SNGN Romgaz : Consolidated Board of Directors’ Report 2023

Consolidated Board of

Directors' Report 2023

Content

• I. 2023 ROMGAZ GROUP OVERVIEW .............................................................................. 3

  1.1. Romgaz Group in Figures ......................................................................................... 3

  1.2. Significant Events .................................................................................................. 7

• II. Parent Company at a Glance ................................................................................. 12

  2.1. Identification Data ............................................................................................... 12

  2.2. Company Organization ........................................................................................... 13

  2.3. Mission, Vision and Goal ......................................................................................... 14

  2.4. Strategic Objectives, Strategic Options and Secondary Objectives ..................................... 14

• III. Review of Romgaz Group Business ........................................................................ . 18

  3.1. Business Segments ................................................................................................ 18

  3.2. Brief History ....................................................................................................... 22

  3.3. Mergers and Reorganisations, Acquisitions and Divestments of Assets ................................. 23

  3.4. Group's Business Performance ................................................................................. 24

  3.4.1. Overall Performance ........................................................................................ 24

  3.4.2. Sales ........................................................................................................... 27

  3.4.3. Prices and Tariffs ............................................................................................ 29

  3.4.4. Human Resources ............................................................................................ 31

  3.4.5. Environmental Aspects ..................................................................................... 35

  3.4.6. Prevention and Firefighting, Civil Protection and Critical Infrastructure ......................... 37

  3.4.7. Occupational Health and Safety .......................................................................... 38

  3.4.8. Litigations ..................................................................................................... 39

  3.4.9. Legal Acts Concluded under GEO No.109/2011 Article 52 ........................................... 40

• IV. Group's Tangible Assets ...................................................................................... 41

  4.1. Main Production Capacities ..................................................................................... 41

  4.2. Investments ........................................................................................................ 44

• V. SECURITIES MARKET ............................................................................................ 53

  5.1..................................................................................................... 56

• VI. Company management ........................................................................................ 57

  6.1. Board of Directors ................................................................................................ 57

  6.2. Executive Management .......................................................................................... 58

• VII. Consolidated Financial - Accounting Information ...................................................... 64

  7.1. Statement of Consolidated Financial Position ............................................................... 64

  7.2. Statement of Consolidated Comprehensive Income ........................................................ 66

  7.3. Statement of Consolidated Cash Flows ....................................................................... 68

• VIII. Corporate Governance ...................................................................................... 70

• IX. Performance of Mandate Contracts ........................................................................ 86

I. 2023 ROMGAZ GROUP OVERVIEW

1.1. Romgaz Group in Figures

Romgaz Group1 recorded in 2023 a revenue of RON 9,001.87 million, down by 32.62%, namely RON 4,357.77 million, as compared to 2022 revenue (RON 13,359.65 million).

Net profit of RON 2,812.10 million, higher by RON 265.39 million than the net profit recorded in 2022 (+10.42%).

Romgaz Group performances for the year ended December 31, 2023, were mainly influenced by the following factors:

•  Total revenue is lower in 2023 by RON 4,295.4 million, recording a drop of 31.45% due to the following factors:

  • o decrease of revenues from natural gas sales (RON 7,766.97 million in 2023 as compared to RON 11,306.97 million in the previous year); the obligation enforced by GEO No. 27/2022 had a significant impact that led to the drop of 31.31% of revenues from gas sales, therefore Romgaz sold most of production at the regulated price of RON 150/MWh (86.43% of deliveries);

  • o electricity revenues also dropped (RON 406.98 million in 2023 as compared to RON 1,330.61 million in the previous year). According to GEO No.27/2022, as of 2023, Romgaz sold almost all electricity production at RON 450/MWh;

  • o revenue from underground storage activities increased by 17.66% (RON 552.19 million in 2023, as compared to RON 469.33 million in 2022), mainly due to the increase of capacities booked by clients for underground gas storage;

•  Total expenses decreased by 54.77% as compared to last year, mainly due to the decrease of windfall tax on revenues from natural gas (RON -4,014.05 million) and royalty expenses (RON -1,039.56 million). The Group recorded in January-December 2022 expenses of RON 403.80 million with the windfall tax on electricity sales, which became subsequently a contribution to the energy transition fund; taking into account that 90% electricity was sold at 450 RON/MWh, this contribution is insignificant for the reviewed period;

•  Increase of the consolidated gross profit by 21.98% as compared to the similar period of the previous year was offset by the profit tax. Profit tax includes the solidarity contribution introduced at the end of 2022, for 2022-2023. In 2023, the expense recorded with this contribution is RON 1,687.37 million, an increase by RON 684.58 million as compared to the previous year;

Achieved net consolidated profit margins (31.24%), consolidated EBIT (54.41%) and EBITDA (59.70%) strengthened as compared to 2022 (19.06%; 29.81% and 33.93% respectively). The increase is due to lower royalty expenses (RON 600.52 million in 2023 as compared to RON 1,640.08 million in 2022) and to lower expense with the windfall tax from gas sales (RON 889.80 million in 2023 as compared to RON 4,903.85 million in 2022), as a result of enforcing provisions of GEO No. 27/2022. According to this ordinance, natural gas quantities sold at RON 150/MWh are exempted from payment of windfall tax, and royalty is calculated and paid at this price, and not at the reference price communicated monthly by the National Agency for Mineral Resources.

Net profit per share rose by 10.42% as compared to the previous year, reaching RON 7.30.

Investments made by Romgaz Group in 2023 amounted to RON 1,214.15 million.

As regards quantities, Romgaz Group natural gas sales (including gas acquired for resale) decreased in 2023 by 4.57%.

Natural gas consumption in Romania for 2023 recorded a decrease of roughly 6.52%, from 109.50 TWh to 102.45 TWh, according to company's estimations and ANRE2 reports.

1 Romgaz Group consists of SNGN Romgaz SA ("the Company"/"Romgaz") as parent company and the subsidiaries SNGN Romgaz SA - Filiala de Înmagazinare Gaze Naturale Depogaz Ploiești SRL ("Depogaz") and Romgaz Black Sea Limited (former ExxonMobil Exploration and Production Romania Limited), both owned 100% by Romgaz.

2 Consumption and market share is estimated as, at the date hereof, ANRE did not publish the report on the natural gas market for December 2023.

Natural gas production reached in 2023, a volume of 4,788.5 million m3, namely a 3.00% decline related to 2022 production.

According to estimates, this production ensured Romgaz a market share of approx. 50% of deliveries in the total consumption of Romania, increasing by 1% as compared to 2022.

In 2023, Romgaz electricity production was 962.6 GW, by 13.32% lower as compared to the production of 2022. This evolution is strongly related to the energy demand, the evolution of prices on competitive markets, fuel quantity allocated for electricity generation. According to preliminary data published by Transelectrica, Romgaz market share is 1.72%.

Operational results

The table below shows a summary of the main indicators related to production (gas, condensate, electricity), royalty and storage services:

Q4	Q3	Q4	Δ Q4	Main indicators	2022	2023
2022	2023	2023	(%)
1,248.5	1,131.7	1,273.5	2.0	Gas production (million m3)	4,935.9	4,788.5	-3.0
5,240	5,544	6,232	18.9	Condensate production (tons)	20,878	22,715	8.8
89	79.2	103.4	16.2	Petroleum royalty (million m3)	348	349.7	0.5
271.0	143.9	321.1	18.5	Electricity production (GWh)	1,110.5	962.6	-13.3

Δ'23/'22

(%)

Invoiced UGS withdrawal services

620.1

3.2

582.2

-6.1

(million m3)

1,722.5

1,742.8

1.2

483.3

841.5

204.2

-57.7

Invoiced UGS injection services (million m3)

2,450.2

1,905.5

-22.2

Natural gas quantities produced, delivered, injected into and withdrawn from gas storages are shown in the table below (million m3):

2021	2022	2023	Ratios
2	3	4	5=4/3x100
1.	Gross gas production	5,028.5	4,935.9	4,788.5	97.0%
2.	Technological consumption	69.9	73.6	71.6	97.3%
3.	Net internal gas production (1.-2.)	4,958.6	4,862.3	4,716.9	97.0%
4.	Internal gas volumes injected in storages	487.9	84.6	93.3	110.3%
5.	Internal gas volumes withdrawn from storages	422.2	283.9	144.5	50.9%
5.1.	Gas sold in storage	0.0	0.0	22.7
6.	Differences resulting from GCV	8.6	2.7	2.5	92.6%
7.	Volumes supplied from internal production (3.-4.+5.+5.1.-6.)	4,884.3	5,058.9	4,788.3	94.7%
8.1.	Gas supplied to CTE Iernut and Cojocna from Romgaz gas	192.5	338.8	286.5	84.6%
8.2.	Self-supplied gas	0.5
9.	Gas supplied from internal production to the market (7.-8.1.-8.2)	4,691.8	4,720.1	4,501.3	95.4%
10.	Gas from partnerships - total, out of which:	35.4	19.3	15.3	79.3%
Amromco (50%)*)	35.4	19.3	15.3	79.3%
11.	Purchased internal gas volumes (including commodity gas and	239.5	1.9	8.0	421.1%
imbalances)
12.	Sold internal gas volumes (9.+10.+11.)	4,966.7	4,741.3	4,524.6	95.4%
13.	Supplied internal gas volumes (8.1.+8.2.+12.)	5,159.2	5,080.1	4,811.6	94.7%
14.	Supplied internal gas volumes	0.0	0.0	0.0
15.	Gas supplied to CTE Iernut and Cojocna from other sources (including	8.4	0.1	0.4	400.0%
imbalances)
16.	Total gas supplied (13.+14.+15.)	5,167.6	5,080.2	4,812.0	94.7%

0

Item No.

Specifications

1

*

Invoiced UGS injection services - represent gas quantities for injection services invoiced by Depogaz

1,821.9

2,450.2

1,905.5

77.8%

Note: the information is not consolidated; it also includes the transactions between Romgaz and Depogaz. *) The produced gas is reflected in Romgaz revenue, according to the interest share held in the partnership.

2023 production was supported by ongoing production rehabilitation projects of main mature fields, performance of capitalizable repair works and well recompletion works and by streaming into production new wells.

Evolution of natural gas production between 2013-2023 is shown below:

The table below shows the quarterly electricity production for 2023, as compared to 2022:

*MWh*

2022

2023

Variation (%)

1

2

3

4=(3-2)/2x100

1st Quarter 345,337

323,037 -6.46

2nd Quarter 199,323

174,542 -12.43

3rd Quarter 294,806

143,887 -54.24

4th Quarter 270,991

321,132 18.50

Year total

1,110,456

962,598 -13.32

Romgaz is one of the largest gas suppliers in Romania. The evolution of gas supplies3 between 2013-2023

is

shown

below:

Relevant Consolidated Financial Results

(RON million, if not stated otherwise)

Q4 2022

2022	2023	Δ '23/'22
(%)
1,913.0	13,359.7	9,001.9	-32.62
2,604.3	2,065.7	2,171.4	-16.62	Income	13,658.1	9,362.7	-31.45
1,120.5	1,025.3	1,153.3	2.93	Expenses	9,506.2	4,300.1	-54.77
0.7	1.7	1.6	128.57	Share of profit of associates	2.4	4.9	104.17
1,484.5	1,042.1	1,019.6	-31.32	Gross profit	4,154.2	5,067.5	21.98
1,175.6	559.0	376.2	-68.00	Income tax expense	1,607.5	2,255.4	40.30
308.9	483.1	643.4	108.29	Net profit	2,546.7	2,812.1	10.42
1,457.2	1,007.7	991.4	-31.97	EBIT	3,982.3	4,897.6	22.98
1,637.3	1,114.9	1,099.7	-32.83	EBITDA	4,532.4	5,374.2	18.57
0.80	1.3	1.7	108.29	Earnings per share EPS (RON)	6.6	7.3	10.61
Net profit ratio (% from
12.13	25.25	29.36	142.04	Revenue)	19.06	31.24	63.90
57.21	52.68	45.23	-20.94	EBIT Ratio (% from Revenue)	29.81	54.41	82.52
64.28	58.28	50.18	-21.94	EBITDA Ratio (% from Revenue)	33.93	59.70	75.95
Number of employees at the
5,971	5,951	0.15	end of the period	5,971	0.15
5,980	5,980

Q3 2023

Q4 2023

Δ Q4 (%)

Main indicators

2,547.1 2,191.6 Revenue

-13.96

Figures in the above table are rounded; therefore, small differences may result upon reconciliation.

Romgaz on the Stock Exchange

Since November 12, 2013, company's shares have been traded on the regulated market governed by BVB (Bucharest Stock Exchange) under the symbol "SNG" and on the main market for financial instruments traded on LSE (London Stock Exchange) as Global Depository Receipts (GDR) issued by the Bank of New York Mellon - under the symbol "SNGR".

Romgaz is considered an attractive company for investors as regards dividends paid to shareholders, stability and development perspectives, such being reflected in the evolution of Romgaz securities prices in the reviewed period.

Performance of Romgaz shares compared to the evolution of BET index (Bucharest Exchange Trading) from listing to December 31, 2023 is shown below:

3 Include gas from internal production, including gas supplied to CTE Iernut and Cojocna.

25.0000 2,000.00

20.00000.00

12.11.2013

09.01.2014

04.03.2014

28.04.2014

19.06.2014

12.08.2014

03.10.2014

26.11.2014

1/22/2015

3/17/2015

5/8/2015

7/1/2015

8/24/2015

10/15/2015

12/8/2015

2/2/2016

3/25/2016

5/19/2016

7/12/2016

9/2/2016

10/26/2016

12/19/2016

2/13/2017

4/6/2017

6/1/2017

7/25/2017

9/15/2017

11/8/2017

1/4/2018

2/27/2018

4/20/2018

6/14/2018

8/7/2018

9/28/2018

11/21/2018

1/17/2019

3/12/2019

5/3/2019

6/26/2019

8/19/2019

10/10/2019

12/3/2019

1/29/2020

3/23/2020

5/14/2020

7/7/2020

8/28/2020

10/21/2020

12/14/2020

2/8/2021

4/1/2021

5/25/2021

7/16/2021

9/8/2021

11/1/2021

2/23/2021

2/15/2022

4/8/2022

6/1/2022

7/25/2022

9/15/2022

11/8/2022

1/3/2023

2/24/2023

4/19/2023

6/12/2023

8/3/2023

9/26/2023

11/17/2023

Pret actiuneIndice BET

1.2. Significant Events

January 12, 2023

By Resolution No.1, company's shareholders approve extension of interim board members mandates appointed by Resolution of the Ordinary General Meeting of Shareholders No.7/September 13, 2022, by two months from the expiration date.

February 3, 2023

Romgaz and Socar Trading, a subsidiary of the State Oil Company of the Republic of Azerbaijan, signed a new individual contract for gas deliveries from Azerbaijan to Romania. By signing this contract, both companies continue and consolidate the good cooperation and the contractual relationship based on a framework agreement concluded in November 2022 for an unlimited term. The contract provides the possibility of gas deliveries up to 1 billion m3 until March 31, 2024, this new contractual arrangement ensures the strategic objectives of security of supply and diversification of gas sources.

March 14, 2023

By Resolution No.5, company's shareholders appoint the following persons as board members, for a 4-year term of mandate, as of March 16, 2023:

•  Dragan Dan Dragos

•  Jude Aristotel Marius

•  Nut Marius-Gabriel

•  Brasla Razvan

•  Sorici Gheorghe Silvian

•  Balazs Botond

•  Stoian Elena-Lorena.

March 16, 2023

Romgaz Black Sea Ltd. concluded the transmission framework agreement for transportation of natural gas to be produced from Neptun Deep through the National Transmission System (NTS). The transmissionframework agreement was signed with the national gas transmission operator, SNTGN Transgaz SA, following the successful completion of an incremental capacity booking process in compliance with procedures approved by the National Energy Regulatory Authority (ANRE).

According to the agreement, the required technical capacity is booked for acceptance in the National Transmission System, allowing natural gas from Neptun Deep block to enter the market. The agreement was concluded for September 2026-September 2042.

March 20, 2023

By Resolution No. 28, the Board of Directors appoints Mr. Dragan Dan Dragos as chairman of the Board of Directors.

March 23, 2023

By Resolutions No. 32, 33 and 34, the Board of Directors:

• - approves to extend the mandate of Romgaz Chief Executive Officer, Mr. Razvan Popescu, for a 2-month term, starting with April 19, 2023 until June 19, 2023;

• - approves to extend the mandate of Romgaz Deputy Chief Executive Officer, Mr. Aristotel Marius Jude, for a 2-month term, starting with April 19, 2023 until June 19, 2023;

• - approves to extend the mandate of Romgaz Chief Financial Officer, Mrs. Gabriela Tranbitas, for a 2-month term, starting with April 21, 2023 until June 21, 2023;

March 28, 2023

By Resolution No. 35, the Board of Directors approves to initiate the procedure for selection of the chief executive officer, deputy chief executive officer and chief financial officer, in line with the provisions of GEO No. 109/2011, as subsequently amended and supplemented.

March 29, 2023

By Resolutions No. 36 and 37, the Board of Directors:

a) agrees with the conclusion of the Procurement Contract for "Completion of works and commissioning of the investment objective: Development of CTE Iernut by building a new combined cycle gas turbine power plant", with Duro Felguera S.A.;

b)

endorsed conclusion of the Settlement Agreement between Romgaz and Duro Felguera S.A., for solving some disputes between the parties and completing the remaining works to be executed at CTE Iernut. The agreement shall become effective within 5 days from fulfilling all conditions precedent, one condition would be the approval of Romgaz General Meeting of Shareholders.

April 3, 2023

Romgaz concludes with Duro Felguera S.A., the Procurement Contract No. 40928/03.04.2023 for: "Completion of works and commissioning of the investment objective: Development of CTE Iernut by building a new combined cycle gas turbine power plant".

April 20, 2023

By Resolution No. 6, Company's shareholders:

• - approve the increase of the credit facility limit, provided in the Credit Facility Contract No. 201812070225, by RON 210 million, namely from RON 420 million to RON 630 million;

• - approve the issue of guarantee instruments for the guaranteed third party, namely for Romgaz Black Sea Limited, acting through its subsidiary from Romania, Romgaz Black Sea Limited Nassau (Bahamas) Sucursala Bucuresti.

May 15, 2023

By Resolution No.55, the Board of Directors:

- appoints Mr. Popescu Razvan, as Chief Executive Officer, for a 4-year term, starting with May 16, 2023 until May 16, 2027;

• - appoints Mr. Jude Aristotel Marius, as Deputy Chief Executive Officer, for a 4-year term, starting with May 16, 2023 until May 16, 2027;

• - appoints Mrs. Tranbitas Gabriela as Chief Financial Officer, for a 4-year term, starting with May 16, 2023 until May 16, 2027;

May 17, 2023

To implement the project PCI 6.20.7 - "Daily withdrawal capacity increase - Bilciuresti UGS" Depogaz signed the Grant Agreement - Project 101103289 - 6.20.7-RO-W-M-22-Bilciuresti UGS with the European Climate, Infrastructure and Environment Executive Agency (CINEA). The grant value is EUR 37,962,111.95. The project aims to increase the daily gas delivery capacity at Bilciuresti UGS from 14 million Sm3/day up to 20 million Sm3/day, together with an increase of storage capacity of 108 million Sm3/cycle. The total estimated investment value is EUR 123,657 thousand. Implementation of Bilciuresti project ensures a high degree of security of supply and market integration by increasing transmission flows and diversifying natural gas resources, both in Romania and in South-Eastern Europe, as well as by providing flexibility in natural gas network balancing operations and services, supporting renewable energy production.

May 18, 2023

Romgaz informs shareholders and investors on the conclusion of a Market Making service contract for the Issuer, with Raiffeisen Bank International AG, for a 24-month term. The contract is concluded in compliance with the provisions set by Bucharest Stock Exchange on the Issuer's Market-Maker, included in BVB Code - Market Operator and envisages to increase the liquidity of company's shares.

June 20, 2023

The Board of Directors agreed on Romgaz Black Sea Limited Sole Partner decision, related to Romgaz Black Sea Limited approving, in compliance with the Joint Operating agreement for XIX Neptun Deep block, the following:

• a) Domino Structure Development Plan (geological resources and oil reserves assessment study);

• b) Pelican South Structure Development Plan (geological resources and oil reserves assessment study);

c) submission of the development plans mentioned at items a) and b) above to the National Agency for Mineral Resources.

June 21, 2023

Romgaz, through its subsidiary, Romgaz Black Sea Limited submits together with OMV Petrom SA (OMV Petrom) for confirmation to the National Agency for Mineral Resources, the Development Plan of two commercial fields in Neptun Deep Block.

June 30, 2023

Publication of Romgaz Group Sustainability Report for 2022.

July 24, 2023

In compliance with the Settlement Agreement No. 40924/03.04.2023, between Romgaz and Duro Felguera SA, the conditions precedent were fulfilled in order to settle the disputes between the parties and to create the conditions necessary to complete the remaining works at Iernut Power Plant.

July 27, 2023

The Ordinary General Meeting of Shareholders, approved by Resolution No.10 conclusion of a loan agreement between SNGN Romgaz SA (as lender) and Romgaz Black Sea Limited by Romgaz Black Sea Limited Nassau (Bahamas), Bucuresti Subsidiary (as borrower) in maximum amount of RON 2.1 billion (equivalent value of USD 454 million), to ensure the financing required by Romgaz Black Sea Limited for the period between the signing date of the loan agreement until May 2024. The interest rate shall be ROBOR 12 months + 1.74%.

The Extraordinary General Meeting of Shareholders approved by Resolution No.11 Romgaz withdrawal from the "Joint Operating Agreement referring to Bilca Gas Project Area from EIII-1 Brodina Block".

August 1, 2023

Iernut Electricity Production Branch issued the order related to the start of works for "Development of CTE Iernut by building a new combined cycle gas turbine power plant" and handed over the location to the Constructor Duro Felguera to start the works. The completion deadline is 16 months from the date of the works start order, with the possibility to extend the term, according to contractual provisions.

August 3, 2023

The development plan for Domino and Pelican Sud commercial fields was confirmed by the National Agency for Mineral Resources. This represents the starting point of the development stage, namely drilling works and building the infrastructure necessary for gas production and trading.

September 11, 2023

Romgaz Ordinary General Meeting of Shareholders approved by Resolution No.12:

•  the financial and non-financial key performance indicators resulted from the Governance Plan;

•  the annual variable component of non-executive board members remuneration;

•  the maximum limit of remuneration for managers and/or executive board members (consisting of the monthly fixed allowance and the annual variable component).

October 18, 2023

S.N.G.N. Romgaz S.A. Board of Directors approves by Resolution No.94 to set up a new advisory committee of the Board of Directors, namely the Risk Management Committee, consisting of 3 members:

•  Mr. Marius Gabriel NUT - president

•  Mr. Botond BALAZS - member

•  Mr. Razvan BRASLA - member

October 19, 2023

The Board of Directors approved by Resolution No. 93/18.10.2023, to set up the production branch Buzau - Caragele having as main business activity natural gas extraction. Buzau Branch was added on the company's organisational chart on the last days of last year, by Resolution No.1441/December 27, 2023. The branch was set up in 2024.

November 27, 2023

Company shareholders approve by Resolution No.15 correction of some errors of financial and non-financial performance indicators resulted from Romgaz Governance Plan.

December 12, 2023

Neptun Deep project records important progresses - more than 80% of main infrastructure and drilling contracts were awarded - progress recorded due to the commitments made, i.e. the award of contracts for the drilling rig and integrated drilling services, including the main contract for offshore infrastructure development concluded in August 2023 (estimated value of roughly EUR 1.6 billion, ROMGAZ BLACK SEA LIMITED interest share is 50%).

December 12, 2023

For the project "Daily withdrawal capacity increase - Bilciuresti UGS" with a total value of EUR 121,654 thousand, Depogaz Ploiesti contracted, besides the grant from the European Climate, Infrastructure and Environment Executive Agency and own sources, a bank financing in amount of EUR 50,000 thousand. The financing contract was signed with Banca Transilvania.

December 18, 2023

The Extraordinary General Meeting of Shareholders approves by Resolution No.17, the increase of S.N.G.N. Romgaz S.A. share capital with RON 3,468,801,600 by issuing 3,468,801,600 shares with a nominal value of RON 1/share, each shareholder registered on the registration day received 9 free shares for each share held. The total value of the share capital shall increase in 2024 from RON 385.422.400 to RON 3,854,224,000. The share capital was increased to support the current activity of the company.