Austria’s largest oil, gas and chemicals producer OMV has reported heavy write-downs and a drop in hydrocarbon output as a result of its move to pull back from Russian investments, but the company's first quarter earnings were down only 17% on the corresponding period of 2021, and were slightly up on the immediately preceding quarter.
According to OMV’s latest earnings statement its production declined by 8% to about 457,000 barrels of oil equivalent (boe) per day in the first quarter of 2022, while production costs increased also by 8% to the equivalent of €7.4 per boe.
The company has a stake of almost 25% in Severneftegazprom, a joint venture with Russian gas giant Gazprom that is developing the South Russkoye field in West Siberia.
OMV said that the consolidation of its Russian assets was halted from 1 March due substantially, to an inability to repatriate foreign currency earnings from Russian assets due to changes in country’s legislation.
This led to OMV booking a €1 billion ($1.1 billion) negative value adjustment item on the South Russkoye venture in the first quarter.
It will be examining “viable options of selling [its shareholding] or exiting” the venture once Moscow establishes clearer legislative rules for what foreign investors are permitted do in the country, OMV chief executive officer Alfred Stern said.
OMV also wrote down its €1 billion loan to Gazprom’s Nord Stream 2 subsea export pipeline project in the Baltic Sea that is unlikely to become operational anytime soon because of US and European sanctions against Russia and the Kremlin’s stance on using pipeline gas to circumvent international restrictions.
Despite the loss of production in Russia, OMV reported total revenues of €16.1 billion ($17.2 billion) in the first quarter compared with 13.9 billion in the fourth quarter and €16,8 in fourth quarter of 2021, on the back of stronger commodity prices in the reporting period.
Natural gas and liquefied natural gas segment of the company’s operations was the largest contributor to the revenue line with the input of over €5.7 billion in the first quarter of this year against Euro 1.6 billion a year earlier.
Next in line was the OMV’s chemicals business with revenues of over €3.4 billion in the first quarter against €2.3 billion in the first quarter of 2021.
The company’s net income attributable to shareholders, came at €546 million in the first quarter compared with €654 million in the first quarter of 2021, but better than the €538 million profit posted in the fourth quarter of last year.
Speaking at a conference call on Friday, Stern said that OMV still “analysing” demands from Gazprom to switch to a new payment method for Russian gas that the company imports under its long-term contract to Austria and Germany, running until 2040.
Gazprom has demanded that European buyers of its pipeline gas make their payments to open dedicated bank accounts with country’s leading Gazprombank in Moscow for payments in euro and US dollars to be converted into rubles before they can reach Gazprom’s accounts.
These demands have been backed by threats to interrupt gas supplies if countries deemd to be unfriendly to Moscow do not comply.
These threats became actions last week when Bulgaria and Poland saw Gazprom shipments from Russia interrupted after they refused to comply with the unilateral amendment of contractually agreed terms for payment.
Austria and Germany have signalled that they will consider whether to use the new payment system, but some critics have said suggested that compliance with the demand could amount to a breach of European sanctions against Russia in response to the assault on Ukraine.
“We are trying to find a solution for OMV to remain in compliance with [European] sanctions” in the proposed gas payment arrangement, Stern said.
Meanwhile, Russian pipeline gas supplies to OMV are running uninterrupted, he added, as questions on the stability of such supplies were often raised during the call.
Stern said that OMV has decided to set up a group to examine alternative gas supply sources to Austria.
However, he added that we are “painfully dependent on the supply of raw materials from Russia”. That in turn underscores the long-term goal of the company to switch to renewable energy sources and circular economy principles, using resources moderately and recycling them endlessly.