VIENNA- Austria's OMV said on Thursday it would cut spending by about 20% this year and had reached a deal to pay for its stake in plastics maker Borealis in stages to free up cash, as the coronavirus sends shockwaves through the energy sector.
The global spread of the new coronavirus has triggered an unprecedented slump in energy demand and stoppages in most power-intensive manufacturing, leading to deep falls in oil and gas prices damaging to OMV's profitability.
In addition, investments and acquisitions of 1.5 billion euros will be postponed to 2022. That includes the already delayed nearly 1 billion euros purchase of Siberian gas assets from Gazprom .
Two weeks ago, OMV agreed to buy a 39% stake in Borealis from Mubadala to lift its own stake to 75% and make it one of the world's leading polymer producers.
The group said it has to pay $2.34 billion at the closing of the transaction and the remaining part no later than end-December next year at a market interest rate.
"We are pleased that we have agreed on a payment schedule with our partner Mubadala that allows us to optimise our cash flow management in this challenging economic environment," Chief Executive Rainer Seele said in a statement.
OMV shares were trading down 2.3% at 1100 GMT at 25.11 euros, having lost nearly half their value compared with a year ago.
STRATEGIC SENSE, TIMING TRICKY
The company's purchase of Borealis was intended to strengthen its position in the Middle East, where the plastics maker is the part-operator of the Ruwais refinery via its Borouge joint venture with the Abu Dhabi National Oil Company (ADNOC).
Analysts have said the deal made sense strategically, but the timing was challenging and much depended on whether OMV would be able to carry out a planned 2 billion euros asset sale to partly fund the deal.
Gas prices have sunk to new lows, and oil prices have been hit by a combination of depleted demand and oversupply following the collapse of a deal between the Organization of the Petroleum Exporting Countries and non-OPEC producers to limit supplies early this month.
Other energy companies have announced spending cuts to try to limit the financial damage, including majors BP and ExxonMobil XOM.N , which is in a joint venture with OMV in a Romanian offshore project.
Another partner, Norway's Equinor, which is working with OMV in Norway's Aasta Hansteen gas field and in Libya's El Sharara oil field, plans to cut investments, exploration drilling and operating costs by around $3 billion.
Italy's Eni has said it will review its projects in the Middle East, among them its 25% stake in the development of the Ghasha sour gas field in Abu Dhabi in which OMV also has a 5% stake.($1 = 0.9142 euros)
(Reporting by Kirsti Knolle; editing by Riham Alkousaa and Barbara Lewis) ((email@example.com; +43 1 2530 1650 13;))