Welcome to the OMV Group's Conference Call. If you would like to ask a question after the presentation, you may register your request by pressing star one button on your telephone at any time during the actual presentation or during the question and answer session itself. 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. Simultaneously to this conference 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 of 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.
Yeah. Thank you, Sergey. Good morning, ladies and gentlemen. Welcome to OMV's earnings call for the 3rd quarter 2022. With me on the call are our CEO, Alfred Stern, and Reinhard Florey, our Chief Financial Officer. As always, Alfred Stern will walk you through the highlights of the quarter and discuss OMV's financial performance. Following his presentation, both gentlemen are available for your questions. With that, I'll hand it over to Alfred.
Thank you, Florian. Can you hear me?
Yes, we can.
Excellent. Thank you very much. Ladies and gentlemen, good morning, and thank you for joining us. The market in the 3rd quarter of 2022 continues to experience a strong macro environment. While oil prices and refining margins softened compared to the high levels seen in the 2nd quarter on the back of recession fears and chemical margins shifted downwards, European gas prices doubled compared with the already historical high level seen in the 2nd quarter. On the chart, you see the developments of the market indicators, but for the interest of time, I will go directly to the key messages of the quarter. The 3rd quarter of 2022 proved to be another exceptional one for OMV, marking an increase in terms of operating results and cash flows and showcasing the value of a balanced portfolio along the value chain.
Our Clean CCS operating result rose sharply to EUR 3.5 billion, and the cash flow from operating activities, excluding net working capital effects, soared to around EUR 2.9 billion. Looking at operations, polyolefin and fuel sales volumes decreased year-on-year, impacted mainly by the incident at the Schwechat Refinery and fears of an economic slowdown. The utilization rate of our European crackers and refineries declined due to planned turnarounds and the Schwechat Refinery incident. Oil and gas production was lower compared to the prior-year quarter, primarily due to the exclusion of Russia following a change in the consolidation method. Compared to the previous quarter, the production increased. Despite the challenges posed by the war in Ukraine, one thing has not changed, our long-term vision.
We are working toward advancing the execution of our strategy with a strong focus on sustainability, and we were very active in this regard in the 3rd quarter. In July, together with VERBUND, we commissioned the expansion of the ground-mounted photovoltaic plant in Austria. The plant now has a total capacity of 15 MW peak and is used for OMV's own electricity requirements. In Romania, we recently announced that OMV Petrom, together with CE Oltenia, aim to build four photovoltaic parks with a total capacity of around 450 MW peak, which will supply electricity to the Romanian national energy system starting 2024. Another measure in achieving our ambitious sustainability goals is to increase the production of sustainable aviation fuels to 700,000 tons by 2030.
To support this, in September, we signed two major MOUs with leading airlines to supply sustainable aviation fuels over the next eight years. One with Ryanair to supply up to 160,000 tons in Austria, Germany, and Romania, and the second one with the Lufthansa Group to supply more than 800,000 tons in various locations. We have already been supplying volumes of SAF to Austrian Airlines at Vienna Airport since March 2022. We have also started working toward our target of increasing the production of low-carbon geothermal energy. In Austria, we are conducting a production test to analyze the geothermal potential in the Vienna Basin. Water contained in the rock pores is extracted from a depth of about 2,800 meters and then fed back into the ground. In Germany, we have a 50% interest in a geothermal exploration project.
The geothermal energy potential is currently assessed by gravity and magnetic measurements taken by a small airplane over an area of around 5,000 sq km. In circular economy, we are in the feed phase for the construction of an advanced commercial-scale mechanical recycling plant in Austria with a capacity of over 60,000 tons per year. Borealis plans to take a final investment decision in the 2nd half of next year, and first production is expected in 2025. Last but not least, I'm delighted to talk about the launch of our breakthrough polypropylene technology, the Borstar Nextension. For consumer packaging, the outstanding performance properties of this technology enable the use of only one material instead of many in multilayer applications, making sorting and recycling easier. For mobility, it will enable purity levels beyond today's automotive industry requirements, with reduced odor and volatiles in interior and exterior applications.
The Borstar Nextension catalysts are manufactured at our plant in Porvoo. Let's now turn to our financial performance in the 3rd quarter of this year. Our Clean CCS operating results rose sharply to EUR 3.5 billion, almost double compared to the 3rd quarter of 2021. The Clean CCS tax rate increased to 54%, which was 13 percentage points higher than in the same quarter last year, due to a significantly larger earnings contribution from exploration and production. The reported current tax expenses amounted to almost EUR 2 billion in the 3rd quarter. Clean CCS net income attributable to stockholders rose by 55% to EUR 1.2 billion compared to the prior- year quarter. Clean CCS earnings per share surged to EUR 3.69. Let's now discuss the performance of our business segments.
The clean operating result of chemicals and materials dropped by 66% to EUR 214 million. The result was impacted by significantly lower base chemicals production and weaker polyolefin margins compared to the 3rd quarter of 2021, when the market experienced a tight supply-demand balance due to worldwide logistics constraints. In addition, we recorded a strong negative inventory effect in the base chemical and polyolefin business, while in the 3rd quarter of 2021, this effect was positive. The performance of OMV's operated base chemicals business turned negative this quarter. The effects of higher olefin margins was more than offset by reduced production and higher costs. Due to the Schwechat refinery incident in June, the cracker was running at a very low utilization rate, while the Burghausen cracker was shut down for the entire quarter due to a planned turnaround.
This eliminated the cost advantage coming from the high degree of integration between the two sites and increased our feedstock costs as we had to purchase externally. During the Burghausen turnaround, we also expanded our Petchem capacity by around 50,000 tons per year. The contribution of Borealis, excluding the joint ventures, declined by EUR 290 million. The result was impacted by significantly lower inventory effects in the base chemicals and polyolefin businesses of almost EUR 200 million compared with the prior- year quarter and the decrease in polyolefin sales volume and margins. This was partially offset by a higher contribution from the Nitro business. In Borealis' base chemicals business, strong increases in olefin indicator margins and higher produced volumes were outweighed by negative inventory valuation effects and a lower light feedstock cost advantage.
The contribution from the polyolefin business saw a significant decline impacted by substantial negative inventory effects and a drop in margins and sales volumes for standard products. The total polyolefin sales volumes, excluding JVs, were down 17%, affected by significantly lower demand in Europe, the wait-and-see approach of customers, and the reduced feedstock availability in Schwechat. The decline was seen mainly in the consumer products and infrastructure sector. Volumes in mobility improved slightly compared to the lower demand in the 3rd quarter of 2021, which was impacted by semiconductor shortages and widespread production shutdowns at customers. The contribution from the Nitro business rose sharply compared to the 3rd quarter of 2021, mostly due to positive inventory effects.
The contribution of the JVs decreased by 34% to EUR 90 million, driven by a lower performance of Baystar and the lower Borouge result, primarily due to a decrease in Borouge shareholding following the successful listing of 10% of the company in June. This was partially offset by a stronger dollar. Sales volumes of Borouge were higher, benefiting strongly from the full ramp up of the PP5 unit, while prices declined due to a softer market. Baystar also experienced a weaker market environment due to rising ethane prices. Sales volumes increased slightly following the ramp up of the steam cracker since July. The performance of the chemicals and materials segment saw a significant decline, as explained, driven by a weaker base chemicals business, substantial negative inventory effects, and the drop in margins and sales volumes of standard polyolefin products.
While the standard polyolefins business showed a similar development as the market indicator margins, you can see that our specialty business kept actually steady and provided a stable earning space. We produce specialty grades for various industries such as energy, automotive, healthcare, and consumer products. In energy, we sell polymers for the insulation of high voltage cables, and we supply mega projects such as the German Energy Corridor. In automotive, we are one of the leading suppliers to global OEMs and Tier One producers. We are also a leader in polyolefins with recycled content supported by our proprietary Borstar technology. The pricing of our specialty polymers is based on performance driven by innovation and technology.
Over the cycle, these specialty grades account for approximately 40% of the volumes and 60% of the total clean margin in polyolefins, which means specialty grades deliver unit margins more than twice as high as standard polyolefins. The chart shows the development of the total polyolefin clean sales margin in euros split into standard and specialty products since the 1st quarter of 2020. As you can see, the clean sales margin of our standard polymers follows by and large the market indicator margin development, while the clean margin for the specialty business has been very resilient. While over the cycle, the majority of the total sales margin is generated by the specialty business, there might be market situations, such as in the 2nd quarter of last year when the market was extremely tight, that the standard polymers business provides more than half of the total sales margin.
In the 3rd quarter of this year, the specialty business accounted for some 80% of the total sales margin. A slight volume decline was offset by increased margins per ton. Despite reduced production in the Western refineries, the Clean CCS operating result in refining and marketing increased by EUR 257 million year-over-year to EUR 600 million. This was driven by an exceptionally strong result in Gas and Power Eastern Europe, and a significantly higher contribution from ADNOC Refining and Trading. We were able to benefit to a limited extent from the strong refining margins. While the Petrobrazi refinery ran at full utilization, Burghausen was in a planned turnaround, and Schwechat was only running at around 20% capacity due to the incident in June.
Total sales volumes were down 21%, mainly as a consequence of lower supply availability in Schwechat and the divestment of the German retail business. This was partly offset by higher jet fuel sales volumes. The retail business performance declined, impacted by the missing contribution from Germany, lower fuel sales, and voluntary discounts to pump prices in Romania. The commercial business showed a slightly lower contribution due to weaker fuel sales volumes and slightly lower margins impacted by price caps on gasoline and diesel in Austria. The contribution from ADNOC Refining and Trading increased significantly by EUR 98 million, driven by higher refining margins and the strong performance of ADNOC trading. The result of the Gas and Power East rose substantially by EUR 241 million. The excellent gas result was generated mainly by transactions outside Romania.
In addition, during the quarter, we benefited from gas volumes acquired in the previous period at lower prices. The very good result was supported by the higher production and the favorable market conditions, partially offset by the power over-taxation regulation in Romania in the amount of EUR 120 million. The clean operating result of exploration and production more than tripled compared to the 3rd quarter of 2021, reaching EUR 2.7 billion. The driving factors were significantly higher realized oil and natural gas prices, and a stronger dollar with a total positive effect of around EUR 2.1 billion. This was partly offset by a negative result in the gas business, lower sales volumes, and overtaxation in Romania, amounting to around EUR 110 million.
Compared with the 3rd quarter of 2021, OMV's realized oil price increased by 42% and thus more than Brent, also supported by the change in the transfer price from euros to Brent at OMV Petrom. The realized gas price rose fourfold compared with the prior- year quarter, driven primarily by the increase in gas prices in Europe. Production volumes decreased by 89,000 BOE to 381,000 BOE per day, primarily due to the change in the consolidation method of Russian operations. Increased production in the United Arab Emirates after revision of OPEC restrictions compensated for decreased production in all other countries, primarily in Romania. Production costs rose to $8.2 per barrel, impacted by the exclusion of the low-cost Russian gas volumes. Sales volumes were lower as a result of the decline in production.
The gas marketing business in Western Europe reported a loss of EUR 162 million, primarily due to supply curtailment from Gazprom. As we explained in the previous quarter, the Russian volumes we receive are sold months ahead and are, to a certain extent, hedged to minimize the risk. If the supplied volumes are less than the hedged ones, we need to buy the missing volumes on the spot market, leading to higher costs. Despite our efforts to adjust our hedged volumes, we experienced negative effects in the 3rd quarter. While in the 2nd quarter we were impacted only in June, in the 3rd quarter, we saw this impact throughout the entire quarter. However, I think it is important to point out that if we look at the entire gas marketing and power business, both West and East, we generated a profit of around EUR 100 million.
Turning to cash flow. Our 3rd quarter operating cash flow, excluding net working capital effects, amounted to EUR 2.9 billion, an increase of 44% compared with the previous year's quarter, primarily driven by much higher commodity prices. We received dividends from ADNOC Refining and Trading of EUR 155 million. We also received dividends from Borouge of around EUR 120 million. Because they were paid at the beginning of October, they will be included in the cash flow of the 4th quarter. While in the 2nd quarter, the net working capital effects generated a tremendously high cash outflow, in the 3rd quarter, these effects generated a positive cash inflow of EUR 288 million.
The cash outflow due to the gas storage injection was more than offset by the release of margin calls related to gas trading and positive net working capital effects in the chemicals business, driven by lower prices. As a result, cash flow from operating activities for the quarter increased to around EUR 3.2 billion. The organic cash flow from investing activities generated an outflow of around EUR 700 million. This included the PDH plant in Belgium, the ReOil demo plant, and the co-processing unit in Schwechat, the turnaround in Burghausen, including the expansion of the steam cracker capacity and the repair works at the Schwechat Refinery. As a result, the organic free cash flow before dividends for the 3rd quarter came in at around EUR 2.5 billion.
Looking at the nine-month picture, cash flow from operating activities, excluding net working capital effects, amounted to EUR 8.6 billion, up by around EUR 3.2 billion compared to the first nine months of 2021. Despite a sizable cash outflow for the net working capital effects, cash flow from operating activities in the nine months rose by 49% to EUR 6.3 billion. After payment of EUR 1.4 billion for dividends to shareholders and minorities, the organic free cash flow amounted to EUR 2.9 billion, almost double the figure from the same period of last year. Moving on to the balance sheet. Following an exceptional cash flow in the 3rd quarter, we were able to reduce net debt by around EUR 2 billion since the end of June this year to EUR 2.7 billion.
As a result, our leverage ratio decreased by 6 percentage points to 9%. At the end of September 2022, OMV had a cash position of EUR 7.7 billion and EUR 4.2 billion in undrawn committed credit facility. Ladies and gentlemen, as announced yesterday, the executive board has decided that a special dividend in the amount of EUR 2.25 per share will be proposed to the annual general meeting 2023. This special dividend will be distributed in addition to, and at the same time as the ordinary dividend, which will be determined in 2023 in accordance with OMV's progressive dividend policy.
The distribution of dividend is subject to the necessary resolutions by the corporate bodies after the end of the 2022 financial year, in particular, the adoption of the annual financial statement and the passing of resolutions by the shareholders of OMV at the 2023 annual general meeting. In addition, the executive board, following an alignment with the supervisory board, intends to review the existing dividend policy so that special dividends can also be considered for future financial years as a means for shareholders to participate in extraordinarily positive business and financial performance of OMV. Always taking into account the need for sufficient liquidity and sustainable balance sheet profits, as well as a leverage ratio significantly below 30%. Let me conclude with an update of our outlook for this year. As usual, we will present our outlook for next year with our 4th quarter earnings in February.
Based on the developments we have seen in recent months, we are increasing our expectation for the average realized gas price from around EUR 45 to between EUR 65 - EUR 60 per MWh for the full year. In chemicals and materials, the guidance for the ethylene propylene European indicator margins for the full year is unchanged. We see both margins above the previous year's level. However, compared to the 3rd quarter, we expect a decline in European olefin margins as end consumer markets are weakening due to increasing production costs and low demand. For polyolefins, we have seen in October a recovery in margins based on stronger demand after the summer breaks and reduced imports as European netbacks have realigned with other markets. At full-year level, our guidance remains unchanged.
We see the European polyethylene indicator margin at around EUR 400 per ton, and the one for polypropylene at around EUR 500 per ton. Looking at operations, the utilization rate of our steam crackers is anticipated to increase from 63% to more than 90% in the 4th quarter, following the restart of the Schwechat refinery in October and the return to operations of the Burghausen cracker at the beginning of September. As a result, we expect polyolefin sales volumes, excluding JVs, to increase in the 4th quarter. However, based on the developments of the last nine months, the volumes for a full year are now projected to be below the 2021 level. Construction of the Baystar polyethylene plant in the U.S. has been completed and commissioning is ongoing. Production start is expected in the 1st quarter of next year.
The ethane cracker is undergoing further fine-tuning, and the utilization rate is expected to increase. Overall progress at PDH Kallo in Belgium is around 80%. Following the termination of the agreement with the main contractor, IREM-Ponticelli, as of August 2022, the associated contracts needed to be retendered. In September, Borealis carried out the retendering process for the majority of the mechanical and piping works, and construction restarted at the beginning of October. The plant is now expected to start operations in the 2nd half of 2024. Due to the retendering of a major part of the remaining work, we expect the total investment of the project to be above the original budget. How big the increase will be can only be estimated once the retendering is complete. However, please note that about three-quarters of the original CapEx budget has been already spent.
In the 4th quarter, we expect full utilization rate of our European refineries compared with 44% in the previous quarter. We maintain our guidance for the refining indicator margin of around $15 per barrel for full year, with quarter- to- date margins supported by tightness in the distillate market. Total fuel sales volumes and margins guidance remain unchanged. Insurance compensation for the business interruption at the Schwechat refinery, covering both fuels and petrochemicals, is expected to be booked in the 4th quarter earnings. Cash payments are forecast to be received in 2023. In E&P, our average production guidance remains unchanged at around 390,000 barrels per day in 2022. In the 4th quarter, we expect production to be slightly higher than in the previous quarter as additional Maui gas wells are coming on stream in New Zealand.
The organic CapEx outlook for the full year is unchanged at EUR 3.7 billion, including non-cash effective CapEx of around EUR 600 million. The clean tax rate for the full year is expected to be around 50%. Thank you for your attention. Reinhard and I will now be happy to take your questions.
Thank you, Alfred. Let's now come to your question. I'd ask you to limit your questions to only two at a time so that we can take as many questions as possible. You can, of course, always rejoin the queue for a follow-up question. The first question today comes from Josh Stone, Barclays.
Thanks, Florian, and good morning. Yeah, two questions, please. Firstly, looking at your special dividend policy, just talk about how you expect to define the new framework there. Are you thinking of a certain percentage of cash flows or of earnings or free cash flow? Just any thoughts about what you're thinking there. Will this be an annual policy or something more frequent than that? Then secondly, just given the current macro environment with the rising rates and just general recessionary risks, yeah, what's your appetite to do large transactions today? Thank you.
Okay, maybe I start with your second question, Josh. Maybe Reinhard can explain how we will proceed with the special dividend. On the recession, indeed, as we can see from our business performance, we are benefiting today significantly from the high energy prices, in particular oil and gas. We are at the same time seeing that maybe valuations in some business areas are trending to the lower side. As we have announced in our strategy, we have said if we find opportunities where we can accelerate the transformation of the company, we will also consider portfolio measures and M&A.
We also said that this needs to be able to accelerate the strategy, but they need to also be value accretive in our journey. In that sense, we are of course always considering different measures, but they need to satisfy our value accretiveness, the potential for synergies, and also our return expectations.
Yeah. Josh, good afternoon. To your question regarding the dividend policy and its development further, I think it's important that we have demonstrated now that the possibility of a special dividend is exactly what we are able to use. While in the past I have been always using the phrase, I'm not excluding things, we have now made it happen. I think this is an important signal that we want to give to the market that the dividend yield, the overall reward for our shareholders is competitive and that we are also striving to keep that competitive.
In terms of what we said that, we intend to review the existing dividend policy, it is meant to aim at that special dividends can be considered for future financial years as a means for shareholders to also participate in that. We named already that the extraordinary positive business environment is one of the criteria that we would see. We would of course also see financial performance, we would see the leverage of the company. Keep in mind that, of course, this will be first aligned also with our supervisory board, so we will come up later with a revised policy as such.
It is now important that the shareholders can see that we are willing to apply this and this is something, while still being special, could be part of our policy going forward. I think this is the signal that we wanted to take here with a strong approach and a relatively high number.
Okay. Thank you.
Thanks, Josh. We now come to Mehdi Ennebati, Bank of America.
Hi. Good afternoon all, and congratulations for the strong results and that very constructive dividend policy or dividend announcement. I will ask two questions, please. First one, regarding the chemical business. You highlighted that the results, you know, was pretty weak this quarter. And you provided us, you know, some one-off effects which are about to disappear from Q4, such as scheduled and non-scheduled maintenance. But can you maybe tell us what kind, let's say, or what is the current chemical margin trend relative to Q3 for the non-specialty business? Do you see the polymer margin going up? If that's the case, how would you explain it?
Is it because the demand is picking up, or is it for any other reason? The other question is related to that one. You might have benefited from the fact in your chemical business that you are using essentially naphtha or let's say non-gas as a feedstock. Now that gas price is going down quite significantly, don't you expect, you know, your competitors in the chemical business to start increasing their production and then competing with you for the non-specialty business? Thank you.
Yeah. Thank you for the questions. Maybe I will try and answer both of them. Maybe if Reinhard has something to add, would always be welcome. The chemicals result, as you pointed out, in the 3rd quarter, we saw a reduction in performance in that business. I really see three big things that are impacting this, which are changing in the 4th quarter. The first one is the turnarounds in Burghausen and the incident in Schwechat, where basically in the 3rd quarter, we didn't produce. With this, we lost a lot of the integration effect that we normally have in those refineries, polymer plants, crackers, in order to take the full advantage.
This is, Burghausen is back on stream. Schwechat is fully back on stream for the 4th quarter. That will bring a significant improvement. Secondly, we have seen here in the 3rd quarter because of the lowering prices a very significant gap in inventory effects versus the same quarter last year amounting of almost of around EUR 200 million negative effect. Yeah. It's a revaluation effect of the inventory rather than a cash effect. The third part was what we observed in the 3rd quarter is after the summer period also we suspected a bit of a wait-and-see attitude of people. We saw imports coming in stronger.
We believe with the adjusted price level here and coming out of the summer, like reduced inventories and things, we see that situation improved going forward. Now, specifically, when you look at polyethylene indicator margins, right? Then, they have rebound now versus the 3rd quarter average by about EUR 70 per ton, and in the polypropylene sector by about EUR 50 per ton. We have seen a turnaround from the August, September level to come and recover from there.
That's why we say we are leaving our guidance now the same here that we had before below EUR 400 for polyethylene and EUR 500 for polypropylene because we think the 4th quarter we'll see how it works out, but at least it started stronger. I do want to also just point out we had the graph, so I won't explain it again, but we of course see this buffer from our specialty business, in particular at times that we have now. The indicative margins, as I explained before, they are for the standard polymer. We are buffering with our 40% specialty volume significantly better.
On your question around gas prices versus naphtha, as you probably remember, we have two naphtha crackers in, one in Schwechat, one in Burghausen, that is integrated with the refinery, and really benefiting therefrom that refinery integration and then chemical integration on the other side. We have a good advantage that we can take care of there, in particular also in the strong middle distillate environment that we have now. Our other crackers, Sweden, Finland, Belgium, they have this feedstock flexibility where we can flex and use depending on margin optimization, what are the product prices and what are the feedstock costs.
We can flex in order to make sure we optimize those, and we can use that advantage also on the way forward.
Perfect. Thank you very much, Alfred.
Yeah, you're welcome.
Thanks, Mehdi. The next questions come from Henri Patricot, UBS.
Yes, everyone. Thank you for the presentation. I have two questions, please. First one is following up on questions of deals. I've seen a headline about how the stake of Mubadala in Borealis could change ownership. I was wondering if you could give us some details on your thinking around this and whether we should expect anything to happen in near future. And then secondly, regarding the recent change in the executive board, I was hoping you can give us a bit more rationale for bringing marketing and trading back with refining? Thank you.
Okay. Henri, thank you for the question. Can I just clarify? Did you ask the Mubadala stake?
The Mubadala stake, yes. Yeah.
Thank you.
I've seen just the 25% stake in Borealis that could change ownership.
Yeah, yeah. Okay. Good. Now I understood it. Mubadala has agreed with ADNOC that ADNOC will buy that 25% share. The closing of the transaction has not happened yet. Because of that, Mubadala is still the shareholder. I don't want to speculate on when this will close. I would think it's been quite some time now. Not more to say about this other than that we are quite excited about this because obviously ADNOC is also the key shareholder in Borouge.
This is a big commitment to ensure that we continue to have a very strong partnership and alignment and view into the future, not just on Borouge, but in this total business, Borealis, Borouge, for a clear future with also a big investment project with Borouge who are there. Your second question on the executive board was around what's the rationale of putting the one executive board member on refining and marketing and trading. The way we looked at this was that we did a target operating model review based on our strategy, and we basically identified three, if you want, business areas.
One around chemicals and materials, the other one around fuels and feedstocks, and the third one around energy. As you can see, all three of these will then have the entire supply chain basically from production to the customer with the full integration and responsibility for the P&L. This is also the background here of giving Martin the responsibility for both the refining and the marketing and trading.
Okay. Thank you.
You're welcome.
Thanks, Henri. Next is Raphaël Dubois, Société Générale.
Hello. Thank you very much for taking my questions, and congratulations on this strong set of results. My first question is about the special dividend. Could you please tell us what could be the implication for how progressive will be the regular dividend? Should we expect that maybe you keep your regular dividend more stable? And still related to the special dividend, should we see a link with the risk of having windfall taxation in European countries? Is this maybe a way to also please your Austrian government shareholder? My second question, we have seen on Bloomberg, on Reuters, that your finance minister, the Austrian finance minister, was going to travel to the UAE. There is maybe some misunderstanding with the announcement of yesterday.
Is there anything you can tell us about how the strategy might change in light of those trips to the UAE? It would be great if you could reiterate the involvement of the Austrian government and Mubadala in the decision to carry a specific strategy at OMV level. Thank you.
Thank you, Raphaël. I will give my best shot at your second question and then for the special dividend and the implication, I'm sure Reinhard can help me out. Yes, indeed, actually I'm in Abu Dhabi myself on this call because we did sign yesterday MOU for energy or gas supply from ADNOC, which included a minimum or we agreed on a minimum of one cargo for the winter season 2023, 2024. Also with potential to explore if we can make this cooperation further. That was really the meaning of this visit.
At the same time, there was also government. That was what I did as OMV to sign such an agreement with ADNOC. There was also for the Austrian government, they had government to government talks about various issues that are also not relating to OMV. They also signed to reinforce the long-term partnership between UAE and Austria government to government, kind of a memorandum of understanding for the renewal of the long-term partnership there. Now, as you, your question was also the involvement of the strategy. Just to make sure you also understand.
I was part of that delegation, and also Edith Hlawati, who is the CEO of ÖBAG. She was a part of the delegation as well. Mrs. Hlawati is also a board member in the supervisory board of OMV. We keep this quite well separated here. It is the executive board of OMV that developed the strategy for OMV, that approved the strategy for submission to the supervisory board. In December last year, the supervisory board of OMV approved the strategy. This is what we then also announced in March during the Capital Market Day. This is the strategy that we are executing at this moment.
Yeah. Raphaël, let me take your first question on the special dividend. The implication on the regular dividend are actually, I would say, marginal, because we have on our regular dividend still our progressive dividend policy. Given the environment that we see, we are also expecting that we'll apply this progressive dividend to the best of our abilities. Which means I'm optimistic that there will be a decision that will also be able to increase the dividend again. It is not an implication to say while we are looking at a special dividend, we abandon the progressiveness part of our annual dividend. Special dividend is special. Annual dividend follows our progressive dividend policy. Your idea about linking that with the risk of windfall taxation, I don't see that at all.
We see that regarding windfall taxation, there has not been a concrete outcome of negotiations and discussions yet with Austrian government and their interpretation of how the EU regulation can and will be implemented in Austria. However, I would like to say that it's a fact that the main beneficiary of economic success of OMV among our shareholders is the Republic of Austria with a representative, ÖBAG. We have taken their 31.5% share to a large dividend that we distributed in 2022 for 2021. They will receive their fair share of the special dividend, and they will receive their fair share of the ordinary dividend in 2023. I think this is more than an act of goodwill.
This is a fact that the success of OMV will benefit to all shareholders, of which Austria is the biggest one.
Great. Thank you.
Thanks, Raphaël. We now come to Henry Tarr, Berenberg.
Hi there, and thanks for taking my questions. I have two. One was just on the loss on the Russian gas volumes received versus the hedges. Is this now a sort of permanent fixture of the results, or is there anything you can do, medium term to sort of try and reduce this risk further or down to zero? I don't know whether you can adjust sales contracts lower to exclude all Russian volumes or other bits there. Whether there's a comment as to how sort of October has looked on that gas volumes versus the hedges would be great.
Just secondly, the refining indicator margin and how that sort of shaped up through October would also be great? Thank you.
Yeah. Reinhard, do you want to try the gas question?
Sure. We have been very transparent on what the negative implications of gas curtailment of gas prompt deliveries to OMV is. Let's put it like that. Normally you can avoid any kind of losses in that respect if you are spot on with the level that you hedge compared to the level that you receive. Now, if the curtailments are not stable and fluctuating, there's always a risk that you are not spot on, and this is exactly where these losses are coming from. Now, to be very frank with you, those losses could have been much higher if not our gas task force would have done a fantastic job. We started that immediately when curtailment started.
We could limit this loss to around EUR 50 million in June, and more or less that has continued throughout the 3rd quarter. Don't forget that in this 3rd quarter we have seen these attacks on Nord Stream 1 and Nord Stream 2. Suddenly there was a situation where more or less the zero delivery through Nord Stream 1 was a permanent zero. All that had to be digested. Then we are seeing that of course, the gas that we receive through the pipeline through Ukraine in Austria is also not on a stable level. Now, this has not changed, but of course we are getting more and more, I would say, smart and experienced how to deal with that.
I assume that the volatility we have seen in October will not massively deviate from what we have seen throughout the 3rd quarter. Third quarter was EUR 160 million loss in total, but this is only our gas west business. Don't forget, with our tremendous good results in gas east, we have an overall positive result of EUR 100 million in our gas business in the group.
The second question around refining indicator margin, I will try to answer, Henry. We had in the 3rd quarter a refining indicator margin of 14.4%. So that's a reduction versus the 20.5% that we had in the 2nd quarter. What we saw through the quarter is that from July, August to September the refining indicator margin kept strengthening. This we saw again in October. We saw October another pickup from September, so that we are quite confident that we will end up around the 15% that we have given in our outlook for the full year.
Thank you very much. Thank you.
You're welcome.
Thanks, Henry. We now come to Matthew Lofting, J.P. Morgan.
Hi. Thanks, gents, for taking the questions and congratulations on today's update. Two if I could. I mean, first, coming back to the cash return and special dividend, could you expand on how investors should interpret the special dividend announcement from the perspective of the medium-term cash return policy of OMV? I think you referenced earlier that special dividends can be considered in future years, dependent in part on exceptional macro conditions. Wanted to understand better are future special dividends limited to exceptional macro conditions, or alternatively, should we be sort of seeing this as a more sustained top-up portion of the total cash return mechanism?
If so, is there a calibration tool, for example, an appropriate distribution of operating cash flow that we should be thinking about from that perspective? Then, second question, just coming back to your earlier comments around windfall taxation. Based on the sort of preliminary EU framework and proposal, do you have an estimate of OMV's potential payable there for 2022? Linked to that, I believe there was some overtaxation balances in the Petrom side of the 3Q numbers reported this morning. Just expand on the framework there and the extent to which there's future further outflows that are liable in Romania through Petrom. Thank you.
Yeah. Thank you very much, Matt. Reinhard, may I ask you a couple questions, please?
Sure. Matt, I will try to reiterate what I said before regarding the cash return in medium term. A special dividend from our point of view is something that has to do with extraordinary circumstances, and those circumstances could come from different areas. It could be excellent business environment, it could be a special situation that the company is in. Whenever we feel that the situation regarding our leverage is one that allows us still to execute on our strategic targets, be it organic as well as inorganic. There is something that we still can contribute to the shareholder return. This is what we will do and what we have in mind.
We will put that in a policy with a little bit more, I would say, color to it, but from what we have done today, I think it is very much possible to interpret what we have in mind, that we see an excellent Q3 that has more or less confirmed our strong performance throughout the year. That enables us really to be also really more than competitive in our shareholder return to our customers, and that we really value the shareholders' engagement here. This means about sustaining that this may not be something that's there always and ever, but it is a tool that should be at our fingertips whenever we have the possibility to do so. Regarding the windfall taxation, again, I will not speculate on that.
To be honest, it's really hard to speculate on any number, if any, because we have already, both in Austria as well as in Romania, already instruments from government in place that take away part of the profit. It is a sort of a royalty scheme that we have in Austria, which takes away not a linear, but really a progressive share of our returns when we produce fossil products in Austria. In Petrom, there are multiple levers already in place that curb the gas prices, that curb the fuel prices on the fuel stations and things like that. There is already quite a contribution that this group puts to the state.
Therefore, this is not so easy to preempt, and therefore we have to wait until the negotiations and discussions are being finalized.
Very good. Thanks very much.
Thank you, Matt. We now come to Kate O'Sullivan, Citi.
Hello. Thanks for taking my questions, and congrats on the results. So firstly, you mentioned the Schwechat insurance compensation will be booked in Q4. Could you remind us of the magnitude of that and any expectations on timing for the cash payments in 2023? Secondly, a follow-up on the inorganic part of your capital allocation priorities. I mean, the increase in Borealis was a sizable transaction at almost EUR 5 billion. Should we think about that as a ceiling for the scale of any transactions you would screen and any inorganic acceleration being bolt-on in size? Or if you had any color there, that'd be really helpful. Thank you.
Kate, could you please repeat the first part of your question or your first question? We couldn't fully understand that.
Sure. Of course. You mentioned in your opening address about the insurance compensation, which will be booked for the Schwechat refinery in the 4th quarter. If you could just remind us of the magnitude of the size of that insurance compensation that's coming through, and if you have any expectations for the timing of the cash payments you will receive in 2023 related to that.
Okay, great. Thanks. Now we got the question.
Thanks.
Thank you. Thank you, Kate, for the question. I will start off with your inorganic growth question, and I will ask if Reinhard can answer the insurance question, please. Let me start on the acquisition. We did in our strategy announcement, we did say that we will consider acquisitions to accelerate our transformation.
We did also in our capital allocation framework specify what we are expecting coming out from those acquisitions that they need to be producing synergies, that they need to be value accretive, that they need to fit strategically into our direction of sustainable fuels, chemicals, and materials, and that they need to positively contribute to the return of capital employed KPIs that we have. We have not made any limitations or specifications on the size that we would consider.
As you can see, right, we have a strong balance sheet and have also the possibilities from that to consider a broader range of possible things. I think more important to find the right targets that may satisfy those requirements.
Yeah, Kate, on your question regarding insurance and the cash in that we would receive from insurance payment. First of all, to reiterate, we have two kinds of insurances on the Schwechat refinery. One is a business interruption insurance, the other is a insurance regarding repairs in case of technical accidents. Starting with the latter one, this starts at a cap of EUR 40 million, so everything above EUR 40 million will be reimbursed. We are in the ballpark of around this EUR 40 million of additional CapEx that we have. We are not seeing that this will be any big amount that needs to be reimbursed by insurance regarding the repair. Fortunately, the team has worked very efficiently.
Secondly, regarding the business interruption insurance, this is kicking in after 60 days. This means that two months would be at full exposure of OMV, and after that, with a certain cap, this will be reimbursed from the insurance side. If we have assumed that the total damage that we assume net of insurance is in the ballpark of some EUR 200 million, and the months of June and July are the ones that we have to carry. We have said in June, it's about EUR 100 million of loss from that. You can imagine that we are probably looking at insurance payment in the ballpark between EUR 100 million and EUR 200 million. Probably not the full of the upper limit, and this will come also in installments.
This is not usual that the insurance pays everything at the first instance. There might be a payment in Q4, and there might be a payment in Q1.
Thank you both.
Thank you, Kate. I chip in a comment and question that was emailed by Bertrand Hodée from Kepler Cheuvreux. Congrats for the strong results and outstanding cash flow. Western gas business suffered a loss of EUR 162 million in Q3, whereas gas and power Eastern gas was again very strong, so net a positive. Can you provide us, if you can, given high gas price volatility with an outlook on both divisions, either for Q4 or for 2023, and the main moving parts affecting those two businesses, and how lower Russia supply deliveries may affect Western gas business?
Reinhard, can you provide some information to this?
Of course. If we look at the moving parts of that business, regarding the Western business, we have on the one hand side a certain, however small margin on trading and supply business in gas. This is not in the context of gas being produced, but this is really gas traded and sold to our customers. There's a small margin of that, so the moving part is the volume in here. If we have a good contract and more volumes, then we earn some more money. The magnitude of volatility there is relatively small. The bigger volatility is in the Western part, on the negative side when it comes to the curtailments.
If we have steady curtailments and steady hedging opportunities, there are no further losses, but this is currently not the case, so therefore, we have, at least for the 4th quarter, to expect that there is an uphill battle for us to keep the losses at a minimum. Nevertheless, to your question, what happens if there is no gas flowing from Russia, then we are back to what Alfred explained about the alternative supply sources that we have secured for the group to satisfy the demands of our supply of our customers. This business then will go on, and we expect, of course, that also to be a positive, if not big, but still a positive business. On the Eastern gas business, this is two parts.
This is on the one hand side, the gas business, very much domestically produced gas business that we also supply and trade in Romania, and the other is the power plant. For the power plant, it depends both on the electricity margins as well as the utilization, because it's not fully in our discretion to what utilization this power plant can run. This is very much due to the regulator also in Romania.
Also the electricity prices are partly in the hands of the regulator. So far, this has been an exceptionally good year. We're expecting in Q4 a smaller result there because regulation has been tightened. For 2023, it's too early to give you an indication on that.
Good. We have a follow-up question from Raphaël Dubois, Société Générale.
Right. Thank you very much for taking my question. In fact, I have two. The first one is on Nitro, the Nitro business. I understand it's earning better than in the past. Can you maybe give us a bit more color on the absolute level of EBIT contribution of that business? That will be my first question. The second one is on the increase in chemical exposure that you are looking at by maybe making an acquisition. It was announced at the CMD, so before the energy crisis we are currently in Europe. Have you changed your view about a production asset base in Europe? We have seen one of your chemical competitor talking about decreasing its exposure to Europe. Is this also something that you might consider in light of what looks like a structural issue for Europe? Thank you.
Yeah. Maybe I start with the chemical exposure in Europe. Since you wanted absolute EBIT levels for Nitro, maybe Reinhard can help me out then what the exact numbers are, but I can say something more on the business. The chemical exposure in Europe, if you remember, Raphaël, in our Capital Markets Day, what we said about our chemical business is that our growth path basically had a couple of different pillars. The first pillar was to use the strong core of the polyolefin business, grow and improve the results in this.
The second one was around geographic expansion, where we said we wanted to increase our footprint. North America was one target, Asia was the other target. Third was around more going into sustainability, in particular circular, and creating about two million tons of sustainable chemical products by 2030. The fourth was acquisitions. What we said at that time is, if an acquisition can help us to meet other of the targets, that would, of course, be good and appreciated. In this idea was already that we should consider also other growth options.
When you look at the big other growth options outside of Europe, when you look at some of our biggest growth projects, Borouge 4 in Abu Dhabi is a big growth project. The Baystar, which will come 2025, and, sorry, is today in the execution phase. We have made FID. Baystar is in North America, and in Texas, where we have basically completed the polyolefin plant, the cracker, and are anticipating that Q1 it will start up. One big investment project that we have is the PDH in Europe, and that's in Antwerp.
The reason why we believe this would be a strong location, because we believe the propylene market will be short. We still have indications that continues despite the different changes. Propane is a globally liquid commodity, which means the location in the Antwerp Harbor has access then to a global market price propane feedstock. This is a little bit how we set up our growth story. Indeed, the crisis here has created some thoughts on some modifications, adjustments. Maybe Neptun Deep project we had in our strategy already as an important sub-project in the Black Sea.
As you can imagine, that has even moved up higher in the priority at this point. On Nitro, as you know, this business, we have actually signed an agreement with AGROFERT that they would buy the fertilizer business from Borealis. Currently, they are working on the regulatory submissions and approvals to make that happen. At the moment, it looks more like a closing would probably be more likely in Q1 next year. Indeed, it has been such that the business had strong earnings, in particular, in the 1st half of the year.
If you look back a little bit further into the Q4 of 2021, maybe you still remember the increase in gas prices put a lot of pressure on that business. With the beginning of the year 2022, it was possible to pass on some of these higher gas prices to the customers. In this case, the supply imbalances reduction of imports into Europe has then led to increase in prices. We have seen some increase in pressure on this in the last few months coming, but still a supply-demand imbalance, but pushed by high gas prices, of course. Reinhard, do you have on the.
Raphaël, we are not disclosing specifically the Nitro results. However, of course, I can give you a little bit of a bridge to that. If you look at the clean operating result of the chemicals and materials sector, and if you take out the Borealis JV, respectively, the Baystar and Borouge results, you have for the nine months a result of EUR 990 million. The major part of that, of course, comes from the polyolefin side. If you take the result then only in 3rd quarter, that's around EUR 110 million. You can see that the contribution from Nitro business is not the biggest.
However, please take into account that the Nitro business is a cyclical business on a seasonal level. The 1st half year in Nitro always is more attractive than the 2nd half year because it's the season for agriculture to have the most activity and all the fertilizer business is then booming. We had clearly a higher contribution in the 1st half than we had in the 3rd quarter.
Excellent. Thank you.
Thanks, Raphaël. This now brings us to the end of our conference call today, and we would like to thank you for joining us. Should you have any further questions, please contact the investor relations team. We are happy to help. Goodbye and have a nice day.
Thank you. Goodbye.
That concludes today's conference call. A replay of the call will be available for one week.
You have left the conference.
From your teleconference invitation. Alternatively, please contact OMV's Investor Relations department directly to obtain the replay numbers.
The conference is no longer being recorded.