Q2 2012 OMV AG Earnings Conference Call

OMV.VA - OMV AG
Q2 2012 OMV AG Earnings Conference Call
Aug 08, 2012 / 09:30AM GMT 

==============================
Corporate Participants
==============================
   *  Lacramioara Diaconu
      OMV AG - Head of Investor Relations
   *  David Davies
      OMV AG - Deputy Chairman of the Executive Board & CFO
   *  Gerhard Roiss
      OMV AG - Deputy Chairman
   *  Jaap Huijskes
      OMV AG - Executive Board member responsible for Exploration & Production
   *  Manfred Leitner
      OMV AG - Executive Board member responsible for R&M

==============================
Conference Call Participants
==============================
   *  Nitin Sharma
      JPMorgan - Analyst
   *  Dan Ekstein
      UBS - Analyst
   *  Thomas Adolff
      Credit Suisse - Analyst
   *  Lydia Rainforth
      Barclays - Analyst
   *  Hootan Yazhari
      BofA Merrill Lynch - Analyst
   *  Matt Lofting
      Nomura International - Analyst
   *  Tamas Pletser
      ING Bank - Analyst

==============================
Presentation
------------------------------
Operator   [1]
------------------------------
 Welcome to the OMV Group's conference call for the presentation of the Q2 2012 results and strategy update. The presentation will be followed by a question and answer session. (Operator Instructions).

 You should have received the presentation by email. However, if you do not have a copy of the presentation, the PowerPoint slides can be downloaded at www.omv.com. Additionally, simultaneous to this conference call, a live audio webcast is available on OMV's website.

 I would now like to hand the conference over to Miss Lacri Diaconu, Head of Investor Relations. Please go ahead Miss Diaconu.

------------------------------
 Lacramioara Diaconu,  OMV AG - Head of Investor Relations   [2]
------------------------------
 Thank you; and good morning, ladies and gentlemen. Welcome to our presentation of second quarter results and strategy presentation update.

 We have today four Board members with us helping with the presentation. We have Mr. Gerhard Roiss, the CEO of the Company; Mr. David Davies, the CFO; Mr. Jaap Huijskes, responsible for Exploration & Production; and Mr. Manfred Leitner, responsible for Refining and Marketing. We'll have a presentation of about one hour followed by half an hour question and answer session.

 I will now hand over to David Davies.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [3]
------------------------------
 Thank you, Lacri; and good morning, ladies and gentlemen. Just a few words at the beginning. You've obviously seen that you've got 80% of the Board presenting here. The focus clearly initially is on the quarter 2 results, and what I will try to do is go through that part of the presentation quite quickly so we can get to the rest of my colleagues who want to spend some time talking about an update on the implementation of our strategy.

 So with no further ado, I'll hand over to Gerhard, the Chief Executive. Thank you.

------------------------------
 Gerhard Roiss,  OMV AG - Deputy Chairman   [4]
------------------------------
 Thank you. Again, good morning, everybody. I am pleased now to lead you through our presentation. First to start with our highlights for the first half-year. Let's start with Upstream.

 The first issue is growth. You know we have our discovery in the Black Sea Romania which we have announced in February this year. And on top of this, we have now got some offshore acreage in neighborhood of the Neptun Block on the Bulgarian side, and we have there got a 30% share together with Total and Repsol, which is key for us to expand our position in this Black Sea giving gas -- for us giving gas being close to the markets where they need the gas.

 Second issue is North Sea. Here the West of Shetland part in Norwegian North Sea, we have recently acquired a gas development in the Norwegian Sea called Aasta Hansteen, or formerly it was called Luva, a 15% stake. And this should be on stream in the range of 2016/2017.

 UK, we have North Sea. We have done all our divestments, small participations, and we have also combined with a swap in to West of Shetland to grow there, but Jaap will go into more detail.

 And we are very happy to announce that we have on top of it managed to enter in Abu Dhabi, and there we have now the chance to develop a field. The Shuwaihat field in Abu Dhabi will be on stream in the range of '18/'19].

 Production; key was for us to keep production in Romania and Austria above 200,000 barrels a day, which we have achieved. Libya production is close to pre-crisis level, which is about 90%, which means about 30,000 barrels per day. And what shows the quality of what we're doing in Pakistan, for instance, we have reached 15 million man hours worked without lost time injuries, which means we have now 650 people; and we have now 2.5 year in Pakistan without lost time injury, and this shows the quality of our operations.

 Let's move to downstream. Downstream, the highlights for [to get into] power, we have presented last year Nabucco West concept; and this Nabucco West concept has been selected as the Central European option for gas delivery from Shah Deniz II. A decision on [us] Nabucco West or TAP, the Italian pipeline, will be taken middle of next year by the Shah Deniz consortium.

 Key for us is to build up a gas position in Turkey. We have announced our strategy is not downstream. Our oil, it's also gas, and this is -- here we have about 1 PCM Russian gas in Turkey, and we started direct sales of this gas into Turkey.

 Refining and Marketing, here Petrobrazi modernization, the EUR600 million investment. We have finalized the first step with EUR425 million that we are now in a position to have their 100% of domestic crude to be converted into product in this one single refinery. And the total investment program EUR600 million will then be finalized 2014.

 Sales of Petrom LPG business has been signed, so [evermore] we are ongoing to divest our feeding stations in countries like Bosnia and Croatia where we don't have a direct refinery integration.

 And very positive Petrol Ofisi. We have quite a good result there, EUR75 million. We have increased sales in our feeding station by 6%, and we already have improved our performance. [Same result], refinery result, which has heavily increased mainly in the second quarter of this year.

 On top of it, as you know from our strategy, we have a clear target to increase our growth by 2 percentage points 'til 2014, and we have started implementation of this program.

 This comes to the financial performance for the first half, which is quite strong. We improved our clean CCS EBIT by 38% to EUR1.665 billion, starting from EUR1.206 billion. This is mainly impacted by the increase in production leap year by the increased refinery margin, and by the result in Turkey. So E&P increased 35%; Gas and Power 19% coming out of Romania; R&M 239%.

 Clean CCS EBIT up 38%, net income up 15% or EUR986 million, and the gearing ratio improved from 34 percentage points to 31 percentage points.

 May I hand now over to David Davies to go into the second quarter results?

 Thank you.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [5]
------------------------------
 Thank you, Gerhard. And as I said at the beginning, what I'll try and do is move through this presentation quite quickly.

 You see on the next slide the quarter 2 financial results. Our clean CCS EBIT rose by 2%, and on the right-hand side the major factors that affected it. Our production at 305,000 barrels per day is now higher for the fifth quarter in succession; 11% up compared to the quarter, to second quarter last year, and this is predominantly down to the production in Libya which has now reached pre-crisis levels, or slightly below.

 In terms of the realizations, the dollar was 11% stronger against the euro, and this has more than compensated the 7% decline in the average Brent crude price, down to $108.

 The Refining margin showed a significant increase in the quarter, up by 176%, and Refining and Marketing also benefited from the high margin level in Petrochemicals, and also the fact that in the previous year we were going through a turnaround in Schwechat.

 Petrol Ofisi's performance showed further improvement showing a clean CCS EBIT of EUR53 million against EUR21 million last year, and that's obviously also helped the performance of the Refining and Marketing business. And the gearing ratio at 31% is also an improvement compared to where we were in the same quarter last year.

 On the next slide the economic environment. I think the oil price and euro/$ speaks for itself. On the right-hand side, quite dramatically showed is the Refining margins. A little bit more complex is what's been going on in gas prices.

 We've got a new chart here for you, trying to really demonstrate the challenge that is represented by the oil-based prices within the Russian contracts and the very liquid spot prices.

 And you see here an indicator for the level of Russian prices with the orange line on the top; the yellow line, on the other hand, representing the price at the hubs in Western Europe, in Central Europe as well. And you see here that what we've started to see is a drift apart of these two measures, and that's causing particular pressure.

 Pressure we've obviously experienced for the last couple of years, but it's becoming exacerbated now, to the extent that we have included in our statement a clear indication that our marketing subsidiary here in Austria, EconGas, is expected to show quite a significant deterioration in its results in the second half as a consequence of this continuing deterioration.

 The Romanian realized gas price in euro per megawatt hour has gone down slightly, but that is solely related to the foreign currency effect. It's by and large unchanged in Romanian leu at RON495 per 1,000 cubic meter.

 The next page shows the result down to net income; a few things I'd point out here. EBIT EUR621 million on a reported basis, but on a clean CCS basis EUR865 million. Two reasons for that; the CCS losses and the special items which, in particular, include a write-down of EUR88 million for our gas activities here in Austria, Strasshof.

 But coming back to the financial results, EUR26 million against EUR53 million. The decline here is by and large due to the lower contribution from Borealis which was down by EUR20 million.

 The tax rate has increased quite substantially since last year from 26% up to 40%. Last year, you remember, was particularly [low] because of the low production, the zero production in Libya. 40% is unusually high, and this is particularly down to the fact that we have had a lower contribution this quarter from Petrom.

 And also, the fact that we took the [booking] against Strasshof in Austria, and both of those countries are lower tax countries so their relative contribution has been lower.

 You see that also in the minorities number, down from EUR109 million down to EUR76 million, and that's down to in large part the lower contribution of Petrom and therefore the lower minority that we need to deduct.

 If I go on to the next page on cash flow, we're very encouraged to report that after six months, we have a positive free cash flow. This is particularly encouraging [giving] you better than the first half.

 We paid out a dividend of EUR614 million of OMV dividend, as well as the Petrom minority dividend within that. And despite that, an investment level of just under EUR1 billion, we were able to produce a positive free cash flow, and that of course is why we've been able to improve our gearing somewhat.

 The next page, CapEx and EBITDA I think by and large speaks for itself, clearly, the majority of our EBITDA coming out of E&P. And against that, investments of EUR478 million.

 You see on the right-hand side the projects we've been pursuing. Petrom drilling and work-overs is the biggest part. In fact, Petrom within the total CapEx of EUR889 million is something like EUR530 million, so the lion's share of our investment continues to be invested in Petrom in Romania.

 Exploration investments have also increased in the Kurdistan, Kurdish region of Iraq, in Tunisia, and we also have in the Gas business the final investments in the power plants in Brazi and Samsun, as well as the gas storage in Etzel.

 Etzel is a gas storage plant -- cabin in Germany, and we are required to capitalize our rental commitments of these cabins, and to the extent of EUR90 million that was also reflected here in CapEx. Clearly, not in cash affecting investment, however. Rental fees are actually paid in the years ahead.

 The Petrobrazi modernization is the biggest investment in Refining and Marketing, and that is following a [substantial] turnaround which took place in the second quarter. And we're now on track to complete the modernization by 2014.

 The next page shows you the reconciliation from clean CCS EBIT down to EBIT. We have in quarter 2 CCS losses of EUR104 million driven, of course, by the reduced oil price. And of significance on here is the unscheduled depreciation that we booked of EUR101 million caused by two items.

 Specifically, we wrote-off, as I said, EUR88 million relating to the Strasshof development in Austria. We also made a smaller provision against the preparation cost for the storage project called Schonkirchen-Tief here in Austria, which we've now decided it's not likely to be progressed as a project going forward; and as such, the preliminary feed costs have been written off in the quarter.

 Coming then to the operating divisions on the next page, you see the reconciliation for E&P's clean EBIT in quarter 2 this year compared to quarter 1 last -- this year on the left-hand side, and compared to quarter 2 last year on the right-hand side.

 Looking at the second quarter compared to the first quarter, realizations were down. Clearly, the oil price was dramatically down compared quarter 1 and that impacted the realizations. On the other hand, exploration expenses were quite considerably lower given the high write-offs that we booked in quarter 1 with Peking Duck in Norway and Aberlour in the UK.

 Compared to the same quarter last year, the reconciliation is quite different. Realizations were positive despite the oil price being 7% lower, as I've mentioned earlier. The oil price currency being 11% stronger compensated that.

 We also have substantial increases in volume predominantly coming from Libya. Exploration expenses were also lower last year in the same quarter. We had Lagavulin, Klimt and Kultuk, as high exploration write-offs, so the net of all of those produces a EUR743 million clean EBIT. So quite a step-up from last year.

 On the next page, you see what's been happening to our production. As I mentioned, five quarters in succession we've produced more, and are reasonably hopeful for quarter 3 to produce a similar trend, given that we've now started production Yemen again. Although, of course, the situation there on a security basis remains critical.

 Production overall compared to the first quarter last year -- first quarter this year by 2% higher production, mainly in Libya, but also New Zealand put in a contribution towards that, and we have had slightly lower gas production in Romania and Austria; in Austria being due to the regular plant shutdown and the gas processing plant in Aderklaa.

 OpEx per barrel you see has come down quite favorably from $14.88 to $12.59 from quarter 3, '11, to quarter 2, '12. The reason for that is twofold. Clearly now as the volumes are increasing in Libya, we are able to absorb more of their costs, and that of course has reduced the unit costs. And also, of course, given that this is a dollar measure, and so much of our cost base as a Group is not in US dollars, clearly, we've had the benefit of the FX effect also coming into this saving of around about $2 per barrel over the same period last year.

 In Petrom on the next page, our production has remained broadly stable, 182,000 barrels per day compared to 187,000 barrels in the same period last year. So we continue to produce as we've said we would, keeping production relatively stable, both -- and in Austria for that matter as well.

 OpEx has not shown quite the same trend that we saw on the Group level, because although we have had the [FX] benefit, we continue to have fairly above-inflation salary increases in Romania, and that of course has also come in to the OpEx calculation.

 The next page shows Gas and Power, EUR26 million down to EUR19 million. The margin impact here, which is slightly negative of EUR7 million, in fact relates not to the trading volumes that I've discussed already on several times, but more to the infrastructure here in Austria which is now operating under a new regulatory environment, which has seen the margin on some of the tariffs come down.

 Against that, we've seen more volume being used through that infrastructure, and that's the predominant reason for the volume increase. The slight cost increase has been due to the building of the team for our Power business, and also the increased activities in trading.

 Gas and Power key performance indicators; you see a very substantial increase in volumes compared to the same quarter last year, but you see a new representation here, which is separating the paper-traded volumes which, of course, are quite different from the supply volumes. And we've tried to make the picture somewhat more clear here. And you see if we were to strip that out, the increase would have not have been anything like as dramatic.

 I've said when we come to the supply margins that we are going to see an impact, particularly on EconGas next year. It's been adversely impacted already in the first half. The challenges of the gas prices is something we've discussed at length, but the current situation that we're experiencing is such that, as I was saying, we are expecting the results in EconGas to deteriorate in the second half quite significantly.

 We've started filling gas into the storage in Etzel. I mentioned Etzel a moment ago in terms of the capitalization of the finance lease on the cabins. And finally, we actually started production at the power plant in Brazi on the August 1.

 Then coming next to Refining and Marketing; every step has been a positive one here compared to where we were last year. The Refining margins we've talked about contributed EUR38 million. Petrochemicals, a very big chunk in terms of the improvement compared to last year. Volumes have helped there, but in particular, the fact that last year the Schwechat plant was not operating through much of the second quarter.

 And then finally marketing, which has also shown a EUR22 million improvement, more than all of which actually comes from Petro Ofisi, whose turnaround continues to impress. In fact, the rest of the markets continue to be under some considerable margin and volume pressure. But net altogether, combining positively to increase our performance this year substantially over the same quarter last year.

 Then on the next page just briefly, you see the Refining output trend that we've had in quarter 2 this year. Substantial reduction in the eastern refinery for obvious reasons given the turnaround in Petrobrazi. And more than that I wouldn't really say on this particular slide. I'll leave the rest of the discussion on Refining and Marketing to Manfred in a moment.

 Key financing indicators. The gearing ratio, as I mentioned, down from the end of last year, slightly up compared to the first quarter. But when you consider that in the first quarter we benefited from the working capital turnaround that we have every first quarter in Germany, and that clearly doesn't kick in in the second quarter, and also in the second quarter we paid out the dividends from both Petrom and from OMV, it's really very rewarding indeed that we've been able to keep our gearing as low as it is, and it puts us in a good position going forward.

 That would almost conclude my presentation before I can just talk briefly about the outlook. The average Brent price we expect to remain now above $100. It's clearly been extremely volatile. Yesterday we had $110, but it isn't that long ago we were sitting with $88. We have a significant spread between the oil and gas prices and the hub prices. I've mentioned that, and that is clearly going to be a factor which is something that's going to impact EconGas in the second half.

 From the very strong position in the second quarter, we do expect Refining margins to weaken for the rest of the year. They remain above the first quarter so far into the third quarter, but not at the level that we had in quarter 2. Marketing margins and volumes with these now high again oil prices are expected to remain as they were, challenging.

 Net CapEx is going to stay at the EUR2.4 billion level broadly. The implementation of our performance program 'energize OMV' is something that we talked about at the Capital Markets Day in September last year. And at the end of this presentation, I'll have a little bit more to say about that, because we're now implementing the program and look forward to regularly reporting to you your progress toward adding 2% towards our return on capital employed by the end of 2014.

 We expect Libya to stay at current levels. Yemen production has restarted, but the security situation clearly remains uncertain, and that's not something we can wholly influence, of course. EconGas I've already talked about; and the divestment program in Refining and Marketing is expected to show further progress in the second half.

 At that, I conclude my presentation on the results and I'll hand back to Gerhard to take you through an update on where we are in terms of our strategy implementation.

 Thank you.

------------------------------
 Gerhard Roiss,  OMV AG - Deputy Chairman   [6]
------------------------------
 Thank you, David. Let's start with our strategy. You know our strategy, which is very simple; grow upstream, optimize downstream, which means integrated gas and restructured downstream, in terms of downstream. And on top, it means an improved overall profitability as you know from our Energize project growing our ROACE 2 percentage points.

 Let's start with upstream. What have we delivered? First of all, you know the Black Sea, Romanian offshore, the potentially biggest gas discovery. Then on top of it what we've achieved now is that to growing to Bulgaria this [Khan Asparuh] Block which was awarded to us I've just mentioned before, and Abu Dhabi, which will give us an opportunity to grow as well.

 On top of this, we have 30% exploration expenditures in 2011 versus 2010, and we see here further improvement on our exploration -- growth of our exploration [expenditures], and the appraisal pipeline is up by 450 million BOE. Jaap will give you more information on this aspect.

 And on top of it, as it's our strategic target to shift much more into high impact exploration, which we have shown this Bina Bawi Domino what we will do is (inaudible).

 Grow to or beyond critical mass. This means first of all divestment of the small participation North Sea, growing to the west of Shetland area, and the gas development acquisition region North Sea.

 Development pipeline up 40%. Jaap will tell you how he has achieved it. And this all leading to 50,000 to 60,000 barrels a day on top of it in 2016 production.

 Stabilize production in the core. We have stabilized our production, as I've mentioned before, in the range of above 200,000 barrels a day. This means our production target of 350,000 barrels a day in 2016 as of today is confirmed. And on top of it, you see that two-thirds of our CapEx in E&P is in line with our strategy.

 Then in Refining and Marketing, divestment program is on track. We have closed up Arpechim, we have sold K-Pet, we have sold Petrom LPG business, and signed, and we are progressing on the sale of our Croatia and Bosnia filling stations.

 Drive performance. This Energize program, we have started to reduce the capital employed by EUR150 million, and the Petrobrazi modernization first step is finalized. And what we can announce is strong contribution from Borealis. This is ongoing.

 In terms of Gas and Power, in a new concept of Nabucco which means much less investment compared to Nabucco [Classic], because this is just in the range of EUR3 billion to EUR4 billion, and there will be at the end more shareholders than you see nowadays. And it is key for us to build up a gas position in Turkey, a gas sales position that we have started.

 Solid financials. Gearing, you've heard from David down to 31%; and performance program, this 2 percentage points also I have discussed, and again, a strong focus on strengthening our E&P capabilities.

 You should note that about 70% of the Jaap Huijskes' leadership teams is about 50 people; 70% of them are new in their position since '11, and this a quite substantial change. Jaap will tell you more about it, but this is new coming from inside and outside.

 So what we have promised is to achieve profitable growth. So we have stabilized production. The target is here to stay in the range of 200,000 to 210,000 barrels per day until 2014. Production growth until 2016 2% per annum organic, and up to 4% including acquisitions.

 Upstream access for Nabucco. This means Caspian region/Middle East. 100% reserve replacement rate by 2016, including acquisitions. Gas-fired power generation 1.7 gigawatts on stream by '12, and further capacity on the conditional equity gas. R&M divestment, EUR1 billion until 2014; performance improvement at 2%.

 And we would like now to go into the details to give you some idea about our achievements and where we are. And for that, I would like to hand over now to Jaap.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [7]
------------------------------
 Thanks for that, Gerhard. So the first four promises on the slide Gerhard just showed relate to E&P; stabilizing our production, production growth, upstream access for Nabucco, and 100% reserve replacement rate.

 It's too early to tell you we've got to some of them; the reserve replacement rate is for 2016. But what I'll show you is what's happening to our portfolio and how we're lining up to deliver that.

 Let's start with Romania and Austria. Last year, you saw in particular the Romanian performance extremely encouraging. For the first time year on year, we managed to equal the previous year production. Last year, we finished our production in Austria and Romania combined to 212,000 barrels of oil equivalent per day, actually above the commitment that we made. We made a commitment to keep production in those two countries combined at 200,000 to 210,000 barrels per day, up to -- up to and including, I should say, 2014.

 And what you saw us do last year above that range, and this year, first half of the year, we're running at 208,000 barrels per day. You see Austria stable, Romania dropping a little bit off. We've got problems with one or two gas fields which we're working hard to correct. A little bit more challenging than last year, but nevertheless, combined very much to the upper end of that 200,000 to 210,000 barrels per day scale.

 On this slide also, you see some of the activities that we're undertaking to contribute to keeping our production level. In particular, field redevelopments are key. An increasing part, I've said this before and it's a continuing trend that will continue to be a trend for years to come, of our CapEx goes to field redevelopment plans where we don't just drill a well, but there's a combined program of more sub-surface activities, water injection pipe developments, combined with sub-surface rejuvenation of facilities.

 So we'll go to the next slide. Where does that lead us if you look forward to 2016? The portfolio that we currently see, and that we currently have, and that we're currently developing, is now some 400 million barrels of oil equivalent in size. And we see the same group of projects, with some changes, some better; some slightly worse, but we still see that same group of projects delivering 350,000 barrels per day oil equivalent in 2016.

 Whether it will be more or less than that -- whether it will be more than that depends on the acquisitions. Again, we made that point in September last year in Istanbul. The acquisitions you've seen us do so far, we'll come to that in the next slide, are really contributing in the second half of the decade. So they don't so much deliver additional production growth in the 2016 timeframe, but in the second half of the decade.

 That could change depending on what acquisitions we happen to do between now and 2016, but we've clearly very much focused on acquisitions that create value rather than acquisitions that simply produce barrels in the short term.

 Talking about acquisitions that create value, on the next slide, you see the acquisitions that we've -- and country-entry in Abu Dhabi, and negotiated an access that was not strictly an acquisition. But you see the transactions that we've done since September last year.

 Medco in Tunisia, relatively small, where we bought out the minority shareholder in the pioneer acreage that we acquired earlier that year. Two acquisitions in Norway that go very much hand in hand. They basically depend on the same gas infrastructure, and we're establishing a position in that gas -- new, to be built gas export infrastructure, which also combines with existing exploration acreage we hold in the area.

 Zidane, bought towards the end of last year; drilled Zidane-2 this year. Coming on the high end of our expectations; good move.

 Aasta Hansteen, also referred to as Luva, we bought in the second quarter. You've seen the publications. We're now a 15% member of that, and we see that contributing some 18,000 barrels per day in the 2017/'18 timeframe. Statoil, they're the operator.

 We're not just buying new assets; we're also divesting assets, again, as we promised. We're getting out of our small 1%/2%/3% participations in the [centrum OC]. Mature, very little growth, very little influence from us, and we're concentrating on the West of Shetlands instead, so that will come back in the portfolio slide later on as well.

 And then finally in Abu Dhabi, proud to announce in the second quarter that we have now got a negotiated access to Abu Dhabi, together with ADNOC, the national oil company, and with [Shell] our partner, we are lining up to drill an appraisal well in the Shuwaihat sour gas development, and that really is to confirm gas volumes, but in particular gas composition, oil, condensate and H2S composition before we then commit to engineering and development decisions.

 On the next slide, progress that we're making on the exploration spend. We indicated in Istanbul we wanted to increase our exploration spend full-stop, and in particular, we wanted to increase the exploration spend that we dedicated to high-risk, high-reward type exploration. And that's what we're doing.

 Clearly, the success that we had, and that we announced in the first quarter in Domino was very encouraging on that journey, but we're continuing to build that journey. On the right, you see a map of the Black Sea, and you see that we're now also partners with Total and Repsol in the Bulgarian deepwater block that is adjacent to the Neptun deepwater block.

 And also earlier this week, you saw an announcement by the Ukrainian authorities that said that we were members of a consortium that put an application in for the Skifska deepwater block in the Ukrainian waters, and indeed, we can confirm that's the case. Of course, award remains to be seen. That's a competitive process.

 Suffice to say, we are building a significant exploration position in the Black Sea, and we're looking forward to results, or additional results there in years to come. Having said that, getting seismic, getting rigs into the Black Sea, and getting deepwater developments developed in an environment like the Black Sea will take time, and you will only see contributions in production, if they come, towards the end of this decade.

 Where does all that lead us? And I want to spend just a little bit more time on slide 31. Some of you will recognize this slide. We used it for the first time in Istanbul. But it's changed, and it's changed in quite an important way.

 When we showed you this slide in Istanbul, it indicated that we had 280 million barrels of volumes under development. So that group of field development, the new projects that we were bringing into production, summed up to 280 million barrels total reserves.

 If we look at that same volume now, it's gone from 280 million to 400 million in less than a year. And what's even more encouraging, and we didn't name a number in Istanbul last year, we do now. Under appraisal, we've got volumes of another 450 million barrels oil equivalent. So altogether we're now indicating a development pipeline of 0.9 billion barrels of oil equivalent.

 What are the key changes? If I start with the field development column, Rosebank is now in there; that wasn't there before. That's moved from the appraisal column into field development. In the last quarter, you saw the operator, Chevron, with very strong support from us I might add, commit to the front-end engineering phase, so that's now in front-end engineering, working towards the next decision which will be a final investment decision, clearly key to our strategy of concentrating on the West of Shetlands in the UK. You also see our acquisition, Aasta Hansteen, otherwise known as Luva in Norway, in that column.

 Other changes too. Schiehallion changes. FRDs in Romania is a continuously changing portfolio, but altogether, that's delivered an extra 120 million barrels oil equivalent into our development portfolio.

 Under appraisal. Clearly, the key change there is Domino, which we reported on in the first quarter. Nothing new to report at this stage; watch this space. But other changes, Zola was one of our successes last year, again working on the appraisal strategy there. Shuwaihat is new, our country entry in The Emirates. And Zidane is also there under appraisal, and clearly in the next year or so, we hope to move that from appraisal also to the development column. Altogether, those volumes constitute some 450 million barrels of oil equivalent.

 What will that produce? Because clearly, these 450 million and 400 million barrel numbers are not production numbers, they're reserves type numbers, the sort of expected total volumes that we expect to produce from these projects. If you turn this into production contributions, then in 2016, we expect these projects to contribute some 50,000 to 60,000 barrels a day.

 That's not simple arithmetic. You can't simply add that to today's production. Clearly, underlying production moves down. New projects get added to that. Altogether, that makes us absolutely confident to confirm our production target of 350,000 barrels a day in 2016.

 Looking further out, clearly, you [don't] see a bigger range, because there is more uncertainty, not so much in the volumes, but in particular the pace at which we will be able to put projects into production.

 But clearly, you now are starting to see quite healthy pipelines of projects delivering in the second half of this decade, and the current portfolio we see delivering some 150,000 to 200,000 barrels a day by 2021.

 That's particularly relevant, because if we deliver it in that timeframe, some of these projects will be taking FRD in the 2015/'16 timeframe, and therefore will start to contribute to our 100% research replacement rate target for 2016, key to our progress there.

 So far for my update and where we've got to with the E&P strategy. Manfred.

------------------------------
 Manfred Leitner,  OMV AG - Executive Board member responsible for R&M   [8]
------------------------------
 Thank you, Jaap. Hello to everybody from my side. I would like to give you an update on the progress made in the R&M strategy so far.

 First off, here is the reduction of the capacity in our Refinery business in the divestment activities. As you may recall, we have as a first step closed permanently the Arpechim refinery already in 2011. In the meantime, we have reduced the capacity in the Petrobrazi refinery in the recent turnaround from 4.5 million tons to 4.2 million tons. I will come to that a bit later as well.

 The divestment of the 45% stake in Bayernoil refinery is planned by 2014. We have been completing the sale of the Petrol Ofisi stale in K-PET -- these are the filling stations in Cyprus -- already some time ago.

 We have signed the sale of the Petrom LPG Bottling business in the meantime. Completion would be expected for the first quarter 2013 at the latest. We are progressing in the divestment of retail assets in Croatia and Bosnia. A decision on that will most probably be made in the second half of this year. And we have set up a sale program for plots and tail end stations, and this is as well going into implementation already.

 As a further information, I would want to mention that we're currently working as well on the sale or, and/or restructuring of the [lubes plant] in Austria, which is not having the profitability as desired.

 We are contemplating on reducing the assets in that respect very much on working capital. So we have set up a stringent capital management process which is not only going for more stringent management of new investments, but as well especially for the reduction of working capital elements.

 We have in the meantime already reduced by EUR150 million. This is mainly coming out of the consolidation of the Petrol Ofisi product supply with OMV overall product supply activities. And we plan to [lend] together with the support of treasury an amount of something like EUR500 million for the end of the year.

 The Petrobrazi modernization is well on track. We have just had the six-weeks turnaround in the refinery where we reduced, as mentioned already, from 4.5 million tons to 4.2 million tons of refining capacity.

 We are now absolutely capable to process 100% of the Petrom domestically produced crude. We do most just with that one refinery.

 Divestment program for the modernization of Petrobrazi from 2010 to 2014 has been reduced last year from EUR750 million to EUR600 million, and we are well on track in keeping that figure. The full yield conversion will only come by 2014 when we will have the solution for the Vacuum gasoil conversion in place.

 Just a few remarks to the recent turnaround. We had an average of 4,250 people on site on a daily basis. We did not have any lost time injury, which was very attractive. And most importantly, we did not have any negative impact on the Romanian crude production, and as well not on the product supply to our customers during the time of the turnaround.

 Coming to marketing, just two examples here, synergies and segmentation. First of all, Petrol Ofisi. What we have been achieving there was a significant improvement which is already reflected in the results of 2012. We had a more than doubling of the EBIT produced in the first half of 2012 compare to the year before.

 We have finalized the integration of the product supply with the OMV international activities. We have now in focus to build up a substantial trading position. We have defined the storage terminal which we will be using for that. And only recently, I think the day before yesterday, we got the appropriate license for it, so we can start with that activity as planned.

 The pilot stations for the non-oil offer have been implemented and we are currently in the observation phase, and the collection of data in order to find the right decision forward. The optimization of the retail network itself, the analysis, therefore, is ongoing.

 On the example of Austria, we have had last year the target of focusing on a very distinct two-brand strategy only; first of all to have an offer for the premium customers, but as well for the more price-sensitive customers. And we have reacted to that by implementing the AVANTI unmanned stations in Austria.

 In the meantime, we have already implemented 65% of the planned number. We are having some 90 stations already in operation with very positive results. In the meantime, message here is as well that we have looking to that again, and we will even be more efficiently coming out, because we will reduce the number of total stations until 2014 even further.

 On the asset backed trading, I can inform you that we have started several activities, most importantly, the change from demand-driven to supply-driven optimization, which will give us a better cost position for the crude which we are purchasing for the processing in our refineries.

 We have achieved the first cross-regional product swaps. This means we have capitalized on the short position of our Turkey operations, and have made a cross-regional swap with the western part of our refining system, thereby very much supporting the capacity utilization there.

 We have implemented the dynamic forward trading, the trading of forward Refining margins. We have made two steps. We're not at the final volume which we're targeting, but still in the first half, we have produced the budgeted results.

 And as mentioned already, we will be focusing on a terminal in the Marmara Sea to build up the trading hub for products trading there.

 Finally coming to Borealis. Borealis contributes as, I mean in the past already, but increasingly strong with (inaudible) [end result]. We have had synergy programs running on the co-locations in Schwechat and Burghausen which resulted in a 20% lower utility cost basis for both.

 We have identified in the meantime further potentials through a closer maintenance corporation. This will be implemented in the near future. And an update on Borouge. Borouge 2 is running at a very high utilization; very profitable operation. And Borouge 3 extension project is well on track, which will actually add 2.4 -- 2.5 million tons of polyolefins production by 2014.

 On the right-hand side, you see the increase in profit contribution from Borealis. This is the OMV R&M share. So in the first half of this year, we had a realization of some EUR90 million, and this is more or less on the same track as already in 2011, so quite a profitable operation.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [9]
------------------------------
 Thank you, Manfred. It's David Davies again. Let me step in now and just conclude this strategy update element.

 We have a performance improvement program which we discussed in Istanbul in September, with the target that we've set to improve our return on capital employed by 2% by 2014.

 And I've met a lot of analysts and investors since then and given them up an update on where we were broadly, but this issue has not gone away. This project has not gone away. Quite the contrary. In the last seven or eight months, we've had several hundred people involved in this project in one way or another, really trying to identify those missing ingredients to actually get us to a more acceptable level of financial performance.

 Of course it would be easier if we just three or four things to do, which would miraculously improve our performance by that amount, but of course, life isn't like that. Instead, what we've got is a myriad of initiatives, and I know from speaking to you how difficult you've found when other companies have made statements about programs like this actually following just how successful it's been.

 What we'd like you to understand if you look at this first page is that the Group-wide performance program that we set out has a clear assumption that the oil [stock] price will stay at $100. Clearly, if it's higher, then we would expect correspondingly our performance to be better. But we have a clear baseline against which we want to measure ourselves. And over the next 2.5 years as such, as we're implementing this program, we look forward to updating the market every six months with precisely where we are on these initiatives.

 How do they break themselves down;? If you look at the upstream, clearly, the stabilization of production in Romania and Austria is always a key target. We're feeling more and more confident now about our ability to do that based on the Energize initiatives we've been looking at.

 Accelerating production growth in Tunisia and Pakistan won't be an element. And then across the world, basically, a whole range of initiatives to improve operational efficiency, more water injection, for example; and basically, getting production on stream as quickly as we possibly can.

 In downstream, Manfred's already mentioned working capital as a major issue. You may recall that I've pointed out that at the end of last year we had something approximating EUR7 billion tied up in receivables, and in inventory, a large part of which, of course, would be in the Refining and Marketing business. And we've got a major initiative going on to see how we can actually drive that down, because, clearly, at $110 a barrel, you requirements to invest in working capital is quite a burden.

 We've committed ourselves by the end of this year to reduce working capital by EUR500 million. As Manfred also mentioned, there are some Treasury dimensions including in this, some factoring and some receivables, sales as a consequence. There's also a lot of real work going on to reduce the volume of working capital. So this is seen as a major initiative to reduce the capital base of the business, and in particular, the downstream business.

 Optimizing marketing in terms of selling off smaller stores, less profitable stores; also, the exiting of Bosnia and Croatia, and the disposal program generally, that we have in downstream. And Refining, clearly, the big issue here is the Brazi turnaround, but not just that.

 Gas and Power. The only Member of the Board who's not here today is Hans-Peter Floren from the Gas and Power business, and I'm delighted to say that when we do the conference call in quarter 3 we'll have him with us. So this missing ingredient of Gas and Power is something he'll be able to add a bit more to. But clearly, given the difficult market situation in Gas and Power, then clearly, our costs need to also come down in line with that.

 On a Group-wide basis, optimizing organizational process is always an issue for a group as large and complex as ourselves; that goes into IT and clearly goes also into optimizing our procurement spend. But as I say, six-monthly updates on this, is something we've committed to, and I look forward to doing that.

 Once again, the assumptions. $100 per barrel, excluding, clearly, force majeure. Clearly, if Libya fell over again, heaven forbid, then that clearly would be a complication to say the least in achieving this target. Clearly, we also haven't included any major acquisitions or divestments in that, but we hope to be able to keep on track with that and, as I say, keep you informed.

 On the next page you just see some of the things that we're actually working at, in E&P in particular. Jaap has already mentioned this 350,000 barrels a day target for 2016. It's something we're feeling more and more comfortable about, despite 70% of the portfolio being in core countries with a very high natural decline which we have to clearly offset.

 You see there again the core countries, 200,000 barrels per day to 210,000 barrels per day by 2014. Keeping that stable is key, and growing countries such as Tunisia and Pakistan from a contribution today, of above 25,000 barrels per day up to between 40,000 barrels per day and 50,000 barrels a day by the end of 2014. So growing current developments more rapidly through project execution is going to be -- are some of the things that we're doing here.

 Then over on the next chart you see some of the things that we're doing. Some of them relatively small in terms of their absolute impact, but aggregated together, clearly going to be a major part of our overall achievement. I won't go into detail on them, but as I say, when we come to the half-yearly reviews, then I look forward to pulling them out and showing you just how much we've been able to do things better in this area. Doing things quicker, better, more effectively, we believe we can add 2 percentage points to our ROACE.

 On the final page, therefore, the next page, rather, downstream; working capital I've already talked about. Of the EUR500 million commitment, we've already done EUR150 million, as Manfred also mentioned. Marketing, marketing excellence; we're talking about pricing, we're talking about selling smaller operations, loss-making operations. Refining excellence; the Petrobrazi upgrade, a major contribution which will be completed by 2014; and reducing gas and power costs to come more into line with the (inaudible) [currency] market situation.

 The individual contributions you can see on the next page, just graphically represented. And as I say, I genuinely look forward to being able to demonstrate these as we go forward.

 By 2014, as I say, regular updates. We want to be as transparent as we possibly can, to be held to account on this. That was a commitment that we gave in Istanbul last year, so you can actually see the progress we're making on this. And the first update that we'll give you will be in February of next year when we do the quarter 4 results. So I look forward to seeing you and speaking to you more about that.

 With that, I'll hand over to Gerhard to conclude. Thank you very much.

------------------------------
 Gerhard Roiss,  OMV AG - Deputy Chairman   [10]
------------------------------
 Thank you, David. Let me conclude. Well, let me say we are very on track to implement our profitable growth strategy. If you see this 2014 target, to raise this performance short term, with one hand it's stabilization of our production of Romania and Austria; the divestment program. This is on track, and the performance program, as you just have heard from David. And on top of it, we have a solid financial structure.

 For 2016, growth is key. This is on the one hand the North Sea and the region UK North Sea, the gas development we have mentioned. And this 350,000 barrels per day production, I think Jaap made it very clear, is confirmed. And you have seen that in terms of growth, we have this development pipeline increased by 40%.

 In terms of long term, which you see here is 2021, our position, this Black Sea discovery in Romania, the further growth in the Black Sea sits here; Bulgaria (inaudible), Abu Dhabi upstream, the country entries. And the shift to high impact exploration and increased production expenditures.

 This all will impact our long-term growth, but as you see, it's quite [compact] if you see it at all.

 Thank you.

------------------------------
 Lacramioara Diaconu,  OMV AG - Head of Investor Relations   [11]
------------------------------
 This concludes our session of presentation. Now we're ready to move on to the question and answer session.



==============================
Questions and Answers
------------------------------
Operator   [1]
------------------------------
 (Operator Instructions). Nitin Sharma, JPMorgan.

------------------------------
 Nitin Sharma,  JPMorgan - Analyst   [2]
------------------------------
 Two questions from me, if I may, first one on gas and power, EconGas. You flagged in the presentation the disjoin between long-term oil [link] supply and hub prices, and that you expect further deterioration in coming months. So my question is do you expect any flexibility or scope of further renegotiation of some of your supply contacts? And I'm aware there was a one-off in Q1 from Gazprom renegotiations, or something more on those lines, going forward?

 And second question is in relation to performance of Petrol Ofisi where you've improved significantly from a low base. You stated in February this year that you -- we should not expect a radical improvement in earnings contribution of this business, given the high oil price and tax regime in Turkey. So my question is how much of improvement in operating earnings that you saw in Q2 was attributable to relatively -- related correction in oil price. I guess I'm trying to get a feel on sustainable level of earnings for this business, assuming no major change in [major] factors.

 Thanks.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [3]
------------------------------
 Thanks, Nitin. Let me do the EconGas question first. In quarter 4 last year, you may recall we actually concluded negotiations with Gazprom, and they were backdated to the start of that year, and a special -- a one-off item was actually booked in quarter 4 as a consequence of that.

 What we're now seeing in the current market is a deterioration over and above that which we were expecting. That was reflected in those prices. And clearly, one is going to speak to our suppliers.

 I don't want to build any expectations of that situation being immediately addressed. In fact, quite the contrary. I've indicated that EconGas' result is going to suffer as a consequence. But one thing is clear, selling gas where you're contracted to buy at a price which is substantially in excess of the gas price which currently prevails in the market, is simply not a proposition sustainable in the longer term.

 So clearly, everybody has to get round the table and find out how to actually resolve this issue. But in the short term though, we expect to actually be suffering from the current situation in the market.

 As regards [Petrol Ofisi], I'll hand over to Manfred.

------------------------------
 Manfred Leitner,  OMV AG - Executive Board member responsible for R&M   [4]
------------------------------
 As far as Petrol Ofisi is concerned, this second quarter I would say the majority of the increase in the result is coming out of operating performance, which is higher sales, which is higher margins. There is an impact by the decreasing oil price in terms of the import margin we could actually achieve, but I would guess this is in a low one-digit million euro number.

------------------------------
 Nitin Sharma,  JPMorgan - Analyst   [5]
------------------------------
 So the run rate is largely sustainable, earnings run rate is largely sustainable for Petrol Ofisi? Would that be right conclusion?

------------------------------
 Manfred Leitner,  OMV AG - Executive Board member responsible for R&M   [6]
------------------------------
 You can conclude that as long as you know the product and oil price regime or development would be stable.

------------------------------
 Nitin Sharma,  JPMorgan - Analyst   [7]
------------------------------
 Thank you.

------------------------------
Operator   [8]
------------------------------
 Dan Ekstein, UBS.

------------------------------
 Dan Ekstein,  UBS - Analyst   [9]
------------------------------
 I just had a bit of a follow-up on Petrol Ofisi, actually, although most of my question was answered. The Refining number that Petrol Ofisi managed to print this quarter was significantly better than it seems to have ever done before. I wonder if you could just explain exactly what was going on there.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [10]
------------------------------
 Well, we don't have a refinery at Petrol Ofisi. What is it you're referring to, Dan?

------------------------------
 Dan Ekstein,  UBS - Analyst   [11]
------------------------------
 Well, in the breakdown that you sent to analysts, you break out your -- I know you (multiple voices). Is it the lubes, the business, or what? I don't actually know what's in there. So if you could help me out there.

------------------------------
 Gerhard Roiss,  OMV AG - Deputy Chairman   [12]
------------------------------
 May I give you an answer to that what we have been doing here? What you see here is, as I mentioned already, the import advantage of our supply operations which obviously depend as well on the pricing that is done currently by the only local refining company in Turkey on the one hand, and this is actually supported by the reducing oil prices.

 On the other hand, you see here the synergies which we have been listing, because I mentioned before, we have fully consolidated the total Petrol Ofisi product supply operations with our own OMV operations already.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [13]
------------------------------
 I'm sorry, Dan, I confused you. We do actually put the supply margin into the Refining column. That's because we don't have a refinery operation in Turkey.

------------------------------
 Dan Ekstein,  UBS - Analyst   [14]
------------------------------
 Okay, and there's a couple of other questions. Thanks for that. One, could you tell me how much cost you booked in R&M this quarter related to the maintenance activities turnaround at Petrobrazi.

------------------------------
 Gerhard Roiss,  OMV AG - Deputy Chairman   [15]
------------------------------
 You mean the expense?

------------------------------
 Dan Ekstein,  UBS - Analyst   [16]
------------------------------
 Yes, please. Yes.

------------------------------
 Gerhard Roiss,  OMV AG - Deputy Chairman   [17]
------------------------------
 Expense is below EUR10 million, and the investment is approximately EUR90 million to EUR100 million, in that range.

------------------------------
 Dan Ekstein,  UBS - Analyst   [18]
------------------------------
 Okay. Thank you. And then finally, there's been a transaction recently involving Bina Bawi in Kurdistan, and your partner came out with a resource estimate and you guys haven't as yet. And they were talking about up to 1 billion BOE for this discovery. Is that a number you'd have any comment on?

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [19]
------------------------------
 Yes, they also illustrate quite a large uncertainty range. In fact, they quote 500 BOE to 1 billion BOE. And, of course, you've got to be careful with that too. These are [PECs]. So quite often, a participation is then seen as a straight percentage of these recoverable volumes. In other words, if you've got 1 billion, you've got 36%, that must mean 360 million barrels to you. In our case, we've got 36%. That's not the case, because these are PECs. So what you're actually entitled to is a net working interest, which is very significantly less than that.

 Are we encouraged for Bina Bawi? The answer's, yes. That's why we're drilling appraisal well number 1, which is Bina Bawi number 4. Excuse the silly numbering. Number 1 and number 2 were field wells that a previous operator has drilled. We drilled the discovery well, Bina Bawi 3. We're now drilling the first appraisal well, Bina Bawi 4. And we're drilling that to try and confirm the in-place volumes that we think are there.

 As soon as we've got results from those wells, then we will put something out. I think it's a little bit premature, and you should not confuse in-place volumes with eventual working interest in net entitlement volumes.

------------------------------
 Dan Ekstein,  UBS - Analyst   [20]
------------------------------
 That's clear. Thank you for that.

------------------------------
Operator   [21]
------------------------------
 Thomas Adolff, Credit Suisse.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [22]
------------------------------
 A few questions, please, just firstly on the 150 kbd to 200 kbd of incremental production that you see from the fields on the appraisal. Just going back to Dan's question, I'm assuming this 150 kbd to 200 kbd is based on working interest rather than entitlement because obviously, it makes a big difference for Bina Bawi, and I'm assuming also for the Abu Dhabi fields. So in other words, what is your expectation on an entitlement basis on your commodity price forecast rather than a working interest basis?

 And I have a few follow-up questions as well. Thank you.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [23]
------------------------------
 The answer to that is very simple. Contrary to some of our competitors, we don't push these sort of numbers out. So the numbers you see there are OMV net entitlement numbers. These would be production and reserve numbers that end up in our books.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [24]
------------------------------
 Okay, perfect. Thanks. And then just some questions on 2Q. If you can comment on the increase in the sales volume quarter to quarter in the upstream and how much of this was related to the under-lift recovery in Libya. If you can quantify this in kbd for this quarter and the first half of this year respectively, that will be great. And also, what production level we should be assuming for 3Q in Yemen.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [25]
------------------------------
 As regards the Libyan production, I'll get Lacri to get back to you with the precise number of the impact, but it is fair to say that in quarter 2 in particular, we still had an over in Libya because we were working off the quarter 4 surplus.

 By the end of the half-year we're now fully up to date, so what we're producing will just be subject to the normal lifting schedules and delays that we've had previously. But what we under-lifted in quarter 4 has now been effectively worked off. Most of it was in quarter 1, and quarter 2 there was only a small residual element as well.

 The sales position also got a little bit complicated in quarter 2 in that we had the refinery shutdown in Petrom, and although we continued to produce, it did affect some of the sales because some of the crude was staying on the E&P side of the fence in their storage, as it were, waiting for the refinery to get fully ready, which it now is, and that will start to work out somewhat in quarter 3.

 Then as regards Yemen, we're currently producing our share. Jaap, do you want to say something?

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [26]
------------------------------
 Yes, we're at some [7,000] barrels a day, which is pretty close to pre-crisis. How long that will last is a little bit uncertain. The security situation is unclear. And, of course, it's the first real production that we've had other than a little blip in the third quarter last year for almost a year.

 Very proud of the team of local staff that we've had out there for more than a year. They got this thing on stream within hours of the pipeline being available. But it's early days. But so far, what we're producing today is similar to pre-crisis levels.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [27]
------------------------------
 Is that 6 kbd to 7 kbd?

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [28]
------------------------------
 It's about 7,000 barrels a day.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [29]
------------------------------
 If I can just -- last question. What's sort of normalized tax rate should we be using?

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [30]
------------------------------
 The forecast for the current year, you saw we had 40% reported in quarter 1 -- quarter 2 rather. That, if you actually clean it up with some of the write-offs that we took and such like, would have been closer to 35%/36%, and something in the mid-30%s area is where we would be expecting things to land, assuming things stay normal for the second half.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [31]
------------------------------
 Perfect. Thank you very much.

------------------------------
Operator   [32]
------------------------------
 Lydia Rainforth, Barclays.

------------------------------
 Lydia Rainforth,  Barclays - Analyst   [33]
------------------------------
 Three questions, if I could as well, please. Firstly on Australia, Jaap, you didn't talk about that area very much. I'm just wondering it does seem quite a long way outside of your core area. How does Australia actually now still fit into the strategy?

 And then secondly also on the upstream. Can you give us an indication of how the cash flow of the new barrels compares to the existing portfolio?

 And then, finally, just one tidy-up question on the CapEx number for the full year. The Company seems to be running below the run rate implied by the budget. Is still something that you expect the catch-up to come in the second half of the year?

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [34]
------------------------------
 Okay. So let's take them one by one. Australia is indeed a long way out, but we've got a producing asset sitting just next door, of course. We've got our operations in New Zealand, which have actually improved. A good performance in the third quarter -- in the second quarter, sorry, not so much because the absolute level's gone up, but in particular, the reliability of our offshore oil operation has improved dramatically; not by a lot, but by hard work, and that's now contributing reliably.

 What we've done with our Australian assets, we've actually closed our office in Australia. We did that earlier this year. We're in the process of finalizing some farm-out arrangements in the acreage that we still have, not because we don't like it, but because we've decided not to build up an operating position in Australia.

 What we have got in Australia though is the Zola discovery and some acreage around it. The acreage around it will also be operated by somebody else. And we plan to retain that, but operate that or look after it from our New Zealand office. So we really see New Zealand and Australia as a single operation run out of Wellington for us.

------------------------------
 Lydia Rainforth,  Barclays - Analyst   [35]
------------------------------
 Okay.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [36]
------------------------------
 On the run rate, on CapEx expenditure, if I could take that one first, so your third question, it's quite usual. It's something that quite frankly we battle with to make sure that the expenditure in January resembles our expenditure in December. Generally, we tend to struggle with that. Things peak at the end of the year. Then in January, we struggle to get the rates back up. It's got to do with processes and approval cycles, etc.

 So it's not unusual to improve their lot, but it's quite normal to see a higher run rate in the second half of the year than in the first half of the year. So, yes, we are sticking to our guidance on CapEx.

 And I think, David, you just [dug] out the [Nopak] contribution.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [37]
------------------------------
 Yes, the Nopak contribution on a per barrel basis is broadly close to the average in terms of the new barrels that are coming on stream, so we wouldn't expect a material deterioration at this point from our per barrel profitability.

 And clearly, on the CapEx numbers, Jaap has the lion's share of the CapEx. Then the guidance of the EUR2.4 billion overall is more or less covered by his statement, because most of it is clearly going to be invested in E&P.

------------------------------
 Lydia Rainforth,  Barclays - Analyst   [38]
------------------------------
 Sure, that's very helpful. Thank you.

------------------------------
Operator   [39]
------------------------------
 Hootan Yazhari, BofA Merrill Lynch.

------------------------------
 Hootan Yazhari,  BofA Merrill Lynch - Analyst   [40]
------------------------------
 Two quick questions. I wanted to focus on your view on how the gas markets will evolve in Romania. Obviously, you are still struggling to achieve international pricing there. Any update there in terms of your negotiations with the Government or any impact that the improved pipeline infrastructure in the area is having on realizations there, if anything.

 And then also in terms of your entry into Abu Dhabi, I just wanted to see what sort of terms you have negotiated there. Are these very similar to the service contract terms on existing contracts out there where you'll be making very low margins, and is this -- how does that fit into an overall strategy which is seeking to increase ROACE by 2 percentage points?

 Thank you.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [41]
------------------------------
 Let me take the point on the gas price in Romania. In fact, Hootan, this year, there's been quite a significant development in that there was a timetable agreed with the IMF and the Romanian Government to actually fully liberalize the Romanian gas price with industrial users by the end of 2014 and for households by 2018. Of course, in Romania, we're actually with our third Prime Minister seven months into or eight months into the year, so although it has been agreed, as it were, the political environment is anything but stable at the moment.

 Despite this instability, I must emphasize that our contract, or the privatization contract on the [sanctity] of that has never been touched, so I think that's encouraging. But the difficulty that we have is that with the political uncertainty and the changes, although there is a formal statement of intent which has been ratified by the IMF and agreed, as regards when it's actually going to get executed, then we clearly have to wait and see, await some more stability.

 In terms of what's been going on in the local market and the margin developments, what's been quite interesting is, as you'll be aware, we are required to import gas, and the calculation formula for that requires it to be priced at the Russian import price, which because of the general situation in the European gas market is quite a lot higher than gas which is otherwise available. So we have been able on occasion to import gas from other places at a price below the Russian price, and that's helped our margin somewhat in our Gas business in Romania.

 So there are a number of things going around the market which are making it more and more difficult to sustain this artificial regulated environment. But as regards a dramatic step change, then as I say, we need a little bit more political stability there at the moment. And we're certainly not banking on it at any time soon in our internal expectations.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [42]
------------------------------
 Okay. On the Abu Dhabi project, the Zawya project, the shape of this project is that it's a sour gas development project. It's a known discovery. In fact, it's an older one. And that's the case in some of these countries that there's developments sitting out that have been found but not actually committed to development to.

 The first step that we're going to do is drill at least one appraisal well, and subject to the result of that, we might drill another one. And the reason for that is twofold. First, volume confirmation; [considering] the range there isn't that big though, particularly we need to confirm the exact composition of the gas. It's sour; we will need to know how sour for design purposes. And we need to know the condensate content of the gas for our commercial purposes.

 This type of contract is not a service contract. When we get out of the appraisal phase and commit to the development, this will be a joint operation with our partner Shuwaihat, and with the national oil company, ADNOC. We'll have 20% of that. And we will get paid through the liquid content of the gas, quite -- again, for a condensate-rich gas development not an unusual arrangement.

 We will have title to the production, but we will get refunded out of the returns we get out of the condensate part of the production. Quite -- not quite normal, but not unusual for condensate-rich gas developments in that area of the world.

------------------------------
 Hootan Yazhari,  BofA Merrill Lynch - Analyst   [43]
------------------------------
 Understood. Thank you.

------------------------------
Operator   [44]
------------------------------
 Matt Lofting, Nomura International.

------------------------------
 Matt Lofting,  Nomura International - Analyst   [45]
------------------------------
 Just two questions remaining, please, firstly on Kurdistan. I think you talked about Bina Bawi earlier. I was just wondering if you had any thoughts or comments around the Rovi and Sarta blocks following Chevron's farm-in there recently, or how that's affects your thinking and future drilling plans there.

 And secondly on the R&M divestment program, I just wondered if you could clarify whether you're expecting completion, particularly of the sales of the Marketing businesses in Croatia and Bosnia in the second half of this year, or whether that rolls over into 2013.

 Thanks.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board member responsible for Exploration & Production   [46]
------------------------------
 I'll take the [Kerai] question first. Of course, we welcome very much the entry of a very strong partner in Chevron, but it's too early to see where that's going to take us. We're obviously having technical meetings with our new partner who is the operator of Rovi and Sarta, and in those meetings we're comparing our views with his views, and we're discussing future plans. But it's too early to see where that's going to take us. But clearly, as far as we're concerned, a very encouraging start.

------------------------------
 Manfred Leitner,  OMV AG - Executive Board member responsible for R&M   [47]
------------------------------
 As for Croatia and Bosnia, the completion will be dependent on the clearance by the Croatian and Bosnian Competition Authorities in that. So it's not sure that we will be completing by the fourth quarter. It could well be that we are slipping into the first quarter next year.

------------------------------
 Matt Lofting,  Nomura International - Analyst   [48]
------------------------------
 Okay, it's very clear. Thank you.

------------------------------
Operator   [49]
------------------------------
 Tamas Pletser, ING Bank.

------------------------------
 Tamas Pletser,  ING Bank - Analyst   [50]
------------------------------
 I just have one question. Could you tell us a little bit more about your power plant investments? I wonder when Brazi and Samsun would start, what do you expect on the profitability.

 Also, there were some reports on Reuters saying about some licensing problems with Samsun. Could you clarify that, please?

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [51]
------------------------------
 Well, in fact the, Petrobras -- the Brazi plant, rather, started already on August 1, so it's actually in production as we speak. The Samsun plant is expected during the next few months to actually go into commissioning, and we'll be expecting to produce first power on a commercial basis at the beginning of next year.

 As regards the profitability, I think it would be fair to say that the market right now for gas-fired power generation is quite radically different from that which we were expecting when we commissioned these plants -- rather when we authorized the construction of these plants. And I think the initial period is going to be rather difficult, particularly in Romania where we're still in a dialog in terms of what gas price we will actually end up using. If we're able to use our gas in this plant, then the profitability would actually look quite representable. If we're not, then the situation will clearly be far more challenging.

 In Turkey, the situation is quite different, because the power prices in Turkey are abnormally high at the moment. And that, I think, is a reflection of the booming economy that we continue to see to a certain extent in Turkey compared to the rest of Europe. And as a consequence, when that plant comes on stream, we would expect a level of profit which perhaps is not as optimal as we would originally have expected, but certainly one with which we can be satisfied in the current environment.

 The comments at Reuters to which you refer relate to a legal case that is going on around the power plant. We're actually not a direct case -- direct party to this legal case, rather it's between two separate parties, the fundamental challenge of which is that the party which authorized the construction of the power plant was not appropriately authorized to do so, or rather hadn't commissioned all of the work that should have been done before it gave the authority for the power plant construction to go ahead.

 We've continued with the construction. In fact, we've almost completed construction, clearly, if we're about to start commissioning the plant, and of course that we hope that it will ultimately be resolved successfully given that the plant is desperately needed in the Turkish market given the very high power prices that I already mentioned.

------------------------------
 Tamas Pletser,  ING Bank - Analyst   [52]
------------------------------
 Okay, clear. So it means that you don't expect anything, or any negative consequence on the start of Samsun from --?

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [53]
------------------------------
 We're not planning on that basis, but clearly, the fact that there's a legal case going on around it is not something that you view necessarily as positive. But we're not planning on the basis that we're going to have a major negative shock, no.

------------------------------
 Tamas Pletser,  ING Bank - Analyst   [54]
------------------------------
 Okay, clear. Thank you very much.

------------------------------
Operator   [55]
------------------------------
 That was the last question as we're running out of time. I will now hand back to David Davies for his closing comments. Please go ahead.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of the Executive Board & CFO   [56]
------------------------------
 Okay. Thank you very much, ladies and gentlemen. It's been a pleasure to speak to you once more. We're actually doing a European road show, or rather a Continental European road show immediately following this. We decided to not visit London given the other events that are going on in London at the moment. But we do look forward to seeing those across the channel in a few weeks' time when we come over at the beginning of September.

 In the meantime, as ever, if you do have any questions, please don't hesitate to contact the IR team.

 Thank you.

------------------------------
Operator   [57]
------------------------------
 That concludes today's telephone conference call. A replay of the call will be available for one week. The numbers are printed on the telephone conference invitation, or alternatively, please contact OMV's Investor Relations department directly to obtain the replay numbers. You may now replace your handsets.






------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the 
Transcript has been published in near real-time by an experienced 
professional transcriber.  While the Preliminary Transcript is highly 
accurate, it has not been edited to ensure the entire transcription 
represents a verbatim report of the call.

EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional 
editors have listened to the event a second time to confirm that the 
content of the call has been transcribed accurately and in full.

------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other 
information on this web site without obligation to notify any person of 
such changes.

In the conference calls upon which Event Transcripts are based, companies 
may make projections or other forward-looking statements regarding a variety 
of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
identified in the companies' most recent SEC filings. Although the companies 
may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2017 Thomson Reuters. All Rights Reserved.
------------------------------