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Shunning renewables, OMV attracts investors with low-cost fossil fuels

While other European energy firms are flocking to renewables, Austria's OMV is sticking with fossil fuels and telling investors it will deliver rising dividends, lower costs and free cash flow at just $25 a barrel.

The strategy seems to be working. OMV has outperformed peers, with its shares up about 25 percent in the past 12 months against a 1.8 percent drop in the sector. Over two years, the gap widens, with OMV up 85 percent and the sector up 13 percent.

Presenting its new targets to 2025 in London on Tuesday, Chief Executive Rainer Seele - who has halved production costs per barrel to around $8 in part by rapidly expanding in Russia - had no qualms about his commitment to a fossil-fuelled future.

"We will not engage in renewables. It's not part of our strategy. I cannot do everything," he said, outlining OMV's 10-billion-euro spending programme to 2025.

Seele's comments come as other European energy companies such as Shell, BP Plc, Total SA and Statoil are becoming increasingly active in green energy, seeking to position themselves for the future.

Shell alone has spent $400 million on renewables and electric car charging points in recent months. Analysts at Bernstein reckon 'Big Oil' has invested more than $3 billion on renewables acquisitions over the past five years, mostly solar.

Gas, the least polluting fossil fuel, is widely expected to be crucial for reducing emissions.

OMV is aiming for the gas part of its portfolio to grow to up to 60 percent of the total by 2025, from just under half. Overall output is expected to almost double between 2015 and 2025 to 600,000 barrels of oil equivalent per day.

Seele's predecessor had bet on North Sea production, where other producers such as Premier are looking at costs of up to $18 per barrel. But Seele is slashing costs by selling British North Sea assets, reducing OMV's Norwegian footprint and boosting output in Russia, the Middle East and New Zealand.

This allows OMV to target costs at around $8 per barrel through 2025, requiring the oil price to be just $25 a barrel to generate free cash flow, compared with the current market price of around $65.

On that basis, OMV plans to keep or raise its dividend. It proposed its highest ever payout of 1.5 euros a share for 2017.

By comparison, BP needs a price of at least $45 per barrel to break even this year, and Statoil around $50.

"OMV's new growth strategy is encouraging despite some bold ambitions for profitable growth to 2025," Jefferies, which reaffirmed its buy rating on OMV shares, said in a note.

"The sustainable organic (free cash flow) yield (of around 10 percent) to 2020 is one of the main attractions to this stock," it said, pointing to peers on below 7 percent. (Editing by Mark Potter)

OMV to spend 10B euros in shift towards gas, refining

VIENNA, (Reuters) - Austrian energy group OMV is ready to spend 10 billion euros to focus more on gas and value-added refined products and grow its business outside Europe, its CEO said on Tuesday.

As other energy companies shift their portfolios towards natural gas as a less polluting alternative to oil, OMV said it too will beef up its gas exploration, refining and transport business, aiming to become one of Europe's top players in the market.

The partly state-owned group operates refineries in Austria, Germany and Romania and explores oil and gas fields in central and eastern Europe, the North Sea and the Middle East and Africa.

Half of the acquisition budget will be used to expand its refining business by investing in markets outside Europe, where it currently generates the lion's share of its sales.

"We are going to diversify it towards the growing markets, especially as we speak about downstream," Chief Executive Rainer Seele said at a presentation in London.

OMV said it will use part of the war chest to develop an upstream - or exploration and production - business in Australia and New Zealand.

The Vienna-based group aims to achieve clean current cost of supplies (CCS) earnings before interest and tax, which exclude special items and inventory gains or losses, of more than 5 billion euros ($6.16 billion) by 2025, an increase of 70 percent to last year.

OMV said it targets a 10 percent share of the German gas market by 2025 from 2.5 percent at present and plans to feed additional gas from Norway and Romania into the European grid to increase sales to more than 20 billion cubic meters by 2025.

OMV is among five Western companies to have invested in Russian gas export pipeline Nord Stream 2, which the latest U.S. sanctions related to Russia's activities in Crimea and European Union opposition may make harder to realise.

It operates natural gas transmission pipelines in Austria, holds interests in the Central European Gas Hub, and operatesgas-fired power plants in Romania and Turkey. ($1 = 0.8111 euros) (Reporting by Kirsti Knolle Editing by Maria Sheahan and Louise Heavens)


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FEATURED COLUMNS

Editorial comment
-Adrienne Blume
According to GIIGNL’s 2018 Annual Report, global LNG trade expanded by 3.5 Bft3d in 2018, to 38.2 Bft3d—a record 10% increase.
Power, LNG projects drive pipeline construction in Africa
-Shem Oirere
Increasing public investment in gas-fired power plants in Africa, the continuing recovery in global oil prices and persistent insecurity in key producer markets, such as Nigeria, are likely to impact gas transmission pipeline projects on the continent, even as more international companies express interest in the region’s stranded gas resources.


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