OMV AG (OMVJF) CEO Rainer Seele on Q3 2018 Results - Earnings Call Transcript

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About: OMV AG (OMVJF)
by: SA Transcripts

OMV AG (OTCPK:OMVJF) Q3 2018 Earnings Conference Call October 31, 2018 5:30 AM ET

Executives

Florian Greger - Head of Investor Relations

Rainer Seele - Chairman and Chief Executive Officer

Reinhard Florey - Chief Financial Officer

Analysts

Josh Stone - Barclays

Peter Low - Redburn

Jason Gammel - Jefferies

Rob Pulleyn - Morgan Stanley

Thomas Adolff - Credit Suisse

Michael Alsford - Citi

Yuriy Kukhtanych - Deutsche Bank

Matt Lofting - JP Morgan

Michele Della Vigna - Goldman Sachs

Bertrand Hodee - Kepler Cheuvreux

Operator

Welcome to the OMV Group's Conference Call. [Operator Instructions] You should have received a presentation by e-mail. However, if you do not have a copy of the presentation, the slides and the speech can be downloaded at www.omv.com. Simultaneously to this call, a live audio webcast is available on OMV's website.

At this time, I would like to refer you to the disclaimer, which includes our position on forward-looking statements. These forward-looking statements are based on beliefs, estimates and assumptions currently held by and information currently available to OMV. By their nature, forward-looking statements are subject to risks and uncertainties that will or may occur in the future and are outside the control of OMV. Therefore, recipients are cautioned not to place undue reliance on these forward-looking statements. OMV disclaims any obligation and does not intend to update these forward-looking statements to reflect actual results, revised assumptions and expectations and future developments and events. This presentation does not contain any recommendation or invitation to buy or sell securities in OMV.

I would now like to hand the conference over to Mr. Florian Greger, Head of Investor Relations. Please go ahead Mr. Greger.

Florian Greger

Thank you, Emilia. Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the third quarter of 2018.

With me on the call are Rainer Seele, OMV's Chairman and CEO and Reinhard Florey, our CFO. Rainer Selee will walk you through the highlights of the quarter and will discuss OMV's financial performance. Following his presentation, both gentlemen are available to answer your questions.

And with this, I will hand it over to Rainer.

Rainer Seele

Yeah, thanks. Good morning, ladies and gentlemen and thank you for joining us. In the third quarter we continued to deliver on our strategy. After a strong first half, OMV was again able to achieve a very strong operational performance, driving results and cash generation. Before coming to our business development, let me briefly review the economic environment.

In the third quarter 2018, Brent averaged $75 a barrel. This was 44% higher than the average during the same period in 2017. The oil price strengthened predominantly due to strong demand growth, lower Iran exports ahead of the expected secondary oil sanctions and concerns about supply disruptions in a tightening market.

Gas prices showed a strong upturn of 50% compared to the third quarter 2017. In contrast to the typical seasonal pattern, European gas prices went up during the summer months. The increase was supported by surging CO2 prices as well as the need to replenish storage levels following exceptionally cold weather in February and March of this year.

In addition, the high gas demand in Asia drove gas prices, limiting the availability of LNG cargoes for the European gas market. At $5.7 a barrel, the OMV indicator refining margin remained at a healthy level despite the high oil price environment.

Compared to the previous year's quarter, however, refining margins were down by 19%. In the third quarter 2017, refining margins were exceptionally high due to the unplanned refinery shutdowns and a series of hurricanes in the United States, most notably Harvey. The ethylene and propylene net margin was basically flat compared to the previous year's quarter.

Let me now briefly point out the highlights of the third quarter of 2018. OMV delivered a clean CCS operating result of more than EUR 1 billion. Ladies and gentlemen, this is a record in a decade. The last time we achieved a result of a similar magnitude was in a $120 oil price environment back in 2008.

Our cash generation remained also at a high level. OMV delivered an operating cash flow of almost EUR 1billion despite significant negative net working capital effects. As a result, we reached an almost neutral free cash flow after dividends in the first nine months this year, and this, despite the major acquisition in Abu Dhabi and the record dividend paid in June. These impressive figures were driven by our strong operations.

In Downstream, we ran our refineries at a very high utilization rate of 98%. Our refining margins stayed healthy despite the continued high oil prices. In Upstream, we decreased our production costs for the first time to a level of below $7 per barrel. Last but not least, we continued to deliver on our strategy. We further streamlined our portfolio and successfully closed the divestment of the Samsun power plant in Turkey. At the same time, we achieved major milestones in Upstream.

In September, we entered into a Heads of Agreement with the Malaysian company Sapura Energy to form a strategic partnership. The intended acquisition of a 50% stake in Sapura Energy's wholly owned upstream subsidiary is a major step towards developing OMV's activities in South East Asia.

In October, we signed a Basic Sale Agreement with Gazprom for a potential acquisition of a roughly 25% stake in Achimov 4 and 5 in Siberia. The new agreement of a cash transaction replaces the previously intended asset swap. The signing of the final transaction documents is expected in the beginning of next year.

At our Capital Markets Day this March, we announced to reach a production of 500,000 barrels per day by 2020. I am delighted to announce that this target will already be within reach by the end of this year. This success is driven by both the acquisitions in New Zealand and Abu Dhabi as well as the upcoming start-up of Aasta Hansteen in Norway. Both fields in Abu Dhabi started production already in third quarter and we expect a production rate of 25,000 barrels per day by the end of this year.

In addition, Aasta Hansteen will support OMV's production by roughly 20,000 barrels per day. The acquisition of Shell's upstream assets in New Zealand will add another 30,000 barrels per day. The higher production does not come at the expense of our future. Over the next five years, we expect to maintain a reserves replacement ratio of above 100%. We not only have higher production, but also a more balanced portfolio. In 2015, more than two out of three barrels were produced in the region Central Eastern Europe while the expected 500,000 barrels rate will be based on five strong core regions.

We have also improved our portfolio in terms of costs. For 2018, we expect average production cost of $7.2 per barrel. Thanks to our strong partnership approach, we were able to enter into fields that combine low cost production with strong cash flows. OMV is repositioning its value proposition in terms of cash generation, cost structure and financial resilience. And, ladies and gentlemen, this is not the end of our journey. The intended acquisitions in Malaysia and Russia provide the base for further growth in earnings and cash generation in our upstream segment.

Let's now turn to our financial performance in the third quarter of 2018. The clean CCS operating result increased to EUR 1.5 billion from EUR 804 million in the third quarter of last year. Both business segments contributed with their strong operations to this excellent result. Just to remind you, the prior year's quarter included a positive one-time effect of EUR 90 million regarding the Pearl settlement in the Kurdistan Region of Iraq.

Excluding this one-off item, the Clean CCS operating result has increased by almost 50%. As guided in August, the hedging impact was halved to EUR 59 million compared to the previous year quarter. This includes both oil and gas hedges, with the majority coming from oil. OMV's hedging strategy aims to secure the company's financial resilience by establishing a downside protection against lower prices and, thus ensures cash flows for our growth strategy.

In fourth quarter, our hedging position for both oil and gas is unchanged compared to the third quarter. The clean tax rate was 38% compared to 19% in the previous year's quarter, mainly driven by an increased contribution from the higher taxed upstream countries in a higher oil price environment. In third quarter '17, the clean tax rate was positively influenced by the one-time effect related to the already mentioned Pearl settlement, which was consolidated at equity as after tax result.

In third quarter 2018, Clean CCS net income attributable to stockholders slightly decreased to EUR 455 million due to the higher tax rate. Excluding the one-time effect related to Pearl, the Clean CCS net income attributable to stockholders has increased by almost 20% compared to the previous year's quarter. Clean CCS earnings per share amounted to EUR 1.39 in third quarter 2018.

Let me now come to the performance of our two business segments, Upstream experienced a strong quarter driven by higher prices and an improved operational performance due to lower costs and changes in the portfolio. The Upstream clean operating result substantially increased to EUR 554 million compared to EUR 300 million in the third quarter of 2017. Market effects had a positive impact of EUR 216 million compared to third quarter '17.

OMV's realized oil price rose by 43% while the realized gas price was down by 11% following the inclusion of Yuzhno Russkoye in our portfolio. This is due to the pricing formula for Yuzhno Russkoye, where 50% of the volumes are sold at Russian prices, which are lower than European gas prices. The other half is sold at European gas prices with the time lag effect of two months. Therefore, the recent upward movement in the European gas market has not been fully reflected yet in our realized prices of third quarter, so you will see that running into our realized gas prices in the fourth quarter.

Compared to the same quarter last year, the improvement in our operations and portfolio had a positive impact of EUR 108 million. Hydrocarbon production went up by 65,000 barrels, reaching a level of 406,000 barrels per day. Yuzhno Russkoye contributed 89,000 barrels, which is slightly less than in the first half of 2018, mainly due to the planned annual maintenance works in the third quarter.

Production in Romania and Austria decreased compared to the third quarter of '17 due to the natural decline while the production in Norway was lower due to maintenance activities. We were able to reduce our production costs by more than 20% to $6.8 per barrel on the back of our cost reduction program and our active portfolio management.

OMV's Downstream oil result came in at EUR 458 million, slightly higher than in the previous year's quarter. Despite the continued high oil price environment, OMV's refining indicator margin averaged at a healthy level of $5.7 per barrel. However, refining margins came down by almost 20% compared to the exceptionally high level of $7 per barrel last year. The decrease was more than offset by the strong operational performance of our Downstream operations mainly driven by the very high utilization rate of our refineries as well as the good margin development in our retail business.

The petrochemicals result decreased from EUR 84 million to EUR 74 million. Borealis contributed EUR 101 million compared to EUR 98 million in the third quarter of the last year. The clean CCS operating result in Downstream gas declined to EUR 26 million from the very high result of EUR 60 million last year, which included higher insurance revenues related to the Brazi power plant in Romania. The decrease was also attributable to a lower power result, temporary negative storage valuation effects and a lower contribution from Gas Connect Austria. Natural gas sales volumes slightly declined, mainly driven by Romania and Turkey, partly offset by higher sales in Germany.

Let's now continue with cash flow. In the first nine months of the year, cash flow from operating activities increased to EUR 3.3 billion, an increase of more than 20 % compared to the last year period. The third quarter contributed with EUR 970 million, despite negative net working capital effects of EUR 272 million. The operating cash flow includes a dividend payment from Borealis of EUR 108 million. This year, Borealis decided to pay interim dividends starting with the fiscal year 2018. Thus, from now on, OMV will receive dividends twice a year. The remaining dividend for the fiscal year 2018 will come in the first half of 2019.

Organic investments amounted to EUR 1.4 billion. The cash flow for inorganic investments came in at EUR 1.5 billion mainly reflecting the acquisition in Abu Dhabi. Drawdowns under the financing agreements for the Nord Stream 2 pipeline project added up to EUR 207 million. The organic cash flow after dividends rose by almost 20% to EUR 1.2 billion compared to the same period last year. As a result, we reached an almost neutral free cash flow after dividends despite the acquisition in Abu Dhabi and the record dividend.

For the full year of 2018, we are striving for a positive free cash flow after dividends including the expected closing of the New Zealand acquisition. OMV's balance sheet remained very healthy and showed strong liquidity with a cash position of EUR 3.4 billion. At the end of the quarter, net debt amounted to EUR 2.3 billion. The gearing ratio stood at 16%, comfortably below the long-term target of equal or below 30%.

Let me conclude with the updated outlook. Over the last months, we have seen a substantial increase in oil prices with Brent peaking above $85 per barrel. Based on this, we have updated the oil price forecast to $74 for the full year 2018. In addition, given the high prices in the European gas markets, we now expect gas prices to be considerably higher than in 2017. As a result, we now anticipate the clean tax rate for 2018 to be in the high thirties.

For the full year, we continue to expect production to average above 420,000 barrels per day. OMV's production in the fourth quarter is expected to be strong, slightly higher than in the first quarter of this year. This will be driven by the production of the two fields in Abu Dhabi and of Aasta Hansteen in Norway. Compared to the first quarter of 2018, the production volumes will be partly offset by the divestment of the Pakistan upstream business.

The acquisition in New Zealand is expected to be closed at the end of December 2018. Organic CapEx is expected to come in at EUR 1.9 billion including the CapEx requirements stemming from the project development in Abu Dhabi. Before coming to your questions, I would like to give you an update on Neptun in Romania. The Romanian Offshore Law was approved by the Chamber of Deputies and awaits promulgation by the Romanian President. We are currently assessing the impact on our offshore operations and investment decisions. Given the timeframe, we do not see a Neptun Deep final investment decision in the fourth quarter of this year.

Thank you for your attention. We're not more than happy now to take your questions.

Question-and-Answer Session

A - Florian Greger

Good, let's now come to your questions. I'd ask you to limit your questions to only two at a time so that we can take many questions as possible. Of course you're always welcome to rejoin the queue for a follow up. The first question comes from Josh Stone, Barclays.

Josh Stone

Hi, good morning. I've got three questions please. One on Downstream and one on gas prices, just on the Downstream, you've seen the force of very low water levels in the Rhine forcing some of your capacities to close down production. Can you talk about to what extent that benefits at your chemical earnings in September and also to what extent I could assume supporting Downstream earnings in the fourth quarter? And then second on the gas prices, you talked very closely around indicated gas prices going up, your realized gas price has continued to fold and you did highlight some of the lag on production from US in terms of price, so are there any specs holding back your gas price realizations? It sounds like you have decent visibility of gas prices into the fourth quarter, so maybe again on that you might be able to give us some more guidance. Thank you.

Reinhard Florey

Josh, I have to say we like to low water level in the Rhine, yeah. We are benefiting from the situation that we have, supply disruptions in some regions, especially in southern Germany and definitely we are benefiting from it. We do see a shortage of diesel. We have right now more - high liquidity of gasoline in the market. So I think it would continue for quite a while. I look always to the weather forecast, looking outside the window I have a view of the Danube river and the level is too high to be honest. So the situation down the Danube river has disappeared, but the Rhine river and the situation of the area [ph] will stay. How long it will stay is depending on maybe upcoming rain in the next weeks. So right now, we do have that positive impact, but we are also benefiting from a shortage of the supply especially in Southern Germany because of the refinery accident we have seen in [indiscernible], so that the market there has a very good price levels right now. So we will benefit from this. Also in the fourth quarter positively ended downstream business, but just to correct the picture, we don't see a refining margin in the fourth quarter on the level we have seen in the third quarter. We have started with a very low refining margin in early October, so we have seen a margin which was below the $3 per barrel. And if you ask me what is the margin - refining margin level in the fourth quarter, well, I don't see comfortable read to raise the number, but I will say it's depending on the oil price development. What we have seen is that the refining margin and the customers are reacting in the downstream business when the oil price is surpassing the $80 per barrel. Now we are below that, so that we have - that we can get a little bit more fresh air with refining margins, but looking into fourth quarter, I would say it's more - three to four than four to five, but again it's depending what oil price we are going to see in the next weeks to come.

Rainer Seele

Josh, this is Rainer speaking. To your question about the realized gas prices, compared to what we have seen as an increasing gas prices on the LPG level, the realized gas price increase has been quite moderate. It has actually two major reasons, the first is that of course we have now selling our gas only the LPG and what we have seen is that in other region, the increase of gas prices has been less pronounced and what we have seen in the LPG side. So if you take for example, Romania or if you take New Zealand, these are different gas price development and they have seen a lower increase than you have seen on the LPG. So second major reason is and Reinhard has already referred to that, that we are not benefiting in this quarter four from an increase that we would see also in the BAFA price on the international price that we have for our Russian gas. As Reinhard said, this is a price formula that takes into account a two months delay of price development, so more or less a little bit of a backward looking pricing effect, so we are expecting that price increase that we have seen specifically into two last months of the third quarter will be positively seen also in the fourth quarter and has not been fully reflected in the realized gas price in the third quarter, as we showed it.

Josh Stone

Okay, great. Thanks

Florian Greger

Next question is from Peter Low, Redburn.

Peter Low

Hi, thanks for taking my question. First was just on Neptune Deep. Could you give us an idea of what the specific speaking point that are preventing an FID and whether you're still confidence there's cash to be overcome in 2019? And the second is just on - I've seen production more generally, you talked about exit rate of $500,000 a day, is that then sustainable of that level through 2019? Or kind of given normal maintenance and sales downtime, should we expect the 2019 [ph] average production figure to below that level? Thanks.

Rainer Seele

Alright, the second one is the easy one, that's why I start with it. It is sustainable - it is sustainable, so if you - if we run into 2019, the exit production of 500,000 is more in upside than in downside. Why we are expecting that we are going to finalize our negotiations was Sapura Energy until year end and then closing will be in 2019, so that an upside production from Malaysia is running into our average production figures. The rift in our production level in 2019 is more coming from other region. The question in 2019 is how is the stability in Yemen and Libya? And if there is a deviation and the downside it is the production level we have in these two countries given the fact that we have there some geopolitical in stability. Talking about Neptune Deep, first of all, as I said, we have to look into the different wordings. What are the points important for us where we are going to make decision making. It is fiscal stability coming with the actual law. If I look - if I have a first look into the drop what I have seen so far, I can see that up from me, yeah. So we have to see the process in Romania. First of all, we have done all the first steps and we hope that the second step is going to happen and this is more determining the timing of our decision making. I think we have more or less a framework we can deter, but it will be up to the Petrom management to make their final evaluation and their decision on whether or not they would like to bring that project forward to their shareholder OMV.

Peter Low

Okay. Thank you very much.

Florian Greger

Next is Jason Gammel, Jefferies.

Jason Gammel

Thanks very much gentlemen. I wanted to first come to the excellent performance that you had on the operating expenses in the upstream during the quarter, quite a low level of serving less than they thought. And I was hoping you could address essentially the sustainability of that level, just assuming now oil filters inflation, particularly given that some of the production that is coming into the portfolio would appear to be relatively low cost. My second question and I appreciate - this maybe too early to be asking this. But related to Sapura, can you talk about the governance of the Sapura upstream organization once a deal is completed. I'm really thinking specifically how much influence we have over the operatorship of that entity and would you anticipate any OMV secondees into the organization?

Rainer Seele

Jason, regarding your first question, the operating expense has been upstream. You were asking about the sustainability of the level and I can give you a little bit of an insight of the development there. We have had even an improvement of the development of the cost side that we had in upstream from quarter two to quarter three, and that was mainly coming from our cost savings and cost improvements in the Romania as well as in Norway. We also have some positive effects from Austria. We did not be a major impact yet from the good cost position that we have in Abu Dhabi there. Still you can take it from there that bringing in more of the volumes from Abu Dhabi will even get us to a better position. So in terms of the sustainability this is the [indiscernible].

Reinhard Florey

Jason, in terms of Sapura, of course, I can't give you any information concerning the corporate governance because this is under negotiation and we will publish all the data today we are going to sign the final agreement. Let me take your question a little bit more in a philosophic way to explain it to you. Of course, we would like to gain some certain influence, that's the way we have made an announcement of the partnership with Sapura is that we would like to be equal part. We will run the company as a 50-50 joint venture. This is what we have agreed. This is what we have on the table and we are discussing what is going to be the corporate governance and how do we would like to see the company. So we will do that together. And I have a preference in my experience, all the partnership I have been and this matter what you've talk about a partner in Russia, a partner in the Middle East and our partner in Asia. It always worked well when none of us is dominating the show, that's a reason why we also have approached our partner in Malaysia that we would like to become equal profit. Let's wait how the negotiations will be finalized, but that's more the intension both partners are ready to discuss.

Jason Gammel

Okay. That's helpful. I really - it's petty early days, so quite useful.

Florian Greger

Thanks, Jason. Next is, Rob Pulleyn, Morgan Stanley.

Rob Pulleyn

Two questions on from my side if I may. So, could you talk a bit of and add color on the gas liberalization in Romania and how we should think about Romanian gas prices, which are bit of a black box and where we sit in terms of shadowing the moves we're seeing in wider Europe? And secondly, could you maybe update us on the M&A strategy and the pipeline obviously you have lots of announcements, but if the [indiscernible] deal closing cash that will be little bit less available for further upstream. Having said that the balance sheet is in very good shape, so how do you think about the M&A pipeline from there? Thank you.

Rainer Seele

All right, let's start with M&A activity. We will continue to be very active, that's what you all like, isn't it? You would like to have positive surprises with the deals. If there are good deals available in the market, OMV will look at it. The financial strength of OMV gives us the flexibility to look into the M&A possibilities. We will see in full compliance and deliver on our promises we have done to the financial market. This is my look into 2019, I confirm, I reconfirm that we are targeting and that we are managing the company and our balance sheet that we would like to be free cash flow breakeven of positive after acquisition and after dividend and whatever we have to say. So that still - that's a valid target we have in our company. When we talk about down the road the M&A strategy, I agree with you, Rob, that the window of opportunity is more and more closing in the upstream sector, because the higher oil price is flowing also into the expectations in the M&A market and the maybe price tags for upstream deals is going to be too high. If I look - what I can see in my cloche of M&A activity, I have problem to find the upstream project. Secondly, we have said also on our Capital Markets day in March, we will focus on more downstream assets as we also have budgeted some M&A money for downstream acquisitions. Maybe the window of opportunity in the downstream sector might open, we don't know. So a clear answer to your question, yes, we will continue next year with Sapura with Malaysia and with Achimov IV, V if there is anything down the road it has to be a very good summer field price tag on it since we will look into it.

Rob Pulleyn

That's very helpful. Thanks. And just on the Romanian gas liberalization of the markets there?

Reinhard Florey

Sure, Rob, gas liberalization has taken - clearly taken - in the gas industry already. So the industry is liberalized regarding the whole situation about the gas pricing and that is developing that we of course carefully watch. There have been some messages from the government that went into positive direction, there have been some messages that make us watch very carefully hold on that side, but we are not worried, we think Romania is the country for gas production. We are also seeing that with a prospect that Neptune project which we are now carefully investigating after the offshore law has the potential to be a gas exporting country and therefore liberalization of the gas price market is also very important for us.

Rob Pulleyn

Okay. Thank you. Thank you very much. If I may just follow-up on that please. I mean, in terms of given that development in your comment previously about Romania been a different market. Should we now expect that Romanian gas prices will close the differential versus what you get in the rest of the year? Or is that going to take some time?

Reinhard Florey

This will not come from today to tomorrow, that is something that we are - said, we are watching very carefully, but we have a very well established company with Petrom there, which we owned 51% and therefore this is a country where we think there it's worthwhile doing business.

Rob Pulleyn

Yeah, thank you. I'll turn it over.

Florian Greger

Thanks, Rob. Next is Thomas Adolff, Credit Suisse.

Thomas Adolff

Hi. Before I start with my question, I want to wish you good luck with this 50-50 partnership in Malaysia, I think it will often end in chaos especially in that part of the world. I mean, TNK-BP was the mess towards the end, [indiscernible] was also tricky. And I remember very well a President saying 50-50 number works. So not really sure I follow your earlier comment. But to the questions I've had, trust me, just on European gas market, you talked about the lag effect, but I wondered where there is a specific formula also, I mean Equinor uses different types of benchmarks and then does they had months ahead, season ahead and year ahead. So I wondered where you can help me a little bit was the formula that you use for the realization? And then on downstream M&A, if I remember correctly half of the 10 billion is reserved for downstream and I wonder whether that half is defined as upfront spending, i.e., acquisition spending or rather associated developing CapEx, because in nascent you feel bidding for a new development, you don't pay for anything that doesn't exist, but it is the CapEx that's associated with the development. Thank you.

Rainer Seele

Alright. Thank you, Thomas that you are cutting your thumbs for OMV that it will have a good 50-50 partnership. What I can say is that track record of our company is good, yeah, that others cannot be as good as OMV convinced me that we should prove that we are - and do it in Malaysia. Second, your - the formula, the pricing formula, the pricing formula we have is a published gas price at the German border, we talk about BAFA and the BAFA price is the basis of our price formula. The way we have it is more a traditional gas pricing formula from the past, which we have in our contract and the BAFA price is then index with the time lag of two months. So if the BAFA price today is 100, let's say, two months later you will see the 100 in our formula. That's the way how we do that. Your second question concerning M&A transactions in downstream, this is an acquisition budget; it's not a development budget. So the budget for downstream asset is a budget for the purchase price or the acquisition price we have.

Thomas Adolff

Okay. Thank you.

Florian Greger

The next question comes from Michael Alsford, Citi.

Michael Alsford

Good morning. Thanks for taking my question. I've got a couple if I could. Firstly, actually on a tax rate, thanks that I got in from 4K, but I guess as we are looking into 2019 and with the higher tax falls in Norway and Abu Dhabi is ramping up. Could you give some indication of where you see the tax for the company for say flexible prices? That was my first question. And then just secondly on petchems, I just wondered if you could give a bit of an outlook on how you're saying margins question into '19, are you seeing any through way with the amount weakness [ph] given our prices? And just a color on that would be great. Thank you.

Reinhard Florey

Michael, regarding tax rate, you have seen as we had promised last quarter tax rate has come down to a level of 38% in quarter three, for the clean tax rate, we have now seen that of course, also in the second half of this year, the prices have been clearly rising above the levels that we have expected. So when we gave the guidance for a full-year tax rate around mid-30's at oil price of 70, we are now saying that it will be in the high 30's given the current commodity prices for the year 2018. For the year 2019 we have not given yet a clear indication. But you mentioned already major factors. I think it's important to see that of course the share of our production in higher taxed countries using tracing and then also the situation in Norway for some of our tax loss carry forwards will ease out, will lead to a situation that we'll have in general higher taxes there.

Michael Alsford

Thank you and on the petchems market?

Rainer Seele

Yeah, Michael, I take your question on the petchem market. We don't see a real substantial downturn of the petchem cycle right now. It's a bit too early and given the time. There are remaining two months until the end of the year to give you an idea how 2019 will look like. Right now we see that we still have the healthy market environment. We have in the different regions a different situation. I see it a little bit more positive on propylene than on ethylene.

But the picture can change from one day to another. So the availability of the ethylene is a bit higher than the availability of propylene. It has also to do with something about the production capacities in the United States that they are not too rich in propylene. That's the reason why I think the petchem margins are quite, quite stable until year end. Yeah, so I don't see any change at the horizon for 2019. Let's wait and see how the overall situation in the market will develop. Yeah, I also have a better idea whether or not we will see a downturn or slowdown of the GDP growth in 2019.

Michael Alsford

That's helpful. Congrats Reinhard [ph].

Operator

Thank you, Michael. Now we come to Yuriy Kukhtanych, Deutsche Bank.

Yuriy Kukhtanych

Yeah. Good morning everyone. I have a couple of questions around Achimov deal. First of all, if you could comment, what are the conditions or pre-conditions to close the deal? Because I understand that it is still conditional and whether it is dependent on the Nord Stream 2 construction progress or legal status or there is anything else on their side? And second question is how are you going to fund the deal and the ongoing CapEx before production starts in the field? Thank you.

Rainer Seele

Thanks, Yuriy. The pre-conditions to close Achimov field is first of all, we have to agree on the purchase price with Gazprom. That's one condition. Of course, if we can't find each other in the right number, we will not discuss any closing of the deal. I'm very positive that we are going to find each other. Second, the deal is then of course depending on the approval of the Russian authorities, which is the norm of procedure given the fact that OMV was qualified also as a partner in Yuzhno Russkoye. I don't see any concerns, but we never know. And third point, the transaction is not depending on Nord Stream 2, not in any case. It is a separate transaction with Gazprom and there is no combination of whatsoever. So it's a clear transaction of Achimov. How are we going to fund? Let's first become partner and with the full reliability, then we will sit together and discuss with Gazprom how we are going to fund the investments into the field development. One thing is quite clear. We are, of course, clearing in one step the task for the investments done so far by acquiring the shares.

Yuriy Kukhtanych

Okay. Thank you very much.

Operator

We now move on to Matt Lofting, JP Morgan.

Matt Lofting

Yeah. Good morning. Thanks for taking the question. Let me go, one left actually just coming back to Neptune by thinking about it more from the perspective of the CapEx outlook into 2019, I would be interested to know how much budget or spend you would allow for Neptune next year and to the extent that FIB continues to be delayed, what that could mean for the fiscal frame next year? Thanks.

Rainer Seele

It's more or less a specific question you are asking me. First of all, I have to see the fiscal frame and I have to ask myself when the fiscal frame will be in place, then I will tell you when is the FID and then of course the investment was the CapEx spending will start. So therefore, sorry that I can't give you a better answer on Neptune, but it's really depending on the timing of the approval process of the remaining government and what kind of framework we will see. So my point of view it should be a reliable long-term, stable, fiscal framework. If this is not coming, then we have a problem because we have to invest and we have to produce over a cycle of decade and that's why I think we have to wait and see. I just want to make one comment on Neptune because we have discussed the gas prices in Romania I think Rob has asked that question. One thing is for sure. The Neptune gas we are producing is not exclusively for the Romania market. So the gas price you have - you can use to evaluate the value of the Neptune development should not be based on the Romanian gas prices. We will have a certain amount, from my point of view, the majority of the gas will move into the European gas market, so that the majority of the gas we will produce will also find the European gas price.

Operator

Thank you, Matt. Next is [Indiscernible].

Unidentified Analyst

Hello. Thank you for taking my question. My first question is on Yemen, another small progress there in terms of production. I just want to have an update from you on what's the status of your operations in the country and what sort of outlook you might have. And similarly for Libya we are seeing some pretty strong loading data for the country in September, October. Can you share perhaps your view on how things are progressing on the ground there? Second question is regards to your production in Austria. You had a very steep decline this quarter, just wondering if there is anything there that other than natural decline that we should think of. Thank you.

Rainer Seele

Alright, I'll take your second question first. There is nothing else in the natural decline in Austria. There is no specific. If you continue to see the production with the natural decline I think that's the basis how you should judge it. If there is a new production knocking at the door, then we will let you know, but right now it's only the natural decline. In Yemen we do have a production level of more than 5000 barrels per day. We have already loaded two cargos. The cargos are paid. And although we do see, of course, the difficult environment in Yemen, I will give you only the guidance. Let's take the number and continue until year end. In Libya we have said that we see although the security situation has not improved in the country, we do see a stable production in Libya. We are above the 25000 barrels per day in 2018. So I would say in the fourth quarter above the 25 more close to the 30's is the production level, which I see in Libya. The country is of course, looking for stability since quite a while. And if we, Europeans, are not supporting them in their efforts to stabilize the country, I think that in the mid to long-term that the situation in Libya will stay as I have described it.

Unidentified Analyst

Thank you.

Operator

Thank you, [Indiscernible]. We now come to Michele Della Vigna, Goldman Sachs.

Michele Della Vigna

Thank you and congratulations for the strong results. Two questions if I may. The first one is about hedging. We see the benefit this quarter of a lower amount of hedging versus the first half of the year. I was wondering how much you still have left for 2019? And then secondly on your tax rate you are guiding to the high 30's. Is that also the assumption we should make in the coming year if we stay around $70 in terms of oil price?

Rainer Seele

Michele, let me start with the tax rate. I think it is important to speed up the tax rate as such low as the context with the level of oil and gas prices. Of course, if you have higher prices, then also your tax rate will be higher. So therefore we are currently node in an environment of $70. So therefore my guidance for the high 30's result of not on the level of the $70 for what we have guided for the rest of the year. And for the way forward, I already told you that there are some impacts that in general will have tax rate rather rise than decrease in our case with the change of portfolio that we have in mind.

Michele Della Vigna

Thank you, any comments on the hedging for 2019?

Rainer Seele

I was asking myself, Michele, why this question is coming so late honestly. We are sitting here together. So, okay, the first question we will get is on hedging. Now you are number 10. I'm surprised. Already 19 questions asked. But without kidding, first of all we can reconfirm that there is no oil hedging for 2019 and the OMV board is not discussing any oil hedging at the moment for 2019. Honestly speaking, Michele, we are going to have more discussion in our board until year end what is going to be really our hedging strategy. Some of you, when I was listening to you, are making this thinking. Yeah, because I think your arguments are really waiting higher that we do have not worked hard on our portfolio to create an internal hedge in our portfolio. This is the integrated substance we have and looking into that, we might benefit enough when the oil price is high and we might benefit when the margin is high and the oil price is low. So therefore I think I can confirm that our hedging appetite is extremely low. We have said this also in our last conference call, the hedging activity for the fourth quarter, the guidance is quite clear. It's the same hedging level we have had in the third quarter. As we speak about our hedging or hedges we have underway in the 2019, we will wait until year end to give you in the beginning of 2019 an answer on your question. All I can say is right now we have no hedges in place for oil. The hedges for gas I will explain for you beginning next year.

Michele Della Vigna

Thank you.

Operator

Thanks, Michele. And now we move to Bertrand Hodee, Kepler Cheuvreux.

Bertrand Hodee

Yes, thank you for taking my question. Most of my question has been answered. Maybe I have one left. Relating to Sapura Upstream? So what would be your preferred solution? I know it's - I assume it's not closed yet. But in a blue sky scenario would you prefer to have Sapura Energy 50% consolidated or equity accounted?

Rainer Seele

Bertrand, this is a clever question, yeah, absolutely clever question and you will get, of course, a straightforward answer. We are striving forward to fully consolidate Sapura business, Sapura Upstream business. But we will decide on the day we are going to have all the negotiations, but we would like to show the figures in our operative numbers. So let's wait and see. I would like to come back to, Michele, to give you one more information on our gas hedges, yeah. We have one gas hedge in place I would like to explain to you a little bit further because this is a hedge we will continue to have. This is a hedging of our gas margins from gas supplies where we have to change the pricing formula. I'll give you one and this is in the LNG business and I'll give you one example. For example, we have on the contract LNG supplies from the US, which are indexed to Henry Hub and to convert it into TCF price. At a certain point of time we are lucky in the margin. So the gas prices then will go up. Then, of course, we are missing the back win in the prices and then we have these hedges in place. But we are going to hedge the gas margin the day we are going to sign the contractual terms in the margin as positive, then we might miss a little bit the uptake potential but this is kind of a hedging we will continue also in 2019.

Florian Greger

Thank you, all. Ladies and gentlemen, this brings us to the end of our conference call. We thank you all for joining us. Should you have any questions, please contact the Investor Relations team and we are happy to help you. Good bye and have a nice day.

Operator

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