S.N.G.N. ROMGAZ S.A. GROUP

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2023

PREPARED IN ACCORDANCE WITH

THE ORDER OF THE MINISTRY OF PUBLIC FINANCE 2844/2016

CONTENTS:	PAGE:
Statement of consolidated comprehensive income	1
Statement of consolidated financial position	2
Statement of consolidated changes in equity	4
Statement of consolidated cash flow	5
Notes to the consolidated financial statements	7
1. Background and general business	7
2. Significant accounting policies	7
3. Revenue and other income	19
4. Investment income	20
5. Cost of commodities sold, raw materials and consumables	20
6. Other gains and losses	20
7. Depreciation, amortization and impairment expenses	21
8. Employee benefit expense	21
9. Finance costs	21
10. Other expenses. Taxes and duties	22
11. Income tax	22
12. Property, plant and equipment	25
13. Exploration and appraisal for natural gas resources	27
14. Intangible assets. Right of use assets	28
15. Inventories	29
16. Accounts receivable	29
17. Share capital. Earnings per share	31
18. Provisions	31
19. Deferred revenue	33
20. Trade and other current liabilities	34
21. Financial instruments	35
22. Related party transactions and balances	38
23. Information regarding the members of the administrative, management and supervisory bodies	38
24. Investment in associates	40
25. Other financial investments	41
26. Segment information	42
27. Cash and cash equivalents	45
28. Interest bearing borrowings	45
29. Other financial assets	45
30. Commitments undertaken	46
31. Commitments received	46
32. Contingencies	46
33. Joint arrangements	47
34. Auditor’s fees	47
35. Events after the balance sheet date	48
36. Approval of financial statements	48

	Note		Year ended December 31, 2023		Year ended December 31, 2022
			'000 RON		'000 RON
Revenue	3		9,001,878		13,359,653
Cost of commodities sold	5		(107,130)		(183,578)
Investment income	4		213,008		176,979
Other gains and losses	6		(17,748)		(9,441)
Net impairment gains/(losses) on trade receivables	16		(57,546)		(55,166)
Changes in inventory of finished goods and work in progress			(5,767)		(2,197)
Raw materials and consumables used	5		(109,441)		(118,037)
Depreciation, amortization and impairment expenses	7		(476,568)		(550,076)
Employee benefit expense	8		(914,054)		(846,001)
Taxes and duties	10 b)		(1,495,473)		(6,954,380)
Finance cost	9		(62,003)		(27,295)
Exploration expense	13		(84,640)		(59,714)
Share of profit of associates	24		4,873		2,350
Other expenses	10 a)		(944,191)		(658,916)
Other income	3		122,264		80,068
Profit before tax			5,067,462		4,154,249
Income tax expense	11		(2,255,353)		(1,607,537)
Profit for the year			2,812,109		2,546,712

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Actuarial gains/(losses) on post- employment benefits	18 c)		(10,970)		15,839
Income tax relating to items that will not be reclassified subsequently to profit or loss	11		1,755		(2,534)
Total items that will not be reclassified subsequently to profit or loss			(9,215)		13,305
Other comprehensive income for the year net of income tax			(9,215)		13,305
Total comprehensive income for the year			2,802,894		2,560,017
Basic earnings per share	17 b)		0.0073		0.0066
Diluted earnings per share	17 b)		0.0073		0.0066

These financial statements were endorsed by the Board of Directors on March 22, 2024.

Răzvan Popescu		Gabriela Trânbițaș
Chief Executive Officer		Chief Financial Officer

	Note		December 31, 2023		December 31, 2022
			'000 RON		'000 RON
ASSETS
Non-current assets
Property, plant and equipment	12		5,891,788		5,039,314
Intangible assets	14 a)		5,135,930		5,140,425
Investments in associates	24		33,410		28,537
Deferred tax asset	11		324,175		199,016
Right of use asset	14 b)		11,596		8,766
Other financial investments	25		5,616		5,616
Total non-current assets			11,402,515		10,421,674
Current assets
Inventories	15		301,690		284,007
Trade and other receivables	16 a)		1,398,953		1,373,664
Contract costs			-		3
Other financial assets	30		2,505,463		99,597
Other assets	16 b)		321,799		265,232
Cash and cash equivalents	27		535,210		1,883,882
Total current assets			5,063,115		3,906,385
Total assets			16,465,630		14,328,059
EQUITY AND LIABILITIES
Equity
Share capital	17 a)		385,422		385,422
Reserves			4,971,109		3,579,274
Retained earnings			6,204,783		6,111,869
Total equity			11,561,314		10,076,565
Non-current liabilities
Retirement benefit obligation	18		189,314		168,830
Deferred revenue	19		370,941		230,419
Lease liabilities			10,450		7,499
Borrowings	28		808,373		1,125,534
Provisions	18		373,536		210,838
Total non-current liabilities			1,752,614		1,743,120

	Note		December 31, 2023		December 31, 2022
			'000 RON		'000 RON
Current liabilities
Trade payables	20		146,111		110,006
Contract liabilities			153,723		263,340
Current tax liabilities	11		1,766,637		1,177,498
Deferred revenue	19		7		11
Provisions	18		121,732		321,489
Lease liabilities			2,579		2,181
Borrowings	28		323,349		321,581
Other liabilities	20		637,564		312,268
Total current liabilities			3,151,702		2,508,374
Total liabilities			4,904,316		4,251,494
Total equity and liabilities			16,465,630		14,328,059

These financial statements were endorsed by the Board of Directors on March 22, 2024.

Răzvan Popescu		Gabriela Trânbițaș
Chief Executive Officer		Chief Financial Officer

STATEMENT OF CONSOLIDATED CASH FLOW

	Year ended December 31, 2023		Year ended December 31, 2022
	'000 RON		'000 RON
Cash flows from investing activities
Bank deposits set up and acquisition of state bonds	(6,184,938)		(3,355,306)
Bank deposits and state bonds matured	3,790,236		3,669,504
Interest received	201,844		181,067
Proceeds from sale of non-current assets	1,684		1,033
Acquisition of non-current assets	(1,141,956)		(5,529,611)
Acquisition of exploration assets	(50,746)		(96,500)
Net cash (used in)/generated by investing activities	(3,383,876)		(5,129,813)
Cash flows from financing activities
Borrowings received	-		1,606,475
Repayment of borrowings	(322,775)		(158,907)
Dividends paid	(1,317,745)		(1,463,984)
Repayment of lease liability	(2,955)		(1,936)
Grants received (note 19)	140,541		-
Net cash used in financing activities	(1,502,934)		(18,352)
Net increase/(decrease) in cash and cash equivalents	(1,348,672)		(1,696,530)
Cash and cash equivalents at the beginning of the year	1,883,882		3,580,412
Cash and cash equivalents at the end of the year	535,210		1,883,882

These financial statements were endorsed by the Board of Directors on March 22, 2024.

Răzvan Popescu		Gabriela Trânbițaș
Chief Executive Officer		Chief Financial Officer

1. BACKGROUND AND GENERAL BUSINESS

Information regarding S.N.G.N. Romgaz S.A. Group (the “Group”)

The Group is formed of S.N.G.N. Romgaz S.A. (”the Company”/"Romgaz"), as parent company, and its fully owned subsidiaries S.N.G.N. ROMGAZ S.A. - Filiala de Înmagazinare Gaze Naturale DEPOGAZ Ploiești S.R.L. (“Depogaz”) and Romgaz Black Sea Limited.

Romgaz is a joint stock company, incorporated in accordance with the Romanian legislation.

The Company’s headquarter is in Mediaş, 4 Constantin I. Motaş Square, 551130, Sibiu County.

The Romanian State, through the Ministry of Energy, is the majority shareholder of S.N.G.N. Romgaz S.A. together with other legal and physical persons (note 17).

The Group has as main activity:

1. geological research for the discovery of natural gas, crude oil and condensate reserves;

2. operation, production and usage, including trading, of mineral resources;

3. natural gas production for:

· ensuring the storage flow continuity;

· technological consumption;

· delivery in the transmission system.

4. underground storage of natural gas provided by Depogaz;

5. commissioning, interventions, capital repairs for wells equipping the deposits, as well as the natural gas resources extraction

wells, for its own activity and for third parties;

6. electricity production and distribution.

2. MATERIAL ACCOUNTING POLICIES

Statement of compliance

The consolidated financial statements (“financial statements”) of the Group are prepared in accordance with Ministry of Finance Order 2844/2016, with subsequent amendments, to approve accounting regulations in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (MOF 2844/2016). MOF 2844/2016, with subsequent amendments, is in accordance with the IFRS adopted by the European Union.

For the purpose of the preparation of these financial statements, the functional currency of the Group is deemed to be the Romanian Leu (RON).

Basis of preparation

The financial statements are prepared on a going concern basis. The principal accounting policies are set out below.

Accounting is kept in Romanian and in the national currency. Items included in these financial statements are denominated in Romanian lei. Unless otherwise stated, the amounts are presented in thousand lei (thousand RON).

Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 “Inventory” or value in use in IAS 36 “Impairment of assets”.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance to the Group of the inputs to the fair value measurement, which are described as follows:

• level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date;

Joint operations

The Group recognizes in relation to its interest in a joint operation:

• its assets, including its share of any assets held jointly;

• its liabilities, including its share of any liabilities incurred jointly;

• its revenue from the sale of its share of the output arising from the joint operation;

• its share of the revenue from the sale of the output by the joint operation; and

• its expenses, including its share of any expenses incurred jointly.

As joint operator, the Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.

If the Group participates in, but does not have joint control of, a joint operation it accounts for its interest in the arrangement in accordance with the paragraphs above if it has rights to the assets, and obligations for the liabilities, relating to the joint operation.

If the Group participates in, but does not have joint control of, a joint operation, does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it accounts for its interest in the joint operation in accordance with the IFRSs applicable to that interest.

Standards and interpretations valid for the current period

The following standards and amendments or improvements to existing standards issued by the IASB and adopted by the EU have entered into force for the current period:

• Amendments to IAS 12 “Income taxes: Deferred Tax related to Assets and Liabilities arising from a single transaction” (effective for annual periods beginning on or after January 1, 2023);

• Amendments to IAS 12 “Income taxes: International Tax Reform – Pillar Two Model” (effective for annual periods beginning on or after January 1, 2023);

• Amendments to IFRS 17 “Insurance Contracts: initial application of IFRS 17 and IFRS 9 - comparative information” (applicable to annual periods beginning on or after January 1, 2023);

• Amendments to IAS 1 “Presentation of Financial Statements” and IFRS Practice Statement 2: Disclosure of Accounting policies (effective for annual periods beginning on or after January 1, 2023);

• Amendments to IAS 8 “Accounting policies, Changes in Accounting Estimates and Errors” – Definition of Accounting Estimates (effective for annual periods beginning on or after January 1, 2023);

• IFRS 17 “Insurance Contracts” including Amendments to IFRS 17 (effective for annual periods beginning on or after January 1, 2023). The Group does not issue contracts in scope of IFRS 17, thus the financial statements are not impacted by this standard.

The adoption of these amendments, interpretations or improvements to existing standards has not led to changes in the Group's accounting policies. The Group management has reviewed the disclosures of accounting policies through the lens of IAS 1 Amendments and concluded no significant changes are required

Standards and interpretations issued by IASB not yet endorsed by the EU

At present, IFRS endorsed by the EU do not significantly differ from IFRS adopted by the IASB except for the following standards, amendments or improvements to the existing standards and interpretations, which were not endorsed for use in the EU as at date of publication of financial statements:

• Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Supplier Finance Arrangements (effective for annual periods beginning on or after January 1, 2024);

• Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability (applicable to annual periods beginning on or after 1 January 2025).

The Group is currently evaluating the effect that the adoption of these standards, amendments or improvements to the existing standards and interpretations will have on the financial statements of the Group in the period of initial application.

Standards and interpretations issued by IASB and adopted by the EU, but not yet effective

At the date of issue of the financial statements, the following standards were adopted by the EU, but not yet effective:

• Amendments to IAS 1 “Presentation of Financial Statements” – Classification of Liabilities as Current or Non-current; Classification of Liabilities as Current or Non-current - Deferral of Effective Date; Non-current Liabilities with Covenants (effective for annual periods beginning on or after January 1, 2024);

• Amendments to IFRS 16 “Leases” – Lease liability in a sale and leaseback (applicable to annual periods beginning on or after 1 January 2024).

The Group did not adopt these standards and amendments before their effective dates. The Group does not expect these amendments to have a material impact on the financial statements.

Segment information

The information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on the upstream segment, gas storage, electricity production and distribution, and other activities, including headquarter activities. The Directors of the Group have chosen to organize the Group around differences in activities performed.

Specifically, the Group is organized in the following segments:

• upstream, which includes exploration activities, natural gas production and trade of gas extracted by Romgaz or acquired from domestic production or import, for resale; these activities are performed by the head office, Mediaș and Mureș branches and subsidiary Romgaz Black Sea Limited;

• storage activities, performed by subsidiary Depogaz;

• electricity production and distribution activities, performed by Iernut branch;

• other activities, such as technological transport, operations on wells and corporate activities.

Transactions between the companies within the Group are at current market prices. Unrealized profits are eliminated in the financial statements.

Gas and electricity deliveries between Group’s segments within the same company are accounted for at market prices or at regulated prices, as the case may be. All other transactions between Group’s segments within the same company are at cost.

Revenue recognition

a)         Revenue from contracts with customers

The Group recognizes customer contracts when all of the following criteria are met:

• the parties to the contract have approved the contract and are committed to perform their respective obligations;

• the Group can identify each party’s rights regarding the goods or services to be transferred;

• the Group can identify the payment terms;

• the contract has commercial substance;

• it is probable that the Group will collect the consideration to which it will be entitled in exchange for the goods delivered or the services provided.

Revenue from contracts with customers is recognized when, or as the Group transfers the goods or services to the customer, respectively, the client obtains control over them.

Depending on the nature of the goods or services, revenues are recognized over time or at a point in time.

Revenue is recognized over time if:

• the customer receives and consumes simultaneously the benefits provided by obtaining the goods and services as the Group performs the obligation;

• the Group creates or enhances an asset that the customer controls as the asset is created or enhanced;

• the Group’s performance does not create an asset with an alternative use to the Group.

All other revenues that do not meet the above criteria are recognized at a point in time.

For revenue to be recognized over time, the Group assesses progress towards meeting the execution obligation, using output methods or input methods, depending on the nature of the good or service transferred to the client. Revenues are recognized only if the Group can reasonably assess the result of the execution obligation or, if it cannot be estimated, only at the level of the costs it is expected to recover from the customer.

Revenue from contracts with customers mainly relates to gas sales and related services, electricity supply and related services, storage services. Revenue from these contracts are recognized at a point in time on the basis of the actual quantities at the prices fixed in the contracts concluded.

Contracts concluded by the Group do not contain significant financing components.

a)         Other revenue

Rental revenue for operating lease contracts where the Group operates as lessor is recognized on an accrual basis in accordance with the substance of the relevant agreements.

Interest income is recognized periodically and proportionally as the respective income is generated, on accrual basis.

Dividends are recognized as income when the legal right to receive them is established.

Contract liabilities

Contract liabilities are an obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration, or the Group has a right to an amount of consideration that is unconditional (ie. a receivable), before the Group transfers the good or service to the customer, the Group presents the contract as a contract liability when the payment is made or the payment is due (whichever is earlier).

Exploration expenses

The costs of seismic exploration, geological, geophysical and other similar exploration activities are recognized as exploration expenses in the statement of comprehensive income in the period in which they arise.

Exploration expenses also include the carrying value of exploration assets that have not identified gas resources and have been written-off.

Foreign currencies

The functional currency is the currency of the primary economic environment in which the Group operates and is the currency in which the Group primarily generates and expends cash. The Group operates in Romania and it has the Romanian Leu (RON) as its functional currency.

In preparing the financial statements of the Group, transactions in currencies other than the functional currency (foreign currencies) are recorded at the exchange rates prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date.

Exchange differences are recognized in the statement of comprehensive income in the period in which they arise.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

Employee benefits

Benefits granted upon retirement

In the normal course of business, the Group makes payments to the Romanian State on behalf of its employees at legal rates. All employees of the Group are members of the Romanian State pension plan. These costs are recognized in the statement of comprehensive income together with the related salary costs.

Based on the Collective Labor Agreements applicable within the Group, the Group is liable to pay to its employees at retirement a number of gross salaries, according to the years worked in the gas industry/electrical industry, work conditions etc. To this purpose, the Group recorded a provision for benefits upon retirement. This provision is updated annually and computed according to actuary methods based on estimates of the average salary, the average number of salaries payable upon retirement, on the estimate of the period when they shall be paid, and it is brought to present value using a discount factor based on interest related to a maximum degree of security investments (government securities). As the benefits are paid, the provision is reduced together with the reversal of the provision against income.

Gains or actuarial losses are recognized in other comprehensive income. These are changes in the present value of the defined benefit obligation as a result of statistical adjustments and changes in actuarial assumptions. Any other changes in the provision are recognized in the result of the year.

The Group does not operate any other pension scheme or post-retirement benefit plan and, consequently, has no obligation in respect of pensions.

Employee participation to profit

The Group records in its financial statements a provision related to the fund for employee participation to profit in compliance with legislation in force.

Liabilities related to the fund for employee participation to profit are settled in less than a year and are measured at the amounts estimated to be paid at the time of settlement.

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Greenhouse gas provisions

The Group recognizes a provision for the deficit between actual CO₂ emissions and certificates held, measured at the best estimate of expenditure required to settle the obligation. CO₂ certificates bought during the year CO₂ emissions occurred that will be included in the Unique Registry of Greenhouse Gas Emissions are recorded as current assets at the amount paid. Until the date certificates are included in the Unique Registry, the Group records a current liability for this obligation at the amount paid when said certificates were bought. At the date the certificates are included in the Unique Registry, the asset and liability are derecognized.

Provisions for decommissioning of wells

Liabilities for decommissioning costs are recognized due to the Group’s obligation to plug and abandon a well, dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made.

The Group recorded a provision for decommissioning wells.

This provision was computed based on the estimated future expenditure determined in accordance with local conditions and requirements and it was brought to present value using the interest rate on long term treasury bonds. The rate and the estimated costs for decommissioning are updated annually.

The decommissioning provision is based on the economic life of the fields wells are located on, even if this is longer than the period of the related concession agreements, as it is considered the period may be extended.

A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognized. The item of property, plant and equipment is subsequently depreciated as part of the asset.

The Group applies IFRIC 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities” related to changes in existing decommissioning, restoration and similar liabilities.

The change in the decommissioning provision for wells is recorded as follows:

a.    subject to b., changes in the liability are added to, or deducted from, the cost of the related asset in the current period;

b.   the amount deducted from the cost of the asset does not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the statement of comprehensive income;

c.    if the adjustment results in an addition to the cost of an asset, the Group considers whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the Group tests the asset for impairment by estimating its recoverable amount, and accounts for any impairment loss.

Once the related asset has reached the end of its useful life, all subsequent changes of debt are recognized in the income statement in the period when they occur. 

The periodical unwinding of the discount is recognized in the comprehensive income as a finance cost, as it occurs.

(ii)         Gas cushion

This is a quantity of natural gas constituted as a reserve at the level of gas storages, physically recoverable, which ensures the optimum conditions necessary to maintain their technical-productive flow characteristics. The gas cushion is recorded as an item of property, plant and equipment in the Storage segment.

(iii)        Development expenditure

Expenditure on the construction, installation and completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including the commissioning of wells, is capitalized within property, plant and equipment and is depreciated from the commencement of production as described below in the property, plant and equipment accounting policies.

(iv)       Maintenance and repairs

The Group does not recognize within the assets’ costs the current expenses and the accidental expenses for that asset. These costs are expensed in the period in which they are incurred.

The costs for current maintenance are mainly labor costs and consumables and also small inventory items. The purpose of these expenses is usually described as “repairs and maintenance” for property, plant and equipment.

The expenses with major activities, inspections and repairs comprise the replacement of the assets or other asset’s parts, the inspection cost and major overhauls. These expenses are capitalized if an asset or part of an asset, which was separately depreciated, is replaced and is probable that they will bring future economic benefits for the Group. If part of a replaced asset was not considered as a separate component and, as a result, was not separately depreciated, the replacement value will be used to estimate the net book value of the asset which is replaced and is immediately written-off. The inspection costs associated with major overhauls are capitalized and depreciated over the period until next inspection.

The costs for major overhauls for wells are also capitalized and depreciated using the unit of production depreciation method.

All other costs with current repairs and usual maintenance are recognized directly in expenses.

(2)       Depreciation

The depreciable amount of a tangible asset is the cost less the residual value of the asset. The residual value is the estimated value that the Group would currently obtain from the disposal of an asset, after deducting the estimated costs associated with the disposal if the asset would already have the age and condition expected at the end of its useful life.

For directly productive tangible assets (ie. wells), the Group applies the depreciation method based on the unit of production in order to reflect in the statement of comprehensive income, an expense proportionate with the production obtained from the total natural gas reserve certified at the beginning of the period. According to this method, the value of each production well is depreciated according to the ratio of the natural gas quantity extracted during the period compared to the proved developed reserves at the beginning of the period.

Assets representing gas cushion are not depreciated, as the residual value exceeds their cost.

For indirectly productive tangible assets and storage assets, depreciation is computed using the straight–line method over the estimated useful life of assets, as follows:

Land is not depreciated as it is considered to have an indefinite useful life.

Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at historical cost, less any recognized impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Items of tangible fixed assets that are disposed of are eliminated from the statement of financial position along with the corresponding accumulated depreciation and impairment. Any gain or loss resulting from such retirement or disposal is included in the result of the period.

For items of tangible fixed assets that are retired from use, but not yet written off by the reporting date, an impairment adjustment is recorded for the carrying value at the time of retirement. 

(3)       Impairment

Non-current assets must be recognized at the lower of the carrying amount and recoverable amount. If and only if the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset should be reduced to be equal to its recoverable amount. Such a reduction represents an impairment loss that is recognized in the result of the period.

Thus, at the end of each reporting period, the Group assesses whether there is any indication of impairment of assets. If such indication is identified, the Group tests the assets to determine whether they are impaired.

The Group’s assets are allocated to cash-generating units. The cash-generating unit is the smallest identifiable asset group that generates independent cash inflows to a large extent from cash inflows generated by other assets or asset groups. The Group considers each commercial field as a separate cash-generating unit.

All gas storages held by the Group are considered as part of a single cash-generating unit, as the tariffs are set by analyzing the storage activity as a whole, not every single storage.

In 2023, the Group conducted an impairment test in the Upstream segment (for onshore operations), as the conditions existing when the previous test was conducted changed; the assumptions are presented in note 12. The results of the impairment test are considered to be immaterial and were not recognized. No impairment indicators were identified for the offshore operations of the Group.

Recoverable amount is the largest of the fair value of an asset or a cash-generating unit less costs associated with disposal and its value in use. Considering the nature of the Group's assets, it was not possible to determine the fair value of the cash-generating units, being determined only the value in use of the assets.

Exploration and appraisal assets

(1)       Cost

Natural gas exploration (other than seismic, geological, geophysical and other similar activities), appraisal and development expenditure is accounted for using the principles of the successful efforts method of accounting.

Costs directly associated with an exploration well are initially capitalized as an asset until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, drilling costs and payments made to contractors. If potentially commercial quantities of hydrocarbons are not found, the exploration well is eliminated from the statement of financial position, by recording an impairment, until National Agency for Mineral Resources (Agenția Națională pentru Resurse Minerale – ANRM) approvals are obtained in order to be written off. If hydrocarbons are found and, subject to further appraisal activity, are likely to be capable of commercial development, the costs continue to be carried as an asset. Costs directly associated with appraisal activity, undertaken to determine the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalized as an asset. All such carried costs are subject to technical, commercial and management review at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, an impairment is recorded for the assets, until the completion of the legal steps necessary for them to be written off. When proved reserves of natural gas are determined and development is approved by management, the relevant expenditure is transferred to property, plant and equipment other than exploration assets.

(2)       Impairment

At each reporting date, the Group's management reviews its exploration assets and establishes the necessity for recording in the financial statements an impairment loss in these situations:

• the period for which the Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

• substantive expenditure on further exploration for and evaluation of gas resources in the specific area is neither budgeted nor planned;

• exploration for and evaluation of gas resources in the specific area have not led to the discovery of commercially viable quantities of gas resources and the Group has decided to discontinue such activities in the specific area;

• sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

Elements similar to the above are also considered when determining impairment losses for producing assets.

Intangible assets

(1)        Cost

Licenses for software, patents and other intangible assets are recognized at acquisition cost.

Intangible assets are not revalued.

(2)        Amortization

Patents and other intangible assets are amortized using the straight-line method over their useful life, but not exceeding 20 years. Licenses related to the right of use of computer software are amortized over a period of 3 years.

Inventories

Inventories are recorded initially at cost of production, or acquisition cost, as the case may be. The cost of finished goods and production in progress includes materials, labour, expenses incurred in bringing the finished goods at the location and in the existent form, and related indirect production costs. Write down adjustments are booked against slow moving, damaged and obsolete inventory, when necessary.

At each reporting date, inventories are measured at the lower of cost and net realizable value. The net realizable value is estimated based on the selling price less any completion and selling expenses. The cost of inventories is assigned by using the weighted average cost formula.

Financial assets and liabilities

The Group’s financial assets include cash and cash equivalents, trade receivables, other receivables, bank deposits and bonds with a maturity from acquisition date of over three months and other investments in equity instruments.

Financial liabilities include interest-bearing bank borrowings and overdrafts and trade and other payables.

For each item, the accounting policies on recognition and measurement are disclosed in this note.

The Group recognizes a financial asset or financial liability in the statement of financial position when and only when it becomes a party to the contractual provisions of the instrument. Upon initial recognition, financial assets are classified at amortized cost or measured at fair value through profit or loss. The classification depends on the Group's business model for managing the financial assets and their contractual cash flows.

The Group does not have financial assets measured at fair value through other comprehensive income.

On initial recognition, financial assets and financial liabilities are measured at fair value plus or minus, in the case of assets measured at amortized cost, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

Receivables resulting from contracts with customers represent the unconditional right of the Group to a consideration. The right to a consideration is unconditional if only the passage of time is required before payment of the consideration is due. These are measured at initial recognition at the transaction price.

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments plus or minus cumulative depreciation using the effective interest method for each difference between the initial amount and the amount at maturity and, for financial assets, adjusted for any loss allowance impairment.

Any difference between the initial amount and the amount at maturity is recognized in the statement of comprehensive income for the period of the borrowings using the effective interest method.

Financial instruments are classified as liabilities or equity in accordance with the nature of the contractual arrangement. Interest, dividends, gains and losses on a financial instrument classified as a liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are recorded directly in equity.

Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and discharge the obligation simultaneously.

Impairment of financial assets

Financial assets, other than those at fair value through profit and loss, are assessed for impairment at each reporting period.

Except for trade receivables, the Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk associated with the financial instrument, has increased significantly since initial recognition. If, at the reporting date, the credit risk for a financial instrument has not increased significantly since the initial recognition, the Group measures the loss allowance for that financial instrument at a value equal to 12-month expected credit losses.

The loss allowance on trade receivables resulting from transactions that are subject to IFRS 15 is measured at an amount equal to lifetime expected credit losses. The Group considers the risk or probability of a default occurring, reflecting the possibility of a default to occur or not to occur, even if the possibility of a credit loss is very low.

The Group measures the expected credit losses of a financial instrument in a manner that reflects reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

The carrying amount of the financial asset, other than those at fair value through profit or loss, is reduced through the use of an allowance account.

De-recognition of financial assets and liabilities

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

Reserves

Reserves include:

• legal reserves, which are used annually to transfer to reserves up to 5% of the statutory profit, but not more than 20% of the statutory share capital of the companies within the Group;

• development fund reserves, which represent allocations from profit in accordance with Government Ordinance no. 64/2001, paragraph (g);

• reserves from reinvested profit, set up based on the Fiscal Code. The amount of profit that benefited from tax exemption under the fiscal legislation less the legal reserve, is distributed at the end of the year by setting up the reserve;

• geological quota reserve, non-distributable, set up until 2004. Geological quota reserve set up after 2004 is distributable and presented in retained earnings. Development quota set up after 2004 is allocated together with the profit allocation, as approved by the General Meeting of Shareholders, based on depreciation, respectively write-off of the assets financed using the development quota;

• other non-distributable reserves, set up from retained earnings representing translation differences recorded at transition to IFRS. These reserves are set up in accordance with MOF 2844/2016.

Grants

Grants are non-reimbursable financial resources given to the Group` companies with the condition of meeting certain criteria. In the category of grants are included grants related to assets and grants related to income.

Grants related to assets are government grants for whose primary condition is that the Group should purchase, construct, or otherwise acquire long-term assets.

Grants related to income are government grants other than those related to assets.

Grants are not recognized until there is reasonable assurance that:

(a)       the Group will comply with the conditions attaching to it; and

(b)       grants will be received.

Grants related to assets are presented in the statement of financial position as “Deferred revenue”, which is then recognized in profit or loss on a systematic basis over the useful life of the asset.

Grants related to income are recognized in the statement of profit or loss under "Other income", as the related expenses are recorded. Until the time the expense occurs, the grant received is recognized as “Deferred revenue”.

If a government grant becomes receivable as compensation for expenses or losses incurred in a previous period, the Group recognizes such grant in the profit or loss of the period in which it becomes receivable.

Use of estimates

The preparation of the financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the end of reporting date, and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical estimates that the management has made in the process of applying the Group’s accounting policies, and that have the most significant effect on the amounts recognized in the financial statements.

Estimates related to grants related to income

Government Emergency Ordinance no. 27/2022 as subsequently amended (GEO 27) includes the obligation of the Group to sell at a regulated price of RON 450/MWh the electricity it produces. According to GEO 27, electricity producers must calculate a contribution to the Energy Transition Fund. If the value of the CO2 certificates related to the energy sold at RON 450/MWh exceeds the contribution to the Energy Transition Fund, electricity producers are entitled to receive the excess. Until December 2023, the legislation did not provide for the mechanism to request these amounts from the Romanian State nor the competent authority for the settlement of such requests. As such, the right to receive the grant is not enforceable.

The government does not act as a shareholder or a client of the Group in this matter. As such, the relevant standard considered in the accounting of the grant is IAS 20.

By December 31, 2023 the Group should receive RON 167,743 thousand. Income recognized in previous financial statements released by the Group in 2023 was reversed by December 31, 2023. Until the amount becomes a receivable, the Group disclose the grant as a contingent asset.

Estimates related to impairment losses on trade receivables

At each period end, the Group evaluates the risks attached to current and overdue receivables and the probability of such risks to materialize. The Group’s receivables are generally due in maximum 30 days from the date of issue. Based on information available at period end and previous experience, the Group estimates the lifetime expected credit loss of receivables, both current and overdue, and records appropriate impairment losses (note 16).

Estimates related to the exploration expenditure on undeveloped fields

If field works prove that the geological structures are not exploitable from an economic point of view or that they do not have hydrocarbon resources available, an impairment is recorded. The impairment assessment is performed based on geological experts’ technical expertise (note 7).

Estimates related to developed proved reserves

The Group applies the depreciation method based on the unit of production in order to reflect in the income statement an expense proportionate with the production obtained from the total natural gas reserve at the beginning of the period. According to this method, the value of each production well is depreciated according to the ratio of the natural gas quantity extracted during the period compared to the gas reserve at the beginning of the period. The gas reserves are updated annually according to internal assessments that are based on certifications of ANRM (note 7).

Estimates related to the decommissioning provision

Liabilities for decommissioning costs are recognized for the Group’s obligation to plug and abandon a well, dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made.

This provision is computed based on the estimated future expenditure determined in accordance with local conditions and requirements and it is brought to present value using the interest rate on long term treasury bonds. The rate and estimated decommissioning costs are updated annually (note 18).

Estimates related to retirement benefit obligations

Under the Collective Labor Agreements applicable within the Group, the Group must pay its employees when they retire a multiplicator of the gross salary, depending on the seniority within the gas industry/electricity industry, working conditions etc. This provision is updated annually. It is calculated based on actuarial methods to estimate the average wage, the average number of employees to pay at retirement, the estimate of the period when they will be paid and is brought to present value using a discount factor based on interest on investments with the highest degree of safety (government bonds) (note 18).

The Group does not operate any other pension plan or retirement benefits, and therefore has no other obligations relating to pensions.

Contingencies

By their nature, contingencies end only when one or more uncertain future events occur or not. In order to determine the existence and the potential value of a contingent element, is required to exercise the professional judgment and the use of estimates regarding the outcome of future events (note 32).

Fair value of financial instruments

Management believes that the estimated fair values of financial instruments approximate their carrying amounts.

Comparative information

For each item of the statement of financial position, the statement of comprehensive income and, where is the case, for the statement of changes in equity and for the statement of cash flows, for comparative information purposes is presented the value of the corresponding item for the previous period ended, unless the changes are insignificant. In addition, the Group presents an additional statement of financial position at the beginning of the earliest period presented when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in the financial statements, which has a material impact on the Group.

3.         REVENUE AND OTHER INCOME

The decrease in revenue is generated by the application of GEO 27. In 2023, the Group sold 86.43% of gas at regulated prices, while in 2022 it sold 33.3% of gas under GEO 27. Over 90% of electricity in 2023 was sold under GEO 27 at a price of RON 450/MWh; no such obligation was in force in 2022.

Revenue from contracts with customers is recognized as or when the Group satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when the customer obtains control of that good or service. The transfer of control of goods sold by the Group usually coincides with title passing to the customer and the customer taking physical possession.

Revenues from gas and electricity are recognized when the delivery has been made at the prices fixed in the contracts with customers.

Revenues from storage services are recognized when they are provided at the rates in force during the storage cycle. Usually, injection services are provided in the period April – October, and those for withdrawal in November – March. The capacity reservation services are being provided each month of the storage cycle, which begins on April 1 and ends on March 31 of the next year.

In measuring the revenue from gas, electricity and storage services, the Group uses output methods. According to these methods, revenues are recognized based on direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The Group recognizes the revenue in the amount it has the right to charge.    

The Group does not disclose information about the remaining performance obligations, applying the practical expedient in IFRS 15, as contracts with customers are generally signed for periods of less than one year and the revenues are recognized at the amount which the Group has the right to charge.

4.         INVESTMENT INCOME

Interest income is derived from the Group’s investments in bank deposits and government bonds.

5.         COST OF COMMODITIES SOLD, RAW MATERIALS AND CONSUMABLES

	Year ended December 31, 2023		Year ended December 31, 2022
	'000 RON		'000 RON
Consumables used	66,107		56,977
Technological consumption	37,899		56,750
Cost of gas acquired for resale, sold (note 3)	20,291		14,654
Cost of electricity imbalance	85,477		167,405
Cost of other goods sold	1,362		1,519
Other consumables	5,435		4,310
Total	216,571		301,615

6.         OTHER GAINS AND LOSSES

7.         DEPRECIATION, AMORTIZATION AND IMPAIRMENT EXPENSES

	Year ended December 31, 2023		Year ended December 31, 2022
	'000 RON		'000 RON
Depreciation and amortization	393,670		408,903
out of which:
- depreciation of property, plant and equipment	384,624		402,500
- amortization of intangible assets (note 14 a)	6,227		4,930
- amortization of right of use assets (note 14 b)	2,819		1,473
Net impairment of non-current assets	82,898		141,173
Total depreciation, amortization and impairment	476,568		550,076

8.         EMPLOYEE BENEFIT EXPENSE

	Year ended December 31, 2023		Year ended December 31, 2022
	'000 RON		'000 RON
Wages and salaries	939,278		876,340
Social security charges	33,230		30,115
Meal tickets	38,150		27,175
Other benefits according to collective labor contract	33,469		29,407
Private pension payments	11,253		11,177
Private health insurance	10,753		6,832
Total employee benefit costs	1,066,133		981,046
Less, capitalized employee benefit costs	(152,079)		(135,045)
Total employee benefit expense	914,054		846,001

9.           FINANCE COSTS

	Year ended December 31, 2023		Year ended December 31, 2022
	'000 RON		'000 RON
Interest expense *)	43,838		5,627
Unwinding of the decommissioning provision (note 18 a)	18,165		21,668
Total	62,003		27,295

*) The increase in interest expense is due to the loan taken to finance the acquisition of the shares of ExxonMobil Exploration and Production Romania Limited, currently Romgaz Black Sea Limited (note 28).

10.         OTHER EXPENSES. TAXES AND DUTIES

a)     Other Expenses

*) In 2023 Romgaz resumed the works on the new Iernut power plant with the former contractor. Disputes between Romgaz and the contractor were settled through a transaction agreement approved by Romgaz’ shareholders. The agreement stipulates the reimbursement by Romgaz of the performance guarantee executed in 2021 when the former works contract was terminated. The amount paid by Romgaz was of RON 114,628 thousand and is included in other operating expenses.

Other operating expenses also include the cost of CO₂ certificates acquired during the year (RON 470,926 thousand; 2022 RON 169,638 thousand). In 2023, the Group acquired the CO₂ certificates related to the year. The certificates related to 2022 were also acquired in 2023; the cost of the 2022 certificates was offset against the provision released to income.

b)     Taxes and duties

*) According to GEO 27, gas sold at regulated prices is not subject to windfall tax. Royalties paid on this gas are calculated at the level of the regulated price, instead of the reference price communicated by ANRM. As quantities of gas sold under GEO 27 were significantly higher in 2023 (note 3), the cost of royalties and windfall tax paid on gas decreased. In October 2023 royalty rates were increased by approximately 20%; Romgaz calculated the royalties at the new rates.

 **) In 2022 GEO 27 introduced a windfall tax on electricity later replaced by a contribution to the Energy Transition Fund. Electricity sold at RON 450/MWh is not subject to the contribution. As over 90% of electricity was sold at this price in 2023, the contribution decreased compared to 2022. The negative level of the expense is determined by the recomputation of the windfall tax related to 2022 based on actual CO2 certificates costs, which were acquired in 2023; in 2022 the windfall tax was calculated based on an estimate of the CO2 certificates cost.

11.       INCOME TAX

a)     Current and deferred income tax

The tax rate used for the reconciliations below for the year ended December 31, 2023, respectively year ended December 31, 2022 is 16% payable by corporate entities in Romania on taxable profits.

The total charge for the period can be reconciled to the accounting profit as follows:

	Year ended December 31, 2023		Year ended December 31, 2022
	'000 RON		'000 RON
Accounting profit before tax (after solidarity contribution)	3,380,091		3,151,459
(Profit)/loss of activities not subject to income tax	-		8,157
Accounting profit subject to income tax	3,380,091		3,159,616
Income tax expense calculated at 16%	540,815		505,538
Effect of income exempt of taxation	(61,627)		(74,508)
Effect of expenses that are not deductible in determining taxable profit	340,975		202,939
Effect of current income tax reduction, due to tax facilities	(95,187)		(66,319)
Effect of tax incentive for reinvested profit	(12,176)		(5,631)
Effect of legal reserves	-		(807)
Effect of the benefit from tax credits, used to reduce current tax expense	21,098		23,304
Effect of deferred tax relating to the origination and reversal of temporary differences	(116,537)		49,716
Effect of the benefit from tax credits, used to reduce deferred tax expense	(49,486)		(29,485)
Effect of income tax expense related to previous years	107
Income tax expense	567,982		604,747