Welcome to the OMV Group's conference call. If you would like to ask a question after the presentation, you may now register your request by pressing the star one button on your telephone at any time during the actual presentation or during the question answer session itself. You should have received a presentation by email. If you do not have a copy of the presentation, the slides and the speech can be downloaded at www.omv.com. Simultaneously to this conference call, a live audio webcast is available on OMV's website. At this time, I would like to refer you to the disclaimer, which includes our position on forward-looking statements. These forward-looking statements are based on beliefs, estimates, and assumptions currently held by, and information currently available to OMV.
By their nature, forward-looking statements are subject to risks and uncertainties that will or may occur in the future and are outside the control of OMV. Recipients are cautioned not to place undue reliance on these forward-looking statements. OMV disclaims any obligation and does not intend to update these forward-looking statements to reflect actual results, revised assumptions and expectations, and future developments and events. This presentation does not contain any recommendation or invitation to buy or sell securities in OMV. I would now like to hand the conference over to Mr. Florian Greger, Head of Investor Relations. Please go ahead, Mr. Greger.
Thank you, Andrea. Good morning, ladies and gentlemen, welcome to OMV's earnings call for the second quarter of 2018. With me on the call are Rainer Seele, OMV's Chairman and CEO, Reinhard Florey, our CFO, Johann Pleininger, our Deputy CFO and in the board responsible for Upstream, and Manfred Leitner, the board member for Downstream. Rainer Seele will walk you through the highlights of the quarter and will discuss OMV's financial performance. Following his presentation, all four board members are available to answer your questions. With this, I will hand it over to Rainer.
Good morning, ladies and gentlemen. A warm welcome to our press conference, thank you for joining us. In the second quarter, we made significant progress in the implementation of our strategy by achieving important milestones. We generated, once again, a strong cash flow, our second quarter operating result increased versus last year, reflecting our portfolio changes and the more favorable oil and gas prices. Before coming to our business development, let me briefly review the external environment. In the second quarter of 2018, the Brent oil price rose for a short time to almost $80 per barrel, the first time since November 2014, and averaged $74 per barrel. This was 50% higher than the average during the same period in 2017.
The oil price strengthened due to the continuing strong compliance with OPEC production cuts, as well as ongoing supply disruptions in Venezuela and the U.S. decision to reinstate sanctions on Iran. European gas prices averaged around EUR 21 per megawatt hour, 26% above the same period last year. This increase was driven by the need to replenish storage levels following exceptional cold weather in February and March of this year. In addition, gas prices were supported by high Asian LNG price levels, as well as across commodity strength from oil, coal, and carbon prices. The OMV indicator refining margin was down 13% compared to the second quarter of last year, reflecting the strong upwards momentum of crude prices. Margins for naphtha and middle distillates increased, driven by strong global demand, partly offsetting weaker margins for gasoline and fuel oil.
Net margins for both ethylene and propylene decreased versus the previous year's quarter, mainly driven by higher feedstock costs following the crude oil price rally. butadiene margins were below the exceptional high level of the previous year's quarter, but increased significantly compared to the first quarter of 2018. Let me now briefly point out the highlights of the second quarter of 2018. Our clean CCS operating result reached EUR 726 million, up 10% versus the same period a year ago. The result was negatively impacted by the Petrobrazi refinery turnaround in the amount of EUR 35 million, and not yet realized intersegmental profit of approximately EUR 60 million in connection with the turnaround, hedging effects of minus EUR 124 million, and currency headwinds of around EUR 50 million.
OMV's hydrocarbon production rose by 81 kboe to 419,000 barrels per day compared to the last year's quarter due to the addition of Yuzhno-Russkoye to our portfolio. Compared to the first quarter of this year, our production slightly declined, mainly due to the seasonal demand in Russia and pipeline repairs in New Zealand. We successfully completed the planned full site turnaround at the Petrobrazi refinery without any significant incidents or LTIs. Investments in the modernization of the refinery over recent years now enable us to perform turnarounds going forward only every four years instead of every two years previously. The next Petrobrazi turnaround is planned for 2022. After the payment of a record dividend, organic free cash flow after dividends came in at EUR 88 million in the second quarter.
We will continue to focus on costs. Compared to the same quarter last year, we managed to decrease our production cost from 8.7 to $7.6 per barrel as a result of a higher production coupled with the successful implementation of our cost reduction program. In the last months, we made significant progress towards our strategic goals. In April, we closed the acquisition of the offshore concession agreement in Abu Dhabi. In May, we signed the agreement to divest our Turkish power plant, which marks the final step in our strategic target to reduce the exposure of the non-integrated power business.
In June, we closed the divestment of our Upstream business in Pakistan, and we signed an agreement with Gazprom for the extension of natural gas supplies to Austria until 2040. In July, we signed an agreement to divest our stakes in the Polarled gas pipeline at the Nyhamna gas processing plant in the North Sea. This gas infrastructure is not strategic for OMV, and its divestment will have no impact on OMV's production. The transaction is expected to be completed in fourth quarter 2018 and is subject to relevant approvals. I will continue with August, September, and October in our next analyst call, of course. I have to stop here. Let's now turn to our financial performance in the second quarter of 2018. The Clean CCS operating result increased by EUR 64 million to EUR 726 million compared to the second quarter of last year.
Upstream recorded a significant increase of EUR 189 million, supported by our portfolio changes in a more favorable oil price environment and partially offset by a weaker euro-dollar exchange rate. Downstream earnings declined by EUR 72 million due to lower refining and petchem margins, as well as the missing contribution from OMV Petrol Ofisi, which was divested in June 2017. In autumn of 2017, given that oil prices increased above our budgeted oil price and above market expectations for 2018, we decided to secure a certain level of cash flows and hedged below 50% of our oil production for the first half of 2018. The aim was to support the company's financial resilience by establishing a downside protection against lower prices and thus ensure cash flows for our growth strategy. Crude price rallied to unexpected high levels, and we could not capture the entire upside of the price increase.
Our 2018 oil hedging activity is weighted towards the first half of the year. In the second half of 2018, our hedging position will be substantially lower. We have hedged only half of the volumes compared to the first half of the year and at higher prices. For 2019, we do not have any oil hedges in place. Clean CCS net income attributable to stockholders slightly decreased to EUR 272 million due to a substantially higher tax rate. The clean tax rate amounted to 49%, 14 percentage points higher than in the second quarter of 2017. This was mainly driven by an increased contribution from the higher taxed Upstream countries in a higher oil price environment and a lower contribution from Downstream oil. In addition, the high tax rate reflects the negative hedging effects.
For the full year 2018, based on our oil price assumption of $70 per barrel, we expect the clean tax rate to be in the mid-30s. Clean CCS earnings per share were at EUR 0.83 in second quarter 2018. Let me now come to the performance of our two business segments. Upstream experienced a strong quarter driven by higher sales volumes in Russia and higher crude prices. The Upstream clean operating results substantially increased from EUR 259 million to EUR 457 million. Market effects had a positive impact of EUR 77 million compared to the second quarter last year. OMV's realized oil price rose by 32%, while the realized gas price decreased by 16%.
European and Russian gas prices increased compared to the same quarter last year, but the inclusion of Yuzhno-Russkoye in our portfolio led to a decrease in our average realized gas price due to the lower price level in Russia compared to the European market. Russian gas volumes amounted to 40% of our gas production in the second quarter of 2018. In second quarter 18, we recorded a hedging loss of EUR 124 million compared to a gain of EUR 17 million in the second quarter of 2017. In addition, the higher realized oil prices were partly offset by a weaker U.S. dollar. Compared to the same quarter last year, we improved our operations, resulting in an increased earnings contribution of EUR 105 million. Hydrocarbon production went up by 81, reaching 419,000 barrels per day.
Yuzhno-Russkoye contributed 98,000 barrels per day, slightly lower than in the first quarter due to the seasonal gas demand. Production in Romania and New Zealand declined, the latter due to the pipeline damage at the Pohokura offshore field. The pipeline was brought back in service and production restarted already in July. Hydrocarbon sales volumes developed in line with the increased production and amounted to 35.7 million barrels, an increase of 25% compared to the second quarter of 2017. Production costs were further reduced to $7.6 per barrel, down 13% versus the prior year's quarter. Depreciation decreased and had a positive impact of EUR 16 million compared to second quarter 17, mainly reflecting positive reserve revisions in Norway and Romania, partly offset by higher depreciation in Russia.
In Downstream, the Clean CCS Operating Result decreased by 72 million to EUR 338 million as compared to second quarter 17, mainly driven by Downstream Oil. The Clean CCS Operating Result of Downstream Oil declined by EUR 64 million to EUR 318 million, stemming from a weaker market environment and the missing earnings contribution from OMV Petrol Ofisi of EUR 44 million. OMV's indicator refining margin decreased by 13%, from $6 to $5.2 per barrel. The refining utilization rate was at 77%, similar to the previous year's quarter. The low utilization reflects the planned six-week turnaround of the Petrobrazi refinery and small-scale scheduled maintenance activities at the Burghausen refinery. Excluding OMV Petrol Ofisi, total refined product sales were at the same level as in Q2 17. The slight increase in retail sales volumes was offset by lower commercial volumes. On the back of higher feedstock costs, margins in both businesses decreased.
The earnings from our petchem business increased by EUR 4 million to EUR 55 million, despite lower ethylene, propylene, and butadiene net margins. Last year's second quarter result was negatively impacted by the turnaround at the Schwechat refinery. The contribution from Borealis to the Clean CCS Operating Result grew by EUR 12 million to EUR 106 million, supported by an income from a license agreement and healthy integrated polyolefin margins. The fertilizer market environment remained challenging. In Downstream Gas, Clean CCS Operating Results decreased by EUR 9 million to EUR 20 million. Natural gas volumes declined by 5%, primarily due to lower volumes in Romania and Turkey, partially offset by higher sales in Germany. The contribution from Gas Connect Austria declined by EUR 6 million. Let's continue with cash flow.
In the first half of 2018, the cash flow from operating activities amounted to EUR 2.3 billion, an increase of EUR 395 million compared to the first half of last year. This increase was driven by OMV's operational performance, a favorable market environment, and portfolio changes. Cash flow was also supported by positive net working capital effects due to lower receivables and an increase in supply liabilities. As a result of portfolio changes, we recorded in the first half of 2018 a cash flow of EUR 166 million, thereof EUR 146 million from the divestment of the upstream business in Pakistan. Cash flow for investing activities, excluding acquisition, showed an outflow of EUR 1 billion in the first half of 2018. This includes payments to the Nord Stream 2 pipeline project of EUR 141 million, of which EUR 60 million were paid in the second quarter.
We also paid dividends of EUR 693 million, thereof EUR 490 million annual dividends to OMV shareholders and EUR 45 million to hybrid holders. As a result, in the first six months, we reached a positive organic free cash flow after dividends of EUR 733 million. Cash outflow for acquisitions amounted to EUR 1.3 billion, reflecting mainly the payment of the transaction in Abu Dhabi. As a consequence, our free cash flow after dividends in the first half of 2018 was minus EUR 541 million. As presented to the capital markets day in March, we aim to have a yearly positive free cash flow after dividends. OMV's balance sheet remained very healthy and showed strong liquidity. Net debt increased by EUR 0.5 billion to EUR 2.8 billion, primarily due to the acquisition of the 20% stake in the two offshore fields in Abu Dhabi.
We further improved our financing structure by redeeming the EUR 750 million hybrid bond with a coupon rate of 6.75%, which was issued in 2011. In June, we issued a new hybrid bond of EUR 500 million with a much lower coupon rate of 2.875%. According to IFRS, the proceeds of the hybrid bond are fully treated as equity. On June 30th, 2018, the gearing ratio stood at 20%, well below our long-term target of equal to or below 30%. Let me conclude with the outlook for 2018. Throughout the first half of this year, we saw the oil price stabilizing at a level of around $70 per barrel. Based on this, we have decided to update the oil price forecast for the full year 2018 to $70 per barrel. We now anticipate average European gas spot prices for 2018 to be higher than in 2017.
We reconfirm our average yearly production of more than 420,000 barrels per day. Production from Russia is planned to contribute around 100,000 barrels per day. Production in Libya is forecasted to be at the similar level to that of 2017, which was roughly 25,000 barrels per day. Production in third quarter 2018 is expected to be lower than in the second quarter 2018, due to the planned annual maintenance in Russia, maintenance work in Norway, and the divestment of the upstream business in Pakistan, which produced approximately 7,000 barrels per day in the second quarter of 2018. To be honest, I don't see a real big impact on our profit development. Production in fourth quarter 2018 is expected to be strong, slightly higher than in the first quarter.
This will be driven by higher volumes in Russia due to the seasonal gas demand, the expected production start-up of Aasta Hansteen in Norway, and the two fields in Abu Dhabi. The announced acquisition in New Zealand provides additional upsides. Average production of the acquired assets in New Zealand is estimated to be around 30,000 barrels per day. Closing is expected in the fourth quarter of this year. In downstream oil, in the second half of the year, we expect the refinery utilization to increase significantly from 77% in the second quarter to above 90%. Furthermore, we expect a positive impact in our results following the realization of the intersegmental profit eliminated in the second quarter due to the Petrobrazi turnaround. We expect refining margins to be lower than in 2017 and petchem margins at the similar level to those in 2017.
In downstream gas, yearly sales volumes are projected to be higher than in 2017, and natural gas sales margins are forecasted to be at the similar level to last year. As I mentioned earlier, our hedging volumes in the second half of the year will be significantly lower than in the first half and at higher prices. 2018 organic CapEx is expected to come in at around EUR 1.9 billion. Thank you for your attention. We are now more than happy to take your questions.
Let's now come to your questions. As always, I'd ask you to limit your questions to only two at a time so that we can take as many questions as possible. Of course, you can always rejoin the queue for a follow-up question. The first question comes from Mehdi Ennebati, Societe Generale. Please go ahead, Mehdi.
Hi. Good morning, thanks for taking my questions. First question about the hedging. You say that the hedging impact will be much lower in second half than in the first half. Can you please be more precise by telling us or by providing us the price you hedged in the second half? I am asking that question because everybody underestimated a negative impact from hedging in the second quarter. There will remain some fear about the hedging for the second half despite the information that you provided us, unless you give us the price you hedged in the second half of the year. Second question regarding the New Zealand production. You said that the pipeline restarted in July.
Can you please provide us the production level in New Zealand in July, and can you also tell us if you are currently producing in New Zealand at, let's say, the level pre-pipeline issue, meaning roughly 18, 19 kboe? Thank you.
Okay, Mehdi. Thanks for your question for hedging. I know this is an important topic today. Rainer has given you some very important messages already in his speech. The first one is that there will be, from the oil hedges, a significantly lower volume. He talked about that there will be only half of the volume in there and also at higher prices. We will, of course, also from some tactical reasons, not be able to give you exactly hedging levels because that is something that is embedded in our total risk strategy, which we are, of course, looking into. We have given you, I think, a very good guidance in the sense that there will be a significant lower impact from that. However, what I personally cannot forecast is where the oil prices will move to.
We have seen the impact because there has been an extremely high increase and also not anticipated in that volume. What is important is that for 2019, we do not have any hedges in place. For the second half, we are seeing that there will be significant lower impact from that. There is one second aspect that I would like to give you as well. That is the impact on tax, because you have also seen that we have a tax rate, which is significantly higher in Q2, and part of that has been also due to the hedging, simply because there have been effects from that, from country by country effects, as well as from the specific effect of higher oil prices as such.
If you want to have an indication there, the impact from the hedging on the tax rate has been around 7.5% from the hedging. The other effects on the tax rate have come, of course, also from the effects in Petrom, with lower general results throughout the turnaround that we have there and some other small effects. We should also not forget that there has been an effect from FX also on the tax side. Answering your question about hedging, this is also an aspect that you should not forget, that also tax rate will improve when we have significant lower hedging effects there.
Thank you.
Mehdi, I will take your question regarding pipeline Pohokura in New Zealand. We had an effect of around 5,000-6,000 boe less production in the last weeks. The pipeline is now restored and is in operation again. We are ramping up the production right now, and just yesterday, we saw a production slightly above 17,000 boe per day. That's the production volume, what we have in our plans. Slightly above 17,000, that's what you can expect until the end of the year from our current assets. If we close the deal, that what we are assuming before year-end in Q4, then you will see an upside of another 30,000-31,000 boe per day in addition to the 17,000.
Perfect. Thank you very much.
Thank you, Mehdi. The next question is from Jason Gammel, Jefferies. Please go ahead, Jason.
Thank you very much, gentlemen. I just wanted to come back to hedging approach it more from a strategic standpoint. You did mention that you put the hedges in place for two reasons, that the price had went above your budget level and also to lock in some cash flow, which is quite understandable given that you knew you had the outflow for the Abu Dhabi acquisition. My question really is, on a move forward basis, how strategically will you approach hedging, just given that your free cash flow is so strong, the balance sheet's in good shape. Would you still look to lock in prices when you felt they had gotten above a level you felt was sustainable? Or do you think that the financial condition of the company is now strong enough that you might avoid the hedging markets? I'll leave it at that.
I think, Jason, the trend is crystal clear. We have burned our fingers a little bit in the second quarter, and we are not of that kind that we would like to have our fingers burned. We are going to reduce heavily in the third and fourth quarter, and I said to you that there are no hedges in place. I fully agree with you that the situation within OMV has changed as we speak about the strong balance sheet and the cash position and the cash flow, so that I don't exclude any kind of hedging activities. As I remember the discussions in our board meeting, the probability, I would say, is not very high. Okay? As we speak about hedging, a last guidance for Mehdi. Well, Mehdi, now look to the math.
In the second quarter, we have said we have hedged below 50% of the oil volumes. Then I have said it's only half in third and fourth quarter, in the second half of the year. What I can say is it's less than 25% in the second half of this year. This is just pure math. Yeah. The level is above the price level we have seen as a hedging effect in the second quarter. But the number, I think Reinhard doesn't want to release.
Okay. Thanks, Jason. Next question is from Joshua Stone, Barclays.
Hi, good morning. I've got two questions, please. Firstly, on Borealis. Very strong earnings results in the quarter, outperforming the indicator margins. You mentioned a license agreement income. Could you just say a bit more details around that? Is that an ongoing income we should expect? Are there any more potential license agreements in Borealis in the pipeline that could help earnings? Secondly, on the Upstream, if you could provide a likely exit production for this year, assuming Abu Dhabi and New Zealand close before the end of the year. Thank you.
Hi, Josh, this is Manfred. On Borealis, this was a one-time license income that had been accounted for in June in respect to a project that is currently going on in the U.S. Our share in that is EUR 12 million, and it's not a repeatable income. It's a one-time off.
The second question, you ask a very challenging one. What is the exit rate at the end of the year? If we assume that we close the deal in New Zealand, as I mentioned before, we would see around 30,000 BOE in addition to the current production. For UAE, for our assets which we acquired, SARB and Umm Lulu, we do expect to start a ramp-up phase in Q4. We expect an exit rate of around plus minus 10,000 BOE per day. Aasta Hansteen, we will bring on stream beginning of Q4. We will ramp up the production to the plateau production already at the end of the year, which is around 18,000.
If you add all this to the current production, what we see with 420, that's what we said, plus 30,000 from New Zealand, plus 18,000, 17,000, 18,000 from Aasta Hansteen, and another 10,000 from SARB and Umm Lulu. You can do the math by yourself, and you will see what will be the exit rate, what we are expecting end of the year.
Great. That's very clear. Thank you.
Thanks, Josh. Next is from Henri Patricot, UBS.
Yes, hello, everyone. Thank you for the presentation. Two questions from me. The first one on your following up on production, and on Libya and Yemen. Libya, do you see that the risk more to the upside or to the downside in your figure, given the recent developments around security and your outlook for the rest of the year? Secondly, I saw that there was some return of some production in Yemen in the quarter. Should we expect to see some ramp-up of that? Secondly, just on the asset swap with Gazprom, if you have any update on the timing and the progress there. Thank you.
Okay. Henri, I take the first two questions regarding Libya and Yemen. Libya, the current situation is the potential in Libya is 30,000 BOE per day. We are producing right now due to the shut-in of NC 186. This is part of the Sharara field we are producing right now, when we share 25,000 BOE per day. That's what we are also estimating at an average production until end of the year. The total potential in Libya right now is at around 30,000. If everything is going well, then we could achieve 30,000. As I said, our assumption is 25,000, which is in the same range as we have been producing last year. Yemen, we ramped up the production. You saw the effect already in Q2, a rather small one. The current production is at around 5,000 BOE per day.
That's what we are assuming that we will keep until end of the year if nothing is changing materially in Yemen. 5,000 in Yemen until end of the year from now on, 25,000 in Libya from now on, also until end of the year.
Henri, to my biggest regret, I cannot give you so much information about progressing asset swap for a very good reason. Yeah. We have a new situation in Norway when the energy minister raised some concern, which we have to understand better, and I think we need to have a dialogue between the three parties involved. The problem is not the energy minister. The problem is that our partners from Gazprom were very busy with the football championship in their country. Now they are in holiday season, and they are not available. Yeah. That's why I think we will make some progress starting in September.
Sitting together having discussion, then Henri, I will give you a better picture on our last conference call when we talk about the third quarter. I will repeat myself, both parties are committed to the transaction on the same level we have seen a year or two years ago.
Understood. Thank you.
Next is Thomas Adolff, Credit Suisse.
Morning. Two questions from me as well, please. One on the tax rate and another one just on Downstream inorganic spend. Just on the tax rate to clarify your comments made for the full year, you said mid-30s, which clearly incorporates the high level in Q2, and you said earlier on that 7.5 percentage points was linked to the hedges you had in place. It would have been otherwise in the low 40s. If you say mid-30s for the full year, that kind of implies low 30s maybe in the second half year. I wanted to understand why it's much lower than it is in Q2 adjusted for the hedges. Second question, just on Downstream inorganic spend, if you don't mind refreshing my memory, kind of new to the story again.
I believe in the past you did say that you are interested in expanding your footprint in the U.A.E., maybe through Ruwais or whatever it is. I wondered whether it's both for refining and petrochemical, i.e., the integrated facility, and if so, how imminent this is. Thank you.
Thomas, let me start with the tax. When I referred to the differences in tax rates, you correctly cited to the hedging effect that I brought, but I also said that there has been the effect of the Petrobrazi with the turnaround there that have been around 5%, and we had some FX effects, which I had also mentioned. Some FX effects, just to give you an example, that the Tunisian dinar depreciated a lot, which in total for the FX effect also had an effect of close to 3%. There is a quite significant one-time effect in the tax rate that we are seeing in Q2. The reiteration of what we said, that for the full year, we are seeing the tax rate at the mid-30s can be fully confirmed in that respect.
However, we also said we are confirming that in the context of our guided oil prices and gas prices. Of course, if you would have massive deviations there, then you would also see some effects there. This is something that we cannot predict at the moment more precisely than from the outlook that we are giving. I think in general, that should give you an idea how our portfolio, when it is balanced in a normal quarter between Upstream and Downstream, and where you see then the full impact of the effects that we are also in Romania, acting in a lower tax country, is then fully realized, and that gives us the return to these lower tax rates.
On the second question, inorganic CapEx in Downstream. In March, in the capital markets day, what we informed you was that we are earmarking EUR 5 billion until 2025 for that purpose. In the meantime, what we are doing is we are screening, obviously, the different options that are on the table. Is Abu Dhabi one of them? Yes, definitely yes. The second question, whether it's refining and petrochemicals, there would be a priority for us, and this is the rationale of moving outside of Europe to transfer our knowhow in operating project management, and others in refining and petrochemicals. This would be the first priority to find refining and combined petrochemical options.
Great. Thank you very much.
Next is Rob Poulin, Morgan Stanley. Please go ahead, Rob.
Hi. Thank you, gentlemen. Most of my questions I think have already been covered. Let's not rehash old ground. I did have two left. The first one is, I caught a nuance around this Q4 production comment that it would be slightly better than 1Q, despite the fact, of course, the Russian seasonality, and Aasta Hansteen being on, which you confirmed at the start of Q4. Are there some offsetting declines elsewhere that we should be taking into account? The second one, a little bit conceptual. Obviously, you mentioned the hybrid debt. Is that something you would consider doing more of going forward? Just for our understanding. Thank you.
Please take into consideration that in total, we even reduced our hybrid exposure on the financing side. We originally had EUR 2.25 billion in hybrids outstanding. We have repaid EUR 750 million, and we have replaced it by EUR 500 million. We are now at the level of EUR 2 billion. With that move, we have significantly reduced the interest burden from a level of 6.75% to a level of 2.875%. This is the way that makes also hybrid a more attractive area of financing for us. If we are talking about senior bonds or even facilities in which we can breathe, are still more favorable. My expectation is that the ratio between the senior and the hybrid will not dramatically change.
Both instruments are welcomed by us as the opportunity of some flexibility is there also regarding the tenure. It is also good to see that the acceptance, also taking into account our upgraded credit rating, where Moody's put us back on A level, on A-minus stable outlook level again, contributed to a very high demand for these kinds of instruments in the market.
Regarding the question regarding production in Q4, as I outlined before, the exit rate. The exit rate, once you add to this current production of 420 kboe, there's 30,000 kboe from New Zealand, Abu Dhabi 10 kboe, and Aasta Hansteen 18 kboe, we will land between 470-480 kboe. In some of those projects, we don't know right now whether we ramp up the production beginning of Q4, then you would see the full impact for the full quarter. In New Zealand, we don't know right now when we will have the closing of the deals. If the closing is already beginning of Q4, then you will see the 30,000 kboe for the entire quarter. If the closing is just mid of September, then you will see a minor effect on Q4. It's very difficult for us to give you now a really firm number for Q4.
That's why I referred before to rather the exit rate than to an average production in Q4. What we have to consider as well is that we will see some decline in our core countries, like in Austria and in Romania. In Romania, mainly because to there, the big discovery some eight years ago is now starting to decline. You will see a decline of 4%-5% in Romania from year to year, and around also 4%-5% in Austria. We can tell you a little bit more, I would say end of Q3, when will the project or the closing in New Zealand will be and whether the ramp-up in Abu Dhabi and Aasta Hansteen is as predicted right now.
Thank you very much for the color on both subjects.
Thanks, Rob. Next is Yury Koktanich, Deutsche Bank.
Yes, good morning, gentlemen. Two questions from me, please. First, very short on working capital move, which was somewhat counterintuitive given the rising oil price environment. I presume that most of the reversal in receivables can be explained by the gas payments from the first quarter. The question here is whether you used any securitization at all. That would be my first question. Generally, how we should think actually about the working capital going forward. The second question is on upstream in Romania. There was a news earlier in July that Romanian government decided to increase taxation for Black Sea gas production, and I can recall that there was a joint statement by OMV Petrom, LUKOIL, and ExxonMobil, that this will impact very negatively development of the industry in the country.
If you could just elaborate a little bit what this actually means, this negative development, how it will impact your plans to approve FID for Domino this year and how we should think about it going forward. Generally, if you could shed some light why the Romanian government has been so hostile towards the investors in upstream. Thank you.
Okay. Yury, let me take the question on net working capital. Your assumption is perfectly right. The clear majority is coming from the gas payments from first quarter, respectively from payment with payment terms that are therefore not counted directly as income already. These effects are the majority of that. Your second question was about whether OMV uses securitization or any instruments like that. Yes, of course, we also do that. This is something that we are doing that has in general an effect that over the year we can balance net working capital effects. In second quarter, there has been slight positive effect from that as well. Clearly, the main part was from the gas payments here. We should also see that in the context of hedging.
You all know hedging contracts are concluded at the end of the quarter, which means that this is not counted in that sense in second quarter, but in third quarter, when it comes to the conclusion of these contracts. This is a net working capital situation. We have a clear seasonality in net working capital in every single year, and this is very much to the gas cycle that we have with strong gas input in our storages in the second half of the year, and then output in the cold parts of the year.
Well, Yury, what I have discussed with Petrom is that they are still committed to take an FID in second half of this year. Was the recent development in Romania helpful to go for such an FID? Not at all. I agree what you have said. This was not the right framework we need to see. That's the reason why I think Petrom is now ready to further intensify the discussion with the Romanian government to find and agree on a framework which is sufficient to go for a positive FID. It's my understanding that both parties really want to go for an FID. I never heard that the Romanian government would like to diminish the attractiveness of their country for investors. To make a clear statement.
On the other hand, what we need is a stable framework with reliable and acceptable terms as we speak about taxes and royalties, and as we speak about the freedom to market the gas in Europe. We do have an interest that we are supplying as much as possible of the gas to the Romanian countries, because it's understandable that from a trade balance point of view, Romania doesn't want to import gas when they have so much excess gas in production. This is accepted. When we have supplied oil customers in Romania, we need to have the freedom to sell the gas abroad. This is a must. What I have learned is that now there will be another round to discuss the offshore law. Let's wait for better terms.
The terms right now, which I have seen in the last weeks, were not sufficient, but we are cooperating to find the right framework acceptable for both parties, for the government as well as for investors to go for a positive FID. The project is important for the country of Romania as well as for the investors.
Great. Thank you very much, Rainer.
Next is Matthew Lofting, J.P. Morgan.
Yeah, thanks for taking the questions. Morning all. Two things, if I could. Firstly, just coming back to oil hedging, probably following on from Jason's question earlier. I'd like to just better understand philosophically the underlying policy, if possible. Is it pure risk management, or were you looking to take a more risk-reward-based view on price versus the internal budget levels that you've been running? With that in mind, what should we expect on hedging from OMV on a medium-term basis? Are there, for example, any triggers that would lead you to think about hedging 2019 volumes between now and year-end? Second, downstream outlook for the second half of the year, refining and pet chems. Is there any scheduled maintenance embedded in the view for the rest of the year?
If you could also touch on how you're, to date, seeing demand trends evolve in the context of increased product prices. Thanks.
About hedging strategy, I think very straightforward in what we have in mind there. It is a means for risk management in order to protect the cash flows necessary for our growth strategy. If we put ourselves back some half year, three quarters ago, we have still seen quite low levels of oil price in the market with even lower expectations to come. That has been sort of the trigger, and of course, not for the first time, to take in a certain volume into hedges to make sure that if there would be a rather steep decline, that none of our efforts that we have in mind to capture good opportunities in the market to grow would be endangered. This is a clear protection topic. This has nothing to do with budgets. This has nothing to do with speculation.
This is more of a secure policy protecting the strategy that we have postulated forward. Of course, that has flexibility, and the flexibility is given by the circumstances in the market. If you have higher prices with higher turnovers, with higher cash flows running in, you have much less of a need to go into sizable hedging. Whereas I have to emphasize, we would never hedge more than 50% in this. We would never expose ourselves to real high risk in that. We have clearly given you also the implications that will even half that and for the longer run, there's nothing where we are taking a big bet on anything for 2019. This is how we do that from a strategic, as you call it, philosophical point of view.
Matt, only one sentence, and I repeat what I have said to Jason. Our appetite for oil hedges is extremely low.
Clear. Thanks. The downstream question?
On the downstream question, for the second half, there is no major turnaround planned in any of our refineries anymore. You will see if everything runs as planned, we'll have a very high utilization in the second half.
On the product demand, that's a bit trickier, but the first half of the year has been building up demand in our markets in each of those. I would even be inclined to say that the EUR 70 oil price is potentially limiting the demand growth, but it is not going to be demand-destructive.
Okay. Thanks all.
Thanks, Matt. We move to Christopher Kuplent, Bank of America Merrill Lynch.
Good morning, all. Two questions from me still remaining. Firstly, you reiterated once again that you expect the full-year free cash flow position to be positive. Just wondered whether you can remind us that that is after M&A spend, and I'm guessing also after working capital. If I'm wrong, please could you specify what kind of free cash flow definition you're using? The second question on Achimov again and your asset swap. If we take it that the deal will be closed before year-end, what kind of implications does that have on cash payments? Because as I can recall, the deal was effective 2017. Would you expect there to be a cash payment in, I suppose, Gazprom's direction if the deal indeed closes before year-end? Thank you.
Well, Chris, this was a very intelligent question. You try to extract a bit more for Achimov. Let me start with the free cash flow positive after dividends. It's also after M&A. The clear guidance is that we would like to finance the M&A transaction, the dividend and the investments, and after that, we would like to have a positive free cash flow after dividends. The Achimov cash payment. Well, you are talking about a cash payment. The structure of the transaction, I repeat myself what I said three years ago, there is no cash involved. There is no cash involved as we speak about the transaction, as we speak about the adjustments. We have agreed on the economic terms that a share of 24.99% in Achimov is equivalent to the shares we have published for OMV Norge.
This is more or less the economic structure. There is of course retroactively a compensation for investments done in Achimov and the cash flow of OMV Norge, which have an effect. From our point of view, today's point of view, given the fact that we have a little bit of a delay because of the concern raised by the Norwegian energy minister. In our plans, we don't think that in 2017, our cash position is being impacted by the transaction. In 2018, sorry, in 2018.
Okay. Understood.
It would be running into the numbers at earliest next year.
Right. Thank you.
Thanks, Chris. Next is Mehdi again.
Hi. Thanks. Just two follow-up questions, and just maybe a precision, Rainer, regarding the hedging. I also did the math. That's why my question was only about the oil price hedging. Two questions, please. The first one regarding Samsun Power Plant. Can you please tell us if the contribution on the yearly level is positive or negative at the EBIT level? This is just for model purpose. I am asking the question because, for example, this quarter, you were at roughly EUR 20 million against power EBIT, whereas the Gas Connect Austria contribution was EUR 20 million. Just would like to understand what could be the impact or what will be the impact from the Samsun Power Generation sale at your EBIT level. Another question regarding the CapEx. You keep your EUR 1.9 billion CapEx guidance unchanged for this year. You've spent roughly EUR 800 million, EUR 850 million in H1.
In terms of cash flow payment, should we expect a roughly EUR 300 million CapEx acceleration or CapEx growth in second half of the year versus first half? Thank you.
Mehdi, let me take Samsun. The years in Turkey, due to the impact of the authorities are very different. What I can tell you is that this year, there is not a significant operating result impact by Samsun, you will not see a significant reduction once we have sold the plant. On downstream gas, what did you want to go behind the EUR 29 and the EUR 20? That we have only a operating EUR 20 million operating result in the second quarter. If you then more or less take out the Samsun power plant, this will not have a real impact on the EUR 20.
The only impact is that we are currently not having any depreciation because, as you know, the plant is accounted for as asset for sale, this is producing to a certain extent the result, since we have impaired the plant already
Twice in the past, as well, that one is minor.
Thank you.
Mehdi, to your question of CapEx. There is, of course, a difference between the accounting CapEx and the cash flow CapEx. You were asking what is the impact on the cash flow, and we will certainly see that parts of the CapEx that is accounted in 2018 will be payable only in 2019. This only will be a minor part. This is what I can say. For the explanation of what is different between half one and half two, you have to take into account that there are additional investments that we have for our acquisition in Abu Dhabi, which of course, have not been there in first half, but will be there in second half, so therefore, the estimate of the EUR 1.9 is very plausible.
Thank you very much.
Good. Next is Michael Alsford, Citi. Please, Michael.
Hello. I must have been snoozing when I pressed my button for questions. Thanks for taking my two questions. Firstly, just wanted to touch on the E&P bridge that you kindly started with at the beginning of the call. Clearly, it shows that you're getting pretty close to your 500,000 barrel per day target for 2020. I guess one of the other little building blocks within that is Nawara in Tunisia, and I just wondered if you could just update us on that project and just remind us of the contribution net to OMV that should deliver. Secondly, on Nord Stream 2, clearly your commitment was, if I remember rightly, around EUR 950 million to that project.
I was under the impression that maybe some of that would have been financed through debt, I think that clearly is now off the table with the recent sanctions. I've heard that the potential route is a little bit longer and could cost a little bit more money. Just could you maybe update us as to exactly what I guess we should expect as to the cash out for that project from an OMV perspective? Thank you.
Hey, Mike, I would take the first question regarding Nawara. Nawara is on schedule, as we have announced in the last quarterly meeting. We said Q2 2019, Nawara will come on stream. This is still what we are planning, and what we are predicting right now. Nawara, we expect around 10,000 BOEs per day, additional production starting in Q2 2019.
On Nord Stream 2, project finance is not off the table because the discussions with the credit agencies are currently running. We will see how successful it will be, though. Maybe it's less than we have planned, but I think the finance is actually secured. On top of that, the EUR 9.5 billion, we do have reason to believe that we are comfortably within that project limit that we have given in the past as well. The EUR 9.5 is 100% figure, of course.
Okay, thanks.
There are two more questions. Next is Thomas Adolff, again, Credit Suisse.
Sorry, guys. Two more from me as well. Just wanted to better understand what you've done with the refinery maintenance cycle, moving from two years to four years. What exactly happened there, and why didn't you do it in the first place? Then secondly, just on your petrochemical guidance you've provided, I'm more interested ex Borealis. What sort of feedstock flexibility do you have in your system? Do you have some LPG flexibility? If so, how much? I'm just trying to better understand the profitability and the impact it may have from this oil price. Thank you.
What we have been doing during the last couple of years is to replace more or less those units and that equipment that would obviously been already in a pretty old shape or technically not at the latest stage. This turnaround was now the final step to come to a situation where we believe it is actually reliable to say that we can go from two to four years. What are you doing there? What we have replaced is a lot in the fluid catalytic cracking unit, for instance. We have replaced materials. In other parts, you have to replace all the piping and all that kind of things in order that you can run without any problems for a period of four years.
The second one, this LPG flexibility, I would differentiate between OMV here and Borealis, because Borealis is having such an LPG flexibility to a certain extent for their crackers in Northwest Europe. OMV is not using LPG as a feedstock. What we are doing is we are using naphtha and gas oil in our furnaces.
Okay, you're not looking to do something similar to what Repsol has done in the past, whereby with some investment, you increase the feedstock flexibility to the tune of 30%. Makes sense, no?
No, we are not investing into that, and one of the main reasons is that we are selling a lot, that we have already in the past gone for optimization of the whole feedstock and product equation, if you want. LPG is something which we are producing to a certain extent, of course, LPG, but it is going automatically into the cracker. We do not go for an increase by third-party purchases for LPG, because this would have an impact on our value chain, which would actually not pay off.
Okay. Thank you.
Okay, now we come to the final question, Bertrand Odde, Kepler Cheuvreux. Please go ahead, Bertrand.
Yes, thank you for taking my question, just a housekeeping one. On your OpEx in upstream, they are down 13% year-over-year from 8.7 to 7.6. Benefiting, I guess, from a big part from the inclusion of Yuzhno-Russkoye. Can you disclose whether your OpEx were down excluding the impact of Yuzhno-Russkoye?
No. We are not disclosing OpEx reduction on a project level, on a single country level, yeah. This would be the case if we would give you this information. That's what we're not doing. We are giving the average reduction costs, which we brought down from 8.8 to 7.6. What I can say is the major effect is coming from Yuzhno-Russkoye.
Okay, thank you.
Good. With this, we are at the end of our conference call. Thank you all for joining. If you have any further questions, please contact the Investor Relations team, and we will be happy to help you. Goodbye and have a nice day.
Thanks.
That concludes today's teleconference call. A replay of the call will be available for one week. The number is printed on the teleconference invitation, or alternatively, please contact OMV's Investor Relations department directly to obtain the replay numbers. You may now replace your handsets.