High Energy Prices Propel INA to 1.3 Billion Kuna Net Profit

After losses caused by the pandemic in 2020, 2021 showed a significantly improved external environment. The easing of pandemic-related restrictions and rapid economic recovery pushed energy prices to high levels faster than expected, further strengthening the results of the INA Group.

CCS EBITDA excluding one-off items for the INA Group in 2021 amounted to 3 billion kuna, and net profit rebounded from a negative base to 1.3 billion kuna. Driven by doubled hydrocarbon prices compared to 2020, Oil and Gas Exploration and Production again made the highest contribution to results with EBITDA excluding one-off items of 2.5 billion kuna. However, the natural decline in production in mature fields remains a challenge. CCS EBITDA for Refineries and Marketing, including Customer Services and Retail, reached 0.9 billion kuna thanks to better retail results, both in the fuel segment and in the non-fuel segment.

Investment activities increased across all sectors compared to 2020, with a capital expenditure level of 1.6 billion kuna, of which approximately half was spent on Refineries and Marketing. The main strategic investment, the Rijeka Oil Refinery Upgrade Project, continues with a focus on construction work and equipment delivery to the site.

In December 2021, INA successfully issued a bond worth two billion kuna on the domestic market, creating a solid financial foundation for the intense investment cycle ahead of the company.

– “The macro environment for the oil and gas industry improved in 2021 due to the easing of restrictive measures related to the pandemic and rising hydrocarbon prices. In such an environment, Oil and Gas Exploration and Production again led the recovery in results, although the natural decline in production continues in line with the mature portfolio. Other activities further supported the results, primarily retail due to improved fuel and non-fuel sales, and partly due to the tourist season, which was better than expected.

This improvement was mainly driven by external factors and is a welcome period of relief, but INA will use it to further strengthen its position in the upcoming period. A strong investment program is underway across all sectors, and we will expand it into new areas. The challenge of natural production decline is being addressed through an intensive campaign to drill new offshore wells, which is already underway and aims to increase domestic gas production in the northern Adriatic. The Rijeka Oil Refinery Upgrade Project is crucial for the long-term sustainability of INA’s Refineries and Marketing, and it also helps the company maintain its strong position in key markets in Croatia, Bosnia and Herzegovina, and Slovenia. To ensure a strong financial position in such an investment-intensive period, INA issued a domestic bond in the amount of two billion kuna, one of the largest on the domestic corporate market.

In a time of change in the energy sector, INA is committed to diversifying its portfolio and supporting the green transition, regardless of our core business. Two new solar power plants will be built in Virje and Sisak, which is an important step for the company in green electricity production.

Oil and Gas Exploration and Production

The average price of hydrocarbons (oil and gas combined) has doubled, positively impacting sales revenue. Net sales revenue in 2021 increased compared to 2020 to 3.9 billion kuna. Higher prices positively impacted revenue growth of 1.9 billion kuna, of which increased gas prices contributed positively by 0.9 billion kuna, while a 70% higher Brent price contributed an additional 0.8 billion kuna from the sale of crude oil and condensate.

Capital expenditures increased by 38% compared to the previous year, amounting to 608 million kuna, of which 418 million kuna relates to investments in Croatia, 164 million kuna in Egypt, and 26 million kuna in Angola.

Domestic crude oil production is lower as a result of the expected natural decline in production. Regarding gas production onshore, a higher water cut in the fields of Duboka Podravina and the Međimurje area are the main reasons for lower production. Reduced offshore production is a result of temporary shutdowns on various fields where drilling campaigns were conducted to mitigate the natural decline in production, operational challenges, increased water cut, maintenance activities, and the lack of production from the Ivana-D platform.

Crude oil production in Egypt is slightly declining due to lower contributions from the East Yidma concession, while production in Angola remained at the same levels as in 2020.

Refineries and Marketing, including Customer Services and Retail – In 2021, sales in key markets improved compared to 2020, resulting in a 55% increase in net sales revenue amounting to 22 billion kuna. CCS EBITDA excluding one-off items amounts to 879 million kuna, which is a 37% increase compared to the previous year. Refinery margins remained under pressure with signs of demand recovery, while high prices of crude oil, natural gas, and CO2 negatively impacted refinery economics and results. However, the trend of rising crude oil and product prices positively affected results through inventory revaluation, and natural gas sales activities also positively contributed to results. Furthermore, a high level of operational discipline and strong efforts in managing operational costs also supported the overall results of Refineries and Marketing.

In 2021, total retail sales amounted to 1,060 kt, which is 13% more compared to 2020, resulting from market recovery and increased tourist spending, both in the fuel and non-fuel segments. Moreover, the non-fuel margin increased by 17% driven by an expanded range of products and services, an increase in the number of Fresh Corner locations, and improved sales activities.

Total capital expenditures for the activities amounted to 904 million kuna. Capital expenditures in Refineries and Marketing amounted to 794 million kuna and mostly relate to the Rijeka Oil Refinery Upgrade Project. Capital expenditures in Customer Services and Retail amounted to 110 million kuna with a focus on modernizing retail locations and implementing the Fresh Corner concept.

As of December 31, 2021, the INA Group managed a network of 504 retail locations.