UPDATE 3-OMV profit drops as Libya crisis boosts costs

Tue Aug 12, 2014 8:44am EDT

Related Topics

* Q2 clean CCS EBIT 369 mln eur vs poll avg 407 mln eur

* Clean CCS net income 202 mln eur vs poll avg 177 mln

* Shares rise 0.7 percent (Adds Libya production restarted, costs detail, comment on Ukraine)

By Georgina Prodhan

VIENNA, Aug 12 (Reuters) - Austrian oil and gas group OMV's underlying operating profit halved in the second quarter as the continuing crisis in Libya forced it to raise production in higher-cost countries.

OMV, which is investing heavily in new exploration projects to cut reliance on margin-squeezed refining and marketing, said its production costs rose 42 percent per barrel because of a greater contribution from Norway and higher costs in Romania.

Production was stable in the second quarter as OMV compensated for vastly reduced output from Libya with more barrels from newly acquired fields in the Norwegian North Sea, where oil is offshore and more expensive to extract.

OMV said it had restarted production in Libya and was producing an average of 12,000 barrels of oil equivalent per day (boe/d) so far this quarter - a little more than a third of the level before the toppling of Libyan leader Muammar Gaddafi three years ago.

However, Chief Executive Gerhard Roiss said on Tuesday that he could not predict whether the improvement in Libya is sustainable, with the North African OPEC oil producer experiencing its worst violence since the 2011 uprising.

"The answer is: Insha'Allah (God willing)," he told a news conference.

OMV said it should reach the lower end of its 2014 production target range, 310,000 boe/d, assuming no further output in Libya. It did not mention the 330,000 boe/d upper end of the range.

BIGGEST ACQUISITION

OMV spent $2.65 billion a year ago in its biggest acquisition to date, buying stakes in North Sea oil fields from Norway's Statoil, in search of a more reliable source than countries such as Libya - formerly one of OMV's major producers.

The company said second-quarter clean CCS EBIT - operating profit stripping out special items and inventory holding gains or losses - was 369 million euros ($493 million).

That fell well short of the average estimate of 407 million euros in a Reuters poll of analysts and missed the consensus forecast of 395 million euros in OMV's own poll of 17 analysts.

"Measured by EBIT, the barrels from Libya are the most profitable barrels that we produce," Chief Financial Officer David Davies told the news conference.

"The difference between zero contribution from Libya and 100 percent contribution from Libya based on an oil price of $105 is nearly 950 million euros," he said, adding that the impact on net profit was 200-250 million euros because of Libyan taxes.

Jaap Huijskes, head of exploration and production, said Norwegian operating costs should drop by about a third by the end of 2014 as OMV's Gudrun oil field ramps up.

Clean CCS net income fell 37 percent to 202 million euros in the quarter, beating the Reuters poll average of 177 million euros and the OMV-compiled consensus of 162 million euros.

OMV shares rose 0.7 percent to 29.29 euros by 1155 GMT, among the top gainers in a weaker European oil and gas index .

Like its bigger competitors, OMV is grappling with weak demand and oversupply in economically fragile Europe, which depressed OMV's refining margin by 23 percent in the quarter.

GAZPROM PARTNERSHIP

It is now betting on higher-margin exploration and production, spending 3.9 billion euros a year - more than three times its 2013 net income - on projects including one in the Black Sea that may prove to be its biggest gas find.

OMV's gas and power business made a small profit compared with a loss a year ago, largely thanks to a renegotiated gas supply contract with Russia's Gazprom, which it is trying to amend further to remove a tie to oil prices.

OMV is a major customer and strategic partner of state-controlled Gazprom, with a third of all Russian gas exports to western Europe passing through OMV's Baumgarten hub near Vienna.

The Austrian company has stuck its neck out for Gazprom, which has escaped sanctions imposed on Russia for what western leaders say is Moscow's support for rebels in eastern Ukraine.

It signed a deal in June to build an Austrian branch of Gazprom's giant South Stream pipeline, which will cement EU dependence on Russian gas.

Roiss said he was unconcerned about potential Ukrainian sanctions against Russia, which could lead to gas transit disruption to Europe and a revision of gas contracts between Russian and western companies.

"I know that the Ukrainian authorities are in talks with the EU and for me it's not a scenario that I consider very likely." (1 US dollar = 0.7479 euro) (Additional reporting by Michael Shields; Editing by Sophie Walker and David Goodman)

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