Risk Management
The main purpose of the OMV Group’s Enterprise Wide Risk Management (EWRM) is to deliver value through risk-based management and decision-making. Assessment of financial, operational and strategic risks supports the exploitation of business opportunities in a systematic manner in order to ensure sustainable growth in OMV’s value. Since 2003, the EWRM program has helped to enhance risk awareness and risk management skills across the entire organization, including within subsidiaries in more than 20 countries. OMV Group is constantly enhancing the EWRM based on internal and external requirements. A cross-functional committee chaired by the OMV Group CFO with senior management members of the OMV Group – the Risk Committee – ensures that the EWRM effectively captures and manages the material risks across the OMV Group.
The OMV Executive Board (EB) is responsible for risk oversight, that is, the process by which the EB determines that management has in place a rigorous process for identifying, prioritizing, managing and monitoring the critical risks of and within OMV Group. A cross-functional committee chaired by the OMV Group CFO with senior management members of the OMV Group – the Risk Committee – assists and advises EB in analyzing, monitoring and reporting the risk profile of the company and taking appropriate measure.
The OMV EWRM framework provides a systematic approach to managing risks. It consists of the following:
- Establishing the context against which risks will be evaluated.
- Identifying and analyzing risks to understand OMV’s risk profile and prioritize risks inorder to make decisions about risk mitigation. Mitigating risks so that they are within desired tolerances.
- Reporting and reviewing risks through continuous surveillance of changes to the risk profile.
- Communicating to and consulting stakeholders to understand the reasons why particular actions are required.
The risk management process is facilitated by a Group-wide IT system supporting the established individual process steps: risk identification, risk analysis, risk evaluation, risk treatment, reporting and risk review through continuous surveillance of changes to the risk profile. Overall risk resulting from the bottom-up risk management process is computed using Monte Carlo simulations and compared against planning data. This is further combined with a senior management view from a top-down approach to capture the risks implied in the strategy. This process also includes those companies that are not fully consolidated.
Twice a year, the results from this process are consolidated and presented to the Executive Board and the Audit Committee.
The key nonfinancial and financial risks identified with respect to OMV’s medium-term plan are
- Operational risks, including all risks related to physical assets, production risks, project risks, personnel risks, IT risks, HSSE and regulatory/ compliance risks
- Strategic risks arising, for example, from changes in technology, risks to reputation or political uncertainties, including sanctions
- Financial risks including market price risks and foreign exchange risks
OMV operates and has financial investments in countries that are subject to political uncertainties, in particular, Libya, Kazakhstan, Yemen, Pakistan, Russia, Tunisia and Turkey. Possible political changes may lead to disruptions and limitations in production as well as an increased tax burden, restrictions on foreign ownership or even nationalization of property.
However, OMV has extensive experience in the political environment in Central, Eastern and Southeastern Europe, and political developments in all markets where OMV operates are kept under constant observation. Country-specific risks are assessed before entering new countries. OMV evaluates the risk of potential US or EU sanctions and their impact on planned or existing operations with the aim to stay in full compliance with all applicable sanctions.
Risks related to the EU Emission Trading Scheme are separately recorded and aggregated for the Group as a whole. Furthermore, OMV is monitoring emerging regulations related to climate change and de-carbonization in all operating countries.
Through systematic staff succession and development planning, Corporate Human Resources plans for suitable managerial staff to meet future growth requirements in order to mitigate personnel risks.
The OMV Group is exposed to a wide range of health, safety, security and environmental risks that could result in significant losses.
Control and mitigation of assessed risks takes place at all organizational levels using clearly defined risk policies and responsibilities. The key Group risks are governed centrally to ensure the ability to meet the planning objectives through the essence of corporate directives, including those relating to health, safety, security, environment, legal matters, compliance, human resources and corporate social responsibility, with special emphasis on human rights and market price risks.
In accordance with the Austrian Corporate Governance Code, the effectiveness of OMV risk management system is assessed by the external auditors on comply or explain basis and was always found as compliant.
OMV evaluates the impact of foreign currency fluctuations netted on our cash flows over a one-year budget period, in particular the impact on cash flows denominated in USD or cash flows related to products which prices are quoted in USD.
At least once a year, we calculate the sensitivity of our operations to foreign currency fluctuations, in particular the EUR/USD exchange rate.
Strategic commodity risks are managed centrally by Corporate Risk Management according to the risk management principals defined in the corporate guidelines.
The overall aim is to protect cash flows and to maintain an investment grade rating.
Strategic hedging is done on the basis of a Business at Risk portfolio model on a Cash Flow at Risk basis. Hereby only specified production - by price exposure, hedge-ability and in consideration of taxes - is considered as risk basis. Primarily derivative instruments such as options and swaps are used for hedging.
OMV uses financial instruments only to hedge commodity prices volatility; the Company does not enter derivative instruments for speculative purposes. The Group uses mainly over-the-counter (“OTC”) contracts with prime counterparties.
Exchange traded oil futures and OTC contracts are also sometimes used to operatively hedge short-term price exposure in the supply and trading activities of the downstream business.
To manage interest rate risk, OMV evaluates the profile of its fixed income portfolio in terms of fixed and variable ratios, currency mix, maturities, and debt due within certain bands.
OMV is exposed to risks related to transactions with banks and other counterparties. The credit risk management activities include the assessment, credit limit setting, reporting and mitigation of these risks. In OMV, the credit limits are assigned to every counterparty, bank and security provider together with a risk class based upon the credit rating (external or internal), being valid for a maximum of one year and further reviewed considering market events on an ad-hoc basis.
The assessment of counterparty and bank risks is based on external information sources and credit ratings. An electronic workflow tool supports the initiation and approvals of all limits, satisfying the “four eyes principle” requirements.
Group credit limits for counterparties having activities group wide are coordinated by Corporate Credit Risk Management Department.