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OMV/Petrom Company News Capital Markets Day

MV and Petrom held their bi-annual Capital Markets Day today, bringing little short-term positive triggers, but in return the downside risk is also limited in our view.

Next to the usual macro factors (oil price, refining margins and USD, sensitivities see in table below), the most likely positive drivers are new upstream projects (acquisitions) and the Romanian gas price liberalization. On the downside, a hike of Romanian upstream royalties and the fallout of the Nabucco project are the biggest risks, in our view. Stronger USD prompt us to confirm our 'buy' recommendation for OMV, while the weak refining performance in Petrom drives our 'hold' recommendation for the Romanian stock.

The company's goal to keep upstream production at ± 5% of the current level (2010 target 325k boepd, currently 317 k boepd) shows that the volumes from new project developments (West of Shetland, Yemen, Kazakhstan, etc.) will merely replace declining production at existing mature fields. Furthermore, CEO Ruttenstorfer admitted that after being core shareholder of Petrom for 5 years now, the picture of what reserves are there in Romania is clearer now and 'goals are more realistic'. E&P clearly stays a priority for the group capex-wise, where E&P will take up 55% of the guided avg. EUR 2.7 bn annual capex until 2015. In these 5 years, Romanian upstream will see investment above EUR 1 bn, and the development of the Habban field in Yemen will make up EUR 550 mn.

An immediate alignment of the regulated domestic gas price for producers to market-driven import prices would add EUR 500 mn on the EBIT line. However, the alignment will be gradually only and no deadline has been fixed with the government. Romanian upstream royalties are likely to increase after 2014, but the group hopes to use the high re-development cost of the mature Romanian oilfields as a justification for continuing moderate royalties. However, given the political dispute this issue has caused in Romania in the past years, we regard the royalty hike as OMV's major contingency.

R&M will take up the largest part of cost-saving efforts, intentions are to save an additional EUR 200 mn opex p.a. until 2012 (goal 2010: EUR 300 mn of which EUR 220 mn were achieved by 2009). Capex will be limited (15% of total), concentrating on the (downsized) modernization project at Petrobrazi (EUR 750 mn until 2015) and a possible minor investment concerning a minority stake in a Turkish refinery project. OMV wants to reach downstream integration in Turkey with as little capital as possible and clearly rules out building a refinery there on its own.

G&P will see the commission of 3 gas fired power plants (Romania, Turkey, Germany) until 2015, the construction of which will cost EUR 1.6 bn in all. This investment will make up the bulk of segment capex, representing 30% of the total. OMV stays clearly committed to the Nabucco pipeline. In the case of non-realization of the pipeline, the connection of regional pipelines along the way will be the result (less capacity, higher cost), as gas supply via the route Caspian-Turkey-Europe is an inevitable necessity for Europe, according to OMV. We confirm our cautious view on Nabucco and prefer not to include any income impact from the pipeline for now. The non-realization would be negative in our view, as investments already done now (Pearl project, Samsun) would make little or now sense then.

The overall strategy on the company is clearly on integration between the segments, also concerning administration (joint procurement, project management, etc.). OMV stays committed to paying out long-term average of 30% of profits to shareholders and wants to keep gearing below 50% (enabling the company to spend EUR 2 bn on acquisitions at the current gearing level of 29%), while the long-term gearing target remains 30%. Regarding the EUR 600 mn capital increase at Petrom, OMV intends to buy all unused subscription rights and will thus raise its share above 51%.

Sursa: http://www.rciro.ro

Tags: romanian project upstream capital company petrom

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