LONDON/VIENNA (Reuters) - While other European energy firms are flocking to renewables, Austria's OMV is sticking with fossil fuels and telling investors it will deliver rising dividends, lower costs and free cash flow at just $25 a barrel.

The strategy seems to be working. OMV has outperformed peers, with its shares up about 25 percent in the past 12 months against a 1.8 percent drop in the sector. Over two years, the gap 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 costs per 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 our strategy. I cannot do everything," he said, outlining OMV's 10-billion-euro spending programme to 2025.

Seele's comments come as other European energy companies such as Shell , BP Plc, Total and Statoil are becoming increasingly active in green energy, seeking to position themselves for the future.

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

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

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

Seele's predecessor had bet on North Sea production, where other producers such as Premier are looking at costs of up to $18 per barrel. But Seele is slashing costs by selling British North Sea assets, reducing OMV's Norwegian footprint and boosting output in Russia, the Middle East and New Zealand.

This allows OMV to target costs at around $8 per barrel through 2025, requiring the oil price to be just $25 a barrel to generate free cash flow, compared with the current market price of around $65.

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

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

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

"The sustainable organic (free cash flow) yield (of around 10 percent) to 2020 is one of the main attractions to this stock," it said, pointing to peers on below 7 percent.

(Editing by Mark Potter)

By Shadia Nasralla and Kirsti Knolle

Stocks treated in this article : Total, Statoil, Premier Oil, OMV AG, BP