Interview
Considering all the limiting factors for business, which have been transferred from the previous year to the beginning of 2023, we must be satisfied with the achieved results of NIS in the first quarter of this year when it comes to financial achievements and operational indicators. The financial results are weaker than those from the same period in 2022, but this is expected because we compare with a very specific period in which oil prices were also record-high, and in addition, there was an increase in demand, said Mr Anton Cherepanov, financial director of NIS in an interview for Biznis Magazine.
On what characterized the business conditions of NIS in the first quarter of this year and what challenges they faced, the financial director of NIS says:
This quarter, as well as last year, we operate in complex market conditions. First of all, there is a matter of high volatility and uncertainty of oil prices in the world market. In addition, we are facing the announcements of a recession or, at the very least, the stagnation of the global economy this year, which makes macroeconomic opportunities complex. This is also transferred to the oil and petroleum products market in the world, and when it comes to Serbia and some other countries, there are still certain restrictions regarding the regulation of prices on the market.
How much do these restrictions affect the operations of NIS?
It is best, of course, that prices on the market are regulated by supply and demand, but special economic circumstances imposed restrictions. In Serbia, for example, a ban on the export of diesel was in force at the beginning of the year, but the measure was cancelled in the meantime.
But when we talk about the situation on the global market, it is known that in the first quarter of this year there was a drop in oil prices compared to the same quarter of the previous year. Average prices are 20% lower compared to the first quarter of 2022, for Brent type oil. Additionally, the consumption of motor fuels decreased by about 2.5 percent in Serbia, as well as in Bosnia and Herzegovina, Bulgaria, Hungary… This decline was expected because due to increased consumption last year, large supplies were created, which increased consumption. Simply put, people feared potential shortages and made supplies.
How is market stability ensured under such conditions?
For us, one of the priorities is to guarantee the orderly supply of the market with all types of petroleum products, i.e. to make a full contribution to Serbia’s energy stability. For example, in the Pančevo Oil Refinery (RNP), we processed 956 thousand tonnes of crude oil and semi-finished products, which is a better result than the one achieved in the first quarter of 2022. Furthermore, one of our priorities is the social stability of our employees and we have succeeded in that.
As you mentioned, in the first quarter of this year, the NIS Group recorded a decline in the production of oil and gas and a decrease in the sales volume of petroleum products. How do you interpret that?
Yes, production is down three percent compared to the first quarter of 2022, but we have fulfilled the plans we set for the first quarter of this year. Namely, this decline in production is quite understandable considering the fact we are working in Serbia on oil and gas fields that are in the mature phase of exploitation and where significant investments are needed. Based on that, we have made plans that we are implementing – in the first quarter of this year, we drilled 15 and put 10 development wells into operation. As before, NIS Group invests significant funds in the field of exploration and production of oil and gas in order to preserve the current level of production.
Of the total invested RSD 6.5 billion in the first quarter, we invested RSD 5 billion in research and production. In addition, we are implementing other projects, including the procurement of two new drilling rigs that will provide more flexibility and speed.
Does this mean that there is more oil and gas in the deposits in Serbia?
We also implement various projects in the Velebit and Iđoš fields and expect these fields to bring us stability in the production of oil and gas in Serbia for a longer period of time in the upcoming years. But, apart from Serbia, we also carry out research in Romania and Bosnia and Herzegovina and we will see what results we will achieve in the concessions we have there.
In any case, in the upcoming period, we will also have significant investments in this segment of business that constitutes our core business.
What are the expectations of these investments, especially from the exploration of oil and gas production?
At the beginning of this year, NIS started a new major investment cycle. We plan to double the amount from last year when we invested more than RSD 20 billion. These investments will lay the foundation for the further development of the NIS Group in the upcoming period, but they will also contribute to the development of the domestic economy. As we have already mentioned, we will invest in our core business but also in projects in the field of energy.
It is important to us that the market is regularly supplied with all types of fuel, that we have contributed to stability, and that NIS is the only one that guarantees a discounted price of fuel for agriculturists. And to make all this happen, we continue to work on modernising our retail network and services and that is one of the priorities of our new investment cycle.
In addition, we plan projects and investments in the field of petrochemicals, i.e. strengthening synergies with the petrochemical sector. We will have significant investments in environmental projects because we want to contribute to the improvement of environmental protection in Serbia. Moreover, an important area for further investments is the digitization of NIS at all levels, because the digitization of the process will allow us to work more efficiently, faster, and safer.
In any case, this investment cycle is a new phase in our development, which will lay the foundations for the long-term stability of the company, but also for the economy of the entire country, because NIS is among the leading domestic investors, exporters, and employers.
What will be the supply of petroleum products to the market this year, given the limitations in which your industry operates?
Our company has shown both last and this year that it can effectively respond to a number of challenges and ensure market stability. In the field of oil refining, we are already achieving record-high results: the modernized Pančevo Oil Refinery (RNP) refined about 4.4 million tonnes of oil last year, which is a record in the entire history of the refinery’s existence. These results, which we achieve in the field of refining, are a guarantee of the continuation of such business in 2023 as well.
We continue to further increase the efficiency of refining in the Pančevo refinery and to modernize our plants, because constant modernization has brought us important results in practice. Just look at the example of the bottom-of-the-barrel plant – it was commissioned in 2020 and it allows us to produce a larger amount of the most valuable fuels of the highest quality, primarily diesel.
We should not forget about investing in the gas power plant CCPP Pančevo, which we put into operation last year. This plant produces electricity that we sent to the domestic distribution system, by which NIS also contributed to Serbia’s electricity security, which was one of the priority issues in 2022.
What do you see as the biggest challenges for business in the upcoming months and until the end of 2023?
The biggest challenge will certainly be the volatility of prices. In addition, any global recession would negatively affect the consumption of oil and petroleum products, and the current geopolitical situation is a major challenge for doing business this year. But NIS has proven to be a safe fuel supplier for Serbia in previous years. This year, we will continue with the same market supply policy – this is our strategy and main obligation.
At the same time, we will also follow the policy of Serbia towards further regulation of fuel prices. So far, everything is going in the right direction and everything that happens in that respect is quite balanced.
In short, we consider and prepare for every possible scenario and will be ready to react in the event of any market disruption.
