OREANDA-NEWS. MOL Hungarian Oil and Gas Plc. announced its 2015 fourth quarter and annual results. This report contains consolidated, unaudited financial statements for the twelve month period ended 31 December 2015 as prepared by the management in accordance with International Financial Reporting Standards.

Financial highlights
► Strong Clean CCS EBITDA delivery of HUF 147bn (USD 515m) in Q4 2015, implying that MOL significantly outperformed its USD 2.2bn 2015 Clean CCS EBITDA target (FY 2015 at USD 2.5bn)
► Net operating cash flow (USD 2.11bn) exceeded organic CAPEX (USD 1.26bn) by USD 850m, leading to an even more robust balance sheet (Net debt/EBITDA at a mere 0.7x)
► Sizeable impairment charges of HUF 504bn (USD 1.7bn), mostly driven by the low oil price environment, affected reported profit
► Downstream remained the earnings engine of the group with its best ever Q4 performance of HUF 106bn Clean CCS EBITDA

Operating highlights
► Upstream production strongly up in Q4 2015 (+8% quarter-on-quarter, +5% year-on-year) to 108 mboepd
► Hungarian and Croatian crude output grew 11% and 16% year-on-year, respectively
► Next Downstream Program delivery ahead of plans (USD 210mn EBITDA contribution in 2015)
► New butadiene plant launched commercial production in Hungary
► Captive retail market to expand further with the acquisition of the ENI networks in Hungary and Slovenia
► Strong motor fuel demand growth (5%) in the core CEE market remains a tailwind
► A substantial year-on-year decrease (-23%) in injury rate (TRIR) for own staff in 2015

Zsolt Hernádi, MOL Chairman & CEO, comments: “2015 was a year of extremes with the oil price plunging more than 70% from its 2014 summer peak. The oil & gas industry, including MOL, had to face one of the toughest operating environments of the past two decades. Yet despite the challenges, we managed to increase our clean results by 13% compared to 2014, beating our targets, generating substantial free cash flows and closing the year with a very strong balance sheet. These achievements have placed MOL ahead of most of the integrated oil companies. The dramatically changed environment forced us to take some painful yet necessary decisions, including the revision of the fair value of our Upstream assets. This resulted in material non-cash impairment charges, similarly to many oil and gas companies. Despite an increasing volatility in an already unpredictable oil market, we retain a sense of confidence as we face the challenges in the year ahead. MOL proved in 2015 that it has an efficient, highly cash generative Downstream platform which is able to capture market opportunities as it continues to invest into the long-term growth of the business. In addition, the first year delivery of the Next Downstream Program already exceeded our expectations. Simultaneously, we are in the process of realigning our Upstream division with the aim of operating profitably even in a USD 35/bbl oil price environment not only in the CEE but also internationally. The recent successes in not only turning around, but growing CEE oil production and maintaining a highly competitive unit OPEX are great examples of the kind of operational progress we strive for. Our ultimate goal for 2016 is to generate around USD 2bn EBITDA and sufficient cash flows to be able to continue to cover both internal investment needs and dividends to our shareholders, even under adverse scenarios.“

► The Upstream segment’s EBITDA, excluding special items reached HUF 44bn in the fourth quarter, which brought the annual figure to HUF 201bn in 2015. This is HUF 70bn lower compared to 2014, due to the halving crude prices, which offset several positive developments: (1) CEE production overall grew by 2% year-on-year supported by a 12% uplift in oil volumes, (2) exploration related spending was materially lower and (3) the 20% weakening of the HUF versus the USD mitigated the oil price decline.
► Downstream: Clean CCS EBITDA moderated somewhat to HUF 106bn in Q4 2015 mostly due to seasonal factors following a spike in earnings to all-time high levels in Q3. Clean CSS EBITDA more than doubled in 2015 compared to 2014 and came in at HUF 462bn. The performance was supported by (1) the favourable external macro environment, including a substantial uplift of both refining margins and the integrated petrochemical margin; (2) higher sales volumes in R&M, petrochemicals and retail; (3) the substantial weakening of the HUF against the USD and (4) the internal improvements of the Next Downstream Program.
► Gas Midstream brought in full-year EBITDA of HUF 60bn, marginally higher year-on-year as a strong contribution in Q4 offset weaker delivery in the first nine months. ► Corporate and other segment delivered an EBITDA of HUF (35bn) in 2015, the widening of the loss vs. 2014 primarily attributable to lower contribution from oil services companies.
► Net financial expenses declined to HUF 93bn in 2015 versus HUF 105bn in the previous year, primarily on lower FX losses.
► CAPEX spending in 2015 reached HUF 438bn (USD 1.56bn), down 18% year-on-year on much lower E&P spending. Out of this amount HUF 84bn (USD 301mn) was spent on inorganic investments, including retail network expansions and North Sea acquisitions.
► Operating cash flow before working capital changes jumped 53% year-on-year to HUF 644bn increasing by HUF 222bn against the base period. There were some negative changes in net working capital (primarily on lower payables), thus net cash provided by operating activities amounted to HUF 592bn, up 36% year-on-year.
► Net debt declined to HUF 472bn in 2015 from HUF 536bn a year ago, while Net Debt/EBITDA sank further to 0.73x from 1.31 in 2014. Net gearing rose marginally to 20.6% from 19.6%.

Fourth quarter 2015 results

EBITDA, excluding special items, amounted to HUF 44bn in Q4 2015, an increase of HUF 1bn compared to Q3 2015, but HUF 21bn lower than in Q4 2014. Operating loss amounted to HUF 494bn in Q4, implying HUF 582bn DD&A expenses on the back of the large impairment charges for the period and higher-than-usual depreciation in Q4 2015.

(+) Average daily hydrocarbon production rose by 8 mboepd (or 8%) quarter-on-quarter to 108 mboepd during Q4 2015. CEE delivered a big part of the production growth, adding 5 mboepd quarter-on-quarter: in Hungary production intensification and well workovers added to the volumes (+10% quarter-on-quarter), while in Croatia production edged up as a result of extended well work-over and well optimisation activities. Production increased in the UK on higher asset availability (annual maintenance in the Scott, Telford and Rochelle fields occurred in Q3), a successful infill well on Scott and the production start-up of the Cladhan field in mid-December. Production also rose 5% year-on-year on higher volumes in Pakistan, the Kurdistan Region of Iraq and the UK.

(+) Group-level average direct production cost, excluding DD&A, was USD 7.3 USD/boe, flat quarter-onquarter but materially, by 18% down year-on-year. Operating expenditure in Upstream, including DD&A, but without special items totalled HUF 134bn, representing a HUF 33bn decrease versus Q3 2015.
(+) The Hungarian Forint was weaker in Q4 2015 versus the USD (-16% year-on-year and -2% quarter-onquarter), supporting EBITDA.
(+/-) Release of provisions on CEE assets created for field abandonment liabilities added to EBITDA in Q4 2015, but this was mostly offset by various smaller non-recurring items.
(-) a 12% overall decrease quarter-on-quarter in the average realized hydrocarbon prices: lower Brent quotations resulted in a 9% drop in the realised crude oil and condensate prices, while realized gas prices were down by 15% quarter-on-quarter. The impact of lower realised prices was mitigated by lower royalty payments. Royalties levied on Upstream production (including export duties on Russian sales) amounted to HUF 14bn in Q4 2015, a decrease of HUF 1bn in comparison to Q3 2015, mainly realized in Russia and Croatia.

DD&A expenses excluding special items were at HUF 78bn in Q4 2015, rising materially both quarter-on-quarter and year-on-year, primarily due to 1) higher dry well costs (Pakistan, Oman), 2) materially higher UK DD&A (on much increased production and year-end production reconciliation) and higher INA DD&A (on Croatian offshore depreciation).

Impairment charges and other special items in Q4 2015

Reported EBITDA was HUF 88bn in Q4 2015, as a total of HUF 44bn special items boosted reported EBITDA in the period:

(+) The European General Court has made a decision supporting the case of MOL in an appeal by the European Commission. According to the final court decision the previously fixed mining royalties on certain fields cannot be considered as state aid. The corresponding provision has been released, resulting in an uplift of HUF 35bn in reported EBITDA in Q4 2015.
(+) Following the abandonment activities in Cameroon, MOL has recycled the Cumulative Translation Adjustments so far recognized in Shareholders’ Equity pertaining to these assets and realized a HUF 9bn EBITDA gain in Q4 2015.

Reported EBIT was a loss of HUF 494bn in Q4 2015, as a total of HUF 460bn special items decreased reported EBIT. In addition to the above special items, material asset impairment charges of HUF 504bn in total (EBITDA neutral, but affecting DD&A and hence EBIT) affected reported EBIT:

(-) MOL booked HUF 131bn impairment related to the relinquishment of the Akri Bijeel block, as assets were written off in Q4 2015 in line with the previous announcements on the licence.
(-) MOL also booked an additional HUF 373bn asset impairment charges in Q4 2015, which was mainly driven by the revised premises (primarily oil price assumptions) used for the valuation of the assets. The largest items were related to 1) the UK assets (HUF 218bn), where the impairment was primarily premisesdriven, 2) INA (HUF 109bn), while 3) the remaining HUF 46bn was booked on various other E&P assets.

FY 2015 results

EBITDA, excluding special items, amounted to HUF 201bn in 2015, HUF 70bn lower year-on-year or 26% down compared to 2014.

(-) The 47% decline in Brent prices triggered a 45% drop in realised crude oil prices, while realized gas prices decreased by 23% year-on-year. This was partly offset by lower royalty payments, as royalties on Upstream production (including export duties relating to Russian sales) amounted to HUF 63bn in 2015, a decrease of HUF 36bn compared to 2014, driven by lower oil prices.
(-) Adverse regulatory changes in Croatia: the reduction of regulated gas price and an increase in the royalty rate from 5% to 10% (as of Q2 2014).
(+) A 20% depreciation of the HUF versus the USD only partly mitigated the oil price decline.
(+) Group-level average direct production cost, excluding DD&A, was at USD 7.3 USD/boe, 7% below last year’s level. Operating expenditures in Upstream, including DD&A, but without special items totalled HUF 435bn, representing a HUF 34bn decrease versus 2014.
(+) Exploration expenses were lower by HUF 8bn due to the different work program in the international portfolio.
(+) Total production rose 7% year-on-year to 104 mboepd in 2015 supported by a 4 mboepd and a 2 mboepd increase in the UK and Croatia, respectively. Excluding inorganic elements, i.e. the sale of a 49% stake in the Russian Baitex and the two UK North Sea deals closed in 2014, production increased by 3 mboepd year-onyear as a result of higher contribution from Croatia (+2 mboepd) and the ramp-up of volumes in the Shaikan block in the Kurdistan Region of Iraq (+1 mboepd). Croatian crude oil and offshore gas production showed better performance due to the ongoing well optimization program (4P) and as a result of the new offshore well tie-ins on the Adriatic Sea (Izabela and IKA-SW) during 2014. In Hungary, the production remained almost flat in comparison to the base period, which was a significant achievement vs. earlier projections of up to 5% annual decline.


MOL is actively progressing with development and production intensification campaigns in order to mitigate production decline and maximise cash-flow in its mature fields in the CEE. Successful efforts were well demonstrated by the impressive oil production growth delivered in Q4 2015 in both Croatia (+15.7% year-on-year) and Hungary (+10.8% year-on-year).

 In Hungary, MOL continued an extensive production intensification program started in Q3 2015, which already resulted in 1.1 mboepd annualized production impact, or an 11% oil production growth in Q4 2015 year-on-year. MOL was also awarded two exploration concession blocks in November
 In Croatia, the production intensification campaign continued and delivered a 20% oil production growth and 7% total hydrocarbon volumes growth in 2015 year-on-year. Well stimulations were performed on 8 wells and 17 well workovers were completed. The Ivanić-Zutica EOR project is progressing with the injection of CO2 into 10 wells on the Ivanić field, and 8 wells on the Žutica North field.


Increasing production from non-operated UK assets after first oil on Cladhan and first infill well delivered on Scott.

 Scott, Telford & Rochelle: The well stock review was completed and an infill drilling programme commenced successfully in September with the first infill well delivered on Scott.
 Cladhan: First oil was achieved on 16 December and since then the field has been performing broadly in line with expectations.
 Catcher: The project remains within budget with the operator still expecting first oil in 2017. The drilling of the first two wells was completed with a positive flowback and injectivity test while drilling commences on the third well. A mitigation plan has been implemented to minimize the impact of an earlier slippage in the FPSO construction to the overall project schedule.
 Scolty/Crathes: This project remains on schedule and on budget; the drilling of the development wells scheduled to begin in early 2016 with first oil anticipated by the first half of 2017.


The exploration resource base has been further enhanced by farm-in of new acreages and MOL Norge was awarded interests in 4 new licences in the 2015 APA round.

 MOL has successfully acquired interest in three Norwegian North Sea non-operated licences from Det norske oljeselskap ASA. These licences are located within MOL Norge AS’s strategic core area.
 In addition, in the 2015 APA round, MOL Norge was awarded interest in 4 licences, 2 of which are operated.

Kurdistan Region of Iraq

The non-operated Shaikan field has stabilised production and export pipeline deliveries. Any further field development decision is expected only once regular payments from the MNR for the current production and the arrears are received. The Akri-Bijeel block was relinquished on 31st December 2015.

 Production and export pipeline deliveries from the Shaikan field were sustained at an average level of 36 mboepd (gross) in December 2015.
 Since September 2015 Shaikan block’s Operator, Gulf Keystone Petroleum (GKP) has received four monthly payments of USD 15mn gross each with MOL’s share being USD 3mn per payment and a fifth payment was also authorized. The last payment includes a PSC-based revenue entitlement as well as a payment towards the recovery of arrears. This is in line with the earlier statement of the Kurdistan Regional Government (KRG) that from January 2016, the monthly payments to the producing international oil companies will be based on the contractual entitlements under the Production Sharing Contract governing each license.
 GKP continues to exercise a prudent approach to investment in the field until the establishment of a regular payment cycle for all crude oil sales.
 The Relinquishment and Termination Agreement of the Akri Bijeel block was signed on 31st December 2015.


MOL continued to produce at 70+ mboepd (100% block) in the TAL block. MOL has also carried out successful exploration in the neighbouring blocks. MOL extended its presence to the Middle Indus Region after closing the purchase of 30% interest in DG Khan Block.

 The exploration program continues with the drilling on TAL’s Tolanj and Makori fields. Following the discovery of Kalabagh-1 in the Karak block in September an Early Production Facility was commissioned in November. The Margala-North licence has been relinquished.
 The development program in the TAL block also continued. The tie-in of Makori East-4 well has been completed with an expected incremental production of around 6 mboepd (gross) and the drilling of Makori East-5 is in progress.
 The Government of Pakistan approved the purchase of 30% working interest in DG Khan Block which extends MOL’s presence to the Middle Indus Region.


In Oman, MOL Group progressed maturation of two exploration wells in Block 66, located in the western part of the country.

 The first exploratory well (Maisoorah-1) was spudded in November 2015 and reached the targeted total depth of 3240m in January 2016. The well proved to be dry and has been since written off.


MOL aims at increasing Baitugan field production in Russia via a high density drilling campaign. In the Fedorovsky block in Kazakhstan the appraisal program of the Bashkirian discovery is ongoing.

 In the Russian Baitugan Block, 60 wells were drilled and completed in 2015. In the Yerilkinskiy Block the first exploration well was spudded in October with results expected in Q1 2016.
 In the Fedorovsky block in Kazakhstan the appraisal program of the Bashkirian discovery is ongoing. Further exploration upside is targeted by the Joint Venture through the acquisition and processing of 3D seismic.