Incorporated: 1955 as Österreichische Mineralölverwaltung AG
Sales: Sch58.47 billion (US$5.56 billion)
ÖMV is 74% owned by the state holding company, Austrian Industries. The rest of the company is privately held. Currently in its fourth decade, ÖMV has transformed itself from a domestic oil and gas producer with no international presence into an integrated oil, gas, and chemical group with growing interests and influence abroad. ÖMV has become one of Austria’s largest companies and is involved in oil exploration, production, refining, and retailing, as well as gas production and transportation, and is rapidly becoming a major producer of plastics in Europe. ÖMV is a product of the political realignment in Europe following World War II. Established in its present form in 1955, the company was originally known as Österreichische Mineralölverwaltung AG (OMG), but officially changed its name to ÖMV Aktiengesellschaft in 1974.
At the time of OMV’s formation in 1955, Austria was the largest producer of hydrocarbons in Western Europe and energy self-sufficiency was envisaged for the years ahead. This did not occur. First oil and then gas production declined, while domestic hydrocarbon consumption soared ahead. The dominant theme of the 1970s and beyond became the need to find secure and diverse sources of energy supply. The trend towards internationlization is becoming even stronger as the 1990s unfold.
Exploration for oil began in Austria in the late 1920s. Small quantities of crude were found in the Vienna Basin, which remains the main producing area in Austria, and small-scale production took place from 1934 onward. Four companies were active in Austria at this stage: Rohölgewinmmgs AG (RAG), a 50-50 joint venture of Shell and the U.S. company Socony-Vacuum; Van Sickle, a British company; Erdölsproduktions-Gesellschaft AG, which was financed by Swiss capital; and Raky-Danubia, an Austro-German collaboration.
Full-scale commercial production began after the Anschluss in 1938, when the Germans strove to achieve maximum production for the sake of their military machine. German companies involved at this stage were Elwerath, Wintershall, Preussag, and I.G. Farben. Production was concentrated in Zisterdorf near Vienna and reached a peak of 1.21 million metric tons in 1944.
At the end of World War ll, Austria was divided into four zones of occupation, each one under one of the victorious powers-—the United States, the Soviet Union, the United Kingdom, and France. All known Austrian oil reserves were in the Russian zone. Production and refining were carried out by the Soviet Mineral Oil Administration or were under its control. Distribution in the Russian zone was carried out by the Soviet company öROP. Retaining and distribution were carried out in the rest of the country by Western interests.
In the chaos of the immediate postwar years and as a result of the over-exploitation of Zisterdorf by the Germans, oil production was initially below war levels but the discovery of the new fields between 1949 and 1951—Matzen, Aderklaat, and Blockfliess—contributed to production of 2 million metric tons by 1951, 2.8 million tons by 1952, and a peak of 3.7 million tons in 1955.
All operational refineries, which had a total capacity of about one million tons per year, were located in the Russian zone. Two of these refineries, with a combined capacity of 230,000 tons per year, were owned by Shell Transport and Trading and by Socony-Vacuum. These foreign owners continued to operate their refineries, but they were directed by the Soviet authorities and were required to sell back their output to the Soviets at dictated prices.
Austria regained its sovereignty only after protracted negotiations. The legal basis of the Soviet hold over Austria’s oil stemmed from the Potsdam Agreement, which granted the USSR title to all German assets in the occupied zone. The Western allies maintained that large parts of the Austrian oil industry never legally belonged to Germany because they were obtained under duress, and disputed the Soviet claim to these assets. The Austrian State Treaty was signed in 1955 and the Soviet Union handed over all former German assets in its hands to the Austrian government on August 13 of that year.
Treaty provisions shaped the future of the Austrian oil industry. The return of most oil fields and refineries to their prewar non-Austrian owners was precluded by the treaty, and the government had to find an adequate compensation formula for the former owners. Austria also agreed to send the Soviet Union 1.2 million tons annually of crude oil until 1961 and one million tons annually for the following four years. In 1957, the Soviet Union agreed that Austrian deliveries should immediately fall to one million tons annually and in 1958 a 50% reduction in net crude deliveries was agreed from the beginning of 1959.
Since the end of World War II, Austria had been ruled by a coalition of the Social Democrat Party and the People’s Party. After the country regained control of its hydrocarbon resources, the parties disagreed about the future shape of the Austrian oil industry: the Social Democrats favored retaining state control while the People’s Party preferred a mixture of state and private Austrian ownership. The ad-hoc state entity which took charge of Austria’s oil assets pending a final decision, the Austrian Mineral Oil Administration, evolved into ÖMV. ÖMV remained wholly in the public sector until the late 1980s.
ÖMV’s first major project was the construction of the 1.66 million ton a year refinery at Schwechat, which was completed in 1960. The refinery replaced four refineries in the Vienna province with a combined capacity equivalent to that of Schwechat. By 1963, Schwechat’s capacity had been raised to 2.5 million tons and to 4 million tons by 1964. ÖMV thus grew increasingly dominant in refining in Austria: Schwechat capacity far outstripped the 200,000 tons per annum which foreign companies retained in Vienna Province. Schwechat remains the only major refinery in Austria in 1991.
Two petrochemical plants were also built near Schwechat to take advantage of refinery gases as feedstocks. One plant was owned by Petrochemie Danubia (PCD), a joint venture involving Montecatini and Österreichische Stickstoffswerke (ÖSW), and the other involved a partnership of ÖMV and the West German company, Farbwerke Hoechst. In 1972, ÖMV and öSW embarked upon the path which led to their merger.
Although dominant in upstream activity in Austria from its early days, ÖMV initially had a negligible presence in the distribution and retail markets. The sales of final products were carried out by subsidiaries of the oil majors. Shell was the market leader. In the early years, ÖMV had no marketing arm at all. There were two state distribution concerns, however, Martha and öROP, the former Soviet company, which operated independently of öMV and which together controlled about 15% of the market. In 1965, ÖMV acquired 100% of Martha, which had 550 distribution outlets, and 74% of öROP, later renamed ELAN, which had 620 service stations. The remaining 26% of öROP was sold to the Austrian private sector.
These acquisitions did not satisfy ÖMV’s retail ambitions. In 1971 ÖMV bought 250 service stations from Total-Austria, the fully owned subsidiary of French company, Compagnie Frangaise des Petroles (CFP), and currently has a 70% share in Total-Austria. By the beginning of the 1990s, through Total-Austria and its sales subsidiaries ÖMV Handels-Aktiengesellschaft and Stroh and Company, which was acquired in 1986, ÖMV accounted for 75% of the domestic retail market, up from 25% in 1970.
Oil production continued as a central activity, but output never returned to the 3.7 million ton levels of the mid-1950s. During the 1960s, crude output ranged from 2.2 million to 2.7 million tons. However, Austrian consumption of oil and oil products increased and quashed all ambitions of oil self-sufficiency. In 1967, domestic crude production was 2.7 million tons compared with consumption of 3.8 million tons. The gap between production and consumption continued to widen and Austria became increasingly dependent on crude oil imports from the Soviet Union.
In 1960, negotiations began between ÖMV and Shell, Mobil, British Petroleum, Esso, and Aquila—a CFP subsidiary—for the construction of a crude oil pipeline from Trieste to Vienna. It was hoped that the 480-kilometer-long pipeline, with an ultimate capacity of six million tons annually, would be completed by 1967 and would enable ÖMV to develop a wider range of crude suppliers. However, negotiations dragged on as ÖMV attempted to link the pipeline with a package deal guaranteeing a permanent dominant position in the refinery sector, and construction only began in 1968. The work was completed in July 1970. The pipeline took the form of a spur from the Trieste-Bavaria transalpine line. ÖMV had 51% of the equity, with Shell taking 14.5%, Mobil 12.5%, British Petroleum 7.5%, Esso 6.5%, CFP 4%, and ENI of Italy 4%.
Problems of supply security also occurred in relation to natural gas. ÖMV had developed Austria’s gas resources and sold gas in the domestic market at very low prices. This pricing encouraged rapid growth in consumption and large-scale utilization of gas in power stations and industry. In 1967, ÖMV announced that indigenous reserves did not justify the production of more than 1.3 billion cubic meters of gas annually. Domestic demand, however, was running at 1.8 billion cubic meters of gas per year and Soviet imports, which entered Austria through a 65-kilometer extension of the Ukraine-Czechoslovakia pipeline, were needed to make good the shortfall.
Austria entered the 1970s with a growing dependency on hydrocarbons, a high percentage of which had to be imported. Oil’s share of total domestic energy consumption had risen from 15% in the 1950s to 27% in 1962 and to over 50% for oil and gas combined in the early 1970s. These trends precipitated the emergence of the two current guiding principles of ÖMV strategy: diversification of energy supplies and internationalization of the company.
In 1970, ÖMV was primarily a domestically oriented company: it produced as much oil and gas as possible domestically and imported the remainder of its requirements from the USSR. By 1980, its crude supplies were more diverse, and supplies from Iran, Iraq, Libya, Algeria, and smaller OPEC states were becoming more important. In 1980, Saudi Arabia promised to supply Austria with 1.7 million to 2 million tons of crude oil yearly—roughly one-fifth of its import requirements. Gas supplies are still predominantly from the Soviet Union but in 1986 ÖMV, together with another Austrian company, Ferngas, signed a contract with a consortium led by Statoil of Norway for the delivery of one billion cubic meters of gas annually from the Troll field after 1993.
Potentially of even greater importance was the start of ÖMV exploration and production overseas. By 1980, ÖMV was active in Tunisia, Ireland, Libya, Egypt, and Canada. These foreign ventures remained marginal until 1985 when ÖMV acquired 25% of Occidental’s production in Libya, giving it access to about 600,000 tons of crude a year. In addition, the deal entitled ÖMV to make additional Libyan crude purchases. The company’s official aim is to cover half of the crude requirements of the refineries at Schwechat and at Burghausen from equity crude. Despite extensive domestic exploration efforts, Austria’s reserves continued to dwindle. By 1989, ÖMV sourced 30% of its crude requirements from its own ventures. OMV’s acquisition of shares in producing fields in the North Sea and Canada in 1990 will guide ÖMV towards its target.
Until the late 1980s, ÖMV remained wholly in the public sector. In 1970, Österreichische Industrieholding AG (ÖIAG), renamed Austrian Industries (AI) in February 1990, was established as the state holding company for nationalized companies. At its formation, ÖIAG employed one-sixth of the Austrian work force and owned one-fifth of Austrian industry, including 100% of ÖMV.
As one of the largest companies in Austria and as a member of the ÖIAG group, ÖMV was drawn into wider debates about the future of the Austrian economy. During the first half of the 1980s, ÖIAG showed heavy losses and was a severe drain on public finances. ÖMV was one of the few state companies that consistently made profits throughout this period. In 1987, ÖIAG was reorganized into seven sectors—oil, steel, metals, chemicals, mining, electronics, and machinery—in preparation for privatization of its holdings. ÖMV was the first on the list. In November 1987, 15% of ÖMV was sold to the public. A further 10% was sold in 1989. The original intention was that the sales should continue until 49% of the company was in private hands. The government subsequently decided that privatization efforts should be intensified and that the 49% limit on private shareholdings should be removed. Consequently, the way is clear for full-scale privatization of ÖMV in the early 1990s.
In the 1990s the company, believing that the domestic market has reached saturation point, is rationalizing its retail network. ÖMV cancelled its trademark agreement with Aral of West Germany effective September 1990. ÖMV plans to sell products under the ELAN brand in its older stations and has introduced an ÖMV brand in its other outlets. ÖMV also intends to set up a foreign network under this new brand.
Petrochemicals remain important to ÖMV which is in the throes of transforming itself into a major player in the European plastics market. The combined polyethylene and polypropylene sales of wholly owned ÖMV subsidiary PCD are approaching 600,000 metric tons annually of which 85% is exported. POB Polyolefine Burghausen GmbH, a wholly owned subsidiary of ÖMV, completed construction of a polypropylene plant in 1989 and a polyethylene plant in 1990. Both plants are located in Burghausen and are operated by another wholly owned ÖMV subsidiary, DMP Mineralol Petrochemie GmbH, with sales handled by PCD. Other subsidiaries are engaged in the further processing of plastics.
On taking office in October 1990, the Social Democratic chancellor, Franz Vranitzky, pointed to two international developments which have a tremendous bearing on Austria’s future—the economic integration of the European Community (EC) and the political and economic liberalization of the former communist countries of Central and Eastern Europe. These two developments have had a significant influence on ÖMV strategy. The 1987 purchase of German subsidiary, Deutsche Marathon Petroleum (DMP) from U.S. company Marathon Petroleum, gave ÖMV a foothold in the European Community. ÖMV has also acquired the geotextile holdings of the French company Rhone Poulenc, and a melamine plant in Castellanza, Italy.
Because of Austria’s traditional position as a staging post between East and West and because of its long-term commercial relationship with the Soviet Union, ÖMV is in a better position than most to benefit from the changes in Eastern Europe. In March 1991, ÖMV opened its first petrol station in Hungary. As part of its joint venture with Hungarian state retailer, Afor, 30 more such stations are planned in the immediate future. A joint venture has been formed with Petrol in Slovenia, Yugoslavia, to operate 25 petrol stations there. Negotiations are underway for similar ventures with the Czech company Benzinol, and the Slovak company Benzina.
Despite the publicity about the opportunities which exist in the Soviet oil and gas industry, few solid joint ventures are in place. ÖMV, however, is more advanced than most in cementing a deal. ÖMV has signed a memorandum of understanding with the Soviet region of Yakutia in northeast Siberia to develop a small field which would provide the feedstock for a one million to two million ton refinery at Lensk. The feasibility study for the refinery is already underway, and the possibility of gas exploration is being considered.
ÖMV’s strategy of diversification and internationalization will continue into the 1990s, as the company strives to overcome its poor domestic resource base. The push into Europe will continue, particularly as Austria presses its application for EC membership and attempts to break into the markets of Central and Eastern Europe.
Adria-Wien Pipeline GmbH; Erdöl-Lagergesellschaft mbH (51%); ÖMV (Angola) Exploration GmbH; ÖMV (Danemark) Exploration GmbH; ÖMV (Gabon) GmbH; ÖMV (Indonesien) Exploration GmbH; ÖMV Handels-Aktiengesellschaft (96.07%); OMV (Jordanien) Exploration GmbH; OMV (Malaysia) Exploration GmbH; OMV Mineralol-Vertriebsgesellschaft mbH; OMV (Pakistan) Exploration GmbH; ÖMV PEX 01 and Gas Exploration GmbH; PROTERRA Gesellschaft für Umwelttechnik; OMV Suez Erdöl-Aufsuchungsgesellschaft mbH; Petrochemie Danubia GmbH; Stroh & Co GmbH; Trans-Austria-Gasleitung GmbH (51%); DMP Mineralol Petrochemie GmbH (Germany); OMV Exploration and Production Ltd.; OMV (UK) Ltd.; OMV of Libya Ltd., Douglas; OMV (Norge) A/S (Norway); OMV (Canada) Ltd.; POB Polyolefine Burghausen GmbH (Germany).