Strategic Cornerstones – OMV set to become stronger and more valuable

The OMV 2025 Strategy builds on the proven concept of integration, which ensures strong cash flows and resilience. When the strategy was announced in March 2018, the Group aimed at growing both the Upstream and the Downstream businesses. Since the strategy was introduced, OMV has transformed its portfolio as it achieved significant milestones. Upstream now has a high-quality asset base with expanded production and reserves, low production costs, and a portfolio shifted to gas. The Downstream business saw most notable transformations and step changes. In 2019, the Downstream business increased its international footprint by acquiring a 15% interest in ADNOC Refining and ADNOC Global Trading. In 2020, OMV embarked on a transformational journey, by acquiring an additional 39%-share in Borealis, a leading provider of polyolefins, base chemicals, and fertilizers. OMV holds now 75% controlling interest in Borealis. With this acquisition, OMV further extended its value chain into high-value chemicals and gained access to attractive growth markets. At the same time, this acquisition is a decisive step toward successfully positioning OMV for a low-carbon future, as the Company’s portfolio shifts towards non-energy, low-carbon emissions products, as well as an emphasis on plastics recycling and circular economy. OMV’s cash out for the acquisition of the 39% stake in Borealis, totaling EUR 3.9 bn, was supported by solid cash generation, strict cost and capital discipline, and a newly announced divestment program amounting to EUR 2 bn by end of 2021.

In the first nine months after the launch of the program, the Group successfully signed three major transactions:

• Divestment of its 51% stake in Gas Connect Austria in order to exit its regulated gas transportation business completely
• Disposal of the retail network in Germany, given its limited integration with the Burghausen refinery
• Divestiture of the Upstream assets in Kazakhstan, allowing OMV Petrom to focus on the growth opportunities in the Black Sea region

OMV will continue to implement this program, thus pursuing the divestments of the nitrogen business in Borealis and the retail and commercial operations in Slovenia.

OMV Group – 2020 strategic achievements

• Signed transformative agreement for increasing share in Borealis to 75%
• Adhered to its dividend policy: distributed dividends were at the highest, equal to prior-year level of EUR 1.75 per share
• Agile reaction to the COVID-19 pandemic: significant reduction in spending
• Successfully signed divestments with a net debt effect of more than EUR 1 bn, in line with the EUR 2 bn disposal target by the end of 2021
• Achieved its carbon footprint reduction target ahead of time and set new, ambitious goals

In a continuously changing world, the Group strategic ambition focuses on chemicals growth, maximizing value through its existing portfolio and increasing the share of low- and zero-carbon products in the portfolio. In Upstream, the current organic projects pipeline will be executed. The business will be run for generating value, optimizing the cash flow to enable transformation at Group level. In its transition towards a low-carbon portfolio, Upstream production will be maintained in a corridor of approximately 450-500 kboe/d, with overweight on gas (around 60%). In its existing refining operations, the output mix will be increasingly shifted towards higher-value petrochemicals as part of the shift towards non-energy products. In its chemicals business, OMV will leverage Borealis as a platform for growth, focusing on delivering organic growth projects as well as building a sustainable chemicals portfolio by becoming a leading player in the circular economy. To further underscore its commitment to reducing the carbon footprint, OMV is investing in developing alternative sustainable feedstocks and biofuels. This portfolio will enable OMV to increase both its clean CCS Operating Result and its operating cash flow, before net working capital effects, to at least EUR 5 bn each by 2025.

In February 2021, OMV changed its corporate structure by splitting and expanding the current area of Downstream fuels and chemical operations in two areas: Refining and Chemicals & Materials. In addition, the Upstream business segment was renamed to Exploration and Production.

OMV Group – 2025 strategic priorities

• Transition to become an integrated chemical company
• Continue to leverage the proven concept of integration along the value chain
• Maximize value of existing traditional oil and gas portfolio
• Expand portfolio of low- and zero-carbon products
• Strive for leadership in plastics recycling and circular economy
• Strengthen balance sheet and deliver attractive shareholder returns

Upstream

The Upstream business has been significantly transformed since the introduction of OMV’s strategy in 2018. The business aimed at building a portfolio of higher quality that generates more cash, on the base of a renewed and improved asset base, with double reserves and increased production, as well as through extending its track record of operational excellence.

The successful strategy execution enabled Upstream to optimize its portfolio, as OMV expanded production to the UAE and the Asia-Pacific region. At the same time, in line with its strategy, the Group divested its operations in Pakistan and marginal fields in Romania, signed the divestment of the Kazakhstan upstream assets, and oil fields in New Zealand and is advancing the divestment of oil assets in Malaysia. The portfolio shift focused on four core regions with the aim to create five core regions. The fifth core region was established by an increased footprint in Asia-Pacific, through the SapuraOMV joint venture partnership in Malaysia and theacquisition of Shell’s upstream business in New Zealand.

The portfolio was further strengthened as key development projects were brought on stream in Malaysia (Gorek, Larak and Bakong offshore gas fields) the and in Abu Dhabi, where Umm Lulu Super Complex operates in full field mode since April 2020. In reshaping its portfolio, Upstream targeted to ensure sustainable reserve replacement with low-cost barrels in order to improve the Company’s overall resilience.

OMV has therefore already achieved most of its targets. By the end of 2020, it had ensured a three-year reserve replacement rate (RRR) of 138% and low-cost production of USD 6.6/boe, well below the initial target of USD 8/boe. Thanks to the robust portfolio built over the last years, Upstream reached a production volume of 463 kboe/d in 2020. The 2020 target of 500 kboe/d was not reached due to negative external factors such as the security situation in Libya and COVID-19-related production cuts imposed by governments. Moreover, the portfolio was shifted toward gas as the bridge fuel for the transition to a low-carbon future. In 2020, 62% of hydrocarbon production was gas, outperforming the initial Group target of 50%.

DigitUP, the global Upstream digitalization program launched in 2018 to further improve and ensure OMV’s competitive position, has progressed swiftly and successfully, laying the foundation for OMV’s transformation into a top digital player. In order to leverage the value impact of its digitalization strategy, OMV Upstream kicked off a key organizational initiative called UPfront in the second half of 2020. The initiative complements Upstream’s digital transformation and aims to deliver a value-oriented organization as a key pillar for business resilience and competitiveness.

Upstream – 2020 strategic achievements

• Production costs reduced to USD 6.6/boe
• Production reached 463 kboe/d, overweight on gas (62%)
• Three-year average reserve replacement rate of 138%
• Portfolio further strengthened: key development projects fully on stream in Malaysia and Abu Dhabi, progress in non-core assets divestment such as Kazakhstan and marginal fields Romania
• Established Upstream organization transformation initiative UPfront, to complement the digitalization strategy and further improve and ensure Upstream’s competitive position

In a rapidly changing world, OMV is revising its volume targets for 2025. The initial goal of reaching a production volume of 600 kboe/d and 1P reserves of 2 bn boe by 2025 will no longer be pursued. Going forward, the Upstream portfolio will be run for generating value, optimizing the cash flow, with a strong emphasis on gas. The delivery of key projects in the portfolio, including those from past M&A projects, as well as Upstream’s digital and organizational transformation program will sustain a substantial increase of free cash flow into and beyond 2025. With the current portfolio, OMV expects to maintain a relatively stable production corridor of around 450–500 kboe/d, with around 60% gas by 2025. The exact level of production and reserves will depend on the cash generation capacity of the portfolio. Strengthening value delivery and cash generation are the main goals and criteria for managing and developing the portfolio. In this respect, the portfolio will be further optimized, focusing on its existing five regions: Central and Eastern Europe, North Sea, Russia, Middle East and Africa, and Asia-Pacific. The acquisition of Achimov 4A/5A will only be held as an option, without commitment, and will only be realized if its value will be attractive to OMV and the Group’s financial framework will allow it. OMV’s exploration and appraisal activities will focus on gas and low-cost opportunities with a total budget of around EUR 230 mn per year.

Upstream will focus on reducing the carbon intensity of its operations and aims to lower carbon intensity by more than 60% by 2025 compared to 2010. This effort will include portfolio changes, a phase out of routine gas flaring and venting, a reduction of fugitive methane emissions and completion of projects like the photovoltaic plant developed with VERBUND in Schönkirchen, Austria for the purpose of powering OMV’s own operations. The latter is the largest ground-mounted photovoltaic plant in Austria, with a total capacity of 14.85 MWp expected to come fully on stream in 2021. The first phase was completed by the end of 2020 with a capacity of 11.4 MWp. Upon its completion, the photovoltaic plant will generate around 14.25 GWh in Austria and will save a total of 10,000 t of CO₂ per year.

Upstream targets to reinforce its portfolio competitiveness and resilience against market volatility and the rapidly changing demands of the oil and gas industry. The strong focus on operational excellence and digitalization, in addition to portfolio optimization, will ensure that the unit production cost will remain below USD 7/boe beyond 2025. Upstream’s ambition is to further establish itself as one of the top digital players in the industry. Digital transformation will continue to be a key enabler for Upstream’s business resilience and competitiveness. Digital technologies like real-time data and analytics as well as agile ways of working will be leveraged to improve efficiency, reliability, and safety and enhance decision-making. To unlock the full value potential from its digital transformation program, Upstream is also implementing an agile organizational structure. A new organizational set-up will emerge in the course of 2021 as a result of the UPfront initiative. This will be reflected in Upstream’s business structure, leadership, workflows, and behaviors, with fully integrated, remote, digitally collaborative multi-disciplinary teams underpinning accelerated delivery and a value-oriented organization.

Upstream – 2025 strategic cornerstones

• Upstream portfolio will be run for generating value, optimizing the cash flow
• Maintain production corridor of approximately 450–500 kboe/d, with overweight on gas
• Manage production cost below USD 7/boe
• Drive digital transformation and agile organizational structure to reinforce resilient competitiveness
• Aim to lower carbon intensity by more than 60% by 2025 vs. 2010

Downstream – fuels and chemicals

The Downstream fuels and chemicals portfolio has undergone a major transformation since the strategy was introduced in 2018. The Company aimed to strengthen its competitive position in Europe, while exporting its successful business model to international growth markets by nearly doubling its refining capacity and expanding its chemicals position. In this respect, 2019 and 2020 represented milestone years for Downstream and chemicals. The Group established its Downstream presence outside Europe by becoming a partner in ADNOC Refining and ADNOC Global Trading. OMV holds a 15% stake in the fourth-largest refinery complex in the world, located on the doorstep of attractive growth markets in the Asia-Pacific and the Middle East regions. These international markets are served by ADNOC Global Trading, the marketing and trading arm for refined products from Ruwais, which went live in December 2020.

In 2020, OMV increased its share in Borealis from 36% to 75%. With full control of Borealis, Downstream increases its base chemicals production and extends its value chain to polyolefins and fertilizers. The business has gained a superior position: a truly international footprint with access to attractive customer segments and growth markets, as well as strong know-how, including proprietary multi-modal technology for the production of polyolefins. Innovation is at the core of Borealis, making the company a preferred partner for the manufacturing of chemical products globally. The geographical outreach of the OMV chemicals business expands considerably, as Borealis has a strong European presence and is active in the Middle East, Asia-Pacific as well as in North and South Americas. As a result of the Borealis acquisition, the OMV Group expects to realize substantial synergies totaling more than EUR 800 mn by 2025. The integration benefits will come from operational cost savings, combined purchasing, debottlenecking, increased capital efficiency, and tax benefits.

In its European operations, OMV continued to strengthen its competitive advantage. Following its target to shift to higher-value products, OMV successfully completed the construction of a new isobutene extraction plant at the Burghausen refinery in Germany in October 2020. The plant went on stream at end of 2020 and is producing up to 45,000 t of high-purity isobutene per year. The Group will also expand the naphtha cracker at the Burghausen refinery by around 50,000 t by 2022. Additionally, OMV decided to invest EUR 200 mn in the co-processing of 160,000 t of biofuels at the Schwechat refinery, and the production start is planned for 2023. In its Retail business, despite the COVID-19 crisis, the profitability per filling station improved to more than EUR 230,000 in 2020, significantly over-achieving the previously set target of EUR 180,000.

Downstream fuels and chemicals – 2020 strategic achievements

• Closed transformative transaction increasing share in Borealis to 75%
• Completed the new isobutene extraction plant at the Burghausen refinery in Germany
• Achieved refinery utilization rate of 86%, despite COVID-19 crisis
• Signed the divestment of the German manned retail network
• Delivered record Retail results in the COVID-19 year
• Went live with the ADNOC Global Trading organization

With this significantly transformed portfolio, OMV has a new key business – chemicals. OMV is set to become the largest producer of olefins in Europe and one of the largest polyolefin producers worldwide, ranking second in Europe and eighth globally. OMV will continue to build on this position, with Borealis as a platform for growth.The Group will therefore focus on bringing on stream its current organic growth projects. In Kallo, Belgium, the new propane dehydrogenation plant is anticipated to be in operation in 2023. Through Baystar JV (Borealis 50%, Total 50%) the new ethane steam cracker unit in Bayport, Texas is expected to start operations in 2021. The corresponding Borstar polyethylene unit is foreseen to start production in 2022. In the UAE, Borouge is currently building a fifth polypropylene unit to start up in 2021. Additional organic growth opportunities are progressing as well, such as Borouge 4, which is currently in the FEED phase.

Through the strategic extension of its value chain into high-value chemicals and plastics recycling, OMV is positioning for a low-carbon future. The Group is further integrating the Refining and Chemical’s value chains. In order to ensure a sustainable chemical footprint, OMV together with Borealis aims to be a leader in the plastics recycling and circular economy. Going forward, more products will be designed for recyclability. By 2025, the Group will invest up to EUR 1 bn in the chemical and mechanical recycling of post-consumer plastic waste and sustainable fuels.

In the European Refining business, OMV will continue to be an industry leader, focusing on cost and operational efficiency. The three refining sites in Schwechat, Burghausen, and Petrobrazi will continue to be operated as one integrated refinery system, optimizing asset utilization and maximizing margins through the exchange of intermediate products. OMV will modify its European refining assets to reflect expected demand changes and will shift to higher-value products. OMV is actively working on energy transition projects in the areas of conventional and advanced biofuels, synthetic fuels, hydrogen and energy efficiency. OMV is underway to further transform its Downstream oil business in the face of a low-carbon future, focusing on chemicals, alternative feedstocks, technologies, and fuels. Consequently, OMV no longer aims to further increase its refining capacity.

Downstream fuels and chemicals – 2025 strategic cornerstones

• Leverage Borealis as platform for growth: deliver organic growth portfolio
• Realize integration synergies with Borealis in the amount of more than EUR 800 mn
• Strive for leadership in plastics recycling and circular economy
• Optimize asset utilization and maximize margin generation across the integrated value chain
• Reduce operational carbon footprint
• Shape portfolio to focus on low- and zero-carbon products

Downstream gas

Since March 2018, the Downstream gas business made impressive progress in implementing its growth strategy, building a strong market presence from Northwest to Southeast Europe. Reliable equity gas production, sustainable supply partnerships and a structured and customer-centric market approach contributed to the competitive advantage.

Record-high OMV Group natural gas sales in 2020 will continue to grow until 2025 and beyond. OMV is well on track to reach its target to grow the sales portfolio to more than 250 TWh by 2025, achieving a 10% market share in Germany, one of the largest European markets. OMV will continue to maintain its market leadership in Austria and Romania as well as expand the market position in the Netherlands and Belgium. In 2020, the Central European Gas Hub in Austria reached a new all-time high nominated gas volume of more than 800 TWh. OMV’s gas storage business again benefited in 2020 from high customer demand and a favorable market price development, reaching an all-time high storage result. The utilization of the Gate LNG regasification terminal improved substantially. Moreover, Downstream gas delivered its first cargo of LNG to China.

In September 2020, OMV signed an agreement to divest its entire 51% stake in Gas Connect Austria to VERBUND in order to exit the regulated gas transportation business in line with its strategy.

Downstream gas – 2020 strategic achievements

• Increased OMV natural gas sales by 20% year-on-year to 164 TWh
• Record Downstream gas results
• Reached 7% market share in Germany at the end of 2020, increased market share in the Netherlands to more than 4% and Belgium to almost 2%
• Record volume of more than 800 TWh traded at CEGH
• Divestment of 51% stake in Gas Connect Austria to VERBUND

In the longer term, European natural gas demand is expected to remain resilient while indigenous natural gas production in Europe will decline significantly. Larger volumes of natural gas will have to be imported. Therefore, OMV will continue to strengthen its equity gas volumes from Austria, Norway, and Romania as well as long-term supply contracts from Russia in the portfolio.

The contracts with Gazprom at the Western European delivery points are further complemented by LNG agreements.

Downstream gas – 2025 strategic cornerstones

• Become leading integrated supplier with strong market presence from Northwest to Southeast Europe
• Grow the value of gas in OMV portfolio and achieve sales levels of at least 250 TWh
• Achieve 10% market share in Germany
• Solidify market leadership in Austria and Romania