Today in London the Executive Board of OMV Aktiengesellschaft is presenting its 2025 OMV Strategy to representatives of the media and the capital markets.
The international oil and gas company headquartered in Vienna, Austria, intends to substantially increase its market position and operating earnings in the coming years. The proven business model of the integrated production, processing and marketing of oil and gas will be expanded internationally, along with an increase in petrochemicals capacity. The company’s goal is to achieve a Clean CCS Operating Result in excess of 5 billion euros by the year 2025. This would mark a 70% rise on the basis of 2017.
OMV CEO Rainer Seele: “Our work over the past three years has resulted in an OMV that is in robust health. And this is the basis on which we will build. Our integrated strategy will allow us to achieve international, profitable and responsible growth with the goal of substantially increasing the company’s value.”
Solid basis for future growth
The strategy presented at the start of 2016 has been successfully implemented by the end of the 2017 business year, in just half the time. The Executive Board has reshaped the portfolio, cut costs, increased production, and improved both earnings and cash flow. The Upstream business has also been put on a more sustainable footing with a Reserve Replacement Rate of over 100% and greater cost efficiency. With its strong operating performance, improved competitiveness and portfolio adjustments, the Downstream Oil business made a substantial contribution to earnings. The Downstream Gas business has been made profitable through pursuing a new strategic direction and streamlining the organization. Thanks to the clear focus on efficiency, cost savings, and cash generation, OMV has become a highly competitive and profitable company within just three years. In 2017 it achieved the best operating result in half a decade of some 3 billion euros. What’s more, the company is free-cash-flow-positive at an oil price over 25 dollars since the last business year.
Market outlook: global demand for oil and gas is rising
According to the International Energy Agency, global energy demand is set to grow by around 16% by 2030 to around 16 billion tonnes of oil equivalent per year as a result of global population growth. And oil and gas will still account for more than 50% of the overall demand in the future. Global oil demand is expected to rise by 7% to 4.7 billion tonnes of oil equivalent, primarily driven by the Asia Pacific and Middle East/Africa regions, in addition to a 70% hike in demand for petrochemicals products by 2030. Demand for natural gas is rising across the globe, with a 23% increase to 3.7 billion tonnes of oil equivalent forecast by 2030.
2025 Strategy: integrated growth strategy
OMV will make the most of its good starting position in this favorable market environment and forge ahead with its integrated growth. OMV CEO Rainer Seele: “Our goal is to make OMV bigger and even better. Here we will deploy a four-pronged approach: firstly, we will leverage on our proven concept of integration to generate growth. Secondly, we will make the production, processing and marketing of oil and gas substantially more international. Thirdly, we will build a strong gas market presence in Europe. Fourthly, we will expedite the optimization of our processes and continue to improve our performance.”
The growth should be borne equally by Upstream and Downstream and will be achieved both organically and through acquisitions. In terms of the bottom line, OMV forecasts an increase in the Clean CCS Operating Result to more than 5 billion euros in 2025.
To succeed in making OMV even more international will require diverse, flexible and highly capable employees. With this in mind, the HR strategy will center on a balanced mix of in-house, international and local experts.
Upstream: enhancing portfolio value, doubling reserves, improving performance
From 2015 to 2017, OMV’s Upstream division slashed its costs by 42%, increased production volumes by 15% and achieved a ten-fold increase in its Clean Operating Result to 1.2 billion euros. The portfolio restructuring coupled with efficiency increases helped slash production costs to 8.8 US dollars. Increases in production in Libya and Norway in particular, along with the acquisition of the Siberian gas field Yuzhno Russkoye, led to a new record production level in 2017 of 348,000 barrels of oil equivalent per day.
From this solid starting point, OMV intends to achieve further increases in the value and size of its portfolio by 2025. Production should grow to 600,000 barrels per day by 2025. This growth will be secured through acquisitions in cost-effective regions rich in reserves, whereby average production costs should not exceed 8 US dollars. Substantial, long-term contributions are expected to come from the Russian fields Yuzhno Russkoye, Achimov IV and V, as well as the Neptun gas field offshore Romania.
In addition to replacing the quantities produced – the goal here is an average three-year replacement rate of over 100% – the company will aim to double its secure reserves by 2025 to over 2 billion barrels of oil equivalent, whereby natural gas should account for more than half of this total.
The geographical focus of the growth strategy lies in the four existing core regions: CEE (Austria and Romania), North Sea, Russia, and Middle East & Africa. Alongside this, OMV plans to develop an additional core region in the form of Australasia.
Between 1.3 and 1.7 billion euros in annual investment has been earmarked for financing organic growth and ongoing operations until 2025. OMV plans to invest 300 million euros for the exploration and appraisal of potential resources, with an average of 15 to 20 exploration drillings expected per year.
Johann Pleininger, Deputy CEO and OMV Upstream board member: “Our goal is to secure a higher quality portfolio that generates more cash. To this end, we will continue to improve the quality of our asset base and more than double our reserves in addition to extending our track record of operational excellence while cutting costs and increasing production.”
Downstream: strengthening competitive position in Europe, internationalizing the refining business
The strategic measures implemented in the Downstream business made 2017 a record year. With a Clean CCS Operating Result of 1.8 billion euros, the unit achieved the best result in its history. Free cash flow underwent a two-fold increase to 1.7 billion euros from 2015 to 2017. The return on net assets (RONA) of 18% meant that Downstream achieved an industry-wide high in Europe.
OMV Downstream will further strengthen its competitive position in line with the waning demand for fuel and growing demand for petrochemicals in Europe. By 2025 a cumulative 1 billion euros will be invested in the Schwechat, Burghausen and Petrobrazi refineries, facilitating the production of more and higher quality petrochemical products and aviation fuels. In order to safeguard revenue and profitability in Europe, by 2025 more than half of the refineries’ production should be sold via reliable captive sales channels.
The move away from coal will mean an increase in demand for natural gas – the more environmentally sound option – on the European market. Together with the sharp rise in demand for imports, this will lead to a greater market potential in the medium and longer term. OMV thereby aims to establish itself as a strong market player from North West to South East Europe. Gas sales should grow to more than 20 billion cubic meters by 2025. Here OMV is aiming to secure a 10% share of the German market by 2025. Other plans include feeding additional equity gas from Norway and Romania into the European grid. The construction of Nord Stream 2 is of critical strategic importance for OMV as it will secure consistent, long-term gas supplies to Europe in combination with the Central European Gas Hub in Baumgarten and the pipeline network of Gas Connect Austria.
As part of the Downstream strategy, OMV will export its successful refining and petrochemicals business model to international growth markets. One goal here is to draw on the burgeoning demand in the Middle East and Asia for further growth, facilitated by higher production capacities coupled with better margins. Initial steps in this direction have already been taken, for example with the MoU signed with ADNOC in Abu Dhabi.
Approximately 5 billion euros have been earmarked for financing the international growth in Downstream through acquisitions by 2025.
In view of the global shortfalls in production capacities, OMV intends to practically double its refinery capacities long-term. OMV Downstream board member Manfred Leitner: “Today we stand as the most efficient Downstream oil business in Europe. We want to further strengthen this competitive position and use our knowhow to expand into promising international markets”.
Value-driven finance strategy
CFO Reinhard Florey: “OMV has sustainably strengthened its financial profile through its improved cost basis in particular and its strict, disciplined capital outlay. In terms of financial control, OMV adheres to the following principles: securing a solid financial base, increasing the company’s value and generating attractive returns for shareholders, as well as maintaining a strong investment-grade credit rating. The combination of high operating cash flow and a strong balance sheet gives us ample leeway for profitable growth”.
For the period 2018 to 2025, OMV plans to make annual investments averaging 2.0 to 2.5 billion euros in addition to an acquisition budget of 10 billion euros to 2025. Furthermore, the company will continue to enhance its operating efficiency. The goal of the new efficiency program is to reduce costs by 2020 by a further 100 million euros against 2017.
Under its amended dividend policy, OMV aims to increase dividends annually in line with financial performance – especially the development of free cash flow and the Group’s net income – or to at least maintain the level of the previous year. In order to ensure financial stability, OMV will continue to maintain a long-term gearing ratio of below or equal of 30 percent.
OMV is producing and marketing oil and gas, innovative energy and high-end petrochemical solutions – in a responsible way. With Group sales of EUR 20 bn and a workforce of around 20,700 employees in 2017, OMV Aktiengesellschaft is one of Austria’s largest listed industrial companies. In Upstream, OMV has a strong base in Romania and Austria and a balanced international portfolio, with the North Sea, the Middle East & Africa and Russia as further core regions. 2017 daily production stood at approximately 348,000 boe/d. In Downstream, OMV operates three refineries with a total annual processing capacity of 17.8 mn tonnes and more than 2,000 filling stations in ten countries as of year-end 2017. OMV operates a gas pipeline network in Austria and gas storage facilities in Austria and Germany. In 2017, gas sales volumes amounted to 113 TWh.