OMV Profits Drop as Libya Crisis Causes Higher Costs

Source: Reuters 8/12/2014, Location: Africa

Austrian oil and gas group OMV's underlying operating profit halved in the second quarter as an ongoing crisis in Libya forced it to raise production in higher-cost countries.

OMV, which is investing heavily in new exploration projects to cut its reliance on margin-squeezed refining and marketing, said its production costs rose 42 percent per barrel due to a greater contribution from Norway and higher costs in Romania.

Production was stable in the second quarter as OMV compensated for virtually zero output from Libya with more barrels from newly acquired fields in the Norwegian North Sea, where oil is offshore and more expensive to recover.

OMV spent $2.65 billion a year ago in its biggest acquisition to date to buy stakes in North Sea oil fields from Norway's Statoil, a more reliable source than countries like Libya - formerly one of OMV's major producers - and Yemen.

The company said on Tuesday second-quarter clean CCS EBIT - operating profit stripping out special items and inventory holding gains or losses - was 369 million euros ($493 million).

The figure was well short of the average estimate of 407 million euros in a Reuters analyst poll and also missed the average of 395 million euros in OMV's own consensus of 17 analysts.

Clean CCS net income fell 37 percent to 202 million euros, beating the Reuters poll average of 177 million and the OMV consensus of 162 million euros.

Shares in OMV rose 1.1 percent to 29.38 euros in early trading, and were the top gainers in a flat European oil and gas index.

Like its bigger competitors, OMV is grappling with weak demand and oversupply in economically fragile Europe, which depressed OMV's refining margin by 23 percent in the quarter.

"Refining margins are forecast to remain under pressure in 2014 due to sluggish economic recovery and persisting overcapacity on European markets," it said.

The mid-sized Austrian energy group was until a few years ago highly dependent on refineries and filling stations in central and eastern Europe.

It is now betting on higher-margin upstream exploration and production, spending 3.9 billion euros a year - more than three times its 2013 net income - on exploration projects including one in the Black Sea that may be its biggest-ever gas find.

Libya, where OMV has produced almost nothing this year, is in chaos three years after a NATO-backed revolt that toppled leader Muammar Gaddafi, and a resumption of production is not foreseeable.

On Tuesday, OMV said it should reach the lower end of its 2014 production target, 310,000 barrels of oil equivalent per day (boe/d), assuming no further production in Libya, which accounted for 10 percent of its output before the uprising.

It did not mention the 330,000 boe/d upper end of its previous target range.

For more information about related Opportunities and Key Players visit Libya Oil and Gas Projects


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