Romania Oil and Gas: There’s life in the old fossils yet (Romgaz upgraded to BUY, OMV Petrom stays BUY)

Just 12-months ago, the European natural gas market looked as dead as the fossils that produced it: a dumping ground for excess LNG, demand ironically reduced by warmer weather, and prices too low to entice drillers out of bed, let alone do any drilling. Oil prices turned negative for the first time ever, as cars were parked on driveways for months. Meanwhile, Romania still felt like a market where patience was the biggest virtue, with expected deadlines coming and going while tumbleweed rolled past. What a turnaround! Oil above USD 70/bbl, CO2 over EUR50/t and gas above EUR 30/MWh. Romania, meanwhile, has swept away some of its market restrictions, connected its system to the rest of Europe and is tantalisingly close to a new offshore law. By the end of this year, we expect the Neptun Project to be an all-Romanian JV and the final investment decision (FID) should come next year. We believe that Romgaz (BUY, 12M price target (PT) of RON 38.4, 22.8% upside) is the biggest beneficiary of better gas prices and the regulatory environment, while OMV Petrom (BUY, 12M PT of RON 0.50, 15.6% upside) has fewer catalysts to raise its share price in the short term.