Omv Ag

Welcome to the OMV Q3 2023 results conference call. If you would like to ask a question after the presentation, you may register your request by pressing the star 1 button on your telephone at any time during the actual presentation or during the question and answer session itself. You should have received a presentation by email. 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, Senior VP, Investor Relations and Sustainability. Please go ahead, Mr. Greger.

Yeah, thank you. Good morning, ladies and gentlemen, and welcome to OMV's earnings call for the third quarter 2023. With me on the call are our CEO, Alfred Stern, and Reinhard Flohrei, OMV's Chief Financial Officer. Alfred Stern will walk you through the highlights of the quarter and will discuss OMV's financial performance. And after that, both gentlemen will be available to answer your questions. And with that, I'll hand it over to Alfred.

Thank you, Florian. Ladies and gentlemen, good morning and thank you for joining us. The third quarter of 2023 was characterized by supply concerns in a tight oil market, strong refining margins and lower gas prices. The chemical market remained challenging due to only a muted economic recovery and high inflation. Brent crude oil prices increased by 11% compared to the previous quarter, but were 14% below the average level of the same quarter in 2022. Prices were supported by an improvement in seasonal demand and the supply reduction of close to 1 million barrels per day imposed by OPEX+. European gas prices dropped by 9% compared to the prior quarter and 83% versus the third quarter of 2022. The main reason for this was the high filling level of storage facilities across Europe, which impacted market sentiment. Supply concerns fueled by the strikes at Australian LNG export terminals provided some support. Refining indicator margins in Europe rebounded and almost doubled compared to the prior quarter. This was primarily attributable to solid demand during the driving and holiday season, a series of refinery outages in the Atlantic basin, as well as reductions in refinery runs caused by the heat. Gasoline, middle distillates, and fuel oil were very strong while NAFTA remained weak. In chemicals, end-market demand remained lackluster. Olefin indicator margins further declined due to subdued demand and economic activity. Polyolefin indicator margins declined as well, albeit to a lesser degree than olefins, impacted by the cost-of-living crisis and significant destocking. Despite supply being more balanced with demand due to reduced operating rates in Europe, the structural oversupply remained. This was more pronounced for polypropylene as a result of weak demand for durables. While low domestic prices discouraged imports into Europe, Chinese prices showed some signs of recovery, supported by higher NAFTA prices, while weak demand and overcapacity At 1.3 billion euros, the clean CCS operating result was 13% higher than in the second quarter, but dropped significantly from the exceptionally high level of the prior year quarter. Cashflow from operating activities amounted to 1.7 billion euros in the quarter, impacted by decreasing commodity prices. Looking at operations, polyolefin sales volumes were 11% higher year-on-year, while fuel sales volumes rose by 16%. The utilization rate of our refineries and European crackers was lower than the typical level of 90% plus due to planned turnarounds in Petrobras and at the chemical-related facilities in Schwechat and Porvo. Oil and gas production was slightly lower year on year, primarily due to lower production in Norway and Romania. We continue to further diversify our gas supply sources. We signed a five-year agreement with Equinor starting October this year to receive an annual volume of 12 terawatt hours. The new agreement builds on the long-standing relationship between the two companies and adds to the volumes under existing contracts. In October, we signed an agreement for the worldwide commercial licensing of our proprietary re-oil technology with Wood, a global leader in consulting and engineering solutions in the energy and materials markets. have established a joint delivery team to support clients through the whole process of adopting and successfully implementing the technology at their sites. In addition, Wood will work with ReOil licensees to provide full asset lifecycle support globally. ReOil is our patented chemical recycling technology that converts end-of-life plastic waste into pyrolysis oil, which can serve as feedstock for new high-performance plastics. At our integrated refinery and chemical site in Schwechat, we are currently in the process of finalizing the construction of a 16,000-stone re-oil plant. This morning, we announced that we have joined forces with InterSero to build an innovative sorting plant with an annual processing capacity of up to 260,000 tons in Walburgen, Germany. InterSero, formerly called Alba Recycling, is one of the largest sorters of light packaging waste in Germany. OMV will invest more than 170 million euros and will hold a share of around 90% in the newly formed joint venture. This sorting plant will be the first of its kind on a large industrial scale and will produce sustainable feedstock for our chemical recycling plants. The new plant will use mixed plastic waste. that has previously not been recyclable, especially from the yellow bag and yellow bin waste collection in Germany. Startup is expected in mid-2026. At the beginning of October, we announced the startup of the third polyethylene plant at our BayStar joint venture in the US. The new polyethylene unit has a capacity of 625,000 tons per year, more than doubling the total capacity. With the completion of this project, BayStar now runs an integrated ethane to polyethylene complex in Texas with a capacity of 1 million tons per year. The complex comprises a world-scale ethane cracker at the Total Energies platform in Port Arthur and three polyethylene production units at Baystar's site in Pasadena. The new PE unit, referred to as Bay3, features the latest third-generation proprietary BoarStar technology, which has been licensed for the first time in North America. The BORSTAR technology delivers advanced value-added polymers with enhanced sustainability by enabling, lightweighting, and the incorporation of larger amounts of post-consumer recycled materials in end products, serving the energy, infrastructure, and consumer products industries. Expanding and steepening our footprint in North America enables us to better serve customers by offering improved access to BoarStar-based products produced locally. The new integrated complex is very competitive as it is positioned in the top quartile on the U.S. cost curve and has well-established logistics infrastructure around Houston. As usual in the process of starting up such a large industrial complex, the focus in the beginning is to ramp up the utilization rate. We will then optimize the product portfolio by gradually increasing direct domestic sales and the share of specialties. Let's now turn to the financial performance in the third quarter of 2023. Our clean CCS operating results improved by 13% to 1.3 billion euros compared to the second quarter of this year. However, compared to the very strong prior year quarter, the results decreased, primarily due to the substantially lower price environment. The performance of energy dropped sharply by around 2.1 billion euros. Chemicals and materials declined by around 200 million euros. while fuels and feedstock increased. The CleanCCS tax rate decreased from 54% to 47% due to a significantly lower contribution from countries with high tax regimes to the total group profits compared with the same quarter of the previous year. The CleanCCS net income attributable to stockholders declined to 431 million euros. Clean CCS earnings per share amounted to 1 euro and 32 cents. Let me now come to the performance of our business segments. Compared to the third quarter of 2022, the clean operating result of chemicals and materials cropped sharply to minus 11 million euros. This was driven by substantially lower margins, the missing contribution from the recently divested nitro business and the materially lower performance of the Porealis JVs. The nitro business had an exceptionally strong contribution of 113 million euros in the prior year quarter due to temporary special market conditions in 2022. In the second quarter of this year, the nitro business was loss making. the ethylene indicator margin declined by 26%, and the propylene indicator margin went down by 43%. In turn, the polyethylene indicator margin remained almost stable, while the polypropylene indicator margin declined by 7%. As a consequence, we recorded a negative market effect of around 150 million euros in our European olefins and polyolefins businesses compared to the third quarter of 2022. Primarily due to higher NAFTA prices, inventory valuation effects were less negative by 125 million euros compared with the prior year quarter and thus largely offset the negative market effects. However, they still negatively impacted earnings in the third quarter of this year. The operational performance of our chemical business declined overall, showing a mixed picture. The contribution of the olefins business increased, while the performance of polyolefins weakened. The olefin contribution was driven by higher sales volumes as a result of a higher cracker utilization rate and a material larger light feedstock advantage at our Nordic crackers. While in the third quarter of this year, we had planned turnarounds at Schwechat and Porwo, the prior year quarter was significantly impacted by the incident at the Schwechat refinery and the maintenance turnaround at Burghausen. In polyolefins, the sales volumes in Europe rose compared to the prior year quarter when they were impacted by the reduced feedstock availability in Schwechat. However, the increase was seen mostly in consumer products where margins are currently weak. In the specialty business, we were able to increase margins, but sales volumes declined. The positive impact of higher sales volumes was more than offset by lower realized margins and higher costs in light of the Schwechert's turnaround and inflationary environment. The performance of the JVs dropped to 44 million euros due to a lower contribution from Boruch and a negative contribution from Paystar. The barouche result declined, driven by significantly weaker margins compared to the third quarter of 2022. However, sales volumes increased by 18% compared with the relatively weak prior year quarter when China was still in lockdown. At Baystar, the utilization rate of the ethane cracker improved, but operational challenges could not be fully resolved. The result continued to be burdened by depreciation and interest expenses amid the weak market environment. The clean CCS operating result in fuels and feedstock increased by 79 to 418 million euros. Thanks to a significant recovery in the operational activity of our refineries, as the prior year quarter was impacted by the reduced utilization rate at the Schwechat Refinery following a technical incident. At $14 per barrel, the refining indicator margin was very strong and reached almost the same level of the excellent prior year quarter. Total sales volume increased by 16%. driven by commercial customers, partially offset by lower retail volumes following the divestment of the Slovenian business in June 2023. The excellent development of our commercial business was driven by higher volumes and margins due to the removal of price caps and better term prices. The retail contribution reduced significantly. primarily due to lower fuel unit margins, which were impacted by the substantial increase in oil prices. In addition, the divestment of the Slovenian network and higher costs due to inflation impacted the result. The contribution from APNOC refining and trading decreased to 73 million euros, driven by lower refining and trading margins. The clean operating result of energy dropped considerably to €942 million from the extraordinarily strong prior year level, primarily due to declining oil and substantially lower gas prices. Diminished sales volumes and a reduced contribution from gas marketing and power also weighed on the result. The Brent price came down by 14% compared to the prior year quarter, while European gas hub prices declined sharply by 83%. OMV's realized oil price decreased slightly more strongly than Brent by around 18%, and the realized gas price declined less than the hub prices by 69%. As a result, we recorded a negative market effect of almost 1.5 billion euros versus the prior year quarter. Compared with the third quarter of 2022, production volumes decreased by 18 to 364,000 euro per day, mainly due to unplanned shutdowns in Norway, natural decline in Romania and Norway, and maintenance work in Malaysia. Production costs increased to $9 per barrel due to lower production volumes and the adverse development of currency exchange rates. Sales volumes decreased by 46,000 barrels per day following the production decline and the lifting schedule in Libya and Norway. The gas marketing and power result amounted to 20 million euros, a decline of 79 million euros. The contribution of gas marketing west improved despite the booking of a provision for impending losses connected to newly secured pipeline capacity to Austria for the next five years of around 80 million euros. The prior year quarter was burdened by curtailments of the natural gas supply from Russia. In Romania, the contribution of the gas and power business declined in the context of significantly lower gas and power market prices and additional regulatory interventions introduced after September 2022. Turning to cash flow, our third quarter operating cash flow, excluding net working capital effects, amounted to around 1.9 billion euros, a decrease of 35% compared with the previous year's quarter, primarily driven by lower commodity prices. This includes dividends from Boruche of around 220 million euros. Net working capital effects, generated a cash outflow of 163 million euros in the quarter, mainly due to increased prices and volumes in fuels and feedstock and partially offset by lower prices in chemicals and materials. As a result, cash flow from operating activities for the third quarter came in at 1.7 billion euros. The organic cash flow from investing activities was around 800 million euros. This included the PDH plant in Belgium, the re-oiled demo plant, the coprocessing unit in Schwechat, and the turnaround in Schwechat and Pueblo. As a result, the organic free cash flow before dividends for the third quarter came in at 880 million euros. The inorganic cash flow from investing activities generated an inflow of around 570 million euros, supported by the cash inflow of 661 million euros related to the divestment of the nitro business. Looking at the nine-month picture, cash flow from operating activities, excluding net working capital effects, amounted to 3.5 billion euros. supported by a sizable cash inflow for the net working capital effects. Cash flow from operating activities in the nine months amounted to 4.6 billion euros, down by 27% compared to the first nine months of 2022. After payment of record dividends of 1.9 billion euros, the organic free cash flow amounted to 200 million euros. Moving on to the balance sheet, we reduced our net debt to 1.7 billion euros, and our leverage ratio at the end of September decreased to 6%. This reduction was supported by the cash inflow of 661 million euros coming from the divestment of the nitro business, which we closed in July. At the end of September 2023, OMV had a cash position of 7.8 billion euros and unchanged 5.2 billion euros in undrawn committed credit facilities. Let me conclude with an updated outlook for this year. As usual, we will present our outlook for next year with our fourth quarter earnings in February. We now expect the Brent oil price in 2023 to average above $80 per barrel on the back of a strong third quarter, continued voluntary OPEC Plus cuts, and heightened geopolitical uncertainty. The average realized gas price forecast remains unchanged at around 30 euros per megawatt hour. In chemicals and materials, we now estimate that the ethylene indicator margin will be slightly below the previous guidance at around 510 euros per ton, while the propylene indicator margin remains unchanged. In polyolefins, we forecast a slightly better polyethylene indicator margin at around 320 euros per ton and an unchanged polypropylene indicator margin. The steam cracker utilization rate is expected to drop slightly to around 80%. As demand remains subdued, we now forecast polyolefin sales volumes of around 3.6 million tons for this year. In fuels and feedstock, we have seen the refining indicator margin averaging at around $12 per barrel in the first nine months. In October, it started to retreat from recent highs. as the driving season came to an end. We are now expecting the refining indicator margin for the full year to be in the range of $10 to $12 per barrel. The utilization rate of our refineries is now anticipated to be around 85% driven by longer than planned turnarounds that are now completed. The guidance for fuel sales volumes and margins is unchanged. In energy, the guidance for the average production of around 360,000 barrels per day for the full year is unchanged. Total production in the fourth quarter is expected to be slightly lower than in the third quarter, impacted by planned maintenance activities in Romania. The clean tax rate for the full year is expected to be in the mid-40s. Before we come to your questions, I would like to address the topic of royalties in Romania. Last Friday, an emergency ordinance introducing higher royalty rates for oil and gas was adopted by the government in Romania. According to our preliminary estimates based On our current understanding, these new rates apply prospectively to the future concession agreements. Thus, we expect no impact on short-term. Thank you for your attention, and now Reinhard and I would be happy to take your questions.

Thank you, Alfred. Let's now come to your question. I'd like to ask you to limit your questions to two at a time so that we can take as many questions as possible. You can, of course, always rejoin the queue for a follow-up question. The first question comes from Henri Patricot, UBS.

Yes, hello, and thank you for the presentation. Two questions, please. The first one, I was hoping you could give us a bit of an update on the Borealis-Bourouge potential combination, whether there's anything new you can say around the timeline, et cetera. And just secondly, I wanted to ask you about the cash tax payments, which show a better cash flow generation than underlying earnings this quarter. It looks like it's partially related to some of the extraordinary taxes, including the solidality contribution. Can you remind us what we should expect in terms of cash tax payments over the next few quarters, in particular when it comes to these solidality contributions? Thank you.

Thank you, Henri. I will start with the Borreales-Porouche question. Reinhard will offer the cash tax payment question, solidarity contribution. We are effectively in negotiations with ADNOC to negotiate a potential combination of Borealis and Bois Rouge. On the industrial logic, we would do something like this because that combination would provide for a growth platform that would also be one of the leading polyolefins companies globally. And we could build on a long-term partnership with our partner, Adnoxia, to then continue to grow this. What we are aiming for is an equal share, equal rights partnership in a company that will also be stock listed. Now, we are in the middle of these negotiations. and hence cannot make any detailed comments on the progress of those. But, of course, we are aiming for the best possible outcome for OMV in these negotiations.

Yeah, and Henri, to your questions regarding cash tax payments, You have seen that cash tax rate as such has come down from Q2 to Q3. The main impact, of course, is lesser payments in Norway due to the different price levels in Q1 and Q2. We had still payments. referring to the price levels of 2022. That has eased out now. We will not see those kind of impacts anymore in Q4 this year, or we are also not expecting this to reoccur in 2024 as the prices overall, specifically for gas, have come down significantly. Please note that in Q3, we also had less taxes paid than booked in an amount of roughly 150 million. That's part of our other adjustments that you have seen here. This is normally the deferral of some periods of the payment that you have, so I'm just mentioning that to you. And on the other hand, we have this solidarity contribution in Romania and Austria together around some 100 million for Q3. These have not been paid out as they always are due for payment only in the consecutive year, but of course they have been booked. So this has been around 75 million for Romania and the rest of the around 100 for Austria. So when you were looking at the outlook for that, of course, it's very hard to predict. In Q4, we would see that the level of tax rate probably stays in the same range as we have seen in Q3, as we are not expecting too much of a difference in the commodity prices, which are the main drivers actually for the tax rates. And in next year, let's see, we don't expect for the beginning of the year a major change. Maybe we'll see if there's a cold winter, some of the gas prices going up a little bit. But other than that, we are not expecting any special topics here. When it comes to solidarity tax payments, we're expecting Q4, the payments to be slightly lesser than in 2020. in Q4. However, for 2024, there is not any of those taxes to be booked expected, so we will just pay the taxes for 2023, but for 2024, there is no basis in the EU to prolong this, and we do not have any indication that this would be the case.

Thank you.

Thanks, Ori. We now come to Michele Della Vigna, Goldman Sachs.

Thank you very much for taking my questions. Two, if I may. First, I wanted to see if you could give us an update on the potential divestment of your Malaysian assets and what you think the timeline could be there. And then secondly, given your unique position in the chemical value chain to see what's going on in the global economy at the moment, I was wondering if you could comment on whether you're seeing any specific areas with signs of life and recovery, and on the other side, if there are some areas that are showing a slowdown versus what we've seen here today. Thank you.

Thank you, Michele. I will start with your question around the divestment of Malaysia and New Zealand assets. We are following the process as we have communicated it earlier, and we have now received bids for these assets, and we are in the middle of the evaluation of these bids. and we'll then make some decisions in the coming weeks before the end of the year. Then the second question around the chemical market that is of course a little bit more complicated as we see a very a mixed kind of bag of different indications. I will start with maybe saying that, as you may remember, through Borealis, we have a portfolio where we are looking at about 45% of the sales volumes being specialty type of polymers that go into higher value applications. And the rest going more into productivity, more commoditized areas. And we see different type of behavior in those different areas. Throughout the last couple of months, we have actually seen on the specialty area good robust demand in automotive. We have also seen good demand in wire and cable insulations, and we have seen weaker demand around the more commoditized areas. I don't know if this is an actual sign for the future, but what we have then encountered in the third quarter is that we were able to increase our sales volumes also in the more productivity area to make sure that we can also use high utilization rates of our assets. In particular, also in we have seen versus a year ago that they were able to increase their sales volume quite dramatically actually. Of course, the comparison is difficult because a year ago there was still some lockdown restrictions in China. So, compared to the industry, we are actually able to run high utilization rates in our assets where we see more pressure still is on the pricing side. where we have seen that this is now kind of flattening out, but still a difficult environment where we see some progress in being able to move volumes, but still a difficult environment.

Thank you. Thank you.

Thank you, Michaela. We now come to Sasechi Lukuru, Morgan Stanley.

Hi. Thanks for taking my questions. I had two, please. First of all, regarding the polyolefin markets, you highlighted the persistence of structural overcapacity and weak demand. Looking into next year, I was wondering if you could provide some color on how you see the dynamics changing from a supply perspective, whether you see an overall increase in the supply capacity If yes, whether it was possible to quantify it and provide some color on where you're seeing increases, or will it likely stay flat? Just wanted to check if we should expect the utilization rates of the European plants to remain low in early 2024 as well. The second question was related to M&A. I use currently actively looking to acquire more in the chemical space. If you could comment on your appetite for deals. beyond the potential Borealis-Baroosh combination, that would be helpful as well.

Thank you, Sasi. Let me try and address your question around the polyolefin market, where we have seen in the last couple of years significant capacity additions. and with the current low-demand situation that leads to overall low-capacity utilization, which is creating the situation as it is. I want to relate this more to an OMV perspective and look how that can affect us. We have actually made quite a lot of work in order to make sure that we have well-positioned crackers and with this and also polyolefin plants on the different cost curves. And of course is a very big part of that, that based on ethane crackers, on advantage feedstock costs we are supplying into Asia with differentiated technology, differentiated products. So that leaves us in a good position to also make sure we can run high capacity utilization. The Pesta polyethylene plant that Borealis just brought on stream, there we will have to do some work in the next couple of months to fully ramp it up and to then further high grade the product portfolio, but again that cracker is of course positioned very well, taking advantage of U.S. ethane prices that are significantly advantaged. And finally, in Europe, on our Nordic crackers, we have invested a lot in feedstock flexibility. In Sweden, for example, we're even bringing over ethane from the U.S. to use that cost advantage. And with this we can also use higher utilization rates. So that's one lever that we will pull and of course we also see that the products that we make are demanded in the markets and we will see over time the growth picking up again. And then on the specialty side, I think this is where we make a significant part of our margin. As I mentioned before, there we see more differentiation, and we, of course, need to see how the economy continues to develop, but one area that is our highest margin contributor in specialties is around wire and cable installations. I really think we have a long-term growth perspective also driven by the energy transition and transformation that we see globally. Your second question around M&A, I would want to say that we are, of course, fully focused and in the process at the moment to drive forward our discussions together with ADNOC on a potential combination of Port Rouge and Port Realis. And we want to make sure to optimize here the results for OMV and to drive it forward as quickly as possible. Beyond this, we have always said that if we can find ways how to accelerate our transformation, we will also consider inorganic investments. But at this point, I have nothing specific I can report to you there.

Thanks, Sasi. We come now to Ram Kamat from Barclays.

Hello. Thanks for taking my question. I have a couple, please. If I look at refining performance, it was not quite there despite better headline margins, and the ad-hoc contribution was also lower. I wonder if you could talk a few things about this, and then... The contribution from the gas and marketing business, which is less in this quarter, I understand that there was some provision which negatively impacted margin, but how do you see it going forward into the full quarter?

Yeah, Ram, happy to answer your questions here. When it comes to the refining performance, We have to take into account a couple of topics that were relevant in this quarter. First of all, we had in the total F&F not only refining but also retail. And in the retail part, we have seen that there has been, of course, the lack of the Slovenian retail assets that lowered the business income in general. But we have also seen that not as high retail margins as we have seen in the third quarter of last year that were exceptionally high because of a rebound situation from the COVID were actually on their way. When it comes to refining as such, we have seen that the refining utilization as such has been not at its full height. We have seen a retail refining utilization at 84%, mainly impacted by the Petrobras turnaround still in July, so that brought down in July our utilization to below 80%. That improved then for August and September, and we have now Also, some impacts from the turnarounds on the chemical side also coming back to the refinery in Q3. In Q4, there will be none of that. So, we will certainly see a little bit of a rebound of that utilization level on the refineries. And then your question was on the contribution from gas. Yes, indeed. There have been two impacts actually on the gas side. One was that due to the high level of storage and on the other hand, dropping prices, there have been some impairments of gas inventories in the magnitude of 60 million. And in addition, you may have seen there has been a mark-to-market adjustment of the contracts with the pipeline capacities. That's actually pipeline capacity contracts for the next five years in the magnitude of $80 million. This is simply a mark-to-market valuation, does not take into account that, of course, this will be profitable business when the volumes ultimately will be used and will be sold, else we wouldn't do it. So those are some special effects that you have seen and that lowered the income in general, both on the gas side as well as on the F&F side. for this month. You were looking into an outlook specifically also on the gas trading business. I think as trading business, always it depends a little bit of the weather. We have high storage levels, which allow us, of course, to take care of all the needs and demands when winter kicks in and when there is increased trading activity. So we actually are certainly in a situation now. where there is rather an uplift Q4, Q1 in the gas trading results and gas trading business.

Thank you. Thank you, Ram. The next questions come from Irene Himona, Societe Generale.

Thank you very much for taking my question. First, on the Base Start JV, you referred to the continuing operational challenges. Are these the normal, let's say, snagging issues with all startups, or is it something more fundamental? And does the JV have a clear timeline for resolving them and eventually ramping up to full capacity? Secondly, on recycling and re-oil, I wonder from a technological viewpoint, is there some uncertainty or some doubt concerning the ability to effectively scale up that technology to, let's say, world-scale plans? Thank you.

Thank you, Irene. I will maybe start with... Based on the question, just for your recollection, what was built there was a one-million-ton ethane to ethylene cracker and a 625-kiloton poor-star polyethylene plant. The TransVenture already had before two polyethylene plants so that it now makes a fully integrated 1 million ton ethane to ethylene to polyethylene complex. The operational, so starting up such a complex is always takes some time and always faces some issues that need to be resolved, some changes that need to be made in order to make sure everything is running. Those are very complex plants that are in operation there. I want to mention maybe two things that you should understand. Number one is that because this is part of a fairly sophisticated and large gasoline network in Texas, it means that the polyethylene plants and the cracker can run in a way independent from each other. That means not if one is shut down, the other one needs to shut down too. So this is rather helpful in order to make sure to mitigate some of the effects. And then on the plan, I would also want to make sure that I say there's, of course, a good plan how to resolve the issues that are there. There is some issues that are purely start-up related and making sure we are running all the things properly. But there is also some issues that will take a few months to completely resolve, which of course there is a good and solid plan for it. and that is not constraining in any way that we continue to have a good forward movement with that complexity. Your second question concerning re-oil and re-oil technology, there I would like to I highlight that we have been working on this re-oil technology for over 10 years now. We have a pilot plant in operation in our refinery in Schwechat since more than five years. And that pilot plant is fully integrated in that refinery. It's been running over the last five years. We have made a lot of optimization, a lot of tests with all the different influences that can happen there. And we have, in the meantime, over 20,000 operating hours on this plant, so that it's been really tried and tested for many different occurrences. And at this moment, we are completing the construction of a 16,000-stone plant, also in the refinery Schlechert. in order to then bring that to the next level. 16,000 on plant, if I compare that globally, that's often a full-scale Recycling plant, our plan for the full scale is 200,000 tons, and we are already planning them to scale that up, but we want to take some of the learnings that have occurred in the scale up now to 16,000 tons to transfer that. We have quite a high confidence level, which I think is also reflected by the fact that we have just signed with Wood. an agreement that together we will license that technology globally to other parties. We believe that makes sense because the technology has a lot of potential but the product that comes out is not a differentiated product so that we believe this is a good way how to accelerate the circular transformation for chemical feedstocks.

Thank you very much.

Thanks, Irene. The next question comes from . Yes, thank you very much.

Good morning. I got one question regarding your exposure to the potential disagreement between Russia and Ukraine on the gas transit by Ukraine. So can you just elaborate how does it affect your business if this relationship breaks down completely and there's no Russian gas transit from the end of 2024? Thank you.

Tamás, thank you for your question. I will start like this. At OMV, we have two supply contracts with Gazprom. One is in Germany, and one is in Austria. The German gas contract has not had any supply since about the middle of last year. The Austrian gas contract had a lot of uncertainty and variability in the second half of last year and still in January. Since then, Gazprom has supplied the contractually agreed quantities through that period. Now the Austrian contract is actually supplied through that pipeline going through Ukraine and Slovakia to the border Slovakia-Austria. But what we have done in OMV now over the last 18 months is we have worked very hard to diversify our portfolio of supplies. And we have booked logistic capacities so that today we are in a position that we can supply all our customer obligations from non-Russian supply sources with the pipeline capacity bookings that we have made. Also, whenever it's necessary, also if the Russian supplies would stop. So from this perspective, we can switch the supply then to alternative supplies.

Okay. Do I understand correctly that is it more like a price risk for you than a supply volume risk? Is it a correct assumption?

No, as we are always in a hub environment, the prices are not advantaged if they come from Russia or from Norway or from Wales. So the situation is rather to say how do we deal with all the capacities that we need to bring the gas from places like the Netherlands or Italy or Germany or Norway into the area of Austria and the neighboring countries. But the pipeline capacities are booked also on a long-term basis, so the diversification of the gas supply for our customers has more or less fully happened. So in terms of an interruption, that would not change.

Okay, good. Thank you very much.

Thank you, Tamás. The next questions come from Matt Lofting, J.P. Morgan.

Hi, Jens. Thanks for taking the questions. Two, please, if I could. First, I wanted to just ask you about your perspectives on the fiscal stability that Petrom faces in Romania in the context of the changes on future concessions to the royalty rates that you highlighted earlier in the call, and then also recent suggestions that some elements of the offshore law pertaining to Neptune could be up for sort of further discussion as well. So can you talk about that and the rate of change around that and the extent to which you're comfortable on the fiscal framework and mechanism that Petron faces going into 2024 and beyond? And then secondly, just gas marketing and power within the upstream or energy business, as you now call it, the contribution there seemed probably lower than expectations in the third quarter even accounting for the provisioning effect within the West business. Can you talk about some of the moving parts within that and how you see that looking forward into next year? Thank you.

Matt, a quick comment on the fiscal framework and the perspective in Romania. Regarding the Neptune project, everything is stable and no impact at all from these discussions about new concessions because the concession is there and the concession is untouched from any kind of new activities there. Also, for most of our other production in Romania, we have the concessions in place, and only in a couple of years from now there would be necessary renewal of these kind of concessions, and only by then an eventual change could come in. and there the magnitude also is by far not not very exciting to talk about so the neptune part absolutely stable and when you refer to offshore law discussions Those are just discussions about potential export opportunities that might come on top of what we have, but the project is based on the existing opportunities, and therefore we see that this is a very profitable investment. When it comes to gas marketing and power, I have mentioned that there have been some one-time effects going against our resulting Q3. However, in general, there is a certain seasonality in the business of specifically the gas marketing. In the Quarters 2 and Quarter 3, we normally have business where the storages get empty and are being refilled again. So normally strongest quarters are quarter one and the beginning of quarter two, but also the ending of quarter four if winter kicks in early. So, therefore, the one-times effect apart, we have to live with this seasonality, and we do not see any kind of change in the business model as such. And the fact that OMV has some of the largest storages in Europe certainly helps the stability of this business.

Great. Thanks for an answer.

Thanks, Matt. We now come to Bertrand Audet-Kepler-Chevreux.

Yes, hello. Thank you for taking my question, too, if I may. Coming back on the negotiation with ADNOC and the potential combination between Borges and Borealis, in parallel, ADNOC is also in negotiation with Covestro. Are you involved in those negotiations? Because I struggle to understand how you cannot be involved in some way because at the end of the day, should ADNOC buy Covestro, ADNOC may also want to potentially integrate Covestro into the Borge-Borealis combination. So that was the first question. And then when I look at the chemicals outlook, I see another strong oil demand growth in China led by mainly pet chem feedstock, i.e. NAFTA and LPG, suggesting that there is again, as it was in 2023, very strong petrochemicals capacity addition. In China, it looks like this is still the case in 2024. So do you really expect any improvement in chemicals next year?

Thank you, Bertrand. Let me start with your APNOC and Covestro question. I want to go back because I think I didn't say it or explain it properly. The discussion that OMV and ADNOC are having at the moment is about a combined polyolefin company. So it will be a focused company that is aiming – would be aiming to become a leading player in the polyolefin market, so polyethylene and polypropylene with that scope. Covestro does not produce any of these polyolefins, and as OMV, we are not involved in these discussions, and I can therefore also not comment on unrelated business discussions there. Your second question around the chemicals outlook, I would want to say here that our strategy in that polyolefin area is that we are focusing on well-positioned assets from a feedstock perspective, to have a cost advantage, but at the same time to make sure that through innovation and technology, we continue to grow our specialty portfolio. So in total, we are looking at differentiated products, that are not aiming exactly for the commodity type of market in order to make sure that we remain then in a competitive position. At this point, I do not wants to comment for too long a perspective, but I would agree that fourth quarter and first quarter next year will continue to be difficult quarters there, but in the long run, we do see that demand will back up, and the supply-demand situation will then improve again. Thank you very much.

Thank you, Bertrand. We are at the end of the conference call and would like to thank you for joining us today. Should you have any further questions, please contact the Investor Relations team. We will be happy to help you. Goodbye and have a nice day.

Thank you. Goodbye. Have a good day.

Goodbye.

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