Good morning, ladies and gentlemen from sunny Vienna. Today, CEO Rainer Seele and CFO David Davies are here to present the financial results for the third quarter 2015. I would like to invite all journalists to use the opportunity of this format and send any questions to media.relations@omv.com. We are happy to answer as many questions as possible right away during this webcast. [Foreign language] Let me now hand over to our CEO, Rainer Seele.
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 injuries 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. 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 $50 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 95.2 million barrels per day, oil production increased to 96.8 million barrels per day. All in all, there is too much oil in the market. As OPEC continues to produce above the target of 30 million 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 EUR 21.5 per megawatt hour in Q2 to a current level of about EUR 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 increase again for the third consecutive quarter this year to $7.84 per barrel. However, the quarterly average masks 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 2016, $70 in 2017, $80 in 2018, and $85 per barrel from 2019 onwards.
These revised assumptions have led to the impairments of approximately EUR 1 billion being recognized in Q3 2015 in the Upstream business. The impairments have been recorded in 11 different countries across the entire portfolio. For more details on the financial indicators, I would like to hand over now to my colleague, the CFO, David Davies.
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 EUR 375 million in Q2 2015 to EUR 495 million in Q3, mainly reflecting the strong performance from the Downstream business segment, which increased its contribution from EUR 269 million to EUR 402 million. 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 EUR 52 million, since it was negatively impacted by the renewed drop of the Brent price to $50 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, here we can report a very positive development on a clean basis. Clean CCS Earnings Per Share in Q3 reached EUR 1.13. This represents an improvement compared to Q2 2015, as well as compared to Q3 2014, and is, first 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 Borouge and contributed EUR 93 million to OMV's bottom line in Q3. One of our main priorities for OMV in this environment is cash flow, I am pleased to show you further improvements here. We managed to increase our free cash flow before dividends for the quarter to EUR 524 million. Clearly, ramping down the investment program takes time, the success of our efforts is reflected in this improvement. In addition, the Downstream business delivered very strong operating cash flow, 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 2.6 billion in the first nine 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 fourth quarter.
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 refinery Schwechat and Burghausen each prolonged the offtake contracts for monomers 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 Gazprom signed a term sheet regarding OMV's participation in the development of the gas and condensate project Achimov 4 and 5 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 billion 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 two important step towards restructuring the OMV Downstream gas portfolio. One of these is the planned divestment of a stake of up to 49% of Gas Connect 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 Gas Connect Austria, to non-regulated transport, namely Nord Stream 2, which offers significantly more attractive return rates. We expect to sign the divestment of the Gas Connect share in 2016.
The other project is the planned takeover of EconGas, which will be a major lever to improve the organizational structure and efficiency of our gas sales and trading business. I'm confident that will be 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 18th 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. We will exercise a stringent capital spanning 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. The market environment we are dealing with right now and going forward will be markedly different from what we realized in the past five years. 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. Seele, Mr. Davies. You were asking for some patience. Indeed, the patience of the press is, of course, a little bit least lasting. Let's start off with a package of English language question first, and then like in Formula One, we would switch to some similar questions in German language. The first question I would like to put forward is from Shadia 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 Urengoy field? Is there a short list of assets you can tell us about, and when will the swap to be announced?
First of all, we make 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. At the end of the year, we will have a very good view on what is the value of the assets Achimov 4, 5, 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 good progress. We are not talking about the entire portfolio of assets of OMV anymore with Gazprom. We do have a short list.
I'm very sorry, we keep that short list very confidential until we have chosen the assets. 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. Natural Gas Europe, Mr. Drew Leifheit is asking, what is OMV'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? How would one argue to the European Commission that the project is in the best interest of Europe? A similar question stems from Bloomberg. Jonathan Tirone 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. Seele?
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. 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 European Commission and the EU Union. The European 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 European Commission.
I'm absolutely convinced that this is a project improving the securities of supply for the European markets. That's going to be our main argument. 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. These are really well-named companies we are talking about, which all have an experience in building pipelines to increase security of supply. 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. 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, 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 on topics and probably come back to the results as such. Some questions which go rather in the direction of Mr. Davies and probably also sidestepped by Mr. Seele. Regarding the write-downs, Mr. Davies, 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? If so, yes, where in Upstream Turkey, elsewhere?
The write-downs of just under EUR 1.1 billion were predominant 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, expected at that point a long-term oil price to return in three or four years' time around the $100 level. Clearly, the first half of this year, we saw the oil price stabilize and improve somewhat, unfortunately in the third quarter, the oil price started to weaken 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. 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. Of course, the refining margins are weakening now. The external environment is not something we can condition.
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. 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 Gas Connect Austria? Is it going to be Gazprom? The second question is, what's the future for Samsun? Do you see any potential buyers for that?
Well, as we speak about Gas Connect 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 is going to offer the best bid for our company, OMV. 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-
Samsun
Samsun. Yeah. Samsun is a power plant where we have seen impairments last quarter two, Q2. Samsun 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 situation the entire industry is dealing with. Samsun is a power plant. We have not decided any divestment in our board so far.
The final question in English language to you, Mr. Seele, is regarding Black Sea 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 waiting the results in Q1 2016. Early next year, we're going to say a little bit about our situation, Black Sea, Romania.
Thank you, Mr. Seele. 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. We don't make any others than I did.
Thank you very much, Mr. Seele. I think this was quite clear. We switch now to some German language questions. [Foreign language]Wir starten nun mit Fragen von Andrea Hodoschek von der Tageszeitung Kurier. Sie fragt, ob sich bereits abzeichnet, welche OMV-Beteiligungen Gazprom übernimmt oder wo sie sich daran beteiligen wird.
[Foreign language]Dazu, Frau Hodoschek, habe ich ja schon eine Bemerkung gemacht. Wir haben sehr viele Fortschritte, was den Asset-Tausch betrifft. Wir haben uns auf eine Shortlist geeinigt. Wir haben beide Parteien vereinbart, dass wir diese Shortlists mit Assets vertraulich behandeln. Wir gehen davon aus, dass wir bis Ende des Jahres hier keine Ergebnisse publizieren werden, weil wir damit beschäftigt sind, die Assets in der Werthaltigkeit zu studieren. Anfang nächsten Jahres, in der ersten Jahreshälfte, werden wir sicherlich zusammenkommen und dann gemeinsam mit der Gazprom auch hierzu eine weitere Erklärung abgeben.
[Foreign language]Eine Frage ganz generell, die auch von Reuters gestellt wurde zur neuen Strategie. Die Frage geht in die Richtung, dass man sagt, Sie kommen ja nicht vom grundsätzlichen Framework der Firma weg. Das integrierte Business Cashflow Priorität Growth Focus ist im Upstream-Bereich. Wo ist noch Raum für einen strategischen Wechsel gegeben?
Diesen strategischen Wechsel werden wir natürlich im Februar nächsten Jahres, genau am 18., im Detail Ihnen allen erklären. Es sind schon einige grundlegende Veränderungen zu erkennen. Eine haben Sie gesehen mit der Transaktion im Gas-Downstream-Bereich, dass wir uns darauf konzentrieren, in nichtreguliertes Geschäft zu investieren und dass wir Cash monetarisieren, dass wir freisetzen, um letztendlich ein Wachstumsprogramm auch in anderen Segmenten zu finanzieren. Das heißt, wir sind sehr stark darauf bedacht, nicht rein auf ein Wachstum zu setzen, sondern dass wir insbesondere das Hauptthema Wertsteigerung und Cashflow-Management in den Vordergrund stellen werden. Die zweite Entwicklung, die Sie erkennen können, ist mit unserer Übernahme der Anteile bei der EconGas, dass wir das Gasgeschäft der OMV hier in eine neue Dimension hineinbringen wollen, indem wir hier letztendlich die Handelsaktivitäten der OMV neu sortieren werden, denn das Hauptaugenmerk wird wirklich sein, dass wir dieses Gas-Downstream-Geschäft wieder auf gesunde Beine stellen.
Das werden natürlich auch Fragen sein rund um die Frage, inwieweit die OMV weiterhin im Power-Generation-Geschäft, also in der Kraftwerkserzeugung, so stark vertreten sein wird. Im Upstream-Bereich haben wir schon sehr klar und deutlich signalisiert, und da haben Sie auch eine Erkenntnis oder die ersten sichtbaren Zeichen, dass wir im Upstream-Bereich uns zukünftig mit Neuinvestitionen stärker in Regionen hineinbewegen, wo wir den Kostenaspekt vordergründig in Betracht ziehen. Das ist insbesondere unser Engagement in der Region Middle East, wo wir als OMV schon langjährige Erfahrungen gesammelt haben. Wir setzen sehr viele Hoffnungen, dass gerade in Iran wir Möglichkeiten wahrnehmen können. Wir haben auch das Thema Russland, das eines der kostengünstigen Regionen ist in der Welt von Öl und Gas und da wollen wir daran partizipieren. Das Hauptaugenmerk unserer kurz- und mittelfristigen Aktivitäten wird sein, unsere bestehenden Operations zu stärken.
Der weite Großteil unserer Investitionen in den nächsten Jahren werden in bestehende Aktivitäten fließen. Also sprich in die Nordsee, in Norwegen und in U.K., vor allem auch hier in Österreich und in Rumänien, wo wir sehr viel Freude haben an dem Geschäft, denn hier haben wir hochprofitable Barrels, die wir produzieren können.
Vielen Dank. Die letzte Frage auch noch einmal von Andrea Hodoschek vom Kurier: Sie haben bei Ihrem Antritt ein Sparprogramm angekündigt. Können Sie das konkretisieren in Sachen Volumen, Zeitrahmen, Zielsetzung? Würde das auch und wenn ja, in welcher Form, Arbeitsplätze betreffen?
[Foreign language] Wir haben das sogenannte Fit-for-50-Programm. Der David wird gleich noch einmal ein paar Zahlen dazu sagen, wo wir da stehen. Wir sind hier bei dieser Umsetzung sehr weit vorangekommen. Wenn Sie sich das anschauen, wie wir die Profitabilität des rein operativen Geschäftes im dritten Quartal gestärkt haben, dass wir sehr positive Auswirkungen im Cashflow-Bereich haben, dann erkennen Sie, dass wir mit unserem Kostensenkungsprogramm sehr effektiv und effizient vorangekommen sind. Kostensenkungen sind natürlich einerseits Einsparungen und Optimierung von unseren Investitionen. Da haben Sie gesehen, dass wir in den ersten neun Monaten im Vergleich zum Vorjahr 28% alleine eingespart haben. Wir haben natürlich auch in dem Bereich der Kosten, die wir direkt beeinflussen können, sei es im Bereich der operativen Kosten, sei es im Bereich der administrativen Kosten, größere Fortschritte gemacht.
[Foreign language] Das hat im Wesentlichen auch dazu geführt, dass wir jetzt für den Outlook dieses Jahres 2015 auch für das vierte Quartal erwarten, dass wir hier eine weitere Kostensenkung realisieren können. Wir haben bei all unseren Maßnahmen, die wir in Erwägung ziehen, im Wesentlichen das operative Geschäft vor Augen. Das heißt, wir setzen nicht den Schwerpunkt in erster Linie auf Personalabbau, sondern wir konzentrieren uns auf die größten Brocken für unsere Kostenbasis. Und da sind es im Wesentlichen die Elemente, die ich angesprochen habe. Wir werden in diesem Jahr einen leichten Rückgang haben im Bereich der Explorations- und Appraisal-Kosten bei uns bei der OMV. Das wird ein Hauptthema sein, auch wenn wir über das nächste Jahr 2016 sprechen. Da haben wir einen sehr großen Hebel, um unsere gesamte Kostenbasis kurzfristig schnell beeinflussen zu können.
[Foreign language] Ich kann das nur bestätigen. Das Fit-for-50-Programm haben wir am Anfang des Jahres eingeführt. Das Ziel dessen war, das Unternehmen fit zu machen für ein Umfeld mit $50. Es ist nicht unbedingt einfach, nicht unbedingt angenehm, weil man die Maßnahmen, die wir eingeleitet haben, hat man auch gesehen im dritten Quartal, wie sie gewirkt haben. CapEx haben wir gekürzt. Letztes Jahr haben wir um die EUR 4 billion investiert. Das Ziel für heuer ist, um die EUR 2.7 billion zu investieren. Im ersten Quartal haben wir anteilsmäßig dann viel mehr ausgegeben, aber sukzessive im zweiten, jetzt im dritten Quartal haben wir die CapEx dann doch dramatisch reduzieren können. Im dritten Quartal haben wir cashmäßig nur mehr um die EUR 600 million ausgegeben und das hat auch natürlich dazu beigetragen, dass der Cashflow so stark war. Aussagen haben wir am Anfang des Jahres getroffen mit $50.
[Foreign language] Fast alle unserer Produktion ist casherzeugend, fast alle unsere Produktion ist EBIT-erzeugend und fast alle unsere Investitionen, die wir noch fortfahren, machen auch Sinn bei $50. Natürlich hoffen wir und annahmenmäßig haben wir ein besseres Szenario dann abgebildet, dass der Ölpreis sich verbessern wird. Wichtig ist es doch, sich auch darauf vorzubereiten, dass das Umfeld sich nicht verbessert. Es ist extrem herausfordernd zurzeit und wie gesagt, ganz am Anfang: Wir können nicht bestimmen, was der Ölpreis wird und entsprechend müssen wir auch auf ein schlechtes Umfeld entsprechend vorbereitet sein.
[Foreign language] Vielen Dank, meine Herren. Ladies and Gentlemen, thank you very much for participating in this Webcast. Best regards and wishes from the sunny top of the OMV 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.