OMV buys stake in Madagascar

OMV, the Austrian producer part-owned by Abu Dhabi, has bought into offshore Madagascar in an effort to balance its exploration portfolio.

OMV's refinery in Schwechat, Austria. The company is taking a 40 per cent stake in a Malagasy block called Grand Prix.Heinz-Peter Bader / Reuters

OMV, the Austrian oil producer part-owned by Abu Dhabi, has bought into offshore Madagascar in an effort to balance its exploration portfolio.

The company is taking a 40 per cent stake in a block called Grand Prix from Canada's Niko Resources for an undisclosed sum, it announced yesterday.

OMV, which will become the block's operator, is one of the biggest investors yet to arrive in the East African island nation, which produced its first oil only this year and whose leadership has been plagued by a series of coups and resignations. "Speaking about the oil industry and the political situation, it's hard to separate the two," said Simiso Velempini, an analyst with the consultancy Control Risks. "A lot of the development of oil and gas exploration has been retarded by political developments - mainly the five-year political crisis that was triggered in 2009."

Elections scheduled for next month have given hope to investors that a new leadership could give the hydrocarbons industry the stability it needs. But election-watchers are also wary that a shortage of funds and time to carry out the United Nations-assisted elections could risk the credibility of the results. "It's often a series of start and go, and two steps forward, one step back," said Ms Velempini. But the entry of OMV "definitely signals more of increased investor attention on Madagascar, given early indications that there could be a decisive resolution to the crisis. Understandably, investors are looking to new key markets in the Indian Ocean, and Madagascar could be one of those".

The relatively unexplored territory provides a counterpoint to the North Sea, where OMV paid US$2.65 billion last month for Statoil's mature production assets.

"Clearly, OMV, like its peers in the region, has been undergoing a period of strategic and operational transition," wrote Attila Vágó, a senior analyst at Concorde Securities in Budapest. "After years of stagnating production, we expect OMV to deliver modest production growth from next year on."

A strategic downstream partner for Abu Dhabi, OMV is one-quarter owned by the emirate's International Petroleum Investment Company (Ipic).

OMV and Ipic together share ownership of Borealis, the Austrian petrochemicals firm that, in turn, shares ownership of the local polymers producer Borouge with Abu Dhabi National Oil Company.

Grand Prix covers 16,845 square kilometres from the Madagascar coast and partners in the block include Niko and EnerMad, another Canadian explorer.

The deal is subject to approval by the government of Madagascar.

OMV shares gained €0.375 yesterday in Vienna, reaching €35.305 yesterday afternoon.

"OMV has been pursuing a strategy of getting 'big' by vanity investments, which is a display not just of financial might but of audacity, ambition and all the rest of it. But value investors seem increasingly reluctant to reward lavish spending on investments in the pursuit of creating shareholder value," added Mr Vágó.