OMV AG

Florian Greger - Head of Investor Relations Rainer Seele - Chief Executive Officer Johann Pleininger - Executive Board Member Reinhard Florey - Chief Financial Officer

Mehdi Ennebati - Societe Generale Henri Patricot - UBS Ilkin Karimli - Credit Suisse Marc Kofler - Jefferies Matthew Lofting - JPMorgan Michael Alsford - Citigroup

Thank you, Stephy. Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the first quarter of 2018.

OMV had a good start to the year, with a strong set of results. With the latest acquisition we also achieved important milestones in the execution of our strategy.

With me on the call are Rainer Seele, OMV's Chairman and Chief Executive Officer; Reinhard Florey, our Chief Financial Officer; and Johann Pleininger, our Deputy CEO and in the Board, responsible for Upstream; Rainer Seele will walk you through the highlights of the quarter and give you more color on recent transactions.. Afterwards, Reinhard Florey will discuss OMV's financial performance.

Following their presentation the three Board members are available to answer your questions. And now I will hand it over to Rainer.

Yes, thank you. Good morning, ladies and gentlemen, and thanks for joining us.

OMV had a successful start into 2018, showing strong operational and financial performance. Before I am now coming to the business development, let me briefly review the economic environment.

In the first quarter 2018, oil prices stabilized with Brent averaging $67 per barrel. This was 24% higher than the average during the same period last year.

The oil price strengthened predominantly against the backdrop of higher geopolitical risks as well as a continued strong compliance with the production cut by the OPEC countries. Gas prices were 7% above the same period last year, supported by the exceptional cold weather in Europe in February and March with record price spikes on the spot markets.

The OMV indicator refining margin was down 12% compared to the first quarter of last year, reflecting the strong upwards momentum of the crude price as well as lower margins particularly for heavy fuel oil and naphtha, which could not be offset by higher margins for middle distillates. Net margins for both ethylene and propylene increased versus the previous year quarter, mainly due to higher product prices.

In addition, we saw a weaker U.S. dollar that depreciated by 15% against the Euro compared to first quarter 2017.

So let me now briefly point out the highlights of the first quarter of 2018. As I said before, we had a successful start into 2018: OMV delivered a clean CCS Operating Result of €818 million and generated a free cash flow of €538 million.

Our hydrocarbon production reached a historical high of 437,000 barrels per day supported by the production from Yuzhno Russkoye field in Russia. We managed to further decrease our production costs from $8.9 to $7.4 per barrel on the back of a higher production coupled with the successful implementation of our cost reduction program.

Going forward, we will of course, continue to improve our cost base. Our new efficiency program targets savings of at least €100 million by 2020 as compared to 2017.

In the last three months, we made significant progress in the implementation of our strategy, which we presented to you at our Capital Markets Day mid-March in London. In February, we signed the divestment of our Upstream business in Pakistan.

In March, we expanded our position in New Zealand by increasing our stake in two producing fields. At the end of April, we achieved a major milestone in building a material position in Abu Dhabi.

Now I have to say next what's coming up in May. There is only February, March, and April, so you heard about May, June and on next conference call.

So ladies and gentlemen, I am delighted to announce that last Sunday we signed a concession agreement with ADNOC for the acquisition of a 20% stake in two oil fields in Abu Dhabi. The concession area consists of two offshore fields under development, Umm Lulu and SARB, as well as two smaller fields, Bin Nasher and Al Bateel.

This transaction gives OMV access to two new oil developments, with a very long concession life. The concession starts retroactively on March 9, 2018 and expires on March 8, 2058.

The participation fee amounts to US$1.5 billion. ADNOC will retain a 60% stake in the fields, while OMV and CEPSA will each own 20 %.

With this transaction, OMV reaches an important milestone in the successful execution of its strategy. Participation in this concession offers OMV access to one of the world's largest deposits of oil.

The 40-year deal substantially strengthens OMV's reserves base by adding 450 million barrels of oil. The fields have an attractive production profile, both in terms of volumes and cost, with an expected long plateau period.

The oil production at plateau, net to OMV, is expected to be above 40,000 barrels per day. We anticipate a long-term plateau production which will be reached early in the next decade.

The development of the two fields is nearly completed. The Umm Lulu field started producing from early production facilities in 2016 and SARB will start producing towards the end of 2018.

Total CapEx, net to OMV, is forecasted to be up to $2 billion for the entire concession period of 40 years. In the first five years, OMV will invest roughly $150 million per annum.

As announced in our strategy, our preference is for cash generating assets and this transaction is no exception. Following the ramp-up of production to plateau level, OMV will enjoy a long-term and substantial cash flow contribution.

With our new upstream assets, we are establishing a material, long-term Upstream position in the hydrocarbon-rich Middle East region. And, of course, we are further strengthening our long-term partnership with ADNOC.

We are very pleased that ADNOC has selected OMV as one of its partners of choice and we are absolutely convinced that OMV's proven technological know-how will add value to the field operations. Let's talk about our second acquisition Shell's upstream business in New Zealand, which we announced just a few days after our Capital Markets Day.

Through this transaction, our stake in the Pohokura field, the largest gas producing field in New Zealand, increased from 26% to 74% and in the Maui field from 10% to almost 94%. OMV plans to assume operatorship in both joint ventures.

We also acquired Shell's interest in the Great South Basin exploration block, offering upside potential to our position in New Zealand. The purchase price amounts to $578 million and the effective economic date is January 1, 2018.

The acquisition is likely to close by the end of 2018. The deal adds up to 100 million barrels of recoverable resources to OMV's portfolio and immediate production and cash flows.

The assets were producing 31,000 barrels per day in the first two months of 2018. The offshore production from the Pohokura field has been halted since mid-March 2018, following a technical issue.

We expect to restart the production in Q3 2018. With the two recent acquisitions, we further diversified our portfolio.

The weight of the Middle East Africa and Australasia doubled to 20% and our exposure to Russia is now 10%. The majority of our assets, in both Upstream and Downstream remains in Europe.

Going forward, we aim to keep our portfolio balanced. Our strategy is to acquire Upstream assets in hydrocarbon rich regions with low production costs, as well as to internationalize the Downstream business, taking advantage of the market growth in the Middle East and Asia.

And now I hand over to Reinhard, who will present to you the first quarter 2018 results. Reinhard?

Thank you very much. Good morning, although from my side, happy to inform you now about our financial performance in the first quarter 2018.

The clean CCS operating result increased to €818 million from €805 million in the first quarter of last year. The results demonstrate the benefit of OMV's integrated portfolio, as the negative market effects in Downstream were more than offset by a substantially higher contribution from Upstream.

Last year's result was supported by positive one-offs. In turn, in this first quarter 2018, currency headwinds impacted OMV in the amount of roughly €100 million.

Clean CCS net income attributable to stockholders decreased to €377 million in the first quarter of 2018 from €502 million due to a higher tax rate. Clean CCS earnings per share were at €1.15 in Q1 2018.

The clean tax rate amounted to 35%, 15 percentage points higher than in the prior year quarter, which was mainly driven by an increased contribution from the higher taxed Upstream countries in a higher oil price environment. For the full-year 2018, we expect the clean tax rate to be in the low 30s following a higher oil price.

Let me now come to the performance of our two business segments. Upstream experienced a strong quarter supported by higher sales volumes and a good operational performance.

The Upstream clean operating result substantially increased from €321 million to €438 million. Market effects had a negative impact of €83 million compared to Q1 2017.

The higher realized oil prices were more than offset by a weaker U.S. Dollar.

OMV's realized oil price rose by 15% while the realized gas price in Euro decreased by 16%. In Q1 2018, we recorded a hedging loss of €68 million compared to a gain of €22 million in the first quarter of 2017.

Our operational performance more than offset the negative market effects, increasing the result by €191 million compared to the same quarter last year. OMV reached a record production of 437,000 barrels per day, Yuzhno Russkoye fully kicked in and contributed 106,000 barrels per day while production from Libya amounted to 31,000 barrels per day, 15,000 barrels more than last year.

Hydrocarbon sales volumes developed in line with the increased production and amounted to 38.5 million barrels, which marks an increase of 35% compared to the first quarter of 2017. At the same time, OMV reduced its production cost by 17% to US$7.4 per barrel.

Depreciation decreased and had a positive impact of €9 million compared to Q1 2017, mainly reflecting positive reserves revisions and the classification of Pakistan as an asset held for sale. The strong result in Downstream Gas was more than offset by a weaker refining margin and the divestment of OMV Petrol Ofisi last year.

The clean CCS Operating Result amounted to €376 million compared to €494 million in Q1 2017. The operational performance in Downstream continued to be on a high level despite the weaker market environment in Q1 2018.

The clean CCS Operating Result of Downstream Oil declined from €411 million in Q1 2017 to €282 million. This was mainly driven by the missing earnings contribution from OMV Petrol Ofisi and a lower refining margin as well as negative effects from a weaker dollar.

OMV's indicator refining margin decreased by 12% from $5.4 to $4.8 per barrel in Q1 2018, the refinery utilization rate was at 93%. Excluding OMV Petrol Ofisi, retail volumes and margins increased slightly, whereas they declined in the commercial business.

The contribution from petrochemicals decreased from €74 million to €68 million in Q1 2018. The improved ethylene/propylene net margins were more than offset by a sharp decrease of butadiene margins.

Borealis contributed €86 million compared to €113 million in the first quarter of last year. The decrease was mainly due to lower polyolefin margins.

I am very pleased that we reached a five-year record result in Downstream Gas. We sold more volumes, increased margins and captured arbitrage opportunities in the market.

The clean CCS Operating Result increased to €94 million compared to €82 million last year, which included positive one-off items. Let's now continue with cash flow.

In the first quarter of 2018, the cash flow from operating activities amounted to €1.1 billion, an increase of €153 million compared to the strong first quarter last year. The cash flow was driven by OMV's operational performance as well as the dividends distributed by Borealis in the amount of €252 million.

Cash flow from investing activities showed an outflow of €538 million. This includes another drawdown under the financing agreements for the Nord Stream two pipeline project as well as a down payment for the New Zealand acquisition.

In Q1 2018, the free cash flow amounted to €538 million. Excluding the payments related to Nord Stream 2 and New Zealand, we reached a strong organic free cash flow of €645 million, illustrating OMV's strong cash generation capabilities once more.

OMV's balance sheet remained very healthy and showed strong liquidity. On the back of the strong cash generation, cash and cash equivalents increased by €300 million to €4.3 billion at end of the quarter.

On March 14, OMV announced the recall of its €750 million hybrid bond with a coupon rate of 6.75%, which was issued in 2011. As we decided to call and redeem this hybrid bond, we reclassified it as debt.

Therefore, OMV's net debt increased to €2.3 billion. At the end of Q1 2018, the gearing ratio stood at 16%.

Now I will hand back to Rainer, who will conclude with the outlook.

Thank you, Reinhard. Let me conclude with the outlook for 2018.

Based on our operational performance, we update our production guidance. Throughout the first months of this year, we saw the oil price stabilizing at a level around $70 per barrel.

Based on this, we have decided to update the oil price forecast to $68 per barrel for the full-year 2018. For the year 2018, we expect an average production of more than 420,000 barrels per day.

Following a very strong first quarter, we anticipate production in second and third 2018 to be lower due to planned maintenance activities in Russia and Norway as well as seasonally lower demand for Russian gas. Moreover, production in New Zealand is currently impacted by pipeline issues, which we expect to have resolved in the third quarter.

Production towards the end of the year is expected to be back to a similar level as in the strong first quarter. The announced acquisitions in New Zealand and Abu Dhabi provide further upside.

In mid-April, we started the planned turnaround at the Petrobrazi refinery which is scheduled for approximately six weeks. Thank you for your attention.

Now Reinhard, Johann, and I are more than happy to take your questions.

Hi. Good afternoon, Rainer.

Thanks for taking my questions. So I will ask two questions please.

The first one regarding your production guidance of 500 kboe by 2020. So taking into account the assets acquisition from New Zealand and Abu Dhabi, it looks like you should reach this guidance by 2019.

And regarding 2020, thanks to the ramp up from Abu Dhabi production, you should be materially higher than 500 kboe even if we take no contribution from [indiscernible]. So can you please tell me if I am missing something there or if I am too much optimistic?

Second question regarding, again the asset acquisition in Abu Dhabi. I wanted to know if you will be able to digit the purchase price of Petrobrazi from the taxes, so these could materially improve the economics of this field which are really good in my view.

And if you don't want to answer the second question, I am asking another one. Can you just please make an update on [indiscernible]?

Where are we there in terms of approval from the different parties? Thank you.

Thank you, Mehdi. Your first question is an easy one that's the reason why I take it.

You are following picture, yes, when we presented the strategy on the Capital Markets Day are of course the two acquisitions were not firm at that time. Given your calculation, I agree with you that we might reach the 500,000 barrels per day earlier than 2020, so that's correct.

And then 2020 if one of the other project also will kick in successfully, I agree that we will outperform the target of 500,000 barrels per day. So 2020, at least 501,000 barrels per day production of OMV.

So your second question, you have answered yourself. We don't give any guidance on taxes and depreciation deducted because of confidentiality agreements we do have with ADNOC.

Please understand that. On Yuzhno, I would like to hand over to Johann.

Regarding Yuzhno, we are sticking to a project timeline. We are negotiating still the project and no change we want to close the project until the end of the year.

And regarding the approval from the different [parties] in Russia and Norway, can you tell you how this is going on?

We haven't started any approval process yet.

Okay. Thank you.

Hello, everyone. Thank you for the presentation.

Couple question from me. The first one, I just want to follow-up on the [indiscernible], you can give us on the cash flow contribution for the asset?

And then secondly, just on the guidance you've given on the tax rate because tax rate was 35% in the first quarter, you mention it coming in the low-30's for the full-year moving oil price at 68% above the average in Q1. My question is accommodate tax rate will be lower across the air when the oil price is actually connected to growth for the remainder of 2018?

Thank you.

This is Reinhard Florey. Regarding cash flow contributions from the Abu Dhabi project, all what we are able to disclose for now that we will have positive cash flows as of 2019, and they will remain positive clearly for the last time of the project.

Regarding the tax rate, I think would you have to take into account that of course there has been a certain shift in Q1 too high tax countries in Upstream and we will have a little bit more of a balancing effect also with Downstream kicking in then again after the turnaround of Petrobrazi, again in the second half of the year and therefore we see that the tax rate in general will be at the low-30s as we indicated.

Okay. Understood.

Thank you.

Hi, everyone. Thanks for taking my questions.

Two from me as well, just on your dividend policy if my understanding is correct, the future growth depends on your day earnings and cash the visibility. So the new deals are you doing, you're adding basically stable long life cash flows.

So any chance you can comment on how you see the dividend evolution going forward after the deals that you've announced? And then second question, building up on the earlier one, so you're basically hitting your production targets.

When I assume that M&A going forward will be focused more on the refining on oil and gas? Thank you.

Regarding the dividend policy, we have announced the updated dividend policy in the context of our new strategy and as we are now executing the new strategy the dividend policy of course will be exactly as indicated, which would to be a progressively rising a dividend policy, which will keep the dividend at least at the level of the previous year or and our aim is to increase it progressively.

Well, yes we are focusing also M&A activities on Downstream that's clearly the case, but we will continue also M&A activities in Upstream. First of all, we have said that until 2025 we will have €5 billion for Upstream M&A activities.

So when - if I sum it up, I am not at €5 billion. So therefore there is some more to come and given our priorities this year.

There will be a next transaction in M&A and that's of course finalizing our asset swap. So I have to prepare myself to drink of vodka in 2018 because we would like to finalize it and this is a very important transaction for us because this is more or less, the project which would bring our production guidance to the €600 million, which we are targeting until 2025.

So if we are successful and that's my production guidance then we should meet also the 600,000 barrels per day of course earlier than 2025, but it's up to the development in Siberia. So therefore I have to say yes, we are continuing with M&A activities that in Borealis, but the budget for Upstream is not a bit smaller than for Downstream.

Good morning gentlemen. Thank you very much for the call.

Two questions from me please. First, why do you decide to redeem their hybrid bond?

And the second question is regarding the ruble depreciation in Russia? What impact on unit production costs and broader financials, do you expect from depreciating currency in Russia?

Thank you.

Taking on your first question, why did we redeem the hybrid bond? I mentioned that we had quite high level of 6.75% on this hybrid bond.

Now as we are closing into the call date that has happened in April, we decided that we would older hybrid. We have also issued that where is the opportunity for us to again entering a hybrid bonds up to a volume of €500 million.

If we think we would need that and that certainly also provide us to go into better conditions than the conditions we had with the old one. So in that sense, I think it's very reasonable given the financing costs that we had for these hybrid bond.

Thank you.

Regarding the ruble depreciation that you are mentioning, the ruble depreciation is something that is very much in the context of the overall change that we have in the currencies. We have seen a higher depreciation there as we are currently seeing the business model of using the risk oil only partly in ruble's and partly also in Western currencies the impact that we are seeing is minor.

Okay. Thank you very much.

Regarding your question production costs, we're not talking about single field production cost, but what you can assume in Russia for production cost on gas fields that is below U.S. dollars - below US$2 per boe and we're exactly in the same range.

Great. Thank you very much.

Hi, everyone. Thanks for taking my questions.

I just wanted to follow-up on a few points please. Rainer you talked about still being very active in both the Upstream and Mid, Downstream when it comes to acquisitions.

I'd be interested if oil prices moving up to 75 type of regions yesterday, if that had any impact on the relative merits in your mind at least well in terms of Upstream versus Downstream and the opportunity there for inorganic moves? And then secondly, just in terms of the New Zealand and the Shell acquisition.

Can you just say briefly how - some of the political - overall, just during the comments, you had some [indiscernible] in the gas industry. How that impacts your thoughts on these assets, and indeed, if there's any impact there about the Great South Basin exploration potential?

Thank you.

Well, Marc, I agree with you, if the oil prices is further on the raise the winder of opportunities in Upstream M&A market is going to narrow and we have to calculate it. But if we are talking about the oil price impact in the M&A market, we are talking in the first instance the impact in the oil asset market.

So that's why I think OMV has also gas assets and gas production which might be interesting to us. So that's the reason why I think the oil price will have an impact in the M&A markets and given the fact that we have been antiseptically are very active in the M&A market Upstream and given the fact that the pipeline we do have the OMV in the Upstream business is already pretty nicely loaded.

I agree with you when the oil price will go up. The winder of opportunity in Downstream should have better projects in the pipeline.

Marc regarding New Zealand, first of all the transfer of the assets from Shell to OMV everything is going very well. We get those support from the politicians, your question is referring as I assume regarding the exploration which was announced just recently from the government that they are not going for the next tender on exploration licenses.

From our point of view regarding Great South Basin, first of all this has no impact at all, it has no impact on existing licenses neither on production licenses nor an exploration licenses. We are in a very good position in New Zealand.

We're having around 50% of all available exploration licenses in New Zealand. So even if there would be a tender of licenses right now, we would not go for it because we have sufficient licenses for the next 10 years, 15 years to explore.

So we don't see any impact on our business, not on the production as well as on the exploration activities.

Great. Thank you.

Yes, good morning. Thanks for taking my question.

Two please. Firstly, just on CapEx, I mean if I adjust Q1 CapEx for the cash outflows related to Nord Stream 2 and the prepayment on New Zealand, it may looks like the runway it was light versus the full-year guidance €1.9 billion.

Can you just talk about how much of that's related to phasing versus continued capital efficiency benefits, so gain that are ultimately driving enhanced downside against the sort of the €1.9 billion guidance for the full-year? And then secondly, you talked earlier in a presentation around that sort of the hedging losses within the Upstream result for Q1.

To what extent OMV is hedged on a forward basis through to year end and conceptually why given the strength of the cash flow and the balance sheet position eventually hedging is necessary at this point? Thanks.

I would start with one remark on CapEx. We reconfirm the €1.9 billion CapEx guidance for the year 2018, Matt.

This is also including additional CapEx, which is coming with the acquisition for example of the Abu Dhabi concessions. We said that Abu Dhabi concessions will come with a rough indication around $150 million this year.

And we are absorbing the $150 million within our budget, so that we stick to the €1.9 billion for 2018. Reinhard?

Your question regarding the hedging losses Yes, you're right there have been some hedging losses in Q1. The reason for hedging actually for us is that we are still as we are in a strategy of growth protecting our cash flows.

So this is not at all a speculative hedging policy, it is a protective hedging policy. And to your question, we are more hedged in the first half of the year 2018 than in the second half of 2018, so there is less of a tension in that respect with the rising oil prices in the second half.

Great. Very clear.

Thanks gentlemen.

Hi there. Thanks for taking my question.

I just got a couple of follow-ups if I could. So firstly, clearly smaller part of the business, but the Downstream gas was pretty strong in 1Q.

Clearly I know it was a good trading environment given cold weather, but I was just wondered whether you could maybe talk about whether some of that is to do with the changes you've made in that business in terms of its efficiency, and I guess access to customers? That was the first question.

Secondly, I just wanted to get a sense as to what your follow-up plans are in Norway following the recent exploration success there? And if you don't mind just finally, I don't know if there is any update on [Neptune] and any gas price discussions regarding that project?

Thank you.

Well, I'll take the Downstream Gas question. First of all, if we remember what we have said, what is really needed to make our Downstream Gas business profitable again, it was a clear story.

We need higher volumes to make the infrastructure busy, which we have booked some years ago. And the problem was that we had full basket of capacities we had to pay for, but we had no customers to deliver the money and to monetize the costs for the infrastructure we have booked.

Given the fact that we have seen pretty high volumes, especially in the first quarter, the costs we have for infrastructure we could pass on to customers more than the quarters before. And secondly, you are absolutely right, there would be a majority of the - profitability in Q1 was really the extremely goods trading environment with lots of volatilities, we have seen price spikes up to €30 plus per megawatt hour.

It's a dream coming true from St. Peter, if we get these price spikes in the market, and of course, the region optimization, especially that we can go for the arbitrage between the hubs.

That's one of the reasons why OMV is more Europeanizing the gas trading business, especially towards the West. We do have a strong position already in the East.

But extending our trading activities towards the West where we do see the liquid trading hubs is offering us such a trading upside potential, which would result then also in better numbers of profitability. So I'll handover to Johann.

Mike, I'll take the question regarding Norway, and I think you're addressing your question regarding [indiscernible] here is the exploration success, which we had just recently there. So what we're doing right now is we are evaluating the volumes.

We gave a range between €40 million and €240 million BOE from those prospects. This was one well, one in the lower horizon and one in the deeper horizon.

What we are doing right now is we are planning the next phase, which is the appraisal phase. So those volumes, we need to get more certainty on it and in order to confirm it, we would - we go for the next appraisal phase there.

Regarding Neptune, it's still in time. So we are planning for FID in the second half of the year and we're still planning for first gas in 2021.

Okay, thanks.

Yes, hi. Good afternoon.

Thank you for taking my question. Two quick ones please, on ADNOC and especially the ramp up of the concessions, so you said long-term plateau production will be above 40,000 BOE per day net OMV likely reached a little beyond 2020.

Could you please give us some colors on the ramp up period please? What should we expect in terms of production for this year and 2019 please?

And secondly a quick one, does OMV have the ambition to become asset leader on the SARB and Umm Lulu concession or not? Thank you.

I would like to answer both of your questions, so you are right 40,000 BOE per day, we are expecting by 2021. Second regarding the ramp up phase, what we are doing right now, we have shutting in Umm Lulu to the commissioning of oil trading facilities on Island.

So that is the reason why Lulu is not producing because Lulu was already started up the production in 2016. So end of the year in Q4, we will start the production on Umm Lulu again and SARB will come on stream where you can expect for 2019 is around 20,000 BOE per day.

Average production is 2019, and as I said 2021 40,000 BOE. Regarding asset lead, yes we applied for asset lead, but these will be decided by ADNOC and will be announced by ADNOC.

Very clear. Thank you very much.