OMV's (OMVJF) CEO Rainer Seele on Q2 2016 Results - Earnings Call Transcript

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OMV AG (OTC:OMVJF) Q2 2016 Earnings Conference Call August 10, 2016 5:30 AM ET

Executives

Magdalena Moll - Head of IR

Rainer Seele - Chairman of the Executive Board & CEO

Reinhard Florey - CFO

Analysts

Haythem Rashed - Morgan Stanley

Michael Alsford - Citigroup

Henry Patricot - UBS

Thomas Adolff - Credit Suisse

Marc Kofler - Jefferies

Lydia Rainforth - Barclays

Nitin Sharma - JP Morgan

Operator

Welcome to the OMV Group Conference Call for the Q2 2016 Results. [Operator Instructions]. You should have received the presentation by email. However if you do not have a copy of the presentation, the slides and the speech can be downloaded at www.omv.com. At this time, I would also like to draw you to the disclaimer which includes our position on forward-looking statements. Additionally, simultaneous to this conference call, a live audio webcast is available on OMV’s website.

I would now like to hand the conference over Ms. Magdalena Moll. Please go ahead, Ms. Moll.

Magdalena Moll

Thank you very much, Simona, and good morning, ladies and gentleman. I am Magdalena Moll and this is my first conference call on behalf of OMV. I would therefore like to say a warm welcome to all of you who joined us this morning for the presentation on OMV’s second quarter 2016 results.

2016 continues to be a difficult year for the oil and gas industry. In the second quarter however, OMV managed to generate clean CCS net income attributable to stockholders of €222 million and delivered a positive cash flow after dividend of €172 million.

With me on the call today to explain the results are Rainer Seele, our Chairman of the Executive Board and our Chief Executive officer; and Reinhard Florey, our Chief Financial Officer.

Rainer will highlight OMV’s performance in the second quarter, as well as discuss important portfolio development. Then Reinhard will review key aspects of the financial statements and talk about the segment results in much more detail. Rainer will conclude with the outlook for the full-year 2016, and afterwards both gentlemen will be happy to take your questions.

With this, I would already like to hand over to Rainer.

Rainer Seele

Yes, ladies and gentlemen, good morning, and thank you for joining us. I am more than happy to review OMV’s second quarter financial results performance, together with our CFO, Reinhard Florey, who joined the team at the beginning of July.

Let me start with the key messages. In second quarter of 2016, OMV delivered a strong cash flow from operations of more than €1 billion and a positive free cash flow after dividend of €172 million. We continued our rigorous CapEx discipline and reduced our CapEx guidance to €2.2 billion in 2016. So we are successfully implementing the cost reduction program and will reach our target of €100 million ahead of schedule.

Yesterday we signed an agreement to sell a 30% stake in the Rosebank field. The transaction is expected to be completed in the fourth quarter of this year. It rebalances our Upstream portfolio and it reduces our future investment requirements.

Health, safety and security is a top priority for OMV and critical to the responsible delivery of energy. This is why we apply stringent corporate regulations, hazard identification and foster a culture of care to ensure that OMV is a healthy, safe and secure place to work.

In the first half of 2016, the loss-time injury rate unfortunately trended upwards. We are deeply concerned that there were more serious incidents. Senior management investigates and analyses current high potential incidents. We have already implemented a major accident prevention policy across the Group, and commenced the rollout of specific training programs. Despite our cost reduction efforts, we do not compromise on health, safety and security.

Now I would like to briefly talk about OMV’s market environment. Let's start with the oil market. Average oil price has recovered from US$34 per barrel in the first quarter to US$46 per barrel in the second quarter of 2016. Speculations about the production freight agreement among major oil producing countries, first signs of weakening U.S. production and temporary production outages were responsible for this development.

The Central European gas prices were flat in Q2 2016 compared to Q1 2016. OMV’s realized gas price in Upstream was €13 per megawatt hour due to long-term locked in gas agreements and pricing in countries not linked to the Central European gas price.

A short remark on the refining markets. Compared to first quarter 2016, the OMV indicators refining margin slightly declined reaching its average of US$4.7 per barrel in the second quarter 2016. However the middle distillates recovered slightly supported by supply disruptions and a modest increase in demand.

Finally, petrochemical margins decreased compared to the same period in 2015, and the previous year shutdown has kept supply in Europe on a relatively low level.

I will now highlight the key figures of the second quarter, and Reinhard will comment on them in greater detail later.

Clean CCS EBIT declines from €375 million to €214 million due to lower Upstream and Downstream oil results. In contrast, the Downstream gas business was clearly up due to successful restructuring efforts resulting in one-time effect. Clean CCS net income attributable to stockholders came in to €222 million. This was slightly higher than the clean CCS EBIT because of the strong results from Borealis and low taxes on the clean basis.

Clean CCS EPS amounted to €0.7 versus €1.1 in the same quarter last year. At €1,036 million cash flow from operation was slightly up versus the second quarter 2015, supported by the release of working capital. Free cash flow before dividends came in at €551 million driven by the strong operating cash flow, which already reflects the first benefits of our cost saving program and substantially lower cash outflows from investments.

The major accomplishment was that free cash flow of the dividends was also positive at €172 million despite making dividend and hybrid coupon payment. OMV generated a negative EBIT of €300 million. We incurred special changes of €608 million, mainly as a result of the Rosebank impairment, which I will explain a bit later. Consequently the net loss attributable to stockholders amounted to €168 million.

Moving onto our financial performance. In the first half of 2016, OEM realized solid operating results despite the 31% decrease in the oil price. OMV reported clean CCS EBIT of €381 million, 46% lower than in the previous year, both Upstream and Downstream turns in lower results.

Clean CCS net income attributable to stockholders decreased from €600 million in the first half of 2015 to €396 million. Free cash flow before dividends showed a huge improvement from a negative €421 million in the first half of 2015 to a positive €406 million this year. Following dividend in hybrid coupon payments, free cash flow after dividends also came in positive in line with our strategic targets.

In the second quarter of 2016, we continued our negotiations with Gazprom on asset swaps. As you know, OMV has been operative stake of 24.98% in Achimov IV/V projects. In turn Gazprom would receive a share in an OMV North Sea subsidiary. We are aiming to reach agreement with Gazprom on the commercial terms in the second half of 2016. Once this happens, the approval process with the authorities will start which may take one or two years.

As announced on August 8…

Magdalena Moll

August 9.

Rainer Seele

August 9, 2016, we will be selling 30% of our share in the Rosebank project to Suncor Energy headquartered in Canada. As you know, Rosebank was part of the Statoil [ph] deal in August 2013. At that time, we increased our share Rosebank to 50%. Under the terms of the agreement, Suncor will make an initial payment of US$50 million on closing. The transaction is subject to conditions including regulatory approval and is anticipated to close in the fourth quarter of 2016.

Following the co-venturous approval of the Rosebank project final investment decision, OMV will receive an additional consideration of up to US$165 million. As a consequence, we have to write-down the book value of the assets by €530 million. The deal will significantly reduce our exposure in the U.K. deepwater oil field development, at the same time for OMV’s related future investment requirements will decrease in line with our strategy to focus on low-cost regions.

The divestments of our minority stake in Gas Connect Austria, continues to make progress. Due diligence is ongoing and numerous financial and strategic buyers have indicated strong interest in the 49% stake. We are targeting to close the deal in 2016, which will positively impact our cash flow. OMV is continuing its divestments of efforts for OMV Petrol Ofisi. The recent events in Turkey puts stress on the M&A markets no doubt, however our view is that the specific transaction will not be negatively affected given the stable performance of Petrol Ofisi in past quarters. OMV has furnished the information with memorandum and send it recently to prospective buyers.

OMV has finalized the takeover of the 35.7% share in EconGas at the end of May 2016. We are now streamlining the organization with a major focus of integrating the EconGas sales activities into OMV. In the second quarter, we also started a marketing campaign in Germany and this markets we ensure a good long-term supply position from increasing equity gas production as well as from long-term contracts. This is currently being marketed by hub trading and direct sales channels. OMV envisages to achieve a market share in Germany of 10% until 2025.

While OMV’s objective is to focus on profitable barrels and sustainable reduction of unit CapEx cost, therefore OMV has a rigorous CapEx discipline. At the beginning of 2016, we estimated CapEx to come in at €2.4 billion. We made efforts to reduce this amount, and according to our current forecast, we will only spend €2.2 billion. This will not impact our production forecast. In the first half of 2016, we spent €1 billion with Upstream projects amounting to €700 million.

OMV Petrom spent roughly €240 million on field redevelopment project as well as on workovers and drilling including the Neptun project in the Black Sea. In the North Sea, the majority of our CapEx has been allocated to the development of the Gullfaks, Schiehallion and the Aasta Hansteen fields as they continue to be rolled out. In Tunisia, we have proceeded with the development of the Nawara fields. For 2017, we are again budgeting CapEx up around €2.4 billion.

In 2016, we will reduce exploration and appraisal by 26% to €450 million. In the first half, we spent €166 million, mainly related to the Wisting well in Norway and exploration appraisal activities in Romania. We also started the drilling process at the Polshkov well in Bulgaria. A review of our sub-Saharan Africa position made us decide to cease activities in Gabon and onshore Madagascar.

In the second half of 2016, we will increase our spending with a focus on projects in the Middle East, Romania and in the North Sea. OMV’s strategic target in 2017 will be to reduce exploration and appraisal expenditure to €300 million. OMV is making good progress implementing the cost reduction and efficiency program. At our Strategy Day in February we told you that OMV plans to achieve a cost reduction of €100 million by 2017. The program is ahead of schedule and we are pleased to inform you that OMV will already reach its targets by the year-end of 2016.

In Upstream, we optimized field costs, renegotiated with contractors, cut corporate costs and restructured operations in Romania. Downstream continues the implementation of its strict cost management program across all business units. This is all means that for 2017 we can commit to more than €150 million in cost savings compared to 2015. Further cost reduction efforts are ongoing.

Reinhard Florey

Good morning, ladies and gentlemen. This is Reinhard speaking. Very warm welcome from my side. I'm very pleased to be speaking to you today and I'm looking forward to meeting many of you during my upcoming road show.

Starting now with the summary of the Q2 income statement. Reported EBIT was negative at €300 million, as a result of special charges reported. These were mainly related to the impairment of our 50% stake in the Rosebank field as well as the upstream licenses in Norway, Madagascar and Romania. As Rainer already said, the signing of the sale agreement with Suncor for 30% stake in Rosebank was very recently concluded and thus was also not yet included in our trading statements.

The net financial result was €72 million, with Borealis again contributing positively with €111 million. The comparable number to previous year was €127 million. OMV although recorded €111 million in tax income, which is mainly attributable to losses from high tax upstream countries including the effects from the Rosebank impairments. Clean tax rate is in the single-digit given the strong contribution from Borealis and losses from high tax upstream countries.

Non-controlling interests were down driven by a lower contribution from OMV Petrom. This brings us on a reported basis to a net loss attributable to our stockholders of €168 million, which is equivalent to €0.51 per share. If you clean the results for the special charges, you see that our performance was solid. Clean net income attributable to stockholders in the quarter on a CCS basis amounted to €222 million.

Let me now turn to our cash flow which was very strong in Q2 2016. At 1,036 million, the cash flow from operating activities were significantly stronger than both prior quarter and previous year. Cash inflow from net working capital amounted to €345 million supported also by trade financing measures. Depreciation and impairments amounted to €1,157 million. We used €526 million in cash flow investments. The free cash flow before dividends came in at €551 million, driven by the strong operating cash flow and substantially lower cash outflows for investment.

Major accomplishment was that free cash flow after dividend was also positive at €172 million despite making €326 million dividend payment to OMV’s stockholders and the €51 million hybrid coupon payments.

But of course the current market environment puts pressure on the Q2 2016 results. Clean CCS EBIT declined from €375 million to €214 million. Despite the 26% lower oil price, Upstream clean EBIT breakeven. Production volumes were up 3% reaching 316,000 barrels of oil equivalent is a day mainly attributable to higher production in Norway. The clean CCS EBIT performance has been supported by the successful implementation of our cost reduction program, which resulted in 15% lower OpEx per barrel.

Downstream clean CCS EBIT declined from €269 million to €250 million. This was a combination of some lower Downstream oil but higher Downstream gas results. The OMV indicator refining margin decreased mainly due to higher crude prices. In contrast, the Downstream gas business was clearly up, also thanks to some one-time effects.

Net corporate costs were at minus €12 million. OMV recorded a negative FX in the consolidation line of €24 million predominantly in OMV Petrom.

Now let's look at the reconciliation from clean CCS EBIT to EBIT as reported. Adding back the inventory effects of €94 million shown as CCS gain, and detecting the special items in the amount of negative €600 million, which I explained earlier, EBIT came in at a negative value of €300 million.

On our next chart, we see the Upstream clean EBIT development in Q2 versus previous year. Clean EBIT declined from €116 million as a result of significantly lower oil and gas prices. The realized crude oil and gas prices dropped by 32% and 19%, respectively. Realization which also includes hedging and foreign exchange effects from revenues had a negative impact of €273 billion on clean EBIT. Please note that from Q2 2016 onwards, the hedging effects are included in the realization figures.

Upstream reported a 3% lower sales volume compared to last year, but under this situation led to a build-up in stocks. Net effect increased clean EBIT by €11 million. Lower clean exploration expenses caused by reduced exploration activities, particularly in Romania and North Sea, positively impacted clean EBIT by €69 million and lower depreciation as a result of the lower asset base following the impairment in 2015 contributed €28 million to clean EBIT.

Finally, lower production costs which are reported under the section “Other” contributed to an improvement in clean EBIT. This reflects the successful implementation of our strict cost reduction programs.

Looking now into our Upstream key performance indicators. Here you see the quarterly development of two of our key performance indicators, hydrocarbon production and operating expenditures on the unit level. Production increased by 3% versus last year with a roughly even split between oil and gas. Several projects in Norway are contributing to this higher production level. Ramp-up at Edvard Grieg, which brought up on stream in Q4 2015, progressed according to plan. Edvard Grieg produced 14,000 barrels of oil equivalent per day.

In addition, gas blowdown at Gullfaks also started in Q4 2015 had contributed 7,000 barrels of oil equivalent per day. As the Gudrun field, two new wells were brought on stream producing 3,000 barrels of oil equivalent per day.

On the other hand, OpEx in U.S. dollars per barrel oil equivalent decreased by 15% to 11.5% in Q2 2016 due to strict cost managements coupled with higher production. The cost savings measures included reductions in the cost of material, personnel and services.

Downstream clean CCS EBIT decreased from €269 million to €250 million. This was attributable to the lower refining and petrochemical margins in Downstream oil, as well as scheduled turnaround activities at the Schwechat and Petrobrazi refineries. The turnaround cost about €20 million. The retail business, margins improved driven by a strong recovery in Turkey.

In contrast, Downstream gas clean EBIT was up by €89 million, largely driven by restructuring efforts which resulted in one-off effects in the amount of approximately €40 million. This included a higher valuation on forward contracts as well as settlements for gas storage contract which resulted in the gain.

Here you see the decrease in refining margins from US$7.8 per barrel in Q2 2015 to now US$4.7 per barrel in Q2 2016. The indicator refining margin for the western refineries decreased from US$7.4 per barrel to US$4.0 per barrel, driven by lower gasoline and middle distillate spreads jet, diesel and heating oil.

The indicator refining margin is decreased from US$9 per barrel to US$6.8 per barrel. Due to a higher owned crude consumption, Petrobrazi benefited more from lower oil prices than the refineries in the west.

The scheduled turnaround of the fuel units at Schwechat and Petrobrazi, each lasted for approximately one month. Consequently the refining utilization rate decreased from 92% to 72%. A 7.6 million tonnes, total refined product sales were stable. They were not affected by the turnarounds since we had prepared for them by building up stocks. Sales volumes in the petrochemicals business were flat. Despite network optimization in Turkey, retail sales volumes of 2.6 million tonnes remained on the high level of the previous year.

Looking at Downstream gas, key performance indicators at now 24.4 terawatt hours. Natural gas sales volumes were 6% higher than in the same period of the previous year mainly due to Austria. OMV Petrom sales to third-parties was slightly less because of lower demand from chemical customers. Sales in Turkey was slightly up due to advantageous supply conditions. The natural gas sales margin was higher compared to Q2 2015 into realized positive one in one-time effects.

Due to the regulated tariff, the gas transportation business, Gas Connect Austria showed stable clean EBIT contribution of €30 million.

The next slide shows now the development of operating results at the OMV Petrom Group. Clean CCS EBIT decreased significantly from €148 million in Q2 ‘15 to €49 million. This was driven by lower results in both Upstream and Downstream. While the Upstream results in OMV Petrom was lower than last year, it still amounted to a positive number of €43 million. Downstream also contributed €30 million to earnings.

At 177,000 barrels of oil equivalent per day, production was also down by 2%. The cost reduction program at OMV Petrom made significant progress and is reflected in the 8% decrease in Upstream production cost to US$12.1 per barrel oil equivalent. Downstream clean CCS EBIT decreased by 39% to €30 million due to lower refining margins and the turnaround at the Petrobrazi refinery. Downstream gas clean EBIT improved from minus €19 million in Q2 2015 to minus €7 million.

Benefiting from the strong cash generation of the OMV - of the Group, OMV reported net debt just below €4 billion. While the impairments with gearing and equity ratio remains relatively stable at 29 and 45% respectively. Thus gearing is in line with our long-term target of maximum 30%. OMV’s balance sheet is in healthy state reflecting the strong liquidity position with €1.3 billion in cash and cash equivalents and €3.6 billion in undrawn credit facility.

The management team has three financial priorities: focus on cash flow; maintaining a strong balance sheet; and improve shareholder returns.

Now let's discuss cash flow first. We have to make sure that we generate sufficient cash to finance our investments and able dividend payments and at the same time manage our debt level. The strength of the balance sheet is very much in focus in order to get good access to the capital markets and to ensure that OMV compare as well with peers both regarding its financial stability and its rating.

Finally, we strive to improve shareholder return, so that OMV share is and will remain an attractive investment.

Rainer Seele

Well, ladies and gentlemen, let me finalize now with the outlook for the full-year 2016. For the full-year 2016, we stay with our oil price assumption of US$40 per barrel on average. Due to persisting overcapacity in European markets, refining margins are projected to be below the levels of the first half 2016. Capacity utilization is expected to be above 90% in the second half since we would have no major turnarounds.

The gas market environment in Europe is characterized by oversupply with natural gas margins expected to remain on low levels. Gas prices on European spot markets are expected to remain flat compared to prices at the end of second quarter 2016. Current market forwards however show a slight upward trend for the next months. We updated our production guidance for 2016 to slightly above 300,000 barrels of oil equivalent per day given that we managed a good production performance in the first half.

We continued with our rigorous CapEx discipline and thus reduced our CapEx guidance to €2.2 billion in 2016. Approximately 70% of this amount will be spent in Upstream. Exploration and appraisal expenditure guidance remains unchanged at €450 million.

In summary, while 2016 continues to be a difficult year for the entire industry, OMV’s integrated business model supports the Group’s profitability and cash flow performance and we are well on track to deliver on our promises.

Thank you for your attention and we are now happy to take your questions.

Question-and-Answer Session

A - Magdalena Moll

Thank you, Rainer and Reinhard. And now ladies and gentlemen, I would like to open the call for questions. I ask you to please limit your questions to only one at a time, so that we can take as many questions as possible. Of course you are always welcome to rejoin the queue for a follow-up question and we will definitely take your question. So with this, I would like to ask first Haythem Rashed from Morgan Stanley for his question. Good morning, Haythem.

Haythem Rashed

Good morning, Magdalena. Thank you very much, and thank you for the presentation gentlemen. My question really is perhaps a little bit more for Reinhard and his views, but just touching on his last area of focus on the slides around financial priorities. I just wondered if you could talk a little bit more about how you are looking at balancing shareholder return versus maintaining a strong balance sheet in the current environment over the next six to 12 months. And in particularly what I’m really pointing to is just - we’d like force on is the dividend policy, whether you think there is sort of - the 30% down ratio is something that is kind of consistent with this or whether you are looking at it from a slightly different perspective, and as I say, whether do you, sort of, gearing is really the priority at the moment as opposed to shareholder returns, and I do appreciate you mentioned - so one question. Just a very quick follow-up hopefully is just to understand is there any working capital tailwinds that we should be expecting in the second half of this year given you’ve had a bit of a benefit in the first half, if you don’t mind? Thank you very much.

Reinhard Florey

Yes, thanks for your questions. Of course we mean what we say in terms of the financial priorities and that is that the strengthening of the balance sheet is something that is important in the industry as long as there are challenges out there. But our focus on cash flow should very much be targeted at enabling us to provide a significant and appropriate dividend also going forward. What does that mean? That means that the target and policy that we have in place of the 30% is something that we stick to, and on the other hand, we have clearly said that we are not going to go in our cash flows after dividend to a negative value.

So this means, in order to do that, our focus on operating cash flow and the ability also to limit on our CapEx in order to be able to pay the dividend is the one thing that we are concentrating now. That is also why we are focusing so much also on the self-health program with cost savings where we have now increased our target. So in order that to be understood rightly, yes, we stick to the policy in place and we are confident that also the target of being at a positive or breakeven cash flow after dividend is intact.

Regarding your working capital question, we had in Q2 definitely a positive impact from working capital. And we have also to see the seasonality of our business when it comes to gas storage where we presently are again going down over the summer and picking up before the winter. But working capital will be also strongly in the focus of our efforts to optimize and be most efficient.

So in that sense, while the working capital will probably not trend positive in the second half, we still would have a positive impact for the full-year in total.

Haythem Rashed

Very clear. Thank you very much.

Magdalena Moll

So we are now moving to the next question from Michael Alsford from Citigroup.

Michael Alsford

Thank you. Thanks for taking my question. So I’ll keep it to one. I just wanted to get a sense as to the Gazprom assets. I know you sort of say that the negotiations are ongoing but I don’t know if you could provide a bit more color as to what the steps we should think about as to needing to be finalized before, I guess, announcing the deal and if it really - if it’s related at all to the sanctioning of Nord Stream 2, or is it completely independent? Thank you.

Rainer Seele

All right. Well, some more details on the asset swap. We had a little bit of delay because Gazprom needed more time on the data room to make up their mind about the different assets we do have in the North Sea, and given the complexity of our asset base, they just need more time to finalize their evaluation. And what we have now in our plan is that we, in September, will start continuing our negotiations with Gazprom and we do have an agreement that we would like to sign a basic agreement until the year-end.

This is going to be the starting point for us to implement the swap transaction, which means that we need something like a year or two for closing the deal, given the fact that we do have a long list of approvals from different authorities rating us in Russia as well as in Europe.

Well, as we have explained in our first conversation with you on the asset swap is that we are targeting in our agreements with Gazprom an integrated cooperation along the entire value chain. So we both have an understanding that we don’t want to exclusively work in Upstream or exclusively working in Downstream. So we do have those, the same kind of understanding that we would like to have built. That’s why we have an interest to finalize all deals we do have in the pipeline with Gazprom.

Michael Alsford

Okay. That’s very helpful. Thank you.

Magdalena Moll

So moving onto the next question from Henry Patricot from UBS.

Henry Patricot

Yes, good morning, everyone. Thank you for the presentation. One question on the cost reduction. Why have you been able to reach your target earlier than expected and where are the additional reduction of €50 million coming from more precisely? Thank you.

Rainer Seele

The cost reduction efforts have of course been taken with a high rigor in OMV. And when we go out with the promise we want to keep it and we have aligned the organization very much behind this target. Now our teams have done fantastic work and we have progressed faster but also more in depth, and specifically in the area of procurement where of course we have a quite significant spend. We see opportunities and we see that the main parts of also the additional savings will come from procurement but also from effect of restructuring that take into organization to adequately competitiveness that we have as well as the abilities to optimize systems and processes throughout the company.

Henry Patricot

Okay. Thank you.

Magdalena Moll

So then we are moving on to Thomas Adolff from Credit Suisse. Good morning, Thomas.

Thomas Adolff

Good morning. Thank you. Just a question, I want to start with disposals if you don’t mind. So you’ve done 30% in Rosebank. I believe Jaap used to say when he was at OMV that he would do 10% to 20%. So wanted to better understand why 30%? So a bit more - and why you still went ahead despite the fact that your book value was significantly higher than both realized. But if we continue with disposals, excluding Rosebank, you’re quite - you seem quite confident on Gas Connect, I agree. You seem very confident on Petrol Ofisi. Let's see, Turkey looks a bit tricky. But the bottom line is between now and the end of 2017, you will get a lot of cash in from these disposals and your gearing ratio already is at 29% below your soft ceiling of 30%. So, kind of coming back to the first question, I kind of wanted to better understand also the balance between distribution and reinvestment at some point in the future, and regarding the LATAM reinvestment, what is there - what does OMV have to reinvest now to [indiscernible] if you can remind me. Thank you.

Rainer Seele

Okay. Very briefly on the disposal. I think the scope of the disposal with 30% is very much in line with what we had in our strategic target. In order to reduce the exposure to quite investment heavy, but on the other hand also a strategic exposure. So we are not out of Rosebank. We are still there with 20%. We think that we received a fair valuation. Given the current market condition, we received a good structure and also a very good and reliable partner with Suncor in this project.

So in that sense, the write-downs, the impairment was just a consequence of the changes that we see in the environment and in the schedule of this project which will still different in the assumption of what we have in our books. And just to clarify of course the impairment did not only look at the 30% but at our remaining 20% as well.

Regarding the other disposals, GTA [ph] Petrol Ofisi, processes are on track. Of course Turkey has lived through quite difficult times but our business model in Petrol Ofisi is not impacted by the situation. We are also seeing that the current performance of Petrol Ofisi stays stable. So we are going ahead with the divestment process with good confidence.

Reinhard Florey

Well, Thomas, one remark from my side on your questions. First of all, I think it’s a good track record that especially in these days where it’s not pretty easy to sell an big investment project to the market that we reached out 30% stake being find out then 10% to 20%. So the lifting we do have and the financial flexibility coming with that supporting our cash flow is substantial.

And coming back to your question what do we do with the money? First, let's collect the money and then we are going to tell you what we are going to do with the money.

Thomas Adolff

Sounds good. Thank you.

Magdalena Moll

The next question comes from Marc Kofler from Jefferies.

Marc Kofler

Hi. Thanks everyone for taking my questions. I just wanted to stay just in the Upstream and the guidance, which I know if this still excludes Yemen and Libya. I think in recent weeks, the industry seems to have been warming up a bit more in terms of potentially resulting some of the outages in both countries given your operations there. I was hoping perhaps for an update on the asset themselves and then if you still any possibilities of some listings before year-end in either country? Thank you.

Rainer Seele

Well, Marc, we are still planning with no production from both countries neither Yemen nor Libya until year-end. But I share your view that there is some warming up, especially in Libya. We do see our operations in very good conditions, so we don’t have any damages in our operations but we have limitations as far as we speak about the logistics. Some pipelines are not in good shapes and have been destroyed during some military activities in the neighborhood and one of the two export terminals, we are exporting via T9 [ph] Ra's Lanuf, one is also not in operation as we speak about the capability to restart the export terminal capacities. So we would be limited to one terminal the day we can restart our operations.

As we speak about the fields, well, everything is in good shape. We can restart but it will depend whether or not export capacities in the infrastructure is going to be available for OMV.

Marc Kofler

That’s great. Thanks very much.

Magdalena Moll

So this brings us now to Lydia Rainforth from Barclays. Good morning, Lydia.

Lydia Rainforth

Thanks. Good morning and thank you for the presentation. I will take one question. It’s coming back to the assets swap we’ve got one, if I could. Given that we are seeing a lot of volatility within the oil market at the moment and in terms of the views in terms of what the loan renewal pipe [ph] will be varied by significantly and the cost industry process. How do you actually protect the value for OMV into - if it’s going to take two years to especially close a deal? Are you looking at setting some form of link to the oil price in the deal that you’re doing with [indiscernible]. Thank you.

Rainer Seele

Well, I agree with you that volatility is - yes, the natural environment we have to live in our industry right now. But as we speak about the deal, two things are important for us. First of all, we would like to have an valuation of both assets based on our long-term oil price scenario, especially as we speak about Achimov IV/V, we expect that first production will start something around 2019. Yes, the current volatility is really not impacting or guiding us in our negotiations.

As we are going to speak about the gas production in Russia, I would say 30% of our production is condensate and therefore is reflecting the oil price scenario we do have. And of course we do have a gas production then coming with Achimov IV/V, which is based on our gas price forecast. Yes?

I don’t see an oil price index as a future pricing model for gas in Europe. And as we are targeting in our negotiations that we would like to have a netback to the European gas prices for some gas we are producing. First of all we have to get that done in our negotiations. And secondly, I think the European gas price will more or less, it’s a matter of time, de-link from the oil price.

Lydia Rainforth

That’s really helpful. Thank you very much.

Magdalena Moll

And next question is from Nitin Sharma from JP Morgan. Nitin? Hello?

Nitin Sharma

No.

Magdalena Moll

You didn’t have one? Good. It showed up on that list. Is there anybody who still would like to pose a question? On our list basically we have answered all the questions. So if this is not the case, then ladies and gentlemen this would bring us to the end of our conference call. We will next report on the third quarter results on November 9, 2016.

At this point, I would like to thank you for joining us this morning. And should you have any further questions, please contact any member of the Investor Relations team and we will be very happy to help you. With this, we would all like to say a goodbye and wish you a nice day.

Rainer Seele

Bye-bye.

Reinhard Florey

Thank you.

Operator

That concludes today’s telephone conference call. A replay of the call will be available for one week. The number is printed on the telephone conference invitation, or alternatively please contact OMV’s Investor Relations department directly to obtain the replay number.

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