OilVoice - OMV Reports Third Quarter Results

OMV Reports Third Quarter Results

Tuesday, November 10, 2009

• Results down on record quarter last year: Clean CCS EBIT decreased by 49% to EUR 514 mn; Clean CCS net income after minorities was EUR 259 mn influenced by a financial result significantly below Q3/08
• Environment has improved compared to Q2/09: Although the refining environment remains difficult, higher crude prices vs. Q2/09 and our efforts to reduce costs supported the Q3/09 result
• Outlook for 2009: We expect the main market drivers to remain volatile; in E&P, production should be supported by the recent start-up of new fields; in G&P, gas consumption will remain under pressure due to reduced industrial activity particularly in Romania; at Petrom, the planned refining investment is still under review

Wolfgang Ruttenstorfer, CEO of OMV:
"Over the last quarter we saw mixed signals from our different businesses. The E&P result was supported by higher oil prices vs. Q2/09 and a positive effect from start-ups during this year such as Maari and Komsomolskoe as well as Delta and Lebada Vest, the new offshore wells in the Black Sea. In R&M, depressed middle distillate spreads remain a burden, particularly on OMV’s refining margin due to the middle distillate-dominated yield structure of our western refineries. The petrochemical business showed some cautious signs of recovery vs. Q2/09 though its sustainability remains to be seen. In the G&P business, we are on track to implement our first power plant projects. The signing of the intergovernmental agreement in July paves the way for further important steps for the Nabucco gas pipeline project. With regards to our investment in Turkey, we announced in August that we had entered negotiations for the potential acquisition from the Dogan Group of their share in Petrol Ofisi. These negotiations continue. We are well on track with the ongoing efficiency and cost control program to reduce OPEX and overhead costs by EUR 300 mn by 2010 and will thereby further strengthen our integrated business model in challenging times as well as position ourselves for future growth in a volatile environment."

Financial highlights

Third quarter 2009 (Q3/09)
In Q3/09, results reflected the steep year-on-year decline in crude prices and in refining margins. The average Brent price decreased by 41% compared to Q3/08 and the OMV indicator refining margin dropped by 79%. The Group’s reported EBIT of EUR 553 mn was therefore significantly below the level of Q3/08. Petrom’s contribution to reported EBIT was up to EUR 210 mn, as last year’s result was burdened by the EUR 157mn impairment of Arpechim. The net financial result of EUR (20) mn was significantly below the Q3/08 level, mainly due to a lower contribution from Borealis and Petrol Ofisi as well as higher net interest charges. Net income after minorities of EUR 283 mn was down compared to EUR 453 mn in Q3/08. Clean CCS EBIT was down by 49% at EUR 514 mn excluding net special charges of EUR 15 mn. The clean CCS EBIT is stated after eliminating inventory holding gains of EUR 54 mn. Petrom’s clean CCS EBIT was EUR 194 mn. Clean CCS net income after minorities was EUR 259 mn and clean CCS EPS after minorities was EUR 0.87.

In Exploration and Production (E&P), clean EBIT decreased by 31% compared to Q3/08 to EUR 502 mn mainly due to the weaker oil price environment. The Group’s oil and gas production was 317,000 boe/d, slightly above the level of Q3/08.

In Refining and Marketing (R&M), clean CCS EBIT was negative at EUR (14) mn, versus EUR 207 mn in Q3/08. The refining business was heavily impacted by low middle distillate spreads. The clean marketing result was slightly below the level of Q3/08. Retail sales volumes slightly increased, however, overall marketing volumes declined affected by the weak economic environment.

In Gas and Power (G&P), clean EBIT was down 24%, due to lower results at Petrom. Gas supply, marketing and trading faced difficult market conditions as the slowdown in industrial activities due to the economic downturn lowered demand. The logistics business, however, benefited from higher volumes in transportation and storage.

January - September 2009
In 9m/09, the average Brent price in USD was 48% lower than in 9m/08. Overall, the Group suffered from the drop in the oil price and in refining margins, with EBIT and net income below last year’s level. The Group’s EBIT of EUR 1,056 mn was 57% below the level of 9m/08; despite last year’s impairment of the Arpechim refinery, the EBIT contribution of Petrom amounted to EUR 337 mn, a decrease of 52%. The net financial result of EUR (116) mn decreased significantly, mainly reflecting the drop in dividend income after the MOL sale and the lower contribution from associates. Net income after minorities of EUR 468 mn was 70% below last year’s level. Clean CCS EBIT was 62% lower, at EUR 1,005 mn excluding net special charges of EUR 58 mn. The clean CCS EBIT is stated after eliminating inventory holding gains of EUR 109 mn. Petrom’s clean CCS EBIT contribution stood at EUR 303 mn, down by 66%. Clean CCS net income after minorities was EUR 479 mn and clean CCS EPS after minorities was EUR 1.60, 71% below 9m/08. At the end of September, net debt of the Group was EUR 3,152 mn and the gearing ratio stood at 31.5%.

In E&P, clean EBIT decreased by 56% compared to 9m/08, mainly reflecting significantly lower price levels and slightly lower volumes, despite the positive hedging result for parts of the 2009 oil production, that more than offset the negative hedging result for parts of the 2010 oil production. The Group’s oil and gas production stood at 313,000 boe/d, 1% below last year.

In R&M, clean CCS EBIT was a negative EUR (95) mn, compared to EUR 245 mn in 9m/08 reflecting the depressed margin environment in refining. The marketing result came in above the level of 9m/08.

In G&P, clean EBIT decreased by 5%, due to lower results in Doljchim, which was burdened by lower demand and lower margins, partly offset by improved results of gas supply, marketing and trading.

Significant events in Q3/09
On July 13, Nabucco Gaspipeline International GmbH announced the signing of the political agreement among the Nabucco transit countries. The Inter-Governmental Agreement guarantees equal legal conditions for gas transit throughout the entire Nabucco pipeline system.

On August 3, Petrom confirmed both oil and gas discoveries in the exploration well Lugovaya-1, located in the Kamenski license in the Saratov Region (Russia). The first tests showed a total flow rate of over 6,500 bbl/d.

On August 5, OMV and the Turkish company Dogan Holding declared that they are engaged in negotiations regarding OMV’s intention to acquire Dogan Holding’s stake in Petrol Ofisi.

On August 10, Petrom, as operator of the Neptun Block in the Black Sea, and ExxonMobil, announced that they are commencing initial seismic 3D studies over an area of approximately 3,000 km2.

On August 21, OMV reported that 30 filling stations in Austria were sold to new acquirers and operators in the process of optimising its filling station network.

On September 14, Petrom announced its first oil production from the recently drilled offshore wells Delta 6 and Lebada Vest 4, both fields located in the Black Sea. Both wells together are expected to deliver more than 4,500 boe/d by the end of this year.

Exploration and Production (E&P)

Third quarter 2009
• Year-on-year decrease in oil price burdened Q3/09 results; a stronger USD mitigated this effect to some extent
• Production volumes slightly above Q3/08: Lower production in Libya due to OPEC quotas compensated by significant volumes from the oil field Maari, New Zealand
• Positive OPEX development: A stronger USD had a positive effect on OPEX in USD/boe, supported by an improved overall cost position

Since Q1/09, OMV has reported 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 Q3/09 – despite a stronger USD - mainly due to the weaker oil price environment. The Brent price in USD was 41% below the level. Higher volumes in New Zealand and Yemen compensated a significant volume reduction in Libya due to OPEC quotas, as well as lower volumes in Romania, Pakistan and the UK. Exploration expenses, including the impairment of exploration licences in Russia, were 24% below the level of Q3/08. The result was further supported by the unrealized time value gain for hedges entered into in Q2/09 for parts of the 2010 oil production (EUR 39 mn). Gains and losses relating to the change in time value of these instruments will revert to zero at the end of 2010. Hedges established in 2008 for 2009 activities resulted in a gain of EUR 49 mn in Q3/09. The stronger USD had a positive effect on oil revenues, while the weakening of the RON against the EUR (compared to Q3/08) 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. Excluding net special charges of EUR 11 mn, clean EBIT was 31% below last year’s level. Special charges related to the impairment of exploration licences in Russia.

Production costs excluding royalties in USD/boe (OPEX) decreased by 24% versus Q3/08. At Petrom, OPEX/boe was down by 22%. The positive effects from the stronger USD vs. RON, as well as cost saving effects, more than offset the negative volume effects at Petrom. Exploration expenditure declined by 42% to EUR 78 mn compared to Q3/08, mainly due to reduced exploration activities in Romania, Libya, Russia and Tunisia and despite an increase in activities in the UK.

Total production of oil, NGL and gas was slightly above Q3/08 at 317,000 boe/d. Oil and NGL production was up by 5% versus Q3/08 primarily due to a higher contribution from Maari (New Zealand, production up by 17,000 bbl/d), Komsomolskoe and Habban (Yemen), which offset the decrease in Romania as well as in Libya (production down by 5,000 bbl/d as a result of the OPEC quotas). Gas production decreased by 6%. Volumes were impacted by the partial shutdown of the local fertilizer industry in Romania. Also since Q1/09, non-hydrocarbon gases (inert gases) in Austria and Pakistan are no longer shown as part of production. However, these effects were partly offset by additional volumes from the Strasshof and Ebenthal field developments, which were start-ups in Austria in Q3/08. Lower sales volumes in Romania and the UK were more than compensated by higher volumes in Yemen and New Zealand; thus the total sales quantity increased by 3%.

Compared to Q2/09, clean EBIT increased by 82%. The result was driven by higher oil prices (Brent and Urals up by 15% and 16% respectively) and the positive hedging result for parts of the 2010 oil production. Sales volumes were at Q2/09 level, mainly due to higher volumes in Libya and New Zealand which compensated the decline in Austria, Tunisia and the UK. Oil production increased, mainly due to improved volumes from Maari (New Zealand), the start-up production of the offshore oil fields Delta 6 and Lebada Vest 4 and the steady ramp-up of the production at Komsomolskoe (Kazakhstan). Gas volumes slightly decreased as higher volumes from the Austrian field Ebenthal could not compensate for the reduction in the UK and Pakistan.

January - September 2009
Segment sales decreased significantly due to lower price levels and sales volumes, despite stronger USD FX-rates. The Brent crude price decreased by 48% compared to 9m/08, and the Group’s average realized crude price was USD 56.74/bbl, a decrease of 45%. The Group’s average realized gas price was down by 15%, mainly reflecting the falling overall gas price level.

EBIT fell by 57% compared to 9m/08 mainly due to significantly lower prices and slightly lower volumes, despite the positive hedging result for parts of the 2009 oil production (EUR 157 mn) that could more than offset the negative hedging result for parts of the 2010 oil production (EUR (68) mn). EBIT included net special charges of EUR 38 mn. Clean EBIT was 56% below last year’s level.

Production costs excluding royalties in USD/boe (OPEX) decreased by 19% compared to 9m/08. At Petrom, OPEX/boe was down by 20%, due to FX-effects (the RON weakened by 30% against the USD) and cost saving measures despite the negative impact of slightly lower production volumes on unit costs. Exploration expenditure was down by 34% on 9m/08, mainly driven by decreased activities at Petrom, in Austria and in the core region North Africa. Total production of oil, NGL and gas fell by 1%. Oil and NGL production was slightly above the level of 9m/08, mainly due to increased production in Yemen and New Zealand, which compensated for lower volumes in Romania, Libya and the UK. Gas production decreased by 4% mainly due to the partial shutdown of the Romanian fertilizer industry and reduced volumes in Austria and Pakistan, where non-hydrocarbon gases are no longer shown as part of production.