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Report January – March 2009

OMV: Early response to deteriorating environment bears fruit in Q1/09

13. May 2009. | 11:23 11:52

Source: EMportal

OMV has quickly adjusted to the changing economic environment, gaining competitive advantage through its strong liquidity position as a result of the hedging strategy in E&P started in Q4/08 and a reprioritized capital budget

Financial highlights

 

First quarter 2009 (Q1/09)

 

In Q1/09, results reflected the strong decline in crude prices. The average Brent price decreased by 54% compared to Q1/08. Furthermore these lower average crude prices led to negative CCS effects in refining. The Group’s reported EBIT of EUR 266 mn was therefore significantly below the level of Q1/08. For the same reasons the contribution of Petrom to reported EBIT was only EUR 77 mn. The net financial result was below the Q1/08 level, as the MOL sale as well as Borealis’ and Petrol Ofisi’s results made a negative contribution. Net income after minorities of EUR 40 mn was down compared to EUR 446 mn in Q1/08. Clean CCS EBIT was down by 54% at EUR 340 mn excluding a minor net special income of EUR 8 mn and CCS effects of EUR (82) mn. Petrom’s clean CCS EBIT was EUR 93 mn. Clean CCS net income after minorities was EUR 126 mn and clean CCS EPS after minorities was EUR 0.42. At the end of March, net debt of the Group was EUR 3,336 mn and the gearing ratio stood at 33.9%.

In Exploration and Production (E&P), clean EBIT decreased by 69% compared to Q1/08 to EUR 227 mn as oil prices fell dramatically, only partly compensated by the positive impact of FX developments. The Group’s oil and gas production was 308,000 boe/d, 4% below the level of Q1/08.

In Refining and Marketing (R&M), clean CCS EBIT was EUR 22 mn, versus EUR (7) mn in Q1/08. Timing effects (crude oil bought at higher price levels than prevailing at the moment of sale of finalized products) led to negative CCS effects of EUR (82) in refining. The petrochemical business suffered from depressed margins. The marketing result came in well above the level of Q1/08, mainly due to higher sales volumes and cost reductions in Petrom.

In Gas and Power (G&P), clean EBIT decreased by 2% to EUR 86 mn compared to Q1/08, with good results from gas supply, marketing and trading partially compensating for negative effects from Doljchim.

 

Significant events in Q1/09

 

On January 21, OMV announced the planned sale of additional 70 OMV and Avanti filling stations in Austria. OMV’s strategy is the expansion of premium station locations and quality leadership with the VIVA convenience store brand.

On February 12, OMV was awarded an additional offshore exploration license in Norway, which is located in the Barents Sea, and will be operated by OMV (Norge) AS in a joint venture with Sagex Petroleum Norge AS. OMV now has interests in seven licenses in Norway.

On February 23, OMV announced the planned sale of its subsidiary, OMV Italia S.r.L. with a network of 96 filling stations in the Northern-Italian region of Triveneto (Trentino, South Tirol, Friuli-Venezia Giulia, Veneto) by year-end 2009.

On February 25, OMV announced first oil from Maari, New Zealand, operated by OMV New Zealand in a joint venture with Todd Energy, Horizon Oil International Ltd and Cue Taranaki Pty Ltd. A peak production level of approximately 30,000 bbl/d is expected in 2010 (gross).

On March 9, OMV announced the start of the extended well test of Latif-1 located in the Latif Block about 100 km from Sukkur in southern Pakistan’s province of Sindh. During 9m/09 the testing gas rate is estimated to reach approximately 1,000 boe/d.

On March 25, the OMV Supervisory Board reconfirmed all Members of the Executive Board. Wolfgang Ruttenstorfer will serve as CEO until March 31, 2011 and will be succeeded by Gerhard Roiss.

On March 30, OMV announced the sale of its 21.2% stake in MOL to Surgutneftegaz, for a total consideration of
EUR 1,400 mn.

On March 31, OMV announced its debut EUR 750 mn Eurobond transaction, with a maturity of five years. Due to high demand the bond issue was later increased to
EUR 1,000 mn.

     

Outlook 2009

 

In 2009, we expect the main market drivers (crude price, refining margins and the EUR-USD exchange rate) to remain highly volatile. We expect the oil price to recover during 2009 from the significant drop experienced at the end of last year, but remaining well below the average numbers of 2008. The Brent-Urals spread should narrow compared to the 2008 average level.

The average EUR-USD exchange rate for 2009 is expected to be highly volatile and overall we are anticipating a weaker EUR compared to the average 2008 level. Based on the recent weakness of several CEE currencies we expect a highly volatile but overall decreasing RON versus the USD and the EUR compared to 2008 average levels.

The deterioration of the global economic situation will have an impact in OMV’s relevant markets. Refinery fuels margins are anticipated to weaken from the 2008 level and the petrochemicals business is expected to suffer from reduced market demand and lower margins caused by the economic downturn. Marketing margins are expected to be lower than in 2008.

OMV as an integrated energy company with low leverage has the financial strength to withstand the impact of a weaker economic environment. With its solid financial structure, OMV is well positioned to cope with the challenges and opportunities of the current market. The Group’s planned investments are screened and prioritized to reduce CAPEX to levels appropriate of the current challenging environment.

To partly protect the Group's cash flow from the negative impact of falling oil prices, derivative instruments have been used to hedge earnings in the E&P segment for 65,000 bbl/d in 2009. To achieve this goal, put spreads were used. Should average oil prices per quarter stay below USD 65/bbl in 2009, the hedge would pay out USD 15/bbl to actual oil prices. From USD 65/bbl to USD 80/bbl the hedge secures USD 80/bbl. The put spreads were financed via calls in order to avoid initial cash outlay (zero-cost structure), whereby the Group would not be able to benefit from oil prices above approx. USD 110/bbl in 2009 for the above stated volume. To partly protect the Group's cash flow from EUR-USD volatility, derivative instruments have also been used to hedge an exposure of approximately USD 1 bn. Based on these acquired derivative instruments, exchange rate movements only affect results within the range of EUR-USD 1.32 to 1.15.

In E&P, production is expected to increase due to new fields coming on stream in 2009. The oil field Maari in New Zealand started production in Q1/09 and first lifting was undertaken at the beginning of April. The oil field Komsomolskoe in Kazakhstan is expected to start production in Q2/09. In addition, the Austrian gas fields Strasshof and Ebenthal (put on stream in Q3/08), as well as drilling in the gas field Mamu and the development of the oil field Delta, both in Romania, will all contribute positively to production. On the other hand, changes to OPEC quotas will lead to a significantly lower production contribution from Libya than in 2008 and, starting with 2009, non-hydrocarbon gases (mainly inert gases) produced in Austria and Pakistan that can not be sold will no longer be shown as part of production. The Romanian gas demand is significantly lower than last year due to reduced industrial consumption, particularly in the chemical industry. To date, this has had no impact on our production, though an increase in the import rate later in the year could adversely affect Petrom’s gas production. In Romania, the further integration and restructuring of the oil service business of Petromservice, acquired in February 2008, will be one of the key activities. The successfully completed well modernization program, the increase in operational efficiency and streamlining of the organization will positively influence the operating costs of Petrom in 2009. The business focus will further be on tight cost control and project prioritization within E&P to tackle the volatile environment.

In the R&M segment, the thermal gasoil unit in Schwechat came on stream in the beginning of Q2/09, which will enable an increase in the share of heavy crude oil input and, at the same time, an improvement in the product yield. No major shutdowns are planned in the refineries. Minor planned shutdowns are not expected to materially impact earnings. Overall capacity utilization is expected to be below the long-term trend as a result of the economic slowdown in our relevant markets. In 2009, the construction of the Ethylene Pipeline South will be continued and should be completed in 2010. This pipeline will strengthen the petrochemical industry in Bavaria (Germany). The exit from retail business in Italy and further sale of tail-end filling stations in Austria will be ongoing, which should lead to an optimized structure of the overall network.

In the G&P segment, strong focus will remain on the enhancement of sales activities through increasing market penetration as well as on increasing trading activities at European gas hubs via EconGas. In Romania, the tendency towards declining gas consumption is expected to continue in 2009 due to reduced industrial demand. In order to strengthen the position of OMV’s gas business in Europe, diversification of long-term supply will be pursued in respect of accessing new supply sources – be it via pipeline or LNG. An open season process is planned in 2009 for the Nabucco gas pipeline project, which should lead to the first transport contracts. Major milestones for the Gate LNG terminal in Rotterdam are the construction of the outer LNG tanks and the jetty substructure. For the Adria LNG project in Croatia, the Combined Risk Assessment, the Environmental Impact Study and the Front End Engineering and Design award process are to be completed in 2009. Further extension of the WAG gas pipeline will continue, aiming to increase the transport capacity by 2011. The construction of the power plant in Brazi in Romania continues according to plan.

     

At a glance

Q4/08

Q1/09

Q1/08

r%

in EUR mn

 

2008

5,771

4,291

5,955

(28)

Sales 1

 

25,543

30

227

731

(69)

EBIT E&P 2

 

2,274

(286)

(51)

43

n.m.

EBIT R&M

 

(105)

70

85

88

(4)

EBIT G&P

 

245

(41)

(19)

(15)

23

EBIT Corporate and Other

 

(111)

98

24

(52)

n.m.

Consolidation

 

37

(129)

266

795

(66)

EBIT Group

 

2,340

274

227

731

(69)

Clean EBIT E&P 2, 3

 

2,580

357

22

(7)

n.m.

Clean CCS EBIT R&M 3

 

602

83

86

88

(2)

Clean EBIT G&P 3

 

274

(25)

(19)

(15)

23

Clean EBIT Corporate and Other 3

 

(89)

98

24

(52)

n.m.

Consolidation

 

37

786

340

745

(54)

Clean CCS EBIT 3

 

3,405

(282)

178

773

(77)

Income from ordinary activities

 

2,309

(365)

89

566

(84)

Net income

 

1,529

(208)

40

446

(91)

Net income after minorities

 

1,374

302

126

419

(70)

Clean CCS net income after minorities 3

 

1,942

(0.70)

0.14

1.49

(91)

EPS in EUR

 

4.60

1.01

0.42

1.40

(70)

Clean CCS EPS in EUR 3

 

6.50

515

915

813

13

Cash flow from operating activities

 

3,214

1.72

3.06

2.72

13

CFPS in EUR

 

10.76

3,448

3,336

2,497

34

Net debt

 

3,448

37

34

24

39

Gearing in %

 

37

906

605

815

(26)

Capital expenditures

 

3,547

n.a.

Dividend per share in EUR 4

 

1.00

9

33

(71)

ROFA (%)

 

23

3

18

(84)

ROACE (%)

 

12

4

22

(83)

ROE (%)

 

16

41,282

39,713

42,727

(7)

OMV employees

 

41,282

35,588

34,012

37,230

(9)

thereof Petrom group

 

35,588

1 Sales excluding petroleum excise tax
2 Excluding intersegmental profit elimination now shown in the new line “Consolidation”; for reasons of comparability 2008 numbers are
adjusted accordingly
3 Adjusted for exceptional, non-recurring items; clean CCS figures exclude inventory holding effects (CCS effects) resulting from the fuels
refineries; for reasons of comparability respective 2008 numbers are presented
4 2008: Proposal to the Annual General Meeting 2009

Exploration and Production (E&P)

Q4/08

Q1/09

Q1/08

r%

in EUR mn

 

2008

1,065

770

1,181

(35)

Segment sales

 

5,089

30

227

731

(69)

EBIT 1

 

2,274

(244)

n.a.

Special items

 

(307)

274

227

731

(69)

Clean EBIT 1

 

2,580

             

Q4/08

Q1/09

Q1/08

r%

Key performance indicators

 

2008

29.2

27.7

29.3

(5)

Total hydrocarbon production in mn boe

 

115.9

318,000

308,000

322,000

(4)

Total hydrocarbon production in boe/d

 

317,000

15.6

14.5

15.2

(4)

Crude oil and NGL production in mn bbl

 

60.9

76.8

74.1

79.1

(6)

Natural gas production in bcf

 

308.0

55.48

44.46

96.71

(54)

Average Brent price in USD/bbl

 

97.26

56.54

45.88

89.71

(49)

Average realized crude price in USD/bbl

 

89.74

132.57

50.79

58.26

(13)

Exploration expenditure in EUR mn

 

406.01

128.32

71.42

26.79

167

Exploration expenses in EUR mn

 

333.97

13.33

11.82

13.50

(12)

OPEX in USD/boe

 

14.29

     
             

Thereof Petrom group (included above)

     

Q4/08

Q1/09

Q1/08

r%

in EUR mn

 

2008

(187)

101

331

(69)

EBIT 1

 

796

(232)

n.a.

Special items

 

(298)

44

101

331

(69)

Clean EBIT 1

 

1,094

             

Q4/08

Q1/09

Q1/08

r%

Key performance indicators

 

2008

192,000

192,000

198,000

(3)

Total hydrocarbon production in boe/d

 

194,000

8.7

8.3

8.5

(3)

Crude oil and NGL production in mn bbl

 

34.4

1.4

1.4

1.5

(5)

Natural gas production in bcm 2

 

5.6

54.65

43.73

93.00

(53)

Average Urals price in USD/bbl

 

94.76

45.75

46.45

84.87

(45)

Average realized crude price in USD/bbl

 

83.01

170.75

150.97

197.47

(24)

Regulated domestic gas price for producers in USD/1,000 cbm

 

195.59

17.40

14.71

17.29

(15)

OPEX in USD/boe

 

18.27

1 Excluding intersegmental profit elimination; for reasons of comparability 2008 numbers are adjusted accordingly
2 Reported in bcm, as gas prices in Romania are based on 1,000 cbm

First quarter 2009 (Q1/09)

u Low oil price environment burdened Q1/09 results; stronger USD could mitigate this effect to some extent

u Production volumes below Q1/08 level: Lower volumes in Libya and in Romania could not be fully offset by start of production of the oil field Maari, New Zealand

u Positive OPEX development: A stronger USD had a positive effect on OPEX in USD/boe, supported by an improved overall cost situation

 

Beginning with Q1/09 OMV is reporting its segment results before taking into account the necessary elimination of intersegmental profits. The change in these unrealized profits is reflected in the consolidation adjustment.

Segment sales decreased significantly in Q1/09 – despite a stronger USD – mainly due to the weaker oil price environment. The Brent price in USD was 54% below the Q1/08 level, while the Group’s average realized crude price fell by just 49% to USD 45.88/bbl. The Urals crude price, the reference oil price in Romania, decreased by 53%. The Group’s average realized gas price in EUR was by 9% below Q1/08 reflecting the gas price decline lagging behind the oil prices. EBIT fell by 69% compared to Q1/08 mainly due to the weak price situation and lower lifting volumes. Higher volumes in New Zealand and Yemen could not compensate for a significant volume reduction in Libya, as well as for lower volumes in Romania, Pakistan and the UK. Also the negative effect of higher exploration expenses due to the write-off of parts of the Barracuda field in Libya burdened the result. These effects were partially mitigated by a positive hedging result (EUR 58 mn) and the beneficial effect of the stronger USD. The latter had a positive effect on oil revenues, while the weakening of the RON against the EUR (compared to Q1/08) had a strong favorable impact on RON-denominated costs in EUR terms. Romanian gas prices in EUR terms were adversely affected by the weakening of the Romanian currency since they are fixed in RON. As no special items were recorded in Q1/09, just as in Q1/08, the decline in clean EBIT was the same, 69%.

Production costs excluding royalties in USD/boe (OPEX) decreased by 12% versus Q1/08. At Petrom, OPEX/boe was even down by 15%. The positive effect from the stronger USD and weaker RON more than compensated for the negative volume effects. Exploration expenditure declined by 13% to EUR 51 mn compared to Q1/08, mainly due to lower exploration activities in Romania and Russia despite higher activities in Libya and the UK.

Total production of oil, NGL and gas was down by 4% versus Q1/08 at 308,000 boe/d. Oil and NGL production was slightly below Q1/08 primarily due to Libya (production down by 7,000 boe/d mainly as a result of the lower OPEC quota) and lower volumes in Romania, the UK and Tunisia, which could not be compensated by the start of production of Maari (New Zealand) and higher volumes from Habban (Yemen). Gas production fell by 6% compared to Q1/08, mainly due to lower market demand in Romania. As of Q1/09 non-hydrocarbon gases (mainly inert gases) produced in Austria and Pakistan that can not be sold, will no longer be shown as part of the production. This was only partially compensated by the additional volumes from the Strasshof (first phase) and Ebenthal fields, which were start-ups in Austria in Q3/08. Also, to a large extent due to underliftings in Libya and Tunisia, the total sales quantity was 5% behind Q1/08 volumes. The new Maari field had no liftings in Q1/09.

In Q1/09, OMV decided to stop its exploration activities in Bavaria, Germany and in the Mehr block in Iran. Thus OMV is active in 17 countries in the E&P segment.

Compared to Q4/08, clean EBIT declined by 17%. The negative effects of lower oil prices (Brent and Urals down by 20%) and lower volumes in Q1/09 were only partially mitigated by cost savings and the positive hedging result. Reported EBIT increased significantly due to net special charges (EUR 244 mn) booked in Q4/08 reflecting provisions for litigations in Romania as well as restructuring provisions and write-offs in Iran and Russia. The contribution from Petrom benefited from a weaker RON against the EUR (lower costs in EUR terms) but was adversely affected by decreased gas prices in EUR terms. Sales volumes were down, largely due to lower volumes in Libya. Oil production decreased, also mainly due to Libya (Libyan volumes down by 9,000 boe/d), as the effects of the lower OPEC quota could not be offset by the start-up of Maari. Gas volumes slightly declined as volumes from the new Austrian fields Strasshof and Ebenthal could not compensate for the deduction of non-hydrocarbon gases in reported volumes from Pakistan and Austria. Gas volumes in Romania were stable.

 
 

Refining and Marketing (R&M)

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30. April - 06. May 2012.

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Q4/08

Q1/09

Q1/08

r%

in EUR mn

 

2008

4,265

2,842

4,705

(40)

Segment sales

 

20,883

(286)

(51)

43

n.m.

EBIT

 

(105)

122

(1)

5

n.m.

thereof petrochemicals west

 

168

(159)

9

3

200

Special items

 

(408)

(484)

(82)

47

n.m.

CCS effects: Inventory holding gains/(losses) 1

 

(300)

357

22

(7)

n.m.

Clean CCS EBIT 1

 

602

             

Q4/08

Q1/09

Q1/08

r%

Key performance indicators

 

2008

7.25

4.26

4.24

0

OMV indicator refining margin in USD/bbl