Welcome to the OMV Group Conference Call. 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 conference call, a live audio webcast is available on OMV's Web 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.
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 in future developments and events. This presentation does not contain any recommendation or invitation I would now like to hand the conference over to Mr. Florian Greger, Head of Investor Relations.
Please go ahead, Mr. Gregor.
Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the Q1 of 2021. With me on the call are Rainer Seele, OMV's Chairman and CEO And Reinhard Floraj, our CFO. As always, Reinhard Seele will walk you through the highlights of the quarter and discuss We'll be available to answer your questions. And with this, I hand it over to Rainer.
Yes. Thank you, Florian. Very warm good morning, ladies and gentlemen, and thank you for joining us. The Q1 of 2021 provided some positive news for our industry With a materially better quarter on quarter macro environment in the Exploration and Production and Chemicals and Materials segments. However, the environmental refining marketing remained challenging due to the pandemic.
Let me start by Providing a brief review of the economic environment. Oil prices recovered in the Q1 of 2021, Reaching $69 per barrel in March, a similar level last seen in January 2020. At $61 per barrel, Brent was 38% higher quarter on quarter and 22% higher year on year. The upward momentum was driven by the rollout of the COVID-nineteen vaccine, Stream weather conditions in the U. S.
Impacted U. S. Liquid supply. OPEC plus continued to demonstrate strong discipline, Which together with Saudi Arabia's voluntary cut of an additional 1,000,000 barrel led to a more balanced market. European gas prices increased substantially.
A slight above €18 per megawatt hour, Central European gas prices were 70% higher than in the same quarter of 2020 and 31% up compared to the previous Stronger demand in Asia, shipping constraints and some LNG production restrictions Pulled LNG imports away from Europe. At the same time, cold weather throughout Europe triggered strong demand growth for heating and power. At $1.7 per barrel, the refining indicator margin in Europe remained at a low level, 66% below the first quarter of last year. Substantially lower middle distillate spreads and a sharp increase of crude prices were only minimally offset The higher naphtha and gasoline cracks. Compared to the Q4 of last year, the indicator margin was flat.
Ethylene and propylene indicator margins Europe were slightly above the previous quarter, but down 21% and 11% respectively year on year. Both indicator margins were impacted by rising naphtha prices. European margins for polyethylene and polypropylene rose substantially and reached the highest level ever In the Q1 of this year, the polyethylene indicator margin Europe more than doubled and the Polypropylene indicator margin grew by 54% year on year. This was mainly attributable to a tight market in Europe, driven by strong demand and supply constraints. On a global level, polyolefin demand also showed strong growth in the Q1, twice as much as in the same period last year, leading to a favorable margin environment.
At EUR870,000,000 our Clean CCS operating result was 24% above the same quarter of last year and 66 percent higher than in the Q4 of 2020. This was mainly attributable to a substantially improved exploration production business And a very strong performance of Chemicals and Materials. The contribution of the new segment, Chemicals and Materials, represented about half of Our earnings reflecting the growing importance of weight and weight of this business in our portfolio. We were able to deliver an outstanding quarterly cash flow from operating activities excluding net working capital effects Of €1,700,000,000 I have to read it again. It's such a nice number.
€1,700,000,000 Which is more than double compared to the Q1 of 2020. This demonstrates the strength of our integrated portfolio and the value of the expansion into chemicals. Our clean CCS earnings per share increased by 34% year on year. Looking at the operations, our E and P production was 5% higher year on year, primarily due to increased production Libya, Malaysia and Tunisia. The production cost remained below $7 per barrel.
Our refineries in Europe showed an average utilization of 81%. While demand in Austria and Germany was still considerably Acted by lockdowns, the refinery in Romania had a high utilization rate of 95%, mainly due demand for middle distillates in the region. In Chemicals and Materials, Borealis showed an excellent performance, driven by higher polyolefin sales volumes in Europe and Asia as well as by a very strong margin environment. We also made further progress with our strategy focusing mainly on chemicals and sustainability. In January, we took The FID for the expansion and modernization of our steam cracker in Germany.
The new units will add 50,000 tons capacity and expect it to come on stream in the Q3 of 2022. In January, we also announced the operational start of the demo plant for advanced mechanical Recycling in Germany, a joint project with our partners, TOMRA, a Norwegian collection and sorting machine manufacturer In Zimmermann, a German waste management company, this plant is one of the world's most advanced mechanical recycling plants. It represents a first step towards developing highly demanding applications for various industries Such as automotive and consumer products, we currently run 4 mechanical recycling plants in Austria and Germany With a capacity of around 100,000 tons per annum. In February, we made further progress with our efforts in the era Of hydrogen. We decided to invest in green hydrogen plant at our site in Schreckat With a production capacity of up to 1500 tons of green hydrogen, the new electrolysis plant will be Austria's largest.
The green hydrogen is planned for use in the refinery to hydrogenate bio based and fossil fuels, substituting Graig hydrogen as well as for the decarbonization of the transport sector. In this context, We signed a memorandum of understanding with the Austrian Post for the use of green hydrogen in its logistics fleet. We see huge potential for hydrogen in areas of heavy traffic and in public transportation as these are areas where electrification can be difficult or even impossible. In March, we announced another investment in biofuels. We will build a pilot plant in Speghard where 2nd generation biofuels will be produced using a patented process developed in house.
Startup is planned for 2023. This innovative process converts the Glycerin into bio alcohol, Which is added to gasoline, thus reducing the carbon footprint. Glycerine is a waste product stock under the European Renewable Energy Directive. We also took the FID for the Jirun Gas field in Malaysia in March. When it comes on stream in 2024, the project is expected to add around 30,000 barrels per day to OMV production.
Gas produced from the fields will be sold to the Petronas Bintulu LNG Complex. Last but not least, we are very proud that Borealis broke its own record in filing patent applications in 2020, Continuing its reputation as Austria's Patent Kaisa. The growing number of patents Underscores the company's position as a leading industry innovator and it is a testimony to our Let's now turn to our financial performance in the Q1 of 2021. Our clean CCS operating result increased to €171,000,000 compared to the Q1 of 2020, and Production in Chemicals and Materials segments, and it was partially offset by a significant decline in refining and marketing, Driven by a proportionally higher contribution of chemicals and materials, the clean CCS tax rate decreased to 27%, 34% to €424,000,000 Clean CCS earnings per share was €1.30 Let me now discuss the performance of our business segments, which are reporting for the first time under the new structure. The clean operating result of exploration and production increased considerably by €361,000,000 The main driver Where higher realized oil prices and improved sales volumes, primarily driven by the return to full operations in Libya.
OMV's realized oil price increased by 18%, which was slightly less than the brand price increase due to hedging effects. As guidance, we have hedged a quarter of our oil production for the first half of twenty twenty one at a price of around $55 per barrel. While the Austrian gas hub prices were 70% higher than the Q1 of 2020, our overall realized gas price declined by 6 percent. This was mainly due to lower gas prices in Romania and Malaysia as well as a 2 month lag for half of these sales volumes in Russia. Together, these volumes represent around half of our total gas sales volumes.
Our production rose by 23,000 barrels per day to 4.95 Due to a higher contribution from Libya, Malaysia and Tunisia, a development that was partially offset by a natural decline in Romania And lower volumes in Norway. In Russia, production was slightly lower than in the Q1 of 2020 due to lower pipeline pressure. A booster compressor installation will enable increased production starting with the Q3 of this year. Total sales volumes increased by 11,000 barrels per day, hence somewhat less production less than production due the Q1 of 2020 due to the reserve revisions and the lower asset base resulting from impairments taken in the Q3 of last year. The Clean CCS operating result on refining and marketing decreased significantly year on year to €108,000,000 driven by lower demand caused by travel restrictions related to COVID-nineteen.
Product sales were 17% below The Q1 of 2020 mainly caused by continued subcu jet fuel demand on the back of lower than expected COVID-nineteen vaccine rollout. Sales volumes in retail were 7% lower Then the 3rd the same quarter of last year, unit margins in both retail and commercial were lower, burdened by the rapid increase of crude prices. The contribution from ADNOC Refining and Trading came in at minus €25,000,000 Due to significantly lower refining margins, Aetna Global Trading started its operations in December and contributed positively to the results. The contribution from the gas business fell from the very high level of 2020 to €70,000,000 The Results were impacted by the weaker performance of the storage business and supply results. Gas sales volumes rose by 23% on account of higher sales in Germany and the Netherlands, slightly offset by lower sales in Romania.
The clean operating Result of Chemicals and Materials more than tripled to €442,000,000 year on year. This sharp increase is attributable to 2 factors. 1st and foremost was a strong improvement of polyolefin margins and higher sales volumes. Secondly, the consolidation of Borealis and the JVs into our results supported the overall performance. Let's now have a look at the different businesses.
The contribution of OMV's base chemicals declined Borealis showed an excellent performance. Excluding the joint ventures, earnings grew from €54,000,000 to €270,000,000 This was driven by better performance of both businesses, base chemicals and polyolefins, which was partially offset by a lower fertilizer result. The Borealis based Chemicals business improved following positive inventory valuation effects, which more than compensated for lower margins. Earnings of the polyolefin business rose sharply, primarily driven by significantly higher margins and increased volumes. Positive inventory valuation effects supported the results.
We were able to expand polyolefin sales volumes in Europe by 6%, in particular in Consumer Products, Healthcare and Energy. The contribution from the fertilizer business was lower compared to the Q1 of 2020. The business could not benefit from the favorable market environment due to a backlog of sales orders following operational issues in the second half of twenty twenty. In addition, the margins were negatively impacted by higher natural gas prices. At €124,000,000 Borealis joint ventures, Barouche and Baystar delivered a strong result, representing about 1 third of the segment earnings.
This was driven by improvements And the operational performance of Borouge, strong recovery of the Asian markets, leading to higher polyolefin prices and sales volumes and higher contribution Due to the full consolidation of Borealis, polyolefin sales volumes from the JVs grew by 16%, Driven by higher sales at Barouche. The sales volumes at Baystar fell slightly below the negative impact of the Texas freeze in February. €1,700,000,000 with around 1 third coming from chemicals and materials. As demonstrated in 2020, Borealis is a company that generates very strong cash flows And the Q1 has proved this once again. We have seen a significant year on year increase from Chemicals and Materials and the quarterly operating cash flow, excluding net working capital effects of more than €400,000,000 With the consolidation of Borealis, we have reached a new record of cash flow generation.
Compared with the Q1 of 2020, we saw a significant swing in net working capital. While net working capital had a positive impact in the prior year quarter leading to an inflow of €283,000,000 We recorded substantial negative net working capital effects in the amount €646,000,000 in the Q1 of this year. This was mainly attributable to a significant increase in receivables and inventories due to higher sales volumes and higher oil and gas polyolefin prices. As a consequence, the cash flow from Operating activities for the Q1 of 2021 was 5% lower than in the prior year quarter. The organic cash flow from investing activities amounted to €533,000,000 almost flat compared to the prior year quarter, despite the additional investments in Chemicals Materials.
As a result, the organic free cash flow before dividends decreased by 11% to €532,000,000 The cash outflow for inorganic investments was €118,000,000 and included a capital contribution to Baystar. Net debt, Excluding leases decreased by €261,000,000 to €7,900,000,000 Consequently, Our gearing ratio excluding leases defined as net debt, excluding leases to equity decreased by 4 percentage points in Only 3 months to 37% from its peak level at the end of last year when we have concluded the Borealis acquisition. We consider the divestments already signed totaling a net debt reduction of more than €1,000,000,000 Our gearing ratio excluding leases would be around 32% this quarter. We are fully committed for deleveraging quickly and are well on track to reach a gearing ratio excluding leases of around 30% by the end of this year. At the end of March 2021, OMV had a cash position of €3,500,000,000 And €4,200,000,000 in undrawn committed credit facilities.
Let me now give you an update on our divestment program. We are well on track and are confident that we will deliver the envisaged €2,000,000,000 by end of this year. We have signed agreements so far resulting in the deleveraging effect of more than €1,000,000,000 In the second quarter, we The closing of 3 divestment projects, our 51% stake in Gasconnex Austria, our E and P operations in Kazakhstan And presumably the Mari oilfield in New Zealand. This was reduced this will reduce our net debt by around €700,000,000 The closing of the sales agreement for the retail stations in Germany is expected in the second The sales process for the Borealis Nitro business, including fertilizers and melamine It's progressing well. The pre marketing phase started in the Q2 and we see that the fertilizer market conditions are highly supportive of this transaction.
We have received the 1st non binding offers for the sale of our Slovenian marketing business, And we expect to open the data room to selected potential buyers soon. Let me conclude with an update of our outlook for this year. Based on the developments we have seen so far, we have updated our oil price assumption for 2021 and now expect an average Brent price in the low We have also revised our expectation for the average realized gas price to above €11 per megawatt hour. We reconfirm The full year production guidance of around 480,000 barrels per day In 2021, provided that Libya contributes around 35,000 barrels a day. In the Q2, we expect production to be below that of the Q1 as the maintenance activities in Russia will be in the Q2 rather than the Q3.
In addition, we expect the closing of the divestment of Kazakhstan. However, sales will be above the level of the Q1 We reconfirm our previous estimates with the exception of commercial margins. We now expect them to be below the 2020 level. In Chemicals and Materials, we keep our estimates of the European olefin margins projected to be at the prior year level. The polyolefin market has continued to rise in the Q2, but prices are expected to come down as the maintenance season ends and the shipping market normalizes.
However, with supply chains in need Of restocking and underlying demand remaining healthy, we expect full year margin substantially above 2020 levels. The polyolefin volumes of Borealis excluding JVs are expected to be slightly higher than in 2020. The clean tax rate for the full year is expected to be in the low 30s. Thank you for your attention. Now Reinhard and I are more than happy to take your questions.
And back to Florian.
Yes. Thank you, Rainer. We now come to your questions and start with Josh Stone, Barclays.
Thanks. Hi, good morning. Two questions, please. Firstly, to you, Rainer, there was some news that you're not going to extend your term beyond 2022 for 1 more year. I was wondering if you have to say why not?
Is there were some headlines that you were looking to look for 5 more years? And then second question, if you just update us, there was on disposals talk about a third package to be announced this year. Is that still the case? Thank you.
Okay. Josh, I take the first question, which is the easier one and the second goes to Reinhard. Why not additional 5 years? I don't get an approval from my wife. That's a clear answer.
Yes, it's a tough application And my family has asked me to spend more time with the family. You must understand, I am now more than 15 years CEO of And I was always living in airplane. Now I also would like to spend Some time with my family in the garden, enjoying a good glass of red wine.
George, so your second question. First of all, of course, we are concentrating on the first and the second wave of our disposals. For the first wave, and those are the 3 divestments that Rainer has spoken about that have been signed already in 2020 and will now close in 2021, bringing proceeds of around €1,100,000,000 The 2nd round that we have announced Are well on the way in the preparation. We cannot talk about more details there, but it is the divestments Of the fertilizer business of Borealis as well as Slovenian, the filling station business. Now when it comes to a third package, This will be decided then according to our needs for further increasing headroom for Possible new steps that we'll decide on later in this year.
There are no acquisitions planned for 2021. And also this is a perspective that we keep with very high discipline. There will be continued aroundations in our portfolio and that will also keep on going and that is Wood is the 3rd package around that we will announce later in the second half of this year.
Thank you.
Thanks, Josh. We now come to Sassy Chilukuro, Morgan Stanley.
Hi, good morning. Thanks for taking my questions. I had 3, please. The first one Regarding the your guidance for the polyolefin margins, I was just wondering if you could contextualize your guidance for these margins with respect to the margins you have seen in the Q1. What would substantially higher than 2020 levels translate when you were to compare it with 1Q 2021 levels?
And with regards to that, what margin levels are you currently seeing in April and both in Europe and Asia? The second question I had was regarding the cash distribution policy or dividend policy for Baruj. If you could remind us what that was. Is it fair to assume a pickup in Boruch net income levels to translate to a pickup in the dividends received from that JV? Or are there any other considerations that I should be aware of in terms of the cash contribution of that JV?
And finally, just a quick one, if you can provide
As I speak about the Chemicals and Materials business, I can confirm that we continue to see Good polymer margins in Europe and in Asia. The margins in Europe Are a bit higher than in Asia. As the prices, if you look into the prices, The prices in Europe are higher at the moment than in Asia. Maybe the U. S.
Impact It's a bit stronger in Europe than in Asia. I haven't elaborated so much, but that's more or less The situation, what we see is right that the olefin margins are Continuing to improve into the Q2. So we might see a shift From polymers to olefins, you might see that in the combination, especially in the future That we do have a hedge between the monomers and the polymers, not 100%, but there will be a shift between these two Business units. Your question on Libya, well, the environment in Libya is pretty stable At the moment, I would say, I don't see any need to correct my outlook That I'm going to see a stable production until year end in Libya. The environment has improved.
I have discussed with Hans several times, whether or not we are going to send back our expatriates and our experts into the country. We are not there at the moment, but I would say no reason To be to have sleepless nights about Libya at the moment. And Reinhard is now taking the Baruch question.
Yes, sure. Regarding the cash distribution of Porouche, first of all, it's important to understand that there is a cash distribution As dividend every quarter. So it's not only a Q1 effect, but we'll see every quarter A dividend from Boruch. Regarding the policy itself, of course, there is no specific disclosure to be done. However, you can definitely count on a rich The dividend policy that Borouge is running, which we have been demonstrating over the past quarters.
It's also not to be expected That with further investments also in Borouge that dividends would cease. So there is enough Potential for leverage also of the company, so that there is a continued dividend, maybe not at the same level that we see today, But clearly continued dividend to be expected.
Thank you very much.
Thanks, Sassy. The next questions are coming from Rafael Dupuis, Societe Generale.
Hello, good morning. First of all, congratulations on the very strong results. Two questions, please. The first one is On the utilization rate at your refineries, when we look at it ex Petrobrasie, It was only slightly up compared to the previous quarter despite the turnaround at Freshat in the last quarter in 4Q 2020. You still show better utilization rate than the European average, but it's This advantage seems to have been shrinking a bit.
Can you maybe explain why that is the case? Why you could not keep your 2 refineries in Germany and Austria run as much as before? That will be my first question, please.
And Rafael, you can also ask a second question and then we'll ask.
Sure. So my second question is also on Borealis. You have strongly benefited from the non specialty part Of your production in the Q1, can you tell us if the non sorry, the specialty part of your production We'll also see an increase in margins, maybe to reflect somewhat the very strong environment we're in going into the rest of the year.
Rafael,
you're absolutely right in your analysis of our refinery utilization. We have a utilization with the 81% compared to Q4. The reason why we are now meeting the limits Is that our flexibility to deal with the high With a very low jet demand in the market is now limiting us with the flexibility Shifting more towards petrochemicals, you have seen that we are now expanding the capacities For ethylene and propylene production in Burkhausen, but definitely there's another case. As I'm expecting that Especially jet demand. Let me say this on my view on refining margins.
1st of all, we see already a recovery of the refining margin. We have seen an average $1,700,000 in the Q1. We are now Something around $2.5 in April. The refining margins are backed now first half on the high Naphtha and gasoline cracks. The problem we see right now in the markets are the very low cracks of diesel And jet.
And diesel is even worser if you look into the cracks than jet. So we have a big diesel problem In the market and if I look into April, the picture hasn't changed. The picture only has changed towards The better in gasoline as we are going to prepare for the driving season. The second half of this year, I'm expecting a further recovery of the refining margins as we are going to see a better situation in the middle distillates market. So the second half will be supported by the middle distillates, Whereas the first half was supported by gasoline.
And that's the reason why we are Calculating, we are expecting to see a higher utilization second half of this year than first half, Because of the problems we see additional problems we see with the diesel in the market. A long answer. Sorry, Rafael. Thank you. I'll try to make it shorter.
So Reinhard, now it's your turn.
Yes. Russell, you asked about the share of non specialty or specialty regarding Borealis margins. It is true that with the prices spiking in the polyolefin area, Of course, the non specialty business participated and benefited earlier and higher. And we indicated that already in advance that this would be the case. However, we will see that there is certainly A certain peaking of these prices going on and that we will see for the non specialty part, Maybe even a slight decrease of these prices in the second half.
This is not what we would be expecting in the specialty part. So in the share between specialties and non specialties, we would see rather again a pickup Of the share of specialties in Borealis results. Overall, very strong industrial positions And be aware that not all the contracts and all the sales are just long term contracts in the specialty part, But we also have areas where on a quarterly basis prices are being renewed. So I'm expecting rather A strong specialty contribution, specifically in the Q2 now.
Thank you very much.
Thanks, Rafael. Next is Matt Lofting, JPMorgan.
Great. Thanks for taking the questions, gents, and congrats On a strong performance in Q1. Two questions, if I could, please. First, on The upstream side, I think the average net gas realization sort of moved higher sequentially to About €10.5 per megawatt hour Q1 average. But as I recall, quite a high proportion of your Hub volumes are lagged in terms of the pricing, particularly through Russia and parts of Asia.
So could you talk a bit about the sort of the outlook For gas realizations Q2 and beyond factoring in those lags. And then secondly, on deleveraging, Just wondering the extent to which strengthened macro conditions, oil above 60, strong performance from Borealis and the frame that you gave around is increasing your conviction or confidence interval around delivering sub-thirty percent net debt to equity by year end. Thanks.
All right. Matt, I'm more than happy to answer gas question. As you know, I'm a pipeline. I grew up as a pipeline, and therefore, I like gas Concerning the prices, you can see our guidance is that the realized gas price will be Above €11 per megawatt hour. You are right, we have locked in, I think, €10.4 per megawatt hour for the Q1.
So you should see a higher realized gas price for the upcoming quarters. The reason is that we do have time lag effects in several contracts. I think it's a 2 months time lag for the gas in Russia. For 50% of the gas, we produce that, So the 50,000 barrels per day gas production, which is indexed to European Gas prices is coming with a time lag effect of 2 months. So the higher gas prices we have or the rising gas prices we have seen then in Q1, we will see then now starting to run into our Numbers for Q2 onwards.
So if you have a time delay in the beginning, you have a time, A positive time lag when the gas prices will go down, of course. So Another information is that we also have a time lag effect with our production in Malaysia, and this is even higher. It is 4 months time lag we do have in our contracts. So we see now the gas prices from December In our gas production in Malaysia, and that's why further increase in gas prices In the 2 summer quarters, more a winter price level than the summer price level we are used to. What you can see on the forward The price curve in the market is already €20 plus per megawatt hour, which is 4 times 3 to 4 times higher than the gas price we have seen last year in the 2 summer quarters.
So I would say especially the gas Production should contribute more in the upcoming three quarters. The major question I don't answer, you might have in your head, Matt, is how much above €11 Per megawatt hour the price will be at the end of the year. I'll leave it with you my friend. So like that, cheers.
Matt, regarding deleveraging, of course, your comment or question makes me happy because also I feel that it will be A little bit easier for us now with this clearly better economic environment To reach the tough target of 30% gearing that we have announced and that we are fully committed to. Now why I'm saying that. First of all, we are keeping a clear discipline on our CapEx with €2,700,000,000 we will not go beyond that. The question why I'm still hesitating to say we are going sub 30% this year It's simply that it's not entirely possible to forecast when the cash inflows I cannot fully commit today. So therefore, at least I would say the €1,100,000,000 of the 3 divestments of the first round will definitely come in.
And for the second ones, we'll see whether one or the other will also close that we can reach the 30% in 2021 and still reap the fruits from the divestments in 2022 also from the cash Double as I was feeling with 41% when we had the Borealis deal done in 2020. I think we are on a very good trajectory. As said, some around 32%, including the €1,100,000,000 already after Q1 And we'll continue this journey.
Super. Very clear. Thanks, both.
Thank you, Matt. The next Questions come from James Hubbard, Deutsche Bank.
Two questions, please. The first is, so Borealis Result boosted by inventory effects. Do you can you say anything about the scale of what those inventory gains are? And are they broken out anywhere? And then secondly, so selling the 4 oil fields in Malaysia, and obviously, you sold Maori Last year, I think.
I'm just wondering, does that what is the overall plan for your Asia upper gene position? Is it still seen as Core or and these were just this process is just saying the more mature assets. Or are you thinking about Maybe what the future of the Asian Upstream business is for OMV and does it need an Asian Upstream business at all? Thank you.
James, regarding inventory effects of Borealis, yes, I think it's important to talk about it because For the other businesses, R and M and E and P, we are showing CCS effects, which give you the indication. We don't do that for chemicals and materials because in chemical industry, the market does not know CCS logic in that sense. The inventory effects that we have seen in Q1 are slightly below €100,000,000 So this should give you a good indication for the Borealis. If you would compare quarter on quarter, it would be around €130,000,000 difference because there was Negative effect on the side last quarter, whereas we have a quite sizable effect positive in this quarter.
Okay. Thank you.
Well, James, I'm more than happy to take your Malaysia question. You're absolutely right. Our divestment of the oil fields is just in line with our strategy that we would like to divest to mature fields. We are not an expert in tail end production. That's the reason why we at a certain point of time are stepping out.
But we are committed to Malaysia. You can see that we just this year Took an FID on the Geroun SKA48 gas field development and it will bring in 2023, 2024 additional around 25,000 to 30,000 barrels per day for the gas production. Your question is, do we need some even some Asian upstream production? I would say, as we speak about gas, We are talking about a growing market. We are talking about a very healthy market.
We are talking about Our upstream position in Malaysia about a very, very low cost, high competitive production we are going to invest for. We are talking about investment projects with the high rate of return in our calculation. So I have lots of arguments when we talk about upstream production, especially in Asia and part of our strategy, James, is That OMV moves more and more towards Asia. I would even be more open to think and to discuss whether or not we need so much up Stream production in Europe as the European market, as we talk about the different continental markets, Is a market with a totally different and no low potential in oil and gas consumption, Whereas we are talking about real big growth markets in Asia. So I hope I covered your question.
Yes, very clear. Thank you.
Thanks, James. Next questions are coming from Henri Patricrand, UBS. Yes.
Hello, everyone. Thank you for the presentation. I have two questions, please, on the petrochemicals. The first one, Just following up on the previous comments that were made. Just wondering
how quickly you captured the higher benchmark that margins in Borealis.
I know you mentioned in some cases you had no quarterly pricing for specialty. But on the non Actually, we said that you kind of fully captured the higher benchmark margins in the Q1. We should expect to see a bit more of that benefit in the second quarter. And then secondly, can you give us an update on Vistar and the new units, the cracker, which I believe was started up in April, I believe there's any impact from the return storm and what you expect in terms of a ramp up there? Thank you.
Sure,
Ari. Regarding the petchem margins, I think that we can expect Still a very strong Q2 for Borealis. The hike of the margins came continuously Over the month. And I don't think that the level that is reached today can be compared to the average Of what we have seen in the quarter. So in general, we are expecting both in the Non specialty as well as in the specialty and slight increase in the average, but we have to see how the end of this quarter develops towards And how this pricing goes.
But in general, we are quite, I would say, positive on the development of petchem Also for the Q2.
Henri, on Beystar, I can say that our Our polymer production is back in the JV. So given this blizzard We have seen at the Gulf Coast, we are now back with production of polymers, but The cracker, the execution of our investment project was not negatively impacted so far. We can keep the timeline and we are expecting that the cracker will come on stream second half of 2nd no, Q2, sorry, Q2 of this year.
Okay. Thank you.
The next question is from Giacomo Romeo, Jefferies.
Yes, good morning. And first of all, I have to join my colleagues in congratulating you for the excellent results. My first question is whether you can provide an update on the evolution of the commercial discussions in Romania With regards to the terms of the Neptune projects and just to confirm here, if you are able to reach And FID on this project, does it automatically mean that you will not exercise your option for Achimov 45? And the second question I have is, you mentioned a few times your On recycling projects, can you provide a little bit of an outlook of where you see Capacity going in the next few years and how
do you
Giacomo, let's talk about Neptune a bit. As I said already this morning, we are highly committed to the Neptune project. I think we see some progress now in Romania, Especially strong signals from the government that they are ready also to start a parliamentarian Approval process for the amendment of the offshore ore. I think what I could read in the newspaper is that Romgas has placed a binding offer for the Exxon shares. What was very important for us That in case, Romgas successfully will take over the 50% share of Exxon, The operatorship will move to OMV Patrum.
From our point of view, it was very important that OMV We'll get the operator ship. Given our technical background in executing this project, I think we would minimize Technical risk and we have signed it. And well, we prepare for an FID next year. And then, of course, you are right, then we are going to ask ourselves the question on AKIMA45. I reconfirm what I said in our last call that we prepare for 500,000 barrels per day max Production now for 5,500 was the range, I think, in 2025.
And that's why we have to discuss next year at latest whether or not we would like to Continue with the acquisition of Arkema45. Your analysis is absolutely right. Reinhard, the floor is yours.
Yes. Jacqueline, regarding the recycling project, we are talking several initiatives that are currently being Started in OMB regarding the circular economy. The one is certainly around our chemical recycling Regarding re oil. And there the next step that we are planning to still take as an FID this year Is what we call second stage or demonstration plant, where we are leveraging up More or less the pilot plant that we are currently having up and running also on a continuous basis producing Synthetic crude oil that we can input in our refineries that we are taking that up To a production between 5,021,000 tons per annum for the years to come. This is more or less the in between step that we see to demonstrate both the technical, but as well also the economic feasibility and also In preparation of the whole feedstock pipeline and feedstock supply chain that we need.
When we have set that up, We would then go into the next step and we are estimating that this takes place still before 2024, 2025 To a full industrial scale, which is in the magnitude of up to 200,000 tons per annum. And those plants then would be even Scalable or multipliable on different sites. So that there is also not only one site like Schrechat Being benefiting from that, but other plants in Scandinavia, but even in Middle East could be following suit. The second stage there is mechanical recycling. I think Rainer has mentioned it in his speech already.
Borealis is taking real efforts there to have not only plans, but really concrete projects, Both in Sweden as well as in Germany. And there we are really producing recycled High density polyethylene, low density polyethylene, but also recycled polypropylene. And those are that can deliver directly also in following industries with green products. All of them are 1st stage projects, which means smaller scale, but fully suitable Production for industrial use and with those also then yielding profitability, There is expansion in this field also planned for the future.
Thanks, Next is Thomas Adolff, Credit Suisse.
Good morning. I do apologize I've missed a chunk of your presentation. So I do apologize if I do ask a question that's already been answered. Rainer, you chose not to extend your contract Next year. And I won't ask what's next for you, but can we expect to get an update on the successor by, say, the end of the year?
And secondly, I think on cash flow, I think you said over time you want to be Generating more than €5,000,000,000 in cash flow from operations, presumably this is a pre working capital figure. Considering you've done 1.7 in the Q1 and assuming kind of the chemical margins that we're seeing in 2Q can be And then finally, if I may, just on the fertilizer business that you're looking to sell, you said you're in the pre marketing space. Just kind of want to get a sense for feedback you've had so far, the interest level. Thank you.
Thomas, you have missed my first answer because Matt was also asking me request. I have to discuss with my wife and these are always tough negotiations. You will get an update at earliest early next year, I would say. The second question, Absolutely right analysis. This is going to be a very cash rich year for OMV.
Looking down the road, Reinhard will give you a little bit more insight. When we talk about the fertilizers, Pre marketing, the first reaction is there is a good interest in the market. What helps, Thomas is that the business environment for fertilizers has improved. So the appetite, especially if you are on the sunny side of the street, you're more looking around buying some ice creams And that's happening now in the market. So the improving and better market environment in the fertilizers It's helping us in the process.
So the first reaction is a good one, but it's too early to really give you a more precise indication. Thomas,
just to clarify, our midterm target of more than €5,000,000,000 in operating cash flow Is it post working capital number? Why is that? Because if we are planning to the future, we do not Plan for the fluctuations of the net working capital. So that is more or less an assumption of a flat delta net working capital that we have in there. And you're right, if we are taking it pre net working capital this year, the 1.7 is a fabulous number and it will not go away.
However, we cannot expect that we have the same impact in the following quarter because of course also the effect that we see in the net Profit from the effect of higher prices that have been rising in the 1st quarter Have had an impact. This is the CCS effect, which we are not expecting to replicate in the coming quarters. But Even if you take the post working capital number of almost €1,100,000,000 in this first quarter, This is an excellent number. And there we are quite confident that we are keeping this level if economic environment keeps on pushing positively.
One follow-up question On the inventory effect disclosure, as you mentioned, cash flow It was extremely strong ex working capital, but you benefited from an inventory effect, quite significant. And if I understand well, you did not intend to disclose the inventory effect at Boreal is going forward, even if you gave us the answer during this conference call. But Can you confirm that you won't disclose on, I would say, in your Excel supplement or In the press release, this inventory effect at Borealis, which could be from 1 quarter to another quarter, Quite a significant, I would say, delta to assess either your operating results performance or your cash flow performance. Thank you.
Yes, Bertrand, I think it's a fair question. Let me put it like that. We are reporting this and we're giving you this explicit answer because it has been a very extraordinary effect. Of course, we would love to see many more quarters where we have such a strong spike And of prices, because if we are talking inventory effect, we are talking much less of a volume effect. It's much more The pricing effect that we see in inventories that more or less came in when they were bought at Lower prices, but then of course when being sold, we are seeing that the value has increased through this pricing.
So therefore, I don't think that it's necessary to keep that as a permanent number that we disclose. But whenever there are extraordinary effects, we will not hesitate to give you the numbers also for comparison from quarter to quarter. So if we do not report this as a special topic, then you can confirm that or be confident That the effects are marginal in comparison to the quarters that we compare with.
Okay, fair enough. Thank you. I leave it there and congratulations again.
Thank you, Bertrand. We now come to Mehdi Ennebati, Bank of America Merrill Lynch.
Hi, good afternoon all. Sorry, busy morning. I haven't been able to connect quite early. So apologies if my questions have already been answered. First one regarding the refining and marketing that has been a bit here compared To the consensus, I just wanted to know, was it more due to the marketing To the refining, have you been able to generate relatively strong marketing as usual?
Did you see any negative impact here from the right petroleum products, which might have affected your I imagine quite significantly. The other question that I have is more For the analysts in order to help us to move the line, would it be possible please for you to provide on regular every quarter The inventory valuation change effect at the Chemicals division, just for us to help us to clean the figures if we want to. Thank you. And if I may, sorry, last question. Can you please tell us about your current refining margin level?
Would you say that it is currently improving compared to the Q1?
Your first question to me was whether the effect that is a little bit of a soft The result in R and M is coming more from refining or from marketing. What we clearly see is that the refining part Has been suffering from lower margins as well as lower utilization. So the main part is clearly due to the situation that we still have Had quite low demand in specifically the jet fuels, the kerosene, which led To lower utilization levels, we are still also suffering here in Europe from major lockdown situations Due to the COVID pandemic, which deprives people from their normal human rights to mobility. So the individual mobility has been drastically reduced. I think this certainly will also improve.
From the marketing side, we are still enjoying very good results from the retail business and also from the gas business. Maybe not in that way as we have seen Q4, which was extraordinary high and could balance the situation for Quarter 4, a little bit better than it's possible in quarter 1, but still very strong business there. Then to your second question, I think I pointed it in my last answer regarding the inventory valuation To the fact that we have answered this question in this quarter was very clearly due to the situation that we have an Extraordinary situation, which we not expect to continue or to repeat every quarter. So I understand that you would like to see a little bit what's the equivalent of the CCS that we have for our E and P and R and M situation. Also for C and M segment, we will see how Appropriate logic that is also in line with the way how the market in general is reporting for chemicals can be applied.
But for the moment, we leave it to say when there are extraordinary effects, we will be transparent about them. If we are not saying anything like that, you can Rely that there has not been a major effect that's necessary to mention.
Thank you. And just Just a follow-up regarding the refined margin trend so far in April, would you say that it is roughly in line with Q1 remaining under Would you say that it starts picking up?
Maybe I take your question on the refining margin. We see a recovery of refining margins now in April. The refining margin in average we have seen in Q1 was 1 point dollars 7 per barrel, which was the level of Q4 we have seen last year. Refining margin in April so far is Something around $2.5 per barrel. So the margin has now improved, but still we are talking about The margin level where most of the refiners really have no fund to operate their refineries.
When I look down the road, let's see why the we do see a margin improvement. Looking into the refined products, we see good cracks coming with jets And now very good coming with not with jet, coming with naphtha and with gasoline. And gasoline cracks even improved in April. So the first half of twenty Especially the naphtha and gasoline cracks, whereas I think that the refining margin in second half of this year Will be supported by better cracks in middle distillates. The product we have as a problem at the moment In the market is diesel.
The lowest crack you see in the refined products market is coming with diesel. It's even Worse than jet, what we have seen. So given the fact that transportation will pick up second half of this year, we think it will be backed by recovery of the stronger cracks in middle distillate second half of this year. So we will move into the $3 until year end. That's my view on the refining margins.
So this concludes our conference call for today. Thank you very much for joining us.
That concludes today's teleconference call. A replay of the call will be available for 1 week.