Petrom First Impression 4Q 2010 - E&P and G&P good, R&M not so

E&P performs well: In the segments, E&P was a positive surprise due to FX effects and enhanced production at nine fields in Western Romania. Additionally, new key wells at Mamu and Radesti were started and a successful acid stimulation campaign in offshore fields supported the production increase compared to the previous quarter. In Romania, 2010 RRR was 72% compared to 70% a year earlier.

R&M disappoints: Refining suffered from one-off costs related to the closure of a tank farm at the Arpechim refinery. The big negative surprise in this segment, however, was the underperformance of marketing. Retail and commercial sales volumes dropped by 7% yoy, while we had instead estimated a decrease of 5%. There might be additional negative influences that we want to clarify in the earnings call or with Petrom IR.

G&P better: Gas and Power fared better than expected as sales volumes grew 15% yoy on the back of a reawakening demand from the fertilizer industry in Romania. Petrom was able to reverse bad debt provisions ofRON 70 mn, we had expected RON 27 mn. RON 1 bn have been invested in the Brazi plant in 2010 and RON 61 mn in the Dorobantu wind park.

Financial better than expected: The financial result improved yoy as the last year's figures included a provision for interest charges relating to the tax review for Petrom. We additionally expected the FX effect to weigh worse on the company's profitability. Petrom's OCF was RON 2,065 mn in 4Q 10, up from RON 352 mn in 3Q 10, capex was RON 1,887 mn (3Q 10: RON 990 mn), net debt stands at RON 2,299 mn, down from RON2,614 mn a year ago, which results in a current gearing ratio of 12% (16% at the end of 2009).

We expect a positive market reaction based on the good result and confirm our 'buy' recommendation.