Lagniappe

 

 

 

Global Insight: OMV sets out vision
to become South-Eastern European leader

At a media summit in Vienna last week, Austrian oil and gas group OMV set out its plans for growth in the south-eastern European energy market.

Global Insight Perspective

Significance

OMV has set its sights on establishing itself as a firm leader in Central and South-Eastern European energy markets.

Implications

Its three-year strategy will see the company focus on boosting its oil and gas output by over 50%, while also building its refining capacity, expanding its retail market share, and establishing a leading position in the transit and sale of natural gas.

Outlook

The two key factors in determining OMV's success are likely to be its current takeover approach for Hungarian counterpart MOL and the realisation of the Nabucco gas-pipeline project, both of which may well be determined over the next 12 months.

OMV has grown to become one of the major players in the Central European energy market, expanding from its dominant position in its home market of Austria and now holding a presence in each of the region's national markets. Its acquisition of a majority stake in Romanian state oil company Petrom in 2004 provided a significant boost to its oil and gas production capacity, as well as to its international expansion efforts. Recently, OMV's relevance has only grown further via its participation in the strategic Nabucco gas-pipeline project and its controversial move last month to take over its Hungarian counterpart MOL. It was therefore timely that OMV called together over 100 reporters and analysts from throughout Europe to Vienna last week to present the company's strategic plans for the next three years and to take questions on its various activities within the increasingly important Central and South-Eastern European market.

Ambitious Upstream Plans

At the forefront of OMV's strategy are plans to boost the company's oil and gas production capacity from 324,000 barrels of oil equivalent per day (boe/d) currently, to 500,000 boe/d by 2010. Total output of 400,000 boe/d is expected to be reached through organic growth within the company's existing production portfolio, which is primarily based in Romania, but also includes operations in North Africa, the North Sea, and the Middle East. Of this organic growth, up to 70,000 boe/d is to be added via optimisation of existing fields, with around 72,000 boe/d to be delivered through new developments and a further 20,000 boe/d from new exploration. These contributions will counter a natural decline in OMV's existing fields of around 80,000 boe/d over the next three years. A further 100,000 boe/d is to be added to OMV's production total via acquisitions. OMV's sights are currently firmly focused on the takeover of MOL, which, among other things, would immediately achieve this production-acquisition target, although should the MOL purchase fail, the company can be expected to move quickly to explore other international acquisition opportunities.

A Dominant Downstream Player

In conjunction with this upstream expansion, OMV also set out plans to expand its refining and marketing presence, establishing a target of boosting its refining capacity from current levels of 26.4 million tonnes per annum (MMtpa) to somewhere under 50 MMtpa by 2010. A key focus of achieving such a goal will be the Turkish market. Turkish oil product sales grew by 8% in 2006, making it the fastest growing market in Europe, and the country's current low car density leaves substantial room for a continuation of such growth. Restructuring at the existing Petrobrazi refinery and a proposal to establish a new 200,000-b/d refinery near Ceyhan by around 2012 are key elements of OMV's strategy to capitalise on this Turkish growth. Further additions are also expected to OMV's current portfolio of 2,540 gasoline (petrol) stations as it seeks to grow its retail market share.

Nabucco Integral to Gas Expansion

OMV set out three overarching pillars for growing its gas business: increasing and diversifying its gas supply; expanding its transit and storage capacity; and boosting overall gas sales from 14 to 20 Bcm by 2010. Central to success under each of these pillars is the Nabucco gas-pipeline project, which would see a new supply corridor built from the Caspian region, through Turkey and South-Eastern Europe to Austria. OMV currently holds a 20% stake in the project as one of five companies, each representing one of the countries through which the new pipeline would travel. The five consortium partners are currently in negotiations to appoint a sixth partner to the project—most likely Gaz de France or RWE—with an announcement expected to be made on the matter by the end of the year.

OMV remained optimistic that the Nabucco pipeline would ultimately progress, dismissing concerns that Russia's recently proposed South Stream pipeline might negate the need for the project. In an interview with Global Insight, Werner Auli, the member of OMV's executive board responsible for gas operations, indicated that demand growth in Europe would be so strong in coming years that even accounting for the development of Nabucco, South Stream, Nord Stream, and new LNG import terminals, the region will still be facing an import gap. Speaking on the challenges of sourcing gas supplies for Nabucco, Auli indicated the project is primarily envisaged as a transit way which did not necessitate locking in bookings over the route's capacity prior to the project proceeding. Auli revealed few concerns over securing adequate supplies for the pipeline, noting that Iran, Azerbaijan, Turkmenistan, Russia, and even Iraq were potential candidates to supply gas, and emphasising that the project would initially have a capacity of just 8-12 Bcm following its anticipated launch in 2012, with full capacity of 30 Bcm not expected to be reached until closer to 2017, by which time security issues in potential supplying countries may have been worked out.

Outlook and Implications

OMV outlined a clear and ambitious strategy to expand its business in the fast-growing South-Eastern European market to become the region's dominant integrated oil and gas company. With the company's strategic location, strong financial position, and its involvement in key regional projects, it is well placed to deliver on many of the goals which it has laid out. Of key importance, however, will be the company's success in completing the takeover of Hungary's MOL and, along with its consortium partners, carrying out the construction of the Nabucco pipeline. With both MOL and the Hungarian government continuing their adamant opposition, the OMV-MOL takeover saga runs the risk of descending into a drawn-out legal battle that would inevitably distract OMV from its day-to-day operations, potentially compromising the company's ability to meet its targets, while the highly political Nabucco project continues to face challenges, despite OMV's optimism. The scene is set for the next 12 months to determine not only OMV's achievement of its goals through to 2010, but also its prospects to establish itself as a leading European and international energy player over the longer term.

By Matthew Hall an energy analyst for Global Insight International.
(Matthew.hall@globalinsight.com). Global Insight's Energy Group provides independent, comprehensive analysis, forecasts, data, and of the worldwide energy marketsplace. Petroleumworld does not necessarily share these views.

Editor's note: For more information on Global Insigth, contact: Catarina Feria-Walsh Global Insight, catarina.walsh@globalinsight.com. / www.globalinsight.com

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Petroleumworld News 10/24/07

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