Vienna-based OMV said political turmoil in North Africa and the Middle East continues to hurt production levels and expects no increase in the coming months.

The Austrian energy group said results were pulled 44 per cent higher as compared to the same period last year, thanks to favourable Brent price in June 2011. But ongoing conflict in Libya and Yemen impacted lower production levels and refining margins.

“The political instability in North Africa and the Middle East is still prevailing, costing us a significant amount of production every day,” said Gerhard Roiss, CEO of OMV. “The loss in volumes could not be offset by higher crude prices.”

OMV normally produces some 10 per cent of its total oil and gas, or about 33,000 boepd, in Libya but its total output dropped to 290,000 boepd in June from 304,000 boepd from Q1 since its Libyan operations halted in March.

The company’s Yemen production was also disrupted in mid-March after the main export pipeline was sabotaged. But after it went back online in July, OMV said ongoing security threats could potentially interrupt output.

“We are closely monitoring the political situation in both Libya and Yemen,” Roiss added, citing no further production is expected this year.

The Austrian energy group is also seeing challenging margin environment in refining as well as marketing, which will continue to pressure the R&M segment. OMV saw a significant decreased in earnings to EUR 22 million due to weak refining and petrochemical activities.

However, OMV said the lost production from both countries will partly be compensated by recent acquisitions in Tunisia and Pakistan, as well as ongoing Kurdish drilling.

Production levels in Tunisia will benefit from the recent acquisition of the Pioneer assets. Following the closing of the acquisition of Petronas’ E&P subsidiary in Pakistan in July, the new assets will contribute to production immediately.

In the currently ongoing drilling of the exploration well Bina Bawi-3 in the Kurdistan Region of Iraq, hydrocarbons have been encountered in one of the shallower reservoir targets. Final results including deeper targets are expected to be announced later this year.

“I am also happy about the successes stemming from our exploration endeavors which have recently yielded three promising discoveries,” said Roiss.

“Clearly, we will continue to face challenges in the future but, with our updated strategy to be announced in September, we will be strongly positioned to manage them.”

Financial highlights: Second quarter 2011 (Q2/11)

In Q2/11, results were supported by a favourable crude price environment (Brent price in USD exceeded last year’s Q2 average by 50%) but burdened by a significantly lower production level and lower refining margins.

The Group’s reported EBIT of EUR 567 mn was therefore 12% below the level of Q2/10 while Petrom’s contribution to reported EBIT increased to EUR 296 mn from EUR 170 mn in Q2/10. The net financial result was significantly below the Q2/10 level at EUR (53) mn.

Net income attributable to stockholders of EUR 269 mn was down 20% compared to Q2/10. Clean CCS EBIT decreased by 25% vs. Q2/10 to EUR 468 mn in Q2/11. Clean CCS EBIT is stated after eliminating positive inventory holding effects of EUR 119 mn as well as net special charges of EUR 20 mn, mainly relating to the write-off of a Kazakh exploration licence. The contribution of Petrom to the Group’s clean CCS EBIT was EUR 306 mn, 93% above last year’s level. Clean CCS net income attributable to stockholders was EUR 236 mn (Q2/10: EUR 314 mn). Clean CCS EPS was EUR 0.77 (Q2/10: EUR 1.05). The gearing ratio improved to 34% supported by the successful capital increase and a hybrid bond transaction both closed in Q2/11.

In Exploration and Production (E&P), clean EBIT decreased by 22% vs. Q2/10 and reached EUR 439 mn, reflecting the political turmoil in North Africa and the Middle East and higher exploration expenses, which could not be compensated by the positive impact of the strong crude price. At 275,000 boe/d, the Group’s oil and gas production was significantly below Q2/10, particularly burdened by the loss of production in Libya and
Yemen.

In Refining and Marketing (R&M), clean CCS EBIT came in significantly below the level of Q2/10 at EUR 11 mn mainly suffering from the decline in the OMV indicator refining margin and a lower contribution from the petrochemicals business due to a scheduled turnaround of the petrochemical activities in Schwechat. The marketing business was impacted by a still difficult margin environment which could not be offset by the
positive contribution from Petrol Ofisi.

In Gas and Power (G&P), clean EBIT of EUR 26 mn was 38% above the Q2/10 level, mainly reflecting a strong contribution of the gas logistics business and a lower negative impact from Doljchim.

January – June 2011 (6m/11)

In 6m/11, results benefited from the average Brent price in USD being 44% higher than in 6m/10 but were impacted by lower production levels and refining margins. The Group’s EBIT of EUR 1,374 mn was slightly above the level of 6m/10.

The EBIT contribution of Petrom amounted to EUR 578 mn, a 44% increase from EUR 401 mn in 6m/10. The net financial result was significantly below 6m/10, mainly reflecting FX losses. Net income attributable to stockholders of EUR 634 mn was 7% below last year’s level. Clean CCS EBIT decreased by 6% to EUR 1,194 mn after excluding net special charges in the amount of EUR 39 mn mainly relating to impairments in E&P and positive CCS effects of EUR 220 mn.

Petrom’s clean CCS EBIT contribution stood at EUR 588 mn, up 55% from EUR 381 mn. In 6m/10 clean CCS net income attributable to stockholders was EUR 507 mn and clean CCS EPS was EUR 1.68, 18% below 6m/10.

In E&P, clean EBIT came in just at last year’s level, mainly reflecting the positive effect of higher price levels, which was however offset by lower sales volumes, higher exploration expenses, unfavourable FX effects and a negative hedging result. The Group’s oil and gas production stood at 290,000 boe/d, 9% below 6m/10.

In R&M, clean CCS EBIT decreased significantly to EUR 22 mn, reflecting a difficult margin environment in both refining and marketing as well as a weaker petrochemicals result due to the scheduled turnaround of the petrochemical activities in Schwechat in Q2/11. The contribution from Petrol Ofisi, which was not included in 6m/10, could only partially offset these effects.

In G&P, clean EBIT was down by 7% compared to 6m/10, mainly driven by the supply, marketing and trading business, which suffered from extreme pressure on margins.

Significant events in Q2/11

• On April 13, OMV announced a major gas discovery in the Zola-1 exploration well in Australia.
• On April 26, OMV announced the first two important results following the acquisition of Pioneer’s Exploration and Production assets in Tunisia. Furthermore, OMV published its decision not to participate in the upcoming OMV Petrom S.A. secondary public offering.
• On May 16, OMV announced the launch of a rights issue of up to 27,272,727 new shares and its intention to issue subordinated hybrid notes.
• On May 17, OMV’s Ordinary Annual General Meeting approved a dividend of EUR 1.00 per share for 2010. Due to the resignation of Peter Michaelis from the Supervisory Board, Markus Beyrer was elected as member of the Supervisory Board until the close of the General Meeting 2013. In addition, OMV informed about core shareholders’ intended participation in the OMV capital increase.
• On May 25, OMV announced a new organizational structure of its Turkish operations and Ms Gülsüm Azeri as new CEO. Additionally, OMV announced the issue of EUR 750 mn of hybrid notes.
• On June 3, OMV disclosed a drilling success in its operated Bina Bawi block in the Kurdistan Region of Iraq.
• On June 6, OMV successfully completed the capital increase by issuing 27,272,727 shares for a subscription and offer price of EUR 27.50 per share raising total proceeds of EUR 750 mn.
• On June 8, Nabucco Gas Pipeline International GmbH announced the signing of the Project Support Agreements (PSAs) with the ministers of each transit country in Kayseri, Turkey.

Outlook 2011

For 2011, OMV expects the main market drivers to remain highly volatile. We expect the Brent oil price to be within a range of USD 90-110/bbl. We would also anticipate continuing volatility for the relevant FX rates. Refining margins are expected to recover somewhat due to improved demand for middle distillates.

Petrochemical margins were very strong in Q2/11 and are expected to remain attractive in the second half of the year. Marketing volumes as well as margins are expected to remain under pressure as western markets are not expected to show any growth, despite some signs of economic recovery, due to saturation, while Southeastern Europe is still feeling the impact of the economic downturn.

To partly secure the Group's cash flow in 2011, OMV entered into oil price swaps in January 2011 for a volume of 50,000 bbl/d of 2011 production securing a price of USD 97/bbl and into EUR-USD average rate forwards at USD 1.37, covering those volumes until the end of 2011. OMV targets an investment level below its guidance of average annual CAPEX of EUR 2.7 bn (excluding major acquisitions) until 2015, while

maintaining the Group’s strong investment grade credit rating and a stable financial profile remains a key focus. It is one of OMV’s main priorities to strive for world class HSEQ standards including the reduction of the LTI rate (lost-time injury).

E&P expects lower production levels in 2011 compared to last year due to the ongoing political instability in North Africa and the Middle East. We are closely monitoring the political situation in both Libya and Yemen. In Libya, production ceased in the beginning of March 2011 and no further production is expected for the balance of the year (in 2010, production in Libya was around 33,000 boe/d).

Regarding Yemen, OMV’s production stopped in mid-March after an attack on an export pipeline. In July, the damaged pipeline was repaired and production has been restarted. Given continued security concerns it’s possible that further production interruptions occur during the remainder of the year. The production loss from both countries will partly be compensated by recent acquisitions.

Production levels in Tunisia will benefit from the recent acquisition of the Pioneer assets. Following the closing of the acquisition of Petronas’ E&P subsidiary in Pakistan in July, the new assets will contribute to production immediately. In the currently ongoing drilling of the exploration well Bina Bawi-3 in the Kurdistan Region of Iraq, hydrocarbons have been encountered in one of the shallower reservoir targets.

Final results including deeper targets are expected to be announced later this year. In Romania and Austria, we continue to focus on reducing the natural production decline and on enhancing the recovery rates from mature fields.

The challenging margin environment in refining as well as marketing will continue to pressure the R&M segment. After the routine turnarounds of the Neustadt site in Bayernoil (Q1/11) and the petrochemical plants in Schwechat (Q2/11) no further shutdowns in the western refineries are scheduled for the rest of the year.

At Petrom, no major shutdown is scheduled for Petrobrazi whilst the Arpechim refinery will remain permanently closed. In the marketing business, continuous network optimization of the retail business should improve profitability.

As of 2011, Petrol Ofisi is fully consolidated and will thus add to OMV’s marketing performance. At Petrom, the revised Petrobrazi refining investment will continue. Stringent cost management togetherwith further streamlining of the business will support profitability in R&M.

Within the G&P segment, the implementation of the Third Energy Package of the EU (unbundling equirement) will be a major focus for the gas logistics business in 2011. Commercial operations of the Gate regasification terminal in Rotterdam (OMV stake: 5%) are planned to start in September.

As regards the gas sales markets, the commissioning of new power plant projects will lead to additional demand for natural gas. International trading activities as part of portfolio management, as well as to create further business opportunities, are increasing.

The main focus regarding the Nabucco gas pipeline project are negotiations with gas supply countries in the Caspian Region, which will be followed by the start of the open season process for marketing the transport capacity. The start-up of the gas-fired power plant in Brazi (Romania) and the wind park in Dorobantu (Romania) are expected in H2/11, marking the operational entry of OMV into the power business.

In early 2011, the Romanian regulatory authorities decided to extend the “gas basket” to internal nontechnological usage that will also include the power plant in Brazi. Commencing in July, a further regulation also enforced a 10% increase of gas prices for industrial consumers. Though unlikely to significantly impact Petrom’s results in 2011 these factors will adversely impact the contribution of the Brazi power plant in 2012.