OMV Back in Black, Still Backing Gazprom
OMV’s major asset swap with Gazprom is expected to close toward end-2018, said CEO Rainer Seele at a briefing February 21 where the Austrian firm reported a return to full year profits and restated its determination to support Gazprom's pipeline scheme.
The Gazprom asset swap would be one of the highlights of the Austrian producer’s year but still depends on corporate governance decisions in Norway and Russia, he said. Last year Oslo raised concerns over OMV’s planned transfer of assets there to Gazprom.
The company reported net income for full year 2017 of €853mn ($1bn), compared with a loss of €183mn in 2016, while its 4Q net income was €421mn, compared with a loss of €331mn in 4Q2016. OMV clean CCS operating result was 93% higher at €2.96bn in 2017.
Seele said he expected the Nord Stream 2 (NS2) gas pipeline project to advance this year, as it would “contribute to the energy supply of Austria and Europe”. OMV is among five foreign financial backers of the Gazprom-led 55bn m³/yr project, whose route via Danish waters has yet to gain that government’s approval. Refusal would add about 10km to the length.
Downstream chief Manfred Leitner said OMV had provided €329mn of funds to NS2 to date and admitted the possibility of project delays, if consents are withheld, but said to date the project was on target. NS2 says it plans to enter service end-2019, which is when Gazprom's transit contract with Ukraine expires.
Seele too saw the absence to date of a German coalition government and some political opposition to NS2 as an uncertainty for the project, but stressed that Germany until now has consistently backed it. He also said that he expected Brussels to avoid a “politically driven, emotional discussion” of the project; and that OMV was monitoring the impact of any US sanctions enacted “at the expense of Europe.”
Overall last year, OMV reported “significantly higher production” in 4Q 2017 of 377,000 boe/d, up by a fifth on 4Q 2016, including gas production in Russia of 36,000 boe/d, and higher Libyan production (25,000 boe/d). Romanian affiliate OMV Petrom production was down by 3% to 165,000 boe/d, mostly because of natural decline of gas and oilfields. Seele said the company recorded, in 2017, its second consecutive year in which its reserve replacement ratio to production exceeded 100%.
OMV acquired a 24.99% in the Yuzhno Russkoye gas field in Russia last year from Uniper, while divesting its “cost-intensive” activities in the UK North Sea, said Seele. OMV production costs had fallen to $8.8/b in 2017, from $13.2/b in 2015, he added.
Upstream chief Johann Pleininger said a major seismic campaign on a deep horizon in Lower Austria near Vienna, began January and would complete mid-2018. The objective is to find a large deep gas objective. By early 2019, OMV have the results and be in a position to decide on drilling, he said. Separately, he also indicated that it would be until 2019 at the earliest before OMV took any investment decision arising from its evaluations in Iran.
In Abu Dhabi, Seele said he looked for a decision on development of a sour gas project there, after last May reaching an agreement with state Adnoc to establish close ties.
Some investment would be made in the Neptun gas field offshore Romania during 2018 and also in the Nawara gasfield redevelopment onshore Tunisia which would now be complete in mid-2019, said Pleininger. Nawara was due to have restarted mid-2017.
Of Neptun, though, Leitner admitted there is still no decision on where its future gas would be marketed, as plans to export some to Austria were affected by Hungary’s refusal to co-develop the BRUA gas pipe project (Bulgaria-Romania-Austria) on its territory.
Downstream gas clean CCS earnings were up year on year by some 50% at €45mn, as natural gas sales volumes rose by 5% to 31.13 terawatt-hours, on increased sales in Germany, Austria and Turkey. Seele said that more needed to be done at an EU level to switch from coal to gas in power generation, observing that Uniper is planning a new gas-fired plant in Germany.
Looking forward to 2018, OMV expects total production of 420,000 boe/d, of which 100,000 boe/d from Russia, and an average Brent oil price of $60/b, with European spot gas prices of similar levels to 2017 – meaning an average CEGH price of €18/MWh – and with upstream earnings (excluding acquisitions) earnings expected of €1.3bn.