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    Austria's OMV: Defining “Fit for $50”

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Summary

Austria's OMV made a profit in 2014, but the drastic drop in the oil price has nailed quarterly profits, says CEO Gerhard Roiss.

by: Drew Leifheit

Posted in:

Top Stories, Nabucco/Nabucco West Pipeline, Russia, Austria, Norway, Romania

Austria's OMV: Defining “Fit for $50”

OMV AGD, the Austrian oil and gas company, has presented its full-year results for 2014: EUR 357 million. Calling it a “turbulent year” for the oil and gas industry, it noted that oil prices had fallen by as much as 50% in the second half of the year.

That, combined with political instability at its operations in the Middle East, higher depreciation and production costs had made for 4th quarter losses of EUR 308 million (-15% y-on-y), according to the company's presentation on 19 February. OMV says it still plans to invest EUR 2.5 billion this year.

Now, the company is evaluating the numerous aspects of its business to sustain itself – managing its OPEX and CAPEX costs - within the low oil price environment. Via the so-called “Fit for $50 program,” OMV hopes to deliver a neutral free cashflow after dividends in the medium term and to bring onstream its current upstream projects.

Chairman of the Executive Board and CEO, Mr. Gerhard Roiss, described the program as an efficiency and cost reduction program if the price of oil stays at such low levels, i.e. what the company needs to do to stay healthy and keep its strategic focus. OMV is assuming that the price of oil will stay within the $50-60 bandwidth.

Mr. Roiss offered, “Even if the oil price is at $50/barrel, OMV is a healthy company – it will always be.

“This is of course something affecting the entire industry and in Europe we have a continuously weak gas price, and even after another mild winter we see an impact upon consumption and prices.”

Still, OMV noted that its production had increased by 8% since 2013, mostly due to assets acquired in Norway that are producing an average 309,000 boe/day equivalent. Mr. Roiss called OMV's assets in Norway a “strategic decision for the next 10-30 years.”

“Norway is now the second largest production country in our portfolio, with EUR 500 million cashflow,” he explained, adding that this had been an enormous challenge in the face of the low oil price.

“We believe that these low oil prices will certainly continue for a while; our company must adapt to these circumstances,” he said.

While OMV's target of producing 400,000 boe/day remains, he admitted that the timeline would change. Emphasis, he said, will be placed on “self funded” projects like those in Norway.

Slight production increases were also seen in Romania. Meanwhile, the company also completed a EUR 1 billion divestment program and integrated its gas & power and refining & marketing segments.

Additionally, OMV managed to re negotiate its long-term natural gas contract with Gazprom in light of changing market conditions.

Priorities for 2015 regarding the company's upstream growth, according to its CEO, OMV would like to deliver on post final investment decision (FID) projects for which FID has already been taken.

In response to a question regarding the lack of necessary pipeline infrastructure for Austria and others, Mr. Roiss agreed for the need for a revival of a Nabucco-type natural gas pipeline project.

He said, “Europe needs some pipeline with gas flowing in it. Talks are being held with Gazprom as heard in the Russian President's visit to Hungary.

“I take it that there will be some pipeline – I can't tell you when, but it should be in operation by 2020; 2018 would be better.”

According to him, the basic consensus for such a pipeline is there and that Europe should be able to find a solution.

-Drew Leifheit