Analysis OMV update nov 9th, 18

This is not a recommendation or proposal to do anything. 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 but it is stagnating this year. I assume that OMV will outperform big oil as well in the long run

OMV generates revenues of about 22 bn €/a producing > 400.000bl/day oil equivalent which is expected to increase to 500.000 bl/day till end of 2018. It is about 10 x smaller then RDS or XOM. Thats why it is better for OMV to concentrate on smaller opportunities that are not that attractive for big oil. OMV main sources are in Romania, about 1/2 of the production, Norway 1/4, Austria 1/10, Lybia, NZ... It plans to increase the upstream production to 600k bl/day till 2025. 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 lower valuation compared to its bigger competitors. 

 

Chances & Risks

EPS (2018) app. 4 € -> PE 12, OMV plans to increase the dividend of 1.5 €/share. 

A major risk for OMV comes from Romania, that makes up 1/2 of the production. Members of the romanian government claim for higher royalties stretching to the past. 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.  

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.

OMV does not have a significant business in the US. Hence it can make use of the opportunities in Iran or Russia despite of US sanctions ex. North Stream pipeline. 

 

OMV seems to be less in the focus of green communists. In opposite to RDS and XOM there seems nobody to force them to invest in climate hoax and "renewable energy" (low margins, high risk)

Observations

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 im countries with low feedstock costs as the US, Canada and Middle East. 

 

Some Data

Number of Shares: 326.5 mio. 

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

- Cash Flow of 3.3 bn € from operating activities 01 - 09/18 

- EPS (01 - 09/18) 2.54 € 

Production cost decreased to USD 6.8/boe (q3/18)

- Capex 2018, 1.9 bn €

OMV indicator refining margin stood at USD 5.7/bbl 

- Net debt 2.3 bn €. 

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

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. 

 


References

(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