OMV Focuses on Low-Cost Oil
Austria’s integrated oil and gas company OMV is reducing its exposure to North Sea/Atlantic basin projects that it deems too expensive in today’s oil prices, said CEO Rainer Seele at a quarterly results press conference. Instead it will focus on lower-cost regions such as the Middle East and Russia.
The company took a hit from the UK Rosebank asset of over $530mn following the sale of a 30% stake to Canadian Suncor at a price that showed a ‘clear reduction’ of its book value, it said August 10. It sold the 30% interest for $50mn payable on closing and another $165mn due at final investment decision, but retains a 20% stake. The Chevron-operated field, west of the UK Shetland Isles in the Atlantic, has a design capacity of 100,000 barrels/day of oil and 80mn ft³/d of gas.
In 2013 Statoil sold a 30% stake in Rosebank to OMV, plus lesser Norwegian assets, for $2.65bn when its go-ahead for development looked imminent; at the time OMV already had a 20% Rosebank interest. However project economics, and declining oil prices since, meant Rosebank was deferred.
OMV reported a pre-tax 2Q loss of €300mn compared with a profit of €22mn in Q2 2015; however after stripping out exceptional items and using the current cost of supplies it made a profit of €214mn, compared with last year’s €375mn.
Overall the company reported depreciation of €608mn, the balance coming from Madagascar, Romania and Norway.
Seele declined to comment on the progress of its asset swap with Gazprom – both its UK and Norwegian assets are open to Gazprom investment, in exchange for OMV’s acquisition of upstream stakes in west Siberia, and “it is not a beauty contest between the two,” he said.
He also did not comment on a press report that the Norwegian government is not enthusiastic about the Russian company becoming an equity producer on its continental shelf, or on whether he knew these objections existed. First the two companies have to agree the terms and conditions for a deal and only then will they talk to the relevant regulator, he said.
OMV CEO Rainer Seele
Its absorption of marketer Econgas is progressing and it now has a new managing director. The company has moved from Regensburg to Dusseldorf where it will hope to grow its German customer base, supplied with gas from its Norwegian production. Sales are already ‘much higher’ than they were last year.
The sale of a stake in the GasConnect Austria (GCA) pipeline business is also underway but Seele gave nothing away about the bidders, saying only that when it was sold, the deal would be announced. As a regulated business he said GCA was less attractive although OMV would retain a key stake and be able to continue to make investments in the system. The company said it was not selling the stake to finance its share of Nord Stream 2.
The Polish regulator has sent the Nord Stream 2 joint venture its list of objections to the latter's planned 55bn m³/yr offshore pipeline; Nord Stream, of which OMV is a member with 10%, has until August 16 to respond. OMV said it was confident that the regulator would not block the project.
Gas reserves at its Romanian Black Sea asset are put at between 1.5 trillion ft³ and 3 trillion ft³ and OMV is continuing to work on the technical aspects of production. Also buyers have to be found for the gas. It will take its final investment decision in the first half of 2018.
The company was able to meet its dividend payments without having to borrow, and its debt gearing, at 29%, is below the 30% target. Net debt is under €4bn and its cost cutting target has been revised upwards further following early success, giving the company some cheer in an otherwise dire environment. However it has cut its 2016 capital expenditure plan by another €200mn over the course of this year, to €2.2bn, down from last year’s €2.7bn and this year's planned €2.4bn.
Production costs have fallen from $16.6/barrel in 2014 to $13.3/b last year and to $11.6/b in the first half of this year. The average would be even lower if the low-cost production in Yemen and Libya had not been disrupted. In the North Sea it produces 70,000 b/d, so beating the 2017 target, and with more Norwegian production on stream such as Edvard Grieg, Gullfaks, Gudrun and by 2018, Aasta Hansteen, it will rise further.
OMV is expecting the oil price to remain at $40/b for the rest of the year, refining margins to come under more pressure but European gas prices to rise slightly. But the company is hoping for a cold winter and the replacement of more coal with gas in the power sector to mop up some of the oversupply.
William Powell