Stilo Share News (STL)

By Shadia Nasralla and Kirsti Knolle

LONDON/VIENNA, March 13 (Reuters) - While other Europeanenergy firms are flocking to renewables, Austria's OMVis sticking with fossil fuels and telling investors it willdeliver rising dividends, lower costs and free cash flow atjust $25 a barrel.

The strategy seems to be working. OMV has outperformedpeers, with its shares up about 25 percent in the past 12 monthsagainst a 1.8 percent drop in the sector. Over two years, thegap widens, with OMV up 85 percent and the sector up 13 percent.

Presenting its new targets to 2025 in London on Tuesday,Chief Executive Rainer Seele - who has halved production costsper barrel to around $8 in part by rapidly expanding in Russia -had no qualms about his commitment to a fossil-fuelled future.

"We will not engage in renewables. It's not part of ourstrategy. I cannot do everything," he said, outlining OMV's10-billion-euro spending programme to 2025.

Seele's comments come as other European energy companiessuch as Shell, BP Plc, Total SA andStatoil are becoming increasingly active in greenenergy, seeking to position themselves for the future.

Shell alone has spent $400 million on renewables andelectric car charging points in recent months. Analysts atBernstein reckon 'Big Oil' has invested more than $3 billion onrenewables acquisitions over the past five years, mostly solar.

Gas, the least polluting fossil fuel, is widely expected tobe crucial for reducing emissions.

OMV is aiming for the gas part of its portfolio to grow toup to 60 percent of the total by 2025, from just under half.Overall output is expected to almost double between 2015 and2025 to 600,000 barrels of oil equivalent per day.

Seele's predecessor had bet on North Sea production, whereother producers such as Premier are looking at costs ofup to $18 per barrel. But Seele is slashing costs by sellingBritish North Sea assets, reducing OMV's Norwegian footprint andboosting output in Russia, the Middle East and New Zealand.

This allows OMV to target costs at around $8 per barrelthrough 2025, requiring the oil price to be just $25 abarrel to generate free cash flow, compared with the currentmarket price of around $65.

On that basis, OMV plans to keep or raise its dividend. Itproposed its highest ever payout of 1.5 euros a share for 2017.

By comparison, BP needs a price of at least $45 per barrelto break even this year, and Statoil around $50.

"OMV's new growth strategy is encouraging despite some boldambitions for profitable growth to 2025," Jefferies, whichreaffirmed its buy rating on OMV shares, said in a note.

"The sustainable organic (free cash flow) yield (of around10 percent) to 2020 is one of the main attractions to thisstock," it said, pointing to peers on below 7 percent.(Editing by Mark Potter)