Interview with the Chairman of the Executive Board

“Setting the course for a new OMV”

A conversation with Rainer Seele, Chairman of the Executive Board and CEO of OMV.

Mr. Seele, which three words would you use to describe 2020?

Pandemic. Success. Sustainability. And gratitude.

It’s an unusual combination.

I would be happy to explain why I chose these three concepts and added a fourth. “Pandemic” is obvious. COVID-19’s serious global impact on individuals, the economy, and society as a whole also posed completely new challenges for OMV. We were clearly not the only ones affected – no one has been spared – which is why I only mention the pandemic to define the state of affairs.

You then said, “success,” which is less expected.

Exactly. And I chose that word deliberately. Because OMV can truly be proud of our 2020. In a year that was probably the most difficult in decades for us all and the entire global economy, we demonstrated our strength in areas such as our operating activities. At the same time, we set the course for a new OMV with a sustainable business model.

Let’s start with OMV’s operating activities. The macroeconomic environment was not exactly rosy...

That’s an understatement. In reality, the first quarter started out normal, when suddenly all indicators pointed downward, except the number of infections. Worldwide demand for oil dropped by 8 percent from its 2019 level, and a lack of agreement among the OPEC+ nations about output quotas led to considerable surplus supply. The result was a sharp decline in oil prices. The Brent price fell from almost 70 dollars per barrel to a 21-year low of around 13 dollars per barrel in just three months. For the year as a whole, the average price was just under 42 dollars per barrel – a decrease of 35 percent. The average gas price at the Central European Gas Hub came in at 10 euros per megawatt hour, down 32 percent from the prior year. Developments in the Downstream business were not uniform. Whereas the refinery margin was down 45 percent from the prior year to an average of 2.4 dollars per barrel, petrochemicals performance remained relatively stable.

How did the OMV Group react to this level of crisis?

We very quickly implemented a set of measures including cost cutting and organic investments. Above all, however, we had a key advantage: OMV’s business rests on two strong pillars and can therefore continue operating confidently even with this kind of strong economic headwind. Our integrated business model with a diversified portfolio again proved valuable and was able to somewhat dampen the hefty shock of negative market effects. Naturally, the Upstream business felt a significant impact from the massive drop in oil and gas prices and was also affected by production stoppages in Libya. Despite the unfavorable circumstances, we were able to keep production costs at the previous year’s low level of 6.6 dollars per barrel. In contrast, Downstream sold larger volumes of petrochemicals and additionally generated strong retail sales thanks to higher margins, along with delivering impressive volume and income growth in natural gas trading. The gas business contributed earnings of 337 million euros, up more than 70 percent year over year. This was due to factors including increased sales volumes and market share, particularly in Germany, the Netherlands, Belgium, and Austria.

»It goes without saying that we must do everything to maximize our economic, environmental, and social sustainability.«

RAINER SEELE
Chairman of the Executive Board

And OMV’s business area of the future: chemicals?

Of course, the chemical business also felt the negative impact of the coronavirus pandemic. Nonetheless, we were able to increase overall polyolefin sales somewhat year over year. The Borealis Group therefore generated not only solid earnings, but also strong operating cash flow of 1.6 billion euros, up slightly from the prior year.

“Even during this crisis, every quarter was profitable.”

That means OMV remained flexible despite the crisis?

Yes. That was evident in our stable cash flow performance as well. The OMV Group’s cash flow from operations saw a year-over-year decline of 23 percent, but at 3.1 billion euros was still extremely robust. It is particularly gratifying that OMV was able to generate a positive clean operating result in each and every quarter. Our Clean CCS Operating Result therefore came in at a solid 1.7 billion euros for the year as a whole.

What does that mean for shareholders?

It means that OMV again demonstrated strong profitability and can reflect this in an attractive dividend. The Executive Board resolved to propose an increased dividend of 1.85 euros per share to the Supervisory Board and the Annual General Meeting.

Let’s turn from operations to strategy.

I am confident that 2020 will go down in the history of OMV not as the year we experienced a pandemic, but as the year we embarked on a fundamentally new course. By acquiring a majority interest in Borealis, we began to pursue a strategy that will result in a new OMV. An OMV that is even larger, more stable, and more sustainable. Measured in terms of our sales of recent years, this transaction has already allowed us to grow by about a third. And we will continue to grow, because an OMV with strong chemical activities with the right products and services will be well prepared to meet market demand for the lower-carbon world of the future. The high-quality plastics urgently needed for solar panels and wind turbines, power grids and digital controls, and lightweight components in the transportation sector are just a few examples of these.

Is OMV turning its back on its roots and its past?

No, definitely not. The new OMV will continue to be an integrated company that generates strong earnings along the entire value chain, in the Exploration & Production, Refining & Marketing, and Chemicals & Materials segments. We will remain true to our heritage and invest approximately 3 billion euros in Austria alone by 2025. These funds will be invested in the prudent and efficient use of domestic oil and gas reserves, in new forms of energy, in optimizing petrochemical equipment at the Schwechat refinery, and in further developing our circular economy.

The forward integration into chemicals will provide not only momentum for the Group but also additional stability. This extended value chain will enables us to weather cyclical market volatility even better than before. We will increasingly refine our raw materials instead of processing them into fuels, and we are confident that chemical products and high-quality plastics will continue to be required in 2050 and well beyond. In addition, we can leverage the strong synergy potential from the cooperation between our two companies. In this sense, expanding our value chain is the foundation for a successful business model for the long term.

“OMV has largely achieved its strategic goals for 2025.”

Is that why you also associate “success” with 2020?

Three years ago, we announced our Strategy 2025, which would increase OMV’s size and value. We largely achieved this by the end of 2020 and can therefore declare this effort a success. Of course, many things around us have changed in the span of just three years. That is why we have to rethink our parameters. In our Strategy 2025, we mostly defined size and value in terms of oil and gas reserves, production volumes, and refinery capacity. We aimed to double our proved reserves, achieve output of 600,000 barrels per day, and double our refinery capacity. Those are no longer our goals.

What are OMV’s goals then?

We will continue to pay close attention to our reserves, production volumes, and refinery capacity, and maintain our daily oil and gas output at around the current level of 450,000 to 500,000 barrels per day with an emphasis on gas. However, our key performance indicators will be framed in a new context, and their significance and weighting will change as a result of the energy transition and the extension of our value chain into more highly refined chemical products.

Speaking of change, the Borealis transaction wasn’t the only one in the OMV Group, was it?

A strategic reorganization does not mean that you have to spend wildly and buy everything. You also have to let some favorite activities go and finance acquisitions. As you mentioned, we not only acquired a majority in Borealis in 2020, we also entered into agreements to sell our investment in Gas Connect Austria to VERBUND, our filling station network in Germany, and the Upstream business in Kazakhstan.

Looking back on all that, additionally considering the performance of our operating business, and knowing the challenging environment in which all of that was achieved, you can understand why I chose the word “success.” For that, hats off to the now 25,000 employees of the new OMV.

That’s why you chose “gratitude” as your fourth concept?

Yes, it is. Team OMV is a team you can rely on. And I’m not talking about just “regular” performance, but performance in view of the extreme challenges posed by the coronavirus. Anyone who experienced how our employees immediately adapted to the new situation and got used to the completely upended work routine from one day to the next can only be impressed. Our various teams took turns working at home and in the office and made sure every day that critical infrastructure on-site was functioning to keep people warm and able to move around, that businesses were supplied with energy, and that raw materials were available for the manufacture of medical products. All of that worked seamlessly thanks to their enormous flexibility and creativity, and deep commitment. We were able to keep up the supply at all times in this difficult environment as well as also implementing all of our strategic projects. An effort deserving of high praise. And one I am grateful for.

“The Borealis deal was a decisive move.”

You mentioned sustainability. How will you make sure the new OMV is also a more sustainable OMV?

We all know that there is no button we can press to rid the world of CO₂ overnight. As an international oil and gas company, we also have a statutory duty to provide a secure energy supply. Do we have to fulfill this duty? Yes. But does that absolve us of the obligation of making our business more sustainable every day? No. It goes without saying that we must do everything to maximize our economic, environmental, and social sustainability. I think that the Borealis transaction in particular was the decisive step in this direction, since this turned OMV’s strategy directly toward meeting the needs of a lower-carbon world.

Early 2021 was just as challenging as the end of 2020. What are OMV’s expectations for this year?

I think that, at least for the first six months, we will continue to do business in a very challenging environment due to the pandemic. I believe the second half will be much more positive. At that time, the production and logistics problems affecting the COVID-19 vaccination effort should mostly be solved, and that should lead to a stronger economic recovery.

In terms of our business, we anticipate total production in Upstream, except for Libya, of around 480,000 barrels per day, and project a noticeable turnaround in average crude oil and gas prices. In Downstream, the capacity utilization of our European refineries should remain around the previous year’s level, and the refinery margin is expected to exceed the prior-year level. Our chemicals business is forecast to generate ethylene and propylene margins at the level of the previous year. Borealis should see an uptick in polyethylene volumes and stable polypropylene volumes; margins for both are expected to be up from the prior year.

We will continue our reorganization, which will entail selling our filling station business in Slovenia and Borealis’s fertilizer business, including nitrogen and melamine activities. At the same time, we have budgeted organic investments of 2.7 billion euros throughout the Group, including Borealis, for 2021 – investments in a new OMV.

Vienna, March 10, 2021

Rainer Seele m.p.