Austria’s OMV Pivots to Iran, Russia After Profit Tumbles

February 19, 2016

OMV AG said its future lies in Iran and Russia as the rout in crude markets makes the Austrian company’s high-cost North Sea oil fields less profitable.

OMV cut its dividend by 20% to 1 euro a share as fourth-quarter profit fell by almost half to 180 million euros ($201 million). CEO Rainer Seele reiterated his intention to sell assets and said job cuts may follow as revenue dropped by a third to 5 billion euros.

“With our new strategy, we will focus on cash and costs, pursue a sustainable position in upstream focusing on value over volume growth,” Seele said in a statement. “The main development regions are Russia, the United Arab Emirates and Iran.”

Russia should be a “core region” by 2020, according to the CEO, who is negotiating an asset swap with Gazprom PAO to replenish OMV’s reserves. Since joining Central Europe’s biggest energy company in July, the 55-year-old German executive has embarked on a strategy to transform OMV’s hodgepodge of assets that span oil and natural gas fields from the North Sea to New Zealand, along with refineries in Austria and Romania.

OMV wrote down 3 billion euros of assets in 2015 as low prices reduced the value of oil investments and LNG terminals.

Production Costs

OMV shares dropped as much as 2.8% and were trading down 0.9% at 24.37 euros as of 1:21 p.m. in Vienna. The company’s shares are little changed over the past 12 months compared with a 22% decline in a Bloomberg Industry index of integrated European oil companies.

It cost about $43 to produce a barrel of oil in Northern Europe compared with $10 in Russia and $11 in the Middle East, according to OMV, which predicts oil to average $40/bbl in 2016 and $55/bbl in 2017.

Crude is down 16% this year after OPEC abandoned output targets in December. Brent for April settlement increased 2.2% to $35.27/bbl as of 11:35 a.m. on the London-based ICE Futures Europe exchange.

OMV needs to focus on generating cash, divesting from non-core assets and replenishing lost reserves, Seele told analysts and investors in London on Thursday.

Copyright 2016. Bloomberg