Austria's OMV Pivots to Iran and Russia After Profit Tumbles

  • Central Europe's biggest oil company hunts low-cost reserves
  • OMV cuts dividend by 20% as company looks for more cash flow

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 percent to 1 euro a share as fourth-quarter profit fell by almost half to 180 million euros ($201 million). Chief Executive Officer 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 liquefied natural gas terminals. 

Production Costs

OMV shares dropped as much as 2.8 percent and were trading down 0.9 percent 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 percent 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 a barrel in 2016 and $55 in 2017.

Crude is down 16 percent this year after OPEC abandoned output targets in December. Brent for April settlement increased 2.2 percent to $35.27 a barrel 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. 

Regional Player

“We are going to be a regional player and not a global player,” Seele said. “When it comes to priorities, money comes first.” 

OMV hired Citigroup Inc. in November to find a buyer for a 49 percent stake in its wholly owned Gas Connect Austria unit, which could fetch more than 500 million euros. The company also announced last week that it’s selling Turkish Petrol Ofisi, which owns the country’s biggest fuel storage and logistics business. OMV may only get $1.3 billion for the business in Turkey after paying $1.6 billion, according to Bloomberg Industry.

Seele said he wants to shrink exploration costs by 60 percent to about 300 million euros by next year. The CEO is cutting OMV’s total 2016 investments 40 percent to 2.4 billion euros.

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