Wednesday, February 27, 2008

OMV disappoints as charges burden EBIT

By Paul Bolding

VIENNA, Feb 26 (Reuters) - Austrian oil and gas group OMV (OMVV.VI: Quote, Profile, Research) reported higher operating earnings in the fourth quarter but the shares slipped as analysts focused on unexpected charges.

Group earnings before interest and tax (EBIT) were 492 million euros ($729.1 million) in the quarter to December, up 25 percent, but well under the 665 million euros average expected by analysts.

The number included special charges for personnel costs, unscheduled depreciation, impairments and provisions for litigation in Romania, the company said on Tuesday. OMV bought 51 percent of Romania's Petrom in 2004 but some Romanian politicians want the sale cancelled.

EBIT rose to 688 million euros after stripping out the one-off items. Analysts on average had forecast a 14 percent rise to 642 million euros. Petrom's clean EBIT contributed 237 million euros.

The shares were down 1.5 percent at 48.34 euros at 1221 GMT while the DJ Stoxx European oil and gas index was up 0.2 percent.

For 2008, OMV expected another set of robust earnings and higher production volumes in Romania.

"We expect the main market drivers (crude price, refining margins and the USD/EUR exchange rate) to remain highly volatile throughout 2008," said OMV.

Analysts at Sal Oppenheim said the result was slightly below expectations but reiterated their "buy" rating. Exploration and production was in line with forecasts, they said. "Here, OMV benefited from high oil prices and is constantly improving its efficiency."

Merrill Lynch analysts also said the result disappointed but they were positive on the shares on medium-term fundamentals and valuation.

"New investment in the highly profitable E&P (exploration and production) business in Petrom will start to bear fruit in terms of volumes and costs, while the downstream Petrom business looks to be on a positive trend towards stemming systemic losses," they said.

SHARES SLIP

OMV shares have fallen more than 11 percent since the start of the year, in line with the decline in Austria's blue-chip index ATX .

However, they have underperformed the DJ Stoxx European oil and gas index by about 6 percent.

The oil and gas firm saw refining margins in 2008 slightly below last year's level and the U.S. dollar and euro exchange rates remaining at year-end 2007 levels.

The group's oil and gas production was 2 percent below the fourth quarter of 2006 at 323,000 barrels of oil equivalent per day (boed), mainly due to lower volumes in Romania and the UK. These were not fully compensated by higher volumes in New Zealand, Yemen and Austria, OMV said.

Chief executive Wolfgang Ruttenstorfer said in the results statement the company would pursue its plan to take over Hungarian peer MOL MOLB.BU.

MOL and OMV have been in a stand-off since the summer of 2007, when OMV first indicated its takeover plans. The Austrian company holds 20.2 percent of MOL and has proposed a bid valuing its target at $20 billion.

MOL has repeatedly rejected the approach and has spent almost $2.8 billion on share buybacks trying to frustrate it.

OMV also said it would propose resolutions at the MOL annual shareholders' meeting in April that would end an arrangement of "quasi-treasury shares" in MOL held by BNP Paribas (BNPP.PA: Quote, Profile, Research), OTP Bank OTPB.BU, Czech energy company CEZ (CEZPsp.PR: Quote, Profile, Research) and others.

OMV's bid is subject to MOL removing a 10 percent voting rights cap and on cancellation or neutralisation of a 40 percent stake in MOL controlled by its board and friendly institutions.

OMV said its reserve replacement rate -- the extent to which production is matched by new finds -- was 46 percent in 2007, following 406 percent in 2006 after the inclusion of Petrom. (Additional reporting by Karin Strohecker; Editing by Erica Billingham)

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