NABUCCO PROJECT APPEARS TO BE VERY URGENT 

 

Caspian Energy (CE): What geopolitical problems does the Nabucco project's implementation face? What economic problems have not been settled by the members of the consortium yet?

Wolfgang Ruttenstorfer, Chief Executive Director, OMV: The Nabucco Project is a pioneer project and would add another important supply route to meet the growing European demand for natural gas. The initial findings of the feasibility study showed a huge potential and indicated that an investment of around €4.6 billion would be necessary for the construction of the pipeline. OMV is in ongoing negotiations with financial institutions in this regard.

 

CE: What about the works on elaboration of the financial model of the project, attraction of investors, coordination of marketing and negotiating with potential companies-exporters to conclude contracts?    

Wolfgang Ruttenstorfer: The Nabucco Project is well on track. OMV is in ongoing negotiations and results are expected by the end of the year.

 

CE: The Austrian officials speak about the necessity to balance risks related to the Nabucco project's implementation. What risks do they imply?

Wolfgang Ruttenstorfer: Austrian officials have stated that the Nabucco Project is an important element for strengthening the European security of gas supply through diversifying supply routes. European gas demand is expected to increase considerably in the upcoming two decades. However, diversifying the routes will strengthen the security of supply.

 

CE: Is Caspian gas capable to compete with Russian supplies in the European market?

Wolfgang Ruttenstorfer: The demand is there and the supply is there, we just have to fill the gap between the two.

 

CE: How would you evaluate the position of Hungary, the partner to the Nabucco project, which views the possible joining the Gazprom's project on construction of the South European Gas Pipeline? Does such activity of the members within the Consortium jeopardize the Nabucco project's implementation?

Wolfgang Ruttenstorfer: MOL is a reliable partner in the Nabucco consortium and has expressed its will to further contribute to the Nabucco project.

 

CE: As is known, by July 2007 EU States will have to open their markets to all energy companies. By 2008 the European gas market is going to become free. Do you agree with this decision? What results will this decision bring to the European energy market?

Wolfgang Ruttenstorfer: Austria plays a crucial role in gas market liberalization. The Austrian gas market has been liberalized since 2002 and is the most liberalized gas market in continental Europe. I believe that consumers are benefiting from this. We see the liberalisation in other countries as a chance for OMV to expand further.

 

CE: What assets does the Company have abroad? Which projects does OMV participate in? What markets are viewed as primary ones for the Company in future? Is OMV interested in the Caspian region, in particular, in Azerbaijan, Kazakhstan, and Iran?

Wolfgang Ruttenstorfer: As the leading oil & gas company in Central Europe, OMV is active in 13 Central European countries as well as in Turkey. In 2006 OMV's net profit grew by 11% to €1.66 billion vs. €1.5 billion in previous years. In 2006 the company's sales increased by 22% and made €18.97 billion compared to €15.58 billion in January-December 2005. In 2006 the operational benefits of the company amounted to €2.06 billion, which is 5% higher vs. €1.96 billion in 2005. The company's successful financial outcomes in 2006 are explained mainly due to integrated gas assets of Petrom (Romania). In 2006 we consequently continued our profitable growth path. The good results highlight the positive dynamic of our development as an integrated oil and gas group. OMV has strengthened its position for further growth in all its business divisions. Achieving the leading position in the Turkish retail and commercial business was an important strategic step. The gas division will be further internationalized and expanded as a third pillar of our Group. For our customers this leads to an increased security of supply of this important commodity. At Petrom, modernization is going according to the plan. Petrom's good contribution to the results reflects its important role in regard to OMV's 2010 growth strategy:

We aim to be the company that is the most successful at taking advantage of the possibilities offered by the Central and South-Eastern European growth belt and the neighboring regions.  

From January to December 2006, total investments of €2.5 billion were substantially higher than those of the previous year (2005: €1.4 billion). €732 million of these investments were directed into E&P, mostly for field developments in New Zealand, Austria, Romania and Kazakhstan. €1.6 billion were invested into R&M. The acquisition of 34% of Petrol Ofisi, the purchase of 70 Aral filling stations in the Czech Republic and investments in petrochemicals in Burghausen were the most important positions. In the gas segment approximately €36 million were invested, mostly into the expansion of the West Austrian pipeline (West-Austria-Gasleitung - WAG).

In Exploration and Production OMV owns a balanced international E&P portfolio in 19 countries organized around six core regions, namely the Danube and Adriatic region, Northern Africa, North-West Europe, the Middle East, Australia/New Zealand and Russia/Caspian. 

The acquisition of 70 ARAL filling stations from BP in the Czech Republic, established OMV as the clear number one in the Czech filling station market. The acquisition of a 34% stake of Petrol Ofisi, the leading filling station company in Turkey, marked an important strategic step in the Group's expansion. OMV controls Petrol Ofisi with the second core shareholder, Dogan Holding. OMV is now the leading oil and gas group in the growth markets between the Black Forest in Germany and the Eastern border of Turkey. In the coming years, OMV will also accelerate its growth in Bavaria. By 2010 OMV will invest approximately €1.1 billion, in order to expand its leading position as provider of petroleum products and petrochemicals in the region. This is connected to the construction of the approximately 360 km long Southern ethylene pipeline (Ethylen-Pipeline Süd - EPS) from Münchsmünster to Ludwigshafen, which is due to be completed in the third quarter 2008. This provides a strategically important connection between the South East Bavarian chemical triangle and the significant North West European ethylene network at Ludwigshafen.

One of the most important international projects the Company implemented last year was the increase in the volumes of total gas supplies from Sawan gas field (Pakistan) from 56,700 bbl/day (340 million standard feet3 a day) to 66,700 bbl/day (400 million standard feet3 a day). It was achieved due to the plan adjustment and additionally drilled wells as well. To date the total investing in the fields reached approximately $350 million. In December 2006 we started up a plant in Pakistan, which capacity at the moment has reached 400 million standard feet3 a day or 66,700 bbl/day. As a result the total production volume at Sawan and Miano fields operated by OMV grew from 18,400 bbl/day (110 million standard feet3 a day) to current 20,000 bbl/day (120 million standard feet3 a day). OMV is the largest international gas operator in Pakistan that meets 16% of country's gas needs. In the near future we are going to make additional investments in Sawan to ramp up the field's output.

Our company is widely presented and quite successfully operates in the Caspian region. The growing perspective market of Kazakhstan also seems attractive to us. As a result of acquisition of 51% in Romania's Petrom OMV has owned six exploration and production licenses in Kazakhstan. Three fields - Tasbulat, Turkmenoi and Aktas are already in the list of producers. All three are to the west of the country by the Caspian Sea. These fields, which currently have a combined output of just above 3,000 boe/d, are operated by Tasbulat Oil Corporation LLP, a wholly owned Petrom subsidiary. Exploration and development work is also proceeding on three other blocks. Petrom units are the operators at Komsomolskoye (also in the west) and Sinelnikov, where seismic surveys and development activities are ongoing. In 1998 Petrom also obtained an exploration license for the Jusaly block where the daily output of gas is 200,000 m3 of gas and of gas condensate is 70 m3. In line with the OMV-Petrom's new strategy drawn up after Petrom's acquisition, investing in exploration & drilling works grew up to €300 million per annum. By 2008 we expect production in Kazakhstan to reach 18,000 boe.

OMV views Russia as a new, sixth important region. The company is focusing on oil and gas rich southern and central regions of West Siberia. Stable legal conditions and investment security will be key criterion for project selection. Through acquisition of eight exploration and one production licenses the group has entered the country with rich oil & gas resources. In the medium-term perspective OMV plans to produce 30,000 barrels a day in Russia.

OMV's activities in Iran began with the signing of an exploration contract for the Mehr block with the National Iranian Oil Company in May 2001. This has given OMV a foothold in one of the world's most prolific oil and gas provinces. The Mehr block is onshore in southwestern Iran, in the mountainous Zagros, where some of the world's largest oil fields are located.

Under the terms of the four-year contract, over 1,000 kilometers of 2D seismic were acquired by January 2003 and the geological and geophysical analysis was finalized by year-end 2003. The first exploration well, Band-E-Karkheh-2, spud in 2004, resulted in an oil detection which was announced in January 2005. The East Mushtag-1 exploration well was drilled in 2005.

In addition to all above-stated projects the Company assigns high priority to development of alternative energy sources.

In June 2006 the OMV Future Energy Fund was established, aiming to identify projects in the field of renewable energy within the OMV Group, provide assistance with their implementation and financially support them with funds of over EUR 100 million.

 With this fund, OMV intends to commence its transition from a pure oil and gas group into an energy group whose portfolio includes renewable energies. Funding for the first six projects in the areas of renewable energy and the reduction of greenhouse gases was granted in December 2006.

 

CE: How much gas does Austria consume now? How does the country meet internal gas needs? How much gas does Austria produce? What is the excepted growth of gas production in the country?    

Wolfgang Ruttenstorfer: In 2005 Austrian gas consumption amounted to roughly 9 billion m3 per annum. Approximately 59% of this orignates from Russia, 12.5% from Germany, 9% from Norway and 19.5% comes from Austrian gas production. Austria's total gas production amounts to 1.7 billion m3. OMV covers roughly 15% of home requirements with Austrian gas production of 1.2 billion m3 per year. OMV expects an increase of gas production to 2 billion m3 by 2010.

OMV Gas GmbH operates the following gas transmission systems of Austria and Central Europe:

 

 

CE: Mr. Ruttenstorfer, do you consider the prices of Russian gas set in the market to be realistic? How would you evaluate the cooperation between your company and Gazprom?

Wolfgang Ruttenstorfer: In 1968 OMV became the first Western European company to conclude a gas agreement with the former Soviet Union. To the present day, gas imports are based on long-term supply contracts between OMV and Gazprom. OMV has had an excellent partnership with Gazprom for more than 35 years and Gazprom has proven to be a reliable partner. Since the very start of supplies, Russia totally supplied Austria with nearly 150 billion m3 of natural gas. Under the terms of newly concluded contracts, Gazprom will supply Austria with approximately 7 billion m3 of gas per annum up to 2027 (the previous gas contracts will expire in late 2012).

The partnership will be continued in the future. Nevertheless, as Europe's gas demand is rapidly increasing, so we are looking for additional supplies and we believe they will come from the Caspian region. New supply sources will be found within the framework of this project. Due to enhanced gas needs of Europe, the Nabucco project has turned to be very urgent. No doubt, in future Azerbaijan both as a partner within the project and a transit country will play a very important role in transportation of Caspian oil and gas to Europe through Nabucco.

 

CE: What outcomes does the Company expect to enjoy from the development of the Strassof deposit to be launched in early 2007?

Wolfgang Ruttenstorfer: The main pillar of OMV's E&P strategy in Austria is to increase its domestic production by about 25% to 50,000 boe/d by 2010. Once developed, Strasshof will contribute to the increase in volume.

Within the recent 20 years the potential resources of this largest gas field located in the basin of Vienna are evaluated as mush as 4 billion m3 or 25 million boe. Gas reserves are discovered in the depth of 3.2 thousand metres and 4.3 thousand metres. The Company has already carried out additional geological and technical surveys. The company plans to launch production within the next few years. According to the company's estimates, the production volumes will comprise 500,000 m3 a day.

I would like to note the Exploration and Production segment will continue to expand its activities in the core regions. The oil and gas deposits recently discovered will be evaluated and further steps toward production will be made. The investment focus in 2007 is on the development of the gas field Strasshof in Austria, the discoveries in southern Sahara in Libya, the Maari oil field in New Zealand, the oil field Komsomolskoe in Kazakhstan and the concluding work in the gas field Pohokura in New Zealand as well as the Yemeni oil field S2. Major investments will be made into modernising Romanian production facilities. The aim is to increase the wells' and facilities' efficiency, leading to an increased production and a reduction of production costs.

OMV is set to meet the challenges of a growing gas market and intends to make full use of the rising gas demand in Central and Eastern Europe. OMV will therefore build upon an international gas business and expand its gas marketing volumes to 20 billion m3 per year. OMV will also realize opportunities to further diversify its gas supply. OMV will focus on the realization of the Nabucco project to deliver gas to its Baumgarten hub and further to Western Europe. Moreover, OMV will develop LNG projects in order to market gas in the Adriatic sales regions. OMV intends to undertake a feasibility study for an LNG Terminal in the Adriatic region involving one or more international experienced partners.

 

Thank you for the interview