OMV May Slow Investments with Management Shakeup

Austrian oil and gas company OMV may slow its investment programme in an effort to boost margins at a time of sliding oil prices, reining in the growth ambitions that characterised the tenure of its outgoing chief executive.

CEO Gerhard Roiss will leave the group in mid-2015 - nearly two years ahead of schedule - as part of a management shakeup that will also see OMV's gas business subsumed into a new division.

Under Roiss, OMV focused on exploration projects rather than refining and marketing, and splashed out $2.65 billion last year on North Sea oil fields owned by Norway's Statoil (STO).

OMV has said it aimed to increase production to 400,000 barrels of oil equivalent (boe) per day by 2016 from 288,000 boe/d last year and wants to invest around 3.9 billion euros ($4.97 billion) a year, 80 percent on upstream activities.

"One must first bring the big acquisition projects on stream, they must deliver what was assumed," said one source familiar with the situation who requested anonymity.

"The question is whether to continue with the speed we had before or if one must step on the brake a bit because of changed market conditions, especially with a view to the focus on increasing profitability."

OMV's underlying operating profit halved in the second quarter as political upheavals in Libya, where it has significant investments, forced it to raise production in higher-cost countries such as Norway.

Chairman Rudolf Kemler said after Roiss's early exit was announced that OMV's strategy should focus on increasing profitability and balancing risks to ensure attractive dividends. OMV paid 1.25 euro per share for 2013.


Expensive North Sea
Libya had been one of OMV's major revenue streams but output in the second quarter was reduced to about a third of the level before an uprising toppled Muammar Gaddafi in 2011. Leaving the country had not been discussed, the source said.

"It's about finding answers to changed market conditions, the sinking oil price too," the source said. OMV is focusing on politically more stable countries, but production costs tend to be much higher there.

Brent crude fell to a 47-month low on Wednesday before recovering to just above $84 a barrel as faltering global growth curbs demand for fuel at a time of heavy oversupply.

"This could lead to a downward adjustment of capex mainly in the upstream, which anyway accounts for the largest part of investments," said Raiffeisen Centrobank analyst Oleg Galbur.

Offshore exploration projects in the North Sea can be very expensive and OMV in August flagged that a final investment decision for its Rosebank deepwater project might again be delayed. It had estimated costs there might reach $10 billion.

"These are the most expensive (kinds of) projects that one can realise globally," said Peter Oppitzhauser, who covers OMV at Kepler Cheuvreux and has estimated OMV's capital expenditure might rise to a yearly 4.2 billion euros.

"This is a big problem. You can certainly delay some projects, but not all of them," Oppitzhauser said.

State holding company OIAG - where Kemler is also chief executive and which holds a 31.5 percent stake in OMV - did not respond immediately to a request for comment. Abu Dhabi's International Petroleum Investment Co (IPIC) owns nearly 25 percent of OMV.

($1 = 0.7839 euro)

(By Shadia Nasralla and Alexandra Schwarz-Goerlich, editing by John Stonestreet)