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OMV forging new partnerships

Sep 04, 2018
12 min read
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OMV CEO Rainer Seele advocates for the principles of integration and cooperation – in the oil and gas business, economic relations and international politics

 

With Group sales of EUR 20 billion and a workforce of around 20,700 in 2017, OMV Aktiengesellschaft is one of Austria’s largest listed industrial companies. Its integrated business model involves the production and sale of oil and gas including petrochemicals.

In upstream, OMV has a strong base in Central Europe and a balanced international portfolio with daily production of around 348,000 barrels of oil equivalent per day (boe/d) in 2017.

In downstream, OMV operates three refineries with a total annual processing capacity of 17.8 million tonnes and more than 2,000 filling stations in 10 countries in addition to operating gas storage facilities.

Chairman of the Executive Board and CEO Rainer Seele joined in an exclusive interview with Pipeline Magazine’s Julian Walker.

 

How important is the Middle East market for OMV?

The Middle East & Africa (MEA) is crucial for OMV – it’s one of our core regions. Our daily production here was 46,000 barrels of oil equivalent a day in 2017.

Given the fact that the Middle East is rich in hydrocarbons and offers low production costs, it is easy to see why we are pursuing further growth opportunities here in order to secure sustainable reserve replacement for our long-term future.

What are OMV’s priorities in this region?

Our key objectives here include oil and gas production in Abu Dhabi, stabilising production in Libya, and enhancing our position in the UAE.

What recent developments has OMV been involved in across the Middle East?

At present OMV is active in the UAE, Yemen, the Kurdistan region of Iraq, and Libya. Current large-scale projects in the region include the redevelopment of the Nafoora-Augila field in Libya and the production start of the Satah Al Razboot field. We are also continuously strengthening our conversation with ADNOC with regards to possible cooperation – especially in the downstream business.

And in the UAE in particular?

Well, in 2017 we intensively pursued business development opportunities in the United Arab Emirates as major onshore and offshore oil agreements were being renewed.

These efforts resulted in OMV being awarded a 20 per cent stake in a major offshore concession in Abu Dhabi in 2018.

What is the latest from Yemen and Kurdistan?

In Yemen we hold four exploration and production licenses and we have been able to resume production from Block S2 thanks to the comprehensive technical, commercial and security arrangements that have been put in place. In the Kurdistan Region of Iraq OMV holds a 10 per cent share in Pearl Petroleum Company Limited, a gas field operator. OMV booked Pearl’s reserves for the first time in 2016 and included its production contribution from 2017 onwards, averaging 7,000 boe/d for the year.

And what about Libya?

Oh yes, we have a difficult situation there as well. But we also have a strong commitment to Libya, where our activities go as far back as 1975. OMV holds licenses in the Murzuq and Sirte basins, although production was put on hold in 2015 and part of 2016 due to security concerns. However, Libya’s National Oil Corporation has remained a close partner and in 2017 we were able to ramp up production to an average of around 25,000 boe/d for the year.

How has the partnership signed in May 2017 with Abu Dhabi National Oil Company (ADNOC) benefited the company?

The agreement signed last year relates to opportunities to support ADNOC’s downstream business and will help both of our companies to maximise value from our assets and operations.

Which areas are covered by this partnership?

It provides for cooperation in a number of areas, including evaluating opportunities in downstream projects, exchanging knowledge and experience in refining operations, as well as refinery petrochemical integration and optimisation. That’s in addition to downstream technical and maintenance support.

This agreement with ADNOC gives us the opportunity to expand our cooperation across the entire value chain – from upstream to downstream, including petrochemicals. In the past year our longstanding partnership with ADNOC has grown even stronger thanks to the close exchange of expertise.

How important was the award of ADNOC’s offshore concession deal earlier this year for OMV?

It would be fair to say that the offshore concession award is an important milestone in delivering on our 2025 strategy, as we expand our footprint in one of the world’s leading oil and gas hubs and establish a material position as an oil producer in the UAE.

Under the deal, OMV was awarded a 20 per cent stake in the Abu Dhabi offshore concessions SARB and Umm Lulu along with the associated infrastructure. Our share amounts to approximately 450 million barrels over the 40-year period of the concession agreement, marking a step towards our strategic goal of doubling our reserves.

In turn, we are confident that our technological expertise will contribute to value creation and profitable growth for all partners involved.

Do you see opportunities in the downstream sector in the UAE?

Certainly. After all, one of the stated aims of ADNOC’s 2030 Strategy is to double refining capacity and triple production of petrochemical and higher value products to take full advantage of the fastest growing segment in the energy industry. With its petrochemicals expertise and highly integrated business model, OMV is an ideal partner in this quest.

As part of OMV’s downstream strategy, we are exporting our successful refining and petrochemicals business model to international growth markets. One goal here is to draw on the burgeoning demand in the Middle East and Asia for further growth, facilitated by higher production capacities coupled with better margins.

Under the aforementioned agreement from May 2017, OMV is providing access to its in-depth knowledge and experience in refining operations and petrochemicals, enhancing experience and skills, allowing ADNOC and OMV to focus on delivering the companies’ strategic objectives.

What technologies can you bring to the UAE?

OMV’s commitment to innovation and new technologies is one of the aspects that make us such an attractive partner. Our technologies have been proven to continuously improve product quality and service standards, minimise costs, create new business opportunities and lower emissions. We do this by investing in research and development and fostering strategic partnerships with universities, research institutions and selected industrial partners worldwide.

OMV is known as an expert for mature fields, right?

Yes, absolutely. One of our unique selling points is the rapid prototyping of new technologies in our assets. We continuously strive for fast piloting and the implementation of new methods to maximise our success in extracting oil and gas. State-of-the-art technologies are developed and refined at facilities in Austria and then new innovations are often piloted in our mature assets in Austria and Romania before expanding swiftly into full-field implementation worldwide.

And an example of a specific technology?

Having operated mature fields in Austria for more than half a century, we are experts in developing technologies to promote highly efficient field exploration, continuously enhance recovery rates, and increase the lifetime of mature assets. Produced water handling and reinjection, for example, facilitates a tremendous increase in the economic lifetime of mature fields. The energy sector is facing an extremely challenging environment at present.

The continuing debates surrounding sanctions and punitive tariffs have done anything but stabilise the political and economic environment. We at OMV are pursuing an integrated business model, driven by experience and conviction, and so it will come as no surprise that I also advocate for the principle of integration and cooperation in matters of international politics and economic relations. From the way things look today, it is unrealistic to think of a future without crude oil and natural gas. The International Energy Agency (IEA) forecasts that oil and gas will still account for more than 50 per cent of the world’s energy supply in 2040.

Natural gas in particular will be essential for a very long time as it is the most cost-efficient choice in terms of greater energy efficiency and lower greenhouse gas emissions. If we were to replace coal with natural gas across the whole of Europe, we would be able to cut 15 per cent of total greenhouse gas emissions.

In the power sector this would even save up to 40 per cent. This makes natural gas the ideal partner for renewable energy.

Where do you see the most growth in demand for energy coming from?

According to the IEA, in future natural gas will be the most important energy source in Europe, accounting for almost 30 per cent. Natural gas is available, affordable, sustainable and can be applied flexibly. Not only do we believe that coal-fired power plants will be replaced by gas, but also that there is massive growth potential for natural gas in the heating and mobility markets.

OMV is committed to sustainably securing Europe’s energy supply. We expect European gas production to decline in the coming decades at the same time as demand itself is set to rise.

What must the industry do in order to meet this demand?

I think it’s pretty clear that to fill this gap it will be necessary to strengthen current oil and gas production and this in turn requires appropriate investment. The precondition here is an attractive political and regulatory framework offering long-term stability.

On the other hand, we have to secure the supply of additional natural gas to Europe. This requires modern, efficient infrastructure. Here OMV is committed to financing the Nord Stream 2 pipeline for example, which we view as a significant component for security of supply to Europe.

What will be the impact of environmental policy?

There’s no question that we, as an oil and gas company, have an obligation to implement the climate agreement. But we also believe that a properly functioning energy system can only come from a well-balanced energy mix – without excluding any individual energy sources or technologies.

For the framework needed to shape a sustainable energy future we have to guarantee that the demands of energy supply can be realistically met, especially given the higher living standards of a growing global population.

Setting targets that are divorced from reality endangers affordability for members of the public: electro-mobility, for example, will only gain widespread popularity when drivers can also afford this technology.

So basically you’re saying that realism and feasibility should be more of a priority?

Exactly – overambitious targets weaken the competitive ability of businesses and the performance of the economy as a whole. If this means that the requisite funding for investments and infrastructure is lost, then new technologies will not be able to establish themselves long term. Here we all have to work together – the state, companies and citizens – in order to achieve the goals of an energy and economic system that is carbon efficient.

What do you think about the geopolitical backdrop right now?

I hope that transatlantic relations between Europe and the U.S. will return to a better state. After all, one thing is clear: trade restrictions have never done anyone any good in the long term. And trade wars never result in a winner. Trade agreements, transport routes and pipelines should bring people and countries together rather than drive them apart.

Does OMV have any plans to expand its activities to new parts of the world?

Not necessarily new parts of the world, but we are expanding in certain areas – in our upstream business we are targeting growth in both production and reserves in specific core regions. We aim to increase OMV’s production to 500,000 boe/d by 2020 and 600,000 boe/d by 2025 at the same time as reducing production costs to below US$8 per barrel.

To ensure a reserve replacement rate of more than 100 per cent, we intend to practically double our 1P reserves to 2 billion boe by 2025. Furthermore, we are striving to increase the share of natural gas in our portfolio to more than 50 per cent in order to improve the carbon efficiency of our portfolio.

What is the main geographic focus in your growth strategy?

Two of our main growth regions are the Middle East & Africa and the new development region is Australasia. I am very pleased with the progress made in recent months – for example in March we took over the entirety of Shell’s upstream business in New Zealand and are thereby expediting the establishment of Australasia as one of our five core regions of the future. This is just one of the milestones in the implementation of our 2025 strategy.

What are partnerships for you in general?

Partnerships are an essential part of our strategy, whereby we focus on forging ties and fostering longstanding relationships and business models for mutual success. In addition to relationships with important partners such as ADNOC in Abu Dhabi and the National Oil Corporation in Libya we also have close partnerships with non-OPEC members – such as Gazprom in Russia and Equinor in Norway.

But partnerships are also dependent on the prevailing environment, are they not?

OMV’s approach has always been to stand by its partners even in turbulent times and to be proactive for our partners precisely when others may be pulling back somewhat. This has secured us solid partnerships among equals that go back many years.

One of the most satisfying aspects of our business is the chance to exchange experience and technologies, establish mutual trust and respect, and work together for future growth opportunities. We are well positioned for long-term growth in attractive regions thanks to the foundation on which we are building – namely strong partnerships.

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