As the leading oil and gas group in Central Europe, OMV is active in Refining and Marketing (R&M) in 13 countries. In Exploration and Production (E&P) OMV is active in 20 countries on five continents. In the Gas business segment OMV has storage facilities and a 2,000 km long pipeline system, transporting 47 bcm of natural gas annually to countries such as Germany and Italy. Sales volumes of gas amount to 14.11 bcm. OMV holds stakes in integrated chemical and petrochemical plants – 50% in AMI Agrolinz International GmbH and 35% stake in Borealis A/S, one of the world's leading producers of polyolefin. Other important holdings are: 51% of Petrom SA, 50% of EconGas GmbH, 45% of the BAYERNOIL refining network and 10% of the Hungarian company MOL.
With the acquisition of a majority stake in the Romanian Petrom, OMV has become the largest oil and gas group in Central Europe, with oil and gas reserves of approx. 1.2 billion boe, daily production of around 324,000 boe and an annual refining capacity of 26.4 million metric tons.
Review of 2007 Results
OMV generated the best results the Group ever had in its history in the year 2007. Group sales increased by 6% to EUR 20.04 bn, EBIT (earnings before interest and taxes) amounted to EUR 2.18 bn and increased by 6% compared to the same period 2006. The EBIT contribution of Petrom was EUR 581 mn. Net income after minorities increased by 14% to EUR 1.58 bn. Cash flow of operations rose by 2% to EUR 2.07 bn. The gearing ratio is 23.7%.
In 2007, total investments of EUR 4.12 bn, including the acquisition of MOL shares (EUR 1.32 bn were attributed to increase of OMV’s share in MOL from 10% to 20.2%) were significantly higher than those in the same period 2006 (2006: EUR 2.52 bn).
EUR 1.36 bn of these investments were directed into E&P, mostly for the development of new fields in Romania, Kazakhstan, Austria, New Zealand and the UK. EUR 1.28 bn was invested into R&M in petrochemical projects in Burghausen, quality enhancement projects in the refineries as well as increasing OMV’s share in Petrol Ofisi to 39.58% at the end of December 2007. In the gas segment EUR 155 mn was invested, mostly into the expansion of the West-Austria gas pipeline (WAG).
Comparing fourth quarters, sales in 2007 increased by 11% to approximately EUR 5.73 bn and EBIT rose by 25% to EUR 492 mn. Net income after minorities increased by 8% to EUR 318 mn. At the end of December 2007, OMV Group (incl. Petrom) had 33,665 employees.
Exploration and Production
2007 Key performance indicators (% change)
Total hydrocarbon production in mn boe: 117.2 (-1)
Total hydrocarbon production in boe/d: 321,000 (-1)
Crude oil and NGL production in mn bbl: 59.8 (-3)
Natural gas production in mn boe: 57.4 (+ 1)
Average realized crude price in USD/bbl: 66.27 (+ 14)
In 2007, this segment further strengthened its position in its core regions with the acquisitions of new licenses. Offshore exploration licenses were acquired in Norway, Great Britain, Ireland, Egypt, Australia and New Zealand. In Romania, restructuring measures have had positive results, new discoveries were made and production declines in oil could be stopped.
In Libya, OMV made two oil discoveries in the exploration block NC200 in the Southern Sahara Desert. In Pakistan, the Group further strengthened its position. In the Sawan gas field OMV managed to increase its sales volumes by more than 15% thanks to additional wells and improved facilities. The Group discovered gas in successful exploration wells in the Latif-1 exploration block near Sawan and in Tajjail-1 in the Gambat block.
In Austria EUR 120 mn will be invest in the restructuring of production facilities in the Vienna basin by 2009. OMV aims to sustainably secure the oil and gas production in this region.
OMV signed a Memorandum of Understanding with International Petroleum Investment Company (IPIC) to pursue joint upstream projects in the Middle East, North Africa and the Caspian Region. OMV acquired two exploration blocks in the Kurdistan Region of Iraq. Furthermore OMV signed an agreement with the Libyan NOC for the redevelopment of huge oil fields. The planned investments aim at substantially increasing and securing oil production in this region for the next decades.
OMV signed agreements with the Slovakian oil and gas company NAFTA a.s. regarding the joint exploration of the Slovak part of the Vienna basin.
Segment sales increased mainly due to higher sales volumes. Brent increased by 11% compared to 2006. In EUR terms, this represented an increase of just 2%. The Group’s average realized crude price was USD 66.27/bbl, an increase of 14%. The Group’s average realized gas price in EUR was up 15%, mainly reflecting the increased gas price in Romania. EBIT remained at a similar level compared to 2006. The lower contribution from Petrom, as a result of lower volumes and a negative FX impact, was compensated by higher price levels and higher production volumes mainly in New Zealand and Libya.
In 2007, special charges included the reversal of impairments from the Sinelnikovskoe field (Kazakhstan), the sale of the Cherugi field (Tunisia), the impairment of the Suilven field (UK), charges relating to personnel restructuring in Austria and Romania as well as the reversal of impairments from a Petrom fertilizer plant and provisions for litigation risk.
OPEX in USD/boe increased by 18% compared to 2006. At Petrom, OPEX were up by 23%, mainly due to FX effects and the negative impact of lower production volumes on unit costs. Exploration expenditure was up 65% on 2006 mainly driven by increased activities in Petrom (Romania and Russia), Norway, UK, Australia and New Zealand.
Total production of oil, NGL and gas fell slightly by 1% to 321,095 boepd. Oil and NGL production was 3% below 2006 due to the disposal of assets in Ecuador in Q4/06, the change of contract in Venezuela in Q2/06, and lower volumes in Romania. Gas production increased by 1%. At Petrom, gas production was negatively impacted by reduced demand due to the mild winter in Q1/07, technical difficulties and seasonally lower gas volumes due to high pipeline pressure in the summer months.
As of December 31, 2007, the proved oil and gas reserves were 1,216 mn boe (of which 894 mn boe related to Petrom). The proved and probable oil and gas reserves amounted to 2,036 mn boe (Petrom: 1,435 mn boe). With 2007 Petrom reserves are now included in the Group’s reserves for three full years. This has lead to a significant reduction of the reserves replacement rate, which is calculated as a three-year average, to 46% in 2007 (2006: 406%).
Gas
Key performance indicators (% change)
Combined gas sales volumes in bcm: 13.07 (-7)
Average storage capacities sold in cbm/h: 771,286 (+ 15)
Total gas transporting capacity sold in bcm: 52.00 (+ 11)
In May 2007, OMV and Gazprom signed a Memorandum of Understanding on further cooperation in the gas business. The two companies have stated their interest to work together more closely on the Central European Gas Hub (not to be mistaken with the physical Baumgarten Hub, which continues to be a 100% subsidiary of OMV) and on future gas storage projects. On January 25, 2008, Gazprom's 50% participation in the Trading Hub was finalized. The aim of this is to develop the CEGH into the most important trading gas hub in continental Europe. Both companies are seeking to strengthen security of gas supply in Europe.
Together with consortium partners OMV founded Adria LNG d.o.o. for the construction of an LNG regasification terminal on the Croatian Island Krk. The new regasification terminal will originally have an annual capacity of approximately 10 bcm. Furthermore OMV acquired a 5% interest in the planned Liquefied Natural Gas (LNG) Terminal in Rotterdam.
The EBIT of the Gas segment increased by 81%, mainly due to the full consolidation of EconGas, the outstanding performance of the logistics business but also due to better results at Petrom.
The EBIT of the marketing and trading business increased by 106% due to the consolidation of EconGas and improved results in Petrom. Against the market trend in Romania, Petrom’s sales volumes increased compared to 2006 due to the flexibility to supply short-term demand of power plants.
Total marketing and trading volumes were negatively influenced by the restructuring of the Russian supply contracts, as well as the overall weaker gas environment in Austria. The relatively warm winter period of Q1/07 was partly offset by EconGas by increased business activities on the international natural gas market leading to a strengthening of marketing and trading's position as well as constituting the basis for the following year.
The logistics business benefited from higher volumes in transportation and storage. Total gas transportation capacity sold increased due to expanded capacity at the TAG Loop II, which came into operation at the end of 2006, an extension of the WAG pipeline system as of Q4/07 and optimized marketing of the transport capacity of other pipelines. Short-term contracts starting in Q3/07 further increased the result. The result of the storage business improved significantly as high capacities were booked for 2007 following the cold winter of 2005/06. Thus the average storage volume and capacity sold were significantly above last year’s level.
E&P Outlook 2008
E&P volumes, after a slight production decrease in 2007, are expected above last year’s level. The development focus will be on New Zealand (Maari), Kazakhstan (Komsomolskoe), Yemen (Habban), Austria (Strasshof and Ebenthal) and Libya (several recent discoveries). In Romania, the well modernization program will continue, as will the efforts to further enhance production efficiency. Therefore growth in oil and gas production will mainly come from production start-ups in New Zealand and Kazakhstan in the second half of 2008 as well as increasing production performances in Yemen and Romania. One of the key initiatives in 2008 will be the integration of the recently acquired oil services business of Petromservice. Petrom is now in a position to directly control the modernization process of this business in order to increase quality and efficiency of the operations and to support the reduction of production costs. Overall industry cost inflation is expected to continue in a high oil price environment. However, actions to tighten cost control, the modernization program at Petrom and higher production quantities will help to improve OPEX in cost per unit terms.
In the Gas segment, the internationalization of the business activities will be further pursued. The focus will be on the extension of trading activities at international hubs and on growing the direct sales business. A further entry to new sales and trading markets within the European growth belt is being evaluated. This development is expected to be strengthened by the local presence of EconGas in Austria, Germany, Italy and Hungary as well as by the growth of Petrom’s gas business in Romania. To satisfy the need for security of supply in Europe and also to support our growth strategy OMV will continue to diversify their supply base with LNG projects and their international logistic projects.
In the logistics business, Austria’s significance as the major Central European gas turntable is underpinned by the extension of transit pipelines, the rapid growth of the Central European Gas Hub (CEGH) and the planned storage projects. The Nabucco project, which is one of the key European energy infrastructure projects, further increases the importance of this turntable position. This pipeline aims at securing additional natural gas supply to Europe via a connection to the Caspian region and to the Middle East. An approval of the exemption - applied for at the national regulatory authorities as well as the European Commission - at terms and conditions acceptable for the Nabucco consortium and a successful open season together with resulting first transport contracts will be the basis for the final investment decision. Furthermore, the feasibility studies for the Adria LNG project are to be completed in the course of 2008. One of the major drivers of the strong growth in gas demand in Europe are gas fired power plants.
OMV believes that additional value can be generated through the expansion of the gas value chain in the downstream business, and power projects are being pursued in Romania and in Germany to supply the company's refineries. The beginning of the construction of the power plant in Romania at Petrobrazi will be a milestone in 2008. To reflect these power activities, the Gas business segment will be renamed Gas and Power.