Wall Street Journal: Austrian oil-and-gas company OMV AG is trying to grow in Central Europe’s fragmented energy market and stay competitive with European energy giants, but moves by the U.S. and other governments could complicate the company’s expansion plans. The Wall Street Journal
By SPENCER SWARTZ
September 11, 2007; Page A12
VIENNA — Austrian oil-and-gas company OMV AG is trying to grow in Central Europe’s fragmented energy market and stay competitive with European energy giants, but moves by the U.S. and other governments could complicate the company’s expansion plans.
Though a fraction of the size of companies such as Exxon Mobil Corp., OMV, after several acquisitions in recent years, is now the biggest oil-and-gas player in Central and Eastern Europe, with sales of 19 billion ($26.16 billion) last year.
Since 2002, when former Austrian Finance Minister Wolfgang Ruttenstorfer took over as OMV’s chief executive, net profit has jumped more than fourfold to $1.7 billion last year and OMV’s stock has risen almost sixfold. OMV fell 17 European cents yesterday to 45.16 ($62.18) in Vienna.
But this strong performance could come under pressure if ventures backfire in places such as Iran and takeovers of companies such as MOL Nyrt of Hungary occur too slowly or not at all.
OMV is facing potential sanctions from the U.S. because of its investments in Iran. The company, which is drilling for oil and gas in Iran, irked the U.S. further by signing a gas deal in April valued by Iranian state media at $18 billion over several years. OMV and Iran are finalizing details of the agreement, under which OMV is expected to help develop part of Iran’s giant South Pars gas field and help build a gas-export terminal. The company is also expected to buy gas from Iran.
“We’ve made our opinion known to OMV about its Iranian investments and we continue to monitor the situation,” a U.S. official in Washington said last week.
Sanctions related to OMV’s Iranian investments could include a ban on OMV borrowing from U.S. financial institutions, or placing its shares on a blacklist of companies investing in the Islamic republic. About 15 states, including California and New York, have passed laws or are considering statutes to prevent state pension funds from investing in firms such as OMV with big investments in Iran. U.S. investors own about 9% of OMV’s shares.
Mr. Ruttenstorfer said he is concerned about this prospect. “It’s a very serious situation for us and our shareholders, but we’re a European company, and we are following all the laws and regulations required of us,” Mr. Ruttenstorfer said in an interview last week.
OMV also is involved in a political battle with the Hungarian government over efforts to take over MOL, the country’s biggest oil-and-gas company. In June, OMV doubled its ownership in MOL to nearly 19% as a first step toward a takeover.
MOL, with revenue of 11.5 billion last year, has responded recently by buying its own stock and doing deals with firms such as Czech power company CEZ AS.
Mr. Ruttenstorfer said OMV may purchase more MOL stock in the short term to give it a strong minority stake in the Hungarian firm. Such a stake would give OMV access to new markets, make it easier to buy more companies in the future and help OMV reach important oil-production goals.
Owning MOL would boost OMV’s oil and gas output by 33% to 431,000 barrels a day of oil equivalent, based on OMV’s current production of 324,000 barrels a day. “We are trying to convince first management, [and”> if they don’t support it, it’s shareholders” because they, not MOL management, own the majority of the company, Mr. Ruttenstorfer said.
He said there is no need yet for a backup plan should OMV’s effort to acquire MOL fail, despite criticism from some analysts that the lack of a “plan B” is weighing on OMV’s stock and growth prospects.
Alfred Reisenberger, a Vienna-based analyst at UniCredit Global Equity Research, said he won’t upgrade his “hold” rating on OMV’s stock — even though it trades at around a 20% discount to a number of its peers. “Having MOL will help OMV grow stronger than it already is, but the buyout effort could fail, and that may cost OMV some credibility and money,” said Mr. Reisenberger, who doesn’t own OMV or MOL stock.
Philipp Chladek of Austria’s Raiffeisen Centrobank likes OMV’s outlook because energy demand is expected to continue growing in OMV’s core Central and Eastern Europe market and high oil prices are seen persisting. Mr. Chladek, who owns OMV stock and gives the shares a “buy” rating, also said new oil discoveries by OMV in places including Yemen have brightened its production profile.