OMV Aktiengesellschaft (OMV) Earnings Call Transcript & Summary

Hello, and welcome to the OMV Group's conference call. [Operator Instructions] You should have received the presentation by e-mail. However, if you do not have a copy of the presentation, the slides and the speech can be downloaded at www.omv.com. Simultaneously to this conference call, a live audio webcast is available on OMV's website. At this time, I would like to refer you to the disclaimer, which includes our position on forward-looking statements. These forward-looking statements are based on beliefs, estimates and assumptions currently held by and information currently available to OMV. By their nature, forward-looking statements are subject to risks and uncertainties that will or may occur in the future and are outside the control of OMV. Therefore, recipients are cautioned not to place undue reliance on these forward-looking statements. OMV disclaims any obligation and does not intend to update these forward-looking statements to reflect actual results, revised assumptions and expectations and future developments and events. This presentation does not contain any recommendation or invitation to buy or sell securities in OMV. I would now like to hand the conference over to Mr. Florian Greger, Head of Investor Relations. Please go ahead, Mr. Greger.

Good morning, ladies and gentlemen. Welcome to OMV's earnings call for the fourth quarter 2021. With me on the call are Alfred Stern, OMV's CEO; and Reinhard Florey, our CFO. Alfred Stern will walk you through the highlights of the quarter and will discuss OMV's financial performance. Following his presentation, the 2 gentlemen are available to answer your question. And with that, I'll hand it over to Alfred.

Thank you very much, Florian. Ladies and gentlemen, good morning, and thank you for joining us. I'm very happy today to report our best quarterly and yearly performance in the company's history driven by a very strong market environment, excellent operational performance and underpinned by our expansion into the chemicals business. But before I go into details of our quarterly earnings, I would like to invite you to our Capital Markets Day on March 16, where we will present our strategy 2030. Let me start with a brief review of the market environment. The fourth quarter of 2021 was the sixth consecutive quarter of sequential Brent price improvement. Prices exceeded $85 per barrel, the highest level since the fourth quarter of 2018. This upward momentum was driven by demand recovery and strong OPEC+ quota compliance. European gas prices continued their rise to reach record levels on the day-ahead market driven by low European storage levels in a physically tight market. The continent went into the winter period with low levels of gas storage. For example, Austrian storages were at just 53% at the start of the quarter and decreased to 35% at the end of December. Supply remained limited as higher LNG imports were not able to compensate for low Russian flows into Europe. At $6.3 per barrel, the European refining indicator was one of the strongest in many years, up by more than 40% compared to the previous quarter. The increase was due to higher naphtha, diesel and jet cracks, partially offset by rising energy costs. European demand for olefins and polyolefins remained above expectations, especially in the packaging, hygiene and medical sectors. The typical seasonal pattern of lower demand at year-end was not seen in 2021. Several unplanned cracker outages and logistical constraints restricted supply, keeping the market on the tighter side. As a result, prices for both ethylene and propylene increased further and margins improved slightly versus the third quarter. Prices for polyolefins rose as well, but margins decreased as feedstock costs increased faster. Constraints on deep-sea imports due to the ongoing logistics crisis, maintained the market in a tighter position than in the comparable period last year. At EUR 2 billion, our clean CCS operating results reached a new all-time high in the fourth quarter 2021. The result increased further by around EUR 200 million compared with the very strong previous quarter and was roughly 3x higher than in the fourth quarter of 2020. Thanks to a very strong underlying cash flow and a special dividend from Borouge, we were able to deliver an outstanding quarterly cash flow from operating activities, excluding net working capital of EUR 3.5 billion. Ladies and gentlemen, we continue to reward our shareholders through our progressive dividend policy. We will propose to the Annual General Meeting a dividend of EUR 2.30 per share for the financial year 2021. This is an increase of 24% versus the previous year and marks a new record in OMV's history. Looking at operations in the fourth quarter, our E&P production was 4% higher than in the fourth quarter of last year. The utilization rate of our European assets was very strong. Our refineries in Europe ran at 95% and the steam cracker utilization rate improved to 92%. Polyolefin sales volumes were slightly lower. We also made further progress with our divestment program. We closed the sale of our 25% share in the Wisting oil field in Norway to Lundin. We are proud to have been recognized once again, as a sustainability leader by S&P Global and were included in the Dow Jones Sustainability Index World for the fourth time in a row. We are one of the top 10 energy companies globally and one of Europe's 5 sustainability leaders in the energy industry. And we are still the only Austrian company listed in this prestigious index. In the fourth quarter, we took FID to build a chemical recycling demo plant based on our proprietary ReOil technology. The plant will turn plastic waste that is not fit to be mechanically recycled and would otherwise be sent to waste incineration into a valuable resource. The feedstock will be sourced in Austria in close cooperation with local waste management companies and will consist mainly of polyolefins. Examples of such plastic waste include food packaging, plastic cups, lids from takeaway coffee and confectionery packaging. Through the chemical recycling of plastics, OMV obtains a pure raw material, which can again be used to produce virgin-quality base chemicals and plastics for all types of applications, including packaging for the food industry and medical products, which must meet the highest quality and safety standards. Production start-up is planned for early 2023. This is a step closer towards our ambition of an industrial-scale plant planned to begin operations in 2026. Together with ADNOC, we also took FID to build the fourth Borouge facility at the polyolefin manufacturing complex in Ruwais. Borouge is the key vehicle that enables us to serve the growing customer needs across the Middle East and Asian markets with future-oriented and differentiated solutions based on Borealis' proprietary Borstar technology. The facility will consist of an ethane cracker, producing 1.5 million tons of ethylene and 2 Borstar polyethylene plants producing 1.4 million tons of polyethylene per year. This expansion will see Borouge become the largest single-site polyolefin complex in the world. Last, but not least, we received a binding offer from EuroChem for the acquisition of Borealis' NITRO business. The offer values the business on an enterprise value basis at EUR 455 million. The transaction is subject to certain closing conditions and regulatory approvals, and we expect closing in the second half of 2022. Let's now turn to our financial performance in the fourth quarter of 2021. Our clean CCS operating result rose sharply to EUR 2 billion, an increase of almost EUR 1.5 billion compared with the fourth quarter of 2020. All 3 segments contributed to this positive development. We saw a sharp increase in the Exploration & Production result, an improvement in Refining & Marketing and a strong contribution from the Chemicals & Materials business. The clean CCS tax rate increased to 36%, which was 4 percentage points higher than in the same quarter last year. This was due to a significantly larger contribution from Exploration & Production, especially from high tax regime countries. Clean CCS net income attributable to stockholders surged almost fivefold to EUR 1 billion. Clean CCS earnings per share amounted to EUR 3.11. Let me now discuss the performance of our business segments. The clean operating result of Exploration & Production rose considerably to EUR 1.2 billion, from EUR 184 million in the fourth quarter of 2020. The driving factors were significantly higher realized oil and gas prices as well as higher production and sales volumes. This was partially offset by the negative impact of hedging of around EUR 260 million and by the write-off of exploration assets of around EUR 70 million. Compared with the fourth quarter of 2020, OMV's realized oil price increased by 85%, thus slightly more than Brent. Our overall realized gas price almost tripled compared with the prior year quarter. Roughly 20% of our gas production is linked to European spot pricing. While half of that volume, about 10% of our total gas production, benefited from the surge in prices, the other 10% was hedged at EUR 27 per megawatt hour. The remaining 80% of our gas portfolio is linked to domestic markets, where we have also seen increases, especially in Romania, where the realized gas price more than doubled. The BAFA benchmark, the basis for pricing of half of our production volumes in Russia, trended upwards as well, averaging EUR 32 per megawatt hour in the fourth quarter. Our production volume rose by 19 to 491,000 barrels of oil equivalent per day, primarily due to increased contributions from Libya and the UAE. In addition, production in Russia climbed again to above 100,000 barrels per day due to the booster compressor installed during annual maintenance activities in the previous quarter. The increase was partially offset by a natural decline in Romania as well as divestments in Malaysia and Kazakhstan. Total sales volumes improved by 12,000 BOE per day due to higher production volumes. The Clean CCS operating result in Refining & Marketing more than doubled year-on-year to EUR 351 million due to stronger refining margins, outstanding gas business performance, a positive contribution from ADNOC Refining and Trading and higher fuel sales volumes. Refining margin hedges contributed positively to the result but to a much lesser extent than in the prior year quarter. Despite lockdowns and rising travel concerns due to the Omicron variant, we saw a demand recovery compared to the prior year quarter. Total sales volumes were up 15%, with a significant uptick in jet fuel sales. Both the commercial and the retail businesses delivered an improved contribution on account of higher unit margins and sales. Retail volumes were only slightly below the pre-pandemic level. Jet fuel volumes saw a strong increase compared with the fourth quarter of 2020 but were still 30% below pre-pandemic volumes on average. The contribution from ADNOC Refining and Trading improved from minus EUR 33 million to EUR 14 million due to increased refining margins and higher utilization rates. ADNOC Global Trading, which started its activities at the end of 2020 contributed to this result. The earnings from the gas business rose significantly to EUR 116 million. that were supported by a strong performance of the Power business in Romania on account of higher revenues from the electricity balancing market and higher power prices. In addition, a one-off reversal of certain provisions contributed positively to the result. Factors partly offsetting this development were the divestment of Gas Connect Austria and higher storage expenses. Gas sales volumes rose by 5% on account of higher sales in Germany and the Netherlands, which were slightly offset by lower sales in Romania. The clean operating result of Chemicals & Materials increased from EUR 208 million to EUR 512 million driven by strong margins, positive inventory valuation effects and the full consolidation of Borealis. OMV's base chemicals business showed a slight improvement. Higher ethylene and propylene indicator margins were largely offset by higher customer discounts and increased feedstock cost. The contribution of Borealis, excluding the joint ventures, grew from EUR 81 million to EUR 337 million. Despite higher indicator margins and improved steam cracker utilization, the Borealis base chemicals business weakened due to substantially higher light feedstock costs and a decline in the phenol business. Polyolefin earnings rose sharply due to substantially higher margins and positive inventory valuation effects. Polyolefin sales volumes in Europe were slightly lower as higher sales volumes in the Energy and Health Care segments could not offset lower volumes in the Mobility and Infrastructure segment. The share of specialty products grew. The contribution from the fertilizer business was substantially higher as it benefited from positive inventory valuation effect, the reclassification as an asset held for sale as well as strong sales margins. The contribution from Borealis joint ventures, Borouge and Baystar, came in at EUR 138 million, primarily on account of higher polyolefin prices in Asia. Sales volumes came down by 9% from the exceptionally strong level of the fourth quarter in 2020 due to lower volumes at Borouge. In addition, the at-equity consolidation for the entire quarter in 2021 supported the result. Turning to cash flow. Our fourth quarter operating cash flow, excluding net working capital effects, reached a historical high of EUR 3.5 billion. This was driven by the strong market environment, good operational performance and dividends received from Borouge in the amount of EUR 1.4 billion. Following the initial successful EUR 4 billion external financing of Borouge, a special dividend of EUR 1.3 billion was agreed between the 2 shareholders, as funds are not immediately required, for funding Borouge 4. Depending on future cash flow generation and external project financing, the shareholders will contribute equity and/or loans as required in the overall funding setup. Net working capital effects generated a cash outflow of EUR 672 million in the quarter, mainly attributable to higher oil and gas prices. Despite the considerably negative effects, we recorded an excellent cash flow from operating activities for the quarter of almost EUR 2.8 billion. Looking at the full year picture, cash flow from operating activities, excluding net working capital effects, amounted to EUR 8.9 billion, an astounding increase of EUR 6.1 billion compared with 2020. Cash flow from operating activities more than doubled to EUR 7 billion despite a big swing in net working capital effects. In 2020, we recorded an inflow of EUR 351 million while, in 2021, we had an outflow of EUR 1.9 billion. The organic cash outflow from investing activities amounted to around EUR 2.5 billion, which is 32% higher than in 2020. This is primarily attributable to the segment Chemicals & Materials. The organic free cash flow before dividends for the full year came in at around EUR 4.5 billion and thus contributed significantly to the deleveraging of the company. Let me give you an update on our divestment program. Since the announcement of the program last year in March, we have signed agreements resulting in a deleveraging effect of above EUR 2 billion. After the successful closing of 4 projects last year, we realized around EUR 1 billion. In 2022, we expect closing with a deleveraging effect of above EUR 1 billion. This includes the closing of the divestment of the retail stations in Germany, our Slovenian business and the closing of the NITRO business. The closing of the sales agreement in Germany has been shifted to the first half of 2022 as we are waiting for the antitrust clearance from the German authorities. Thanks to outstanding cash generation, the progress with the disposal program and the dividends from Borouge, net debt, excluding leases, decreased to EUR 4.8 billion compared with the third quarter of 2021. Consequently, our gearing ratio, excluding leases, decreased by 7 percentage points to 22%. We are now back to the 2019 level before the acquisition of the additional 39% share in Borealis. In the fourth quarter, OMV incurred noncash impairment charges and value adjustments of around EUR 1.7 billion, thereof, around 40% for OMV's 15% share in ADNOC Refining, 35% for E&P assets and 25% for the Borealis NITRO business. E&P recorded a valuation adjustment of receivables triggered by the positive reserves reassessment in the Yuzhno-Russkoye field. The overall impact on our gearing ratio, excluding leases, was only minor due to a strong balance sheet. At the end of December 2021, OMV had a cash position of EUR 5 billion and EUR 4.3 billion in undrawn committed credit facilities. Ladies and gentlemen, as I already mentioned, we will reward our shareholders and again deliver on our progressive dividend policy. We will propose to the Annual General Meeting a dividend of EUR 2.30 per share for the business year 2021. This is an increase of 24% compared to the year before and marks a record in OMV's history. Since 2015, we have increased our dividends at an average rate of 15% per year. We hereby reconfirm our progressive dividend policy. I would like to give you an update of the synergies program we announced following the Borealis acquisition. We expect synergies of more than EUR 800 million until 2025 from operational cost savings, combined purchasing, debottlenecking, value chain optimization as well as tax benefits. The program is well on track. We realized synergies of more than EUR 200 million already in 2021. In the coming years, we expect synergies in the range of EUR 150 million to EUR 200 million per annum. I will now move on to the outlook and start with the capital spending. We are expecting an organic CapEx of around EUR 3.5 billion, which includes noncash leases of around EUR 600 million. If we exclude the leases, our organic CapEx amounts to EUR 2.9 billion, which is in line with our previous communicated guidance of EUR 2.5 billion to EUR 3 billion per year. The increase in the leases in the amount of EUR 400 million versus 2021 is temporarily and expected to go down next year. In Chemicals and Materials, we plan to invest in the PDH plant in Kallo, the ReOil demo plant in Austria and in the expansion of our steam cracker in Burghausen this year. All projects are expected to come on stream in 2023. In addition, we plan to upgrade our production capacity in Antwerp to ensure supply security for growing energy projects. In Refining & Marketing, we will invest in sustainable energy projects such as coprocessing and perform major maintenance turnarounds at our refineries in Schwechat and Burghausen. In Exploration & Production, we plan to invest in workover and drilling projects in Romania, and in our development projects, notably in New Zealand, Malaysia and Romania. The investments in chemicals, circular economy and low carbon solutions will account for around 40% of the entire yearly spending. Looking at the market environment for the full year 2022, we assume an average Brent price of around $75 per barrel and an average realized gas price above EUR 25 per megawatt hour. We have no oil hedges in place but we still have around 10% of our gas production hedged at around EUR 29 per megawatt hour in the first quarter. In Exploration & Production, we expect average production of around 470,000 barrels per day in 2022 following natural decline in various countries and the divestment in Malaysia, Kazakhstan and New Zealand. The refining indicator margin is projected to be above the 2021 level at around $4.5 per barrel. We no longer have margin hedges in refining. Despite 2 major turnarounds at our Schwechat refinery in the second quarter and at the Burghausen refinery in the third quarter, we anticipate the utilization rate of our European refineries to be at a similar level as in 2021. Total product sales volumes are projected to be slightly higher than in 2021 due to continued demand recovery. Retail and commercial margins are estimated to be slightly below the 2021 level. In Chemicals & Materials, we expect the European ethylene and propylene margins to stay strong at the 2021 level. The utilization rate of our steam cracker is forecast to be slightly below 90%. We plan 2 turnarounds at our steam crackers at Stenungsund in the second quarter and at Burghausen in the third quarter. Polyolefin margins are expected to decline from the exceptionally high levels of 2021 given rising energy prices and improved product availability. The European polyethylene indicator margin is expected to be around EUR 400 per ton, while the one for polypropylene is forecast to be around EUR 600 per ton. The polyethylene sales volumes of Borealis, excluding JVs, are projected to be above the 2021 level, while the polypropylene sales volumes are expected to be slightly above 2021. Looking at cash flow, we forecast 2 extraordinary effects in 2022, which I would like to mention. Firstly, our tax liabilities in Norway increased significantly to around EUR 1 billion due to higher commodity prices in 2021. The major part, EUR 0.9 billion, will be paid in the first half of 2022. Secondly, we anticipate to receiving around EUR 1 billion from Baystar as shareholder loan repayment based on external financing. The clean tax rate for the full year is expected to be between 40% to 45%. Now I would like to thank you for your attention. And Reinhard and I will now be happy to take your questions.

[Operator Instructions] The first questions come from Mehdi Ennebati at Bank of America Merrill Lynch.

First question on the Chemicals business, please. So you've highlighted that Chemicals EBIT has been impacted by higher discount to customers and also feedstock cost increase. Can you please tell us if those large discounts to customers will remain in the coming quarters, in 2022, or not? And can you also tell us if it is mainly the gas price increase which impacted, which inflated your feedstock cost or the naphtha price increase? And can you please also tell us if Borealis Europe, in general, is purchasing gas on long-term oil-linked price? Or is it purchasing gas on spot? So this is the first question. And the second question is about the guidance you provided on polymer margins for 2022. So you expect them to decrease by roughly around 25%. What is your indicator showing, please, year-to-date compared to the first quarter of 2021? Do you already see this decline happening or not yet? And in your margin forecast for full year for 2022, did you take into account the easing of the logistic constraints which impacted positively the margins in 2021 or not? And if you did take this into account, when do you think those logistic constraints will ease? And if I may, just a very small last short question. There was some news flow in Reuters highlighting that when the group might be split into 2 companies: one, the upstream business; and the other one will be the chemicals business. Can you please update us on that, please, on that potential split?

So thank you for your questions, Mehdi. Let me try and answer those in sequence here. Let's start with the discount and the feedstock prices. And I want to go back to just remind what I said in my initial presentation, this was a comment that was referencing to the OMV Chemicals business and the increase in feedstock cost is mainly an effect of higher naphtha costs that are also traveling with, let's say, in certain connection also with oil costs. So that's the feedstock cost comment. And on the discount, that is the effect of the higher prices that we have here. And as long as the price environment remains, this will remain to a certain degree in our results. On the Borealis gas purchases, and I assume you are talking about the feedstock gas purchases for the Chemicals business or maybe you're referring to the NITRO business, I'm not exactly sure which one.

No, no. It's for the Borealis, not the NITRO, yes.

Okay. So okay, chemicals business, yes. So in Borealis, it's mixed because crackers, they take a benefit of feedstock flexibility that there can be certain shifts between the feedstocks that are used in those crackers, and the supply contracts are mirroring this capability in some being longer-term contracts that have linkages to market prices and others then being also spot contracts. On the margin development for 2022, we can say that we actually have quite a strong start of the year on the olefin side. It's more or less at the same level that we also found in average of last year for our ethylene and propylene. And on the on the polymer margins so that's indicator margins, right, I want to emphasize that this is indicator margins that I'm talking about here. On the polyethylene indicator margins and polypropylene indicator margins, we find also stronger start of the year than what we indicate here for the full year, this EUR 400 per ton and EUR 600 per ton. We came into the new year, in January, more at the level of fourth quarter of last year, so still a strong start. And what we see is continued good demand picture, as you point out, still some supply chain issues that are constraining material flows. And yes, we do see that over the run of the year, in particular in the second half of the year, we will see those supply chain constraints improving as we move forward. And your last question was around the split of the company. And there, I would like to reference to the 16th of March where we will make the presentation of our strategy, how we are going to move forward. And I don't want to comment on rumors that you have picked up, I don't know, in the press.

The next question comes from Sasikanth Chilukuru, Morgan Stanley.

The first was related regarding the dividend. The 24% increase in the dividend, of course, came ahead of consensus expectations of around 10%. I was just wondering if you could provide more color on how you have arrived at this level, the EUR 2.30 per share as the right level of dividend for now, what the factors that have kind of led to this higher-than-expected dividend level. Do you also believe that there is room in your financial framework for a consistent double-digit percent increases year-on-year in the dividend in future years? The second question was again related to the dividends but the expected dividends from Borouge. The special dividend of EUR 1.4 billion this quarter was indeed surprising. But can you give us some guidance on the expected dividend from Borouge in 2022, 2023? Also, if you could remind us what dividend payments are expected for the minority shareholders of Borealis during the period, they've remained quite low in 2021, that would be helpful.

Sasi, may I just take these questions? I think regarding the dividend, we, of course, took into account a very strong cash performance that OMV was able to achieve in 2021 not only because there was a special dividend from Borouge but very much from the operational business. So this increase is a little bit a reference to a record year in OMV, so that we were striving to have also a record increment to the rise of the dividend as a tribute and make sure that we let our shareholders participate in this successful year. On the other hand, it is linked with a very strong and continued commitment towards the progressive dividend policy. So what we mean by that is this is not a onetime peak where we say, okay, a good year. And then if there would be a year maybe with some lesser cash output, then we would have to go back to lower levels. We are convinced that we can achieve a similar or higher level for the coming years. And therefore, we continue our commitment to the progressive dividend policy in that sense very much. Regarding the dividends of Borouge, of course, we have to see that this special dividend from Borouge into Borealis is a possibility for Borealis also then to take the necessary equity injections into Borouge 4 projects which, of course, over the next years, starting with this year, will consume some cash. And therefore, there was the conclusion that giving that benefit from this year and from the refinancing that was done in Borouge directly to the shareholder enables them over the next years also some cash flexibility. So in that sense, we do not expect that there is a major deviation from the normal Borouge dividend into Borealis because there is not necessarily a cash need for the financing of Borouge 4 out of the own cash flows that would then diminish the dividend basis. So this will depend very much on the economic environment, which currently looks good. And therefore, we are quite optimistic on that.

So the next questions come from Michele Della Vigna, Goldman Sachs.

Congratulations on what's been a very good year. I had 2 questions, if I may. The first one relates to the EU Green taxonomy. Companies are going to start to report this year the percentage of their revenues and investments, which are taxonomy compliant. And I was wondering if that's something you've already started to work on. Clearly, there are still a few issues that have been defined at the moment but if you have an idea more or less of where the percentages would be for you on revenues and investment. And then my second question really relates to the strong growth you are pushing for the circular economy. Some of your competitors are starting to move upstream into some of the waste processing and collection, especially for the biofuel side. I was wondering if that is something as well that you would think could be strategic for the long term.

So maybe I'll start with the second question, and then maybe Reinhard can answer the taxonomy piece. Of course, we'll present more details to you on March 16, how we want to go about these things. But one thing I can say here that 2 of the key pillars on the strategy going forward will be circular economy and sustainability. And you may have read recently our agreement with Austrian Airlines around sustainable aviation fuels. So you might have also picked up that we launched in the second half of the year EcoMotion Diesel. That is a solution as a liquid fuel but with lower CO2 emissions. We see actually increasing opportunities both around the circular economy or the broad circular economy. That's both on the recycling of plastics but also on sustainable fuels, be it now bio or e-fuels that we see going forward in the future. And as you point out, building supply chains and supply chain partnerships is critical to our ReOil 2000 project, for example. We have agreed the sourcing here with Austrian waste management companies and sourcing this mainly for Austria. But of course, we also have a longer-term view how we will then make a next step into bigger-scale production. And maybe on the taxonomy, Reinhard, can I ask you?

Sure. Michele, I think what is important to understand that, of course, we are now deep into this process of preparing this new reporting requirement. For the year 2022, the progress is to make taxonomy-eligible reporting. And then the year after, we will go into taxonomy applicable. So this is the way that is foreseen also as a general standard. So therefore, it's too early to give you exact numbers, but you can be sure that there will be a quite rich and transparent picture about that. I would still refer to what Alfred has already indicated that also in 2022, around 40% of our investments will be for chemicals for circular economy and for sort of green new energy and sustainability measures. So this can give you a little bit of an indication on how we plan for the future.

We now come to Josh Stone, Barclays.

Two questions, please. One on the Upstream, just looking at the production levels at 470,000, do you think this is a level that can be sustained at the current investment levels? Or should we expect this to decline in later outyears? And then secondly, if I just look at the Downstream performance in your sort of core business in the quarter, it was quite weak despite better headline margins. I presume that's power costs, maybe carbon costs. Just maybe if you could just talk about that and if there are any other one-offs we should be thinking about when thinking about modeling for next year.

Yes. On the production level for E&P, we are saying for 2022, our outlook is 470,000 barrels per day. And that is mainly on the back of some divestments that we have done but, in addition, some natural decline mainly taken by Romania, first of all and then, to some degree, also from Austria. These assets are older assets where we will see natural decline also in the future. And in that sense, it's a tragic story that we will probably see also going forward. However, at the same time, we have a significant CapEx spend for 2022 in E&P of EUR 1.3 billion. And some of this CapEx also goes to the development of some of our key projects moving forward to compensate these natural declines. And there are 3 big things there, really New Zealand; in Romania, Neptun; and Malaysia, the [ Chevron ] field that we are working on there. On the Downstream results, what we saw there in Refining & Marketing, we actually saw in the fourth quarter improving demand picture, we could actually see that our capacity utilization, so the run rate of our plants, was on the higher level. And we also saw a good development of the price situation and margins. However, at the same time, we did also see some catch-up effects around cost, as you point out, mainly utility cost, that is catching up with us in those areas.

Are you able to give a number on that utility cost or any sort of order of magnitude?

I don't have one. I'll check with Reinhard if he has anything, but I don't have one off the top of my head.

So in Q4, that amounts to a lower double-digit million amount.

We now come to Peter Low, Redburn.

The first was just on the average gas price realization you're assuming for next year, over EUR 25 a megawatt hour, it's clearly a very high level. Can you just walk through some of the assumptions that get you there? And in particular, perhaps kind of what spot prices you're assuming in Europe. And then to what extent, for example, your Romanian realizations benefit or not from those. And then my second question was just really a clarification on the Borouge cash flow dynamics. So you said that you'll continue to receive dividends in the coming years from Borouge. But you also might have to make equity injections, so I guess then they will net off to some extent. Did I understand that correctly? Or am I missing something?

Okay. I'll start off with your question around gas. And I just want to recap briefly what our gas business situation looks like. About 20% of our gas is exposed to Western European pricing. As I said before also, half of that, so about 10% of our total volume in the first quarter, is still hedged at EUR 29 per megawatt hour. And then after that, we have no more hedges. Then the remaining business that we have, the 80% is also exposed to international pricing situation, Romania and then also in Malaysia and then, of course, Russia wherein Russia, about half of it is exposed to BAFA price and the other one, Russian inland prices. And with the development we had in 2021, we have, in the fourth quarter, still also a gas price hedge of the 10% of EUR 27. The average realized gas price was about EUR 27 per megawatt hour. That's probably last year. And the average for 2021, it was EUR 16.5. We believe that the gas demand will remain strong in the next couple of months with a tight supply situation. And with the hedges coming off and the strong demand situation with tight supply, this is how we get to the EUR 25 per megawatt hour average realized gas price for the full year. On the Borouge cash flow, you're indeed correct, the special dividend was on the back of a good funding policy for Borouge 4. But at this moment, of course, since we only took the FID now, there was no immediate need for that liquidity, and that's how we agreed on a special dividend. On the way forward, as Reinhard already pointed out, we are rather optimistic about the funding of the Borouge 4 activities. But it may require, depending on how that project go forward and how the funding can be achieved, some equity injections.

The next questions come from Raphael DuBois, Societe Generale.

Can you hear me correctly?

Yes, we can.

Yes. Excellent. First off, let me congratulate you for those results. I have 2 questions, please. One is on the U.A.E. They have recently announced they will start taxing corporations at 9%. I was wondering if you could tell us a bit more about the impact it will have on the money you get from Borouge as well as from ADNOC Refining. Still on the U.A.E., on the Borouge 4 expansion project you announced recently, could you maybe tell us a bit more about the inflation that you have seen between the time you were thinking about the project and the time you sanctioned it? And maybe still on the U.A.E., I'm still not certain to understand why you feel you're better off with the cash transfer to Austria rather than adding this EUR 1.3 billion still sitting in the U.A.E., waiting for eventual calls on financing this very large project.

Yes, Raphael, if I may start with the first question of the 9% corporation tax. The reason actually for that is, of course, the urge of U.A.E. also to be among the, I would say, investable countries that are compliant with general tax rules and not be more or less considered as a tax haven that would evade some of the normal ways of business. So therefore, we were expecting that. And this is a step that is very much aligned with the way how the countries are trying to still stay attractive for investment and, on the other hand, not to be excluded in any kind of compliance topics that may be imposed. So therefore, the impact that we see on our cooperations there is minimal and has been considered already in the plans as far as we could do it. Regarding your question about inflation, we cannot see that there is any difference in terms of planning regarding CapEx or EPC contracts at the moment. I think with such a significant and important project, there is still a very good negotiation position. And therefore, we are not too concerned that, that would change anything in the general profitability of this amazing project because, of course, with this magnitude, it will be much more relevant how the market conditions and the competitive position regarding the Asian market will be rather than the cost now immediately at the beginning. And then to your third question, of course, the question is legitimate to say where should that money sit. The original consideration clearly was to say now that the money is there and a common decision on investing for a significant project is there, and we don't know what kind of financing opportunities will come, let's first reward the shareholders and get the money out both to ADNOC as well as to Borealis and then also make sure that bit by bit, where necessary, equity injections will be done and will come. And I think this is certainly something that will come in 2022 and 2023. However, there are also opportunities to do direct project financing on this project, Borouge 4. And therefore, with all these kind of considerations, the conclusion was that it's wise to do some cash out at the moment.

Excellent. Can I maybe just ask one quick question? It's on the Borealis NITRO. Can you maybe say, year-on-year, how much worse have been the results at EBITDA level, just to have a rough idea how you have been impacted by some of the curtailment decisions you've taken as well as the higher gas prices?

Yes. So what I maybe could say is that compared to 2019 and 2020, there was a significant impact of the higher gas prices in the NITRO business. And as you point out, some of these gas prices, at some point, the situation was such that it made the ammonia production not very attractive anymore. So the impact was significant in that phase. But as we went along in the year, some of the prices started to ripple through the supply chain. And towards the end of the year, it actually started to improved significantly, and the pricing situation in the market also started to reflect the actual feedstock cost changes that has been seen over the years. So it was a bit of a movement through the year. But in the total of 2021, the impact was negative and but was then recognized with a positive price development towards the latter end of the year.

Next question comes from Tamas Pletser, Erste Bank.

I got 2 questions and both are related to your refining activity. I mean your indicator refining margin, does it include the cost of energy, I mean, natural gas and electricity as well as the CO2 costs? That would be my first question. I'm pretty much interested in whether your higher estimate of this margin for 2022 includes these costs or not because that can be a little bit misleading, in my view, if this indicator margin doesn't include these costs. And my second question would be regarding ADNOC Refining. It's already in a positive territory. I'm just interested in what do you expect here and what kind of EBIT would you be happy with or what kind of level do you think will be satisfactory in the future.

Tamas, maybe let me take the first question, then Alfred will take on ADNOC Refining. Regarding our indicator margin, energy costs are not included for a natural basis. So this is really an indicator margin that we see there. And we do not see that the energy cost as such will then change the margin. As such the margin is what is ultimately coming out. So therefore, if we have a higher estimate, this is certainly also, if you take a little bit the very high oil prices that we have today, which are also above the oil prices that we have as an average, which are still at a rich level but as an average still a little bit lower than the current levels, that this stabilization where the upward trend is stopped will also have a positive impact on the refining margin, and that will help stabilize the refining margin also on that step. So not a direct context to the energy prices that we are expecting.

I will take the second question, Tamas, on the ADNOC Refining business here. Yes, we have a good improvement of that business over the last couple of months here where, in the fourth quarter, we actually had a positive contribution then from the ADNOC refinery versus quite a negative in the fourth quarter of 2020. And that is also reflected through the year that we had a move forward. And the move is actually made by 2 things: one is better operational performance of the asset but, at the same time, also improved refining margins in the Middle East there that allowed for that result. And as a total then, the full year, we had significantly improved but still a negative result in the ADNOC refinery. So this will be the big task over the next couple of months to continue to work on the operational performance of the plant and also make sure that we continue to work on the cost side in order to go there. But the reason for the impairment that I have mentioned earlier that we took on, on that 15% share of the refinery, is that our expectations of the market development are lower now than they were 3 years ago.

We now come to Matt Lofting, JPMorgan.

Congrats on very strong execution through the last 12 months. Two things, if I could, please. First, ReOil, coming back on sort of the earlier feedstock supply chain comments, can you just expand on some of the key logistics and procurement steps and systems required from a raw material perspective and how challenging it may be to expand that from the first phase over the sort of the medium term to perhaps sort of extend the reach outside Austria to facilitate scaling up over the medium term? And then second, project execution and cost inflation, I think you referenced confidence around Borouge 4 earlier. But could we just expand to the broader sort of project that was outlined earlier in the presentation and sort of thinking about both the upstream oil and gas side and also Chemicals & Materials. To what extent are you seeing supply chain tightness or cost inflation becoming a headwind to budgeting in any specific project cases?

Maybe let me start with the ReOil project. And yes, you're absolutely correct, right, to run such a plant, we need to have the right feedstock. And that is not just the quantities but also the right qualities in order to make the plant work efficiently. I think OMV, we are one of the few companies that actually has the advantage that we had a pilot plant running since 2018 in order to work test, and that pilot plant is actually integrated into our refinery operation in Schwechat. So it's real-life operating conditions where we are doing this but at a smaller scale. And that plant gave us the opportunity to also work with supply chain partners that also understand better what the implications of different qualities or compositions of the feedstock stream are. And on the way forward, I already indicated that we have a clear view on a next step beyond this immediate next step, right? So now we built 16,000. And then we have a view that by 2026, we will have a 200,000-ton plant in operation. And of course, that also continuously ramps up the feedstock challenges. And what is required is 2 things: the partnerships to get access to sufficient quantities of the feedstock; but the second, I already alluded, as quality and that requires sufficient access to sorting capacities that makes sure that the right quality levels can enter that plant and allow an efficient operation. And this is actually, I do believe at OMV, we have quite some advantage because of this pilot plant since 2018 and quite advanced with securing the feedstock for the next step now for the ReOil 2000 and watching out for the next steps. Then on the second question that you had around execution of the project and inflation. I can maybe answer a part of this, but as Reinhard indicated on the Borouge 4, of course, that is something where we have just taken the FID and recognized the current situation. What was, of course, visible over the last couple of months is some constraints around workforce in those projects and also some constraints around supply chains. I think now after 18 months of this pandemic, I think our teams and our projects understood how to try and manage and mitigate most of those results that my estimate would be that from where we stand today, we have tried to recognize a realistic situation on the way forward.

Matt, maybe to add to that, I think we are in the position at least for '22, partly also for '23, that we are in our spend mainly in multiyear projects which have been almost completely contracted out. So therefore, the inflation does not hit us in that way. So most of the big projects like Kallo, like Baystar or the PP5 in Abu Dhabi but also the [ Chevron ] project, they are more or less in existing contracts, and we do not see now inflationary tendencies or supply chain contracts. The big project, Neptun, Borouge, we'll, of course, have to see. At the moment, we do not see major constraints. But this, specifically Neptun, we'll have to wait for the agreement on the Offshore Law before we can start preparation for contracting this and finding EPC contractors and all that. But this is the only area where we could see a potential impact. The others, and that's the main part, we see in quite safe and stable situations.

And now the next question comes from Henri Patricot, UBS.

I have 2 quick questions, please. The first one is, coming back to the CapEx guidance for 2022 and the higher amount of noncash leases, can you perhaps expand on what's driving this temporary increase in '22 and why that kind of drops next year? And secondly, can you share some comments around what you're seeing on fuel demand trends year-to-date as we see restrictions being lifted gradually but we also have higher prices? So interested to hear how you see demand evolving year-to-date.

Henri, maybe on the first question, on the second, Alfred will dwell. On the CapEx side, the high noncash, so the so-called IFRS 16 cash out where we have to more or less put in our cash flow, in our CapEx accounting all those leases, this is specifically project related where we have big warehouses, both in Belgium as well as in Sweden, where we are investing into buildings that we do not own but that we will lease out. And these are quite sizable investments. And of course, in general, there are a couple of investments like also filling stations and things like that where leasing concepts come to bear. So this indeed is not a cash out of this total amount of EUR 600 million that we have for 2022. It's a fraction only of that. And therefore, we also split that in transparency to you to say the organic, directly cash relevant CapEx expenses will be in the range that we have originally laid out at or below EUR 3 billion, yes.

Okay. I will try and give some color to your question around the COVID development and influence on demand picture. I think it's probably a bit of a mixed picture that we see. And I think that's potentially even also true for the COVID pandemic. As you all know, it's not quite over yet. And I would actually anticipate, or what we have seen over the last couple of months, some potential issues coming around availability of workforce in the supply chain. I just mentioned the cancellation of flights before Christmas in the U.S., for example. But we anticipate still a healthy demand development for 2022 and further meat in the different segments that we have so that we should actually see some improved demand there. In particular, in oil and gas, this is also then the cause for our belief in average Brent of $75 as an outlook for this year and our average realized gas price of about EUR 25. The refining margin, we also see for Europe increasing above '20, significantly above the 2021 level, to $4.5 per barrel. And I think that does reflect our expectation of healthy demand growth. I think a big uncertainty, as I said, is still how fast will the supply chains continue to normalize and will we still see issues around those supply chains. At this moment, we still see some significant challenges around this and, therefore, tight supply and supply chain situation.

So we now come to the end of our conference and would like to thank you for joining us today. Please mark March 16 in your calendar, the day of our CMD, where we will present our Strategy 2030. And should you have any further questions, please the Investor Relations team, we will be happy to help you. Goodbye, and have a nice day. Thanks.

Thank you very much. A very great afternoon.

That concludes today's teleconference call. A replay of the call will be available for 1 week. The number is printed on the teleconference invitation or, alternatively, please contact OMV's Investor Relations department directly to obtain the replay numbers. Thank you.