Welcome to the OMV Group's conference call for the Q2 2016 results. If you would like to ask a question after the presentation, you may register your request by pressing the star one button on your telephone at any time during the actual presentation or during the question and answer session itself. You should have received the presentation by email. 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 OMV's website. I would now like to hand the conference over to Magdalena Moll. Please go ahead, Ms. Moll.
Thank you very much, Simone, and good morning, ladies and gentlemen. I'm Maggie Moll, and this is my first conference call on behalf of OMV. I would therefore like to say a warm welcome to all of you who joined us this morning for the presentation on OMV's second quarter 2016 results. 2016 continues to be a difficult year for the oil and gas industry. In the second quarter, however, OMV managed to generate clean CCS net income attributable to stockholders of EUR 222 million and delivered a positive cash flow after dividends of EUR 172 million. With me on the call today to explain the results are Rainer Seele, our chairman of the executive board and our chief executive officer, and Reinhard Florey, our chief financial officer. Rainer will highlight OMV's performance in the second quarter, as well as discuss important portfolio developments.
Reinhard will review key aspects of the financial statements and talk about the segment results in much more detail. Rainer will conclude with the outlook for the full year 2016, afterwards, both gentlemen will be happy to take your questions. With this, I would already like to hand over to Rainer.
Ladies and gentlemen, good morning and thank you for joining us. I'm more than happy to review OMV's second quarter financial results with performance together with our CFO, Reinhard Florey, who joined the team at the beginning of July. Let me start with the key messages. In the second quarter of 2016, OMV delivered a strong cash flow from operations of more than EUR 1 billion and a positive free cash flow after dividends of EUR 172 million. We continued our rigorous CapEx discipline and reduced our CapEx guidance to EUR 2.2 billion in 2016. We are successfully implementing the cost reduction program and will reach our target of EUR 100 million ahead of schedule. Yesterday, we signed an agreement to sell a 30% stake in the Rosebank field. The transaction is expected to be completed in the fourth quarter of this year.
It rebalances our upstream portfolio and it reduces our future investment requirements. Health, safety, and security is a top priority for OMV and critical to the responsible delivery of energy. This is why we apply stringent corporate regulations, hazard identification, and foster a culture of care to ensure that OMV is a healthy, safe, and secure place to work. In the first half of 2016, the lost time injury rates unfortunately trended upwards. We are deeply concerned that there were more serious incidents. Senior management investigates and analyzes current and high potential incidents. We have already implemented a major accident prevention policy across the group and commenced the rollout of specific training programs. Despite our cost reduction efforts, we do not compromise on health, safety, and security. I would like to briefly talk about OMV's market environment. Let's start with the oil market.
Average oil prices recovered from a $34 U.S. per barrel in the first quarter to $46 U.S. per barrel in second quarter 2016. Speculations about the production freeze agreement among major oil-producing countries, first signs of weakening U.S. production, and temporary production outages were responsible for this development. The Central European gas prices were flat in Q2 2016 compared to Q1 2016. OMV's realized gas price in upstream was EUR 13 per megawatt hour due to long-term locked-in gas agreements and pricing in countries not linked to the Central European gas hub price. A short remark on the refining market. Compared to first quarter 2016, the OMV indicator refining margin slightly declined, reaching an average of $4.7 U.S. per barrel in the second quarter 2016. The middle distillates recovered slightly, supported by supply disruptions and a modest increase in demand.
Petrochemical margins decreased compared to the same period in 2015, and the previous year shutdowns have kept supply in Europe on a relatively low level. I will now highlight the key figures of the second quarter, and Reinhard will comment on them in greater detail later. clean CCS EBIT declined from EUR 375 million to EUR 214 million due to lower upstream and downstream oil results. In contrast, the downstream gas business was clearly up due to successful restructuring efforts, resulting in one-time effects. clean CCS net income attributable to stockholders came in to EUR 222 million. This was slightly higher than the clean CCS EBIT because of the strong results from Borealis and low taxes on a clean basis. clean CCS EPS amounted to EUR 0.7 versus EUR 1.1 in the same quarter last year.
At EUR 1,036 million, cash flow from operations was slightly up versus second quarter 2015, supported by the release of working capital. Free cash flow before dividends came in at EUR 551 million, driven by the strong operative cash flow, which already reflects the first benefits of our cost-saving program and substantially lower cash outflows from investments. A major accomplishment was that free cash flow after dividends was also positive at EUR 172 million, despite making dividend and hybrid coupon payments. OMV generated a negative EBIT of EUR 300 million. We incurred special charges of EUR 608 million, mainly as a result of the Rosebank impairment, which I will explain a bit later. The net loss attributable to stockholders amounted to EUR 168 million. Moving on to our financial performance in the first half of 2016, OMV realized solid operating results despite the 31% decrease in the oil price.
OMV reported clean CCS EBIT of EUR 381 million, 46% lower than in the previous year. Both upstream and downstream turned in lower results. clean CCS net income attributable to stockholders decreased from EUR 600 million in the first half of 2015 to EUR 396 million. Free cash flow before dividends showed a huge improvement from a negative EUR 421 million in the first half of 2015 to a positive EUR 406 million this year. Following dividend and hybrid coupon payments, free cash flow after dividends also came in positive, in line with our strategic target. In the second quarter of 2016, we continued our negotiations with Gazprom on the asset swap. As you know, OMV has been offered a stake of 24.98% in Achimov 4-5 project. In turn, Gazprom would receive a share in an OMV North Sea subsidiary.
We are aiming to reach agreement with Gazprom on the commercial terms in the second half of 2016. Once this happens, the approval process with the authorities will start, which may take one or two years. As announced on August 8
9.
9, 2016, we will be selling 30% of our share in the Rosebank project to Suncor Energy, headquartered in Canada. As you know, Rosebank was part of the Statoil deal in August 2013. At that time, we increased our share, Rosebank, to 50%. Under the terms of the agreement, Suncor will make an initial payment of $50 million on closing. The transaction is subject to conditions, including regulatory approval, and is anticipated to close in the fourth quarter of 2016. Following the co-venture's approval of the Rosebank project final investment decision, OMV will receive an additional consideration of up to $165 million. As a consequence, we have to write down the book value of the asset by EUR 530 million. The deal will significantly reduce our exposure in the U.K. deepwater oil field development.
At the same time, OMV's related future investment requirement will decrease in line with our strategy to focus on low-cost regions. The divestment of our minority stake in Gas Connect Austria continues to make progress. Due diligence is ongoing and numerous financial and strategic buyers have indicated strong interest in the 49% stake. We are targeting to close the deal in 2016, which will positively impact our cash flow. OMV is continuing its divestment of efforts for OMV Petrol Ofisi. The recent events in Turkey put stress on the M&A market, no doubt. However, our view is that the specific transaction will not be negatively affected given the stable performance of Petrol Ofisi in past quarters. OMV has finished the information memorandum and sent it recently to prospective buyers. OMV has finalized the takeover of the 35.7% share in EconGas at the end of May 2016.
We are now streamlining the organization with a major focus on integrating the EconGas sales activities into OMV. In the second quarter, we also started a marketing campaign in Germany. In this market, we ensured a good long-term supply position from increasing equity gas production as well as from long-term contracts. This is currently being marketed by hub trading and direct sales channels. OMV envisages to achieve a market share in Germany of 10% until 2025. Well, OMV's objective is to focus on profitable barrels and the sustainable reduction of unit CapEx costs. Therefore, OMV has a rigorous CapEx discipline. At the beginning of 2016, we estimated CapEx to come in at EUR 2.4 billion. We made an effort to reduce this amount, and according to our current forecast, we will only spend EUR 2.2 billion. This will not impact our production forecast.
In the first half of 2016, we spent EUR 1 billion, with upstream projects amounting to EUR 700 million. OMV Petrom spent roughly EUR 240 million on field redevelopment projects as well as on workovers and drilling, including the Neptun project in the Black Sea. In the North Sea, the majority of our CapEx has been allocated to the development of the Gullfaks, Schiehallion, and the Aasta Hansteen fields as they continue to be rolled out. In Tunisia, we have proceeded with the development of the Nawara field. For 2017, we are again budgeting CapEx up around EUR 2.4 billion. In 2016, we will reduce exploration and appraisal by 26% to EUR 450 million. In the first half, we spent EUR 166 million, mainly related to the Wisting well in Norway and exploration in appraisal activities in Romania. We also started the drilling process at the Polshkov well in Bulgaria.
A review of our sub-Saharan Africa position made us decide to cease activities in Gabon and onshore Madagascar. In the second half of 2016, we will increase our spending with a focus on projects in the Middle East, Romania, and in the North Sea. OMV's strategic target in 2017 will be to reduce exploration and appraisal expenditure to EUR 300 million. OMV is making good progress implementing the cost reduction and efficiency program. At our strategy day in February, we told you that OMV plans to achieve a cost reduction of EUR 100 million by 2017. The program is ahead of schedule, and we are pleased to inform you that OMV will already reach its target by the year-end of 2016. In upstream, we optimized field costs, renegotiated with contractors, cut corporate costs, and restructured operations in Romania. Downstream continued the implementation of its strict cost management program across all business units.
This all means that for 2017, we can commit to more than EUR 150 million in cost savings compared to 2015. Further cost reduction efforts are ongoing.
Good morning, ladies and gentlemen. This is Reinhard Florey speaking. A very warm welcome from my side. I'm very pleased to be speaking to you today. I'm looking forward to meeting many of you during my upcoming roadshow. Starting now with the summary of the Q2 income statement. Reported EBIT was negative at EUR 300 million as a result of the special charges we booked. These were mainly related to the impairment of our 50% stake in the Rosebank field, as well as the upstream licenses in Norway, Madagascar, and Romania. As Rainer already said, the signing of the sale agreement with Suncor for a 30% stake in Rosebank was very recently concluded. That was also not yet included in our trading statement. The net financial result was EUR 72 million, with Borealis again contributing positively with EUR 111 million. The comparable number in the previous year was EUR 127 million.
OMV also recorded EUR 111 million in tax income, which is mainly attributable to losses from high-tax upstream countries, including the effect from the Rosebank impairment. Clean tax rate is in the single digits, given the strong contribution from Borealis and losses from high-tax upstream countries. Non-controlling interests were down, driven by a lower contribution from OMV Petrom. This brings us, on a reported basis, to a net loss attributable to our stockholders of EUR 168 million, which is equivalent to EUR 0.51 per share. If you clean the results for the special charges, you see that our performance was solid. Clean net income attributable to stockholders in the quarter on a CCS basis amounted to EUR 222 million. Let me now turn to our cash flow, which was very strong in Q2 2016. At EUR 1.036 billion, the cash flow from operating activities was significantly stronger than both the prior quarter and previous year.
Cash inflow from net working capital amounted to EUR 345 million, supported also by trade financing measures. Depreciation and impairments amounted to EUR 1.157 billion. We used EUR 526 million in cash for investment. The free cash flow before dividends came in at EUR 551 million, driven by the strong operative cash flow and substantially lower cash outflows for investment. Major accomplishment was that free cash flow after dividends was also positive at EUR 172 million, despite making a EUR 326 million dividend payment to OMV stockholders and a EUR 51 million hybrid coupon payment. Of course, the current market environment puts pressure on the Q2 2016 results. Clean CCS EBIT declined from EUR 375 million to EUR 214 million. Despite the 26% lower oil price, upstream clean EBIT broke even. Production volumes were up 3%, reaching 316,000 barrels of oil equivalent per day, mainly attributable to higher production in Norway.
The clean CCS EBIT performance has been supported by the successful implementation of our cost reduction program, which resulted in 15% lower OpEx per barrel. Downstream clean CCS EBIT declined from EUR 269 million to EUR 250 million. This was a combination of some lower downstream oil, but higher downstream gas results. The OMV indicator refining margin decreased mainly due to higher crude prices. In contrast, the downstream gas business was clearly up, also thanks to some one-time effects. Net corporate costs were at minus EUR 12 million. OMV recorded a negative effect in the consolidation line of EUR 24 million, predominantly in OMV Petrol. Let's look at the reconciliation from clean CCS EBIT to EBIT as reported.
Adding back the inventory effect of EUR 94 million shown as CCS gain and deducting the special items in the amount of EUR 600 million negative, which I explained earlier, EBIT came in at a negative value of EUR 300 million. On our next chart, we see the upstream clean CCS EBIT development in Q2 versus previous years. Clean CCS EBIT declined from EUR 116 million to zero as a result of significantly lower oil and gas prices. The realized crude oil and gas prices dropped by 32% and 19% respectively. Realization, which also includes hedging and foreign exchange effects on revenues, had a negative impact of EUR 273 million on clean CCS EBIT. Please note that from Q2 2016 onwards, the hedging effects are included in the realization figure. Upstream reported a 3% lower sale volume compared to last year, but under this situation led to a build-up in stocks.
The net effect increased clean CCS EBIT by EUR 11 million. Lower clean exploration expenses caused by reduced exploration activities, particularly in Romania and the North Sea, positively impacted clean CCS EBIT by EUR 69 million, and lower depreciation as a result of a lower asset base following impairments in 2015 contributed EUR 28 million to clean CCS EBIT. Finally, lower production costs, which are reported under the section other, contributed to an improvement in clean CCS EBIT. This reflects the successful implementation of our strict cost reduction program. Looking now into our upstream key performance indicators. Here you see the quarterly development of two of our key performance indicators, hydrocarbon production and operating expenditures on a unit level. Production increased by 3% versus last year with a roughly even split between oil and gas. Several projects in Norway are contributing to this higher production level.
Ramp-up at Edvard Grieg, which brought up on stream in Q4 2015, progressed according to plan. Edvard Grieg produced 14,000 barrels of oil equivalent per day. In addition, gas flow down at Goliat also started in Q4 2015 and contributed 7,000 barrels of oil equivalent per day. At the Gudrun field, two new wells were brought on stream, producing 3,000 barrels of oil equivalent per day. On the other hand, OpEx in US dollars per barrel oil equivalent decreased by 15% to $11.5 in Q2 2016 due to strict cost management coupled with higher production. The cost savings measures included reductions in the cost of material, personnel, and services. Downstream clean CCS EBIT decreased from EUR 269 million to EUR 250 million. This was attributable to the lower refining and petrochemical margins in downstream oil, as well as scheduled turnaround activities at the Schwechat and Petrobrazi refineries.
The turnaround cost about EUR 20 million. In the retail business, margins improved, driven by a strong recovery in Turkey. In contrast, downstream gas clean CCS EBIT was up by EUR 89 million, largely driven by restructuring efforts, which resulted in one-off effects in the amount of approximately EUR 40 million. This included a higher valuation on forward contracts as well as a settlement for a gas storage contract, which resulted in a gain. Here you see the decrease in refining margin from $7.80 per barrel in Q2 2015 to now $4.70 per barrel in Q2 2016. The indicator refining margin for the western refineries decreased from $7.40 per barrel to $4.00 per barrel, driven by lower gasoline and middle distillate spreads, jet, diesel, and heating oil. The indicator refining margin east decreased from $9 per barrel to $6.80 per barrel.
Due to a higher own crude consumption, Petrobrazi benefited more from lower oil prices than the refineries in the West. The scheduled turnarounds of the fuel unit at Schwechat and Petrobrazi, each lasted for approximately one month. Consequently, the refining utilization rate decreased from 92% to 72%. At 7.6 million tons, total refined product sales were stable. They were not affected by the turnaround since OMV had prepared for them by building up stocks. Sales volume in the petrochemical business were flat. Despite network optimization in Turkey, retail sales volumes of 2.6 million tons remained on the high level of the previous year. Looking at downstream gas key performance indicators, at now 24.4 terawatt-hours, natural gas sales volumes were 6% higher than in the same period of the previous year, mainly due to Austria. OMV Petrom sales to third parties was slightly less because of lower demand from petrochemical customers.
Sales in Turkey were slightly up due to advantageous supply conditions. The natural gas sales margin was higher compared to Q2 2015, since we realized positive one-time effects. Due to the regulated tariff, the gas transportation business, Gas Connect Austria, showed stable clean EBIT contribution of EUR 30 million. The next slide shows now the development of operating results at the OMV Petrom Group. Clean CCS EBIT decreased significantly from EUR 148 million in Q2 2015 to EUR 49 million. This was driven by lower results in both upstream and downstream. While the upstream results in OMV Petrom was lower than last year, it still amounted to a positive number of EUR 43 million. Downstream also contributed EUR 30 million to earnings. At 177,000 barrels of oil equivalent per day, production was also down by 2%.
The cost reduction program at OMV Petrom made significant progress and is reflected in the 8% decrease in upstream production cost to $12.10 per oil equivalent. Downstream clean CCS EBIT decreased by 39% to EUR 30 million due to lower refining margins and the turnaround at the Petrobrazi refinery. Downstream gas clean EBIT improved from -EUR 19 million in Q2 2015 to -EUR 7 million. Benefiting from the strong cash generation of the group, OMV reported net debt just below EUR 4 billion. Despite the impairment, the gearing and equity ratio remained relatively stable at 29% and 45% respectively. Thus, gearing is in line with our long-term target of maximum 30%. OMV balance sheet is in a healthy state, reflecting a strong liquidity position with EUR 1.3 billion in cash and cash equivalents and EUR 3.6 billion in undrawn credit facilities. The management team has three key financial priorities.
Focus on cash flow, maintaining a strong balance sheet, and improve shareholder returns. Now let's discuss cash flow first. We have to make sure that we generate sufficient cash to finance our investments, enable dividend payment, and at the same time, manage our debt level. The strength of the balance sheet is very much in focus in order to get good access to the capital markets and to ensure that OMV compares well with peers, both regarding its financial stability and its rating. Finally, we strive to improve shareholder return so that the OMV share is and will remain an attractive investment. Well, ladies and gentlemen, let me finalize now with the outlook for the full year 2016. For the full year 2016, we stay with our oil price assumption of $40 per barrel on average.
Due to persisting overcapacity in European markets, refining margins are projected to be below the levels of the first half 2016. Capacity utilization is expected to be above 90% in the second half, since we will have no major turnarounds. The gas market environment in Europe is characterized by oversupply with natural gas margins expected to remain on low levels. Gas prices on European spot markets are expected to remain flat compared to prices at the end of second quarter 2016. Current market forwards, however, show a slight upward trend for the next months. We updated our production guidance for 2016 to slightly above 300,000 barrels of oil equivalent a day, given that we managed a good production performance in the first half. We continued with our rigorous CapEx discipline and thus reduced our CapEx guidance to EUR 2.2 billion in 2016.
Approximately 70% of this amount will be spent in upstream. Exploration and appraisal expenditure guidance remains unchanged at EUR 450 million. In summary, while 2016 continues to be a difficult year for the entire industry, OMV's integrated business model supports the group's profitability and cash flow performance. We are well on track to deliver on our promises. Thank you for your attention. We are now happy to take your questions.
Thank you, Rainer and Reinhard. Now, ladies and gentlemen, I would like to open the call for questions. I ask you to please limit your questions to only one at a time so that we can take as many questions as possible. Of course, you are always welcome to rejoin the queue for a follow-up question. We will definitely take your question. With this, I would like to ask first Haythem Rashed from Morgan Stanley for his question. Good morning, Haythem
Morning, Magdalena. Thank you very much. Thank you for the presentation, gentlemen. My question really is perhaps a little bit more for Reinhard and his views just actually on his last area of focus on the slides around financial priorities. I just wondered if you could talk a little bit more about how you are looking at balancing shareholder return versus maintaining a strong balance sheet in the current environment over the next six to 12 months. In particular, what I'm really wanting to discuss is, or would love to hear your thoughts on, is the dividend policy, whether you think the sort of 30% payout ratio is something that is consistent with this or whether you are looking at it from a slightly different perspective. As I say, whether for you, de-gearing is really the priority at the moment as opposed to shareholder return.
I do appreciate you mentioned the one question. A very quick follow-up, hopefully, is to understand if there are any sort of working capital tailwinds that we should be expecting in the second half of this year, given you've had a bit of a benefit in the first half. If you don't mind. Thank you very much.
Yes. Thanks, Haythem, for your question. Of course, we mean what we say in terms of the financial priorities, and that is that the strengthening of the balance sheet is something that is important in the industry as long as there are challenges out there. Our focus on cash flow should very much be targeted at enabling us to provide a significant and appropriate dividend also going forward. What does that mean? That means that the target and policy that we have in place of the 30%, it is something that we stick to. On the other hand, we have clearly said that we are not going to go in our cash flows after dividend to a negative value.
This means in order to do that, our focus on operating cash flow and the ability also to limit on our CapEx in order to be able to pay the dividend is the one thing that we are concentrating on. That is also why we are focusing so much also on the self-help programs with cost savings, where we have now increased our target. In order that to be understood rightly, yes, we stick to the policy in place, and we are confident that also the target of being at a positive operating cash flow after dividend is intact. Regarding your working capital question, we have, in Q2, definitely a positive impact from working capital. We have also to see the seasonality of our business when it comes to gas storage, where we certainly are again, going down over the summer and picking up before the winter.
Working capital will be also strongly in the focus of our efforts to optimize and be most efficient. In that sense, while the working capital will probably not trend positively in the second half, we still would have a positive impact for the full year in total.
Very clear. Thank you very much.
We are now moving to the next question from Michael Alsford from Citigroup.
Thank you. Thanks for taking my question. I'll keep it to one. I just wanted to get a better sense as to the Gazprom asset swap. I know you sort of say that the negotiations are ongoing, but I don't know if you could provide a bit more color as to what the steps we should think about as to needing to be finalized before, I guess, announcing the deal, and if it's related at all to the sanctioning of Nord Stream 2, or is it completely independent? Thank you.
All right. Well, some more details on the asset swap. We had a little bit of a delay because Gazprom needed more time in the data room to make up their mind about the different assets we do have in the North Sea. Given the complexity of our asset base, they just need more time to finalize their evaluation. What we have now in our plan is that we, in September, will start continuing our negotiations with Gazprom. We do have an agreement that we would like to sign a basic agreement until the year-end.
This is going to be the starting point for us to implement the swap transaction, which means that we need something like a year or two for closing the deal, given the fact that we do have a long list of approvals from different authorities waiting us in Russia as well as in Europe. As we have explained in our first conversation with you on the asset swap, is that we are targeting in our agreements with Gazprom an integrated cooperation along the entire value chain. We both have an understanding that we don't want to exclusively work in upstream or exclusively working in downstream. We do have both the same kind of understanding that we would like to have both. That's why we have an interest to finalize all deals we do have in the pipeline with Gazprom.
Okay. That's very helpful. Thank you.
Moving on to the next question from Henri Patricot from UBS.
Yes. Good morning, everyone. Thank you for the presentation. One question on the cost reductions. Why have you been able to reach your target earlier than expected? Where are the additional reductions of EUR 50 million coming from, more precisely? Thank you.
The cost reduction efforts have, of course, been taken with a high rigor in OMV. When we go out with a promise, we want to keep it, and we have aligned the organization very much behind this target. Our teams have done fantastic work, and we have progressed faster, but also more in depth. Specifically in the area of procurement, where, of course, we have a quite significant spend. We see opportunities, and we see that the main parts of also the additional savings will come from procurement, but also from effect of restructuring, taking the organization to the adequate lean competitiveness that we have, as well as the abilities to optimize systems and processes throughout the company.
Okay, thank you.
We are moving on to Thomas Adolff from Credit Suisse. Good morning, Thomas.
Morning. Thank you. Just a question. I want to start with disposals, if you don't mind. You've done 30% in Rosebank. I believe Jaap used to say when he was at OMV, that he would do 10%-20%. I wanted to better understand why 30%, a bit more, and why you still went ahead despite the fact that your book value was significantly higher than what was realized. If we continue with disposals, excluding Rosebank, you seem quite confident on Gas Connect, I agree. You seem very confident on Petrol Ofisi. Let's see. Turkey looks a bit tricky. The bottom line is between now and the end of 2017, you will get a lot of cash in from these disposals, and your gearing ratio already is at 29%, below your soft seeding of 30%.
Coming back to the first question, I wanted to better understand also the balance between distribution and reinvestment at some point in the future. Regarding the latter on reinvestment, what does OMV have to reinvest outside of Achimov, if you can remind me? Thank you.
Okay. Very briefly on the disposal. I think the scope of the disposal with 30% is very much in line with what we have in our strategic target in order to reduce the exposure to quite investment-heavy, but on the other hand, also strategic exposure. We are not out of Rosebank. We are still there with 20%. We think that we received a fair valuation given the current market condition. We received a good structure and also a very good and reliable partner with Suncor in this project. In that sense, the write-down of the impairment was just a consequence of the changes that we see in the environment and in the schedule of this project, which was still different in the assumption of what we have in our books.
Just to verify, of course, the impairment did not only look at the 30%, but at our remaining 20% as well. Regarding the other disposals, GCA, Petrol Ofisi, processes are on track. Of course, Turkey has lived through quite difficult times, but our business model in Petrol Ofisi is not impacted by the situation. We are also seeing that the current performance of Petrol Ofisi stays stable. We are going ahead with that investment process with good confidence.
Well, Thomas, one remark from my side on your questions. First of all, I think it's a good track record that especially in these days where it's not pretty easy to sell a big investment project to the market, that we reached out a 30% stake.
Being farmed out than 10%-20%. The listing we do have and the financial flexibility coming with that, supporting our cash flow is substantial. Coming back to your question, what do we do with the money? First, let's collect the money, then we are going to tell you what we are going to do with the money.
Sounds good. Thank you.
The next question comes from Marc Kofler from Jefferies.
Hi. Thanks everyone for taking my question. I just wanted to focus in the upstream and the guidance, which I notice still excludes Yemen and Libya. I think in recent weeks, the industry seems to have been warming up a bit more in terms of potentially resolving some of the outages in both countries. Given your operations there, I was hoping perhaps for an update on the assets themselves and then if you saw any possibilities of some listings before year-end in either country. Thank you.
Well, Marc, we are still planning with no production from both countries, neither Yemen nor Libya, until year-end. I share your view that there is some warming up, especially in Libya. We do see our operations in very good conditions. We don't have any damages in our operations. We have limitations as far as to speak about the logistics. Some pipelines are not in good shape and have been destroyed during some military activities in the neighborhood. One of the two export terminals, we are exploring Zueitina and Ras Lanuf. One is also not in operation as we speak about the capability to restart the export terminal capacities. We would be limited to one terminal the day we can restart our operation. As we speak about the fields, well, everything is in good shape.
We can restart, it will depend whether or not export capacities in the infrastructure is going to be available for OMV.
That's great. Thanks very much.
This brings us now to Lydia Rainforth from Barclays. Good morning, Lydia.
Thanks. Good morning, thank you all for the presentation. I will stick to one question. Coming back to the assets swap with Gazprom, if I could. Given that we are seeing a lot of volatility within the oil market at the moment, and that in terms of the views in terms of what the long run oil price will be, do vary quite significantly across investors and across industry participants, how do you actually protect the value for OMV in terms of if it's going to take two years to actually close the deal? Are you looking at putting some form of link to the oil price into the deal that you're doing with Gazprom? Thank you.
Well, I agree with you that volatility is the natural environment we have to live in our industry right now. As we speak about the deal, two things are important for us. First of all, we would like to have an evaluation of both assets based on our long-term oil price scenario. Especially as we speak about Achimov-4, 5, we expect that first production will start something around 2019. The current volatility is really not impacting or guiding us in our negotiations. As we are going to speak about the gas production in Russia, I would say 30% of our production is condensate and therefore is reflecting the oil price scenario we do have. Of course, we do have a gas production then coming with Achimov-4, 5, which is based on our gas price forecast.
I don't see an oil price index as a future pricing model for gas in Europe. As we are targeting in our negotiations that we would like to have a net back to the European gas prices for some gas we are producing. First of all, we have to get that done in our negotiations. Secondly, I think the European gas price will more or less, it's a matter of time, de-link from the oil price.
That's really helpful. Thank you very much.
Next question is from Nitin Sharma from JP Morgan. Nitin?
Mute. It's on mute.
Hi, can you hear me? Hello?
No.
You didn't have one. Good. Sorry. It showed up on our list. Is there anybody who still would like to pose a question? On our list, basically, we have answered all the questions. If this is not the case, then ladies and gentlemen, this would bring us to the end of our conference call. OMV will next report on its third quarter results on November 9th, 2016. At this point, I would like to thank you for joining us this morning. Should you have any further questions, please contact any member of the investor relations team, and we will be very happy to help you. With this, we would all like to say goodbye and wish you a nice day.
Bye-bye. Thank you.
That concludes today's telephone conference call. A replay of the call will be available for one week. The number is printed on the telephone conference invitation or alternatively, please contact OMV's investor relations department directly to obtain the replay number