Welcome to the OMV 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. 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. Therefore, recipients are cautioned not to place undue reliance on these forward looking statements. OMV disclaims any obligation and does not intend to update these forward looking statements to reflect actual results, revised assumptions and expectations and future developments and events. This presentation does not contain any recommendation or invitation to buy or sell securities in OMV.
I would now like to hand the conference over to Mr. Florian Krieger, Head of Investor Relations. Please go ahead, Mr. Krieger.
Yes. Thank you, Stacey, and good morning, ladies and gentlemen, and welcome to HomeV's earnings call for the Q4 2017. With me on the call are Reinhard Wehle, HomeV's CEO Reinhard Flori, our CFO Hans Kleininger, the Executive Board Member responsible for upstream and Hans Freit Leissner, the Executive Board member responsible for the downstream segment. Rainer will walk you through the highlights of quarter and discuss OMV's financial performance. Afterwards, all of our board members are available to answer your questions.
Before we start the presentation, I would like to invite you to our Capital Markets Day, which will take place on March 13 in London. The Executive Board will provide you with an update on these strategic developments and its ambitions for growth and performance going forward. And now, I would
like to hand it over to Rainer. Yes. Good morning, ladies and gentlemen, and thank you for joining us today. When I look back, 2017 has been an outstanding year for OMV. We were able to deliver a very strong operational performance throughout the year and this is clearly reflected in our financial results.
Let me start by reviewing the economic environment at the last quarter of 2017. The crude prices rallied strongly in the Q4 of 2017 with Brent averaging $61 per barrel. On the back of continued demand growth, strong OPEC compliance and several supply disruptions in Norway and the United Kingdom. Geopolitical risk, particularly in Saudi Arabia, Iran and Libya also supported prices. On average, gas prices were 16% above Q3 2017 and 11% above the same period last year, given the colder than average weather as well as several unplanned supply disruptions such as the 40s pipeline shutdown in the North Sea.
The refining indicator margin was down 19% compared to Q3 of 2017, reflecting the strong upward momentum of the crude price. In the Q3, margins were also supported by supply outages caused by Hurricane Harvey in the Gulf of Mexico, The most significant decline compared to the previous quarter was in gasoline due to a lower demand from North America and the weaker West African market. Heavy fuels also dropped from outstanding high crack levels. Margins for both ethylene and propylene fell versus the previous year quarter. Higher prices could not compensate for recovery in oil prices.
Butadiene margins declined as well. Prices remained stable compared to the Q3 of 2017 as a result of a rather balanced market in Europe. So let's talk now about the financial highlights of 2017. It was a year of transformation and we have seen a strong delivery from both business units. Clearly, I can say that we continue to execute our strategy successfully.
The strong operational performance is reflected in our full year financials. OMV achieved its highest earnings in the last 5 years. The Clean CCS operating result doubled versus 2016 and all this was accomplished at an average Brent price of $54 per barrel. Compared to a similar market environment in 2015, the Clean CCS operating result increased by 70%. Reflecting our strong
percent. Reflecting our
strong operating results, clean CCS
earnings per share rose to roughly €5 per share. Very impressive is the development of OMV's free cash flow. Since 2 years, we had a strong focus on cost and profitability. Together with our active portfolio management, we could substantially improve our cash flow. In 2017, we delivered a free cash flow after dividends of €1,000,000,000 Thus, 65 percent higher than 2016 €1,600,000,000 higher than 20 15.
This illustrates the strong cash generating capability of our adjusted portfolio with each business division pursuing a strategy of operational excellence and value generation. As a consequence, we managed to further decrease our cash flow breakeven oil price to $25 per barrel. In our benchmarking, this is the lowest among all our European peers. Before I explain the details of our business performance, let me briefly point out the highlights of last quarter of 2017. Our hydrocarbon production stepped up to 377,000 barrels per day, which is the highest in OMV's history.
The main highlight of the quarter was certainly the acquisition of the 25% stake in the Russian gas feed, Usnurus Koye. The closing of this Landmark transaction is a further important milestone in successfully pursuing our corporate strategy. Our stake in Eusen Russkoye adds 100,000 barrels per day to OMB's production and additional recoverable reserves of 580,000,000 barrels. Considering the important contribution to our production profile, Russia has become a new core region in our upstream portfolio. In 2017, we achieved a 1 year reserve replacement rate of 191%, the best since 2007 and the 2nd year in a row above 100%.
The main contributors were the acquisition in Russia, drilling and development projects in Norway, better performance in Romania and the contribution from Per Petroleum. Our 3 year average reserve replacement rate increased from 70% to 116%. Following the strategic goal to focus on our core activities, ONV Patron finalized the sale of the Duvalentu Wind Park in Romania. We also made progress in expanding the alternative mobility offer to our customers. In December, we closed the acquisition of a 40 percent stake in Smartix, Austria's leading e mobility provider.
In addition, we signed an agreement with Uniti, a joint venture of automotive companies aiming to build 400 high power charging stations with various partners by 2020. OMV will be the location partner for Austria, the Czech Republic, Hungary and Slovenia. Strict cost management measures throughout the entire organization led to savings of €330,000,000 in 2017, €80,000,000 more than our target and €130,000,000 more than in 2016. Our production costs stayed below $9 per barrel. Thus, we further improved our competitiveness of the upstream business.
Last but not least, we will further increase our dividend in line with our progressive dividend policy. We will propose a dividend per share of €1.50 to the Annual General Meeting. Let's now turn to our financial performance in the Q4 of 2017. Our Clean CCS operating results increased by 67% to €688,000,000 compared to the same quarter in the previous year, supported by substantially higher upstreams results. Clean CCS net income attributable to stockholders rose from €153,000,000 in the Q4 last year to €367,000,000 in the same quarter of 2017.
The claim tax rate amounted to 28%, 15 percentage points lower than in the 4th quarter 2016. The higher tax rate in the prior year quarter was mainly driven by the increase of the valuation allowance for deferred taxes of the Orsen tax group and additional tax expenses from the Turkish tax amnesty. Clean CCS earnings per share more than doubled from 0.47 dollars in Q4 2016 to €1.12 in the Q4 of 2017. OMV's group reported operating results in the Q4 2017 came in at €631,000,000 significantly above the previous year quarter. Net special items were €115,000,000 compared to minus €601,000,000 in the Q4 of 2016.
The negative net special items recorded in 4th quarter 2016 were mainly attributable to impairment due to the divestment of OMV Patalofisi as well as to impairments of the Samsung power plant and the ATSO gas storage facility. The 4th quarter of 2017 was negatively impacted by unrealized hedging losses in upstream and a provision booked for the Gate LNG obligation. Reported net income attributable to stockholders increased from minus €378,000,000 in the Q4 of 2016 to plus €311,000,000 Earnings per share rose according lead from minus €1.16 in Q4 2016 to plus €0.95 in the Q4 of 2017. Let me now come to the performance of our 2 business segments. In Upstream, the clean operating results substantially increased from €91,000,000 to €344,000,000 This was primarily driven by a more favorable market environment as well as higher sales volumes in Libya.
Market effects contributed €105,000,000 Higher realized oil and gas prices were partially offset by a weaker U. S. Dollar. OMV's realized oil price rose by 23% and the OMV realized gas price in euro per megawatt hour increased by 18%. In the Q4 2017, we recorded a hedging result of minus €27,000,000 compared to minus €33,000,000 in the Q4 of 2016.
We continue to improve our operations, resulting in an increased earnings contribution of €129,000,000 compared to the same quarter last year. Hydrocarbon production went up by 63,000 barrels per day, reaching 377,000 barrels per day. Libyan production increased to 32,000 barrels per day and Russia contributed from the first time 36 1,000 barrels per day. As we closed the transaction on November 30, 2017, only 1 month
of Yushner Ruskoye was included in our production figures. Accounted for
the full year, Yushner Ruskoye adds 100,000 barrels per day to our production. Hydrocarbon sales volumes amounted to 33,000,000 barrels, 15% higher than in the Q4 of 2016. This was mainly attributable to the new contribution from Russian gas sales in December and liftings from Libya. The clean operating result was negatively impacted by higher exploration expenses, primarily due to write offs of exploration wells in Romania in the amount of around €50,000,000 Overall, costs were lower. Depreciation went down by €19,000,000 reflecting a decreased asset base and positive reserve revisions in the Q4 of 2017.
As the Q4 is the 1st quarter to include Yuzhno Russkoye, let me briefly give you some more details about the organizational structure and the financial impact of our stake in Eusnourus Koye. OME holds 24.99% in the operating company 7 Eftegasprom or in short, SNGP. Other shareholders are Gazprom and Wintershall from Germany. In addition, OMV holds 99.99 percent in the trade the gas to Gazprom under a take or pay agreement, 50% of the volumes are indexed to the Russian domestic netback price and 50% are based on the German netback import price. SNGB is at equity accounted.
This means OMV's share in SMGP net income is shown in OMV's operating results. The trader is fully consolidated into OMV's financials. Upon closing of the transaction on November 30, 2017, the 2 entities, SMGP and the trader, have been reflected in OMV's financial and operational statements. The two entities contributed €16,000,000 to OMV's consolidated net income in 2017. As the transaction was retroactively effective as of January 1, 2017, OMV is entitled to the 2017 dividends.
The dividends from the operating companies company were already paid and the dividends from the trader will be transferred in 2018. In total, for the fiscal year 2017, we expect dividend payments for Eusharu's Koye of €160,000,000 Going forward, we expect dividends to increase compared to 2017. The Downstream business continued to be a key contributor to OMV Group earnings and cash flow. With €356,000,000 the Clean CCS operating result of downstream was almost at the level of the previous year's quarter. A higher result from downstream gas partially compensated for the missing earnings contribution from BOEMV cash flow of EASI.
The clean CCS operating result of downstream oil declined from €333,000,000 in Q4 2016 to €311,000,000 retail earnings and lower fixed costs partially compensated for the missing contribution of OMV PetroloFISI, which was €32,000,000 in the Q4 2016. OMV's indicator refining margin was almost flat at 5 $700 per barrel. The refinery utilization rate was 92%, slightly lower than in Q4 2016 when we built inventory to prepare for the Schwechat refinery turnaround. Excluding OMB Petrolphysi, retail volumes and margins grew slightly, whereas commercial sales volumes and margins came down compared to the Q4 of 2016. The contribution from petrochemicals decreased from €53,000,000 to €37,000,000 in Q4 2017 Despite a slight increase in petchem margins, the drop in earnings was caused by an unplanned shutdown of the Schwechat steam cracker.
Borealis contributed €94,000,000 which was €8,000,000 higher than the same quarter of 2016 due to higher results of boroughes and lower fixed costs. Announced in gas, the claims CCS operating result increased from €29,000,000 to €45,000,000 The previous year's quarter was impacted by mark to market valuation effects. The contribution of Gasconet Austria decreased by €9,000,000 to €21,000,000 mainly because of the change in regulated tariffs at the beginning of 2017. Natural gas sales volumes rose slightly to 31 terawatt hours due to increased sales in Germany, Austria and Turpin. The Power business recorded higher electric output and improved spark spreads in Romania.
The good performance of our business segments was also a result of our ongoing strict cost discipline. At $8.8 per barrel in the Q4 of 2017, production cost declined 15% compared to the Q4 of 20 due to higher production coupled with the successful implementation of our cost reduction program. The full impact of Usnabruckoie, which has very low production curves, is now reflected in our 2017 figures as we closed the transaction just before year end. In the Q4 of 2017, the capital expenditures excluding Yuzhno Russkoye acquisition amounted to €548,000,000 thereof 352,000,000 in upstream and 100 and €86,000,000 in downstream. For the full year, we recorded total capital expenditures excluding Usher's Koy acquisition of €1,700,000,000 less than in 2015.
With the cost savings of €330,000,000 we substantially overachieved our target of €250,000,000 in 2017 versus 2015. The significant part came from the savings in procurement and efficiency improvements in our operations. The target overachievement was a result of the strict cost discipline of our employees throughout the entire organization. Let's now come to cash flow. In the Q4 of 2017, cash flow from operating activities amounted to €742,000,000 Cash flow for investments showed an out flow of €579,000,000 for the same quarter.
This includes another drawdown under the financing agreement for the Nord Stream 2 pipeline project in the amount of approximately €45,000,000 In the same period, we also accounted cash outflow for acquisitions of €1,600,000,000 following the closing of the Yuzhno Russkoye transaction. Looking at the full year 2017, OMV generated an operating cash flow of €3,400,000,000 an increase of 20% compared to 2016. As a result of our portfolio changes, we recorded net divestments of 100 and €85,000,000 The cash inflow from divestments amounted to €1,800,000,000 with approximately 9% of the amount from the 2 major portfolio changes, the sale of the OMV Upstream in the U. K. And the sale of OMV Pathalofees in Turkey.
For the full year 2017, the cash outflow for acquisitions amounted to €1,600,000,000 Cash flow for investments amounted to €2,000,000,000 and included financing the Nord Stream 2 project of €324,000,000 In 2017, we also paid total dividends of €668,000,000 This means, ladies and gentlemen, that in 2017, we generated a free cash flow after dividends of €1,000,000,000 65% more than 2016. As of year end 2017, OMV's net debt increased from end of September 2017 by €1,600,000,000 to €2,000,000,000 due to the acquisition of Usen Russkoye. Despite the acquisition, we were able to reduce net debt by €1,000,000,000 compared to the end of 2016. Cash and cash equivalents decreased from €4,600,000,000 in Q3 2017 to €4,000,000,000 OMV's balance sheet remained very healthy and showed strong liquidity. In order to take advantage of attractive financing conditions and ensure financial flexibility, in December 2017, OMB issued a €1,000,000,000 international bond with a coupon of 1% maturing in 2026.
The cash will be used according to our strategic capital allocation priorities, capital expenditures, strategic acquisitions, dividend payments and reduction of debt. The gearing ratio increased to 14% compared to the end of Q3 2017, comfortably below our long term gearing ratio target of max 30%. Ladies and gentlemen, OMV is committed to delivering an attractive and predictable shareholder return throughout the business cycle. According to our progressive dividend policy that we announced last year, we intend to grow the cash dividend going forward. As already mentioned for the fiscal year 2017, we proposed a dividend of €1.50 per share to the Annual General Meeting.
This is an increase of 25% compared to the previous year's and marked a new record in OMV's history. Let me conclude with the outlook for 2018. At the beginning of this year, we saw an oil price reaching the $70 per barrel mark for the first time in more than 2 years. For the full year 2018, we are forecasting an average oil price of $60 per barrel, average European gas spot prices are anticipated to be on the similar level compared to 2017. CapEx is projected to come in at around €1,900,000,000 with upstream CapEx at around €1,300,000,000 These figures exclude acquisitions.
OMV expects a total production of 420,000 barrels per day. Production from Russia is planned to contribute around 100,000 barrels per day and Libya is anticipated to be at around 25,000 barrels per day, similar level to 2017. Exploration and appraisal expenditures are expected to be €300,000,000 Refining margins are projected to be lower than in 2017. Pac Chem margins are forecasted to be at the similar level compared to 2017. In OMB's markets, retail and commercial margins are forecasted to be on the similar level as in 2017.
The utilization rate of the refineries is expected to be above 90% in 2018. This includes the planned full site turnaround at the Petrobras refinery scheduled for approximately 6 weeks in the Q2 of this year. Natural gas sales volumes are projected to be higher in 2018 compared to 2017. We expect that the clean tax rate for the year 2018 will be in the high 20s excluding impacts from M and A projects. OMV will continue to finance the Nord Stream 2 pipeline project subject to the progress of the project financing from the capital markets.
One of the milestones in 2018 is the closing of the asset swap with Gazprom, which is expected to take place by end of the year. Thank you for your attention. Now my colleagues and I are more than happy to take your questions.
Yes. Thank you, Rainer. I would like to open the call for questions and ask you to please limit your questions to only one at a time, so that we can take as many questions as possible. Of course, you are always welcome to rejoin the queue for a follow-up question. The first question comes from Mehdi Ennebati, Societe Generale.
Please go ahead Mehdi.
Thank you, Florian. Thanks. Hi, good morning, all of you. So just would like to know maybe regarding the additional payment that you could do to Gazprom this year in 2018 related to Nord Stream 2, sorry. Can you tell us what could be the maximum payment?
And if you expect it to be reimbursed after the closure of the project financing with the capital markets? And maybe just another small question regarding the EPS trend. So you have been able to materially improve your EPS those last 2 years. Now given that you've sold a Petrolophusy, which was positively impacting the EPS and given that you expect a Dunois trend in the refining margins, do you still think that you will be able to grow the 2018 EPS versus 2017? Thank you.
I think, maybe the first question was on Nord Stream. I think the connection isn't very good.
So your question was on Nord Stream.
Yes. I can repeat it. Okay. So just can you tell us what could be the maximum payment that OMV will do to Gazprom this year if Nord Stream 2 is not able to find to finance itself through the capital markets?
Yes, Maxi, just to answer that, you know that in 2017, we have spent €324,000,000 on Nord Stream 2. And there is no maximum amount for 2018 because we will be financing in accordance with the progress of the project. At the same time, there will not be and there has never been plans that any project financing will kick in already in 2018, but only in 2019.
Okay. Thank you.
And the other question was on the EPS development, Maxine.
Yes.
The question was whether you would see a further increase in earnings per share. If you look at the earnings per share development as such, we are of course looking at that very much from our operating result and then from the tax rate that we are seeing. So if you look at it in total, we are expecting that, of course, with the oil prices slightly increasing compared to 2017. On the other hand, the downstream side being affected by slight decreasing refining margins, then we would see a roughly same level of activities there. Of course, this depends very much on the volume development, which we cannot entirely foresee.
From tax situation, you will see that some of the tax laws carry forward will be depleted in 2018. So tax rate might rise for 2018 compared to the 25% that we had in 2017, by the way, exactly what we had predicted. So in that sense, hard to progress as we are not guiding on the EPS 2018 right now. But in the same ballpark or slightly lower, it's probably something that you could put into your models.
Mehdi, when I was listening to Reinhard, yes, one thing is obvious. Too many question marks left that we can give you a clear guidance on the EPS for 2018, yes? So give us a little bit more time how the numbers are kicking in. And during the year, I promise you, you will get a better answer from us.
All right. Thank you very much.
Thanks, Mehdi. The next question is from Hamish Clegg, Bank of America Merrill Lynch.
Good morning, guys. Another impressive result. A few quick ones for me. Wanted to check on just what your organic reserve replacement would have been without the deals and if you confirm to us your 1P and 2P resource base so we can better understand that. And leading on from that, there have been a few headlines this morning, just reading in the press during the call even about potential M and A.
If you could maybe update us on the situation, particularly in Abu Dhabi and what the sort of scale of that could be? Secondly, on Gazprom, I know we're still waiting on the Achimov side of things. Could you confirm just for the more ESG minded people what the corporate governance issues actually are with Gazprom? And finally, in line with the sort of ESG angle, could you explain to us this metrics and your renewable strategy? Is this really just keeping up with your peers doing a few things?
Or do you honestly see this as a cash contributing business line?
Well, Henry, thank you for the last question. Yes, Mansfield is more than happy to answer this. He is our Smatrix expert on the Board. I take the 2 easy ones, Abu Dhabi and Achimov. And Hans will then give you an idea about the organic reserve replenishment.
Well, in Abu Dhabi, it's very obvious that we do have an interest to increase our activities in Abu Dhabi depending on opportunities which might arrive. Which opportunities might arrive? I don't want to speculate with you. But what I can say is that OMV is targeting and we will elaborate more on this strategic idea that we are about an integrated corporation model with our partner ADNOC than a purely asset based production model. So that's the reason why we have signed in May last year an agreement with ADNOC that we jointly elaborate opportunities to work together also in downstream.
So this is more or less in our focus. How long it will take? Oh, Amish, what I have learned in the region And that's why I hate to wait, but I think I have to show more patience. But what I can say is during the year, we would like to have during the year 2018, we would like to have a clear picture on Abu Dhabi. I think we will get this.
The Achimov transaction, well, one thing is for clear, we have sit together and we have to decide how we would like to work in the 2 companies. In the development of the Achimov reservoirs and in Norway where we do have the existing business. The main questions we are discussing how many managers we can send into the companies in Siberia, how many managers they can send into our company in Norway, What is the business model we will have in mind? What is the business plan we would like to agree on? What is the development plan and so on.
So all these type of questions we have to find an agreement together with Gazprom. And one thing is for clear, I would like to have a big influence in Russia and I would like to avoid a big influence of my partner in Norway. And this is describing the conflict we have to solve together and it's taking time. But we have in our master plan, the milestones that within the year, we are going to solve the issue and we are going to start the application for the necessary approval to Norway as well as in Siberia. And we are planning that the approval process will take some several months.
We don't have any experience so far how long the approval process will take, but this is what we have in our plans. And following that schedule, we are targeting to close the swap transaction at year end. So now I look to my colleagues who is smiling more. This is a smart tech smile.
Coming to your question on our alternative fuels strategy, first of all, what we experienced last year was a significant increase in the demand for diesel in our market and gasoline was more or less stable. I think this is something which already gives you a certain idea whether we see that as a new business segment that we're building up or whether we just what we are really actually having in mind is to offer our customers a broader alternative fuels offer at our stations to make them more attractive not to fall back behind competition. And that's the main topic that we are having because what we need to obviously prepare for is an increase in the electoral mobility. This is coming. SmartRx is the in Austria at least, the most comprehensive provider of electromobile services.
And if you see for instance the joint venture that has been mentioned by Rainer before the TONETY where this is going exactly into the direction that we like to see. The car producers are joint venturing in order to invest into stations. Investing to our stations is better than to invest in the stations of our competitors. And at the same time, Matrix will play a role here, because they will have the power management at their station, so that we get the synergy out of that on top of it. But I can reconfirm that we are not building up, not for this time being a new business segment that is called alternative fuels.
So to be very clear, it's about sustaining your market share in the retail business, correct?
Exactly, exactly. I mean, we have what we have done is, for instance, on the fuels on the fossil fuels to be specific, we have increased our retail sales volumes last year by 5%. And this is more than the market growth. So obviously, we have increased our market share even before falling back on the support of the mobility.
Very clear. Thanks so much.
Hamish, I will give you 2 figures on reserve replacement rate, but I will not disclose all the details because as you might know, reserve replacement rate is driven by, on the one hand, revisions in our existing fees, projects, new projects coming on stream like Navara, Aasta Hansteen, Neptune, where you can expect more in the upcoming future, E and A activities and M and A activities, yes, but we don't disclose the figures on all those categories. What I can tell you is that our 1 year reserve replacement rate in 2017 climbed up to 191% And the 3 years average on proven reserve replacement rate went beyond 100 percent, exactly to 116%.
Okay. Well, Amish, one more comment. If you remember what we have said, what our replacement strategy in OMV is, we have reduced our E and A spending dramatically from a level of 700 to now last year below 300. So the contribution can't be of that level we have seen in the past. But we have clearly said that the major reserve replenishment in the next years will come by acquisition.
So that the organic reserve base is a small number compared to total number, which is fully in line with our new replenishment strategy.
Got it.
Next question comes from Josh Stone, Barclays.
Hi, yes. Good morning. It's Josh Stone here from Barclays. I've got a question on the dividend. I just wondered if you could talk us through your process assessing that, what sort of metrics you look You talk about attractive shareholder returns.
So I presume you're looking at dividend yield, but also perhaps maybe payout ratios. And just to answer, you talked about growing cash dividends. I also wanted just to confirm that means we should interpret the €1,500,000 a share being a floor. I do have a quick housekeeping question on gas realizations. I wonder if you could just say what those would have been in the quarter if you didn't have the Yuzhno volumes in the mix?
Thank you.
The
second part, we got.
The
first part you got so the second part was just on the gas realizations that came in at $5.1 I want to see what those were if you excluded the production from the Yuzhno assets?
You are talking about the realized real estate
price without huge no. Okay.
Dividend. Okay. Josh, on the dividend. First of all, of course, in the consideration for the proposed dividend of 1.5, we kept exactly to the dividend policy that we have given out, which means that we looked at our free cash flows and our net income and both have clearly improved. But then it is very much about the strategy that we have that we gradually increase the dividend payment, which means that with the environment that we are in, with our abilities, given for instance in 20 17, we had the chance to finance all our acquisitions more or less from the divestment part and entered into a very good free cash flow situation, this gave us the room for even larger increase from 16% to 17% than from 15% to 16%.
However, it stays what we say our intention is to keep the dividend in a rising level. We have not said 1.5 is the floor, but the intention is clearly to see that we are in a position to live up to that dividend policy that we have and all our strategic plans that you will hear about on March 30 are in line with that.
Well, Josh, we do know that the dividend yield of OMB is not in the top league, let me call it that way, yes? But given that we have that always in mind, think it's another convincing argument that we are targeting a progressive dividend policy, which means depending, of course, on the business development and the financial situation of the company, it shall go up and not down. And therefore, I think we should not discuss any floor. Your second question, Josh, is a very delicate one, yes? Because from some for some reasons, which has to do with confidentiality with the agreements we have signed us on, we would like to keep some information really confidential.
And what we don't want to disclose is the pricing formulas we do have together with gas from Manus and Ruskoye production. All we can do is giving you some guidance about the structure of the pricing model. The gas price in Russia is a state regulated price, which is published for a 3 years period. And the German border price with the netback calculation is also published. This is the only guidance I can give you, but we don't want to release any prices, neither the prices we have in Russia nor in some other regions.
Okay. That's very clear. Thank you.
Next question is from Henri Patricot, UBS.
Yes. Hello, everyone. One question on Libya and your guidance for 2018 of 25,000 barrels per day, which is flat compared to 2017 average, but down from the 32,000 you had in the Q4. Is that because you're being a bit conservative? Or has the situation deteriorated so far this year?
And secondly, what could be the upside case if everything goes well this year in Libya for your production? Thank you.
Well, Henri, you're absolutely right. As we speak about our production capacities we do have, yes, and we could drive in a quarter, we are talking about a level of 30,000 barrels per day. The number we take into our calculation is strongly depending on how much infrastructure for the export of our production is available. And as a good educated guess, we have said, okay, we take the same situation of last year for 2018. If the entire infrastructure, the pipe transport to the ports is available, then there is an upside to the 30,000 barrels per day.
Okay. And where is this upside potential?
5,000. So from 25,000 to 30.
Okay. Thank you.
Thanks, Obi. Next question is from Rob Olin, Morgan Stanley.
Hello, gentlemen. So if we look at the guidance for production in 2018 of the 420, And if we exclude, obviously, the Russian additions and compare it to the underlying number in 2017, it looks like you're guiding for about a 6% decline in your underlying production, not including Russia. I just wanted to check that, that was the right impression. And of course, the obvious question is how does OMV plan to offset those declines? And if I may also ask on the refining margin comment you published in the outlook, how much lower year on year do you envisage I.
E. Is 4Q at $5.7 a barrel? Is that a good indicator for 2018? Or should we be thinking higher or lower? Thank you.
Are you taking the production numbers? So the 4.20 percent?
Let me start with the refining margin maybe. To now give you a refining margin in very much detail for 2018, this will not be pretty responsible. What the main reason why we believe it is lower than 2017 is simply because in 2017 you had a few incidents that have been one off. For instance, the hurricane highway in the Q3 in the U. S.
I do not believe that I mean, we are not planning that this is repeated. And at the same time, in Europe, there have been some outages, which have been unplanned of big refining hubs such as the Permian refinery for instance in the Netherlands. If you take that together, it's very difficult really to get it into a detailed number in the digits. But I would believe it could be something like below 5 above 5 on average for 2018, if there is no one offs repeating.
Regarding production, because you're questioning, I guess, the 420,000 barrels per day production. What I can tell you, I'll give you also some figures from 2017. We know our mature fields, mainly Romania, Austria, we saw a 3% decline. The same we do expect for 2018, even we could improve it because we increased our drilling program as well in Austria as well as in Romania. Ryan, I told you already that in Libya, if everything goes very well, we see an upside from 25,000 to 30,000.
So if you would add this, then you would not come up with the 6% as a guide. But what we want to do is what we are promising we will deliver at the end of the year. So we had a very good start at the beginning of this year, but there are some planned maintenance shut downs in the course of the year. This is included and also some uncertainty as I said from Libya is included in the forecast already.
Okay. Roque, we start with conservative numbers in the beginning of the year. We will give you better guidance in our next Q1 report of 2018.
Okay. Sounds very wise. Thank you very much.
Thanks, Rob. Next is Mark Otschla, Jefferies.
Hi, everyone. Thanks for taking my question. I just wanted to come back to the dividend and some of the comments you've been making today. I know you're talking a lot about predictability around the dividend. Can you just say a few more words about that?
And I suppose really, were you tempted to consider a dividend policy going forward that offered a bit more color
Regarding the dividend, I think we have impressively mentioned what the reasoning of our dividend policy is. And I think that if we give you the guidance that we are looking into a positive development of the company into a development of the company into a strategic growth and the intention to live up to the dividend policy, which says this level would be an increasingly higher dividend over the years. This is exactly our intention. The intention also is that the dividend yield goes away from being at the very bottom of the peer group. However, we have seen in 2017 simply an extremely positive development of the share price.
And I think we shouldn't complain about the dividend yield. The total shareholder return that we have achieved in 2017 is 61%. So this is clearly at the top of the group. So therefore, we have to take that into account. I understand and fully appreciate the stability of a dividend paid out.
We have lived up to that dividend policy that we have given in 2015 for 2016 and in 2017. And our intention is to continue like that.
Marc, since we have announced our new strategy 2 years ago, we have now increased the dividend twice. What shall I do different to
give you a good guidance?
I think we come to the next question. Mark, are you still there? Or no. Good. Next question is from Giacomo Romeo, Macquarie.
Yes, good morning.
Thank you for taking my question. Perhaps if you can talk a little bit more on what sort of investment you're doing in Romania and Austria to offset the production decline? And you already partially touched upon that, but it would be interesting to hear if you are to what extent you are stepping up investments there. 2nd question is if you can perhaps talk a little bit of the progresses you're doing towards FID at Domino?
Okay. I would like to start with investments. So we are planning to invest in 2018 Upstream, €1,200,000,000,000 1,300,000,000. Therefore, we will invest in Romania roughly €600,000,000 where €100,000,000 are going to the Neptun investment already. So we are drilling in Romania around 115 wells compared to 63, 65 wells in 2017.
So we increased substantially our drilling activities in Romania and this will also help to minimize the decline. The same we are doing in Austria. So in Austria, we are going to drill 16 wells. So with 1 drilling rig and into that drilling program, We will drill in Austria as well from the 16 wells. There are 4 exploration wells where we will drill 2 key wells in Austria.
So this is explaining more or less how we want to minimize the decline. And as I said before, Rene answered the question, the decline in 20 17 was roughly 3% in Romania and in Austria with less drilling activities than we planned for 2018. So there's a good chance that we even come out with a lower decline rate end of 2018 than in 2017 in Romania and in Austria. Regarding Domino, we are progressing with the project. We're expecting to take FID second half beginning of second half twenty eighteen.
And we're expecting 1st gas 2020, 2021.
Thank you. Thanks, Giacomo. Next is Mehdi again.
Okay. Thank you very much. Just a follow-up question maybe on Domino. You just said that you expect to take the FID in H2, beginning H2 2018. What kind of work even price are you working on or are you targeting please for this project, for this gas project?
And you were also talking about unrealized hedging losses at the end of 2017. So there might be negative cash impact in 2018. Can you just tell us the level the amount of those unrealized hedging losses? Other questions regarding the dividend that you might receive. So can you please tell us what will be the dividend or the remaining dividend that you will receive from Husqvist Goye for the year 2017 and when would it be?
And second question regarding Borealis dividend. Do you already know what would be the dividend level? And are you expecting something which is relatively close to what you received last year? Thank you.
Maggie, this is Maggie. We missed out on the first question. We have a very bad connection today. Can you please repeat the first
question again?
Yes. The breakeven price for Domino because you said that the FID will be taken in H2 18. So you probably already have a good idea about the breakeven price you are working on, please?
Okay. I take your first question, which you have mentioned all last. It makes you please understand that we don't talk about prices, yes? It's a general policy, especially not the breakeven price because then all my potential customers know what price I need at minimum to get when I will negotiate contracts. So please understand that I don't answer your question on prices.
All I can say is that we are looking for prices abroad of Romania and we have to start an intensive marketing program. And that's the reason why we are so contracts with potential customers. So please understand that we cannot comment on this. Then we had hedging.
So maybe just on that, can you tell us what kind of return internal return rate are you working on for Domino, please?
No, but I think we have a general policy, Mehdi, that we have a certain threshold for our investments we are taking and this also applies to the offshore projects in Romania. We need to have a double digit percentage rate of return after tax. That's the main criteria we have. Yes? Thank you.
It can be higher and much higher, but not lower.
Okay. Thank you.
Yes. Reinhard? Regarding hedging policy, of course, we are taking some steps in hedging. But we are not in any way speculatively hedging. We are looking hedging as a more of a defensive strategy in order to secure our profitability basis that we have.
Regarding the hedging effect in 2017, in total, we had a slightly steady effect from hedging, specifically in quarter 4. If we are looking into hedging for 2018, of course, I cannot predict any kind of impact there because of course the volatility of the oil and gas prices would predetermine that. But yes, there's a certain amount of hedging in place. And specifically, when it comes to Russia, then we are trying to protect ourselves against downside.
So if the hydrocarbon prices remain at, let's say, the current level, should we expect a material negative impact or a material positive impact in terms of hedging?
It is very difficult
to take assumptions there. You have seen what the development in Q4 was and the effects in Q4. And the situation in 2018 will be probably a more balanced one. And it's very difficult to say how oil versus gas will develop because the direct relationship between the prices has been clearly weakened. And therefore, we are trying to take our own internal expertise to optimize what we can do.
Thank you.
So, Mehdi, I would take your last two questions. The dividend from Eutron Ruskoye. The total dividend of Eutron Ruskoye, as I have said, for 2017 is US160 $1,000,000 roughly. And the dividend from the trader will be paid in 2018, whereas we have received a dividend payment from the operating company, 7 Eptigas Prom, already in 2017 in the order of magnitude of €15,000,000 not the last, euros
All right. Thank you. And on Borealis dividend?
Yes. But this number the other part was considered in purchase price adjustment. So that's a little bit more complicated. But from a cash perspective, take the €50,000,000 for 'seventeen and the rest up to $160 will be paid then as a dividend in 2018. Yes.
Borealis is doing a good job. You're absolutely right. They have repeated their record here with €1,100,000,000 net profit. They haven't decided on the dividend, yes? Am I hungry?
Of course, I am Mehdi. But can I decide it? No. So we have to wait the decision on Borealis management what they would like to grant us as a dividend level. So we have to wait another week, then we will have a clear answer from Borealis' management.
All right. Thank you very much.
Yes. Thanks, Maxi. We've already extended the call a little bit. Ladies and gentlemen, with that, we would like to end our conference call and would like to thank you for joining us. Should 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.
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