OMV in Profit, But Russia Risks Remain
Austria's OMV reversed a net loss into a profit in 2Q as it digested recent major acquisitions. But concerns over Russia, Romania, Iran and Libya remain for the integrated oil business.
Net income attributable to shareholders increased to €203mn ($236mn) in 2Q 2018, from a net loss of €1.03bn in 2Q 2017, helped by a 50% rise in Brent prices to $74/b. Its clean current cost of supplies (clean CCS) operating result was up 10% year on year at €726mn, with upstream earnings up 115% at €363mn and downstream earnings of €318mn (from a €857m loss).
Production rose by 24% in 2Q, chiefly in Russia and Libya, to 419,000 barrels of oil equivalent (boe)/d – of which 160,000 boe/d came from Romanian affiliate OMV-Petrom. OMV expects its total production to be above 420,000 boe/d in full year 2018, of which around 100,000 boe/d from Russia.
Production cost in 1H was $7.5/boe, down by 15% as a result of higher production and its ongoing cost reduction programme. Two OMV employees were kidnapped in Libya from the Sharara oilfield July 14 by unknown abductors; it said a ransom is presumed to be the motive and it was seeking their safe return. Sharara (NOC/OMV) normally produces 300,000 b/d, but is now producing two-thirds of that, said OMV.
Gas sales by OMV in 2Q decreased by 5% to 24.8 TWh (2.3bn m3), and by 1% to 57.8 TWh in 1H, offset by a rise in German sales.
The Austrian firm’s net debt tripled to €2.85bn at end-June (from €943mn a year earlier) impacted by acquisitions of a 20% stake in an Abu Dhabi concession in 2Q 2018 (€1.5bn) and of the 24.99% share in Russia’s Yuzhno Russkoye gas field in 4Q 2017 (also €1.5bn). But OMV pointed to Moody’s recently raising OMV’s rating to an ‘A3’, while its return on average capital employed (Roace) in clean CCS terms improved over the same period to 13% (from 11%). OMV completed divestments of a Turkish power plant and its Pakistan gas upstream business in 2Q but these were much smaller than its recent acquisitions.
Gazprom equity swap, risks to NS2, gas contract extension
CEO Rainer Seele was quizzed at a press briefing on the status of its planned asset swap with Gazprom whereby the latter would get a stake in OMV’s Norwegian upstream – about which Oslo has raised concerns. Asked if OMV’s refining assets might be substituted for its Norway business in the swap, or else cash be paid for the Russian upstream interests offered, Seele replied that OMV’s Schwechat and Burghausen refineries (Austria and Germany) would not be included in the Russian swap, but left unanswered the possibility of a cash settlement. However he said OMV would continue to monitor the situation in Norway and to dialogue with Gazprom and Oslo: “We assume in September or October, we shall see further progress in discussions” leading to a “positive result during 2H 2018.” OMV originally planned to wrap up the deal during 2016.
CFO Reinhard Florey said that OMV's total financing exposure to Nord Stream 2 is about €500mn. Asked about risks to the project were Denmark to refuse consent for NS2 to transit its exclusive economic zone waters, downstream chief Manfred Leitner said there would be added costs to rerouting the pipe, but that a back-up route exists and that NS2 could still be built within its original planned €9.5bn cost.
Executives said that NS2 had been given assurances by the US Treasury Dept that NS2 would not fall under sanctions, as the project predated summer 2017. If the US president Donald Trump were to withdraw such assurances, CEO Seele said he could not speculate to that extent about the future, insisting instead that the pipe was needed to maintain the “competitiveness” of future supplies to Europe, with Leitner chipping in that Asia now pays about 50% more for US LNG than Europe pays for its pipeline gas.
Responding to a NGW question, Leitner gave little away on the June signature of a 12-year extension of OMV’s long-term gas offtake contract from Gazprom to 2040, saying that “volumes will rise” and that pricing is “mutually beneficial but we won’t divulge details;” so no clarity if it represents a move from oil-indexation to gas hub pricing; or a mix of the two.
Romania FID stalling
Seele said that OMV was "not happy" about Romania's recent adoption of a law on higher upstream taxation which also restricts marketing of gas produced. OMV and Exxon were "about to take final investment decision" on their Neptun deepwater gas project, but for that to continue, investors would need "closer co-operation" with Romanian authorities. Seele noted that OMV operates "in many locations" so can choose where to invest.
Finally, Seele acknowledged that OMV is not developing upstream projects in Iran at present: "We take Iranian crude at our refineries. We can work without it. We will have to respect the [US] sanctions." Leitner added that Iranian crude represented a relatively low proportion of OMV's crude throughput (typically 4%, possibly higher in 1H) and was not used at its Petrobrazi refinery in Romania.