August 10, 2017 / 6:33 AM / a year ago

UPDATE 2-Cost cuts help OMV double second-quarter adjusted operating profit

* Q2 Clean CCS EBIT 662 mln eur vs Reuters poll avg 644 mln

* Production costs fall around 20 pct to $8.7/boe

* Lowers 2017 Brent forecast to $52/bbl from $55

* Sees higher 2017 refining margins vs 2016 (Adds share price, analyst comments, background on sale of Turkish business, Russia sanctions)

By Shadia Nasralla

VIENNA, Aug 10 (Reuters) - Austrian oil and gas group OMV doubled its second-quarter adjusted operating profit to 662 million euros ($777 million), slightly above expectations, with its production cost per barrel falling by a fifth, it said on Thursday.

The adjusted operating contribution from its upstream, or exploration and production, business rose by a factor of almost 100 to 259 million euros compared with last year and costs per barrel of oil equivalent (boe) fell to $8.7.

OMV lowered its forecast for Brent crude prices this year to $52 per barrel from $55. At the same time it expects its 2017 refining margin, a buffer when the upstream segment weakens, to rise from last year’s level.

Chief Executive Rainer Seele is pursuing his target of having the “cheapest production” by buying into Russia, where production costs are as low as $2/boe, and is shedding assets in expensive North Sea locations and non-core countries like Turkey.

OMV is yet to say how the latest round of U.S. sanctions on Russia, which the European Union has criticised, will affect its business in the country. “The future of the company depends on the relationship between the EU and Russia,” said Tamas Pletser, analyst at Erste.

OMV’s sale of its Turkish petrol station business Petrol Ofisi resulted in a 1.2 billion euro hit on its net income, due to the lira weakening against the euro since OMV bought into Turkey in 2010.

This helped weigh on OMV’s shares, which were down as much as 5.6 percent in early trade having risen earlier this week to a near three-month high.

“The foreign exchange writedown came as a bit of a surprise. It’s an accounting issue but it wasn’t clear why they hadn’t made this more clear before. Otherwise they’re good, they do what they can do in this environment,” Pletser said.

OMV’s results were also helped by increased sales volumes in Libya, another low-cost country where OMV is increasing production, and Norway. Overall, OMV raised its output guidance for this year to 330,000 boe per day from 320,000.

The average estimate in a Reuters poll of analysts for clean current cost of supplies (CCS) earnings before interest and tax, which excludes special items and inventory gains or losses, was 644 million euros. ($1 = 0.8525 euros) (Reporting by Shadia Nasralla; Editing by Michael Shields and David Holmes)

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