July 31 (Bloomberg) -- Mol Nyrt., Hungary's biggest oil company, agreed to buy an Italian refiner to produce more gasoline and diesel in the Adriatic region and cut business costs.

Budapest-based Mol agreed to buy Italiana Energia e Servizi SpA of northeastern Italy for an undisclosed price, it said in a statement today. The Italian company, known as IES, owns a refinery in Mantua with capacity of 57,000 barrels of crude a day, a network of gas stations and a pipeline. Mol will probably pay less than 800 million euros ($1.1 billion) for IES, Bram Buring, an analyst at Wood & Co. in Prague, said today.

The Hungarian company, which can refine 190,000 barrels of crude a day, said it's planning more acquisitions in Italy to focus on the region, which includes Croatia, Austria and Slovenia. Mol, seeking to boost its 25 percent stake in Croatian refiner Ina Industrija Nafte d.d., expects the IES purchase to cut costs of fuel distribution and losses from refinery outages.

``We see possibilities for further expansion'' in Italy, Lajos Alacs, Mol's head of strategy and business development, said at a press conference in Budapest today. IES is ``a very good place to start from.'' Mol wants to buy refining and fuel-retail assets in Italy, Alacs said.

The purchase of IES may be ``a reasonable investment,'' Peter Tordai, an analyst at KBC Securities in Budapest, said today. ``Once Mol gets the majority in Croatian Ina, it may get synergies from servicing the Adriatic market.''

Mol shares fell 0.5 percent to 28,875 forint in Budapest, valuing the company at 3.2 trillion forint ($17 billion.)

Libya, Egypt Supply

IES is supplied with crude from countries including Libya and Egypt via a 124 kilometer (77 mile) pipeline it owns to the Marghera Port terminal. The company sells 2.5 million tons of petroleum products mainly in northeast Italy, owns 30 name-brand gas stations and sells fuel through 135 stations owned by partners.

The Italian refiner focuses on middle distillates, such as kerosene and diesel, which account for 47 percent of its output. Light distillates, such as gasoline and naptha, represent 17 percent of output, Mol said.

Mol's purchase of IES must be approved by regulators and is expected to be completed in the fourth quarter this year, Mol said. The payment will be made in cash.

Tordai and Buring forecast Mol would pay between 700 million euros and 800 million euros for the Italian refiner.

``The main question is why they are going to a region with a much lower growth rate compared to eastern Europe,'' said Buring. While demand for diesel in Italy may increase 2 percent to 3 percent a year, it's rising 7 percent annually in Mol's home market, he said.

IES reported a profit of 43 million euros in its 2006 fiscal year, on sales of 1.3 billion euros. The company is controlled by board chairman Mario Contini, who has 62 percent of the company, while management owns the rest.

To contact the reporter on this story: Marek Miler in Prague at m.miler@bloomberg.net

Last Updated: July 31, 2007 11:13 EDT