Mol Scales Back Investment Plans to Ride Out Oil Slump, COO Says

  • Hungarian refiner sees writedowns on North Sea, other assets
  • Company to focus on costs, not acquisitions in 2016, Gaso says

Mol Nyrt. is planning to cut back investment and focus on assets closer to Hungary that can still generate cash after a plunge in oil prices, the head of the upstream division at Hungary’s largest refiner said.

Mol has expanded in Norway and the U.K. in the past two years to add low-risk areas to its portfolio, which stretches as far as Pakistan and Iraq. While the U.K.’s North Sea basin isn’t profitable with oil trading at $30 a barrel, there’s still "upside" in assets in Hungary and Croatia, Berislav Gaso, the chief operating officer in charge of the exploration and production division, said in an interview on Tuesday in Budapest. Controlling costs is more important at the moment than chasing production goals or acquisitions, he said.

"Our priorities for this year are focusing on what we have, extracting value from the assets,"said Gaso, who took over the division last September. "I like barrels but I like dollars even more and in a $30 environment it is all about dollars when you operate in upstream."

Hungary’s second-largest listed company by market value, which operates in 40 countries, is betting on lower spending as oil prices slumping to the lowest in more than a decade force industry players worldwide to rethink strategy to stay afloat. Mol will cut operating costs and will only invest in projects that can break even at an oil price of $30 a barrel, according to Gaso.

Robust Portfolio

Mol will book a writedown on its North Sea assets and will make adjustments to the net value of other smaller portfolio elements in its next quarterly earnings report due Feb. 24, Gaso said. The company has also announced a writedown on one of its investments in Kurdistan which yielded disappointing test results.

Mol shares dropped 1.6 percent by 3:33 p.m. in Budapest, extending this year’s loss to 3.4 percent. The stock gained 23 percent in 2015 following two years of declines.

Mol is intensifying production in Hungary and Croatia, which together account for close to 80 percent of the group’s overall output as "there’s still a lot of value to be extracted from these assets," Gaso said. As a result, production in Hungary rose in the last three months of 2015 from the previous quarter and Croatian onshore oil production rose on an annual basis, he said.

Mol is also looking to bring more production on line at its Baituganskoye field in Russia, operated jointly with Turkish Petroleum and won 4 new licenses in Norway last month, Gaso said. That was a significant addition to the existing 685 million barrels of oil equivalent North Sea exploration portfolio, according to Gaso.

"The large majority of our portfolio is robust and generating cash even with oil prices of $30 a barrel," Gaso said. "Upstream profitability is challenged but the division will remain a very stable contributor to Mol’s Ebitda and operating cash flow."

Gaso declined to give specific output or investment targets before the financial report scheduled for Feb. 24. Under Mol’s latest published guidance, production was to rise to as much as 115,000 barrels a day this year from an expected daily output of 105,000 barrels in 2015. Mol doesn’t have a shortlist of upstream assets it’s looking to sell and acquisitions are also not among the priorities for 2016, Gaso said.

Before it's here, it's on the Bloomberg Terminal.