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Analysis OMV update Oct. 9th, 2020 

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 might generate in normal years revenues of about 25 bn €/a produce 470.000 bl/day oil equivalent 1/2 oil, 1/2 gas in 2020. OMV expands fast. The production rose by aquisitions from 311 mbbl/d in 2016 to the current production. It is roughly 7 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) if not revised due to the corona panic. 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

 

In Q2/20 the production of oil & gas fell further to an equivalent of 464.000 bl/day (177.000 oil, 287.0007 gas). The average realized oil price fell to 25 $/bl, the realized gas price from 11 -> 8.7 €/MWh. The OMV refineries are expected to be utilized by 85% in 2020 thanks to the integrated production of PE and PP. 

The production aim is reduced to 440 - 470.000 bl/day from 500.000 in 2020 (20)

At a share price of 30 € an eps of 5.14 €/share (if poeple calm down from the corona panic) -> PE 9, OMV pays a dividend of 1.75 €/share about 5.8%.  It is not expensive at all. 

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 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.

Romania is the biggest source of the OMV oil & gas production. The former socialist government increased royalties begin of 2019 and reduced domestic gas prices by regulation. Exxon/OMV stopped investments in the Black Sea(9). The new government lead by Orban annouced to slash the regulations that hinders OMV from further investments (17). It is to hope that this government will stay in office for long. 

It is a major risk for oil/gas companies that 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.  

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 produce about 460 mbbl/day as well in 2020. The plan to increase it to 600.000 mbbl/d in 2025 is in question due to the corona panic. 
 
Observations

The contribution from upstream and downstream varies acc. to relized oil/gas prices and refining/Ethylene margin.

                                              2019       2018

EBIT Upstream (mio, €)           1879       2027

EBIT Downstream (mio. €)       1847       1420

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 decreased to 0.87 $/bl in q3/20

 The ethylene/propylene net margin decreased to 375 €/ton

Source: OMV Investor relations data from business reports. 

 

Some Data

                                         Est. 20   Q3/20   Q2/20   Q1/20  2019   Q4/19  2018    2017    2016

Oil/gas prod 1000 bbl/d          460      440       464       472    487      480    427      348      311 

Oil production 1000 bbl/d                   165       177

Gas prodc. 1000/bbl/d                        279      287

Revenues bn €                                              3.14      4.76     23.5    6.07    22.9      20.2    19.3

Net Income bn€                                          0.024      (.16)    1.68    .355    1.44      0.85    (0.2) 

EPS €/share                                                 .07      (.49)    5.14                  4.4       1.33     ---

Free Cash Flow mio. €*                                 (109)     594     (583)    376   -1520     1043 

Net Debt bn €                                                4.4       4.3     4.69     4.69       2         2         3

Capex bn €                                                    1.7        .39       .47      2.3   

Prod. cost USD/boe:                                      6.2          6.4                6.4                                

*Before dividends

 

Number of Shares: 326.5 mio. 

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

- Dividend: 1.75 €/share

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

2020/05 There seems to be some disorder in the OMV management team of OMV. The board (Aufsichtsrat) decided to examine the travel expensis and sponsoring ex. a soccer club that is tied to the Russian president of the CEO Seele.

2020/03 OMV beabsichtigt seinen Anteil an Borrealis von 36% auf 75% zu erhöhen.  Mit Mubadala werde derzeit den Erwerb eines zusätzlichen 39% Anteils für einen Kaufpreis von USD 4,68 Mrd. verhandelt, teilt die OMV mit. Die potenzielle Transaktion würde die Wertschöpfungskette der OMV im petrochemischen Bereich erweitern. Die Beteiligung der Mubadala an Borealis würde nach Closing der potenziellen Transaktion 25% betragen.

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

(22) 2020/07/08 https://www.diepresse.com/5836748/omv-wenig-ol-im-zweiten-quartal-raffineriemarge-sehr-mager

(21) 2020/05/15 https://www.nachrichten.at/wirtschaft/reiseausgaben-von-omv-chef-werden-geprueft;art15,3258655#ref=rss

(20) 2020/05/13 https://www.finanzen.at/nachrichten/aktien/omv-registriert-bereits-leichte-sprit-nachfrageerholung-1029196058

(19) 2020/03/07 https://www.boerse-social.com/2020/03/06/omv_will_bei_borealis_aufstocken

(18) 2020/02/08 https://www.omv.com/services/downloads/00/omv.com/1522181753984/omv-group-report-2019-q4

(17) 2020/01/10 https://de.reuters.com/article/sterreich-rum-nien-omv-exxon-idDEKBN1Z72AA

(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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