period. If we look on aviation stays high. As Cristian was mentioning, good recovery here.
Still, even though we reached a 100% increase in a month versus the prior year on a cumulative picture for 2022, the aviation will be sitting on a 15% level lower than 2019. That means that most probably we are going to see a complete recovery to the prior level of pre-pandemic in aviation in 2023.
Cristian, hi, Franck speaking. For the gas, we have seen, you know, I think it was in the presentation, 19% reduction versus last year. What part of it is linked to weather? You know, when we look at the consumption on the Transgaz network and versus the DSO, we can see a different value for this decline. We see, especially in Q1, we have quite a strong decline on the Transgaz network, which should be more industrial consumption. But in Q2 it was more stable. I think it's still maybe too early to judge on the demand destruction.
We have seen clearly some reduction, but I think we need to wait. You know, some of the customers have been protected with the gas cap on the, especially the SME sectors and the households. So it's a bit too early. We have seen some chemical plant of course stop during these high prices in Q1, but let's see what will have impact in the second half. We expect still a decrease of consumption for the year versus last year. On the power, we see a 6% demand. I think here also, I mean it was in the price, you know, some energy intensive consumers will have reduced their consumption due to the high price.
I think this clearly is something which will have an impact on the supply demand.
Thank you.
Thank you. We'll now take our next question. Please stand by. This from the line of Luliana Ciopraga from WOOD & Company. Please go ahead.
Hi. Just a follow-up question regarding the new Offshore Law and the gas production. You're saying 15% of total gas production in Romania, that you mean onshore. For that part, the new Offshore Law could be applicable, but you don't know yet. That adds to the offshore production, current production of. Basically it will be around 40% where the Offshore Law would apply if we include the 15. Is that right?
Yeah.
Yes. Also nodding heads in the room. I think, yes, that is generally correct.
That's right, yes.
Yeah. Just to maybe reemphasize again that the 15%, Luliana, it is the maximum. Yeah. Then we got from the regulator a lot of requests to come up with a lot of details, and it will be a process that will take several months to identify exactly how much would be the real one. Yeah. That's the maximum value.
Okay. Thank you. Thanks a lot.
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