Welcome to the OMD 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 Ms. Magdalena Moll. Please go ahead, Ms. Moll.
Thank you very much, Andrea, and good morning, ladies and gentlemen, and welcome to OMB's conference call. As you have seen over the weekend, there was a lot of action at RMB. On Friday evening, we signed the divestment of RMB Petroleum TV, And on Sunday evening, we signed the acquisition of a 24.99% share in the Yuzhno Russkoye gas field, one of the largest fields in Russia. With this, OMV shows the ability to deliver on its communicated strategy of value added growth. With me on the call today to explain both of the transactions are Reinhard Sieder, our Chairman of the Executive Board and Chief Executive Officer Hans Kleininger, Executive Board Member Upstream and Manfred Leitner, Executive Board Member Downstream.
And now, I would like to hand the presentation over to Rainer.
Yes. Good morning, ladies and gentlemen, and welcome to today's conference call, and thank you for joining us. As Maggie said, over the last days, we have successfully delivered on our strategy by completing 2 major transactions. On March 3, we have signed the divestment at the Roanmi Patroffizi and yesterday we have successfully signed the acquisition of a 24.99% share in the Yuzhno Russkoye natural gas field. First, let me hand over to Manfred Leitner for the OMV Petro Ophesi divestment.
Manfred? Thank you, Leitner. Welcome to today's conference call and welcome Mindsight. On Friday, we have signed the state of OMA Federal fees to Weetald Group. The overall value of the transaction amounts to €1,368,000,000 thereof €81,000,000 related to net cash proceeds from a prior carve out of Windwick Turkish Gas entities.
The transaction is subject to conditions including the relevant regulatory approvals and is anticipated to close in Q3, 2017 at the latest. The original plan of integrating Pedalofisi into the value chain of B Group could not be realized. Therefore, the decision to sell the company was the right necessary step in the course of implementing our corporate strategy. In light of the challenging environment, we are pleased that we successfully completed the negotiations. Based on the purchase price, OMB will record a further impairment of €186,000,000 in its Q4 2016 financial accounts.
This booking is in addition to the impairment of €184,000,000 recorded as of December 31, 2016, when OMB reclassified OMB Pedulla Fiti as asset sale for sale. Upon closing of the transaction, a negative foreign exchange rate effect approximately €1,100,000,000 has to be recorded in OMB Group net income. This stems from the negative development of the Turkish lira against the euro since the acquisition of OMV Petrolofiti in 2010. This has no impact on OMV Group Equity, This corresponding foreign exchange translation effect were directly charged to group equity in prior periods. On the next slide, you can see the impact of OMV Pedalofidi sale on downstream.
In a nutshell, the sale of OMV Pedrolofiti resides in both improved efficiencies and financials of our downstream operations. Obviously, total refined product sales volumes and the number of filling stations will strongly decline following the divestment. However, the downstream oil operations will not be significantly impacted and in some cases we will see even a positive effect. For example, on the basis of 2016 numbers, the average throughput per filling station increases to 3,600,000 liters per station, excluding OMB Pedulla FICI. This is obviously due to a lower than average throughput per station in Turkey.
Looking at the financials, there will be an approximately €100,000,000 negative impact in clean TGS debit following the divestment. However, wimbypedalofisi only had a minor impact on the operating cash flow as well as on the free cash flow of the downstream oil division. Operating cash flow and free cash flow excluding wimpypedalophisii only show a decline of 7% and 3% respectively. Bottom line, the clean TCS return on net debt even increases by 2 percentage points. And I would like to hand over now back to Rainer for the presentation of our second presentation.
Thank you, Manfred. Ladies and gentlemen, I'm now very much delighted to announce that OMV signed an agreement to acquire a 24.99% share and the usual risk oil natural gas field in Western Siberia from Uniper. It was a late night transaction, but although it was very close to midnight, we took the chance to have some champagne. So I will be very fluent afterwards to answer your questions. The purchase price amounts to US1.85 billion dollars plus cash on the balance sheet as of December 31, 2016.
It includes US36 $1,000,000 corresponding to part of 2017 transportation costs, which have been paid in advance by the seller. The transaction will be retroactively effective as of January 1, 2017. Closing is envisaged until year end 2017. The implementation of the transaction is subject to further conditions including co shareholder consent as well as merger control and foreign investment control clearance in Russia. The project gives OMV access to a world class fully developed and producing natural gas field with a secondary horizon upward development decision by the end of 2017.
Usher Roscoe's remaining recoverable reserves net to OMV are around 580,000,000 barrels of oil equivalent. The gas from the field is the key resource for the Nord Stream pipeline, which supplies Germany directly with gas from Russia. The operator and owner of the production license is the Russian company 7 Iftigasprom SMGP. The license was awarded to SMGP in 1993. Gazprom will continue to hold a 50% stake in S&GP, while Wintershall and OMV each own approximately 25%.
OMV will be entitled to 24.99 percent of the economic interest of the Euschneur Ruskoye field. The transaction, ladies and gentlemen, with this transaction, ladies and gentlemen, we built a new core area, Russia, in our upstream portfolio with production of 100,000 barrels per day. This is fully compliant with the execution of our strategy to expand the integrated corporation on Gazprom. And now my colleague, Hans, will give you more insight into the usual Uskoye field and the financials.
Thank you, Rainer, and welcome from my side as well. Let me provide you with more insight to the Husnoy Ruskoye field. The Husnoy Ruskoye field is located in Russia's autonomous region of Yamal Nene in Western Siberia, 200 kilometers east of the Wurinkoye field. The Yusaruzkoye field was recovered in 1969 and extends over approximately 1100 square kilometers. The license for the field was awarded in 1993 and is valid until the end of 2,043.
The gas produced is transported to the central processing facilities in the field and from there shipped 120 kilometers to the tailing point of Gazprom's transportation network. After going through various compressor stations, the gas is fed into the Nord Stream pipeline. The total distance from the fields to the landing point in Germany is close to 4,000 kilometers. Production started at Usnaruskohe in October 2007. In 2,009, Usnarus koi reached plateau production of 25,000,000,000 cubic meters per year, which corresponds to 400,000 barrels of oil equivalent per day, currently more than 140 wells are producing.
The production profile shows that the Eusenerus Koye project brings net production of 100,000 barrels of oil equivalent per day to OMV right after closing. The field will add approximately 580,000,000 barrels of oil equivalent of remaining recovery reserves going forward. Yuzhno Russkoye will deliver 100% reserve replacement rate for around 5 years based on OMV's production volumes from 2016. OMV's share of CapEx is expected to amount to approximately US20 $1,000,000 per year until license expiry. Therefore, only very small investments are needed to realize the production profile.
Our participation in Usenrooscoil does not change OMV's CapEx guidance. Now let me explain to the subsurface of Usnarus Koye. The field consists of 4 layers. The first layer is the Toronian reservoir, which lies at 700 meter steps. Production tests from first wells are ongoing at the Toronian reservoir and the final investment decision for the development of this layer is planned to be taken in Q4 2017.
The second layer is the Sanomanian at the steps of 8 50 meters. This is the layer where the car production comes from. There are 2 more layers at the tips of 1200 meters and 2,800 meters, respectively, which are not yet developed. Looking at the combined production profile, of course, our participations in Eusenerus CoA and Argimo 4N5, one sees steady production growth. To date, Usnarus koi is already producing at plateau.
Production will begin to decline at Usnarus Zhcoia in the early 2020, but then, AGMO 4 and 5 will begin. This ensures a stable and increasing production flow for OMV for a long period of time, reaching around 100 and 50,000 barrels of oil equivalent per day in 2025. Usnarowski production, resulting in an immediate and stable cash flow will be used to fund the capital needs of Achimov 45, which will start producing in 2019. This means that with the acquisition of Fusil Ruskoye, we are creating a self funding OMB Russia business. Following this transaction, Russia becomes one of our core regions in our upstream portfolio.
Both projects provide OMV with a sustainable Russia upstream portfolio, boosting where these reserves base have more than 1,000,000,000 barrels of oil equivalent. Let me now turn to the organizational structure and the financial impact on OMV. The gas produced is sold by the operator 7 Nefti Gazprom, brought out to the 3 joint venture partners. OAB's 24.99% share in 7F Degalspro's production will be sold by the trader at the cost plus margin price. The trader will subsequently sell the gas to Gazprom under a take or pay agreement.
The volumes will be 50% sold domestically and Russian domestic price netback and 50% at German import price netback. The traders results will be fully consolidated into OMV's figures in keen CCS EBIT and net income. In addition, OMB will consolidate 24.99 percent of 7 Neste Gasfron's net profit in income from equity accounted investments. The Traders and 7 Neste GasBrom's net profit in each financial year will be distributed as dividends. OMV will receive its share of dividends for the result of the financial year 2017 starting in 2018.
Now let me hand back to Rainer for the strategic rationale of this transaction.
Thank you, Hans. Ladies and gentlemen, let me now summarize the strategic rationale. By acquiring the stake, OMV will provide this stake with the opportunity to increase its current production by approximately 100,000 barrels per day. This means that after closing, OMV will be producing more than 400,000 barrels per day. Costs in Russia along the entire Apsi and value chain from finding to development and production costs are among the lowest in the world.
Therefore production in Russia will improve OMV's cost position. Unit production costs in Yuzhoye are expected to be below $2 per barrel on average for the contracted period. This translates into average production cost in our upstream portfolio of below $10 per barrel after closing. This was the target I have announced to you, which we have reached now as OMV as a cost target. Usuals Goya will generate attractive cash flows without requiring significant investments.
It is expected to generate dividends of approximately $200,000,000 per year mid term. CapEx needs are projected to amount to only US20 dollars per year until license expiry. Just put the number in the context of our budget, which is US2 1,000,000,000 and this is 1% of our budget, what I'm talking about. So less than the figures I normally discuss with you. The transaction gives OMV the ability to replenish its reserves with remaining recoverable reserves of around 580,000,000 barrels, Usualis Coia becomes major source of reserve replenishment in OMV's portfolio.
Thus, the usual risk volumes will enable OMV to reach its strategic target of 100% reserve replenishment rate for a period of around 5 years based on our production in 2016. And OMV has, of course, a long and successful cooperation with Gazprom for almost half a century. Gazprom is a key gas player for Europe and will remain in this position for decades. And OMV will continue to identify and jointly develop further projects and opportunities with Gazprom. Thank you, ladies and gentlemen.
And now we are more than happy to take your questions.
Of course, we would like to invite you to resume the queue for any follow-up questions you may have. So now we have already a list of questions and we will start with our dear colleague, Mehdi Ennebati from Societe Generale.
Hi, good morning all and thanks for taking my questions. Two very small questions, So not one, but 2 very small. First one, you provided €200,000,000 cash dividend from the Yuzhno Russkoy project from midterm. What does midterm mean? And what gas price do you use to get this EUR200 €200,000,000 dividend?
And second question, now you've resolved your production decline issue with Akimov 45 and Yuzhno acquisitions. Should we consider that even post 2018, your CapEx will remain at €2,000,000,000 Thanks.
Yes. So welcome, Mehdi. I'm more than happy to answer your questions very short. Mid term means 3 to 5 years. The gas price we are using, we keep as a secret, but I will give you some guidance that you will look into the forward prices.
The production decline past 2018, we are still committed to the €2,000,000,000 CapEx guidance we have given to you. So there is no further need to increase our CapEx forecast. As I have said, usually with COYLE has no real impact on our CapEx numbers.
Yes. So post 20 18, your CapEx will be will remain at €2,000,000,000 Correct. Thank you.
Good. So next question comes from Michael Alsford, Citigroup. But please limit it to one question because we have so many. Otherwise, the other colleagues don't have a chance to ask. Okay.
Michael?
Thanks, Maggie. I'll honor your request. So one question for me. So can you just confirm what the cash in will be from the Petrola FISI deal in the Q3? There's lots of moving parts.
So I just wanted to know what you'll receive in terms of incremental cash versus the headline price that you've announced today. Thank you.
[SPEAKER MARTIN
PEREZ DE SOLAY:] The cash coming to the OMB growth will be as indicated already, EUR 1.368 less AT1. The AT1 refers to a sales price that will be transferred from OMB Gas and Power to buy out the gas entities from the Petrolophiti Holdings. So the difference will be the cash in into the group with 1.287.
Okay. Thank you. Welcome.
So the next one comes from Thomas Adolff, Credit Suisse.
Good morning. Thanks for taking my question. Rainer, I think in Russia, they drink vodka, not champagne. But I do look forward to given the importance of Russia now to OMV, I look forward to the field trip that you plan on organizing. The question I had was just overall on the portfolio.
I think in the past you've said each of the key hubs that you plan on building needs to be at least 50 kilobytes D in size and self sufficient. And obviously, Russia will represent triple the minimum by 2025. So I guess my question is, by 2025, as you see the business today and whatever potential acquisition you're planning for the near term, how much overall where do you see production evolve by 2025? And also how do you define concentration risk if there's a definition for that? And how do you think about oil versus gas split by 2025?
Thank you.
Well, Thomas, I have to make a first statement on this nice liquids. I started to drink champagne with Uniper because it's a German company, but I will continue with vodka with Gazprom when we will close our asset deal.
Certainly.
So let's talk about 2025. Well, Hans has given you a little bit of an idea where we are going to be in 2025. He was talking about 400 and 50,000 barrels per day company. But do we sit back and do nothing until 2025? I don't think so.
We will prepare the company for value added growth. Right now, we do see projects in our pipeline, which will bring us to 450,000 barrels per day. It's a little bit depending on how much North Africa will kick into our numbers. But we have now changed our position in Libya. As you may remember with the last transaction when we have acquired the shares from Occidental, we have now the potential to build the 50,000 barrels a day production in Libya, which is bringing Libya as a core by itself.
So as we speak about our production volumes from Russia right now, if you take the increase from 320 to 420, we are talking about 1 fourth of our production, which is associated with Russia. So that's more or less a pretty good size in our portfolio. If there are other opportunities, let's wait and see how we will out balance our portfolio. We might grow then also in other regions, but as an orientation, one 4th to 1 third is more or less the production volume we do have in our mid to long term plans right now. The split oil and gas will be now in favor of gas, slightly 60% is now gas.
We don't make it a secret that we do like gas because the outlook for gas looks a bit the long term outlook for gas looks a bit more positive than for oil. We're talking about the global growth in gas, whereas we are talking long term globally decline of oil demand. That's why we have a clear strategy that we would like to go for gas.
Perfect. Thank you very much.
So the next question comes from Mark Hoefler from Jefferies.
Hi, there. Good morning, everyone. Thanks for taking my question. I guess this one's a little bit similar to the previous question. Rynos, a lot's changed in the company since you became CEO in a relatively short period of time.
Given or rather assuming successful completion of this transaction, is it fair to say that all the sort of the big strategic cards which you planned on playing when you first joined the company will have been played? Thank you.
Well, Mark, we have done a lot to restructure our portfolio. Absolutely, I fully agree. If you look back within 1 year, we are talking at least about 3 big mega deals we have closed with our transaction. Is there more to come? Well, first of all, we have to finalize our swap transaction, which makes us really busy, which is also a $1,000,000,000 transaction.
And we are working hard also to find a solution to participate in the Nord Stream pipeline, Nord Stream 2 pipeline project. And then give me some time to think about a new surprise for you.
Great. Thanks very much.
And the next question comes from Hafun Rashid from Morgan Stanley. Good morning, Hafun.
Thank you. Good morning. Thank you for the presentation. Actually, most of my questions have already been answered actually. But the one question I have is just on the dividend impact.
And you talk about it sort of obviously coming in from 2018. You've given a medium term guidance. Is there any sense you can give us in terms of what that could be sort of nearer term? Is there anything around 2018 that we should think about that it could be quite a bit lower? Or actually with 2018, are you likely to get sort of 2 dividend payments in 1?
I just wanted to get clarification on that because the transaction is dated as of 1st January 2017, so just in terms of understanding the phasing of the cash flow. Thanks.
Thank you, Haeysen, that you did not repeat what you always say that our dividend yield is so low. I know that. And I'm always thinking about it. So I have taken your point. And that's the reason why Reinhard last in our last conference call said that we are working on a progressive dividend.
I don't have to explain to you what progressive means. First of all, what we can say is our cash flow in 2017 is not usually negatively impacted by the 2 transactions. What we have said, we have closed our deal in January with the Sicapoint. So the Q1 2017 will have an impact from cash in from this transaction. So as we speak about 2017 and if I remember the face of Reinhard, he still has a smile when we talk about cash flow.
So 2017 looks good. 2018 and the dividend, we have to wait how we are going to close 2017, of course. I know that you don't like this answer, but that's the only one I can give to you.
Sure. Sorry, apologies, I wasn't clear. I actually was referring to the dividend from the acquisition that you've made today. So rather than the OMV dividend, sorry, I didn't make that clear. So I'm just given that you will receive dividends from this entity from 2018 onwards, I just wanted to understand whether the cash flow from that will sort of come in at the start of 2018 or you get sort of 2 dividend payments effectively in 2018, which is your 2017 dividend and 2018?
No, no. We only get one dividend and continuously you should calculate with the €200,000,000 year by year by year. That's the dividend inflow.
Good. Okay, very clear. Thank you.
2018, we get the dividend from 2017. From 2017.
And so on.
And so on. Thanks. So in 2017, there will be a dividend paid, of course, from Usher and Ruskoye into the pocket of Uniper for the year for the fiscal year 2016. So therefore, the production, the net dividend from the production in 2017, we will get in 2018 from January 1, '17 onwards.
Very clear. Thank you.
Yes. Super. Next question comes from Heimish Clegg from Bank of America. Hello, Heimish.
Good morning, everybody. Thanks very much. Hamish Clegg from Bank of America. My question is just on if you could confirm exactly the EV paid for the Rescoa assets given that in the announcement you took about the $1,850,000,000 plus cash on the balance sheet. If you could confirm that along with how you reconcile that €200,000,000 dividend you talk about with what Uniper said this morning on their call of €175,000,000 of EBITDA?
Well, first of all, the $1,850,000,000 we paid is more or less, as we have explained the purchase price.
You have
to deduct the transportation cost to the $1,800,000,000 which is the repurchase price, deducting the transportation cost. And as we speak about the net cash position is $60,000,000 but this is left pocket, right pocket. We do have €60,000,000 in the company and we will pay them the €60,000,000 So you are netting it, yeah? It has no real impact at all. So we will net it.
And as we speak about the acquisition price, well, we have asked Lambert Energy to have a look into that and Lambert Energy has made a calculation as a consulting company that we paid something between $3 $3.5 per barrel on 2P reserves, which is more
or less
the average price acquisition price, which has been paid also with transactions you have seen in the Russian market the last 2 or 3 years ago. On a flowing barrel per basis, we have the $18 per barrel, which is one of the lowest acquisition prices I have seen now on my slide from Lambert Energy. If you compare with the last transactions we have seen in the Russian market. So we are not calculating on EBITDA and on any statement of Uniper. What we can say is we have looked into our numbers and we are going to tell you that the $200,000,000 are the one you should use as a dividend payment to calculate our deal.
Excellent. Well, thanks very much and congrats again on the deal.
I would like to add something because Rainer mentioned the price, the purchase price is based on what he said, the example, Lambert Energy based on 2P reserves. What you should know is that on the one hand, we have contracted volumes and around 2 thirds because the Centermanium layer is fully developed already, You can consider 2 thirds of the reserves as proof of reserves and 1 third will be booked over time as proof of reserves as well. So it's a little bit better than 2P reserves, what you should have in mind.
So actually, sorry to kind of follow-up on that because I think that's very interesting because the number you talk about in terms of 580,000,000 barrels,
is that
a reserve number or 1P reserve number? Just because I noticed it was different or a bit lower than what Wood Mackenzie forecast, which is close to 750,000,000 barrels of 2P?
Where we are deriving from is we have in contract terms, we have guaranteed 610 Bcm. We have been producing already until end of 2016, 2 15 BGM. So what's left is around 400 BGM, 1.4 percent, so 25% is for us. These are 100 BGM, and this is calculated on BOE basis, the 580,000,000 BOE. So that's what we have contracted.
And as I said, because the cenomanian layer, which is the producing layer right now, is fully developed. You can consider this at least as 2 thirds of P50 reserves. Why I can't give you a key information on it because the Russian system, they don't have the P50 and the P90 reserves as we do. They have different categories of reserves, yes. That's why we can 100% translate it into P50 and P90, but that's why I said the proxy is 2 thirds P90 and onethree P50 reserves.
Got it. Thank you so much.
The next question comes from Matt Lofting from JPMorgan.
Thanks. Thanks all. Good morning. Ryan, could you just talk about how you're thinking about sort of the risk management on country specific capital exposures and what the right levels for MVR going forward? Russia is obviously now becoming a core hub for the company going forward with this deal following on from the Akimov asset swap.
I'm just wondering whether you're now getting towards the limit of the capital exposure that you're comfortable putting into Russia or whether we should expect you to continue to look to further build out the position alongside screening opportunities in Iran and UAE that you've talked about previously? Thanks.
All right, Matt. Thanks for the question. Well, the reason why I'm so happy that we have closed both deals during the weekend is it tells you the changes in our risk portfolio. What we have done over the weekend is we have substituted our risk position in Turkey with a new position in Russia. From our judgment point of view, the risk we are associating with Russia is lower than the risk we do see right now in Turkey.
If you read the press, how the relationship, the political relationship between Europe and Turkey is developing, I see it contrary to the first dynamic I do see in the political European arena that they are restarting the dialogue with Russia. All the risk we are talking about Russia is the political remaining risk as the conflict all around the Ukraine. So let's wait and see how this is going to develop. The risks within the country, well, I know that field since 10 years. I was with the 20 years in Russia.
We have been always paid. We have had always a fair system and we have had lots of success in Russia. So as a country by itself, given the framework they offer us, it's very, very reliable. The geological risk, if I listen what Hansel said, forget about it. We are talking about a cash cow we have now acquired.
And therefore, we have no CapEx, real big CapEx commitment towards Russia. If the moment we are going to close the deal with Gazprom on Achimov, we will have committed €900,000,000 of CapEx for the development of Achimov IV, V. And this is over a period of 5 to 7 years. If we take into account that we have €2,000,000,000 as a budget for each year, we are not talking about the substantial investment we are dedicating in our portfolio towards Russia. What we are going to do is, we will now close our deal with Gazprom and then we will wait and see whether or not new opportunities arriving and knocking at the door.
We are very much driven by costs. What is the value if I operate in a country where I have extremely low political risk, but I have production cost of $80 per barrel. So therefore, we have to take both into account, especially that we are driving our portfolio towards low cost production. So what I'm going in the long in the short version, we have not reached our limit in
our portfolio. Good. This was the short version.
Great. Thanks, Rene. Appreciate it.
Here we move on to Henri Patricot from UBS.
Yes, everyone. Just one question left for me. On the CapEx profile, I'm trying to reconcile what Uniper was saying about additional CapEx requirements for production in the midterm with what you've been saying about the $20,000,000 So should we assume that this is very much front end loaded as you develop the Tyronium layer and falls on even much lower to $20,000,000 later on? Thank you.
Yes. Thanks, Henry. For the lifetime, as we said, until the expiry of the licenses, it will be less US20 $1,000,000 per BOE. In the midterm, meaning the next 3 to 5 years, we will decide at the end of this year, we will make the final investment decision for the development of the Toronian. The Toronian should go on stream with the 1st economic production in 2021.
Until then, we will spend some money for drilling, but it will not be more than US40 dollars, US50 $1,000,000 per year in this midterm phase. And then later on, it will go down substantially so that we arrive at below $20,000,000 per year average until the expiry of licenses.
Okay. Thank you very much.
Now we come on to Lydia Rainforth from Barclays.
Thanks and good morning. Just one question, if I could. Just in terms of coming back to the purchase price paid, how are you looking at it in terms of the investments? Should I be thinking about this being 11% dividend yield and that's the sort of criteria that you're thinking in terms of price? Or is there actually a higher IRR NPV number that we should be thinking about from a wider reserves strategic side just in terms of the criteria you used when looking at the valuation?
Well, Lydia, I'm not quite sure what your question is about. Are you asking me what is the IRR we might see with the project usual risk oil or
Yes. Effectively, so from OMV's perspective, you're getting what is an 11% yield. And I'm just wondering if that was high enough for you or if there is actually a higher IRR we should be thinking of from the project
side? Well, Lydia, we don't exclude our IRRs company by country as you may know. But we only give you one indication, which says that OMV as a group is targeting a double digit rate of return overall. And of course, every project has to meet our criteria. So all I can say is it's a double digit percentage, but I don't tell you the number.
I can't tell you, I'm sorry, I can't tell you the number.
Basically, you know that it is our policy on individual projects. We cannot give you IRRs or NPV. So, hope you understand, but I think what we have tried to do is to give you a lot of information concerning or regarding this transaction so that you can make a good and a reasonable assumption.
Thank you. I understand, but I have to try. Thank you.
So now we come back to Mehdi with his follow-up question.
Yes. Thank you very much. Just one question. Trying to compare the 2 recent projects you are involved in. In your view, which one proposes the highest rate of return?
You're comparing now Petrolofisi with Eushenhuska. I think Achimova.
Yes.
Maybe both are excellent. And I like both equally. You can't compare it because the nature of the 2 projects are totally different, Mehdi. When we talk about the usual Ruzkoye fee which we acquired, you will get immediate cash, which I like. Early cash flow makes you happy, you know that.
And the second project, we will use the cash we generate from Usniroskoye to be invested for future production from Achimov. So both the combination do make sense. And as we speak about Achimov, we are not talking about a dry gas field like usual Ruskoye. Onethree of the production is of course condensate, which is a high value product. So we do have a split.
So what I say, I'm falling in love with both projects and don't call me that I have to stay only with 1 and decide for 1. That's not fair.
But does it mean that ACIMA's first time return is higher than the one you've just realized than the acquisition you've just realized today. However, it's not free cash flow positive from the 1st year. Should I understand it like this?
No, Mehdi. Both returns are excellent. I repeat myself. You don't get anything more than this.
Good. So maybe we move on. The next question comes from Thomas Adolff from Credit Suisse.
Just going back to the question I asked at the start around concentration risk or has met such risk exposure. Ultimately, managing relationship is driven by performance as an operator and the relationship, good or bad, will be determined by that. But it's also the stability of the fiscal regime. So the performance you can manage, it's up to you. The latter you can't and it's kind of a function of external factors which can change the fiscal regime either because you didn't do a good job as an operator or because the country needs money.
So my question, I guess, specific to OMV is, in the eyes of Gazprom or in the eyes of any NOC that you're considering partnering with or deepening your relationship with, Can you just remind me what OMV brings to the partnership other than money?
Well, I think that what makes us special, Thomas, is that we do build an integrated partnership with Gazprom, that we are creating a partnership where on the one hand side, we will be invited to work with Gazprom in their country, in Russia. And if you look how many companies are invited to be a partner of Gazprom, we are talking only about a handful. And OMV is one of them. On the other hand, we are inviting Gazprom to partner with OMV in Europe. And in between, we are partnering in all the different elements of the value chain from upstream towards midstream with the Nord Stream 2 pipeline until we reach our customers in the market.
So therefore, I think we should not pick only one project to discuss what kind of value OMV is bringing into the partnership or Gazprom is bringing into our partnership when we talk about the North Sea, for example. What we can say is both parties do like to intensify their cooperation. As we speak about Usnirozkoye, of course, OMV will benefit for being part in an operating company in Siberia where we can expand our technological footprint towards drilling wells in the permafrost region. We will benefit from that. But don't underestimate what a reliable partner from Europe means for Gazprom.
I'm not talking about how much money I put on the table, whether or not I'm going to pay my bill at the right time. I'm talking about a partner who is also a good partner in difficult times. And we are not facing the easiest times as we speak about the relationship towards Russia. And especially that relationship we do have as OMV towards our partner Gazprom is highly valued by them.
Okay. Just to clarify, I mean, in essence, technology or asset swap opportunities, Gazprom can pick many companies, to be honest with you. I guess your expertise might be in more mature place. But basically, what you're saying is, GazPROM for GazPROM, export of gas is key and the European market is key. And because you're a fairly big European company that does a lot of gas and therefore you're a reliable partner, that's the most important part for this partnership.
Is that a fair kind of summary of how I should think about the release?
I agree with you partly.
I agree with you partly. But as we speak about the technological competence of OMV, I think you see our company not in the right picture. Hans will give you more insight.
I would like to give you some examples where our technical capability compared with other companies where we are and I think we are world's gas operator in material oil and gas fields as you said. But regarding development of new layers like the Toronian, what's key is our drilling capability. And just giving you some examples of our capability, we still hold the world record in onshore shallow drilling horizontal well into Plug. We just established a world record from a floating drilling rig in the Barents Sea horizontal drilling. We are holding several world records and European records in casing whilst drilling.
So this is a competence which we have developed in our core areas and which we will bring to the table with the cooperation with Galsgaard. And I think our that we are participating as a partner there is also very valuable for Gazprom, not only for us.
Perfect. This is great. Thank you very much.
And all these gentlemen, I would like to invite you to bring forward any last interesting questions or information needs you may have. Here, I go along with the currently last question from Bertrand O'Day from Kepler Cheuvreux. Bertrand?
Yes. Hello. Thank you for taking my question. One clarification, if I may, on Page 9 to understand the structure of the deal. So if I understand well, the production will be equity accounted.
And then the flows of income, in fact, will come from 2 different sources. And you canceled around $200,000,000 of dividends midterms. Can you split or the purpose of my question is to understand where is the value in this deal? Is it on the trading side or is it on the production side? And can you try to split us this $200,000,000 I would say dividend between I would say the 2 streams as a net gas pump or the trader?
Well, first of all,
as we speak about the deal, when we talk about the value, first of all, there is a high value for us that we could acquire cheap reserves with cheap production costs. So it's part of our replenishment strategy. And if you look back, Bertrand, what we have spent in exploration over the last years, we are talking about €600,000,000 to €700,000,000 which we could reduce to half, which is around €300,000,000 So that's more or less part of that's the value that we could acquire the barrels in the range of $3 to $3.5 per BOE. Secondly, it will bring down our cost basis, yes, our cost basis. Thirdly, as we speak about the structure of usual coal production, we of course are more than happy that 50% of the gas we are selling is indexed to the European gas prices and that we are not heavily depending on one market, especially the Russian gas price.
Thirdly, as we speak about the cost, the structure from usually this quarter, most of the dollar income is from the trader who sells the production. So the trader is fully consolidated and is clearly running the numbers.
Okay. So if I understand well, the main inflows in terms of dividends will come from the trader.
That's right.
And as for the and then coming back to your production cost, I totally agree that these are very low production cost this field. But as it is equity accounted, I mean, we won't see that in terms of production cost because it is equity accounted, no?
Yes, that's correct. That's correct. But if you really would like to have the real picture of OMV, you should take it into account.
Yes, I agree.
Thank you.
Thanks, Bertrand.
So there are no further questions at the moment. Is there anything else still open? And please press the button. No? Okay.
Then ladies and gentlemen, with that, we are at the end of our conference call. I would like to thank you for joining us this morning. And should you have any other questions, then please contact the Investor Relations team, and we will be happy to help you. We all wish you a very nice day and hope to talk to you soon. Bye bye.
Bye. Bye bye, Ed.
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