EXPLORATION AND PRODUCTION
Which are the major projects within the area of oil and gas exploration and production in Croatia?
Being one of Croatia’s major investors, INA continues exploration activities on its concessions. Numerous potential opportunities suitable for further development program activities were recognized in Continental Croatia and significant efforts were invested in exploration activities project preparation and according to that detailed working plans for those areas. In 2013 gas production started on Bilogora onshore and Ika B3 offshore fields. Within Croatia onshore exploration five wells were drilled and activities on tight gas reservoirs exploration started. Croatia offshore exploration was continued and two wells were drilled.
Which are the major projects within the oil and gas exploration and production areas abroad?
INA participates in exploration activities in Egypt from 1989 and oil production started at 1994. Exploration activities resulted with the discovery of oil fields Sidi Rahman and Rizk. INA holds interests in four development concessions in Western Desert and one exploration concession in Nile Delta of Egypt. At the end of 2012 INA redeemed additional 50% shares from RWE Dea AG and became 100% operator on East Yidma concession in Western Desert. As RWE Dea Nile GmbH partner, INA entered with 50% share exploration area of concession Disouq.
In Angola INA participates in exploration activities and oil production on offshore Block 3 since 1980. INA and partners 2005 accepted national operator offer to continue production on Block 3 and to continue exploration activities at the rest of that block. In Angola INA participates in development and production on three concessions.
In Syria INA participated in exploration and production activities on Aphamia and Hayan blocks with peak production in 2011. In compliance with the Croatian Government Decision concerning restrictive measures against the Syrian Arab Republic INA announced force majeure in February 2012 and temporarily suspended all business activities in Syria until further notice, i.e. until the „force majeure“ circumstances cease to exist.
INA is present abroad also via its subsidiary companies, the members of INA Group
What is EOR project? In the world oil business practice the mitigation of the natural decline effect in the production of oil and gas is more prevalent as well as revitalization of an old and partially depleted reservoirs.
A method that has the largest application is the injection of carbon dioxide into oil reservoirs. INA's EOR project will be the first case of the application of tertiary methods in Croatia.
It is one of the INA's most important investment projects in the continental Croatia. The project objective is the extraction of additional hydrocarbon on the Žutica and Ivanić oil field. The project has also an environmental dimension, as it imprinted significant amounts of CO2 into the underground thus reducing emissions into the air. Planned project envisages the construction of system of gas pipelines, power line and signal cables for underground injection of CO2 in the soil layers on the existing production wells. Within the project, apart from the existing 85 kilometers long pipeline from the INA Molve fields to the Ivanić and Žutica INA's fields, another 56 kilometers of new pipeline as well as two compressor stations will be built. Contracts for the EOR project were signed in May 2012.
INA plans to invest more than HRK 500 million until 2015 and further investments are predicted until 2022. Until now HRK 200 million are invested in preparation project phase (from 2006 until 2010). Through 24 years that this method will be applied on mentioned exploitation fields it is planned to produce additional 3,4 million tons of oil and 500 million cubic meters of gas by EOR project.
During previous years, the construction works were in a full swing thus, after the test injection, this year we expect the first hydrocarbon quantities produced by this method.
In recent years comprehensive refinery’s systems development program was implemented which enables Euro V fuel production according to current EU quality standards. These fuels are a part of INA’s efforts and activities in environment protection, exhaust gas emissions reduction and air quality improvement. More than 5 billion HRK has been invested in INA Refinery System Development in the last several years. In Rijeka Oil Refinery three process facilities have been constructed: Hydrocracking complex setting – Mild Hydrocracking, hydrogen production and sulphur extraction. Facilities from first phase consist of hundreds of smaller units and enables Croatia citizens use of fuels according to the highest European standards. In the Sisak Oil Refinery three facilities have also been completed the sulphur extraction plant (the so called Claus plant), the hydro-desulphurization plant FCC and the Isomerisation Plant. By putting Claus plant and hydro-desulphurization plant FCC into operation in Sisak Refinery emission of sulphur compounds was significantly reduced and air quality was improved.
Sisak Refinery has a possibility of production of diesel fuels with bio component from mid-2013 and same year in September a system of additional wastewater treatment KROFTA was put into operation.
In February 2014 contract on basic design on delayed coking unit for Rijeka Refinery with company Bechtel Hydrocarbon Technical Solutions (BHTS) was signed, and same year in April installation of new coke chambers was carried out at the Coking plant in Sisak Refinery .
Which are the features of the EURO V quality fuel?
EURO V fuels are available on all INA's filling stations and emphasis on product quality is continued by Class fuels production – high-quality fuels with less than 10 mg/kg of sulphur produced in Croatian refineries. These are EURO V fuels with additives which improve car driveability, extends car lifetime and increases engine power.
INA Class fuels are based on high quality and on market already recognized Eurosuper BS 95 and Eurodiesel BS fuels, which meet the European standards EN 228 requirements for gasoline and EN 590 requirements for diesel fuels, i.e. EURO V requirements. By its treatment with selected high quality additives available on the market better quality of application and greater fuel efficiency will be achieved.
INA Class fuels are produced from the highest quality petroleum derivatives produced in modern refineries’ technological facilities and by adding multifunctional additives. Multifunctional additives treatment of unleaded petrol and diesel fuels improves fuel quality and driveability. Positive effects of additives are extended engine lifetime, ensured optimum lubricity, reduced gas emissions, improved combustion and reduced wear of engine parts.
INA Class fuels are designed for all vehicles, regardless of their year of production.
What is Blue concept project?
At the end of 2010 INA started Blue concept project for retail network modernization. First reconstructed filling station was opened in June 2011. Blue concept creates modern stations with new visual identity, measuring devices, excellent technical equipment, extended consumer goods assortment and even better service level. Until now, 161 filling stations were modernized around Croatia, top quality Class fuels and diesel fuel with bio component were introduced to the market. By this project INA built the biggest modern retail network in Croatia.
What is Entrepreneurs’ model?
Based on the success of the pilot phase that was launched at twenty INA’s filling stations INA is continuing with the project and is looking for new partners for management of INA’s filling stations. In this operational model the company retains ownership of all retail assets including concessions, properties, buildings, infrastructure and goods, and the entrepreneur manages those resources, as well as its petrol station team for a fee according to agreement made with INA. This is usual model in oil industry that many oil companies in the world apply for decades and it has positive impact on retail network management quality and increases its competiveness. Project was started with a goal of giving an opportunity to potential entrepreneurs to build their own company, with strong INA’s support and sharing INA’s success. We believe that this gives significant boost to development of local entrepreneurship, improves service quality for customers and improves offer that can be adjusted to specific local needs. INA will assist the selected candidates in setting up of their own company and organization of successful business. With INA’s support, entrepreneurs are expected to take over the management of the filling stations, which will remain owned by INA and operated under INA’s brand. During the selection of future partners, priority will be given to applicants with experience in retail and to the ones with knowledge of INA’s system
Does the oil barrel price affect the retail price of oil derivatives?
The oil barrel price on the global market is not taken as a parameter for setting retail prices on the Croatian market, but instead, average price of derivatives on the Mediterranean market is taken. However, the immediately trends of oil prices affects the trends of oil derivatives prices and thus the prices on the Mediterranean market.
How is LPG price formulated?
The LPG price is formulated on the basis of average mean stock exchange quotation on the Mediterranean market, which represents a basis for the calculation of selling prices and the Croatian National Bank's average middle exchange rate for the dollar, in accordance with the Regulations on Setting the Prices for Liquefied Petroleum Gas, prescribed by the Ministry of Economy, Labor and Entrepreneurship.
According to the said Regulations, the LPG price consists of the basis for calculation of selling prices, variable costs for the product depending on its type, purpose and method of delivery, and costs for retail and wholesale trade.
According to paragraph 7 of mentioned Regulation, the LPG price for Otto motors on fuel stations on highways between payment tolls are formed freely and they are not the subject of the mentioned Regulation.
What is liquefied petroleum gas (LPG) and where is it used?
The commercial propane-butane gas is a mixture without color, taste or odor. It is not toxic, but in the case of high concentration, it reduces the levels of oxygen in the room. For easier use and transport, it is liquefied under increased pressure and placed in special vessels (bottles or containers). LPG is more and more used for different purposes, from households and industry to cars as a replacement and low-cost fuel. As an energy-generating product, LPG has outstanding ecological properties. Through direct combustion, without smoke, ash, tar or unpleasant odor and the absence of sulphur compounds, LPG contributes to reducing acid rains and other products of harmful gas emissions.
What are INA's financial results for the year 2014?
INA Group operating profit excluding special items in 2014 amounted to HRK 523 million while EBITDA excluding special items amounted to HRK 2.699 million. Net profit (excl. special items) amounted to HRK 344 million. Investments reached HRK 1,691 million, focused mainly in Croatia;primarily in the Upstream.
In order to compensate the effect of adverse regulatory changes, measures have been made resulting in the further improvement of already stable financial position, decreasing net debt by further 37% to the level of HRK 2,991 million and net gearing to 20.4%, compared to 27.0% at the end of 2013.
Reported operating results were impacted by further impairment of Syrian assets of HRK 1.6 billion not having direct cash effect, but applied in accordance with previous good business practice, as well as significant Brent drop, and HRK 395 impairment in the Downstream. Also, retroactive refinery taxes (for 2010 and 2011) burdened the results with additional HRK 325 million in 2014. The costs of impairment, however, are an expenditure that is not tax deductible in accordance with the Profit Tax Act.
It should also be emphasized that negative regulatory decisions had a significant and on-going negative effect on upstream operations. The combined effect of forced gas sale, regulated gas price reduction, and doubled royalty on the result reached more than HRK 750 million. Consequently realized hydrocarbon prices decreased and were also influenced by considerable Brent price drop in the second half of the year.
Exploration & Production’s constant efforts in compensating the natural decline have resulted in crude oil production increase, for the first time in more than a decade; with a 5% improvement compared to 2013. Furthermore Upstream hydrocarbon production rose significantly by 5 mboepd (million barrel oil equivalent per day) in the last quarter partly due to successful development activities both on- and off- shore.
Refining & Marketing made efforts to increase productivity and INA’s market position, but the performance was impacted by sustained tight European refining macro environment and the impact of prolonged economic slowdown in Croatia and INA’s other key markets, resulting in lower sales volumes. In spite of these negative impacts the retail sales domestically remained rather stable.
Despite the considerable challenges caused by regulatory changes as well as a significant drop in oil and gas prices, INA increased operating profit adjusted for inventory effects and special items by 15%, while further strengthening its financial position.
Key achievements in 2014:
• INA Group net profit (excl. special items) amounted to HRK 344 million
• net debt decreased by further 37% to the level of HRK 2,991 million and net gearing to 20.4%, compared to 27.0% at the end of 2013
• significant investment level of HRK 1,691 million
• 5% crude oil production increase, first in more than a decade
Which were the most important INA’s investment projects in 2014 and and what are the future plans in this regard?
With capital investments amounting to HRK 1,691 million, INA Group maintained its position of one of the leading investors in Croatia in 2014. Majority of investments were realized in the Exploration and Production of oil and gas business division; HRK 899 million invested in Croatia, and HRK 149 million invested abroad. In regard with future plans, INA is continuing with intense on-shore drilling campaign, while the focus will also be on new exploration and exploitation projects on Northern Adriatic and abroad.
Refining and marketing business division’s investment amounted to HRK 314 million in 2014. An important project, the Turnaround in Refinery Sisak, which included the installation of new coke chambers, was finished in Q4. Numerous projects relating to logistic infrastructure were continued. On-going is the implementation of projects regarding the environment protections and efficeincy improvement in Sisak and Rijeka refineries, as well as the preliminary activities for the residue upgrade project in Rijeka Refinery.
Retail capital expenditures in 2014 amounted to HRK 156 million. The major part of realization consisted of start of Knock-down Rebuilds in Bosnia and Herzegovina and intensive program of modernization in Croatia within the “Blue concept” project, within which 182 petrol stations were modernizied. In 2015 INA remains committed to continuation of modernization and further service improvements in its retail business.
How is INA’s social responsibility sustained within the community in which it conducts business?
INA’s way of conducting business is concentrated on creating benefits for the local communities and the society as a whole. Moreover we strive to develop a good collaboration with our stakeholders. We have developed a tradition of infrastructure financing for decades, particularly in the areas where INA has conducted oil and gas exploration and production. Building of schools, hospitals, health care institutions and resorts has been financed. INA helps communities in humanitarian, cultural, educational, sports, environmental, health care and scientific projects by donations and sponsorships and invests in a range of non-profitable activities valuable in terms of the overall quality of life.
In business a great deal of attention is devoted to health and safety protection, environmental protection as well as law and customs compliance within our business areas. The guidelines comprising our approach to work, towards our business co-workers and partners are defined in the Code of Business Conduct and Ethics.
INA d.d. is a member of the United Nations Global Compact, the largest framework encouraging businesses to adopt corporate social responsibility. By implementing the Ten Principles of the Global Compact , INA supports and promotes in its operation the basic social values from the areas of human rights, labour rights, environmental protection and anti-corruption. We regularly annually inform our stakeholders about our progress within the area of social responsibility and we are also part of the global network communication Communication on Progress.
How does INA choose the projects to support?
When choosing projects which it will sponsor or to which it will contribute by donations INA, d.d. is primarily guided by the criteria of the project’s high level of benefit for the wider community and the society needs. We seek out to offer help and support to both children and young people, individuals with special needs, scientific, innovative and cultural projects, projects that contribute to health and environmental protection and development, sports professionals and non-professionals alike as well as projects important for the local communities within which INA operates.
What kind of employees does INA seek?
Considering the size and complexity of the company and the broad range of our activities, we need employees of different professions and education. We are aware that every successful company story is based on work, entrepreneurship and creativity of the employees. The point of investment is not only to invest into technologies and innovations, but also into competence development systems which will create the environment in which every individual would have the opportunity to show his or her talents, skills and ideas.
From its employees, INA requires maximum commitment, taking initiative and risks, adjusting to changes, decision-making, cooperation and teamwork, quick information exchange, trustworthiness, respecting consumers, suppliers and colleagues, assuming responsibility and participating in joint actions, monitoring performance...
Our managers' most important duty is to facilitate maximum development and use of human potential as the principal resource and source of INA's competitive advantage.
Within its business activities, INA pays particular attention to education and professional training of its employees at all levels. To this end, it cooperates with educational institutions which meet the highest standards, and hires and develops an increasing number of internal educators who, owing to their experience, knowledge of the organization and competences, deliver high-quality, structured trainings.