Asset sales help OMV to avoid sharper profit drop

Strong performances in refining and marketing have helped to boost second-quarter results of Austria's OMV and Hungary's MOL, two companies part-owned by UAE investors.

Oil and gas company OMV saw its underlying net income fall by 29 per cent to €321 million (Dh1.6m) in the three months to June.

OMV said it was hit by declining crude sales in Libya, the United Kingdom and New Zealand. Simultaneously, exploration expenses rose by more than two thirds to €98m because of write-offs in Tunisia and the UK, as well as increased seismic activity at its Norway operations.

But the company avoided a sharper drop in profits by doubling its cash flow from its marketing division to €1.2 billion. This was in part due to the selling off of hundreds of petrol stations, while the company also benefited from rising sales margins.

"Despite weaker-than-expected results of the E&P [exploration & production] and G&P [gathering & processing] segments, we believe the market will appreciate the improvements achieved in the downstream segment, as well as the strong cash generation in 2Q," wrote analyst Oleg Galbur of RCB in a note.

OMV cautioned that refining margins are predicted to remain slim this year due to weak demand and overcapacity in the industry. Retail sales will be tempered by slow economic growth in its core markets, it said. Production in Libya had returned to normal levels after disruptions in the first half of the year.

Abu Dhabi's International Petroleum Investment Company (Ipic) owns a 24.9 per cent stake in the Austrian company.

OMV has also partnered up with Germany's Wintershall to explore a gas and condensate field in Shuweihat in Abu Dhabi, and earlier this year signed an agreement with the Abu Dhabi National Oil Company (Adnoc) to explore another field in the emirate.

MOL quadrupled its net profits in the second quarter, posting a profit of 20bn forints (Dh327m), compared with 500m forints a year earlier. The finances of Hungary's largest refiner were buoyed by the improved performance of its downstream business. The company is also optimistic that it is closer to production at the Shaikan oilfield in Iraqi Kurdistan after the Kurdish Regional Government (KRG) gave its approval for the field development plan. Oil from Shaikan will offset declining production at other sites, said MOL.

"We reached a significant milestone in our Kurdistani operations when the regional government approved the Shaikan Block Field Development plan, which brings the first phase of production within closer reach. These barrels will really help us to counterbalance the decline of matured fields," said Zsolt Hernádi, MOL's chairman.

Analysts see the company's upstream portfolio as MOL's most challenging business segment going forward.

Sharjah-based Dana Gas and its parent company Crescent Petroleum own a 1.4 and 3 per cent stake in the Hungarian firm respectively, which they acquired in return for a share in their gas operations in the KRG.