OMV Aktiengesellschaft generated another strong performance in the first half year 2008. From January to June 2008 Group sales increased by 41% to EUR 12.92 bn, EBIT (earnings before interest and taxes) from January to June 2008 amounted to EUR 1.75 bn and increased by 63% compared to the same period 2007.
The EBIT contribution of Petrom was EUR 512 mn. Net income after minorities - compared to the first half year 2007 - increased by 52% to EUR 1.13 bn. Cash flow of operations increased by 69% to EUR 1.9 bn. The gearing ratio is 24%.
OMV's CEO Wolfgang Ruttenstorfer stated, "We are pleased with the consistent progress that OMV continues to make, posting stronger six month results in all segments compared to the same period last year. In particular, the upstream environment continues to be favorable, with Petrom once again contributing significantly to Group results. In addition, our diversified geographic portfolio of upstream assets continues to provide us with real strength, with new developments in New Zealand, Kazakhstan, Yemen and Austria ramping up in the second half of the year.
"Looking forward, we expect oil prices to remain high, though declining from the record levels seen in the first half year, whilst our indicator refining margins should continue to be impacted by the high cost of crude. However, new upstream production, together with ongoing efficiency initiatives at Petrom should help offset these developments. Longer term, we will continue to invest the significant cash flows that the Group is generating in further developing and growing our high quality portfolio."
From January to June 2008, total investments of EUR 1.6 bn were lower than those of the first half year 2007 (1-6/07: EUR 2.1 bn). EUR 1.1 bn of these investments was directed into E&P, mainly in the acquisition of the oil service activities of Petromservice, field developments in Romania, Austria, the UK, Kazakhstan and New Zealand and a signature bonus agreed with the Libyan NOC for the Nafoora Augila oil field. EUR 322 mn was invested into R&M, mainly relating to investments in quality-enhancement projects in Austria and Romania. In the G&P segment investments of EUR 89 mn were put mainly in the Brazi power plant and in the fertilizer plant, Doljchim, as well as in the West-Austria gas pipeline (WAG) expansion project.
Significant events in Q2/08
Following the Annual General Meeting (AGM) of MOL on April 23, OMV decided to challenge the validity of the shareholder resolutions adopted at the MOL AGM.
On April 25, OMV acquired an 80% interest as operator in an offshore exploration license in Tunisia. The block covers an area of around 6,500 km² and is located approximately 30 km north of the producing oilfield, Ashtart.
OMV's AGM on May 14 approved a dividend of EUR 1.25 per share. Following the resignation of two Supervisory Board members, Alyazia Al Kuwaiti and Mohamed Al Khaja were elected as new members of the supervisory board at the AGM.
On May 28, OMV signed a new EUR 1.5 bn 3-year syndicated revolving credit facility. Its potential utilization is dedicated to general corporate purposes.
On May 29, the Nabucco consortium announced an update of its investment expectations for the Nabucco pipeline based on an actual market survey. The project investment costs are now estimated at around EUR 7.9 bn, reflecting the current market environment.
OMV was awarded an additional exploration license in Norway on June 23. The new license, in which OMV holds a 30% interest, is located in the Norwegian North Sea. The partners in the consortium are Talisman as operator and DONG.
Segment sales increased significantly due to higher price levels and sales volumes, despite weaker USD FX-rates. The Brent crude price increased by 73% compared to 6m/07, the Group's average realized crude price was USD 100.78/bbl, an increase of even 77%. The Group's average realized gas price was up by 14%, mainly reflecting the increased overall gas price level. The increase in regulated domestic gas price for producers in Romania in 2008 is not reflected as the effect is attributed to the Social Gas Fund.
EBIT rose by 66% compared to 6m/07 mainly due to significantly higher prices and despite lower production volumes and negative FX-effects. EBIT included the net special charges of EUR 60 mn, which refer to further provisions for litigation in Romania relating to employee bonus payments. Clean EBIT was 78% above last year's level. Production costs excluding royalties in USD/boe (OPEX) increased by 13% compared to 6m/07. At Petrom, OPEX was up 13% as well, mainly due to FX-effects (the RON strengthened by 4% against the USD) and the negative impact of lower production volumes on unit costs. Exploration expenditure was up 55% on 6m/07, mainly driven by increased activities at Petrom (6m/08: EUR 63 mn), Austria, the UK and Tunisia.
EBIT was 5% below last year's level, mainly caused by the negative contribution of Doljchim in Q2/08 and a lower result in gas supply, marketing and trading. Clean EBIT increased by 8% due to significantly improved results of the logistics business partly driven by the consolidation of Baumgarten-Oberkappel Gasleitungsgesellschaft m.b.H.
In gas supply, marketing and trading, the sales volume increased compared to 6m/07. In Romania volumes were below last year, where power plants generated increased demand, while EconGas was able to increase its volumes, particularly to distribution companies, due to especially cold temperatures at the beginning of this year. In Romania, results were further negatively affected by the regulatory environment and increasing import prices. Although last year conditions for optimization were more favorable, the international business activities remained at a steady level and contributed positively to EconGas' overall result.
The logistics business benefited from higher volumes. Starting in 2008, OMV introduced a new definition for the sold transportation capacity of gas, which supports European efforts in harmonization and transparency. Due to the close interconnection of the pipelines and the increasing importance of sold capacities against the main flow direction of pipelines, the calculation is now based on quantities assigned to shippers or distributors at pipeline connection points.
These volumes are based on transit as well as domestic volumes. Total gas transportation sold increased, primarily due to higher volumes sold on the Penta West and WAG pipeline systems. Compared to 6m/07, storage volumes sold were higher, whereas the demand for withdrawal rates declined slightly, as demand for withdrawal rates was unusually high in Q1/07. The result of the logistics business therefore improved significantly, rising by 67%.
OMV expects the main market drivers (crude price, refining margins and the USD/EUR exchange rate) to remain highly volatile throughout 2008. Average crude prices and the Brent-Urals spread should be above the level of 2007. The average USD/EUR exchange rate for 2008 is expected to weaken compared to the 2007 year-end level. OMV expects a relatively stable RON versus the USD, while depreciating against the EUR. OMV indicator refining margins, driven by high cost of own energy consumption, are expected slightly below the level of 2007.
In E&P, production shortfalls in 6m/08 due to shutdowns in the UK and Austria and lower gas production in Romania should be largely compensated by new developments in New Zealand, Kazakhstan, Austria, Libya and Yemen coming on stream in the second half of 2008. In Romania, the well modernization program will continue, as will efforts to further enhance production efficiency. One of the key initiatives in 2008 will be the integration of the oil services business of Petromservice. Overall, industry cost inflation is expected to continue in the high oil price environment. However, actions to tighten cost control and the modernization program at Petrom will help to mitigate this trend.
In July 2008, the contracts for the blocks NC115 and NC186 in Libya have been extended and converted to the EPSA IV contractual framework, effective from January 2008. As a result OMV will adapt its production reporting on NC115 to pre-tax reporting starting with August 1, 2008. Reporting for NC186 had already been adapted in Q4/06. Overall, these contractual changes will lead to operating income remaining largely intact but an increase of the Group´s income and therefore lower net income. However, the production expectation for Libya remains unchanged and reserves should increase mainly due to the extension of the contract period.
In the G&P segment, the marketing and trading business will focus on extending the trading activities at international hubs and on growing the direct sales business. Due to the regulated market price in Romania and the increasing import price for gas, margins remain under pressure. For the Nabucco project an open season process is planned for 2008, which should lead to the first transport contracts. This will be the basis for the final investment decision. The feasibility studies for the Adria LNG project are to be completed during the course of 2008. The launch of the construction of the power plant in Romania at Petrobrazi is a milestone in 2008. Further power plant projects are under evaluation. OMV's participation in Oberösterreichische Ferngas AG has been restructured in Q3/08. The pipeline and distribution system has been spun off and sold to the existing partners. In return, OMV's stake in the residual company, which holds a participation in EconGas GmbH of 13.55%, increased to 65%.
On the back of OMV's challenging organic growth targets, the continuing modernization of Petrom's operations and the general trend of increasing costs in the oil industry, average annual investments of approximately EUR 3 bn are planned until 2010 (excluding acquisitions and the Libyan contract renewals). All investment decisions are taken on a value-based approach, which is essential if OMV is to meet its target of a 13% ROACE over the course of the business cycle, given average market indicators.
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