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Analysis OMV update oct. 30, 2019 

This is not a recommendation or proposal to do anything. It is my private personal opinion.  The data written in this article is not guarranteed. It is my private personal opinion. I`m not independing as I own a position of OMV shares. I`m a shareholder of OMV since a few years. I regularly prefer OMV to RDS B were I have as well some shares. OMV performed much better in this period than RDS B. I assume that OMV will outperform big oil as well in the long run

OMV generated revenues of about 23 bn €/a produced 447.000 bl/day oil equivalent 1/2 oil, 1/2 gas end of 2018 (6). In Q3/19 OMV increased the production to 480.000bl/day. It is roughly 8 x smaller then RDS or XOM. Thats why it is better for OMV to concentrate on tier 2 & 3 opportunities that are not that attractive for big oil. OMV main sources are in Romania, about 1/3 of the production, Russia 1/5, Norway 1/4, Austria 1/10, Lybia, NZ... It plans to increase the upstream production to 600k bl/day till 2025 together with a growth in the downstream (8).  I do not see this move positive. The portfolio consists of plenty of small projects. The risk is that the focus get lost. 

Potential reason to buy OMV is the significant lower valuation and better growth potential compared to its bigger competitors. 

 

Chances & Risks

The EPS (est. 2019) at a share price of 52 €  app. an eps of > 5 €/share -> PE 10, OMV plans a dividend of 1.75 €/share about 3.3%.  It is not expensive. 

The major risk for all oil companies is the oil price. It seems that supply did outgrow demand. A reason that the oil price stays in current levels is that Iran, Venezuela, Lybia does not produce according to their technical capabilities. The OPEC and Russia capped their production in favor of higher prices. This situation might go on at least untill the ARAMCO listing. 

An acutal major issue for all oil/gas companies is the falling gas price. It seems that production outpaces demand. A risk is that oil production outpaces demand as well and lower oil prices seems not unrealistic. It is forecasted that the demand growth in the oil market is < 1 mio. bl/d in 2019 and 2020. On the other hand there is some idle capacities as Iran, Lybia, Nigeria, Venezuela that are blocked by various political reasons. 

A main specific risk and reason that the numbers were below that of previous quarters is Lybia. The regular production from Lybia Al Sahara field* is about 35.000 bl/d (OMV share) if not disturbed. The production in Lybia is unstaedy and varies due to the civil war.

A major risk for OMV comes from Romania, that makes up 1/2 of the production. Royalties were increase begin of 2019. On the other hand the domestic gas price was reduced by the government(9). The investment in Black Sea offshore gas is on hold due to this issues(9). It is the question how much backing OMV can get from Austria and the EU. This is as well a threat for all oil&gas companies working in countries were the rules of law are weak. As soon as companies had done their investment and getting cash out of it it is always the risk that governments get big eyes and squeeze the successful foreign investor.  

A smaller country risk is the civil war in Lybia where OMV operates the El-Sharara-Field in the Murzuq basin producing some 35000 bl/day if the civil war allows(11) 

One of OMV best assets is the share in Borrealis. Borrealis is a plastic manufacturer situated in Austria with a participation in Borrouge. Co - owner is Abu Dhabi. The plastic business is a good compensation to the oil upstream business.

The Trump administration in the USA threatens OMV to impose sanctions due to its participation in the Nordstream Pipeline (10). The risk is limited to max. 950 mio. € the share of OMV in this project. OMV does not have a significant business in the US. US shareholdership is not decisive. Hence it can make use of the opportunities in Iran or Russia despite of US sanctions.  An initiative for a sanction bill is forwarded to the congress(12)

 

 

 

  

 

 

A decline of the oil price is a risk for all oil/gas companies. OMV seems to be a better choice in such a scenario. The strong downstream business, a low debt rate "Consequently, net debt/EBITDA is equal to 0.5x, which is phenomenally low." (5) might be an opportunity for OMV to aquire good assets for low.  

OMV seems to be less in the focus of green communists. The investment in green nonsense 19/20 12 Mio. € is negligible (13).  In opposite to RDS and XOM there seems nobody to force them to invest in climate hoax and "renewable energy" (low margins, high risk)
 
Outlook
 
OMV expects to increase its upstream production to nearly 500 kboe/daily at the end of 2019. 
 
Observations

1/3 of the operating results are from downstream operations, 2/3 from the upstream. 

OMV has a large downstream and plastic business (Borrealis/Borrouge). It seems as the downstream margins has kept quite stable yet. This is a sign for a strong economy. Big ethylene/propylene capacities are coming on stream in countries with low feedstock costs as the US, Canada and Middle East. 

Source: OMV Investor relations. 

 

Some Data

Number of Shares: 326.5 mio. 

Share Austrian Government: 31.5%, Share Abu Dhabi 24.9%

- Cash Flow of 4.4 bn € from operating activities 2018, 3.075 (9m/2019) 

- Revenues 5,949 million € (q3/19),  17,387 million € (9m/19)

- Net income 9m/2019 , 1323 mio €, 4.05 €/share ....2019 perhaps > 5 €/share.  

- Production cost USD 6.3/boe Q3/19 excl. royalties.

- Capex 2018, 3.7 bn €, 9m/2019 4.144 bn€ incl. acquisitions  

- Net debt 4.903 bn € (q3/19) increased from  2.0 bn € end of 2018.

The average realized gas price decreased from 13.6 Q1 to 12.1 €/MWh in Q2/2019 and decreased further to 10.7 €/MWh in Q3/19. 

A 500 mio. € bond with 4.375% interest is due in oct. 20 and another 500 mio. bond with 4.25% interest is due in oct. 21. A refinancing with an interest rate of 1.5% will provide additional profit of 25 mio/yr. 

- Guidance chemical margin: slighly lower than the € 448/ton achieved 2018

*The Lybian Al Sahara oil field is organized in the Akakus comp. with the Lybian national oil company, Repsol (operator), Hydro, OMV, Total as share holders. 

 

Shareholders   

Name                                                                              Shares                 %

Government of Austria                                                     103,090,000        31.5%

Government of United Arab Emirates                                  81,490,900          24.9%

The Vanguard Group, Inc.                                                 3,778,203            1.15%

Norges Bank Investment Management                               3,618,370            1.11%

JPMorgan Asset Management (UK) Ltd.                              2,881,824            0.88%

BlackRock Fund Advisors                                                   2,584,764            0.79%

APG Asset Management NV                                                1,988,155            0.61%

Amundi Asset Management SA (Investment Management)     1,890,464            0.58%

Grantham, Mayo, Van Otterloo & Co. LLC                              1,389,379            0.42%

Erste Asset Management GmbH                                           1,310,000            0.40%

Borrealis

OMV has a share of 36% at Borrealis, the remainder ist owned by Abu Dhabi. Borrealis founded together with the oil company of Abu Dhabi the Venture Borrouge. The combined polyolefine capacity exceeds > 8 Mio. to/yr. 

Informations

2019/07 Die OMV beabischtigt mit dem indonesischen Chemiekonzern Chandra Asri zu kooperieren. Ich wäre nicht erstaunt wenn das nächste Projekt der OMV in Indonesien statt findet. Aus Sicht eines Aktionärs ist es nicht ideal wenn OMV seine Aktivitäten auf zu viele Länder verstreut. 

2019/07 Die OMV, hat die Investitionsentscheidung über EUR 64 Mio zum Bau einer ISO C4 Anlage getroffen - nun beginnt die Bauphase: Die Errichtung der neuen Anlage wird im Sommer 2019 in der Raffinerie Burghausen starten, die Inbetriebnahme ist für September 2020 geplant. Ab diesem Zeitpunkt kann in Burghausen hochreines Isobuten mittels einer neuartigen Technologie hergestellt werden. (15)

2019/01 OMV and co-owning companies, OMV share 25%, plans to increase the production of the Wisting oil field off the coast of Norway. It is planned to invest 6bn$. The expected yield is 440 mio. bl of oil. Production start is 2026 (7)  

2018/11 The US administration threatens to use coercive measures to stop Nordstream 2 from Russia to Germany.  

2018/11 OMV will pay 715 mio. $ for half of Sapura Upstream. These assets are expected to produce 60.000 bl/day oil equivalent mostly gas in 2023. Total reserves are 260 mio. bl 90% gas (3). 

2018/11 OMV sold its oil assets in Tunesia to the Oslo-listed Panoro Energy for $65 million. Net 2P reserves of 8.1 million barrels, and net production of approximately 2,000 bopd from 14 wells (2). It makes sense for OMV to sell negligible asset and to concentrate on key assets. 

*Eine offene Baustelle der OMV ist noch das Erdgasprojekt "Neptun" im Schwarzen Meer. "Wir sind, was die Entwicklung in Rumänien betrifft, schon ein wenig enttäuscht", sagte Seele, "denn die Entscheidung der rumänischen Regierung gegen Ende des Jahres, den Steuerrahmen in Rumänien so zu verändern, hat natürlich das Risiko für Investitionen im Land deutlich erhöht." Man spüre bereits negative Auswirkungen durch die Gaspreisregelung in Rumänien, weil für die nächsten drei Jahre der Gaspreis auf 68 Lei (14,33 Euro) eingefroren werde. "Das ist etwa ein Drittel niedriger als der derzeitige Marktpreis. Das hat natürlich Auswirkungen auf unser Ergebnis." Dennoch seien die OMV und auch die Petrom "vollkommen kommittiert zu diesem Neptun-Projekt. Allerdings brauchen wir, wie alle anderen Investoren auch, eine gewisse Sicherheit um diese Milliardeninvestition zu stemmen." (9)


References

(16) 2019/07/25 https://www.finanzen.at/nachrichten/aktien/omv-will-mit-indonesischem-chemie-konzern-chandra-asri-kooperieren-1028379389

(15) 2019/07/15 https://www.finanznachrichten.de/nachrichten-2019-07/47181827-apa-ots-news-investition-in-die-zukunft-omv-baut-petrochemie-weiter-aus-016.htm

(14) 2019/07/10 https://www.finanzen.at/nachrichten/aktien/omv-aktie-faellt-omv-foerderung-erreicht-in-q2-neuen-rekord-1028337100

(13) 2019/07/03 https://industriemagazin.at/a/verbund-und-omv-bauen-oesterreichs-groesste-pv-freiflaechenanlage

(12) 2019/05/16 https://derstandard.at/2000103159172/OMV-im-Visier-US-Senatoren-wollen-Nord-Stream-2-mit?ref=rss

(11) 2019/04/10 https://de.reuters.com/article/sterreich-omv-idDEKCN1RM0SX

(10) 2019/03/18 https://orf.at/stories/3115460/

(9) 2019/02/07 https://industriemagazin.at/a/omv-macht-nach-dem-abu-dhabi-deal-pause-bei-zukaeufen

(8) 2019/01/28 https://kurier.at/wirtschaft/omv-kauft-um-22-milliarden-euro-raffinerie-anteile-in-abu-dhabi/400389947

(7) 2019/01/18 https://industriemagazin.at/a/omv-plant-milliardeninvestitionen-in-norwegen

(6) 2019/01/14 https://de.reuters.com/article/sterreich-omv-idDEKCN1P80KW

(5) https://seekingalpha.com/article/4223178-omv-ag-9m-fy18-production-leap-low-costs

(4) 2018/11/14 https://www.boerse-express.com/news/articles/die-usa-verschaerfen-gen-omv-und-co-den-ton-63098

(3) 2018/11/09 https://kurier.at/wirtschaft/omv-laesst-sich-malaysia-bis-zu-800-mio-dollar-kosten/400319748

(2) 2018/11/07 https://www.offshoreenergytoday.com/panoro-buying-omv-tunisia-for-65-million/

(1) 2018/10/31 https://www.sn.at/wirtschaft/oesterreich/omv-chef-seele-sieht-bestes-ergebnis-seit-zehn-jahren-59688301

https://industriemagazin.at/a/rumaeniens-regierungspartei-setzt-omv-unter-druck

https://industriemagazin.at/a/omv-will-in-asien-im-upstream-bereich-zukaufen

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