Q4 2013 OMV AG Earnings Conference Call

OMV.VA - OMV AG
Q4 2013 OMV AG Earnings Conference Call
Feb 19, 2014 / 10:30AM GMT 

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Corporate Participants
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   *  Gerhard Roiss
      OMV AG - Chairman of Executive Board and CEO
   *  David Davies
      OMV AG - Deputy Chairman of Executive Board and CFO
   *  Jaap Huijskes
      OMV AG - Executive Board Member, Exploration & Production

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Conference Call Participants
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   *  Mehdi Ennebati
      Societe Generale - Analyst
   *  Lydia Rainforth
      Barclays - Analyst
   *  Tamas Pletser
      Erste Bank - Analyst
   *  Matt Lofting
      Nomura - Analyst
   *  Oleg Galbur
      Raiffeisen Centrobank - Analyst

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Presentation
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Operator   [1]
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 Welcome to the OMV Group's conference call for the Q4 2013 results. There will be a presentation of the results, 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 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 Mr. Roiss. Please go ahead, Mr. Roiss.

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 Gerhard Roiss,  OMV AG - Chairman of Executive Board and CEO   [2]
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 Thank you. Good morning. I am pleased to lead you through our strategic highlights and the full results of 2013.

 First of all, let's start with the market environment. We had a year of decreased oil price compared to the year before, but, on the other side, the volatility was quite low. It was, over the last [two] years, the year is the lowest volatility. And despite of the decreasing oil prices, we had suffered from the instability in the Middle East and North Africa, mainly Libya production, and Yemen.

 The gas prices was on the positive side of further decoupling from oil indexation, but, nevertheless, hub prices are still slightly below our input prices.

 Refining margins, due to this huge overcapacity in Europe on refineries, their refinery margins have been halved.

 And the exchange rate, the weaker dollar has influenced our results.

 Let's come now to the results. The results; the clean CCS EBIT is reduced by 22% compared to the year before to an amount of EUR2.647 billion. The main part is coming out of E&P. But here you see this huge impact to the deviation due to this shortfall of production, mainly Libya. Also, we had some maintenance stops in UK, Schiehallion, for instance, New Zealand; and we also had some divestments in [E&P].

 Brent price was down, as I mentioned.

 And the positive upside was the first production on Gullfaks. But, unfortunately, it started November, after closing, so it couldn't heavily impact the last year.

 Gas and power is down in results by 25% with amount of EUR137 million. This is impacted by this difficult margin and volume environment. And also positive, it was -- showed a positive deviation out of the contribution of this new supplier renegotiation, the one hand, with Gazprom, and the other one with Statoil.

 Refining and marketing, excellent performance in our refining business, which was -- this was difficult. But with the higher utilization rate of 92%, this is a European benchmark in running refineries, this we have achieved.

 On top of it, we have a strong increase in our petrochemical part. And those were -- those petrochemical parts is, in terms of value, quite important when you see our refinery results. Therefore, the decrease was just 5% compared to the result a year ago.

 But the key figures, if you see, were in this last year's result is not the EBIT figure; the key figure is the cash flow figure, and the CapEx figure.

 The cash generation overall amounted to EUR5.8 billion. You see big part is coming out of reduction of net working capital, EUR1.4 billion; and also, a big part is coming out of the downstream business, EUR1.7 billion. So this was the highest cash generation ever.

 And it was also the highest CapEx ever with an amount of EUR5.2 billion. You have seen that a key part of CapEx is going into this North Sea acquisition; the other part is going in the ongoing upstream investment.

 The gearing ratio, as such, only improved, only went up to 30%. You see the debt increase is quite modest.

 Again, allow me to mention this huge increase in net working capital. It's not just mainly a one-time effect; it was managed over the years. And the result is this yearly effect of EUR1.4 billion. It was part of our energize program that David Davies will give you more information with an outcome over [three years'] preparation.

 Again, the strong operational performance, you see how it built up over the years. We started 2011 with about EUR3 billion, being now in the range of EUR5 billion, including our divestments, of course. And you see 2011, the contribution from [R&M] was EUR0.5 billion; in the year 2013 it was EUR2.2 billion. So, again, what we have now moved from cash from downstream invest into upstream.

 Again, back what we have presented 2011, our strategy to be more focused but still integrated oil and gas, but with a strong improved profitability and strong growth in upstream. You see this change. This transformation to the Company should be finished 2021, having then an asset base coming of upstream by 55%, compared to what we have now, it is one-third asset base in upstream.

 And on the next slide you see how this transformation has happened already. If we include the figures from Bayernoil's divestment, which is signed but not closed, it's the reason we have here this 2014 expectation figure here, then you see that this transformation, that was due to be done in 2021, is finalized.

 This means we have managed to move from low return downstream in the amount of 5% to 10% to higher return upstream, returns bigger than 10%. So this huge transformation was managed over the last three years.

 Again, some slides, seeing what has been changed. You see here, for instance, downstream cash flow. 2011, we still had a negative cash flow of EUR0.6 billion; and this has changed, downstream now, refining and marketing, and gas and power, with a cash flow for upstream in the amount of EUR2.1 billion.

 Net working capital, again, significantly reduced the amount of EUR1.4 billion. You see where we have been in 2011. 2012, you see this huge amount that has been taken up at the end to finance our invest.

 The production. Over the last couple of years, OMV was a 300,000 barrels company in terms of production. In 2013 and 2011 it was a little bit lower, due to this Libyan crisis.

 What you see now, in the future, this year's target will be 320,000 barrels of oil equivalent to 340,000 barrels of oil equivalent, depends on the Libyan production. And what we have in our pipeline today will amount to an amount of 400,000 barrels, as announced, to 2016; and Jaap will give you more insight how this can be achieved.

 I would now like to hand over to David Davies.

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 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [3]
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 Thank you, Gerhard. And good morning, ladies and gentlemen, also from my side. If I can take you to slide 13 in the presentation, just to summarize quarter 4 highlights of the results.

 Clearly, a difficult quarter. Clean CCS EBIT down by 54%, from EUR956 million to EUR444 million, the year before. Primary reasons for this are the production was down by 8% at 277,000 barrels a day. That's 24,000 boe per day less than last year.

 A number of ups and downs in that. Clearly, the biggest up was that Norway came in and contributed 18,000 barrels a day following the acquisition of the Statoil assets.

 Of course, the biggest down was that we were, in the quarter, 23,000 barrels a day down from Libya. And that's the primary reason for the production shortfall.

 More dramatic in terms of its impact on the reported EBIT, however, was the fact that sales [went down] by 43,000 barrels a day.

 Not only was production in Libya down by 23,000 barrels a day, but actual liftings were down by 33,000 barrels a day.

 And similarly, low Norwegian production was clearly ahead of [our schedule], 18,000 barrels day, having non-production a year earlier. Liftings were only higher by 6,000 barrels a day. So there was an under-lifting in Norway as well, and that contributed to what was a very substantial decline in sales. Of course, that has a particularly big impact on the profit you can earn.

 Brent was also lower; $109 per barrel compares to $110 per barrel a year ago. And significant then, the Brent loss of $1, was that the euro/US dollar exchange rate was particularly weak; dollar particularly weak at 1.36 compared to 1.30 a year earlier. And that also had an impact on the performance of E&P.

 And then, finally, the higher exploration expenses with some EUR100 million higher than the year before, predominantly in Norway, and in the Kurdish Republic of Iraq. At Kurdish region of Iraq they had, clearly, also an impact on the performance of the E&P business.

 Gas and power's performance improved from EUR59 million a year ago to EUR80 million this year. That was helped particularly by the renegotiation of the Statoil contract, which meant that from October 1, through the whole of quarter 4, we had market prices; and that, obviously, helped the previously negative margin situation here.

 But more significantly, we reached an interim agreement with Gazprom, backdated to April 1, last year, which meant that we were able to book a one-off gain in quarter 4, which related to the last three quarters, as it were. So, that obviously helped the reported performance.

 Refining and marketing was down at EUR92 million, against EUR145 million in the same quarter last year. Of course, the biggest impact here has been the declining refining margins; a factor which has accompanied us right through the year. But its depth in quarter 4 last year, where our indicator refining margin, at $1.16, was down by 71%.

 The business was helped here by a good contribution from the marketing business. But, clearly, a decline in refining margins of that dimension is going to be rather difficult to adjust to.

 Following the closure of the Statoil acquisition, the gearing rose through the long-term target level of 30%, versus 26% a year earlier. Clearly, during the year 2013 we had substantially lower levels. But, obviously, we're very happy that we can accommodate an acquisition the size of the Statoil deal and still keep within the gearing target.

 And on the basis of that, also on the basis that quarter 4 was unusually disappointing due to one-off factors, to a certain degree, we decided to increase the dividend slightly by 4%, which, at EUR1.25, brings it back to its all-time high, as it were, which was back in 2007, of course.

 Since 2007, we've had one or two interesting years, which initially led us to have to cut the dividend, so it's very happy for us to be able to get it back to where it once was.

 The next page shows the economic environment; it's largely self-explanatory. The dollar and the oil price movement, I think, I've largely touched upon.

 I think the gas price, this one in the middle, is quite interesting. The charge at the bottom -- the line at the bottom rather, rising from EUR10 per megawatt hour up to EUR15 per megawatt hour, shows you the successive increase in the regulated price for natural gas in Romania; up by 50%.

 In fact, since the end of the year, we've a further increase in quarter 1 this year of a further 12%. So, the Romanian regulator is certainly honoring the path, as it were, which was agreed with the IMF, the European Union. This, of course, is having a negative impact on demand in the market, as one would expect with an increase of this nature.

 Clearly, there's still some way to go because the price in Romania remains quite substantially below what the Western European prices are.

 Western European prices are shown in the two [lower blocks], this is also quite interesting. You'll recall, a year ago we were very concerned at the gap between the market prices, indicated by the yellow line, that's the price of the Central European gas hub; and the contracted price, the border contract tracker, which is public information provided by IHS and CERA, which was a proxy for the imported gas price coming into Germany.

 The gap between those two, and clearly the gap was driven by the oil price formula in the imported price, was a major concern; a major problem, in fact, for EconGas, our trading subsidiary. And that, as you can see, has now been largely eliminated from the market as a whole. The tracker price and the market price are now very much more aligned, and that, of course, [followed with] our renegotiation with the Norwegians and with Gazprom, is clearly also the [key for OMV].

 Not to say the market is not without its challenges. Clearly, profitability of storage has taken a hit. We still have the exposure to the LNG terminal in Gate, which is [underused by us]. And, of course, the overall demand for natural gas, in particular, the fact that that's driven in large part by the lack of use of gas to drive gas-fired power stations, is also a concern given that we ourselves have two power stations.

 So the market is, by any stretch of the imagination, still one which is under some strategic challenges at the moment.

 Then, the final chart on the right, I think, is also rather self-explanatory. I've already touched upon it. [There is a very] consistent, and unfortunate, rather steep decline in refining margins from last year's level of EUR4 at the end of quarter 4 -- at the end of 2012, rather; and, of course, now we have EUR1.20 at the end of 2013.

 Coming to the next chart, just to summarize the results briefly, I can talk about one or two items here which have relevance. The financial results, at EUR194 million negative, was substantially higher than the same quarter last year. Here, we've made a provision for the disposal of Bayernoil, which is going to produce a loss of something over EUR100 million, which we decided to book in quarter 4, given that the deal has now been signed.

 Taxes were quite a bit lower; rather unusual, in fact. In quarter 4, we had a negative tax line. And that is due to two reasons, really. We had, in particular, the fact that Libya dropped out, and Libya has got a very tax rate, which produced a low tax rate in any case.

 But because we had write-offs in Norway due to exploration expenses, and these are relieved at 78%, this actually led to a tax credit coming into the numbers. And giving that, unfortunately, the numbers were relatively low in any case for the quarter, this has created the rather bizarre situation where our effective tax rate is a very substantial minus number, a negative number.

 Overall, our clean tax rate in the quarter would have been about 13%, if you cleaned it all up for these things, versus 38% last year.

 Our guidance remains, for our current year, something of the order of 35%. But it's very materially -- very significantly dependent on what happens with Libya. The difference between zero production from Libya and 100% production from Libya is, in fact, 10 percentage points on the Group tax rate. So, clearly, guidance is rather dependent on what the outcome will be with our Libyan assets.

 Minorities are higher at EUR137 million, against EUR86 million. This is, in part, due to the profit of Petrom, which was a very strong year; very strong quarter as well.

 Petrom was higher, and, clearly, Petrom benefited from this rise in gas price. Petrom contribution increased as a consequence, and, therefore, the minority parts also increased.

 What is also relevant here is that, of course, last year EconGas had a substantial loss contribution against the Gate from an amount -- with minority share in last year. Of course, that reverses now that, that situation at least has been fully reflected in the financial statements this year already.

 Then coming down to the bottom, we've seen the clean CCS EPS in the quarter with EUR0.55; 55% down on the same number last year, which was EUR1.20.

 On the next page, special items reflected in the quarter, biggest one, EUR165 million. The biggest within that was EUR107 million that was written off relating to the gas storage asset that we had, Etzel, in Germany; and already that our gas storage [facility] has been under considerable pressure this winter. It's really at a very low level, and particularly now that we're coming out of what appears to have been a relatively mild winter in Europe. Unfortunately, that's all going to contribute to the difficulties that the storage market faces, so we decided to take a provision on that basis as a consequence.

 The other write-down is approximately EUR37 million; a significant write-down within the unscheduled depreciation. And that relates to certain of our oil asset in Tunisia, where we decided to take a provision based on rather disappointing conclusions as regards the underground assets.

 The result of that is that our total unscheduled depreciation was EUR165 million; and clean CCS EBIT goes from EUR444 million to EUR213 million on a reported basis, so adjusting for CCS gain, and so on.

 What you don't see here, because this confines itself to EBIT, EBIT is the EUR117 million taken in the financial result relating to the write-down of financial assets being disposed of. And that clearly relates to the Bayernoil assets. And that's not on here; that comes into the financial [special items] line.

 The next chart is cash flow. Cash flow has continued to be strong during the year, following a very good performance last year. We're very proud in fact, if you look on the right-hand side, two years added together, 2012 and 2013, we've actually reduced our net debt by about EUR400 million on a pro forma basis.

 Free cash flow, if you add the two years together, is about EUR400 million positive.

 And this is after investing something like EUR6.3 billion, including the biggest acquisition that we've done in our history. So we've been able to do that and still recoup the level of debt, keep our gearing at an acceptable level. This has, in large part, been due to the stronger net income profit performance; but, of course, very much due to the one-off things that we've been doing around the energize program, which Gerhard has already touched upon.

 Change in working capital, EUR673 million in the year.

 And, of course, the cash inflow from divestment proceeds, this includes the sales proceeds from assets that we did close during the year, Croatia and so on; but, in particular, includes the sale of the strategic inventory reserve here in Austria, which produced a very substantial tax free gain in quarter 1, and, of course, a very strong cash flow, over EUR600 million.

 So this fact helped us keep the balance sheet very strong, and enabled us to further the investment that we made in [E&P], which has had quite a [transformatory] impact on the E&P portfolio we're now working on.

 CapEx and EBITDA (sic - see slide 18 "EBITD"), clearly, a very high year of investments; EUR5.2 billion. This differs, by the way, the components of the CapEx number that you see on the previous slide in the cash flow. Clearly, this is CapEx that we booked, as opposed to CapEx that we paid for cash wise; the difference being the payables at the end of the year.

 So, EUR5.2 billion booked against an EBITDA of 4.9%. So, largely funded our own accounting CapEx, as well as CapEx from the EBITDA that we had.

 Clearly, the biggest investment that we made within the EUR4.4 billion was the purchase of the assets from Statoil, which is at EUR2.2 billion tax -- sorry, EUR2.2 billion, including a tax payment total cost within the EUR4.4 billion. So, it's half of it, approximately.

 Consistent with that, the question, obviously, is, okay, you've spent this money on investments. You've clearly got a number of developments now to execute, and a very substantial -- a substantially increased portfolio of exploration acreage. What does the future look like?

 Last year, if you look at the next chart, clearly, our production disappointed, I think, given the impact that we had from Libya. We don't know what Libya will do this year, although it's clearly encouraging that it's largely back on production, particularly in the west of the country. The east remains challenging for the vast majority of operators in the west.

 Depending what happens there, our production is going to be somewhere in the range of 320,000 boe to 340,000 boe per day this year. Jaap will give more detail about that; and also, how we then go from there to something like 400,000 barrels a day in 2016.

 We have an E&P day tomorrow in London, where we have Jaap, myself, and a number of Jaap's senior management team. We'll be going through what's happening in E&P, the exploration acreage, the development schedule, and the expectations that we have in respect of what that's then going to be able to contribute to us.

 Group CapEx to facilitate these investments, however, is also going to increase. We'll be spending something like EUR3.9 billion a year. These numbers are the same numbers, by the way, which we communicated at the end of quarter 3. So, EUR3.9 billion over the next three years, of which 80% is going to be for E&P area.

 We can fund this with the operating cash flow and the scheduled divestment program, which we're still completing. We've mentioned Bayernoil, for example. But Bayernoil hasn't generated any cash yet. It's been signed, but it hasn't been closed yet, so that's still to come.

 And as our production grows and our profit grows, assuming the oil price stays broadly at $100, then we will be able to increase our dividend; and, at the same time, also keep our gearing ratio, in terms of our long-term target, at 30%.

 Our return on capital employed in the medium term is, clearly, going to be adversely impacted as we pursue these investments. Clearly, we have a substantial proportion of our upstream investments that are not providing anything to our production. And when these come onstream then we'll be able to move more rapidly back to our long-term target of 13% ROACE. But, clearly, in the medium term, this is going to be more of a challenge.

 Then to the next chart, E&P. The reconciliation between quarter 3 this year is shown on the left, so quarter 4 versus quarter 3, what's been happening. Realizations were down slightly at EUR37 million. This is predominantly due to the weaker dollar.

 Volumes were down at EUR53 million. We clearly understand the reasons there. It's in Libya, in particular.

 And exploration expenses were substantially [down] in quarter 3 at EUR143 million, predominantly in Norway and in Iraq.

 They're the three biggest factors, which take us down from our EUR578 million, as reported in quarter 3.

 Compared to the previous quarter -- sorry, this previous year, quarter 4, 2012, you see the same analysis. The biggest impact here is clearly production.

 Volume's down at EUR261 million, or, more particularly liftings. The reason for the lifting shortfall I think I've explained. And the other reason is the exploration expenses down, EUR100 million higher; again, particularly in Norway and in the Kurdish region of Iraq. So that explains the particularly strong decline in our clean CCS EBIT between last year and this year.

 The next page shows you a few KPIs. Our production, as you're aware now, is clearly lower than last year; 277,000 boe. However, would have been lower still had we not had the contribution from Norway coming in, in quarter 4, because for most of quarter 4 the security issues in Libya taking all of our production off. So we didn't, unfortunately, get to see the positive impact of the additional contribution from the Norwegian production.

 What we, unfortunately, also saw, if you look at the OpEx per dollar per barrel at the bottom, is a step up from $13.88 to $16.77. There are two factors, really, which explain that. Petrom had higher OpEx, but I'll come on and talk about that in a second.

 But at the [Group level], we also had the change in the country mix, because Norway came in, Libya went out. And, clearly, our production costs in Norway are quite substantially higher than those that we have in Libya, so that's adversely affected this.

 If we look at the full year, however, $13.96 per barrel plays $12.79 boe. And we feel we still do quite well in terms of a comparable benchmark, despite the difficulties in the fourth quarter.

 On the next chart, I mentioned Petrom already, you see the KPIs for Petrom. It's rather difficult to read from this. But over the average for the year our production was actually slightly higher, 1,000 barrels per day higher; slightly lower as we got towards the end of the year.

 But, nevertheless, full-year production's up by 1,000 boe per day versus 2012. We're immensely happy with this, given it's the first time we've been able to achieve that since we bought Petrom.

 Clean EBIT, at EUR286 million, was down by 18%. However, this was due to higher production costs and royalties, but also lower oil sales. The reason royalties were higher, of course, is the fact that the gas price is rising. Part of that, obviously, drops through in higher royalties as well, because you pay a percentage of the price that you receive. So, clearly that's come through and had an impact.

 You see in quarter 4, however, the step up in OpEx. There's a one-off factor here which impacted this. There was a change in the law in Romania in quarter 4 with (inaudible) oil companies to make a special provision for employees for a payment should they lose a loved one; or should they themselves lose their lives.

 There's a provision that we're required to do -- keep, which increased from three months salary to seven months salary. Of course, we had book that in one hit and that had a negative impact, as you would expect, on our operating expenses, the reflection of that accrual.

 So production costs, as a consequence, were 17% up compared to quarter 3, due to this; and, of course, also due to the fact that the dollar is getting weaker against the euro, and the Romanian leu and the euro are fairly close together. So that's also worked through here, because what you see here is an OpEx measurement in dollars, as you would expect, and, of course, a lot of the [running] costs are in local currency.

 To gas and power on the next chart, clearly, the biggest impact here, and the only one worthy of mention, I think really is the step up compared to last year from supply and marketing trading. Which, of course, is very much due to the improved contract situation; the closure of the Russian contract; and the fact that from October 1, we were on a [market] base price with Statoil, the biggest factor here, the only one really of merit.

 The challenges, I think I've already mentioned; being in storage; being in [F&G]; being in the profitability of the infrastructure business; and also the [level of] demand for natural gas in the market. And the consequences that is having for prices and margins is, clearly, however, cause for some concern.

 KPIs, briefly on gas and power, on the left-hand side you see our sales, when compared to the same period last year in terawatt hours, lightly lower; down from 129 to 118. Trading has taken a big part of this. Trading profitability, given their overall general high level of liquidity in the market, has been reduced, and that's obviously had an impact.

 And, of course, you see EconGas' sales have also been adversely impacted by the difficult market situation; are down compared to last year, although, to a certain extent, that's probably weather related as well, because last year was quite a bit colder than this year has been.

 Net electrical output now is at a full [throughput] 1 terawatt hours as we now have both gas supplied power stations in production.

 To refining and marketing on the next page, another rather self-explanatory graphic. This self-explanatory graphic, the fuels' contribution is clearly substantially lower.

 Here, you see the considerably lower OMV indicator refining margin having an impact. Our western European refining margin's at $2.50, against $5.60 last year; whereas, in the east we had a loss of $4.40 per barrel, compared to a loss of $2.50 last year. So it's hurting both ends of our refining network.

 Clearly, we couldn't fully compensate that, despite an improved petrochemical performance, where propylene margins, in particular, were higher than the same period last year; and also our marketing business, where we had that improvement despite a challenging environment, again, I would say, both in terms of margins and volumes, but an improvement in large part driven by more efficient cost performance.

 Again, just a couple of KPIs on the refining and marketing business. Our utilization, as you can see, in the western refineries has been increasing through the year; we now stand at 96% at the end of quarter 4. In fact, we've seen a relatively good performance also from our eastern refinery in Romania.

 The number of marketing filling stations has reduced from 4,400 down to 4,200. And despite that, our marketing sales volumes have actually increased slightly, from 5.34 million tonnes up to 5.3 million tonnes in quarter 4, 2013.

 Then finally, on this part of the presentation, to the key financial indicators. Our gearing clearly increased substantially in quarter 4 following the closure of the Statoil transaction, although, at 30%, remains consistent with our long-term gearing ratio target.

 Our payout ratio now is higher than the target of 30%. But 35%, we feel quite comfortable that nothing has changed in our long-term plan, however, to distribute 30% of our net income.

 Our clean CCS ROACE, reported ROACE for the year, despite the acquisition that we just closed, was 11%. Our long-term target remains 13%; and once we've got a bigger proportion of our E&P assets actually producing, rather than development, we'll be able to make some good progress towards that.

 Then just finally, if I may, a couple of slides on energize. You will recall, back in 2011 when we announced the new strategic plan for the Group, that we said that we needed to improve our profitability and balance sheet deficiency to generate 2 percentage points of ROACE improvement if we were to keep the performance of the business at an acceptable level during this strong investment phase.

 You see here, on the first slide, the businesses that were going to contribute to that; the measures that were going to contribute to that. We've gone through this a number of times. The big one in the middle, reduce working capital, is clearly the biggest headline grabbing one. But a number of other factors, much more difficult, much more nitty-gritty, as it were, to actually implement have also been part of this program.

 We've been successful across the board. You see, on the right-hand side, that we're either on target, or ahead of target, with the one unfortunate exception, and that's our oil production in Tunisia, which is rather disappointing; the South Tunisian Oil Development not been on time, or as good as we'd expected it to be. But, nevertheless, the overall contribution of the program is quite clear.

 If you look at the next page, the 11% in total, on top of that, we wanted to generate 2 percentage points to get us up to our 13% target. We've got 0.5% realized two years ago; 1% realized last year; and a further 0.5% will be finalized during the current year. We're very confident that we can achieve that.

 Plus, on the right-hand side, why aren't we achieving the 13%, then? What we always said was, of course, this doesn't include any acquisitions that we made there.

 As you will be aware, since the announcement of the strategy in 2011, of course, we have invested in expanding the portfolio to achieve the 2016 target of 400,000 barrels a day production, and a 100% reserve replacement rate. We said we needed to acquire assets and developments to do that, and we've done that.

 I'll leave that to Jaap to explain how that now fits into the program, going forward, and what we want to achieve; and, of course, tomorrow we'll go into that in much more detail.

 The next two pages, I won't go into any detail on them, really, in the interests of time. They just basically list out some of the things that we've been doing in more detail.

 But, as I said, it is a program we feel immensely proud of. I think the fact that we were able to fund the level of investments that we've done over the last two years to really turn around the E&P portfolio is testimony to the success of this program. We're all very happy with that.

 I'll hand over to Jaap now, and he can take you through the E&P division. Thanks very much.

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 Jaap Huijskes,  OMV AG - Executive Board Member, Exploration & Production   [4]
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 Thanks, David. David's gone in detail through the results. What I'm going to concentrate on is the portfolio, and what we're doing to it. If you want to split what we've done into two themes, looking back, what we've done is build our portfolio, and the theme for the next couple of years is really going to be around developing what we've now got.

 On the first slide, a couple of statements, but quite a bit of fact behind there. We've got a strong project pipeline. We've got some 21 projects, constituting more than 1 billion barrels of volumes, that we will turn into reserves through developing these projects. That will take time. But, nevertheless, all these projects are named; have got individual volumes to them; and we provide you ever quarter with the detail as to which ones these are.

 Exploration. We had another good year last year. Not as good as the previous years; they were exceptional, where we had success rates of over 60%. Last year was 46%; still, well above the industry average.

 Also, if you look at the portfolio in exploration, a very active throughput of our portfolio. Again, we'll show you more detail on that tomorrow in the E&P day.

 But just a couple of numbers. 40% of our acreage renewed in the last two years; and since 2011, some 39 exploration licenses added. A very active portfolio.

 If we then look at what's going to happen in 2016, we're building both the people skills, the technical skills, and we've got the portfolio to deliver that 400,000 barrels a day in 2016. I'll show you what steps we will go through from a last year performance to hit that target in 2016.

 And probably the most important bullet of them all, at the end, is to make sure that we then have a sustainable portfolio that allows us, a, further growth beyond 2016. But, b, that growth then coming from our own exploration, not from further acquisitions, but our own exploration, our own appraisal; turning into projects; making sure that once we get to 400,000 barrels a day we've got further growth potential. And we can do that with 100% reserves replacement rate from our own projects, instead of buying others.

 Some of the key highlights. Looking at the last quarter, or the last couple of months of last year, it's a little bit more than strictly the fourth quarter here, first of all, again, that strong project pipeline; over 1 billion barrels oil equivalent. The acquisition was part of that, but exploration is a key part of that as well.

 If you look at the projects we've now got under appraisal, the first of those projects is actually one of our own exploration discoveries; the Wisting discovery made last year north of Norway. We're looking at appraising that, and you'll see that when we come to the high impact wells. So, looking forward, we're looking at drilling a first appraisal well there this year.

 Also, I'll say a few more words about keeping production stable in Romania. That is clearly a key theme. But key to that is this continuous renewal of the portfolio of field redevelopments. That's been absolutely crucial in last year's performance, where, for the first time, Romania produced in excess of 1,000 barrels a day compared to the previous year. Really, that's driven by these field redevelopments.

 Last year, we've added another four to the portfolio under appraisals. These are field redevelopments the early stage; we're studying.

 We've also, if you then go to the next 550 million barrels that we've actually got under development, taken FRD on another field redevelopment late last year called Madulari; part of our gas redevelopments in Romania.

 Other highlights, we broke Mehar and Latif onstream in Pakistan, but these [two] towards the end of the third quarter. Actually, Mehar was right at the end of the year.

 Mehar, in particular, important to us -- actually, they're both important to us; Latif in the sense that it's the first project where new gas policies give us a better gas price in Pakistan.

 Mehar important to us because it's, rather than the rest of the production in Pakistan, which is relatively dry gas, actually more a very light oil field, very high liquid ratio. With gas, but still, the economically important part there is liquid. That's now onstream, and we're in fact looking at the bolt-on [acquisition] plans there that we've just brought onstream.

 Not so good news for South Tunisian Oil Development. We've effectively stopped. We've had a program of oil exploration wells building on the success that we had in gas exploration wells, expecting a similar result; that did not work. Gas exploration was successful. Oil exploration, in a nutshell, was not.

 We got some oil developments that we're still hooking up there, so it's not completely zero, but it's not of the scale that we previously anticipated.

 Looking forward, you'll get a bit more of a look forward in some of the previous slides. But the key events coming in the next few months is the FID decision for the Nawara gas development in South Tunisia. So oil we've stopped, but gas is heading towards its final investment decision in the next few months.

 Rosebank, of course, the news last year was that the FID for that was delayed. And there's a very active team working Rosebank. Again, we'll go into a bit more detail tomorrow in the E&P day, both from Chevron, but also from us. And part of that work is being done jointly, part of that work is done by each of us independently to make sure that we get Rosebank towards a FID decision. Our expectation, 2015; but, clearly, that's work in progress.

 The next slide, you see the now usual update on key projects. We do this every quarter for you. What's new? Clearly, a couple of key changes there.

 Gudrun is a new project in there. Gullfaks was part of the Statoil acquisition package; that's onstream. Gudrun was the second Norwegian part of that acquisition package; it's coming onstream towards the end of this first quarter. Weather permitting, we expect that to commence producing towards the end of March. Key step this year, but also a key step towards the 2016 targets.

 The rest of the projects I would like to highlight are relevant to the 2016 target, in particular. Schiehallion, we used to have just under 6%; we now have just under 12%. That project's on track. BP, the operator, building the facilities for that in Korea. The old vessel will disappear this summer. Subsea works are planned this summer and next summer, and then the vessel was planned to start during the course of 2016.

 Other key projects for our 2016 production, Nawara, I already mentioned, should take FID later this year, come onstream in 2016.

 But also, Edvard Grieg, with Lundin as operator, we've got 20% of that, well on track to install the jacket offshore this year, and commence pre-drilling of production wells this year, followed by platform installation next year. And the operator still expects production 2015. We've slightly more cautiously anticipating production of that to also, again, kick in, in 2016.

 And the final key change compared to the previous project summary, of course, is Rosebank, where we now own 50%, instead of previously 20%. That project, clearly, under review; already mentioned that. A lot of work going on.

 We also do not intend to stay at 50%. Again, as we stated before, that has not changed. We expect to on sell between 10% and 20% of that; but, clearly, we will look at doing that at a time when also FID is clearly on the cards, not right now. But that plan has not changed.

 The next table, again, same format, but the projects that are slightly earlier in our development pipeline projects under appraisal. The key change there compared to the previous time, you saw this slide, is the addition of Wisting, where in the table we've not got a production start, or cumulative production volumes.

 It's early days. We expect to drill the first appraisal, as said, this year. When we did the press release last year on the discovery we said in the license we expected between 200 million barrels and 500 million barrels of recoverable volumes, and clearly that's what we need to prove with further appraisal well drilling, and that will then start development project.

 The next slide is key. Clearly, last year's production was disappointed. David's shown you the detail. A large swing in that was Libya. It's not the only swing. We've had issues in New Zealand, and one or two other issues as well.

 My final slide, I will show you what's changed towards the end of the year/ early this year. This year is shaping up a lot better, so a lot has changed. Nevertheless, last year's production, 288,000 barrels a day average for the year.

 If you then look at how we're going to get to 400,000 barrels a day, I'm going to start with the smallest number on this graph, a zero for Austria and Romania. That's a very relevant number, and it's there for good reasons.

 When we originally rolled out our strategy in 2011 we made a commitment to keep Austria and Romania's production flat; in a range 200,000 barrels to 210,000 barrels a day up to 2014. At the time, we were not comfortable to push that further out. Last year, you saw us push that further out to 2016.

 So, really, the starting point of hitting our production target in 2016 is keeping Austria and Romania's production flat. Clearly, Romania's increase by 1,000 barrels a day last year is good news in that respect, and evidence of the fact that that's a realistic target.

 The key increases then compared to last year are going to come in Norway. That's by far the biggest increase you're going to see. Norway, by 2016, will be a second producing country in barrels produced.

 Gullfaks, a key contribution that showed up for two months in last year's number; clearly, in 2016, it's intended to show for the full year.

 And then other contributions from the two projects already mentioned; Gudrun and Edvard Grieg.

 Next, Tunisia. Nawara is a key part of that -- the key part of that. FID in the next few months, coming onstream in 2016.

 Yemen and Libya then show an increase. In the case of Yemen, that truly is an increase. We're busy there drilling. We're producing. We're building a production facility, or finishing building a production facility. It's been halted during the worse of the unrest. With investments and security we've made there, we're now able to execute that.

 But more of the increase that you see there, both Yemen and Libya, of course, reflects the fact that it was only onstream part time in 2013; and we're expecting these both to be onstream full time in 2016. Clearly, that remains a key uncertainty.

 New Zealand, again, was part-time production in 2013, full time expected in 2016; plus an increase expected in 2016 from a development drilling program that's about to kick off in New Zealand.

 And in the UK, you see an increase from Schiehallion coming back onstream and starting up during the course of 2016. The contributions you see there is about half of what we expect from Schiehallion. That's because we expect it to start up somewhere halfway during the year.

 All of those put together get you to 400,000 barrels a day in 2016.

 Clearly, all these projects are there; they're named; they've got volumes against them; you know which ones we operate, which ones we don't.

 And only one of the projects remaining in this list still needs to take FID, and that's the Nawara gas development; we expect to take FID in the next few months.

 Moving to exploration, again, starting by looking back what happened in the last quarter, we finished off the seismic. In fact, we finished that in January, very early in January this year.

 Also, towards the end of last year you saw us secure an entry into Gabon. That was our first entry into the west coast of Africa. Earlier in the year, we started the Madagascar coast of Africa. Both of those cases, we're chasing oil prospectivity.

 Gabon had a significant entry with 10% in two blocks, and 30% in two further blocks. So, four blocks is quite a significant entry. We expect to start drilling -- or we have, in fact, started drilling in those licenses earlier this week.

 If we look at the high impact wells that we had on the list for 2013, there's actually eight. You know there's only seven lines; one of them's got two lines in there. Bina Bawi 4 and 5 were drilled last year. Four out of those eight wells were successful; four out of those eight were dry; 50% [performance].

 If you look forward, over the next 2 years we've got 17 high impact wells planned. Just to remind you, high impact wells are wells that have got a net potential contribution to OMV of 25 million barrels oil equivalent. And that can come, of course, of having 100% equity of a small target, or 10% equity of a bigger target. It can come through a variety of ways. Nevertheless, all in, 25 million boe barrel oil equivalent net to OMV.

 17 high impact wells. The ones I want to highlight is Byrkje, in Norway, we're about to start; and the three wells that are next on the left, so entries two, three, and four on that table are in Gabon. And that drilling program has just kicked off.

 Other key highlights are wells that personally I'm very much looking forward to are the Wisting appraisal well later on this year. We're in the final throws of securing the rig for that.

 Then, Domino-2, the next -- or the recommencement of drilling in the Black Sea deep water, is targeted to start round about the middle of the year; hopefully, slightly before that.

 So a very active program in the next two years, with some big wells coming up in the next couple of months.

 One slide to wrap up, before I hand back to Dr. Roiss. Just a few words about what's happened at the start of this year. Our production guidance for this year has not changed. We're guiding 320,000 barrels to 340,000 barrels a day.

 David's already mentioned it, key uncertainty there the Libya production. But given our poor performance in the fourth quarter, wanted to highlight some of the things that have happened around the end of the year, because they're material.

 Pakistan, we got the Mehar oil field onstream. Significant condensate coming from that field. In fact, we're looking at debottlenecking the plant we're only just starting up right now. And Latif came onstream in August; some start-up issues in the fourth quarter, now fully onstream.

 In New Zealand, we're the operator of the offshore oil development called Maari, and we're there for the operator of the FPSO, the floating production and storage vessel, that's out there called the Raroa.

 That broke last year. We've managed to repair that in a local harbor in New Zealand, which was somewhat of a novelty. A big program, five-month repair program, but a terrific job done by the team there. Clearly, it should not have broken in the first place; we were counting on that production. But I am very proud of how that vessel's been put back in operation. I was there a couple of weeks ago, it's fully up and running for this year.

 Norway. The Gullfaks production, of course, started in November last year; unfortunately, offset by Libya practically completely disappearing on roughly the same timing. But now back. And Gudrun starting up in the next couple of weeks.

 Libya has started producing again. Our key production in Libya comes from the Murzuq Basin in the west of Libya. That was practically completely out in the fourth quarter; and it's recommenced in January, running currently at around about 70% of its capacity. Clearly, material to our total production performance.

 Yemen is continuing to run as per normal levels.

 Romania has recovered from some very, very heavy snowfall in, quite frankly, record timing, without any safety incidents. They coped with what was effectively a 2 meter layer of snow, which, as you can imagine, in mountainous region, it gave some real production challenges, although production is back up and running.

 First quarter shaping up to be materially better than the fourth quarter last year; and, therefore, our guidance, between 320,000 boe to 340,000 boe, very firmly standing for the year.

 Thank you, very much. Back to Gerhard.

------------------------------
 Gerhard Roiss,  OMV AG - Chairman of Executive Board and CEO   [5]
------------------------------
 Thank you, Jaap. [Snapshot] outlook into 2014. Obviously, an oil price of above $100 per barrel.

 You see the gas and power, our refining, marketing markets still are very challenging and under pressure.

 CapEx, [you have] further guidance of EUR3.9 billion, which means 80% will go into the upstream.

 And key is, for us, this high level of E&P expenditures in the amount of EUR700 million. You have heard from Jaap, also going into [10 to 12] high impact, where it's already [stills].

 Key is, for us, transforming our Company into more profitable growth. We still stick to our ROACE target of 13% long term, so we still have to improve. The first wave was portfolio shift from downstream to upstream.

 Second wave is, first of all, that we have to execute our huge investment project in the amount of EUR3.9 billion, which means excellent project execution; focus on a strict project [reactions]; so focus on this CapEx, on quality.

 The second is that we still see room to improve our portfolio, is it in between up and downstream. This is also an area where we see further ROACE improvements.

 That was it. Thank you.



==============================
Questions and Answers
------------------------------
Operator   [1]
------------------------------
 (Operator Instructions). Mehdi Ennebati, Societe Generale.

------------------------------
 Mehdi Ennebati,  Societe Generale - Analyst   [2]
------------------------------
 I will ask two questions, please. The first one regarding your gas and power division. You highlighted in your outlook that the gas and power business would continue to remain challenging. I just wanted to know if you see the situation worsening, meaning that it will be difficult for you to keep to a 2014 gas and power EBIT at the level of 2013? Does it mean, as well, that the negotiations with Gazprom are now over, and have been unsuccessful?

 The second question is regarding your CapEx guidance. Your EUR3.9 billion current CapEx guidance for the next two, three years, includes a 15% farm-out from Rosebank. Given the issues you are meeting regarding Rosebank field, don't you think it would be difficult for you to realize this farm-out. And if you don't succeed, what will be the additional CapEx you will need to face with in the years to come? Thank you.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [3]
------------------------------
 Let me, perhaps, do the first and the last. If Jaap wants to add anything to the last question, he can certainly jump in.

 The first question on gas and power's 2014 performance, I'll let Gerhard talk about the Gazprom situation. But, unfortunately, the challenges in gas and power go beyond the simple commitment to actually buy gas at oil-based prices, which is largely resolved now.

 The issues go, unfortunately, into other areas, such as the profitability of storage. The summer-winter spread, which basically drives the economics of storage, has collapsed to where it was only two or three years ago, and that clearly has an impact.

 The need to store gas is seen by market participants as less pressing. Because the market is so liquid, if they need gas they can simply buy it from the market, of course. So if we have a supply interruption, or an extremely cold winter, which of course we just -- we have had neither of the last couple of years, then that can change things dramatically. But the mindset at the moment is certainly not sanguine in that regard.

 As regards the infrastructure assets within our gas and power division as well, we've seen clearly pressure on profitability as these assets become increasingly commoditized; and that is a trend that we expect to continue.

 And, of course, we have the continuing challenges in Gate, the LNG terminal.

 And, of course, the [powder] spark spreads in Romania and Austria -- Romania and Turkey, although not as dramatically impacted as the German situation, the western European situation is, clearly, both the Romanian and Turkish economies have their own challenges, and demand is not at the level as one would hope, given the poor performance of the economy generally.

 So there are challenges across the board. And I would say achieving last year's numbers would be one of many challenges, frankly, that division would have, so I think that's going to be rather difficult.

 But, as I say, let Jaap jump in if he has any further contribution on Rosebank. But the point you make on the proceeds From the farm-out of 15%, and what that might means if the CapEx doesn't happen, of course, if it can't be farmed out it's probably due to the fact that the development doesn't take FID on time. In which case our CapEx is going to go down, of course, because we would still remain a very substantial share -- stakeholder in Rosebank, even after the farm-out.

 So, it's not the impact on CapEx; it's really the fundamental question about what is the next stage with Rosebank, which maybe Jaap can touch on more expertly.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board Member, Exploration & Production   [4]
------------------------------
 I think you covered it, David. The reality is that this year CapEx is going to be slightly down, for the simple fact that studies, albeit expensive and comprehensive, are a lot cheaper than cutting steel. And then, of course, next year, if we get this project ready for an FID, I'm confident we'll be able to on sell 15% of it. If we can't on sell 15% of it, we'll probably not finish with the studies.

------------------------------
 Gerhard Roiss,  OMV AG - Chairman of Executive Board and CEO   [5]
------------------------------
 On the Gazprom contract, as you know, we do have an interim agreement with Gazprom, lasting 'til April of this year, and this interim agreement brought us much closer to spot market prices. We are now just sitting on the table with Gazprom and negotiating this interim agreement for [longational] changes in the contract.

------------------------------
 Mehdi Ennebati,  Societe Generale - Analyst   [6]
------------------------------
 All right, thank you very much.

------------------------------
Operator   [7]
------------------------------
 Lydia Rainforth, Barclays.

------------------------------
 Lydia Rainforth,  Barclays - Analyst   [8]
------------------------------
 Just two questions, if I could. Firstly, can you give us an indication, in terms of the operating costs and the DD&A costs, as to where they might move next year in the upstream? And particularly, given that we've seen a lot of talk about cost cutting from other companies, and just in the context of the energize OMV plan, just wondering how much more you feel that you can do on the upstream cost side.

 Then secondly, if I could just clarify on Tunisia, was there actually a revision in the reserves number associated with that as well? Thank you.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [9]
------------------------------
 Let me do the OpEx question, and I'll hand over to Jaap on the Tunisian reserves question. Clearly, across all of our operations we have continued focused on cost. And as energize reaches its conclusion this year then we're already starting to work on the next wave. You can't sit still, clearly. And that will undoubtedly have some impact on our overall operating costs, going forward.

 But I think the biggest challenge in terms of say where our operating expenses is going to be this year is really going to be mix effect. Because, clearly, if Libya's in that has a very beneficial impact; and, of course, as Norway comes onstream, obviously, by definition, the operating expenses are more expensive. So it's really rather difficult to say.

 We would expect -- well, rather we hope, consistent with our 320,000 boe/340,000 boe, we've given ourselves a bit of a range there, at the top of the range, which require most of Libya to be in; all of Libya, in fact. And at the bottom, if we had no Libya, we'd probably fall without that. So if we have no Libya, our OpEx will go up; if we have all of Libya, our OpEx could stay broadly in line with the current year.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board Member, Exploration & Production   [10]
------------------------------
 On Tunisia, on the gas side, there is no change in reserves. In fact, reserves is a term we use not cautiously enough at times, because, clearly, the gas volumes we've got there and not reserves just yet; they will turn into reserves when we take FID on the project. But the total volumes we expect to develop with Nawara are in the region of 40 million boe to 42 million boe; mainly gas, a little bit of [condensate].

------------------------------
 Lydia Rainforth,  Barclays - Analyst   [11]
------------------------------
 That's great. Thank you, gentlemen.

------------------------------
Operator   [12]
------------------------------
 Tamas Pletser, Erste Bank.

------------------------------
 Tamas Pletser,  Erste Bank - Analyst   [13]
------------------------------
 I've got two questions. First of all, can you just a little bit elaborate about the situation in Libya? If I understand correctly, your production is mainly on the west part of the country, while the latest protects were on the east side.

 You also mentioned in the presentation that you expect additional volumes from Libya until 2016. What kind of barrels do you expect? What projects do you see in Libya?

 And my second question is relating to Romania. Can you tell us a little bit more about the current situation with the gas prices? And how do you expect the taxation to be changing in Romania? Have you see any changes with the talks of the government? What is generally the situation there?

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board Member, Exploration & Production   [14]
------------------------------
 Let me take the Libya question first, if I may. About 90% of our production potential is the west of Libya, Murzuq Basin; about 10% in the east.

 The production in the east has been off for quite a while. I can't remember the precise date it went out, but it's been off for a significant, very significant, period of time. But not that relevant to our total.

 Our relevant production for us is from the west, the Murzuq Basin. That recommenced earlier in January. Now, just the Murzuq Basin will get us, if it's all up and running, in the area of 28,000 barrels a day, roughly. So far this year, it's running at about 60%/70% of that.

 So, it's coming in and out. The reason it's coming in and out is there's a pipeline between the Murzuq Basin and the coast, and every now and then that pipeline gets closed off by somebody that wants to have a conversation. So far, we've managed to get that valve open every time. Remains to be seen how that develops, of course, so uncertainty will continue.

 If we then look forward to 2016, and apologies if I didn't make that clear, the volumes that you see in both -- in Libya, in particular in 2016, are not because we expect our production potential in Libya to significantly increase from where we are today. And if everything were to be running today you'd be doing 32,000 boe, 33,000 boe a day. The reason you see an increase is because, of course, in 2013 it was only partially on.

 And for our 2014 target, we do expect Libya to resolve itself and be fully on, and that, therefore -- sorry, 2016. Therefore, compared to 2013, that reflects an increase.

------------------------------
 Tamas Pletser,  Erste Bank - Analyst   [15]
------------------------------
 Okay. So if I understand correctly, the Libyan production is not so much on the risk; it's more like taking the barrels out of the country that can be the risky part of the business?

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board Member, Exploration & Production   [16]
------------------------------
 Yes. But the end result is same, of course. If I can't take the barrels out of the country because the pipeline's stopped, or the tanks are full, then I have to close in production, so the end, in fact, is exactly the same.

------------------------------
 Tamas Pletser,  Erste Bank - Analyst   [17]
------------------------------
 Okay. And can you switch on, switch off the production as you wish? It's not a problem, if I understand.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board Member, Exploration & Production   [18]
------------------------------
 I'd rather not, but it's been surprisingly easy, to be perfectly honest.

------------------------------
 Tamas Pletser,  Erste Bank - Analyst   [19]
------------------------------
 Okay, thank you.

------------------------------
 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [20]
------------------------------
 On the gas situation in Romania, as you've seen in my presentation, there's been quite a strong progression this year as the regulators implemented a whole wave of increases. In fact, during 2014 the first increase for this year has already been made.

 The scale of increases, to get the price up to market level by the end of this year, is going to need to get steeper. But, as we say, the schedule has been fully adhered to so far.

 There have been some statements made by the regulator about the next wave of increases; that perhaps they'd be the last, because market price might be there at that point of time. We're not really sure what that means.

 But clearly, as the price has been increasing the demand has been impacted, as you would expect. That could even have been impacted further had we not been going through a period of fairly strong margins in the fertilizer industry. Of course, a lot of the industrial consumption in Romania is the fertilizer manufacturers, and they've continued to take gas even though the price has been increasing because of their high margins.

 So, we will see where we get to. But the fact of the matter is that demand is down by about 10% or 11% in Romania, and that has really been taken out of the import volumes.

 The domestic producers, ourselves, Romgaz have continued to produce everything we could; produce and sell everything we could. And we will watch with interest if the prices do increase and demand softens further, what exactly that will mean.

 Of course, we have the advantage that we have a power plant in Romania that can take up to one-fifth of our production. So if that actually does prove an issue that we can put some -- divert some of our production into the power station, of course, to make sure that we can continue to produce and not have to shut in.

 But the fact of the matter is the price schedule [Denti] said he would adhere to, he had most definitely adhered to, and clearly we've both benefited from that.

 As regards the overall taxation situation, our view is that we're not likely to see any concrete outcome until after the presidential elections, which are right at the end of the year. I think you may hear a lot of talk about it, and I think it's a possibility it becomes part of the political process towards the election. But a final outcome, one way or the other, is something we're not really expecting. Of course, we can't exclude that it may happen.

 What is interesting, however, is some of the more recent comments from the Energy Ministry and Finance Ministry is that given that the royalty rate is not just a government edict, it's actually embedded within the individual license, because it's really rather hard and complex to go through without renegotiating all of the licenses. And there have been some statements which suggest that the royalties may not change; and, in fact what's likely to happen is going to be a profit tax, which, in some ways, is actually better because, of course, it will [you] can still pay royalties even if you're making losses. But profit tax, you only pay on profit, hopefully.

 So, we will see what the outcome is. But there's nothing concrete on the agenda. And, as I say, our expectation is, if anything, it's going to be right at the end of the year.

------------------------------
 Tamas Pletser,  Erste Bank - Analyst   [21]
------------------------------
 Okay, great. Thank you very much for your help.

------------------------------
Operator   [22]
------------------------------
 Matt Lofting, Nomura.

------------------------------
 Matt Lofting,  Nomura - Analyst   [23]
------------------------------
 Thanks for the presentation, gentlemen. Two quick questions, if I could. Firstly, coming back to the 2016 production target, the 400,000 barrels a day, I guess, given the degree of political unrest we've seen at times over the last two years to three years, and, therefore, the impact on production, I just wondered if you could talk about how much contingency allowance you see in that 400,000 barrels a day; and clarify as to whether you see that as an average production level for 2016, or whether it's more of a peak point estimate?

 Secondly, on the downstream side, I thought the marketing performance was resilient in Q4, particularly relative to the weakness we see on the refining side. Could you remind us of some of the key cost saving achievements there, and the underlying gains that underpin that? Thanks.

------------------------------
 Jaap Huijskes,  OMV AG - Executive Board Member, Exploration & Production   [24]
------------------------------
 On the 400,000 average for a peak, I would love to answer that question at the end of 2016, but you're probably not going to let me get away with that. So, the answer is that the target's average 2016. That's very clear. It always has been, and it continues to be, the target for average production in 2016.

 Have we got a lot of contingency for that? Clearly, not, but it's also still two years away. So we've got the projects to do it. And what we're running within E&P at the moment is something actually very akin to the energize program that David just ran through, where we very actively look throughout the portfolio with all our people, doing two planning cycles that are coming between now and 2016, to make sure that we address whatever opportunities we have to give us a little bit of buffer.

 So there are risks between now and 2016, but there are also opportunities between now and 2016. But as of today, no, I do not have a lot of contingency.

------------------------------
 Gerhard Roiss,  OMV AG - Chairman of Executive Board and CEO   [25]
------------------------------
 In terms of refining and marketing, you are right; they did an excellent job. But you should know this team is highly motivated. On the one side, they have to deal with divestments, the same time they have to increase their profitability. And there are a lot of projects, I cannot say one individual, increasing their performance. This is pricing excellence; this is out of the refinery; this is really quite a step change in managing this business.

------------------------------
 Matt Lofting,  Nomura - Analyst   [26]
------------------------------
 Okay, very clear. Thanks.

------------------------------
Operator   [27]
------------------------------
 Oleg Galbur, Raiffeisen.

------------------------------
 Oleg Galbur,  Raiffeisen Centrobank - Analyst   [28]
------------------------------
 I have two questions, please. The first one is about the gas and power segment. You have reported this impairment for the gas storage in Germany, due to poor market conditions. I was wondering, since in Austria, more or less, you are facing similar tough market conditions, how come you did not report an impairment for the gas storage in Austria?

------------------------------
 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [29]
------------------------------
 That's quite an easy one, actually. The Austrian asset is a quite mature asset with a very -- relatively low book value; whereas the gas and power asset [and ethanol] is actually new, and actually still, to a certain degree, under construction and development.

 What we've actually made a provision for there isn't about any asset investment; it's about our contractual obligations to use the storage at a certain fee on a recognition that, frankly, at the current levels and expectations of summer/winter spread, that's not going to be profitable. They have a third party provider for that storage.

 The asset in Austria is an OMV-operated asset, and has a relatively low book value, and no commitments, other than commitments within the Group, frankly. So, that's the basic reason.

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 Oleg Galbur,  Raiffeisen Centrobank - Analyst   [30]
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 Clear on that, thank you. And the second question is related to the power business. Now that you have two power plants, one in Romania, and one in Turkey, on one hand; and, on the other hand, you mentioned that the power market conditions are rather tough in both countries, I was wondering whether you could now, or maybe plan in the near future to, disclose more info about the operating results of the two power plants?

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 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [31]
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 It's two plants within a business that turns over EUR43 billion, so we're not going to go into that level of detail on every asset that we have. But, clearly, we'll make it clear what its contribution is; and also the challenges, or otherwise, that the assets face in their own respective market, yes.

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 Oleg Galbur,  Raiffeisen Centrobank - Analyst   [32]
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 Well, at least at the current stage, for example, the power plant in Romania, is it operating at a loss, breakeven, at least some hints, taking into consideration that the gas prices are on the upward trend in Romania?

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 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [33]
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 Well, clearly, this is going to be one of the unique challenges for Romania. It's quite volatile in terms of spark spreads. There are times when it operates quite profitably; there are times when it has to operate and it's underwater.

 But you're absolutely right; this is going to be one of the unique challenges in Romania, for Romanian industry generally. If these gas prices go ahead then, clearly, it's not necessarily going to drive power prices up, so it's going to squeeze the spark spread. For the Group overall, however, that's a benefit, of course, because we're producing the gas that we burn in our power station there.

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 Oleg Galbur,  Raiffeisen Centrobank - Analyst   [34]
------------------------------
 Thank you.

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Unidentified Company Representative   [35]
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 Since we also have some guests here with us in the room, I ask are there questions from the audience here? Seem to be no questions.

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Operator   [36]
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 This was the last question. I will now hand back to David Davies for his closing comments. Please go ahead.

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 David Davies,  OMV AG - Deputy Chairman of Executive Board and CFO   [37]
------------------------------
 Thank you, as ever, ladies and gentlemen, for dialing in and listening to the conference call.

 As we've said, we'll be in London tomorrow, with a very extensive day, going through our E&P portfolio, the exploration portfolio; the development plans; what underpins our expectations in terms of production; what's going to happen to our profitability and cash flow generation from these assets, going forward. So quite an extensive teach-in on what we've got in the E&P business, and we look forward to seeing you there.

 This presentation, by the way, tomorrow will also be broadcast over the Internet. So, for those of you who can't attend it, you're certainly welcome to dial in via the web.

 Thanks, once again, for your attention. We look forward to speaking and meeting with you soon. Thanks.

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Operator   [38]
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 That concludes today's telephone conference call. A reply 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.

 Thank you for joining today's conference call. You may now replace your handsets.






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