Interview with DR. Rainer Seele , Chairman of the Executive Board and CEO, OMV AG, Austria

Mar 2020 Interview with DR. Rainer Seele , Chairman of the Executive Board and CEO, OMV AG, Austria

Prisma Reports (PR): For the past 6 decades, OMV has successfully grown into one of the largest Austrian industrial companies, and from a state-owned company has grown into a global player with more than 24,000 employees from 60 nations in 30 countries, producing oil and gas, innovative energy and high-end petrochemical solutions. To start this interview can you share with us a couple of key facts and figures that would best illustrate OMV’s weight and contribution in the global oil and gas industry? How does a group like OMV stand out globally?

Rainer Seele (RS):Back in 2015, OMV engaged into a program to increase its competitiveness. Our main KPI was the reduction of our operating costs. In 2014 and 2015, we had an average operating cost of $16.60 per barrel and today, whereas today we are below $7 per barrel. In the last couple of years we have more than halved our production costs, which was tough work – especially driven by the low oil price environment.

We have also become more a internationalized company, focusing on new regions like Russia, the Middle East and Asia. Russia was very important for us for reserve replacement, and enable us to be sustainable as a company. We had to replenish the oil and gas we were using with new reserves and we are proud to say that in 2018, our one-year Reserve Replacement Rate was 180% That’s how we have managed to remain sustainable. Next, we look to the Middle East and Asia, taking advantage from our shareholdership. Abu Dhabi has been a shareholder of OMV for 25 years, and together with the government of Austria they have a syndicate and hold majority of shares in OMV. Hence, we saw that as an opportunity to start a huge capital commitment towards Abu Dhabi. We have committed more than 4 billion dollars to Abu Dhabi and within 2 years, and we have built an integrated business model in Abu Dhabi from the wellhead to the production of polymers with our joint venture between ADNOC and Borealis, Borouge. We are present across the entire value chain over there.

We want to internationalize our business not only in terms of where and how we are going to produce oil and gas, but also in terms of sales business. In the past, we had a very strong focus on Europe – nearly 90% of our business was in Europe. Now we are diversifying especially into the Asian market and some markets in the Middle East. This diversification allows us to stabilize our business. Within this timeframe, we can see OMV as a very stable performer in the trading markets because we have realized that integration is the secret success to stability, and we can now finetune and outbalance the high volatility you see especially in the energy market, with fluctuations in oil prices. That’s why OMV has seen very strong growth – within 5 years we have nearly doubled the size of the company. In 2015 we produced 300,000 barrels per day, now we are producing 500,000 barrels per day and we are preparing ourselves for 600,000 barrels per day. Hence, we have substantially increased our business.

We like growth, especially when we can combine growth with profitability. Our profitability has tremendously increased last year as OMV had a historical record of earnings, and of course we have also a very attractive dividend policy for our shareholders.

(PR): Going forward, what’s your outlook for 2019, given the volatility of the market?

(RS): We had a challenging start into 2019 because our production in Libya was halted due to the unrest there. However, we have restarted our production since the second half of March, allowing us to have full production in the second quarter of 2019, contributing to further growth. I am optimistic that the integrated business structure will also help support OMV’s good performance in 2019. It’s too early to give you a complete picture of how 2019 will look like because only 5 months have passed.

(PR): Last March, the OMV Executive Board presented the “OMV Strategy 2025”. Can you summarize what the strategic directions for the group are by 2025?

(RS): OMV Strategy 2025 is a strategy of growth: we are targeting to achieve 600,000 barrels per day. 80% of the strategy has already been executed within one year. For the first time we indicated to the market that growth will occur in both business units, to balance the overall portfolio of OMV. We also established that OMV will move more into petrochemicals, in order to reinforce our focus on sustainability. Our intention is to use oil more as a feedstock than an energy component in the future – to burn less oil and use it as a valuable feedstock. We have clearly said to the financial markets that OMV will continue to be a cash machine. We are absolutely cash-rich and have a very strong cashflow after dividends. We have now committed mid-term to increase our operating cashflow from €3 billion to €5 billion Euros per annum. We have also said that the operating results will be increased to €4 billion.

(PR): In the context of European energy security of supply, OMV has been taking on key investment projects such as the Nord Stream 2 pipeline, which represents a step forward in diversifying sources of gas. This project has been widely critized though by the US in the background of Russian sanctions, as well as by Ukraine. What are the arguments pleading in favor of Nord Stream 2 and how would you respond to the opponents of this project?

(RS):Firstly, we have to look into the European gas market: it clearly indicates that we have to prepare for the growing demand because some countries like Germany are preparing to switch from coal to gas via power generation, and of course partially to renewable sources of energy. Besides, we are witnessing a very strong decline in domestic gas production within Europe. So all in all, Europe needs to import more gas to supply the growing demand in the different markets and it has to invest in security of supply. The security of supply can be increased by diversifying sources. With that in mind we have signed contracts with Qatar for LNG supplies and with (please fill out company’s name) from the US. Hence, there is plenty of room for diversification. However, we should not only diversify our sources but also our import routes. Nord Stream 2 is diversifying the import routes of Russian gas into the European markets. This pipeline project comes with a high security of supply because there is no transit country involved and is a direct link between European consumer market and the Russian gas. What we can say is, a very low-cost gas will arrive at the German coast and we also need to keep our customers also competitive especially when they are competing with low price energy production in the US for example, so that we are importing low cost gas, which is possible thanks to Russia. Our customers in Austria currently depend on one import route – via Ukraine, Slovak Republic and the Czech Republic in Austria. The Nord Stream 2 will enable us to diversify our import routes. The opponents of the project I believe are more driven by economical than political interest. Money makes the world go around by the end of the day! Some countries oppose simply because they want to continue to ship the gas through their country to keep their transit income. One example is Ukraine. On the other hand, the US is changing to become a net exporter of gas instead of a net importer. They would like to sell additional LNG to the European market but have to compete on prices. The gas via Nord Stream 2 is very low cost and the market works very nicely – you have to compete on a price level, on a level of security of supply, and if the price is right we are ready to buy gas from different sources and diversify. Our customers are not ready to pay a premium just because the gas is coming from a country which is not Russia.

(PR): What has been the impact of US trade sanctions on the industry so far, and how have the US protectionist measures affected OMV’s business?

(RS):We are in full compliance with the US sanctions and also importantly with the European sanctions against Russia, which were implemented when the Russian-Ukrainian conflict happened. Some projects where we have to offer special technology have been limited in Russia, while some projects have completely been stopped, which created financial restrictions that come with the sanctions. This is impacting the entire market, not just the oil and gas industry. Hence, trade between Russia and the EU member states have decreased substantially because of the sanctions implemented by the EU and the US. So far, we are in full compliance, but we are allowed to continue importing gas from Russia to sell it here, and to continue invest into projects like Nord Stream 2.

(PR): Aside from this, what are some of the other significants projects in your piperline to secure Europe’s energy needs?

(RS): We are investing in traditional production. We have just finished our investment project in Norway where Equinor is the operator, which allowed new gas to go on stream end of December last year. We are planning to invest into Neptune located in Romania, which is a huge, billion-dollar project we are developing together with Exxon. This is gas from the offshore black sea in Romanian territorial waters. This project is in its final stage where we have to ask for the right regulatory framework from the Romanian government. After that, we can prepare for an FID. We are investing in gas in Tunisia, which will not be for Europe but will stay in Tunisia. Other than that, there are no further projects in our pipeline. When we talk about Europe’s demand, we are talking about investing in domestic production within Europe and we are talking about additional import routes like Nord Stream 2.

(PR): The group in its 2015 strategy has defined 15 sustainability targets in 5 areas.Can you tell us more about that, what are OMV’s targets in regards to sustainability, what’s your vision to drive better sustainability across its activities?

(RS): The European elections have shown that climate change is becoming the top priority within Europe, although I am convinced that this has to become a global issue. Europeans can contribute, and so does OMV with its sustainability strategies, but we need to make it a global activity. OMV has announced its intention to reduce the CO2 intensity of its business activities by 19% by 2025, through optimizing our operations. OMV would like to change from an oil company, which were our historical roots, to a gas company. We have already started changing our production split – it is now 60% in favor of natural gas. We are convinced that natural gas has the potential to become short-term solutions. As part of our sustainability plans we not only want to clean up the air, but also the ocean. OMV is now investing in ReOil® technology to recycle plastic waste into high quality synthetics like crude oil, which we can then recycle it either into eco fuels or CO2 neutral petchem products. We would like to develop this technology quickly, hopefully within the next 3-5 years. We would also like to invest in commercial plants which have the capacity to transform 200,000 tons of plastic waste a year into high quality products. That’s more or less the focus on sustainability. From the perspective as CEO of OMV, we also have to do our best to ensure OMV stays profitable in the future. We have to invest in profitability so that shareholders will continue to invest in OMV, so that we can continue to pay dividends and create jobs, which is also a social responsibility.

(PR): It’s a tricky marriage – profitability and sustainability.

(RS): I think we can combine them, they do not contradict each other. I think that there will be more and more new businesses coming via sustainability – there’s a market. According to a recent study the recycling market is about ＄55 billion worldwide – it’s an attractive market. It’s the wrong mindset if you think that you are being forced to engage in sustainability. I think you should see sustainability as an opportunity, so you can create additional business for the company.

(PR): In a recent interview you said “We need a global framework. Sustainability and climate change can only be resolved with international agreement.” How is OMV trying to raise its voice on the global stage as an advocate for a more sustainable energy production? How important is it for you to not only drive new efforts but also to communicate about these efforts and lead by example?

(RS): We are positioning our company and engaging in all kinds of communication activities, to participate in these discussions. We are very open to meeting with the Fridays for Future, and we are starting joint activities. We just had a press conference together with Volkswagen, to promote gas mobility as an alternative to mobility. Globally, we are presenting our sustainability strategy more widely, we are convincing financial markets to invest in our company, and sustainability is becoming a more important factor. We also focus a lot on the dialogue with politics, and not only with the public because it is the cooperation between the industry and politics which will open up the different potentials at the end of the day, and not only the dialogue with the industry associations.

(PR): July 1st will mark your 4th anniversary at the head of OMV. What do you consider as your biggest achievements or your trademarket at OMV?

(RS): My biggest achievement is being able to see the pride in OMV’s employees when I talk to them. When I started 4 years ago, times were challenging and OMV was not competitive and it was a hard job. I am very proud that I was able to convince people to join me on this strategic journey which was very important for the company to recover, but also very difficult because we had to cut costs, which was the most difficult part of the job. However, it paid off.

(PR): Going forward what are your personal aspirations, or the top 5 things that you’d like to accomplish for the group in the next 5 to 10 years? What’s your vision?

(RS): Firstly, even though the company has recovered, I will continue to increase the cost competitiveness of the company. Secondly, OMV will expand into Asia. Thirdly, we will continue to build the chemical DNA of OMV, changing its future. Last but not least, sustainability will increase in importance within the company. We have to take more care of our environment in the future.

(PR): What would be your final message about OMV or Austria in the context of our special publication?

(RS): If you would like to discover Austria, you will discover the European metropole of culture. Austria is full of music. Austria is full of innovation and what makes Austria really special is a great company called OMV.