Austrian OMV Hit by Impairments, Gas Oversupply

Austrian energy company OMV reported February 16 a net loss of €192mn ($204mn) for Q4 2016, down from €1.017bn in the same period of 2015, thanks to cost-cutting and higher oil prices. Clean current cost of supplies earnings were up, from €187mn in Q4 2015 to €315mn in Q4 2016, helped partly by a better contribution from downstream gas. It sold a 49% stake in transport arm Gas Connect Austria for €454mn.

Upstream net special items amounted to €120mn. These were mainly related to the impairment of the Mehar field in Pakistan following a downward reserves revision and to the UK as a result of the closing process for the OMV UK upstream and Rosebank sale, accounting for €49mn recorded just in Q4. Before interest and tax, OMV lost €34mn on its upstream business in Q4 2016, a fraction of 2015’s loss of €1.526bn.

OMV announced the sale of its entire UK upstream business in late 2016 for some $1bn to Aberdeen-based private equity firm Siccar Point Energy.

CEO Rainer Seele described 2016 – his first full year in the job – as a year of transformation for OMV: "We have taken significant steps towards reshaping the portfolio of OMV and our total divestment efforts generated €1.7bn of proceeds."

Cost reductions and efficiency efforts saved €200mn, twice the target. It generated free cash flow after dividends, including non-controlling interest changes, of €1.1bn, €1.7bn more than the previous year. For this year, OMV expects the average Brent oil price to be at $50/barrel.

OMV sees Europe's gas market as oversupplied. Average gas prices in European spot markets are expected to show an increase in 2017 so while gas sales volumes are expected to be flat in 2017, it forecasts lower margins. And a change in tariff regulation means that the contribution from the gas transportation business in Austria is expected to be significantly lower in 2017. It still owns 51% of Gas Connect Austria. The average realised gas price in Q4 was down by a quarter on the year-prior quarter.

Total OMV daily production of oil, natural gas liquids and gas rose by 2% to 315,000 barrels of oil equivalent/day, mainly owing to higher production from Norway and the partial re-start in Libya. This increase was partly offset by lower production in Romania, New Zealand and Austria, it said.

The gas storage business was further impacted by the decrease in summer/winter spreads, which led to a €73mn impairment of Etzel gas storage in Germany that was recognised in cost of sales.

A decrease in spark spreads in Turkey had an adverse effect on the Samsun power plant and led to an impairment amounting to €101mn recognised in cost of sales in 2016. 

William Powell