OMV: Russian Deals on Track, Profits Up (Adds NS2 Quote)
(Rewrites para 4 on NS2 financing)
OMV CEO Rainer Seele says the company's Russian E&P deals remain on track, as it continues to analyse the potential impact of US sanctions on the Gazprom-led Nord Stream 2 (NS2) pipeline project on a “day by day” basis.
Talks on financing of the venture would be continued by OMV and other partners – including banks – during the coming months, he told a November 9 press briefing about OMV's 3Q results.
Calling for coal-fired generation to be phased out, Seele said “natural gas is the future for Europe,” adding that the German government needed to be “more decisive” in its support for NS2 as the venture would “provide more secure supply for Germany, for Europe, and for Austria.” The previous coalition argued strongly for NS2, but now the Social Democrats are out of government, the new coalition's will is weaker. He did not mention the European Commission's November 8 announcement that it will draft an extension of EU law to gas import pipelines including NS2.
Seele said OMV has contributed almost €280mn to the NS2 project, which is over a quarter of its 10% share and said there was now an "interpretation of the [sanctions] Bill from the US State Department. That’s why we are analysing. We will always be in full compliance with the sanctions. So far, what I have learned from our legal experts is that there might be an impact on financing of the NS2 project. But this will impact mainly the project financing, on which a discussion will be started with the banking sector by NS2 in the next months to come. I would say that OMV, and also our other financing parties in the project, we are highly committed to realise NS2." (Separately Gazprom announced November 9 that it had signed a five-year loan from Italian bank UniCredit worth €700mn that would be used by Gazprom for "corporate purposes".)
OMV net income in 3Q2017 was €544mn ($631mn), compared with €129mn in 3Q2016. The nine-month figure to September 2017 was €432mn, up by 192% from the €148mn profit in 9M2016.
Clean operating result with current cost of supplies (CCS) for 3Q2017 was €804mn, 52% higher than the year-ago €529mn, driven by upstream, particularly higher Norwegian output, restart in 4Q2016 of Libyan production, and higher realised oil and gas prices. Upstream’s result was €300mn (up from €41mn in 3Q2016); Downstream’s was €510mn (up 4%); Corporate made minor losses.
Nine-month production was 338,000 barrels of oil equivalent (boe/d), up 9% year on year, and up 13% in 3Q to 341,000 boe/d. Seele said OMV’s production forecast for full year 2017 is now forecast at 330,000 boe/d, of which more than 20,000 boe/d in Libya; current Libyan production is 28-29,000 boe/d.
OMV’s chief said average production costs had been reduced to $8.80/boe, and the target is for $7/boe once Russian E&P deals are completed. He said the $1.85bn acquisition of Uniper’s 24.99% stake in the Yuzhno Russkoye gasfield is expected to close by end-2017, while an asset swap – of OMV Norway interests in exchange for Gazprom ones in Russia – was on track and would be completed “at the latest” by end-2018.
Incremental Russian production from the deals will add some 100,000 boe/d to OMV production, taking it to about 430,000 boe/d towards end-2018, added Seele.
Average crude oil price in 3Q2017 realised by OMV was $47.26/b, up 9% year on year, while its average realised gas price was 17% higher at $5.21/’000 ft³. Seele said the current spot price at the Austrian CEGH hub of €18/MWh gas ($6.11/mn Btu) was €3 to €4 higher than a year ago.
Earlier this week OMV announced start-up of its Sofiya gas field in Pakistan on October 27, adding 15mn ft³/d and 1,400 b/d condensate to the production from the Sofiya lease within the Mehar block. The Sofiya-2 well discovery was made in 2013 and development began early 2017.
OMV noted that natural gas sales margins are forecast in 2017 to be lower than in 2016 due to European oversupply, while the contribution from OMV’s share in the Austrian gas grid operator (Gas Connect Austria) will be “significantly lower” following a change in tariff regulations.
Mark Smedley