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Austria's OMV makes €1bn writedown on low oil prices

Austria's OMV announced €1.031bn ($1.1bn) of upstream impairment charges in its third quarter results

As a result, OMV posted a €472m loss in its 3Q earnings on 5 November, contrasting with a €232m net profit in third quarter 2014. Current cost earnings of €495m were 25% lower than a year before, hobbled by continuing shut-ins in Libya and Yemen that contributed to a 6% fall in production to 292,000 barrels of oil equivalent (boe/d).

Full year production guidance is maintained at some 300,000 boe/d -- two thirds alone from Austria and Romania - while Libya and Yemen are "expected to be affected for the rest of the year due to the critical security situation."

Finance chief David Davies says OMV earlier this year had expected a return to $100/b, but had now reduced its price assumptions and could not rule out further impairment charges. Its assumptions for the Brent price are now $55 a barrel (/b) in 2016, $70/b in 2017, $80/b in 2018, then $85/b from 2019 onwards. OMV's focus would be reducing operational costs, rather than staff cuts in the first instance, says Davies, adding that all its 3Q 2015 production was "cash-generative at $50/b".

CEO Rainer Seele said that, despite reducing capital expenditure, OMV's focus would be on adding value -- so both strengthening existing upstream operations in Austria, Romania and Norway/UK where most capex would remain focused, but also deepening involvement in parts of the world where costs are low such as the Middle East where he held out hopes for OMV's re-entry to Iran but also Russia "one of the lowest cost regions in the world." OMV's nine-month capex of almost €2bn was 28% lower than a year ago, with four-fifths being spent upstream. Results from the Domino-4 deepwater appraisal well, being drilled in the Romanian Black Sea, would be available next year.

The Austrian group two months ago signed a term sheet with Gazprom for OMV’s participation in the Achimov IV/V project in Siberia, based on an asset swap. Seele declined to indicate what assets OMV might offer until both companies had detailed talks early next year; Gazprom and OMV jointly would say more in first half 2016.

Seele also declined to say who had expressed interest in buying the up-to-49% stake in Austrian gas network Gas Connect Austria that OMV, currently 100% owner, put up for sale in October. Asked if Gazprom would be the buyer, he replied there had been no such bid yet, and that the asset would go to the best bidder.

Downstream operating earnings doubled, as OMV's indicative refining margin jumped from $4.90/b in 3Q 2014 to $7.84/b in the latest quarter mainly on lower crude oil procurement costs, echoing the pattern among European refiners such as Total and Eni where refining results offset weak upstream earnings. OMV's petrochemicals were profitable in 3Q but downstream gas made a slight loss.

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