Welcome to the HomeV Group's Conference Call for the Q3 twenty You should have received the 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. At this time, I would also like to refer you to the disclaimer, which includes our position on forward looking statements. Additionally, simultaneous to this conference call, a live audio webcast is available on OMB's website. 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 OMV's Q3 2016 conference call. In the Q3, OMV continued to deliver on its strategic targets and turned in a good performance. Where we again generated a positive cash flow after dividends of €239,000,000 In addition, and I'm sure you have seen this, we made an announcement that OMV agreed to sell 100% of the shares in its wholly owned upstream subsidiary, OMV U. K. To Siccar Point Energy Limited.
With me on the call today to explain the results are Rainer Seele, our Chairman of the Executive Board and Chief Executive Officer and Rainer Flori, our Chief Financial Officer. Reinhard will highlight OMV's performance in the Q3 as well as discuss important portfolio developments. Afterwards, Reinhard will review key aspects of the financial statements and talk about the segment results in more details. Reiner then will conclude with the outlook for the full year 2016, and both gentlemen will then be happy to take your questions. So with this, I would like to hand the presentation over to Reit.
Ladies and gentlemen, good morning, and thank you for joining us. I'm happy to review our Q3 financial performance together with my Board colleague Reinhard Florey. Let me start with the key messages. OMB's performance in Q3 2016 revealed that the company is back on successful path. O and B again delivered a positive free cash flow after dividends of €239,000,000 demonstrating the stringent focus on cash generation.
In this context, OMV continues with its rigorous CapEx discipline and will further reduce CapEx to EUR 2,000,000,000 in 2016. For next year, CapEx of €2,200,000,000 is planned. This is below our previous guidance. At €360,000,000 the 2016 exploration appraisal expenditure will also come in lower than budget. For 2017, we reconfirm our initial E and A target at €300,000,000 In addition, we made progress optimizing the portfolio by executing our strategic M and A projects.
On September 22 this year, OMV signed the agreement for the sale of a 49% stake in Gasconc Austria to a consortium composed of Allianz, which is Europe's largest insurer and Snam, Italy's gas infrastructure operator. We are aiming to close the deal until year end. Total cash consideration will equal €601,000,000 We also continued to further optimize our North Sea portfolio. OMV agreed to sell 100% of the shares in its wholly owned upstream subsidiary, OMV UK to Siccar Point Energy Limited. Let me give you some more details on this transaction.
The transaction has been signed by the parties and has an economic effective date of January 1, 2016. The transaction value amounts up to US1 $1,000,000,000 The transaction value consists of a firm payment of $750,000,000 and a contingent payment related to the Rosebank final investment decision in the amount of up to $125,000,000 On top, the parties agreed on a purchase price adjustment with respect to CapEx to the effective date. This results in a further consideration in the amount of approximately US125 $1,000,000 Now let me review OMV's upstream position in the U. K. We are partner in 22 licensees in the U.
K. Continental Shelf. Just a few examples, production comes from the Jade gas condensate field in the Central North Sea, The Sheehanian redevelopment project in which OMV has an 11.8% stake is scheduled to restart production in 2017. Additionally, OMV holds stakes in several appraisal and development projects, including 20% of Rosebank, 47.5% of the Kambo oil and gas discoveries and 26% on Jack Dor, a high pressure, high temperature discovery in the central area of the North Sea. This transaction is subject to conditions including regulatory approval and is anticipated to close in the Q1 of 2017.
As a consequence, we had to impair the book value of the assets by €458,000,000 in Q3 2016. At closing, we will realize foreign exchange gains currently estimated at approximately €100,000,000 related to the currency translation of the U. S. Dollar subsidiary, OMV UK. At the same time, OMV's related future investment requirements will decrease.
This transaction is a major step towards the further optimization of our portfolio. Only plans to use the proceeds for strategic investments in low cost development regions and for strengthening the balance sheet. One key message is always important, ladies and gentlemen, our HSSE performance. The sustainable management of health, safety, security and environment is top priority for OMV and critical to the responsible delivery of our products and services. Unfortunately, in the course of 2016, the lost time injury rate trended upward.
We are deeply concerned that there were serious incidents, particularly in our upstream activities. We are undertaking a 3rd party audit to investigate and analyze these incidents. In addition, we rolled out the 2nd phase of our safety culture program across the entire group. This program focuses on observing behavior, intervention and recognition. Now I would like to briefly talk about OMV's market environment.
The average oil prices stabilize at a level of US46 dollars per barrel in Q3 'sixteen versus Q2 'sixteen. Of course, the OPEC agreement end of September to cap production had a supportive effect on the price level. Saudi Arabia and its Gulf allies have preliminary agreed to cut production by 4%, while Russia said it was prepared to freeze at current production levels. The OPEC Gulf members are set to be unwilling to give Iraq an exemption from any agreement. Given current developments, OMV arrived at a new oil price assumptions of US44 dollars per barrel for 2016 and sticks to the US55 dollars per barrel for next year.
Also, Central European gas prices remained stable in the Q3 2016. OMV's realized gas price in upstream was €13 per megawatt hour due to long term lock in gas agreements and pricing in countries not linked to the Central European gas sub price. OMV sees a seasonally upward trend in gas prices for the rest of the year. A short remark on the refining market. The OMV indicator refining margin declined by US1 dollars per barrel to US3.7 dollars per barrel in the Q3 of 'sixteen compared to Q2 'sixteen, mainly driven by lower gasoline and naphtha cracks.
Seasonally stronger demand during the summer driving season could not compensate for the oversupply. However, the Middle East events recovered slightly, supported by supply disruptions and a modest increase in demand. For the Q4 2016, we expect OMV's indicator refining margins to go up along with an increase in the middle distillate spreads. Finally, petrochemical margins improved compared to Q2 2016, supported by higher demand. In the Q4 2016, petrochemical margins are expected to remain on a similar level supported by strong demand.
With the next slide, I will highlight the key figures of the Q3 and Reinhard will comment on that in greater detail later. Clean CCS EBIT increased from EUR 214,000,000 in Q2 2016 to €415,000,000 in Q3 2016 due to higher upstream and downstream results. Clean CCS net income attributable to stockholders came in at €447,000,000 This was higher than clean CCS EBIT because of the strong results from Borealis and lower taxes. Clean CCS earnings per share increased to €1.37 versus €0.68 As mentioned before, free cash flow after dividends was again positive at €239,000,000 OMV generated an EBIT of €63,000,000 significantly up from the €300,000,000 loss in Q2 2016. In Q3 'sixteen, special items amounted to €350,000,000 They included the €458,000,000 impairment related to the OMV upstream assets in the U.
K. EBIT in Q2 2016 was also significantly impacted by €530,000,000 of impairment charges related to the Rosebank field. Net income attributable to stockholders came in at €48,000,000 Moving on to our financial performance in the 1st 9 months of 2016. OMV realized solid operating results despite the decrease in both the oil price and the refining margins. OMV reported a clean CCS EBIT of €796,000,000 34% lower than in the previous year.
Both upstream and downstream turned in lower results. Clean CCS net income attributable to stockholders decreased by 13% to €842,000,000 Free cash flow before dividends showed a significant improvement to €645,000,000 In the same period of the previous year, the free cash flow was only €103,000,000 Free cash flow after dividends came in at €266,000,000 On the next slide, we will discuss our key portfolio developments. On September 22 this year, OMV signed the sale agreement for a 49% minority stake in Gasconet Austria to a consortium of Allianz and Snam. This transaction supports the financial stability and cash flow for the OMV Group, while keeping a majority stake in GasKonext Austria. In addition, it advances OMV strategy to restructure the downstream gas assets and to reduce its exposure to the regulated gas business.
The total cash consideration will equal €601,000,000 The enterprise value is €1,400,000,000 corresponding to an enterprise value per EBITDA multiple of 8 times. The closing of the transaction is expected by year end and is conditional upon merger control clearance by German and Austrian authorities. On October 6, 2016, OMV closed the sale of a 30% interest in the U. K. Offshore oil and gas project, Rosebank, to Canadian Suncor Energy.
Upon closing, Suncor made an initial payment of US50 $1,000,000 Following the co venture's approval of the Rosebank project final investment decision, OMV will $1,000,000 On October 10, 2016, OMV Petrolophisi agreed to sell the Aliaga terminal in Turkey to Soca. This divestment is fully in line with OMV's Patroffizi strategy to continuously improve the efficiency of its thermal network and supply chain. OMB Patroffizi will continue to use the fuel and LPG terminal in Aliaga based on a long term storage and throughput agreement. Closing of the transaction is expected by year end 2016, subject to the approval by competition authorities. As presented before, OMV divest its wholly owned upstream subsidiary in the UK for up to US1 $1,000,000,000 to Siccar Point Energy Limited.
During the course of 2016, OMV continued to reduce its CapEx spending. While we projected CapEx to come in at €2,400,000,000 at the beginning of the year, we now estimate that we will only spend €2,000,000,000 Investments for Nord Stream 2 will not materialize in 2016 and certain upstream projects were phased. This does not impact our production forecast. In the 1st 9 months of 2016, we have spent €1,400,000,000 with upstream projects accounting to €1,000,000,000 Therefore, the North Sea regions accounted for €427,000,000 with the majority of CapEx allocated to the development of the Goldfax, Sheehanian and Asda Hansteen fields. O and D Patrum spent almost €330,000,000 on field redevelopment project as well as on workovers and drillings.
In Tunisia, we proceeded with the development of the Navara gas field. For 2017, we are planning a CapEx of €2,200,000,000 This is below our earlier 2017 guidance because so far we have no CapEx planned for Nord Stream 2. In 2016, we will reduce exploration and appraisal expenditures by 41% to €360,000,000 This forecast reflects a €90,000,000 reduction from the €450,000,000 in exploration and appraisal expenditures communicated in August 20 16. The main reasons are lower drilling costs and reduced exploration activities, especially in Romania. On the 1st 9 months of 2016, we spent €233,000,000 mainly related to the Visting well in Norway, as well as exploration and appraisal activities in Romania and Bulgaria.
We continued with our evaluation of the Neptun Deep Field in the Black Sea, The drilling progress at the Bolshkov well in Bulgaria has been finished with the exploration resulting in an oil discovery in the Black Sea. With respect to our Sub Sahara Africa position, we additionally seized activities in Namibia. OMV's strategic target in 2017 will be to reduce exploration and appraisal expenditure to €300,000,000 We also continue to make good progress with the implementation of our cost reduction and efficiency program. We will achieve cost savings of €100,000,000 by the end of 2016 and commit to more than €150,000,000 by 20 17. And now I would like to hand over to my colleague Reinhard for the discussion of the financials.
Thank you very much, Reinhard. Good morning, ladies and gentlemen, also from my side. On Slide 14, you can see the summary of the quarter 3 income statement. My remarks will focus on the comparison mainly between Q3 versus Q2 2016 figure. The reported EBIT amounted to €63,000,000 compared to minus €300,000,000 in Q2 2016.
The net financial results slightly increased to €75,000,000 versus Q2 2016 due to a strong contribution from our Borealis with €110,000,000 and lower net interest expense. OMV recorded a tax expense of €8,000,000 so the tax effective rate was at 6%. You would compare the clean tax rate was minus 10%. Non controlling interests were up, driven by higher contribution from OMV Petro. This brought us on a reported basis to a net income attributable to our stockholders of €48,000,000 which is equivalent to €0.14
per share.
Adjusted for special items, which includes the €458,000,000 impairment booked for OMB's upstream assets in the UK, Clean CCS net income attributable to stockholders amounted to €447,000,000 This was more than double the Clean CCS net income generated in Q2 2016 and even more than the corresponding quarter last year. The clean CCS earnings per share amounted to €1.37 in Q3 2016. Let me now turn to our cash flow, which was again strong in Q3 2016. Cash flow from operating activities came in at €652,000,000 Depreciation, amortization and impairment, including write ups, amounted to €899,000,000 Cash outflow from net working capital was €154,000,000 primarily related to the seasonal increase of accounts receivables in downstream oil as well as inventories in downstream gas. We used €469,000,000 in cash for investments, particularly in upstream.
This encompassed projects in the North Sea, workovers and field redevelopment at OMV Petrom and development of the Navara project in Tunisia. Free cash flow before and after dividends came in at €239,000,000 positive. This shows that we are well on track to deliver on our promise to be free cash flow positive already to 2016. So this is really free cash flow positive after dividend. We also substantially increased the results despite ongoing difficult environment.
Clean CCS EBIT rose from €214,000,000 in Q2 to €450,000,000 in Q3. In upstream, sales volumes increased by 4% since part of the Q2 2016 production volumes were sold in Q3 2016. Production decreased by 5% to 301,000 barrels of oil equivalent per day due to planned turnarounds in the Norwegian field, Gullfax and Gudrun. Absolute production costs further decreased, mainly as a result of ongoing cost savings initiatives. Upstream earnings increased from breakeven to €38,000,000 positive, benefiting from a positive hedging result in the amount of roughly €26,000,000 In downstream, the utilization rate of the refineries was back at 97% in Q3 2016, following the turnaround activities in Q2 2016.
Higher refined product sales more than offset the lower OMV indicator refining margin. The retail and commercial business experienced seasonally increased sales volumes. Retail and commercial margins were higher, backed by strong customer demand for OMV's products. OMV Petrolophysis performance was also seasonally strong. The performance of the petrochemical business strongly increased due to the higher sales volumes and improved product spreads.
Downstream oil earnings increased substantially to €312,000,000 Downstream gas again performed well and generated a clean EBIT of €65,000,000 This included one time gain of €22,000,000 mainly related to the clearance of the contract. Now let's look at the reconciliation from clean CCS EBIT to EBIT. Our deducting special items and inventory effect from Clean CCS EBIT, EBIT came in at €63,000,000 Special items, the amount of minus €350,000,000 were mainly related to the impairment of OMV's Upstream UK net asset, as mentioned, €458,000,000 On the other hand, the ongoing divestment process for an upstream asset in the Middle East and Africa region triggered a pretax write up of €116,000,000 On the next slide, you can see the upstream clean EBIT development in Q3 2016 versus Q3 2015. Clean EBIT declined from €52,000,000 to €38,000,000 as a result of significantly lower oil and gas prices. The realized crude oil and gas prices dropped by 14% 20%, respectively.
Hedging had a positive impact of some €26,000,000 in Q3 2016. This hedging result, however, was €36,000,000 lower than in Q3 2015. Higher sales volumes, as well as reduced costs and lower depreciation almost offset the negative impact of the decline in oil and gas prices. Production in upstream rose by 3% to 300 to 1,000 barrels of oil equivalent per day. Sales volumes increased by 8% due to additional liftings in Norway and contributed €39,000,000 to clean EBIT.
Lower clean exploration expenses as a result of reduced exploration activities had a positive impact of €36,000,000 and production costs drove the improvement in clean EVIT on the other category in the amount of €20,000,000 The OpEx in U. S. Dollar per barrel oil equivalent decreased by 13% now to 11.4 percent in Q3 20 16, reflecting our strict cost management coupled with higher production. Finally, lower depreciation as a result of the lower asset base following impairments in Q4 2015 contributed €38,000,000 Let me now turn to the downstream performance. Downstream clean CCS EVIT decreased from €402,000,000 to €377,000,000 This was attributable to the lower OMV indicator refining margin, which decreased from US7.8 dollars per barrel in Q3 2015 to US3.7 dollars per barrel in Q3 2016.
On the other hand, the refinery's utilization rate increased from 93% to 97%. At 8,400,000 tons, total refined product sales were slightly up. The petrochemical business experienced good demand, but margins, while on a good level, were lower than Q3 2015. In the same period last year, the petrochemical industry was affected by planned and unplanned shutdowns, which drove up prices and margins. In the retail and commercial business, higher customer demand in Q3 2016 resulted in better margins.
Downstream gas, clean EBIT was up by €93,000,000 largely driven by our restructuring efforts. In addition, the result was supported by a higher valuation of forward contracts as well as a one off effect in the amount of EUR 22,000,000 related to the clearance of the contract. Now let's turn to OMV Petrom Growth Results. Clean CCAC VIP increased from €49,000,000 in Q2 2016 to €137,000,000 This was driven by improved results, mainly downstream. The upstream segment of OMV Petrom reported clean EBIT of €45,000,000 The production decreased to 174,000 barrels of oil equivalent per day due to the natural decline.
Our vipetone successfully decreased unit production costs from US12.1 dollars to US11.3 dollars per barrel due to lower personnel, material and services costs. Downstream results of OMV Petron increased from €30,000,000 to €88,000,000 The downstream oil performance was supported by the high refinery utilization rate of 97% as well as seasonally increased sales across all channels. Despite challenging market conditions, downstream gas reported a better result in both gas and power, while still negative. Benefiting from the strong cash generation of the group, OMB decreased both its net debt and its gearing ratio. Net debt declined from €4,400,000,000 at the end of 2015 to €3,740,000,000 The gearing came down and it came in at 27%, comfortably below our long term target of maximum 30%.
OFV's balance sheet is in a healthy state, reflecting a strong liquidity position with €1,700,000,000 in cash and cash equivalents and €3,600,000,000 in undrawn credit facilities. The equity ratio rose up to 45%. Now, I would like to turn the presentation back to Reinhard for the hour.
Yeah. Thanks, Reinhard. Ladies and gentlemen, I now would like to summarize OMV's outlook for you. For the full year 2016, we increased our oil price assumption to an average of $44 per barrel. The gas market environment in Europe continues to be characterized by oversupply.
However, gas prices on European spot markets are expected to show a seasonally upward trend in Q4 2016. The OMV's indicator refining margins in the Q4 2016 is projected to be above the Q3 2016, along with an increase in middle distillate spreads. Capacity utilization in Q4 'sixteen is expected to be above 90%. Our production guidance for 2016 is slightly above 300,000 barrels per day. We reduced our CapEx guidance from €2,400,000,000 to €2,000,000,000 in 2016, with Upstream accounting for 75%.
We reduced the exploration and appraisal expenditure guidance to €360,000,000 And we will achieve cost reductions of €100,000,000 in 2016. Please note that the Q4 2016 will see a seasonal decline in downstream oil compared to Q3 2016. This previous quarter was supported by high product demand during the driving season. In addition, we do not anticipate any one off gains in clean EBIT of downstream gas in the Q4 2016. As a consequence, we expect Q4 2016 results to be below the strong level of Q3 2016.
Thank you very much, and we are now happy to take your questions.
Yes. Thank you, Rainer Reinhard. And now ladies and gentlemen, I would like to open the call for questions. I would like to ask you to please limit your questions to 2 at a time so that we can take as many questions as possible. So we have already several analysts here in line.
And the first question comes from Mehdi Ennabati from Societe Generale. Good morning, Mehdi.
Hi. Good morning. Good morning, all. So two questions. First one regarding the asset swap deal with Gazprom.
So 2 weeks ago, Gazprom's Chairman announced that the asset swap deal has been postponed from H2 16 to 2017 and that Akimov production startup has been postponed to 2019. I think initially it was 2018. So is there a link between the asset swap deal postponement and the delay in the production startup? Or is it more due to some constraints from Norwegian authorities regarding Gas Plant taking a minority stake on OMC Norway? And don't you think it will finally be easier for you to buy this 25% stake in AKIMOV in cash rather than doing an asset swap deal?
2nd question on Petrol OphiC disposal process. So Bloomberg related, you received several initial bids. Can you confirm this news please? And would you consider the appetite is strong on Petrolophilic or no? And when do you expect to receive the final bids on Petrolophilic?
We'd be more in H1 twenty seventeen or more by the end of 2017, maybe 2018 given the termites in Turkey? And just one small additional question regarding the CapEx commitment. So you said that you reduced your 2017 CapEx by €200,000,000 due to Nord Stream 2. Shouldn't we expect an impact from Chilean from OMV UK disposal? And post 2018 after Nawara and AstraZenstin startup, can you just remind us your CapEx commitments because it looks like it would be extremely low meaning that you will have a huge flexibility on CapEx?
Thank you.
Oh, Maggie, you really make me busy with all the questions, to be honest. But I answer in the same priority you have asked the questions. Let me start with the asset swap. Well, the asset swap, the timeline has not been postponed. There's a little bit of confusion because there is no clear guidance how we and Gazprom are communicating the numbers.
So that's why I would like to give you the timeline. We both are have plans to come up and to sign a basic agreement, determining the economics, which means what is the percentage Gazprom will get in OMB UK. And then after that OMV Norway, sorry, I'm today, UK is too much in my head, yes. So in OMV Norway and then we need, I think, 1 to 2 years for closing the deal, yes. So the Deputy Chairman of Gazprom, Alexander Medvedev, when he said he sees it in 2017, I think he had a very positive outlook for closing the deal.
So we are fully, yes, within the planned schedule. So I still think we are signing a basic agreement until year end. It's right that Achimov production start has been postponed. That's reevaluation of the development concept. We have put that delay of production start into our calculations.
That's actually one of the reasons why we have to negotiate a bit longer. That's why it has nothing to do with the Norwegian authorities because there is a misunderstanding of the postponement, which isn't a postponement. I agree with you. I would love to buy into Achimov 4 or 5, but Gazprom wants no cash, We have agreed on a spot deal. That's the headline.
And 1 spot component is not cash. But as we are getting liquidity, of course, cash becomes king also in our thinking. But as we speak about the asset swap, the head line remains that we are swapping assets. So it will be there will be only if a minor cash component involved. Petrolofisi, yes, we have received initial bids.
I wouldn't say that the appetite is strong, but we do have a good competitive bidding rounds. The timeline is that we more will have final bids first half next year than second half. CapEx for next year, yes Nord Stream 2 is one major effect for the reduction. But you are right that the sale of OMV UK has a potential to further reduce our CapEx budget, but this has been not anticipated so far. And you are right, Mehdi, that flexibility post 2018 as we speak about CapEx commitments is increasing substantially.
Can you provide can you quantify it, please, CapEx commitment from 2018 2019?
Not at all.
All
right. Well, I can, but I don't want, Mehdi.
Sure, sure. I fully understand. Thank you very much, Rainer.
So then we come to the next question from Henri Patricot from UBS.
Yes, hello everyone. Thank you for the presentation. I just wanted to follow-up on the CapEx. Could you provide us with an idea of the split in direction between the phasing, the cost deflation and Nord Stream 2? And evolve over the following few years?
And you also mentioned that you produce your activities in Romania. Does that have an implication on the level of production that you expect over the next years. Thank you.
All right. Thanks, Henri. For Nord Stream 2, we do have a total CapEx number 100 percent of €8,500,000,000 being published by the company without financing costs. So I made reference now to the CapEx numbers, excluding any financial costs. So the CapEx will be spent over the next year until mainly until 2019, peaking in 2018 18 when the construction of the pipeline is scheduled to start.
That's the reason why in 20 16, there was only a small amount of CapEx spend, yes, but the company has not released any information on the phasing of the CapEx. So that's all I can say about Nord Stream 2, about the CapEx being spent. The second question on Romania, it's right we are focusing now our investment activities in Romania, especially on promising workovers, so that we can keep the production level more or less on budget like we have seen in 2016. So we will have only a moderate impact in 2017. But on a mid to longer term, we have to accept a production decline if we don't increase our CapEx spending in the region.
Okay. Thank you.
Our next question comes from Hamish Beck. Hi,
guys. Good morning. Just one quick one for me. Fantastic cash flow today, but I just wanted to ask you about Norway. I just noticed that as a country in your volume numbers, it came off quite a bit in the quarter.
Was that just a function of maintenance? And actually one other, your employee count is down 7% year on year. Can we expect that trend to continue? And is that one of the core drivers behind your OpEx?
Hamish, can you repeat the first question, please?
The first question was on your Norwegian volumes in the quarter. They were down quarter on quarter, 60 kilobytes D from 72 kilobytes D. Could you explain that?
It was maintenance shutdown.
Okay, fine.
It was planned maintenance shutdown in Norway. That was the reason. Well, the reduction of employees, of course, well, I would guess that the reduction of employees will continue, but not on the high level we have seen especially some 5 years ago because in Romania we reached a certain point where the big headcount cut were more or less the history, yes. But the 5% to 7%, I would say, is not a bad guess.
Thanks.
So the next question we have is from Mark Hoefler from Jefferies. Good morning, Mark.
Hi, there. Good morning, everyone. I just had a couple of quick questions please. Firstly on the U. K.
North Sea divestment, could you say a few words around any tax implications on that sale? And then I noticed the commentary around the resumption of volumes from the Serb Basin in Libya. I was hoping you could quantify that impact, but then also perhaps give us an update on some of your assets elsewhere in country? Thanks.
Mark, to the first question on tax, tax implication is that in general what we have as a positive tax position in our OMB UK is about 150,000,000 euros On the other hand, there is only a small part of that tax positive side that we can transfer into the group. So the other part will be part of the transaction.
All right. Let me give you a little bit more our view on Libya. I just have met the CEO of NSC, Mustafa Sanalla, a few days ago and he told me that Libya is now producing 600,000 barrels per day, so a strong recovery. To my regret, OMV cannot participate on such a good development. We are just between 900 to 1000 barrels per day.
So there is another huge upside. We can go up to 30,000 barrels per day. And the reason is that the infrastructure from the Asara field, which is our main field, is blocked. And that's the reason why we cannot export the crude. We cannot transport the crude to the export terminals.
The good story in Libya is the export terminals are free and you can really lift the cargoes. Impact on reserves, I think we have to look a little bit how sustainable is the situation now in Libya. The NSE Chairman is pretty positive that he can further resume production in his country. I think it's a question of how stable the situation is going to be in Libya. We think that we should be very cautiously go into 2017, so that we might go and plan the current production level with an upside in case we are going to have the infrastructure available to bring our main asset on stream.
As far as we speak about reserves, I think the Libyan production will come back. That's something we do have in our plans and therefore there will be no impact on our reserves.
That's great. Thanks very much.
So then we move on. Next question is from Josh Stone from Bucky's.
Hi, yes, good afternoon. I've got two questions, please. Firstly, on the UK disposal, can you talk a little bit about what the motivation was to sell now? Just when I look at the very strong free cash flow for the 1st 9 months of the year and the impairment you've had to take, if you could just talk a little bit about just the motivation of the timing of the transaction? And then second, I think I heard you say that some of the cash will be used for strategic investments in low cost development areas.
Perhaps you can maybe just elaborate a little bit on that? Thanks.
It's the effort.
Just about the motivation to sell now. First of all, it is very much our inclination to change the portfolio towards more value barrels. And as we have seen, there is, of course, higher exploration, higher lifting coal that we generally have in the North Sea and UK, than in other parts of our portfolio. We have seen a good opportunity in spite of the in general challenging situation for M and A deals these days. And this unfolded We are very pleased that we found with Sicapoint a very good partner and immediately jumped on that opportunity, While this was still a competitive transaction, so this was not just a one side transaction.
And I think we are very satisfied that we were able to close this or sign this transaction. What is it that we will do with the money? Of course, we will strengthen our balance sheet. This allows us to go down in our gearing ratio. This allows us to strengthen the ability of the company to go forward with the strategic plan.
Well, I have one addition. We, of course, also will use the cash to be reinvested to increase our reserve position. Look, Josh, we have reduced our E and A budget from €700,000,000 to €300,000,000 300,000,000 are not sufficient to fully replenish our production. That's clear to me. So therefore, we need to use some liquidity for M and A activities to fill up our reserve position and we have said clearly said that we would like to go for reserves in low cost regions, which we have defined.
So if we are going to increase our reserve position, it will be in the defined core regions. And I made also clear that I'm a fan of early cash flow and that's the reason why I prefer to acquire producing barrels instead of developing barrels. So that's more or less what I want to say in the context of our strategy.
That's very clear. Thank you.
So now we move on to Thomas Sleddzer from Deutsche Bank.
Yes. Good morning, everyone. Two questions I got. First of all, I think you mentioned in your report that you would like to or actually you wrote up some assets in the Middle East and in other regions, and I presume that you are preparing to divest some of your assets further. Can you elaborate a little bit more, I mean, which assets or which geographical location we can expect from YNB further divestments?
And my second question would be on your retail performance. Do you plan to put some more money into regional retail, like similar to some of your competitors in the region? It seems like from your report that your commercial activities were very profitable. So would you like to expand into this direction?
Let me start with your last question, Thomas. Well, the regional retail business, if we look into when we talk about regional retail business, we are talking about Europe and European markets. And we have clearly said that we are expecting the refining margin will come under pressure. We should remember the normal days of refiners in Europe, and we do have that since more than a decade that we have over capacities in the market. So I will be very cautious to go for any retail and refining activities in the European market, especially when we're taking into account that we do see a shift of refining capacities towards the wellhead, so which is not predominant in Europe.
So I would be very much surprised whether OMV would go for investing into new refining capacities or acquiring refining capacities. It would be also not in line as we speak about our divestment program we had to clean up our refining portfolio. Thomas, what we are going to do is, of course, we are more investing along the value chain. So what is and the main focus of OMV is that we are going to support especially our PAT CAM activities and our participation in Borealis. The Borealis management is really top of the class when I see how they have developed the business and you can see it since quite a while how profitable the company is being managed.
And if I look into the growth perspective and the growth history of the company, we are well advised that we should look a bit deeper into Borealis and should spend also some more money into that business. You might not see it in our EBIT numbers, yes, but at the end of the day, the money counts in your pocket and the net income is then the right one to look at. The divestments, I think it's a process that we are going to further optimize our portfolio. We are looking into North African positions where we would like to optimize our portfolio there regionally and especially Tunisia was in the focus of our activities. There we are going to challenge a little bit our colleagues.
Okay. That's quite clear. So what I understood that no retail, no downstream, but rather petrochemicals and upstream of course. Great summary. Okay, good.
Thanks very much again. Thanks. So
we started our Q and A session Mehdi, and we will end it with one question from Mehdi. Is that possible? Go ahead.
Thank you. One question split in 3 parts. The first part, just I just would like to come back to what has been announced by the management in February 2016. So David Davis, previous CFO said that if the oil price goes back to $53 per barrel, it is possible that the dividend, let's say, OMV will increase the dividend to €1.25 Now that your organic free cash flow is very strong, now that you are deleveraging, now that you might invest in, let's say, production, which is cash generative, reserves which are cash generative. Should we still consider that if the oil price goes back to 53 dollars per barrel, you will increase your dividend?
This is the first question. 2nd question, just would like a small update regarding the talks with the Romanian government on the hydrocarbon taxation change. Do you expect any change for 2017 or no? And finally, as you were talking about Borealis, which is doing very well, earnings are improving year on year. Is it fair to consider that the dividend that you receive from Borylice should go up again?
Okay.
Well, David Davis is in pension, but the dividend is not in pension maybe. That's for sure. His commitment on the $53 per barrel, first of all, let's move into 2017 and let's see what price of oil we really get. What makes us busy now these days, Mehdi, is more what is the dividend we do have to approve for the year 2016. So let us close the year 2016 and then let's discuss the dividend on 2017.
What I can indicate right now is that the Board of OMV is right now discussing our dividend policy. Reinhard is working hard on it. And the next year, we are going at latest, we are going to give you a new guidance on the dividend policy of OMV. We first have to discuss it, of course, with our Supervisory Board. No changes in Romanian taxation for 2017, short answer.
And Borealis, with the dividend, well, this is like in every family, Mehdi, We have to fight for a higher dividend as shareholders. And I try to make pressure. I don't know whether I'm going to be successful, yes, but Borealis is, of course, performing on a higher level than 2015. And if you're performing off a higher level and you are not and you have a very high cash flow, then of course, the appetite of shareholders are going up. It's like with you.
Thank you very much.
Good. So ladies and gentlemen, this brings us to the end of our conference call. I would like to inform you that OMZ will next report on its 4th quarter results on February 16, 2017. I would like to thank both gentlemen, Reiner and Reinhard, and I certainly would like to thank you for joining us this morning And we'd like to encourage you, if you have any further questions, please do not hesitate to call us at Investor Relations. We will be very happy to help you.
So with this, I wish you all a very successful day. It will be a very busy day to day considering the elections also in the U. S. And but I we all wish you a nice day and hope to see you soon. Thank you.
Bye bye.
Thanks, bye. Thank you.
That concludes today's teleconference call. A replay of the call will be available for 1 week. The number is printed on the teleconference invitation. Or alternatively, please contact OMV's Investor Relations department directly to obtain the replay numbers. You may now