Half Yearly Report

IDENTIFICATION DETAILS ON REPORT AND ISSUER

Half-year report according to art. 227 from Law 297/2004

Report date: August 11, 2014Name of the Company: SNGN ROMGAZ SA

Headquarter: Medias, 4 Constantin I. Motas Square, Sibiu County - Romania, 551130Telephone/fax number: 004-0269-201020 / 004-0269-846901

Fiscal Code: RO14056826

Trade Registry No: J32/392/2001

Subscribed and paid in share capital: RON 385,422,400

Regulated market where the issued securities are traded: Bucharest Stock Exchange (BVB), London Stock Exchange (LSE)

HALF-YEAR REPORT

(based on the financial statements prepared in accordance with IFRS)

REGARDING THE ECONOMIC-FINANCIAL ACTIVITY OF

SNGN ROMGAZ SA AS OF June 30, 2014

(01/01/2014 - 30/06/2014)

PRESENTATION

SNGN Romgaz SA is a natural gas producer and supplier in Romania, and its core business segments are: gas exploration and production, gas supply, underground gas storage and electric power production.

A summary of the main indicators is described below:

· EBITDA increased in the first half-year of 2014 by 26.8% as compared to the same period of 2013 (H1 2014: LEI 1,414,413 thousand; H1 2013: LEI 1,115,656 thousand);

· EPS (net profit/share) is LEI 2.26/share;

· E&P (exploration, production): Production of natural gas recorded in the first half-year of 2014 confirmed the stabilization process, such recording a value of 2,865.6 million cubic meters (100.11% of the production recorded in H1, 2013);

· Capital Expenditure amounted LEI 532.3 million, representing an increase of 50.8% as compared to the level achieved in H1 2013 (LEI 353 million);

· Revenues from the underground storage activity increased with LEI 68 million, namely by 45.49% as compared to the same period of 2013 due to the implementation of new underground storage tariffs starting from April 1st 2013, in accordance with ANRE Order NO.26/2013;

· Revenues obtained from the electric power sector amounted to LEI 163.88 million.

· All of the capital expenditure and the necessity for working capital have been financed from Romgaz's own sources.

ORGANIZATIONAL STRUCTURE

The Company currently operates through seven branches:

· Sucursala de Productie Gaze Naturale Medias;

· Sucursala de Productie Gaze Naturale Targu Mures;

· Sucursala de Inmagazinare Subterana a Gazelor Naturale Ploiesti;

· Sucursala de Interventii, Reparatii Capitale si Operatii Speciale la Sonde Medias (SIRCOSS);

· Sucursala de Transport Tehnologic si Mentenanta Targu Mures (STTM);

· Sucursala Bratislava;

· Sucursala de Productie Energie Electrica Iernut.

SHAREHOLDER STRUCTURE

The Shareholder's structure as of June 30, 2014 is as follows:

Between June 18 and 23, 2014, SC "Fondul Proprietatea" SA sold a total number of shares of 19,243,000 both on Bucharest Stock Exchange as well as on London Stock Exchange. Following such transaction SC "Fondul Proprietatea" SA continues to be an important shareholder, holding more than 10% of SNGN Romgaz SA's share capital.

BOARD OF DIRECTORS STRUCTURE MODIFICATION

On June 13, 2014, by Resolution No. 4 of the Ordinary General Meeting of Shareholders, Mr. Dumitru Chisalita was appointed as Director of SNGN Romgaz SA for a mandate valid until May 14, 2017. Mister Dumitru Chisalita was appointed for the vacancy following the resignation of Mister Eugen Dragos Doros.

By Resolution No. 6/July 30, 2014 of the Ordinary General Meeting of Shareholders, Mr. Sergiu Cristian Manea was appointed as Director of SNGN Romgaz SA for a mandate valid until May 14, 2017. Mr. Sergiu Cristian Manea was appointed for the vacancy following the resignation of Mister Adrian Constantin Volintiru.

Following the above mentioned modifications, the structure of the Board of Directors on the date of this report is as follows:

Aurora Negrut;

Virgil-Marius Metea;

Dumitru Chisalita;

Ecaterina Popescu;

Petrus Antonius Maria Jansen;

David Harris Klingensmith;

Sergiu Cristian Manea.

PHYSICAL INDICATORS

The natural gas quantities produced, supplied, injected/ withdrawn into/from the underground storages between January-June 2014, compared to the same period last year, are described in the table below:

Million cubic meters

*) does not include the gas delivered to SPEE Iernut

As compared to the previous year, gas production (extraction, deliveries) was higher than previous year. The extracted quantity was higher by 0.1% and the delivered production (including joint partnerships) increased by 11.11%, due to lower quantity injected in underground gas storages.

The quantity delivered to SPEE Iernut was higher than last year, since the power plant was taken over on February 1, 2013 and it did not deliver electric power during the first months after being taken over.

ECONOMIC - FINANCIAL INDICATORS

The individual interim financial statements of the Company have been prepared in compliance with the International Financial Reporting Standards adopted by the European Union (IFRS). For the purpose of preparing these individual interim financial statements the functional currency of the Company is considered to be the Romanian Leu (LEI). The IFRS Standards adopted by the UE differ in certain aspects from those issued by the IASB, nevertheless, the differences have no effect on the individual interim financial statements of the Company for the respective time period.

The individual interim financial statements have been reviewed by the independent auditor of the Company.

The Company income mainly comes from the natural gas sale activity (internal and import), gas underground storage services and electric power production.

The main economic - financial indicators as of June 30, 2014, as compared to the indicators referring to the same period of 2013 are described in the table below:

Summary of the interim statement of comprehensive income as of June 30, 2014

Revenue

For the first semester of 2014, SNGN Romgaz SA generated revenue of LEI 2.53 billion compared to LEI 1.9 billion generated for the first half-year of 2013, resulting in increase of the revenue by 33%.

The increase is due mainly to the increase, in absolute amount, of the revenue from sale of gas from internal production, as can be seen from the breakdown of the revenue shown below:

Detailed Breakdown of Revenue

Thousand LEI

The analysis by factors of the revenue from sale of internal production during the period January - June 2014 as compared to the revenue of the same period of 2013 is shown below:

The revenue from sale of internal production for the period January - June 2014, compared to the same period of 2013 was higher by LEI 638,077 thousand. The influences by factors are the following:

- higher production sale by 11.11 % which resulted in higher revenues from sale of internal production by LEI 153,096 thousand than in 2013. The increase of gas delivery was generated by higher demand of beneficiaries for the scope of consumption and UGS injection.

- gas sale at a higher average price by 31.69 % than in 2013, which had a positive influence on revenue increase from sale of internal production by LEI 484,981 thousand.

Revenue from underground gas storage services was highly influenced by the changes of applied underground storage tariffs starting from April 1st 2013, as shown in the table below:

Import gas delivery volumes decreased during the first half-year of 2014 compared to the same period of last year, generating less revenue by 68.84%, as shown in the "Detailed Breakdown of Revenue" table from above.  The reduction in import gas delivery volumes is due both to a decrease of gas demand on the market, as well as to provisions of ANRE Order No. 24/2013 for approval of allocation methodology for domestic gas production that is required for coverage of regulated market consumption, according to which the gas producers are no longer bound to deliver domestic gas mixed with import gas.

Revenues from electric power sale increased during the first semester of 2014 by LEI 135 million compared to 2013. This increase is due to Iernut power plant take over starting from February 1st 2013; Iernut power plant (CTE Iernut) integration within SNGN ROMGAZ SA required complex works and obtaining operation authorizations, therefore CTE Iernut started its activity at the end of the first quarter of 2013. Thus the revenues recorded by the end of H1 2013 were significantly lower than in the same period of 2014.

Cost of Commodities Sold

For the six months ended June 30, 2014, cost of commodities sold decreased by 56.10%, from LEI 302 million during the first half-year of 2013 to LEI 133 million in 2014, mainly due to a reduction in sales of imported natural gas, and influenced by an increase related to acquisition of electric power services sold to Romgaz clients.

Investment Income

For the reporting period the investment income decreased by 30%, (LEI -17.5 million), as a result of interest rate revenue decrease, driven by the reduction of interest rates of the cash placed in state bonds and term deposits.

Other revenues and losses

For the first half-year of 2014 a loss of LEI 183.2 million was generated mainly due to the set-up of an allowance for doubtful clients related to receivables in net amount of LEI 176 million. The most significant influence on the cost of allowance for doubtful clients has the allowance for Electrocentrale Galati client due to opening of the insolvency procedure by civil decision no. 603/16.06.2014 of Galati Court. Further to such event the Company recorded a full allowance related to Electrocentrale Galati receivable in amount of LEI 173.2 million on June 30, 2014 (the allowance balance on December 31, 2013 : LEI 44.7 million).

The profit generated during the first half-year of 2013 was mainly due to the profit generated by reinstatement of receivables in amount of LEI 28.9 million related to Termoelectrica, as well as to reverse of provision related to overdue receivables of Electrocentrale Bucharest, in amount of LEI 653 million, under the condition of taking over CTE Iernut in exchange for paying off such debt, reversal which, together with the loss resulting from receivables in amount of LEI 612.5 million, generated a profit of LEI 40.5 million (namely the liquidation value established by an assessor for CTE IERNUT).

Changes in Inventory

The difference between gas withdrawn from and gas injected into UGSs in the first half-year of 2014 was higher than during the first half-year of the previous year.

Depreciation and Amortization

In the six months ended June 30, 2014, depreciation, amortization and impairment expense decreased by 18.42% from LEI 449 million (June 2013) to LEI 366 million (June 2014). This decrease was due to decrease of fixed assets depreciation expense.

Employee benefit expense

For the reporting period employee salary, taxes and benefits, not taking into account the effect of allocations of employees to construction works related to Company's own investments, increased to LEI 265 million, compared to LEI 256 million in the first half-year of 2013, an increase by 3.5% mainly due to the increase in number of employees following the takeover of CTE Iernut on February 1st, 2013.

Exploration expense

For the reporting period ended June 30, 2014 the exploration expenses increased by 21.13% (LEI 3.7 million) compared to the period ended June 30, 2013, due to a larger number of abandoned exploration projects compared to the same period of 2013.

Other expenses

The breakdown by elements of costs compared with other costs is shown in the table below: thousandLEI

"Other expenses" recorded an increase of 114.29% as of June 30, 2014, from LEI 240.9 million as of June 30, 2013 to LEI 516.3 million. This increase is mainly due to the expenses with other duties and taxes, namely:

- Increase of natural gas royalty costs, as a result of natural gas sale price increase;

- Recording the tax on special construction in the amount of LEI 45.3 million;

- Introduction starting from February 1, 2013 of the additional tax on the additional revenue (windfall tax) obtained as a result of deregulation of natural gas prices, which determined an increase of expenses of LEI 158.6 million.

Other operating expenditure increased mainly due to the transportation costs incurred for gas consumed by SPEE Iernut, as well as due to the increase of environment protection expenditures.

The electric power expenses decreased in the first half-year of 2014 as compared to the similar period of the previous year due to covering the largest part of own electric power consumption from SPEE Iernut.

Other income

In the six months ended on June 30, 2014, the other income increased by LEI 64 million, increase due to applied penalties.

Income tax expense

As of June 30, 2014, the Company recorded current income tax expense in amount of LEI 233.6 million as compared to current income tax expense of LEI 147.8 million for the six months period ended June 30, 2013, the difference up to the income tax value is the deferred income tax. The current income tax expense is mainly due to the increase of results before tax during the first half-year of 2014, compared to the same period of last year.

Profit for the year

In the first half-year of 2014, the Company's net profit increased by LEI 248.6 million (39.94%) from LEI 622.39 million to LEI 870.96 million recorded in the first half-year of 2014, due to the cumulative effect of the items presented above.

Summary of Statement of interim individual financial position as of June 30, 2014

Non-current assets

The total non-current assets increased by 2.11%, i.e. LEI 132 million, from LEI 6,246 million as of December 31, 2013 to LEI 6,378 million at the end of first half-year 2014. The increase is mainly due to procurement of tangible assets used especially in gas exploration, appraisal and production activity.

Other intangible assets

Other intangible assets decreased by LEI 12.7 million in the period ended June 30, 2014, as compared to December 31, 2013, due to adjustments for impairment of intangible assets in progress.

Current assets

Current assets increased by LEI 502 million as of June 30, 2014, mainly due to the increase of cash and cash equivalent.

Inventories

The decrease by 39.48% (LEI 183 million) at the end of the reporting period is due to the decrease of the gas stock as a result of increased deliveries of gas from internal production to Romgaz clients and to SPEE Iernut, and the decrease of purchased import gas quantities.

Trade receivables and other receivables

Trade receivables decreased by LEI 514.6 million as of June 30, 2014 compared to December 31, 2013, due to adjustments for doubtful clients and to reduction of accounts receivable balance as a result of lower gas consumption during the summer months compared to winter months.

Cash and cash balances. Other financial assets

Cash, cash equivalent and other financial assets increased during the first half year of 2014 by LEI 1,168 million. This is due to the fact that in the first half-year the equivalent value of gas delivered in the first months of winter is cashed, while at the end of the year collections are related to gas delivered in the period of autumn. Statistically, the largest gas quantities are requested and delivered in the winter months.

Equity

Issued capital

Following the Resolution of GMS of April 28, 2014, the adjustment for hyperinflation was transferred to the retained earnings.

Retained earnings

Retained earnings increased mainly by the value of net profit made in the first half-year of 2014 and by the transfer of the account "Share-capital adjustments" to the retained earnings.

Non-current liabilities

Decrease of non-current liabilities by 1.56% is due to the decrease of deferred tax liabilities.

Current liabilities

Current liabilities increased by LEI 759.7 million, as compared to the beginning of the year following the resolution on payment of dividends in amount of LEI 990.6 million.

Trade and other payables

The decrease by 41.54% is mainly due to the fact that the beneficiaries of gas delivered by the Company made lower advance payments as compared to the end of the year 2013, and the fact that import quantities continued to decrease in 2014, due to lower accounts payable balances related import gas suppliers on June 30, 2014 as compared to December 31, 2013.

Current tax liabilities

Current tax liabilities decreased by LEI 91.6 million due to the reduction of the tax base.

Provisions

Provisions on short term decreased mainly due to the existence in the balance of the 2013 year-end of a provision for certificates of greenhouse gas emissions, and such certificates have been paid and used by SNGN ROMGAZ SA during 2014.

Other liabilities

Increase by LEI 950 million of other liabilities is due of payable dividends in amount of LEI 990.6 million. At the same time the VAT that is due decreased as of June 30, 2014 compared to the end of 2013, which is correlated with the decrease of trade receivables.

Summary of Statement of interim individual Cash Flows as of June 30, 2014

thousand LEI

The statement of cash flow presented below represents cash flow from January to June 2014, compared to the same period of 2013, classified as operating activities, investment and financing. Romgaz's cash flow statement is made by indirect method, whereby the net profit is adjusted by the effects of non- monetary transactions, delays or commitments in payments or cash proceeds from operating, past and future, and elements of income and expenses regarding investment and financing cash flow.

Profit before taxes reconciliation with production cash flow (before current assets are modified) has determined a net positive adjustment of 513,015 thousand lei for January-June 2014 compared to LEI 396,643 thousand for January-June 2013.

The most important movements of cash flow were gas deliveries to Romgaz Clients, payments for current assets and exploration assets of LEI 293,627 thousand according to investment plans approved by Romgaz management, and dividends of LEI 1,060,115 thousand paid to shareholders in the first semester of 2013.

INDICATORS

During January-June 2014 SNGN ROMGAZ SA complied with all its financial obligations. Also, there are no factors of uncertainty that could affect the Company's liquidity.

Attached hereto are the individual interim financial statements for the period ended on June 30, 2014, prepared in accordance with the International Financial Reporting Standards (IFRS), together with the independent auditor's report and the statement of income and expenditures as of June 30, 2014.

http://www.rns-pdf.londonstockexchange.com/rns/8337O_-2014-8-11.pdf 

CHAIRMAN of the GENERAL DIRECTOR,

BOARD OF DIRECTORS, Virgil Marius Metea

Aurora Negrut

ECONOMIC DIRECTOR,

Lucia Ionascu