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 Ms. Magdalena Moll. Please go ahead, Ms. Moll.
Thank you.
Yes. Thank you very much, Mary, and good morning, ladies and gentlemen. Welcome to OMV's conference call for
the Q1
2017. OMV had an excellent start into 2017 with very good operational and financial performance. We generated again a strong free cash flow after dividends in the amount of €1,300,000,000 We have also continued on our path of value added growth supported by successful M and A transactions. With me on the call today is Rainer Thiele, our Chairman of the Executive Board and Chief Executive Officer. Rainer will update you on OMV's portfolio changes and operating performance in the Q1 of 2017.
After Reiner, together with Heineb Flor, our CFO Manfred Leitner, our Executive Board Member, Sponsored For Downstream and Hans Bleininger, Executive Board member responsible for Upstream, are available to answer your questions. And now, I would like to hand the presentation over to Henk.
Ladies and gentlemen, good morning and thank you for joining us. As Maggie said, OMB had a very successful start into 2017, showing strong operational and financial performance. So let me start with a review of the economic environment. Following OPEC's decision last quarter to cap production, crude oil prices stayed above $50 per barrel. Industry data showed that OPEC was compliant with the quotas.
Brand averaged at $54 per barrel in Q1 'seventeen, but showed a declining trend at the end of the quarter on the back of increased U. S. Crude inventories. A major OPEC decision on extending the agreement is expected on May 25 here in Vienna. If an agreement is reached, prices are projected to be around $55 per barrel, by the way, in line with OMV's estimate for the full year.
Let's talk about Europe. The European gas prices increased further compared to the end of last year. A persistent cold spell in the northern hemisphere in January 2017, which we really appreciated, coupled with coal prices increases and nuclear outages in France boosted gas demand. This pushed the European gas prices to a peak of almost €23 per megawatt hour. Starting February, European gas prices came down aimed at rising temperatures and lower demand.
The refining margins have seen a strong start to the 2017 despite higher oil prices. This can be attributed to the maintenance season, reduced arbitrage opportunities and increased spot demand by countries in the Mediterranean region. Prices across the whole range of petroleum products were higher, outperforming the increase in the crude price. As a result, margins were up especially with respect to distillate cracks, which recovered strongly after very low levels in 2016. Petchem margins increased at the beginning of 2017 as a result of unplanned outages ahead of the plant maintenance season.
Butadiene and benzene reached record high prices in Q1 'seventeen due to higher demand in Asia and unplanned production outages. Let me now present the highlights of this quarter. OMV's hydrocarbon production reached a 10 year record high of 335,000 barrels per day. Libya contributed 16,000 barrels per day and Norway increased its production by 11,000 barrels per day. We achieved this production increase despite a significant decrease in CapEx reduction.
In Q1 'seventeen, we realized a high refinery utilization rate of 96% and managed to capture high refining and petchem margins. Furthermore, we recognized a strong contribution to our operating results from Borealis. Our improved operations, the dividend inflow from Borealis and the changes in the portfolio led to a record high free cash flow after dividends of €1,300,000,000 in a 54 U. S. Dollar price environment.
Please note that OMV will pay the 2016 dividend in Q2 this year. OMV continues on its path of value added growth. In March 2017, OMV acquired a 24.99 percent interest in Yuzhno Russkoye gas field in Russia for €1,750,000,000 At the same time, it signed the sale of its Turkish subsidiary, OMV Patlofisi to Vitol Group for €1,400,000,000 Furthermore, on April 24, OMV and 4 other European Energy Companies signed financing agreements for the Nord Stream 2 pipeline project. When we continued its strict cost discipline, we managed to further decrease our upstream operating cost by 16% from $10.6 per barrel on average in 2016 to $8.9 per barrel in Q1 'seventeen. This is mainly attributable to the start of low cost production in Libya.
OMV targets a cost reduction of more than €250,000,000 in 2017 compared to 2015. Now let me turn to our financial performance indicators in Q1 2017. OMV realized a very strong clean CCS operating results of €805,000,000 in Q1 'seventeen supported by higher contributions from both up and downstream. The clean operating results generated by the upstream business turned positive from a minus €96,000,000 to plus €321,000,000 This improvement was mainly driven by higher oil and gas prices, favorable foreign exchange rate effects and by higher sales volumes. Downstream Clean CCS operating results increased from €319,000,000 to €494,000,000 due to a good performance in refining business, including petrochemicals and a stronger contribution from Borealis.
Positive one off effects in Q1 'seventeen were in the magnitude of approximately €100,000,000 Downstream accounted for €80,000,000 since we stopped depreciation of OMV its reclassification as asset held for sale. In addition, we had positive valuation effects in downstream gas. In upstream, the sale of working gas storage in Austria and hedging impacts led to approximately €20,000,000 of positive one off effects. The reported operating result, including the effect of special items, reached €1,000,000,000 Positive special items in the amount of €210,000,000 were mainly related to net foreign exchange gains following the closing of the OMV UK divestment. OMV recorded tax expenses of €172,000,000 driven by the strong performance of the international upstream business.
This corresponds to an effective tax rate of 17%. Reported net income attributable to stockholders increased from €95,000,000 in Q1 'sixteen to €712,000,000 in Q1 'seventeen. Earnings per share increased in line with net income from $0.29 in Q1 'sixteen to EUR2.18 in Q1 'seventeen. Let me now talk about the driving factors of our performance in operating segments. The clean operating result of the upstream segment increased by EUR417,000,000 to EUR321,000,000 in Q1 'seventeen.
Market effects amounted to EUR253,000,000 reflecting higher higher realized prices of EUR242,000,000 as well as the favorable foreign exchange effects, which amounted to EUR 27,000,000 OMV's average realized oil price increased by 59% to US50.4 dollars per barrel, while the average realized gas price increased by 8% to €15.4 per megawatt hour. Stronger operational performance improved upstream results by €132,000,000 The production rose by 7% to a 10 year high of 335,000 barrels per day in Q1 'seventeen. OMB1 has been successful ramping up production in Libya and reached 16,000 barrels per day on average in Q1 'seventeen. Norway contributed with an average production of 80,000 barrels per day. Sales volumes increased by 8% due to the regular liftings from Libya and higher liftings from Norway.
OMV also managed to reduce its production cost by 20% to $8.9 per barrel compared to Q1 'sixteen. OMV achieved this competitive level through rentless strict cost management and higher production. Depreciation was €32,000,000 lower as a result of higher proved reserves in Norway and Romania as well as a lower asset base. Now let us discuss the Downstream segment. Clean CCS operating result increased by €174,000,000 to 4.90 €4,000,000 driven by better results in both downstream oil as well as downstream gas.
Downstream oil clean CCS operating result increased by €115,000,000 to €411,000,000 This was supported by stronger refining and petchem margins and a higher contribution from Borealis. OMV's indicator refining margin increased by $5.1 per barrel in Q1 'sixteen to $5.4 per barrel in Q1 'seventeen, largely supported by middle distillates. Ethylene and propylene margins slightly increased from €3.74 per ton to €3.85 per ton in Q1 'seventeen. Benzene margins were strong, while Butadi margins were exceptionally high this quarter due to the supply shortage in the Asian market. The pad cam business contributed €74,000,000 to clean operating results, €21,000,000 more than in Q1 'sixteen.
Borealis contributed €113,000,000 which was €21,000,000 more than Q1 'sixteen. The refinery utilization rates increased to 96% in Q1 'seventeen compared to 90% in Q1 'sixteen. At 6,500,000 tons, total refined product sales decreased 4% due to lower commercial sales volumes in OMB patalo physi. However, retail and commercial margins were at a similar level in Q1 'seventeen compared to Q1 'sixteen. Lower depreciation in the amount €37,000,000,000 coming from the reclassification of OMV Patroofisi to asset held for sale at the end of December 2016 had a positive impact on the result of downstream oil.
Downstream gas clean operating result increased by €59,000,000 to €82,000,000 in Q1 'seventeen. The result was supported mainly by valuation effects related to supply and storage hatches as well as future contracts in the amount of €43,000,000 Natural gas sales volumes remained at 30 2.3 terawatt hours. The performance of Gasconet Austria decreased from €32,000,000 in Q1 '16 to EUR26,000,000 in Q1 'seventeen following the change in regulated tariffs. So now let's turn to the next slide showing OMV's strong free cash flow generation. This slide compares our sources and uses of cash
in the
Q1 of 2017. Cash flow from operating activities increased to EUR 9 23,000,000 in Q1 'seventeen, supported by OMV's strong operational performance and dividend distributed by Borealis in the amount of EUR 270,000,000 Changes in net working capital resulted in a net cash outflow of €269,000,000 mainly related to the turnaround at Schwechat refinery that led to a buildup of inventories and lower trade payables. On top, OMV received the cash from closing the divestment of the OMV UK Upstream Subsidiary in the amount of €819,000,000 OMV used 4 €30,000,000 for investments in Q1 'seventeen. At the end of the Q1 in 'seventeen, OMV's free cash flow after dividend rose to €1,300,000,000 This was a record high free cash flow after dividends for OMV in a $50 per barrel price environment. OMV continued its path of value added growth in Q1 this year.
On March 3, 2017, we signed the sale of our subsidiary in Turkey, OMV Patalofisi to Vito Group for €1,400,000,000 We are well on track to close the transaction in Q3 this year at the latest. 2 days later, on March 5, OMV signed the acquisition of a 24.99 percent share in the Usnohriscoye natural gas field located in Western Siberia from Uniper SE. The purchase price amounts to €1,750,000,000 The transaction is anticipated to close by year end and will be retroactively effective as of January 1, 2017. On April 27, OMV took a further step towards future energy generation. Together with Verbund, we signed a cooperation initiative on climate change and future In addition, OMV is acquiring a 40% stake in Smartrix, Austria's leading fuel service provider of e mobility solutions.
Sumatrix is the 1st provider in Austria to establish a comprehensive customer oriented network with public charging and high speed charging stations, which are supplied with 100 percent renewable energy. The other SmartRec shareholders are for bundt and Siemens. On April 24, OMV together with 4 other European Energy Companies signed financing agreements for the Nord Stream 2 pipeline project. Nord Stream 2 is an unregulated pipeline project and will improve the security of Europe's energy supply. Gazprom is and will remain the sole shareholder of the project company Nord Stream 2 AG.
OMV has committed to provide long term financing for up to 10% of the total cost of the project, which is currently estimated at €9,500,000,000 For the Nord Stream 2 pipeline project, financing of 70% of the project cost will be pursued. Nord Stream 2 AG will turn directly to international lenders. According to the agreements, OMB will directly finance 30% of the pro rata project costs, up to EUR285,000,000 on a long term basis. Financing this project will yield attractive returns for OMV starting with 2020. OMV continued its strict cost discipline in the Q1 of 2017.
As you might recall at our full year 2016 results presentation, we reported 20 16 yearly average upstream production cost of $11.6 per barrel. Starting with this quarter, OMV aligned its upstream production cost definition with the division used by peers. Administrative upstream production cost changed to $10.6 per barrel. In Q1 'seventeen, upstream production cost further decreased to $8.9 per barrel, driven by the successful implementation of the cost reduction program coupled with higher production volumes. With respect to capital expenditure, we continue with our stringent investment program and reduce our guidance by €100,000,000 to €1,900,000,000 for the full year 2017.
Q1 'seventeen capital expenditure was at €302,000,000 with 70% allocated to upstream. We have invested in work over drilling activities in Romania and field developments and redevelopments in Norway. We expect investments to pick up in the rest of the year. The exploration and appraisal expenditure is expected to come in at €300,000,000 in 2017 as we continue to focus on low cost regions and near field opportunities. For the full year 2017, we target a cost reduction of more than €250,000,000 in 2017 as compared to our 2015 cost basis.
Benefiting from generation of the group, OMV decreased both its net debt and its gearing ratio. Net debt declined from €3,000,000,000 at the end of 2016 to €1,700,000,000 at the end of Q1 'seventeen. OMV's balance sheet is in a healthy state reflecting a strong liquidity position with €3,100,000,000 in cash and cash equivalents and €3,600,000,000 in undrawn credit facilities. The gearing ratio came in at 12%. Long term, we are aiming to keep our gearing ratio comfortably below 30%.
Let me now summarize OMV's updated outlook for the full year 2017. For the year 2017, OMV expects the average Brent oil price to be at $55 per barrel. We expect average gas prices on European spot markets to be higher in 'seventeen compared to 'sixteen. Our production guidance for 2017 is 320,000 barrels per day. Libyan production restarted and is expected to contribute on an average of 10,000 birds per day in 2017.
OMV's indicator refining margin is projected to be on a similar level compared to 2016. Following a strong performance in Q1 'seventeen, refining margins are expected to trend downwards for the rest of the year due to persisting overcapacity in the market. A planned full site turnaround at the Schwechat refinery has started mid April 2017 and will last approximately 6 weeks. Investments and operating costs related to the turnaround will amount to EUR110,000,000 EUR23,000,000 respectively. Capacity utilization in 2017 is expected to be above 90% despite the planned turnaround.
2017 CapEx is expected to come in at €1,900,000,000 in 2017, and we will remain the exploration and appraisal expenditure guidance at €300,000,000 Our OMV targets at cost reduction of more than €250,000,000 in 2017 compared to 2015. OMV's projected clean CCS operating results in Q2 2017 compared to Q1 2017 will be negatively affected the amount of approximately €80,000,000 by the planned turnaround at the Schwechat refinery, leading to higher operating costs and a lower contribution as well as plant maintenance activities in Austria. Thank you very much.
Ladies and gentlemen, it brings us now to the question and answer session. I would like to open the call now for questions and ask you to please limit your questions to a maximum of 2 at a time so that we can take as many questions as possible. Of course, you're always welcome to rejoin the queue for formal questions. Now we are starting the Q and A session with Mehdi Ennebati from Societe Generale. Good morning, please.
Hi. Good morning. Good morning, all, and thanks for the presentation. So I will limit myself to 2 questions. First one on Libya.
Can you please provide us your current production in the country? So yesterday, how much were you producing in Libya? We have been a bit lost with the shutdowns, the restart during Asia, if you ramp up phase. And could you also provide us the cash contribution from Libya during Q1, please? The second question regards the maintenance in the Upstream division that you talked about.
So you reiterated your production guidance of 320 kilobytes Oed for the full year 2017 and you partly justify this with maintenance to come later this year. Can you please quantify the impact on production from maintenance and which countries will be particularly impacted? Thank you.
Well, let me start with a comment, that Mehdi on Libya, and then my colleague, Hans, will explain a little bit the production outlook and the maintenance impact. As a speaker about Libya, we have seen some ups and downs in our production capacities, mainly impacted by logistics, yes? Our production facilities are in good shape and we have to prepare ourselves for the rest of the year that we do see some interruptions of the production because of the lacking availability of export capacities. That's the main reason. And this we have to take into account when we calculate our and give you guidance for the Libyan production.
Right now, we do have a very good level of production, which is in the order of magnitude of Q1. So we see that production capacity is still on stream. But there is some volatility, of course. As we speak, the production is in place, well in place. If we have no shutdowns and the infrastructure, the pipeline access is there and we can transport it, then we do have an upside for our overall production in every quarter.
But I have to give you guidance quarter by quarter by quarter, Mehdi, because right now, I think it's a bit too early to really give you some firm indications of our production in Libya. We have to wait a little bit and see how stable really the environment and the availability of transportation capacity is going in Libya is going to be. So maybe, Hans, you will talk about
Just regarding the cash contribution from Libya, please.
Yes. Nasty, you always come with these difficult questions, yes? You always have one for me. So we don't want to release it country by country, to be honest, yes? But I give you an indication, it's a double digit number.
Okay. Thank
you. Of course, with €1,000,000 of course, yes, not of any sense or so, yes, a double digit €1,000,000 Okay.
Thank you.
Yes. Hello, Mehdi from my side. Hans speaking. Talking about the impact on production 2nd quarter and it's the 2nd quarter going into 3rd quarter. So there are two reasons where we will have an impact.
On the one hand, as you know, we are optimizing our portfolio on the one hand via acquisitions, but on the other hand also via divestments. So what we see is that we plan is the closing on the selling of the Astrid asset, which will have an impact of around 2,500 BOEs from closing date onwards. 2nd one, we clean up our portfolio in Romania, where we have sold 19 marginal fields. They will contribute or we will miss around 1200 boe per day. And then we have some maintenance shut ins in the second quarter, which is 2 ones in Romania, which is Toteya and Pustukin, which will have an impact on a single month basis of around 8,000 BOE and another one will be in Gullfax in Norway, which will have a single month impact of around 11,000 BOE per day.
So and what you can expect as well from our mature assets here mainly Romania and Austria, we will see a real nice decline in the course of the year of around 2.5%, 3%. So also this will have an impact if you just take 3% out of the production, which you will see in December compared to January. So this is also an impact. And as you know, this year, we are not coming up or we're not coming on stream with new projects. Those will come next year with Nevada and Amsterdam.
Mehdi, I would like to
give you one additional information, and that's our Neuschneurbuschoye transaction. Depending when we are going to close the deal until the year end, additional one 100,000 barrels per day will run into our numbers. So then we will increase, of course, forecast at least to 420,000 barrels per day.
Okay, perfect. Thank you very much.
Thank you.
So the next question comes from Haisham Rashid from Morgan Stanley.
Thank you. Good afternoon to you all. Two questions from my side, please. Firstly, just to come back to Libya, could I just ask what OpEx per barrel would have been with excluding Libya? You talked about Libya being low cost barrels.
Just wanted to understand what underlying changes in the portfolio have been excluding Libya, so the $8.9 per BOE. And actually related to Libya again as well, just to understand and clarify your excuse me, Rainer, about the production. So I think if I understood you correctly, production at the moment is similar to Q1 levels of around 16,000 barrels a day. If you had no shut ins, no security related issues, but you didn't have any sort of meaningful investments or kind of workover activity on the fields. You say that production could go even higher than where it is at the moment, so sort of something like 20,000 barrels a day or more?
Just to understand if there's any further upside, as I said, obviously, excluding the impact of any security related issues. And my second question is just relating to really sort of a combination of the M and A and also some of the sort of perhaps more organic investments in some ways that you may have. And I'm thinking here really with regards to post the Russian deal closing. What's your thinking with regards to adding resource to the portfolio? I mean, is it a case of opportunities like Iran where we might expect to see sort of the focus turning to given your comments, I think, earlier this morning about you getting towards the end of a negotiation on settling with the Iranians?
Or actually, are you still quite interested in looking at sort of acquiring producing assets elsewhere inorganically like you've done with Russia? Just some thoughts there would be very helpful. Thank you.
All right. I think Hans will start on Libya and I will take your M and A question.
So I will take the first question regarding OpEx per BOE. In Libya, OpEx per BOE are depending also from the production volume. So what we see right now considering the production volumes which we have seen in the Q1, you can expect production costs below US3 dollars per BOE. So the further we increase the production, the lower the production costs are then per BOE. So if we ramp up and this is already, let's say, the second part of your first question, what would be the maximum production without further investments?
I would see it as plusminus 20,000 barrels per day. And at 20,000 barrels per day, clearly production costs would be clearly below US3 dollars per period.
All right. Well, Heitin, first of all, we are not so much under pressure to go for M and A transaction to replenish our reserve base. If you look into our pipeline with the 2 Russian transactions, we are well prepared to have a very come up with impressive replenishment rates. So the reserve phase is not really driving my M and A transaction if I look into the market. So I still have a preference in producing assets because of the major advantage it will kick in with cash flow.
And I think that the M and A market right now is heavily loaded with investment projects and development projects. It's more a smaller part of projects where you can buy in producing assets, if they come with attractive production costs, we will look into that. We are very much cost driven as we speak about our M and A activities in Upstream. As we speak about Iran, you mentioned it. We are still interested in the 2 fields we have mentioned, Chesmikashuran and Kerkel, yes?
This will be a next project which might kick in. We have to wait and see how the negotiations are going to be finalized. Besides the M and A activities, as we speak about driving our portfolio, yes, I would like to give you an indication that OMV is now also taking care about our downstream activities, yes, so that we are balancing our overall portfolio because I do enjoy, especially in these days and not only these days since quite a while, the hedge we do have in our portfolio, stabilizing OMV, especially in times of $50 per barrel. And just look back how OMV looks like 2 years ago when we have seen $50 per barrel. We couldn't show up that Q1 results.
And this is what we have done, but it is a strong contribution still from our downstream business, and we will have the downstream business now also in our mind.
Very clear. Thank you very much.
Yes. So we move to question number 3 from Josh Stone from Barclays.
I've got 2, please. First is on the CapEx. So look at the cash outflow and the cash flow statement was around €430,000,000 whereas the accounting CapEx was near €300,000,000 So quite a large difference. If you can perhaps explain that. And also just clarify on which basis is the €1,900,000,000 CapEx guidance on?
And then second, I noticed on the Petrom oil production did fall quite sharply quarter on quarter. Perhaps if you could just talk about that and what was the reason for that?
Okay. You take the first question.
Josh, this is Reinhard speaking. On your question regarding CapEx accounting and CapEx cash flow, of course, there are always quarter on quarter differences because on the CapEx cash flow, you clearly have inflows or respectively outflows still from projects from the previous quarter. So this has been just a spillover effect that you have on the cash side from CapEx accounted CapEx in Q1 has been lower. Nevertheless, I think in total, if you add up the opportunities and projects that we have, our guidance of €1,900,000,000 CapEx for the year is still upright.
So can you repeat your Patrum plan? You said the sharp form decline in Petron or what is
it like? Yes, just in the crude oil production?
In crude oil production in Petron.
The crude oil production, meaning the decline is based on the decline which we have, the natural decline which we have in Petron. Because what you see the focus on our field redevelopment where we have been quite successful in the past were mainly driven by field redevelopment in gas fields. So that's why you see a higher demand on the oil side. Also when we clean up our portfolio in Petro, meaning selling wheat fields, we are rather focusing on oil fields. That's the reason why you will see a higher decline in spectrum on the oil production and on the gas production.
Okay, understood. Thanks very much.
So then we move on to Thomas Adolff from Credit Suisse. Good afternoon, Thomas.
Good morning, good afternoon, China. I hope your negotiations with Iran are successful so that you can invite us all to Tehran on a field trip, but that's not my question.
You get it, but we only can serve your orange too.
Okay. Let's do Moscow instead.
All right.
Two questions for me as well. Just firstly on the Black Sea, you have the Domino project, and I'm reading that it is potentially ready to take FID. Can you perhaps just remind us on the size of the discovery now that you've appraised it? What I should think about fiscal terms? Because I believe there will be different gas prices, costs and timing of FID.
And the second question I had is generally about your strategy. And I sometimes wonder whether you ever get worried or whether you have discussions internally about whether the equity market is giving you the right multiples for the actions you take. Now the market has clearly rewarded you for having restructured the organization, both financially as well as strategically. And your strategy clearly is going forward to stick to the low cost barrels, regions like Russia, Libya or Iran. But when I look at some of these regions and I look at the locally listed companies, there's a huge valuation discount despite generating very good returns.
It might be company specifically. Sometimes it might be where the company is listed, but it's also reflective of certain risk operating in these regions. So I wonder whether you have discussions internally about these things and what it might mean to your multiple longer term. Thank you.
Thank you for that question.
But we will start with
the first one. Hans worked for quite a while in Romania, and he is the one who knows every molecule in the reservoir. So he can give you a very good update on the size of the discovery, Hans.
Yes. So regarding plate C, what we plan right now is we plan we are progressing quite well with the project. So everything is according to plan. We plan for FID in Q2 2018 where we will make our finance investment decision. 1st gas, as we speak right now, is planned for 2021.
The volumes we have which we have announced already some time ago, we are still sticking to it between 1.5% and 3% TCS. So what I can tell you, we are rather on the upper side of the volumes. So this has improved over the time once we are looking more in detail into our reservoirs. Regarding tax and royalties, we are still discussing with the government to come up for a finance solution, especially for tax seed, but those discussions with the government are still ongoing. As we expect, let's say, a final decision on this topic in the course of this year, I don't want to promise too much.
I hope until mid of the year, but you know the same we said last year, but it's not our goal. So, but we are discussing in detail. So, I hope mid of the year, beginning of second half of the year, we have a solution on the tax and royalties regarding PLEXI.
Well, Thomas, I don't make the mistake telling you what is the right multiple to run your calculations, yes? That's something you have to decide on your own, and you have to run your calculations and made up your mind. All I want to say is we are trying harder now to explain to you why OMV is a sexy company to be recommended as a good investment. And I think we have a long list of stories. When I look back, what was the reason why OMV was struggling in the past?
It was because we have not delivered what we promised to the market. If you see the track record of OMV since quite a while, let's say a year, big transactions, we have promised you that we are going to cut costs. We're going to give you now a very attractive outlook with the growth story, as we speak in upstream as well as in our downstream business. We are going to offer you stability with our existing business structure, having an internal hedge. We are giving you a smell that we are going to further decrease our production cost.
We are giving you a new guidance that we are going to have a progressive dividend policy. I know there is some listening now who is always complaining about my dividend yields. This is something we have in mind. Of course, we don't ignore that our share price has increased. We have noticed and we enjoy it.
But it seems to me as if the financial markets when people are looking at our share, they can realize it. It. And we are going to do better to convince you all to use other multiples that you have used in the past. I hope we can make it. I will do my best and Maggie invites you here for a special private conversation to make convince all of you that we should do better.
Thank you. Can I just follow-up on this, on everything you've said and how it ultimately specifically to the output? Now let's say by 2020, and I know 2020 is still far away, but actually it's just around the corner for you and for your CFO. But everything you're doing right now and assuming all the agreements are completed, where do you see your return on capital employed at better succeed dollar oil price environment? Just wanted to kind of see what see where OMV stands versus some of your peers based on where you see things evolve internally?
So return on capital employed in 2020 at $60 please.
Well, Thomas, let me try to answer your question in another way. We do have a special target, and that's a double digit percentage, and that's our threshold. And we are acting and deciding based on that threshold. We don't want to go into projects neither in optimizing our business that we are going below that double digit number.
No, but on a corporate basis, corporate return on capital employed as opposed to project specific.
It's the same.
It's the same.
It should translate into that.
Well, let me give you an example. So most of the super majors will say for a conventional upstream project, we would at least want to have a project specific IRR of 15% plus. Sometimes when you go for a long duration LNG Canadian oil sands, the returns admittedly will be a little lower. But obviously, when you then combine everything downstream, upstream, corporate costs, etcetera, and then the target many of these companies will give you by 2020 at a $60 real oil price is a return on capital employed of 10% for Derridera well. Whether OMV has a corporate return on capital employed target by, say, 20.20 at $60 oil and what it is?
Well, I have that target every year, not only for 2020. And I'm going to tell you what we have published that we have met our target already in Q1 this year with a 10% ROCE.
10%. Okay. No, that's perfect. Thank you.
And we hope that we can have the 10% also until the end of the year because that's our target.
Great. Thank you.
And by the way, the 10% is in an environment of $55 per barrel.
I understand. That's great. Thank you very much.
Yes. Then we move on to the next question from Michael Ophfert from Citi.
Yes. Thank you.
Can you hear me?
Yes. Perfect.
Great. Thanks. So I was just going to follow on a couple of points that Reni had made just earlier. I guess, firstly, the business is generating a significant amount of cash flow, which is, I guess, a good profit to have. Gearing levels are low.
I recognize you've got a progressive dividend policy. But I'm just wondering within the toolbox, as it were, would you consider like some special dividends to accelerate returns to shareholders? I guess buybacks I recognize are out of the question. That would be my first question. And then just secondly, I guess, the one of the transactions you did during the quarter was the financing for Nord Stream 2.
I guess, on the face of it, it looks more like a loan to Gazprom. But I recognize your comment earlier about saying that this will leave attractive returns to OMV. So maybe could you explain a little bit more about what you see as an attractive return and how that sort of structure will take shape? Thank you.
Thanks, Michael. I take the easy question on Nord Stream and Reinhard will tell something about special dividends. He has such a smile on his face when you mentioned it. So the financing of Nord Stream 2, yes, it is more or less a loan agreement. You're absolutely right.
And we have, I think, clearly indicated also when we try we're trying to join the project as a shareholder that we do have a double digit rate of return in mind. The 10% is our threshold. And as we have agreed on the project, the threshold must have been met. So it's an attractive financing agreement from our point of view. Reinhard?
Regarding the cash flow, I shared with you currently cash flow is excellent. Currently also the amount of cash that we are carrying and the low gearing are a very good basis. But they are a basis for the transformation process that OMB is still undergoing. So this means in two directions. 1st, as Rana has already pointed to, we have given in our guidance about the dividend and about the indication of a proposal of €120 per share for the year 2016.
We have given also guidance that we would see a progressive character of the dividend going ahead. Regarding special dividends, this is probably not the policy that we are indicating and that we are proposing here as we have many attractive investment opportunities and that we see that specifically the large projects that we are following at the moment in upstream as well as Rainer indicated also the ability for us to improve our value chain in downstream gives us the opportunities really to have a very good situation regarding the cash balances in the company. We stay with our guidance of below 30% gearing and that might give you also an indication about the stability that we anticipate regarding the financial structure of the company.
Okay. Thank you to both.
Best. Okay. The next question comes from Himesh Craig from Bank of America.
Hi there, guys. Good morning. Thanks for taking my question. And not a good set of numbers from you guys, although we learned a bit more a few weeks ago. One thing I just picked up on, you mentioned giving us a little bit of a smell as you described it for lower production costs, which are great.
I wondered if you could give us a little bit of a smell ahead of your Capital Markets Day coming up in September. It's been a while since you'd given us a Capital Markets Day. And I was wondering if you might provide us with more than 1 year forward outlook, maybe a full year view, maybe a flavor of what sort of things are going to really matter to you, whether or not that be free cash flow, cash flow, a longer term volume number, a resource number. It would be interesting to know what the sort of things that you're looking to include in that now that you've transformed the company so dramatically? And my second question is just on operating cash flow and referring back to the last Capital Markets Day, you gave them some of the sensitivities.
The implied sensitivity there was for a $55 oil. We'll be looking at $1,900,000,000 of operating cash flow. I'm certainly modeling nearly 50% higher than that today, and there are certain people who keep telling me I'm too low. So I wondered if you could give us a bit of color on what a sort of normalized cash flow should be like for the business? And when do we expect things to settle down after what's been a period of transition, shall we say?
Right. Thanks, Hamish. Maggie was reacting on your first comment, because she is going to organize the Capital Markets Day, yes. And you know, she's like all the other women, she's keeping secrets, yes. And that's my problem.
So I can't tell too much about Capital Markets Day, but I can confirm that we have taken notes of what you are expecting to be discussed during the Capital Markets Day. I will give you a little bit more of the smell of the production investment. And as we speak about the $8.9 per barrel we do see right now in Q1, I can confirm that there will be a further substantial reduction below the $8 per BOE the day we are going to finalize and close our transaction with Uniper and we get the 100,000 barrels per day production from Russia. Yes, because this production comes in with very low, below something around $2 per BOE. And just running your math, we will be easily below $8 per barrel the day we are going to close the transaction.
And on the cash flow, the expert in our team is Reinhard. So he is going to give you some more guidance how to calculate.
Thanks, Rainer.
Regarding operating cash flows, I think sensitivities that you're looking for, we have given a couple of sensitivities for calculating very much the impact of the environment that we are in. And if you take Brent oil price, we would still see that if you take the operating results, it's about 35 euros up and down with 1 U. S. Dollar per barrel difference. And that mainly also translates into operating cash flow.
So 30 out of 35 would still stick with operating cash flow. We would see that kind of rate also applying to the kind of gas prices where we see a sensitivity of, say, €20 per plusminus €1 in the megawatt hours. We have, I think, in the indicator refining margins as well as in the petrochemical margins equal consideration. So if you take cash versus impact on result, there is the normal tax rate that we have in average to be deducted. And then you will see that there is the main part of operating cash flow as well there in sensitivities.
Thanks very much, Kevin.
Guys, thanks a lot.
Thank you. We're moving on to Matt Lofting from JPMorgan.
Yes, thanks. Good morning all. Two questions if I could. I mean, firstly, just on CapEx. Whilst you've sort of said you expect spend to pick up through the year, nonetheless, I guess the Q1 accrued CapEx level looks very low in terms of the run rate against the $1,900,000,000 guidance for the full year.
So could you just talk about phasing around that $1,900,000,000 and whether there's also some headroom still embedded in that for the scenario that oil prices stay lower? And then secondly, just sort of circling back on downstream performance and if you could elaborate on the repeatability of what was clearly an excellent Q1. You obviously referred to some of the onetime operational benefits worth, I think, about €80,000,000 in Q1. Could you also just quantify the effect of the elevated benzene butadiene margins in the quarter? Whether you see that supply shortage persisting on a forward basis?
And also if you could put the 96 percent utilization rate in the context of the normalized levels for the rest of the year? Thanks.
Okay. I will take the first part of the first question regarding CapEx because we need to see it from a different point from upstream and downstream. So what we are forecasting right now, and I would say, excluding capitalized E and A, So we are talking about around €1,200,000,000 what we are forecasting for this year, which is roughly $1,300,000,000 including the capitalized E and A. And we are mainly spending the CapEx on some of our projects like in Alsahanstein in Nevada and Nevada in Tunisia as well as on ongoing drilling in Norway and also our drilling program and workover program in our main operations in
Romania and Australia.
In downstream, we are spending the rest of the 1.9 obviously. There are mainly running business investments. We have some growth investments into the Petrobras refinery, where we are working on improving the yield even more. And we have some growth projects in the retail business. These are the 2 growth areas that we are investing in.
The rest of it is more or less stable. And there will be a peak obviously now in the Q2. This has been mentioned several times already. We do have a big turnaround at the Schweigen refinery where you will see a peak in CapEx in downstream. Coming to the petrochemical margins that you have been touching, especially due to the Q1, which has been really extraordinarily high.
This is more than if you base it on NAFTA feedstock, that's over €1200 per ton. That's record and not seen for quite some years. But this is something which came before the background of the feedstock supply shortage, especially in Asia. And what we will see over time, over the year, this will be a certain relief in the supply, but I would not believe that we will fall back to the years before. So on average, I believe we will be significantly over last year, and thereby, there will be a good margin that we are making out of our production.
I would like to give you one more indication. As we speak about the Q2 this year, we have seen already half of it, yes? So we are in the middle of May. And what we can say so far, excluding the impact of the maintenance shutdown in our refinery in Schwechat, the downstream oil business, we don't see any negative trend so far.
Compared to Q1?
Compared to Q1, yes.
Okay. Now I hope this was helpful. And we are now moving on to Henri Patricot from UBS.
Hi, everyone. Thank you for the presentation. Two questions for me. The first one, just to follow-up on CapEx. I was wondering if you could give us more details on the reduction in your guidance from which project, which field this is coming from?
And secondly, on Borealis, significant increase in the dividend payment that you received. Should we expect to see several increases in the next few years? Or do you think it should be fairly close to the current level because of new projects that you're spending on at Boraleis? Thank you.
Can you repeat your first part on the CapEx? We are now are you asking for special CapEx program? Or what was your question on the CapEx? The second borealis I got. But maybe
Yes, it was just on the change in the CapEx guidance for 2017. There was a small reduction of €100,000,000 Wondering from which project it was coming from?
From which one is the reduction, yes, Gary?
Yes. This is mainly coming from upstream, where we improved substantially our cost position in costs for drilling. So we went through a drilling cost optimization program the last one and a half years. So what we see now is already that we on the one hand we get better cost from our contractors, drilling contractors as well as drilling services. And on the other hand, for example, in Austria, we have drilled already the 4th well and we have drilled it, let's say, 30% faster compared to a similar drilling program 1 year ago.
And this means also 30% of cost reduction on the drilling program. So this is the main effect why we reduced by €100,000,000 on upstream.
Henri, looking forward a little bit into the rest of the year, we have given you some CapEx guidance, but we might see some delay in the project in Tunisia. As you may have seen in the press that the environment has not changed the better, which is resulting a little bit that we have stopped our work on Nevada project that might have an impact. So we have to wait and see how the situation in Tunisia is going to develop. If the situation is not improving, then we might see a further delay of the CapEx spending on Navara project. On Borealis, well, this company is impressively year by year, yes?
Record by record by record, yes? Also this year, Borealis, as you have seen in our numbers, is performing extremely good. We have to see how the company is going to decide on their cash flow development, especially you might have seen that Borealis has decided to partner themselves with Total in the U. S. Project in Texas, which is pretty CapEx intensive.
So we have to see how Borealis is going to run into 2017. So far, I only can give a comment on their business development and it's a very nice development also in 2017. So from the business point of view, the company is developing nicely, but they are deciding year by year what kind of dividend they are going to pay, yes? And they don't give me an indication. Therefore, I can't give you an indication.
Okay. Thank you.
We are a little bit running out of time. I have two more questions. One from Tristan Trevanion from Kepler Cheuvreux and the last one then from Giacomo Romeo from Macquarie. So first, Tristan.
Yes, hi, good morning. Thank you for taking my question. On downstream gas, you had a positive one off item of €43,000,000 in Q1. I was wondering after the positive one offs we've seen also in Q2 and Q3 of last year, are you expecting more of these in the coming quarters? And secondly, just looking at cash flow, you already Okay.
Listen, Rodarte. Your question was we had a one off item in downstream in the amount of
Nonstream gas.
Nonstream gas.
Nonstream gas. Nonstream gas. Nonstream gas.
Nonstream gas.
Nonstream gas.
Nonstream gas. And whether we are expecting similar one offs in the coming quarter. Okay, next question?
The next question is quickly on working capital. As you mentioned, you had a significant build in Q1. Given that you expect some maintenance and turnaround in Austria in Q2, I was wondering whether you expect this to unwind in the coming quarters?
I will take both questions. The EUR43 1,000,000 is this really a one time impact because mainly coming from evaluation of our derivative position in the storage business in here. So this is something which is just that you have just seen in Q1. And on the working capital buildup for the turnaround, you are totally right because what we usually do before the turnaround, clearly, I mean, we increased inventory to have enough finished product for the time when the turnaround happened to sell to our customers. And therefore, the working capital will turn actually going the other way around after the turnaround.
Okay. Thank you very much.
Okay. And then the last one from Giacomo Romeo from Macquarie.
Thank you. Two questions for me. The first one is you reminded us how OMV has become a sexier investments after the portfolio changes you made. And I was wondering, we talked about your potential appetite or not lack of appetite for making more asset acquisition. I was wondering, you also sold a number of assets.
And I was wondering what else in your current portfolio would you consider as non core and potentially up for sale in looking at potential transformation of your portfolio? And the second question is on tax rate. The clean tax rate was quite low this quarter. I'm just wondering if you're still happy with your with the guidance indication given for 2017?
Can you take some tax return?
I can start with the tax rate. The tax rate has been lower than our anticipated average for the year in Q1, especially for two reasons. First of all, Borealis has performed very well in Q1. And as you know, this is a tax free result that we are taking in here. The second is that, of course, with a very good petchem and refinery margins, our business has been very strong there.
And this is traditionally in countries where the tax rate is lower. Whereas if you expect then strong stream results specifically in countries like Norway, like Libya, etcetera, where you have higher tax rates, this then will balance out. So the guidance of 25% for the full year 2017 is about right
still. So Giacomo, I'll take your portfolio question. Well, first of all, there are no assets for sale. So we have some big projects underway. Petro Ophizy, we would like to sell in the market.
We would like to finish it until Q3. We have not defined any asset for sale so far. And we are not discussing it at all in our board meetings at the moment. Yes? Are we going to stop and taking a break until we have restructured our portfolio?
I think we are kidding right now. We won't stop. We are in a flow. We would like to further drive the company for growth, as we are going for growth for the company. We will do it both.
We will further invest and we will further go for acquisitions. And I gave a little bit of an idea that the acquisitions will not go purely as we have done it in the last 2 years into the upstream sector because there was a strong need to go for sustainable reserve structure in our portfolio. We are going to look around and we are going to partner ourselves and we will find opportunities. But let us finish our eating our plates, what we do have, let's finish our transaction and then we are going to be busy with new projects. That's how the business looks like.
So I think this brings us to the end of our conference call. And ladies and gentlemen, we thank you very much for joining us. And as already has Stella mentioned this afternoon, We have sent you a safe today for our Capital Markets Day. We are hosting this Capital Markets Day in London on September 27. And to be honest, what we are presenting there, that will really be a little bit of a surprise because this also creates some fantasy in your mind, but we are definitely looking forward to seeing you there.
And should you have any further questions on the Q1 performance, then please contact the Investor Relations team and we will be definitely very happy to help you. With this, I would like to thank all 4 of our Board Executive Board, my first one here with me today. And we all wish you a very nice day and thank you for joining. Bye bye.
Thanks. Bye.