Analysis OMV update sept. 29, 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 Q2/19 OMV increased the production to 490.000bl/day(14). Thereof Oil 214.000bbl/day and gas 275.000 bl/day. It is roughly 10 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.
The EPS (est. 2019) at a share price of 44 € app. an eps of > 5 €/share (2.75 1 H/19) -> PE 9, OMV plans a dividend of 1.75 €/share about 4%. It is really 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.
OMV plans to spent 2.3 bn € on capex about 1/12 of RDS. But it is expected to allow OMV to increase production significantly to nearly 500.000 bl/d end of the year. The reserve replacement is well above 100% while RDS production is stagnating and reserves declining.
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.
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.
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.
The refining margin shrinked in Q1/19 to 4.04$ and 3.18$ in Q2/19.
The average realized gas price decreased from 13.6 Q1 to 12.1 €/MWh in Q2/2019.
Source: OMV Investor relations.
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
- Net income H1/19 , 897 mio €, 2.75 €/share ....2019 perhaps > 5 €/share. EPS (18) 4.4 € , net income 1.438 bn€ (18)
- Production cost increased to USD 6.8/boe (q1/2019) from USD 6.3/boe (end/18) excl. royalties.
- Capex 2018, 3.7 bn €, q1/19 881 mio. €, guidance 2019 EUR 2.3 bn
- Net debt 3.2 bn € increased from 2.0 bn € end of 2018.
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.
- OMV indicator refining margin decreased from USD 5.2/bbl (Q4/18) to 4.04$/bl. in Q1/19 guidance 2019 < 5$/bbl.
- 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.
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%
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.
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.
(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
(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