Morning, ladies and gentlemen, from Sunny Vienna. Today, CEO, Rainer Seele and CFO, David Davis, are here to present the financial results for the Q3 2015. I would like to invite all journalists to use the opportunity of this format and send any questions to media. Relationsomv.com. We are happy to answer as many questions as possible right away during this webcast.
Let me now hand over to our CEO, Rainer Siede.
Thank you. I'm pleased to welcome you here in Austria and internationally. Before we begin with our Q3 results, let's start with our top priority, which is HSSE, health, safety, Security and Environmental Issues. We have managed to decrease our rate of lost time in Jure's even further in Q3, thanks to continued efforts to reduce accidents and increase employee awareness. With an LTIA rate of 0.3%, we are comfortably below peer benchmarks for both upstream and downstream.
So now let's turn to the truly challenging environment and have a look at the key fundamentals impacting our business. The oil price currently fluctuates around US50 dollars per barrel with a high volatility. The market dynamics haven't changed. We see high liquidity in the trading markets with persisting oversupply. Although we have seen a good demand development in Q3 peaking to 95,200,000 barrels per day, oil production increased to 96,800,000 barrels per day.
All in all, there is too much oil in the market. As OPEC continues to produce above the target of 30,000,000 barrels per day, we expect to see no fundamental changes in the oil market on short term. A similar situation is determining the European gas market. A weak gas demand meets high supply volumes. Therefore, the hub gas prices in Europe fell from €21.5 per megawatt hour in Q2 to a current level up about €19 per megawatt hour.
Only an icy cold winter would change the picture within the next weeks. Let's hope for that. Concluding, we continue to see a very challenging market environment with price dynamics not really supporting our business. Nevertheless, OMV again shows a stable performance in Q3 as we continue to benefit from our integrated business model and our diversified upstream portfolio. The OMV indicator refining margins increased again for the 3rd consecutive quarter this year to US7.84 dollars per barrel.
However, the quarterly average mask, a significant drop of approximately 25% in margins from August to September 2015, the strongest month on month fall this year. This is a clear indication that the unusually long refinery margin rally in Europe this year is coming to an end. We've been able to slightly increase our refinery utilization in Q3 to 93%, allowing us to take full advantage of this upcycle. Given the current oil price market environment, we have decided to adjust our assumptions for the Brent crude price to $55 per barrel in $2,086 in 'seventeen, dollars 80 in 'eighteen and $85 per barrel from 20 19 onwards. These revised assumptions have led to the impairments of approximately €1,000,000,000 being recognized in Q3 2015 more details on the financial indicators, I would like to hand over now to my colleague, the CFO, David Davis.
Thank you, Rainer. Let me give you some details on the results. Our clean CCS EBIT, that is our operating result without special items and inventory effects, improved from €375,000,000 in Q2 2015 to €495,000,000 in Q3, mainly reflecting the strong performance from the Downstream business segment, which increased its contribution from 2 €69,000,000 to €402,000,000 The cost reduction measures implemented have also had a positive impact on earnings. Downstream oil benefited from the very high refining margins. The OMV indicator refining margin stood at $7.84 per barrel in Q3 and efficiently captured it with a high utilization rate of our refineries of 93%.
In addition, our petrochemicals business was strong and also the retail business delivered a strong performance, which was supported by seasonally high product demand. The results of our upstream business, however, declined to €52,000,000 since it was negatively impacted by the renewed drop of the Brent price to US50 dollars per barrel on average for Q3 as well as lower production volumes due to planned maintenance stops. Probably more interesting for the shareholders is the bottom line and here we can report a very positive development on a clean basis. Clean CCS earnings per share in Q3 reached €1.13 This represents an improvement compared to Q2 2015 as well as compared to Q3 2014 and is, 1st of all, the result of a solid operating performance as we have just discussed. The second driver was again a strong quarter for Borealis, which benefited from the favorable margin environment as well as from a continued strong contribution from Barouge and contributed €93,000,000 to OMV's bottom line in Q3.
One of our main priorities for OMV in this environment is cash flow, and I'm pleased to show you further improvements here. We managed to increase our free cash flow before dividends for the quarter to EUR524,000,000 Clearly ramping down the investment program takes time, but the success of our efforts is reflected in this improvement. In addition, the Downstream business delivered very strong operating cash flow and the Upstream cash flow has proven to be more resilient to the oil price drop than the operating result. I want to highlight the resilience of our operating cash flow in this challenging oil price environment and our ability to generate cash from our operations with sources of funds of approximately EUR 2 point €6,000,000,000 in the 1st 9 months of the year. We've almost reached the level of the same period of last year, despite a significantly lower oil price.
The gearing level of 38% is an important effect of strong cash generation, although admittedly above our target of 30%, we managed to keep gearing only slightly above Q3 2014 when it stood at 35% and even below the level of Q2 2015 in spite of the high impairment charges recorded this quarter. It is clear that we have to continue to focus on all possible measures to further improve our cash flow, especially since we have already seen the downstream market environment starting to deteriorate in the Q4. Let me turn back to Rainer now for some highlights and the outlook. Thank you.
Thanks, David. I would now like to mention some recent highlights, including the long term contract with Borealis. In September, the refineries Schwechat and Boerkhausen each prolonged the offtake contracts for monomerase, ethylene and propylene with Borealis for 11 years from 2018 to 2028. The contracts represents an important contribution to the long term viability of OMV's refineries and to Borealis in Europe as well as allowing stable cash flow planning for OMV. Another highlight was in September when OMV and gas from site intern shipped regarding OMV's participation in the development of the gas and condensate project Achimov IV and V in exchange for assets.
Concluding the deal, OMV will acquire a 24.98% stake in the Upstream project. In addition, OMV signed the shareholders agreement for the Nord Stream 2 pipeline project together with several European partners and Gazprom. The pipelines will be designed to transport 55,000,000,000 cubic meters of gas from Russia to Germany. The final investment decision for the project is expected in the course of 2016. We have also taken 2 important steps towards restructuring the OMV downstream gas portfolio.
One of these is the planned divestment of a stake of up to 49% of GasKonext Austria, which will free up capital tied up in OMV's portfolio and strengthen OMV's balance sheet and cash flow. In the context of our wider strategic reorientation, it marks an important step away from stable regulated returns and regulated transport infrastructure, namely GasKonext Austria, to non regulated transport, namely Nord Stream 2, which offers significantly more attractive return rates. We expect to sign the divestment of the Gasconnex share in 2016. The other project is the planned takeover of Econ Gas, which will be a major lever to improve the organizational structure and efficiency of our gas sales and trading business. I'm confident that we'll conclude a binding agreement by the end of this year.
The transactions are the first visible activities of the upcoming new strategic orientation of OMV. Together with my Board colleagues, I'm reviewing the strategies of all business segments. We will communicate the outcome of the strategic review on February 18 next year. And until then, I have to ask once more for your patience. Right now, I would like to lay out my framework of reference, the dimensions guiding the strategic review.
Firstly, to improve cash and profitability. Euros over barrels will be the key to stabilizing OMV's cash flow and overall financial performance. This will involve continuing to execute cost reduction measures, improving project delivery and focusing on operational excellence measures. Furthermore, we will exercise a stringent capital spending regime. Our cash flow is and will continue to be the priority.
Let me say very clearly that we will continue our integrated business model, which means that our downstream business will be an integral part of our strategy. Finally, upstream will remain OMV's focus for growth. However, the market environment we are dealing with right now and going forward will be markedly different from what we realized in the past 5 years. Therefore, we need to adjust and we will adjust. New partnerships will play a key role in this, and we will focus our investments within a clearly defined portfolio of core and development regions.
Thanks a lot for your attention. We are now looking forward to answering your questions.
Thank you very much, Mr. Sealy, Mr. Davies. You were asking for some patience. However, indeed, the patience of the press is, of course, a little bit least lasting.
So let's start off with a package of English, language question first. And then like in Formula 1, we would switch to some similar questions in German language. The first question I would like to put forward is from Shadiya Nasralla from Reuters. The first question, and this is also covering a question of Natural Gas Europe, in fact. What's the latest status of the asset swap negotiations with Gazprom for the stake in the UHringoye field?
Is there a short list of assets you can tell us about? And when will the swap to be announced?
Well, first of all, we made good progress as we speak about the asset swap transaction between Gazprom and OMV. We are right now very busy to study all the datas in the data room, which was set up by Gazprom. And this process will last until the end of the year. So at the end of the year, we will have a very good view on what is the value of the assets, Achimov IV, V, so that we can start the next step concentrating on the OMV assets. It's right.
We have agreed on a short list. So that's a very, very good progress. We are not talking about the entire portfolio of assets of OMV anymore with Gazprom. We do have a shortlist. But I'm very sorry we keep that shortlist very confidential until we have chosen the assets, and then we will, together with Gazprom, announce what is really the assets package we are going to swap.
Thank you. There is now a package of questions related to Nord Stream 2. Naturally, Glass Europe, Truud Leifheit is asking what is OMB's rationale for participating in Nord Stream 2? How much of an obstacle are the sanctions against Russia present for the actualization of the project? And how would one argue to the European Commission that the project is in the best interest of Europe?
A similar question stems from Bloomberg, Turner from Taiwan, who is asking: Could challenges by some European members delay construction of Nord Stream 2? Some Eastern European countries have spoken out against the pipeline. How do you bring all 28 countries on board to make this an EU project? Mr. Sealy?
Oh, come on. That's a long list. Let me start with our rationale to participate as OMV in the Nord Stream project. It's very clearly defined. We do have a very special interest that the gas, which we currently take under the existing route into our system here in Austria, that the gas from the Nord Stream project will find its way to our hub in Baumgarten.
So what we are doing with that project is safeguarding more or less our investment we have done in gas infrastructure over here in Austria. The second rationale I would like to talk about is, of course, that we would like to improve the security of supply. Given the fact that our industry has seen some interruptions for gas imports from Russia into the Western European markets, the highest security of transit we can really realize with the Nord Stream 2 project as this pipeline will directly connect the European gas markets with the Russian gas sources where the production is pretty much high. The sanctions we have checked, there will be no impact on sanctions on our project. We don't see that.
We are in full compliance with each contraction with the sanctions being set by the EU Commission and the EU Union. The EU Commission, I think that we should really intensify now the dialogue when we have clearly defined the Nord Stream 2 project. It's underway. Our project company will start this intensive dialogue with the EU Commission because I'm absolutely convinced that this is a project improving the security of supply for the European markets, and that's going to be our main argument. And what is also very important, Nord Stream is not a pipeline dream.
There are so many pipelines we dream about. Nord Stream 2 is a realistic project. Very powerful European investors are behind the projects, and these are really well named companies we are talking about, which all have an experience in building pipelines to increase security of supply. And these companies do see an economic rationale behind the project. Do we see any delay in the project?
Well, first of all, we really should have an experience in the dialogue. We will not go into conflicts. That's not the strategy we do have behind the communication and the dialogue we would like to set up with Nord Stream 2. We would like to convince with the arguments of security of supply with a very safe and reliable transport and import of gas from Russia. That's the story.
But we will also invest for future capacities we do need to supply the European markets. It's going to be not a substitution. It's going to be fresh gas for an increasing import demand of gas for Europe. There are lots of argument, and I will do my best to convince at least the majority of the EU member states to follow our ideas as we are opening up the door with the Nord Stream project that especially can supply Eastern European countries with gas from the West.
Thank you very much, Mr. Seele. I believe this was quite extensive. Let's switch a little bit now topics and probably come back to the results as such. Some questions which go right in the direction of Mr.
Davies and probably also sidestepped by Mr. Sile. Regarding the write downs, Mr. Davis, can you specify somehow on what is written down, respectively? Do you see any further possibilities for write downs in the course of this year?
And if so, yes, there in Upstream Turkey, elsewhere.
The write downs of just under €1,100,000,000 were predominantly in the Upstream area and were predominantly as a consequence of the change in the oil price environment. At the beginning of this year, we substantially reduced the expectations that we had previously had more or less in line with the market and expected at that point a long term oil price to return in 3 or 4 years' time around the $100 level. Clearly, the first half of this year, we saw the oil price stabilize and improve somewhat. But unfortunately, in the Q3, the oil price started to weak again and it's really struggling now to get itself above $50 As a consequence, we were really obliged to reconsider our long term assessment of the oil price, and that's precisely what we did. And of course, that has actually led to the value of our upstream assets being quite severely impacted.
And along with the rest of the industry, we had to take quite severe asset impairments as a consequence. Looking for the rest of the year, I don't really expect a significant further deterioration in the oil price, but of course, one can never exclude things along those lines. We are very much dependent on the oil price for profitability. As Rainer has pointed out, this year, we've seen very strong refining margin help us to compensate for the weak oil price. But of course, the refining margins are weakening now.
The external environment is not something we can condition. And clearly, to the extent that we expect it to improve or deteriorate in the long term, clearly that will also affect what value we actually place on our assets. As we look forward to the rest of the year, we're not expecting any further impairments. Clearly, you can never exclude it as we get towards the end of the year. We reassess the plans around certain assets.
But we believe with the last set of impairments that we've just booked, we've clearly addressed the most severe decline in the oil price, and hopefully, that will be adequate.
Thank you very much, Mr. Davies. Before we switch to the German language questions, Two gas related questions. Who is going to buy Gazprom? Gasconnecht Austria, is it going to be Gazprom?
And the second question is what's the future for Samsung? Do you see any potential buyers for that?
Well, as we speak about Gasconet, Austria, I don't know who's going to buy the shares. We will start the process beginning of next year, and then we will see who's going to offer the best bid for our company, OMV, and that's the winner of the process. Is Gazprom participating in that project? I don't know. They haven't applied yet, and we have to wait and see.
The second question was? Samsung. Samsung, yes. Samsung was is a power plant where we have seen impairments last quarter, Q2, Q2. Samsung is still a power plant where we are not happy with the overall utilization of the capacities.
This is not a phenomenon in Turkey or in the specific country, the situation the entire industry is dealing with. And Samsung is a power plant. We have not decided any divestment in our board so far.
The latest the final question in English language to you, Mr. Sealy, is regarding Pekse exploration, if you have any updates on that respect?
Well, we are running a new well, an appraisal well offshore Black Sea in Romanian waters. The well is still running, and we are awaiting the results in Q1 2016. So early next year, we're going to say a little bit about our situation in Black Sea, Romania.
Thank you, Mr. Sealy. Mr. Davies, one final question in English from Reuters. If you want to comment on media reports about you leaving your post.
I'm going to do that. I'm going to do that. Let me make one clear sentence. I personally enjoy very much working with David, and I really don't enjoy that speculations are around the press about him. As we speak about Board members, it's in the responsibility of our supervisory board to make any comments.
Therefore, we don't make any others than I did.
Thank you very much, Mr. Sehle. I think this was quite clear. We switch now to some German language questions.
The 100s activity in the and Pfau, Neussert, and then that's how to augment that we're replacing.
Ladies and gentlemen, thank you very much for participating in this webcast. Best regards and wishes from the sunny top of the OMB head office here in Vienna, and the press office is happy to assist in any questions you might have after the talk. Thank you very much, and enjoy the day. Goodbye.