Johann Pleininger, deputy chairman and member of the OMV Executive Board Responsible for Upstream (Exploration & Production) spoke exclusively to Pipeline Magazine’s Julian Walker about the Austrian firm’s Middle East ambitions and opportunities it sees in the downstream sector
Do you see the Middle East as a core upstream development area?
Yes, of course. OMV focuses its upstream activities on core regions and one of these regions is the Middle East and Africa. We go for “value over volume” and that’s why we are focusing on extending our footprint in the Middle East as a low-cost production region.
OMV will target acquisitions in regions with attractive cost positions, like the Middle East and Russia, to reduce its portfolio cost.
In the process of shifting its portfolio to low-cost regions offering ample opportunities for reserve replenishment, OMV leverages on a series of long-term strategic partnerships.
The close connection with the Abu Dhabi-based International Petroleum Investment Company and Mubadala supports OMV’s endeavors in the region. Mubadala, the former IPIC, has been OMV’s shareholder since 1994 and holds 24.9 per cent of OMV AG shares.
How important is the UAE to OMV’s Middle East strategy?
Are you planning more investments in the UAE? OMV is looking to engage in further opportunities in the United Arab Emirates. In May 2017 the Abu Dhabi National Oil Company (ADNOC) and OMV signed a Memorandum of Understanding. The agreement explores potential opportunities to work together to support ADNOC’s downstream business and the company’s smart growth strategy.
The agreement provides for cooperation in a number of areas, including the evaluation of opportunities in downstream projects; the exchange of knowledge and experience in refining operations and refinery-petrochemical integration and optimisation, as well as downstream technical and maintenance support.
Back in 2016 ADNOC, OMV, and Occidental Petroleum have signed a Technical Evaluation Agreement over several undeveloped oil and gas fields in North-West Offshore Abu Dhabi including the Ghasha and Hail areas. The agreement comprises a four-year seismic, drilling and engineering work program for exploration, appraisal and potential field developments. With this project, OMV is intensifying its strategic partnership with ADNOC alongside its existing participation in the appraisal of the sour gas Shuwaihat field and its East Abu Dhabi exploration activities.
How much emphasis do you put on partnerships when doing business in the Middle East? Partnerships and good relations are the basis for our business. We respect our partners and the countries we are working in. In the Middle East in particular we have long-lasting and fruitful partnerships.
In the UAE, as just mentioned, we will have a close exchange of expertise that will enable us to make our outstanding, long-term partnership with ADNOC even stronger.
In Iran, OMV has a long-lasting partnership with the country, which we entered in 2001. Last year the National Iranian Oil Company (NIOC) and OMV signed a Memorandum of Understanding concerning the evaluation of various fields in the Zagros area in the west of Iran, for potential future development. OMV also signed a joint study agreement with NIOC Exploration for the Fars area.
Can you provide any update on the OMV/Dana Energy deal?
At the beginning of this year OMV and Dana Energy Company signed a Memorandum of Understanding. We agreed to evaluate possible upcoming development and re-development projects in the Iranian oil and gas industry.
This continues and fosters our long-lasting partnership with the country, which we entered in 2001 as the operator of the Mehr exploration block in western Iran, leading to a successful discovery (Band-EKarkheh) in 2005.
What are your thoughts on Libyan production returning?
Libya is an important production country for OMV. We have a long history in the country starting with our presence in 1975.
Since 2011 civil unrest, protests and especially blockages of pipelines and oil terminals have repeatedly led to longer interruptions of production.
Fortunately, in September 2016 the oil terminals in the Sirte basin re-opened and production from the Nafoora-Augila field and license C103 could resume. When the blockades of the Sharara pipeline were lifted in December 2016, the fields located in the Murzuq basin managed to restart production as well.
In the meantime OMV has increased its stake in four Exploration and Production Sharing Agreements in the Sirte Basin. We acquired 75 per cent of the Second Party Share and now hold 100 per cent of the Second Party shareholdings in blocks C103, NC29/74, C102 and Nafoora Augila.
All in all, OMV’s Libyan production is expected to reach 20,000 bbl/d on average in 2017. Subject to ongoing improvements in the security situation, this transaction will provide OMV with an opportunity to increase its production in Libya to a maximum of over 40,000 bbl/d.
How has OMV dealt with the low oil price environment? Do you see it as being lower for longer? This is a good question! As we were facing difficult years with oil and gas prices at a record low and no significant price recovery in sight, we took some major steps to move forward. We have implemented a strict cost-cutting program and the effective cash-flow management approach has led to greater financial power.
We have generated additional funds by selling non-strategic assets like the minority stake of 49 per cent in Gas Connect Austria and our Turkish subsidiary OMV Petrol Ofisi. We have also reduced exploration activities in the non-core region of Sub-Saharan Africa, divested OMV’s Upstream business in UK and the Ashtart project in Tunisia. These transactions were part of OMV’s strategy to optimise the portfolio.
Our goal in the upstream business is to secure sustainable production for OMV. This means that we fully replace all of the reserves we produce. Therefore we are focusing on highly profitable barrels like in our core region Middle East and Africa. What this means is that profitability takes priority over production growth. In the last two years we managed to reduce production costs from US$16.6/ boe to below US$9/boe. Above this we are working on our projects in Russia. Achimov IV/V and Yuzhno Russkoye will add more than 1 billion boe to OMV’s reserves. Our current price assumption for 2017 is US$52/bbl. From today’s perspective, we expect US$75/bbl in the long-term, meaning from 2020 onwards.
What are the wider energy challenges that the global oil and gas sector is facing? How is OMV helping to meet these challenges?
The development of the oil price will remain a challenge for our industry in the near term. Following OPEC’s decision to cap production at the end of 2016, oil prices have increased slightly compared with the very weak environment until the middle of last year. However, the oil price has declined again in the second quarter 2017 compared to the first quarter, under pressure from slower than anticipated inventory declines. This was due to higher than expected US oil production and increasing output from Libya and Nigeria, which are excluded from the OPEC agreement.
In the long run it is clear that the energy mix for future mobility will be highly diverse. OMV set the course for the future many years ago – with research projects and investments in innovative technologies. We are proactively working on future-proofing our fuels and products with regard to decarbonisation. Take the example of Co-Processing: Blending biogenic components already during the refining process, whereby biogenic and conventional components are processed together. This makes an important contribution to increasing the share of renewable energy in the mobility sector.
Another example is ReOil. The innovative ReOil recycling process treats used plastics as a valuable feedstock and turns them into synthetic crude. This synthetic crude can then be processed in the refinery into fuel or used as a raw material for the plastics industry.
At the same time, we are working on energy solutions for future mobility. These include hydrogen on the road as well as steps towards electro mobility.
In addition to this we are working on projects to foster our business activities in the petrochemicals business. The Middle East is a promising region for OMV in this regard.
How important is the downstream business for OMV in the Middle East?
Our success is based on the integration of Upstream and Downstream business within one company. We will follow this path with a focus on new opportunities in Downstream. With the aforementioned Memorandum of Understanding, together with ADNOC we have the chance to expand our cooperation across the entire value chain: From upstream to downstream, including petrochemicals.
Johann Pleininger studied mechanical and economic engineering and began his career at OMV in 1977. From 2007 to 2013 he was Executive Board member responsible for E&P at OMV Petrom in Bucharest. Most recently he has been the senior vice president responsible for the core Upstream countries Romania, Austria as well as the development of the Black Sea Region. Since September 1, 2015 he has been a member of the OMV Executive Board and is responsible for Upstream (Exploration & Production). As of July 1, 2017 Pleininger was appointed deputy chairman of the Executive Board.