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Analysis OMV update August 31st, 2021 

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 most other oil cpmpanies. 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. It produces close to 500 kbl/day oil equivalent 2/5 oil, 3/5 gas in 2020. OMV expands fast. The production rose by aquisitions from 311 kbl/d in 2016 to 500 kbl/day in q1/21. It is roughly 6 x smaller then RDS or XOM. Thats why it is better for OMV to concentrate on tier 2 & 3 opportunities that are less attractive for big oil. OMV main sources are in Romania, Russia, Norway, Austria, Lybia, NZ... It plans to focus on downstream and base chemicals and keep the oil production within the next couple of years. 

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

 

Chances & Risks

 

In Q4/20 and Q1/21 the production of oil & gas and the oil price recovered to values before the covid panic. OMV generated a record cash flows and profits in the first half of 2021. If oil prices will remain it becomes a record year for OMV

There are plenty of articles about the restructuring of OMV by the new CEO Stern (26). It is mostly highlighted that OMV will reorient its business in favor of chemistry. Green NGO and the Green Party that share the power in the Austrian Government is pushing in favor of the climate fraud. It is not clear where OMV intend to go in the future.

At a share price of 47 € an eps of 8 €/share -> PE 6, OMV pays a dividend of 1.85 €/share about 4%.  It is not expensive at all. 

OMV origin is that of a governmental company controlled by politics. The current CEO Seele acted very independent and successful from the Austrian political system. Seele was motivated to resign from his position by June 2022. As far as known Seele lost his backing by the Austrian politics. The green communist government of Austria demands more efforts in "climate change" (24). An increased political control of the company is not in the interest of the company and its private shareholders.   

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 for a couple of years. 

Global oil production capacities outpace demand. The major oil exporters KSA, OPEC and Russia reduced their production to control the market. There are idle capacities in Iran, Lybia, Nigeria, Venezuela that are blocked by various political reasons. The oil price is controlled by a brittle agreement. All oil exporters profit from this agreement. If one of these exporter breach the agreement the oil price will collapse. It might happen any time.    

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.

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.

 

 
Observations

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

OMV has a large downstream and plastic business (75% share Borrealis/Borrouge). In the economic crises caused by the corona rampage of the political systems all businesses went down. 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.


Refining margin in $/bl. The refining margins did not recover yet from the covid panic. It is a further opportunity for OMV. 


The Polyethylene indicator increased to a record level. 

Source: OMV Investor relations data from business reports. 

 

Some Data



Number of Shares: 326.5 mio. incl. 300 k treasury 31.12.2020

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

- . OMV Petrom’s total production was down by 12 kboe/d to 140 kboe/d (Q4/20)

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. 

Reserves increased to 1,337 mn boe (thereof OMV Petrom 473 mn boe). OMV achieved a Reserve Replacement Rate (RRR) of 102% in 2020, (2019: 135%). A value of over 100% has been achieved five years in a row. The three-year RRR reached 138%. OMV production is sustainable.  

*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 75% 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. or annual revenues of about 8bn 

Informations

2021/07/16 Borealis intend to sell the fertilizer business and expects 500 - 600 Mio. € from it. Borealis has 2 plants in Austria and France where nitrogen fertilizer are produced. Main feed stock is natural gas. The process requires plenty of energy. Natural gas and electricity is far more expensive in Europe than in North America or the Middle East. The Green Religion/Climate Fraud will further decrease the competitivness. It make sense to sell this business. The question is if the (regrettable) potential customer will pay the expected price. (25)

2021/04 Rainer Seele, CEO, will not extent his contract bejond June 30, 2022.   

2021/02 OMV builds the biggest hydrogen plant in Austria for 25 M€ with a capacity of 1500 tons/yr. It is good that they does not spend more on this green nonsense.  

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

(26) 2021/08/31 https://industriemagazin.at/a/alfred-stern-der-neue-generaldirektor-der-omv

(25) 2021/07/16 https://www.diepresse.com/6008719/omv-tochter-startet-verkauf-des-dungemittelgeschafts

(24) 2021/05/11 https://industriemagazin.at/a/rainer-seele-der-unterlegene-2

(23) 2021/02/20 https://industriemagazin.at/a/omv-baut-groesste-elektrolyseanlage-oesterreichs

(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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