OMV/Petrom Company News - 2Q 2010 Trading Statement

We had expected 327 k boepd for the OMV group (187k boepd for Petrom), while the reported figures were 3% lower at 318k boepd and 182k boepd. The main reason for this underperformance was once again the Romanian gas production, where technical problems led to a delay in the completion of key gas wells. The Romanian regulated gas price was unchanged in RON terms at RON 495/tcm, the deviation in USD terms to our estimates (our estimates was 150 USD/tcm, while the reported figure is USD 139/tcm) originates from a different average USD/RON exchange rate for 2Q 10 (OMV used 3.301, we used 3.560). The biggest negative surprise was the refining margin that came in at USD 3.39/bbl, while we had estimated an 18% higher figure of USD 4.11/bbl. The reason for the lower result here was the continuing stop-and-go usage of Petrom's Arpechim plant. Refining output was better than expected, mainly due to a better start of the driving season. Please bear in mind that this figure is affected by a minor restatement impact, as OMV is now reporting refining output, while we had planned refining sales (including traded volumes not produced in the own refineries). Gas sales volumes were a positive surprise: reported were 3.27 bcm, of which 0.89 bcm Petrom, our estimate was 2.12 bcm and 0.80 bcm, an outperformance of 54% and 11%. Reason for this positive development was the good performance of EconGas. However, margins were under pressure.

Affiliate Borealis will profit from inventory gains and improving petchem margins, while Petrol Ofisi suffered from TRY depreciation vs. USD. There will be net special charges of EUR 60 mn relating to UK upstream asset impairments (unsuccessful development drilling at Bardolino). During the first half of 2Q 10, the oil price was above OMV's hedge cap of USD 75/bbl (the hedge is for 63k bbl/d production or roughly 20% of the total), which is why there will be a adverse EBIT effect of approximately EUR 3 mn from the hedging contracts.

We expected the figures to be better, especially the refining margin is an underperformer given the quite good benchmark performance. Gas surprised, but at weak margins, this will have a limited impact on profitability only, in our view. We expect a negative market reaction for both shares.