x Abu Dhabi, UAEMonday 24 July 2017

Implications for OMV and Ipic from unrest

OMV, the Austrian oil and gas company in which Abu Dhabi owns a 20 per cent stake, faces cuts in Libyan production and a substantial debt burden.

The fighting in Libya is likely to have long-term implications for OMV, the Austrian oil and gas company in which Abu Dhabi's International Petroleum Investment Company (Ipic) owns a 20 per cent stake.

The company was downgraded from "buy" to "hold" by ING bank yesterday.

"We believe OMV is likely to lose all of its 300,000 barrels of oil equivalent a day of Libyan production capacity for months, if not years," wrote Tamas Pletser, an ING analyst in Budapest. "Unrest in Yemen risks further losses."

The Austrian company, whose businesses span crude refining to car washing, is heavily exposed in North Africa as well as in Yemen, where it holds three exploration and production licences.

Shares of OMV on the Vienna Stock Exchange yesterday rose slightly to €30.89 in early trading.

Olena Kyrylenko, an energy analyst with KBC Securities in Hungary, said last month a total production shutdown in Libya could cost the company US$500,000 a day.

One of the top producers in the embattled country, OMV had as recently as 2008 extended some of its 12 exploration and production contracts to 2032.

The company, which this year spent $866m to buy a Tunisian exploration and production company, should consider issuing more stock, said Mr Pletser.

"The company has been unable to make financing decisions to ease its debt burden, creating further uncertainty," he wrote in a note to investors, adding that an equity issue would allow the company to raise capital without jeopardising its favourable credit rating.

If OMV were to pursue the option, Ipic would have to put up more cash to maintain its stake.

Abu Dhabi has cultivated a close relationship with OMV, the biggest refiner and marketer in central Europe, to secure western crude markets and take advantage of downstream expertise. OMV and Ipic together own Borealis, the Austrian petrochemicals maker that has lent technical and marketing know-how to Abu Dhabi's local petrochemicals firm, Borouge.