Welcome to the OMZ Group's 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 website.
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This presentation does not contain any recommendation or invitation to buy or sell securities in OMZ. I would like to now hand the conference over to Mr. Florian Kreger, Head of Investor Relations. Please go ahead.
Thank you. Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the Q2 2019. With me on the call are Rainer Seeler, Umvie's Chairman and CEO Reinhard Florey, our CFO Hans Bleininger, Deputy CEO and then the Board responsible for Upstream and Thomas Gangel, who recently joined the Executive Board and is responsible for refining and petrochemical operations. Always, Rainer Sehle will walk you through the highlights of the quarter and will discuss OMV's financial performance. Following his presentation, all 4 board members are available to answer your questions.
And with that, I'll hand it over to Rainer.
Yes. Thank you. Good morning, ladies and gentlemen, and thank you for joining us. Well, despite a challenging macro environment in the Q2 of 2019, when we delivered a strong operational performance and a substantial increase in earnings. Let me start by briefly reviewing the economic environment.
In the Q2 of 2019, the Brent oil price averaged $69 per barrel, 9% up from previous quarter, but 7% lower than in the same quarter last year. The increase quarter on quarter mask, in fact, a very volatile quarter. Brent traded in the range of $70 to $75 per barrel until mid May, driven by an overcompliant implementation of the OPEC plus production cuts and concerns about supply tightness. It then fell below $65 per barrel triggered by the escalation of the U. S.
China trade conflict and a more pessimistic global macro outlook, only to rise again towards the end of June after the escalation of the U. S.-Iran conflict. European spot gas prices further declined in the 2nd quarter with the SEK spot prices reaching a 9 year low in June. On average, prices were 27% lower year on year and 20% down quarter on quarter. The price decline was caused by lower demand following a very warm winter and substantial LNG volumes diverted into Europe.
The refining indicator margin decreased by 39 percent year on year and by 21% quarter on quarter. Naphtha continued its downfall with a lot of cracker capacities offline for maintenance and a very low LNG LPG prices leading to feedstock switching where possible. In addition, middle distillate cracks further declined aimed at lower demand. The only product that improved in the quarter was gasoline, mainly due to the reduced utilization rates of some refineries, which were affected by the contamination issue at the Druzhda pipeline. The ethylene and propylene margins improved by 16% year on year due to the lower naphtha prices.
Compared to the Q1, the margin increased by 5% due to the market tightness resulting from the cracker turnaround season. The European market for butadiene remained soft throughout the quarter, benzene margins recovered as a result of shortening supply and weaker market environment, OMV delivered a very strong clean CCS operating result of more than €1,000,000,000 44% up versus the same period a year ago. Clean CCS net income attributable to stockholders rose by 88% versus the same period in 2018. Our quarterly cash generation remained very strong with the cash flow from operating activities, excluding net working capital effects of more than €1,000,000,000 At the operational level in Upstream, we further increased our production to 490,000 barrels per day, mainly as a result of acquisitions and reduced the average production cost to $6.9 per barrel. In downstream, we continue to run our refineries at the very high level of 96% and increased the sales volumes.
We also made further progress in delivering on our strategy. In June, we reached another important milestone in the execution of our strategy. We agreed with Gazprom on the purchase price of €905,000,000 for the 24.98 percent interest in the Achimov 4five phase development in Russia. We are expecting to sign final transaction documents until the end of 2019 and have the closing at the beginning of next year. The acquisition will add approximately 600,000,000 barrels to OMV's reserves and more than 80,000 barrels per day to OMV's production at plateau.
The operator expects production to start up at the end of 2020 and to reach plateau in 2026. BOV's share of total investment is expected to amount to approximately €950,000,000 until the end of 2,044, including approximately €75,000,000 compensation for the past cost incurred in the years 2017 2018. Within the framework of cooperation with Gazprom, OMV also extended the agreement regarding the annual delivery of 1,200,000,000 cubic meters of LNG beyond 2020 by Gazprom. This will contribute to Europe. In July, we signed a memorandum of understanding with Verbund, Austria's leading electricity company and one of the largest hydropower producers in Europe.
We aim to intensify our strategic energy cooperation, and we already agreed on the first joint project building Austria's largest photovoltaic plant with a capacity of 16 megawatts peak. We also took FID for the construction of a high purity isobutene unit in Burkhausen. The project is the first application worldwide of a new technology developed in collaboration with BASF. The new unit will be integrated into the existing refinery methothesis plant, which is responsible for the energy efficient manufacturing of propylene for the plastic industry. And as announced this morning, we closed the deal regarding the acquisition of a 15% share in ADNOC Refining and the Global Trading Joint Venture.
With this transaction, OMV increases its refinery capacity by 40% and olefin capacity by 10% and establishes a strong integrated position in Abu Dhabi along the value chain, spanning from upstream production to refining and trading and petrochemicals. Last but not least, as you know, starting July, the structure of our Executive Board was changed. The Downstream division was divided into 2, the Refining and Petrochemicals Operation division, headed by Thomas Gangl, today with us on the call and the Marketing and Trading division, which I manage on interim basis. In light of future market challenges, it is crucial that both the production facilities and the trading business enjoy the highest level of attention in the company. Let us now turn to more details of our financial performance in the Q2 of 2019.
Our claims CCS operating result rose substantially from €726,000,000 in the Q2 of last year to €1,047,000,000 Both business segments contributed with their strong operations to this excellent result. In Upstream, our earnings were 42% higher year on year, mainly due to the significantly higher sales driven by portfolio changes and higher realized oil prices. In Downstream, earnings increased by 26%, although the indicator margin fell by 39% year on year. The results demonstrate the benefit of OMV's integrated portfolio as the negative refining and gas market effects in downstream were more than offset by the stronger commercial and retail business and by a better petchemicals result. Clean CCS net income attributable to stockholders increased from €272,000,000 to €510,000,000 supported by higher earnings and a lower claim tax rate year on year.
The claim tax rate was 39%, 10 percentage points below the previous year's quarter. This was due to a proportionally lower upstream contribution from high tax rate fiscal regimes and a comparatively higher downstream result contribution from Romania, where the prior year quarter was impacted by the planned turnaround at the Petropas refinery. Clean CCS earnings per share rose strongly to €1.56 Let me now come to the performance of our 2 business segments. The Upstream Clean operating results increased by €192,000,000 to €650,000,000 compared to the Q2 of 2018 due to higher oil sales volumes and higher realized prices. Market effects had a positive impact of €71,000,000 a result of a higher realized oil price and a stronger U.
S. Dollar, partially offset by weaker gas prices. OMV's realized oil price rose by 9%, while the realized gas price decreased by 5%. The gas price weakened to a lesser extent than the European spot prices as only approximately 40% of our gas sales portfolio is directly linked to European hub prices. Realized gas prices in Romania increased quarter on quarter.
However, the realized prices decreased year on year due to the price cap for gas sold to households effective as of May this year. Production went up by 70,000 to 490,000 barrels per day, mainly driven by the acquisitions in New Zealand, Abu Dhabi and Malaysia, as well as the production ramp up of Aasta Hansteen in Norway. Production in New Zealand recovered from the Q1 maintenance and contributed 41,000 barrels per day in the quarter. Production of the Saab and Umhlulu fields in Abu Dhabi amounted to 22,000 barrels per day. Production in Malaysia increased to 15,000 barrels per day as the acquisition was fully reflected in the 2nd quarter.
Almost 50% of the Sapura OMV production is gas. The security situation in Libya improved and we were able to produce 36,000 barrels per day in the second quarter, more than in the same period of last year. Our overall sales volumes were 24% higher year on year due to an increased production and a catch up effect in sales in Libya. We remind you that the barrels produced in Libya in the Q1 were lifted in the Q2 due to the security situation. We reduced our production costs by 9% to $6.9 per barrel on the back of higher production and a favorable currency development.
Depreciation increased by €180,000,000 due to our acquisitions in Abu Dhabi and Asia Pacific. In downstream, the clean CCS operating result increased by €89,000,000 to €428,000,000 The downstream oil result rose 34% to €427,000,000 despite a significantly lower refining margin. Our operational performance was strong, reflected by the refining utilization rate of 96 percent, higher sales volumes and stronger commercial and retail margins. In the Q2 of last year, our utilization rate was only 77% due to the planned turnaround of our Petrobras refinery. The commercial and retail business benefited from a tight supply situation following a refinery outage and regional reduced production due to the Druzhba pipeline contamination issue.
At €78,000,000 the petrochemical result rose substantially by 42%, supported by a higher ethylene and propylene net margin. The contribution from Borealis increased to €118,000,000 driven partly by a positive impact coming from the settlement of tax cases in Finland. The integrated polyolefin margin were on a healthy level and the performance of the fertilizer business improved on the back of lower gas prices. The Clean CCS operating result in downstream gas declined from €20,000,000 to 0 due to weaker storage result and lower power results in Romania. Following a very warm winter, part of the storage volumes were not withdrawn and was shifted into the next winter season, of course, negatively impacting the results.
A similar effect is expected in the Q3 of this year. We anticipate a reversal of these negative effects in the next winter season when the gas will be withdrawn from the storage. Let's now continue with cash flow. In the first half of 2019, the cash flow from operating activities, excluding net working capital effects, amounted to €2,200,000,000 an increase of €228,000,000 compared to the first half of last year. The positive development is driven by acquisitions and a good operational performance.
In the first half of twenty nineteen, we recorded negative working capital effects in the amount of €234,000,000 which represents a change of approximately €500,000,000 compared to the first half of twenty eighteen. This was mainly driven by positive effects in Downstream Oil, partly offset by negative effects in Downstream Gas. At €855,000,000 our organic cash flow from investing activities was slightly below the same period of 2018. The organic free cash flow before dividends amounted to €1,100,000,000 The decrease versus the same period of last year stemmed from the negative net working capital effects. Our organic free cash flow was more than sufficient to cover the payment of dividends in the amount of €772,000,000 The inorganic cash flow from investing activities was €551,000,000 mainly reflecting the acquisition of Sapura OMV.
OMV's balance sheet remained very healthy and showed strong liquidity with a cash position of €3,700,000,000 at the end of the Q2 of 2019. Net debt slightly increased from €3,200,000,000 to €3,300,000,000 At the end of June, we issued 2 tranches of senior bonds totaling €1,000,000,000 One tranche was a 6 year issue with a coupon rate of 0%, which is the tightest 6 year yield for a corporate issuer since 2016. The second tranche was a 15 year issue with a coupon rate of 1%. The proceeds are intended to partially finance the acquisition of the 15% share in ADNOC Refining and the Global Trading Joint Venture. Following the bonds issue, our financing cost decreases by 40 basis points to 1.9%.
Despite the payment of the annual dividends, our gearing ratio remained almost flat at 21%, well below our long term target of max 30%. Let me conclude with an update of the outlook for the full year. We reconfirmed our 2019 market assumptions for Brent oil at $65 per barrel and gas prices below the level of 2018. Based on the developments in the first half year, we expect the total 2019 production to be slightly below 500,000 barrels per day. Libya is anticipated to produce above 35,000 barrels per day in the second half of twenty nineteen.
We expect production in the Q3 at the similar level as in the Q2 with plant maintenance works in Russia, Norway and Austria. Production in the Q4 is anticipated to be stronger, driven by seasonally higher volumes in Russia and the expected production start up of Navara in Tunisia. In downstream, we saw a very volatile refining margin in the first half year, averaging $3.6 per barrel. We estimate an increase in the second half of the year as the market prepares for the IMO legislation being enforced in 2020. However, for the full year, we estimate the refining margins to stay below $5 per barrel.
For petrochemicals, we now project the full year margin to be at the similar level as 2018, following a strong performance in the first half of twenty nineteen. Thank you for your attention. And now my colleagues and I are more than happy to take your questions.
Yes. Thank you, Rainer. Let's now come to your questions. I'd ask you to limit your questions to only 2 at a time, so that we can take as many questions as possible. We can, of course, always rejoin the queue for a follow-up.
The first question comes from Josh Stone, Barclays.
Hi, good morning. Thanks for the questions. I have 2, please. First, you recently signed an MoU in Indonesia on the petrochemical sector. I wonder if you could talk about that and what you're looking at.
Are you leaning more towards sort of greenfield or brownfield opportunities in petchem? And any insight into potential timing of when the decision might be made would be great. And secondly, a question for Thomas. Congratulations on your new role. I was wondering if you could talk about how you see O and B's downstream business today and what your priorities are over the next several years?
Thank you.
Well, Josh, the MoU, which we have signed in Indonesia, let me call is in a very embryonic stage, yes. So we have just started the discussion and we will look together with Mubadala into the project. When we are talking about a project, we are talking about an investment project and new capacities. And that's the main interest we do have. From a strategic point of view, we would like to create a captive market behind our 15% shareholding in ADNOC Refining.
And ADNOC Refining, what we are doing to invest into the complex will create lots of naphtha. And naphtha, we need to find in captive outlet. As we see crackers on the site being ethylene crackers, of course, we would like to have a captive naphtha demand behind our engagement in ADNOC refining. And that's the reason why we, together with our partner in Abu Dhabi, are looking for captive markets. And one of the potential markets in Asia could be Indonesia.
We will look into that together with our partner. And I would say, when we have a higher maturity, I would present firmer numbers to you. It only tells that petrochemicals are getting a higher weight in our activities. But following our execution of our strategy, this was just planned. As you remember, we would like to double the pad can capacities and that's one option we have created in our portfolio.
Thank you, George, for congratulation. It's really great to be in this round. How do I see Downstream today? I'm very proud of what we have achieved over the last years. When you look back in terms of utilization on all of these KPIs, I think we have done Also in benchmarking, we have a strong position achieved.
So Also in benchmarking, we have a strong position achieved. So we are in a very healthy position and well positioned in Europe. What is on the long run there? I mean, you know our strategy, obviously. So we are driving the portfolio more towards the petrochemicals.
You have seen the ISOC4 investment decision, which is one of these steps to drive that more into petchem and also jet fuels. These are the topics where we still see a lot of growth potential even in Europe. And we're looking beyond Europe, of course. And it's a perfect day to talk about it because today we have the closing of the Abu Dhabi deal that's adding 40% in the refining capacity, more than 7,000,000 tons. So this is compared to our existing asset base quite significant and we are looking beyond that.
So those topics will be on my agenda. That will be investments in our existing refineries, but also looking into opportunities
beyond that.
The next question is from Jason Gammel, Jefferies.
Thanks very much gentlemen and congratulations on a great result. I was hoping to ask a couple a little more on a macro basis. You made reference to your commercial and retail operations in the downstream oil business doing well as a result of the tightness in refined products from the Druze Bay issue. Would you expect that that tightness is going to continue into 3Q or has that essentially resolved itself? And then the second question on downstream gas, we did see obviously a lot of weakness in the European hub prices.
You referenced resilience in your own price as a result of less exposure to those hubs. But how do you actually see the macro developing? It seems like we could be in an oversupply situation for a relatively long period of time in Europe as regards gas.
Okay. I catch both questions. First of all, the commercial retail business, we're expecting also a strong contribution from commercial retail business in the Q3. I don't see a sign that there will be a slow down of the performance. But it's less driven by the pipeline, the Druzhba contamination.
More driven by the water level in the Rhine. We see, of course, a very nice spread in Southern Germany. And this spread, I still see also in the Q3. So I also would say that commercial and retail business, the indication is a good one. It's also supported by the driving season.
The driving season and the holiday season is a season I like second most. I like the winter season because it's cold, but the driving season is really bringing good numbers into commercial and retail business. And I also would like to pay your attention that roughly 40% of the profits we're generating in that business is non fuel business, which is an increasing number. The downstream gas, the macro, what I see is you talk about any one side of the metal, to be honest, Jason, and you are talking about the demand side. When I talk about the demand, I first of all would say, it's a little bit depending on we both have to sit and wait a little bit what's happening in Germany.
The step out of coal and that climate discussion and when Germany said we are supporting the Nord Stream 2 pipeline project because we need no gas because for the change of the energy mix in Germany, we need more gas. So if this switch from coal to gas is coming earlier, I would have a different view on the market on the demand development in the European gas market. 2nd, it's the situation we do see right now in Europe is more or less not the demand development, the over supply cement, the demand development in Europe per se, it's also the very weak market in Asia sending some cargoes into our market, which we haven't anticipated in our plans. Do we have to deal with a longer oversupplied market? I think that the import demand of the European gas market will increase further than the demand in the market by itself.
So the decline of the gas production level in Europe is much, much stronger. Sometimes I also read in the press that some companies are hesitant to further invest into additional production. We need that gas in the market beside all the climate discussion. So that's the reason why I think in short term, we have to sit and wait how the climate debate in all over Europe will result into potentially higher demand in gas. If this is going to happen, I think we are talking about a healthy gas market.
If this is not going to happen, I'm hoping for a sharp and quick decline of European gas production. That's the only thing which can help.
Very helpful. Thanks, Werner.
Next question is from Peter Low, Redburn.
Hi. Thanks for taking my questions. You've kept full year CapEx guidance unchanged, €2,300,000,000 That implies a step up in spending in the second half. Can you give us any color on what is causing that? And then the second was just on your petrochemical earnings.
They've been very resilient, especially versus peers who've been citing soft industry margins. What would you attribute your outperformance in that area to? Thanks.
This is Reinhard. Hi, Peter. Regarding the step up of the spending, you're right that we have been proportionally lower than our anticipation for the full year in the first half. But that is also a little bit of OMV's pattern in spending that we have the 1st two quarters traditionally on a lower level of CapEx spend compared if we are talking organic CapEx, of course, compared to the 3rd Q4. Why is that?
Because of course, the activities start in the New Year regarding E and A activities. There we are a little bit behind our overall development that we foresee. We have also seen that we have less spending as normally anticipated because there is the delay of the Neptun project. And we have positive developments, both in Abu Dhabi as well as in Malaysia, that some of the spendings are lower than anticipated as well as delayed or shifted to the second half or even part of that into next year. So in total, we still believe in the 2.3 as we have anticipated and there will be some catch up effect in the second half.
All right, Peter, part of our secrets I would like to keep why we are so successful in pet cam, yes? So I try to answer your question a little bit in a philosophic way. The one of the reason is, if you look into the performance of Pat Cam, you'll have to look into, 1st of all, the utilization rate of different companies. In PATCAM, we were close to 100% utilization. So our operations were running without any second of interruption.
The second point is what is the feedstock for your crackers? Some of our competitors were their cracker went into maintenance, stabilizing, of course, the ethylene propylene prices in Europe. And that was a very positive demand call on our petchem business. And secondly, the cracker feet, we are very much naphtha based. When you talk about Burkhausen, it's a petchem naphtha site.
And therefore, we benefited from the low prices in naphtha, whereas our competitors, if they are running a higher share of ethylene, could not benefit from the lower naphtha prices. All in all, we have to say that especially OMV has, of course, one specialty of a further integration down the value chain and that's, of course, a benefit from Borealis, So we are not only the producer of the monomers, we have also the polymer business and Borealis performed very nicely. And as far as I can say, the 1st weeks in Q3, we don't see any signals that I should change my outlook. I have presented to you that the Pat Cam business, we reconfirm that this is a healthy environment.
We now come to Ori Patricot, UBS.
Yes. Hello, and thank you for the update. Two questions for me. The first one, on the updated production target for the full year, so slightly below €500,000,000 Can you just comment on the drivers of this change in the guidance and whether there are any implications we should have in mind for next year for 2020? And secondly, I wanted to know on undoc refining, just closed the transaction.
Has there been any change in your views on the contribution from the business given recent changes that we're seeing in the market and both the crude market and also the oil products outlook? Thank you.
Regarding production targets, so what you have seen is in the first quarter, we have produced 474,000 BOE. In Q2, we increased the production of 490,000,000 resulting in half one production of €482,000,000 What you can expect is Q3 will be similar production as in Q2, so plusminus 490. Q4 should go up with the production regarding Navara will come on stream. Russia, the winter season should come in, meaning Eusenoroz CoA should go up with the production. And what we expect is also that we bring earlier than anticipated Golar Bar in Malaysia on stream.
So this will push the production at around 500,000 or beyond 500,000 and that's what you could expect and also for 2020 production beyond £500,000 per day.
Henri, our view on adenocrivate finding in Abu Dhabi hasn't changed, yes? So you can deal with what we have said earlier. This year, 2019, we see only a small positive contribution into our numbers, Yes. I repeat that on average, we do see a dividend yield out of our participation, which is at least 10%. So this will not start this year because this year we are not expecting to get any dividend payments.
Yes. So this will contribute then in 2020. And I have to say that this is an average indication for you because we have to invest into the refinery to upgrade the integrated margins. And this is still ongoing in the next years. So I wouldn't expect that the dividend yield of 10% will start on the 1st day.
Understood. Thank you.
Next is Matt Lofting, JPMorgan.
Good morning. Thanks for taking the questions. 2, please. Firstly, just on downstream. I mean, I think we should congratulate you on strong results against difficult macro variables.
Can you talk a bit more about where you think the company outperformed the market and also expectations in the quarter and how meaningful that ability to monetize the DuraSpa related market tightness was to the quarter? Secondly, just around Romania, if there's an update on negotiations with the government on the offshore fiscal framework implications for the status of Neptune and also if you have any comment on recent reports out of Romania that Exxon could be considering exiting the project? Thank you.
Okay. Starting with Romania, the question. So as you have seen there were some changes also in the government. So we are still negotiating and discussing with the government about terms and conditions for the offshore for development of Neptune. So, so far, we haven't got any official information from ExxonMobil, neither from the government, if there is any change in the shareholding of the project.
So if we get this, then we will come back to
you.
So you asked the first question about the outperformance. When you look into the figures, you see that we had an extremely good utilization. This is, of course, something that helps a lot. And this in combination with some market effects and there I would say there are always market effects. So there is the Druzhba pipeline, there is the Philadelphia refinery, there is the Rhine level, which is now again down, so they can load only 70% 80%.
And indication is that next week, they will go down maybe even to 70%. So there are always some chances to gather additional profits. And I think this is something we have done in the past, and we will continue with that.
Very good. Thanks, gentlemen.
We now come to Alwyn Thomas, Exane BNP Paribas.
Hi, good morning guys. I just wanted to follow-up, I guess, on sort of the strategic view and the sort of 20 25 plan, it looks like you're moving ahead, sort of well ahead of expectations on deals and prices and the closing of deals as well. I was wondering when I guess on your sort of gearing targets for year end, now the deals are beginning to close for this year, given good performance on gearing in the second quarter, where you expect that to be around year end now given the outlook? And I guess when we should perhaps expect some update on what your thoughts are on sort of additional shareholder returns in the future and perhaps where you would like that to be?
Alain, you're very right that we are very well progressing in our 2025 plan. Regarding the gearing, by the end of the Q2, we are at 21% gearing, which leaves us very good headroom also considering the expected good cash flow generation for the 3rd Q4 still this year. So that we expect that with the acquisition that is now closed in July on the Abu Dhabi side, we will still manage to be at or slightly below 30 percent gearing, including the IFRS 16 effect. This assumes that we will not be able to close the AGMOP45 deal ultimately in this year that may be shifted to early days in 2020. But that's still not out as we are on the final negotiation side with Gazprom and that's actually progressing well.
Regarding the general expectation on the organic cash flows, we still are in the situation that we follow our EUR 2,300,000,000 target of organic cash flow in 2019 and to continue with the span of €2,000,000,000 to €2,500,000,000 for the years to come.
Okay, very clear. Thank you.
And we come now to Irene Himona from Societe Generale.
Thank you very much. Good morning. My first question, back to the downstream, if I may. You oversee marketing and trading directly. Could you perhaps give us a sense of the importance, the contribution of trading to the Q2 results?
And if you have any particular ambitions, it's a business that is making some very meaningful contribution to other companies downstream. And secondly, any guidance please on the cash tax rate either for the full year or the second half? Thank you.
Regarding the tax rate, you have seen that we came out in the second quarter with clean tax rate of 39% and with an effective tax rate of 38%. This comes despite of higher volumes from Libya, where we have high taxes on the other hand with a very good contribution from the downstream side, where we have in average lower taxes than in upstream that made up for that and kept our tax rate below 40%. We still would guide for the full year at a full year tax rate of at or slightly below 40% for the group company.
Irene, I'm very sorry, but are not releasing any numbers in particular about the contribution of trading activities. But I would like to elaborate a little bit on your question about the importance of trading. As you can see, we have closed our transaction with ADNOC this morning. It's not only a 50% share in the refinery and the assets, it's also a 50% share in a trading and marketing company. So we will be engaged with the 70 roughly 70% of the Ruwais volumes being exported into the different markets.
And we have to bring trading now how into the joint venture, because we think that we can stretch the dollar in the refinery. And this is not only the sales of the product. I think we can contribute with our oil trading expertise enormously into that in our refineries. Whereas in Abu Dhabi, we are operating only with single Merlot grapes. That's the reason why we have these high priced Abu Dhabi crude in the refinery and we would like to mix it a little bit and then we can optimize the feedstock basis of the refinery, giving you an idea that this is a part of very important trading.
So it will go into the overall results, but to give you a precise number for that, it's very, very difficult. It's an important contribution in natural gas trading. That's also why we call it trading because we are operating at the different hubs. And if you look into the price differentials at the different European hub prices, let's call a TTF versus the sec hub prices. And given the fact that we do have an infrastructure in place, that we do have different sources of import volumes at different locations, we have to play with that overall picture to optimize it.
It only makes sense to start these kind of trading activities if you have to serve the size of the portfolio. With small nitty gritty, you can't optimize with trading, but given the fact that we have a very big, large portfolio, that's also one of the reasons why we have intensified our efforts to increase our market share in Germany and the Netherlands, because we have a very strong high sales volume in natural gas in Eastern Southeastern Europe, whereas the volumes in Northwest Europe are going to increase substantially just also to create that arbitrage potential in trading in our natural gas business.
Thanks very much. Very helpful.
The next question is from Yuri Kukhtanjic, Deutsche Bank.
Good morning, gentlemen. Congratulations on the results. Two questions from me, please. Rainer, I think both will be for you. First one on Russian gas transmission via Ukraine.
Could you please update us how do you think about the Gazprom and Naftogaz transmission deal? And how will it progress following the recent very unusual elections outcome in Ukraine? And how different outcomes may affect your business? And the second question on the Rovoy refinery particularly. So considering China slowdown and increasing risk of Chinese refineries supplying more oil products to international markets, Do you still see plain vanilla valuation of Rovoye refinery acquisition as value accretive for your minorities?
And perhaps you can talk a little bit more about this dividend guidance that you provide for Rovia. What is the implicit refinery margin in that guidance? And what is your floor for the refinery margin in order to execute that dividend guidance? Thank you.
Hi, Yuri. You are asking questions where I really have to think twice what should I say, yes? The gas transmission in Ukraine, it's very difficult to give you an answer because I'm not sitting at the table. And I don't have any crystal ball where there's a gas pump flag telling me anything how this is going to progress. I think you have to talk to these guys sitting at the table and negotiate.
They can give you a more precise idea what's really going to happen. From OMV's point of view, we are supporting a continuation of the gas transit in the Ukraine for different reasons. First of all, we would like to back and finance the Nord Stream 2 project because it's a diversification of the import route and not a substitution of existing import routes, then the security of supply situation wouldn't be increased and in favor of the European market. The second is we would like to keep that second route because the vast majority of the volumes we are right now importing into Austria is coming via the Ukrainian transit route. So therefore, as every second cubic meter of gas here in Austria is coming via that route, we do have a certain interest that this route will be busy also in the future.
What I can see is all what I read in the newspapers and I don't want to repeat it, but I think what I can see is that now it is of course already a successful development that the parties have decided to sit together again and to restart the discussion on booking the transit. Do I expect that this will be a deal signed tomorrow? I don't think so. I think the way they are talking, they have to find the right language to talk to each other and it will take time. The Abu Dhabi refinery.
Well, first of all, in principle, we have said we take a break in any kind of acquisitions. It doesn't matter whether it talks downstream, Patchem or any acquisition on the moon. I have no further acquisitions, yes? We have to take a break. We would like to recover from the big money Reinhard has transferred today into the pocket of ADNOC.
And therefore, we would like to take a break to consolidate, especially our balance sheet. So that's a clear message as we speak about M and A activities. When we talk about the refining margins, I have to make reference to the confidentiality agreement we have signed with ADNOC. It really gives me not a big room to give any indications what we have signed. All I can give to you, Juri, is what I have said earlier is the dividend yields we have agreed with Henstock.
We can make reference to give you an idea to evaluate our shareholding in that refinery project.
That's great. Thank you very much, Reiner.
We now come to Chris Kuplent, Bank of America Merrill Lynch.
Yeah. Thank you for taking my questions. First one, would I be right just looking for confirmation that as we have been able to observe that your achieved gas price has obviously improved the discount relative to the European spot price. That is a trend that should continue as more and more gas production is coming online that has nothing to do with the European spot price. And the second question, I suppose, is a wider question, Rainer.
It wasn't so long ago at your Capital Markets Day that you said, don't call me a utility. And we've now seen a cooperation with Verbund where you are, I guess, investing in power projects. And I wonder how much, whether you can give us an idea whether that's over the coming years is significantly increasing in CapEx and what the strategic rationale is behind that cooperation? Thank you.
Chris, I'm going to be short as you started to quote me, yes, telling me that I don't want to be a utility. You're absolutely right. I, of course, will not say anything in contradiction to that. But to your first question, yes, you're absolutely right. As we are investing into new gas, for example, in Asia and Malaysia, this has nothing to do with European hub prices.
And therefore, the trend you have described is correct. 2nd for bund. Well, I can I will clearly say the following? OMV is not striving to become a power company. We have burned our fingers and we have lost a lot of money and we have identified that we have not the DNA neither in power trade nor in power generation whatsoever.
So the cooperation with the Bund is not a new business activity in our overall portfolio. It is an optimization of our energy costs for our production site in Austria. With that cooperation, we can substantially reduce our power costs, and we're talking about 10 percent of the power demand we have in our operations here in Austria, we can substantially reduce the cost. And the reason is because we are producing the power next to our operation and we don't have to pay anything for the infrastructure, so no entry exit fees. And it's purely an economic optimization.
That's what's first running in my head when we are talking about the project
with the photovoltaic
investment. We are not talking about bigger substantial investments into power generation. But OMV has an interest and that's more in combination in the context of sustainability that the majority of the power we are using in our operations is going to be clean power. In some countries, we have not an energy mix like in Austria, And that's the reason why we have also announced that OMV will touring with Verbund into the regions where we are an active producer and maybe one or the other projects we are doing together. And we are sharing the costs because OMV could also invest 100% and enjoying then the lower energy costs on 100% basis.
But we have said, because it's not a strategic business, we are joining with an electricity company and then we can also optimize because they do have the DNA and power trade in case we have oversupply of renewable powers in our photovoltaic project, for example. So all in all, I'm still the same. I haven't changed my mind, Chris.
Very clear. Thank you, Rainer. So that, to me, sounds like any CapEx related to this cooperation with Verbund, we should treat very much as organic CapEx within your divisions.
And it's an extremely small number,
yes? Understood. Yes. Thank you.
We now come to Michael Alsford, Citi.
Thank you for taking my question. I've just got a couple left. If you don't mind, if you could remind us what you're up to in terms of exploration activity. I see that the budget's gone up a little bit for this year. I know you're drilling actively in New Zealand, but if you could maybe provide a broader update and to the resource potential that you're targeting would be great.
And then just secondly, just on Nord Stream 2, apologies if I missed it, but if you could maybe update on the progress of the project and how you see it playing out for the rest of the year? Thank you.
Mike, regarding exploration, as you know, we did some acquisition in the recent times. So this would require also then we have a bigger exploration portfolio than we had some 2 years ago. So we will invest also some exploration money in Southeast Asia together with Sapura. This is already included here. So we are drilling some wells in Malaysia and we will start our drilling campaign in New Zealand in the second half of the year, where we see some big potential in the Dalanaki Basin and Great South Basin.
So this is mainly the reason why we increased our exploration budget. This is according to our acquisition and this is also according to our production increase, yes, because we're producing right now 500,000 some years ago where we spent 300,000,000, we were producing 300,000 barrels. So this is, I would say, going hand in hand with our growth in upstream.
Michael, in terms of Nord Stream 2, around 70% of the pipeline is already constructed. The construction works are continuing according to plan. We do see no real time delay. We are now constructing the pipeline that two ends will meet the territorial waters of Denmark. And we are waiting for the last remaining permit from Denmark.
This decision will decide about the timing. Right now, we are in with a plan and time. We don't see to change our timeline and our time expectation for 1st gas in. We are planning with the first gas in end of this year. So at latest, 31st December, 24.
So, Nord Stream 2, we have also continued financing in the Q2 of this year. We have now a total finance volume of EUR 687,000,000 end of Q2. The financing will be reduced for the remaining quarter as we are dealing as we see only pipe lay activities left. The vast majority of the project is financed and the biggest cost position is, of course, the production of the pipes. The pipes are all on the site and we have only 30% of pipe lay activities left.
The concept is that we are going to build until the Danish waters and then we have 130 kilometers in that economic zone, which we are going to build the day we are going to receive the permit from the Danish authorities.
We
now come to Thomas Adolff, Credit Suisse.
Good morning. Three questions for me, please. Just firstly, on your longer dated production target of 6 100 kilobytes D. I was wondering whether that is achievable without Neptune and whether you have other option within the portfolio today that could offset the potential loss of Neptune if the economics just don't work? Secondly, I think you mentioned on the conference call that about 40% of the retail earnings come from the non fuels business.
I wondered whether you can drive that higher. And if so, is it 50%, 60% and how do you plan to achieve that? And then finally, just if you don't mind reminding me how much of your gas production is linked to spot prices? How much contracted? And on the contracted portion, how does the pricing formula roughly work?
Thank you.
Regarding our 2025 target, what you see already that we have achieved already in June the 500,000 barrel. So next year, as I mentioned before, we'll go beyond the 500,000. This would include already Nevada and this would include the increase of production partially in Malaysia. But in Malaysia, as you know, we are producing right now around between 13,000 barrels per day. So we will go up next year beyond 30,000 BOE.
And the target for Malaysia is until 2023, 2024 to go beyond 60,000 barrels per day with the current portfolio, which does not include any exploration success neither in Malaysia nor in Mexico, where we have some good prospects and leads with Sapura OMB. Another reason is Achimov, we will close the deal until end of the year, beginning of next year. This would deliver also a plateau production until 2025, 2026 of 80,000 barrels per day. And if you make the math where we are right now, 500,000 and with Nevada in the first step in Malaysia will go beyond 500,000 and plus 70,000, 80,000 from Achimov and then more than doubling from next year's production, we expect in Malaysia at 30,000 to 60,000 or beyond 60,000. We are easily already at the 600,000 barrels per day.
So if in addition, Neptun will come on stream and what we expect right now, if we take FID next year, Neptun will come on stream around 2024, 2025. This would mean another 70,000 barrels per day. So Neptune for us, we see already as an upside. We would achieve the 600,000 most likely without Neptun.
And you don't see many declines in your portfolio?
We assume also the guidance that what I have not mentioned here is that we see some potential in other areas. And of course, this is already included, but what we have not what I have not mentioned is, for example, in the Fora, If we develop the Fora field in Libya, so this will bring additional barrels there. We have a discovery in Norway, which we will bring on stream. I'm not talking about wasting because misting would take maybe a little bit longer, harder than the year is, which we can easily bring on stream before 2025, which is not in this calculation, which would cover the decline.
Thomas, making reference to your question about the retail business. We don't have any target setting about a share we would like to have as nonfuel business. But I would like to work on elaborate your question a little bit further to give you some information what is really going on. On the one hand side, we have some activities where we would like to increase the share on nonfuel business. We have in the we have a very strong interest, especially as we talk about the OMV stations, where to change them more and more into service stations.
So which means that besides the shopping business, we have an interest also to introduce something like banking business or that you can sign for your car insurance, for example. And we have lots of partners knocking at our door that they would like to cooperate with us, especially taking the change on happening in the mobility that also one of the other e car will stay for 20 minutes recharging the battery, the average time staying in our job is increasing and then the business might increase as well. So it's the upside potential. The upside potential for fuel business is coming from our discount stations. And what we are heavily investing now are discount stations as this is a very successful business model we have introduced in the Southern German market, for example, with incorporation with Aldi and Hofer in Austria.
We also would like to expand this as a business model towards the Eastern European countries. And this will, of course, increase our fuel business in retail and commercial. So all in all, on both sides, we do have an upside to increase that business. As it is a very profitable business, it comes more in the focus of OMV also to spend further money in that business segment. I regret that I can't give you more specific information about gas prices in our contractual formulas.
We have secrecy agreements. I only can say that 40% of our contractual agreements are linked to European hub prices. And when I say European hub prices, I'm talking about different hub pricing from TTF, MBP to SEK, you find it all in our contracts, but I can't give you any more information about the pricing formulas. And I hope on your understanding.
Thank you very much.
The next question is from Bertrand Rote, Kepler Cheuvreux.
Yes. Hello. Thank you for taking my question. I got one left. Looking at your Slide 13, where you're making a bridge of the upstream operating performance.
When we look at production, it was up Q on Q by 16,000 barrels per day, that's roughly plus 1,400,000 BOE. Then we understood that you recovered from the under lifting of Libya volumes in Q1. So that's another 11,400,000 BOE. Sorry for the long calculation, but and I noted that Q2 versus Q1, you mentioned plus €6,000,000 BOE in sales. Have you ended up in Q2 with an over lifting position so that we should assume that Q3 sales should be down with stable production?
Let me give you just the indication because if you take just Q2, then of course you see over lifting in terms of the number of liftings in Libya because we were catching up the liftings from the Q1. So in Q1, while still producing for a month, we were not able to do any liftings. So those liftings have been shifted into Q2. So therefore, there is proportionate in Q2 a higher number of liftings in Libya. Other than that, we do not expect that we have any disproportionate situation in Q2.
Okay. Sorry, but maybe I did not understand that you had 15,000 barrels per day of production in Libya in Q1. So that's roughly 1,400,000 BOE. And you indicated that Q2 versus Q1, your sales volumes is up $6,000,000 So I don't get it. There's a gap of $3,000,000 here.
Sorry, but I need to understand because otherwise, I will not be able to fix some of them.
That's fair. I think it's a very detailed questions. We look into that and get back to you or just hang
on one second. But just taking into account, we have Malaysia, we have Abu Dhabi, we have Aasta Hansteen, three areas that have not been fully ramped up in Q1 that came in with capacity in Q2. So there is a couple of effects also contributing to this increase.
Yes. Maybe more in detail. So Luevue is, of course, one reason why we had no production in the 1st 2 months where we started up in March, which was producing then beyond 30,000 BOE. Aasta Hansen, we had a delayed production start up. Aasta Hansen is producing right now or after 2 months also with 20,000 TE per day.
We had also some difficulties in New Zealand with our pipeline repair. So New Zealand is producing also since Q2 above or around 40,000 TEU per day. And what we ramped up also is UAE, which is producing right now, constantly around 22,000 BOE per day. So I think this is so we had a weaker Q1 and Q2 was then already including us the Huntsville, including full production in New Zealand, including full production in UAE, maybe this explains.
Okay. Thank you.
Good. Then with this, we are at the end of our conference call and would like to thank you for your attention and joining us today. Should you have any further questions, please contact the Investor Relations team. We will be happy to help you. Have a good day and goodbye.
Bye.
That concludes today's conference call. A replay of the call will be available for 1 week. The number is printed on the teleconference invitation or alternatively please contact OMV's Investor Relations department directly to obtain the replay numbers. You may now disconnect.