OMV half year results confirm growth strategy
Posted: 18 August 2004
On track to surpass 2003 full year results
OMV, the leading oil and gas group of Central Europe, has delivered financial results for the first half of 2004 that clearly demonstrate the continued success of its growth strategy. In the six months from January to June 2004, EBIT (earnings before interest and tax) rose by 44% to EUR 464 mn, relative to the corresponding period of the previous year, and a comparison of the second quarters of the two years showed a 79% increase to EUR 316 mn. The net income for the period increased in the first half year by 62% to EUR 315 mn. Growth in the business segments Exploration and Production, Refining and Marketing, and Gas, as well as proceeds from the sale of E&P participations, contributed to this success.
CEO Wolfgang Ruttenstorfer commented, “The first half of 2004 was very successful. We have said that we want 2004’s results to be as strong as 2003, the year of our best ever results. We are well on our way to achieving this goal.”
Consolidated sales rose in the first half of 2004 by 28% to EUR 4.46 bn. At the end of June 2004, OMV had 6,154 employees, which was 17 more than at the end of 2003. Partially as a consequence of an increase in accounts receivable, the cash flow from its operating activities was EUR 491 mn and thus below the level of last year (1-6/03 EUR 512 mn). The gearing ratio decreased from 40% at the end of 2003 to 29%.
Refining and Marketing incl. Petrochemicals (R&M): Clearly improved results thanks to growth strategy
In the first half of 2004 sales in R&M rose by 43% to EUR 3.67 bn – primarily thanks to higher sales volumes stemming from the acquisition of filling stations, refining capacity and marketing activities. EBIT increased by 15% to EUR 153.82 mn. Contributing factors were higher sales volumes and improved refining margins; in the first half of 2004 the benchmark bulk margin ex Rotterdam averaged 3.57 USD/bbl (1-6/03: 3.14 USD/bbl). We also completed the turnaround at the Schwechat refinery.
Petrochemicals was able to achieve a sales volume increase, but its contribution to EBIT dropped to EUR 39 mn. This was a result of low margins.
Total volumes sold by OMV rose from 5.71 mn t to 8.21 mn t. OMV´s refining input increased to 8.48 mn t, including 2.58 mn t from the participation in BAYERNOIL. Capacity utilization of the refineries was 89%.
The acquisitions of the previous year gave significant new impetus to the marketing activities of OMV with respect to both filling stations and the commercial business. In the first six months of 2004 total sales volumes rose 34% from 3.98 mn t to 5.38 mn t compared to the corresponding period of the previous year.
OMV expanded its retail network to 1,784 stations (June 30, 2003: 1,377).620 are in Austria and 1,164 in other CEE countries. The percentage of stations outside of Austria is therefore now 65%. In the Danube Region OMV increased its market share from 11% to approximately 14%.
On June 30 OMV acquired the other half of the shares in OMV Istrabenz Holding. At the closing that is expected to take place before the end of 2004, it will become a 100% subsidiary of OMV.
Exploration and Production (E&P): Strong contribution to EBIT
In the half year comparison, the segment sales of E&P rose by 12% to EUR 475.89 mn – primarily as a result of higher production. The average realised crude oil price of 30.76 USD/bbl (1-6/03: 26.67 USD/bbl) was more than offset by the decline in earnings from the sale of gas and the 11% increase in value of the euro against the US dollar.
EBIT increased 69% to EUR 277.32 mn. A decisive factor was the closing of the sale of the exploration licenses in Sudan.
Compared to the first six months of 2003, production costs went up from 5.32 USD/boe (barrels of oil equivalent) to 5.63 UDS/boe. The increase in production was principally achieved in fields with relatively low production costs, but the strong euro and fluctuations in the exchange rate between the USD and the British pound had an adverse effect. If billing had been done in euros, the costs of production would have decreased by 5%.
Exploration expenditure rose by 32% to EUR 45.55 mn, mainly due to more exploration activities in Pakistan, Libya and in Iran.
Total production of oil, NGL (natural gas liquids) and gas increased in the first half of 2004 compared to the corresponding period of the previous year by 11% to 23.6 million boe. This represents an average production rate of 129,000 boe/d in the first half year (1-6/03: 117,000 boe/d). Whereas oil and NGL production achieved a plus of 3%, gas production rose 28% to 1.47 bn m³, thanks primarily to additional production in the new Sawan gas field in Pakistan.
In keeping with the concentration to E&P core regions, the second quarter was also characterised by a streamlining of the portfolio. Following the sale of concessions in Sudan, an agreement was signed to sell OMV’s 90% stake in the Cabimas oil field in Venezuela to Petroleum Technical Services Corporation (PTS). After all approvals had been received, the closing of this transaction took place on July 12. OMV had taken over this participation in the course of its acquisition of shares in Preussag Energie.
In May OMV New Zealand finalised a sales agreement for gas from the Pohokura Field. Production is expected to begin there in the second half of 2006.
Gas: growth in gas transportation
The transfer of trading operations to EconGas, in which OMV has a 50% stake, led to a decline in gas sales of 18% down to EUR 403.14 mn. On the other hand, EBIT rose by 20% to EUR 39.31 mn. This was primarily due to higher transportation volumes sold. In addition, OMV’s partners were billed accordingly for the complete overhaul of WAG (West-Austria-Gasleitung).
Increased transportation volumes were a positive factor in the carrier business of OMV Gas and to some extent compensated for the losses incurred as a result of the regulation of the pipeline infrastructure for domestic gas transport. Total gas transportation capacity sold increased by 2% to 1,490 mn cbm/h*km, mainly due to the expansion of the TAG (Trans-Austria-Gasleitung) capacity and higher capacities sold on the PENTA West pipeline to Germany as well as on the SOL pipeline to Slovenia.
At the beginning of May, OMV Gas and the Russian company Gazexport renewed and extended their gas supply contracts. This raises the volume of gas annually delivered to OMV from 5.5 to 6.5 billion m³ and assures delivery until at least 2012.
OMV, EconGas and NIGEC (National Iranian Gas Export Company) have agreed to cooperate in the area of gas export. NIGEC is interested in participating in the Nabucco Pipeline project that is currently being developed. Nabucco would bring gas from the Middle East and the region around the Caspian Sea to Austria and directly connect Central Europe with new gas supply sources.
Chemicals – a plus in sales
In the course of the transformation of OMV into a Management Holding Company, the Plastics business of Polyfelt was transferred from the Chemicals segment to Refining and Marketing. This change, and the low price of melamine, led to a decline in sales of 24% from EUR 234 mn to EUR 177.37 mn in the first half of 2004.
EBIT dropped 32% to EUR 8.91 mn as a result of lower melamine margins. In addition, production lines had to be temporarily shutdown for maintenance.
At the same time, the sales volumes of the fertilizer business grew 31% in the second quarter of 2004 compared to Q2/03.
An 8% increase in sales volumes was achieved for melamine. This was despite the maintenance work, as well as unplanned downtime in the plant in Castellanza ( Italy) due to difficulties of a raw material supplier. Along with pressure on prices and margins, increased expenses for marketing activities in connection with the upcoming beginning of operations in the new melamine plant in Piesteritz ( Germany) were also reflected in the financial result.
In the fertilizer business it was possible to offset the weak first quarter – caused by bad weather – primarily thanks to the increased demand for calcium-ammonia nitrate. Moreover, better prices could be achieved and, as a result of the lower price of gas, margins were higher. This development also increased the contribution of the fertilizer business to EBIT.
Outlook for 2004 – on the way to further profitable growth
Previewing future developments at OMV, Ruttenstorfer said, “The acquisition of a 51% stake in the Romanian company Petrom is an important step towards reaching our strategic goals for 2008 in the Refining and Marketing segment and exceeding them in Exploration and Production. The integration of Petrom will be a key task in the coming years. This acquisition can be expected to have only a slight impact on the financial results of 2004, since the closing is expected to take place shortly before the end of the year.”
Macroeconomic factors influencing business developments – especially prices for crude oil and gas, refining margins and exchange rates – will continue to be subject to fluctuations. Crude oil prices are expected to be higher this year than last year, but due to the strong euro they will hardly have any positive effect on earnings.
In the Refining and Marketing segment OMV will continue its efforts to increase its market share in Central Europe. In those countries in which OMV is active, however, marketing margins will continue to be under pressure. This will influence annual financial results. In the refining business declining margins are to be expected in the second half of the year.
In the Exploration and Production segment OMV will continue to concentrate on its five core regions. Growth resulting from the acquisition of the international E&P activities of Preussag Energie will have a positive effect. Despite the sale of the Cabimas oil field in Venezuela, average daily production is expected to be higher this year than it was in 2003.
OMV’s gas business will stabilise. In the Chemicals segment strong margins for melamine are expected.
“Bearing in mind all anticipated trends, the achievements of the first six months suggest that very good financial results are likely for the year as a whole – possibly beating our record results of 2003 - even though the second half of the year may not be quite as strong as the first half,” says Ruttenstorfer.
For more information see http://www.omv.com
Posted by Richard Price,
Editor Pipeline Magazine
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