Austrian OMV Plans to Bounce Back after Dismal 2015
Austria’s integrated monopoly OMV took a battering in 2015, with profits from the downstream sector unable to offset the 47% drop in the crude price. The company reported a net loss of €1.255bn, compared with a profit of €527mn in 2014. It wrote off €3bn in asset impairments as it changed its view of oil prices. Its production and exploration assets accounted for €2.5bn of the writedown, of which producing assets owned by OMV Petrom accounted for €600mn.
The other €512mn came from write-downs of the Dutch Gate LNG and associated transportation capacity contracts; the Etzel gas storage facility; and the Samsun power plant.
It was not all bad. In upstream, it achieved a 20% cut in operating expenses per dollar of barrel of oil equivalent. It started production at the Norwegian Edvard Grieg field in the fourth quarter. And this year has begun with encouraging results from the offshore Neptune field, Romania. The second exploration drilling campaign was completed in January 2016 and the company will now do more detailed work to see if the gas reserves are commercially viable.
Total gas production was stable at about 310bn ft³, as more from Norway offset the decline in Pakistan, New Zealand and Austria. Total sales volumes decreased by 5%, driven by lower volumes in Libya and Yemen partly offset by higher volumes in Norway. Natural gas sales volumes declined to 110.12 TWh in 2015 compared with 114.35 TWh in 2014.
With the results statement, the company also announced a new strategy aimed at producing more profitable barrels with more, low-cost hydrocarbons to come from Russia following an asset swap with Gazprom giving it access to the Urengoi field by 2020. It expects to add a further 600mn boe to its reserves base, or five times its 2015 production. Iran is also on the radar.
Investments will further fall to €2.4bn marking an anticipated reduction of around 40% this year compared with 2014, the most recent year of high oil prices. Upstream spending will fall by 60% from 2014 20 2017, from €600mn to €300mn. In addition there will be further cost-cutting measures which are set to yield around €300mn by 2017 compared with 2014.
By 2020, 90-95% of upstream investment will go to maintaining production at around 300,000 boe/d and should the political situation allow, in reviving production in Libya and Yemen.
The remaining 5-10% has been earmarked for the investment project Achimov IV and V in Russia. “Our goal is to make OMV’s upstream portfolio sustainable; this means that we replace in full the reserves that we produce,” OMV said. The core regions are Austria and Romania, the North Sea as well as Middle East and Africa.
OMV has announced the sale of a minority stake of up to 49% in the regulated pipeline business Gas Connect Austria and the transaction is expected to signed in 2016. It has also signed an agreement with its partners to take over the remaining stake of 35.75% in EconGas, for which regulatory approval is expected this year.
The company also expects a final investment decision in Nord Stream 2 this year. It is a 10% shareholder in the Gazprom-led export project. CEO Rainer Seele commented: “With Nord Stream 2 we are investing in a project with an attractive, non-regulated return, which increases security of supply to Europe."
This is also linked to strengthening Gas Connect Austria, as a large share of the gas which comes via Nord Stream 2 to Europe will be distributed via the Baumgarten gas hub. "These measures to restructure the business will position Downstream Gas for a successful future," OMV said. It expects the Brent oil price to average around $40/b and sees a challenging gas market this year.