OMV warns lower oil price will hit investment

Part Ipic owned energy company warns that it might miss its production goals over the next two to three years.

OMV, the troubled Austrian energy group which is partly owned by Abu Dhabi’s Ipic, warned on Thursday that it might miss its production goals over the next two to three years as a declining oil price cuts into its investment programme.

The integrated energy company, which has oil and gas exploration and production interests primarily in Europe and North Africa, as well as European power generating and refining operations, issued the warning as it was reporting mixed financial results for the third quarter, with improved profit in refining offset by lower earnings from oil production.

OMV said it suffered a 21 per cent decline in “clean” earnings in its exploration and production business compared to last year’s third quarter, with profit in its largest division falling to US$455 million. Earnings in refining and marketing more than doubled, however, to $206m, and its power and gas unit also turned a small profit of $14m. Overall, the third quarter’s clean profit (which strips out inventory and one-off gains or losses), was up 6 per cent at $656m.

OMV shares were hardly changed at midday in Vienna on Thursday and stood at about €25, but they have been declining for months and stood 32 per cent lower than this time last year.

The company is in the middle of a management shake-up that was set in motion by its board of directors last month, and which will result in a number of its most senior executives departing earlier than planned. That includes the chief executive Gerhard Roiss, who has agreed to step down by the end of June next year.

This week, Mr Roiss told CNBC in an interview: “Our target is to grow upstream production by about 4 per cent a year, including acquisitions.” But in a statement accompanying Thursday’s’s earnings, he struck a note of caution on investment, saying: “In order to reflect a more challenging operating environment, especially the softness in the oil price together with the unpredictability of our Libyan production, which is adversely impacting the group’s cash flow, we have decided to review the pace of our investment programme for the next two to three years.”

Before the shake-up was announced, Mr Roiss had been taking OMV in a new direction, with more focus on exploration and development and less on downstream. It sold its Bayernoil refinery and last year made its largest-ever acquisition, paying €2.65 billion (Dh12.18bn) for assets in the UK and Norway, including the Gudrun field. It has also had good results from exploration in the Black Sea.

Mr Roiss has also been a strong proponent of the South Stream gas pipeline project led by Russia’s Gazprom, which has been rumoured to be in talks to buy Ipic’s near 25 per cent OMV stake, although none of the interested parties have confirmed that. OMV signed a deal last June to bring South Stream to Austria.

As part of the shake-up agreed last month, the refining and marketing and power and gas divisions will be merged into one downstream division under Manfred Leitner, the current head of refining. Meantime, the head of the gas and exploration divisions have both also agreed to depart.

OMV’s largest shareholder is the Austrian government, through a 31.5 per cent stake owned by its industrial investment agency. A number of ministers have been highly critical of the company’s management recently, with the prime minister calling its revamp plan “chaotic” last month, precipitating the changes at the top.

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