OMV profit hit by Petrom worries

VIENNA (Reuters) – Austrian oil group OMV posted an 11 percent rise in second-quarter net earnings on Thursday, but its shares fell due to continuing losses from refining at key Romanian unit Petrom. OMV, Austria’s top company by sales and a leading central European oil refiner and hydrocarbon producer, said it expected higher earnings this year due to strong crude prices, a slight improvement on an earlier target of matching last year’s profit. But its stock came under pressure after Petrom racked up refining losses because inefficient operations outweighed the benefits of historically strong refining margins. «The high oil price environment badly impacts on the profitability of Petrom refineries due to their high energy consumption,» OMV said in a statement. Investors had been hoping for a turnaround at Petrom, which OMV bought in 2004, and analysts said the results indicated this might not be as smooth as some had predicted. The Austrian firm said it expected a significant decrease in refining margins in the second half compared with their high levels last year, when they were boosted after US hurricanes forced refinery closures. «Romania was the disappointment, and operating earnings are a little below forecast,» said Walter Harecker, a fund manager at Constantia Privatbank. «And the fact that refinery margins will fall this year is also weighing on the shares,» he said. Second-quarter net profit before special items rose to 413 million euros ($528 million), broadly in line with the 407 million average of eight forecasts in a Reuters poll. Operating profit, or clean earnings before interest and tax (EBIT), rose 13 percent to 662 million euros, less than the 684-million average estimate as a 46 percent fall in refining and marketing profit took its toll. Chief Executive Wolfgang Ruttenstorfer said in a presentation that the company expected crude production to fall 5 percent this year and was evaluating a write-down for a Venezuelan unit. The company said an independent evaluation of the group’s oil and gas reserves had confirmed proved reserves figures of 991 million barrels of oil equivalent (boe) for Petrom and 374 million boe for OMV, excluding Petrom. Merrill Lynch said in a note that the company’s forecast of increased profit this year was not a surprise and that the results excluding Petrom were in line with expectations. Double-edged sword Analysts say that each $1 per barrel rise in the price of crude oil lifts OMV’s annual net income by 1.5 percent. The average price of Brent Crude futures rose nearly $18 per barrel in the quarter over a year earlier to $70.43, according to Reuters data. Earnings from exploration and production rose by 50 percent, thanks to the high oil prices, although total oil and gas production fell 5 percent to 322,000 boe per day due to a natural decline at its Romanian fields, changes in Venezuelan contracts forced by the government and an asset sale in Qatar. Petrom posted an operating loss of 44 million euros from refining and marketing, compared with a profit of 19 million a year earlier. «The biggest problem is Petrom,» OMV’s head of refining and marketing, Gerhard Roiss, told a news conference. «The solution to this problem can only be investments.» OMV’s shares have fallen 7 percent this year, hit by an aborted attempt to buy Austria’s biggest utility Verbund. «With the Verbund merger failure still fresh in investors’ minds, it is hard to see catalysts here for a resumption of OMV’s darling status within the European oil group,» Citigroup said in a note. OMV trades at nine times next year’s estimated earnings, according to Reuters Estimates, making its shares cheaper than rival oil and gas producers.

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