MOL GROUP Annual Report

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OTHER RESuLTSSustainable development (SD) and Health-Safety-Environment(HSE) remain a fundamental priorityIn 2010, the upstream HSE Management System has beenelaborated and introduced, providing a comprehensivetool for high-level HSE performance. With regards to INAnecessary actions to be taken related to integrated SD &HSE governance were identified and set.In Pakistan, social programs such as MOL’s scholarshipprogram or the Free Eye Clinic continued, as did our roadrehabilitation efforts. MOL provided help for inhabitantsaffected by the Pakistani floods, delivering a total of 12trucks of food and relief items (such as tents and medicines),thus supporting over 700 families.In addition, MOL undertook a Talent Program aiming toincrease appointed professionals’ skills. This is the firstinternational upstream program covering Croatia, Russiaand Pakistan.INA joined MOL’s upstream division in the Petroskillspilot project, establishing a professional competencymanagement system with the involvement of around 150employees.Commitment to efficiency improvement and strong emphasison long term asset utilisationDuring 2010 costs optimisation remained in focus, whichwas supported by Group level portfolio optimisation andharmonisation of procurement processes. With the aimof maximising the Group’s efficiency, minimising risk anduncertainty but still maintaining the quality of explorationwork, several improvements were carried out in 2010.Software acquisitions with professional training in basinmodelling and seismic sequence stratigraphy permitstate-of-the-art analysis of the evolution of hydrocarbonaccumulations. In addition, the implementation of anadvanced data gathering and analysis software guaranteesefficient data handling and capturing for drilling and workoveroperations. Its compatibility into the engineer’s desktopsystem and therefore integrated workflow not only savestime but adds value to drilling, completion and productionengineering teams as well. New reservoir characterisationmethods (high resolution micro CT), formation damagecontrol and production enhancement techniques have beendeveloped by MOL R&D and E&P divisions in cooperationwith service companies to ensure the most appropriate IOR/EOR technology and unconventional hydrocarbon reservoirfield development designs.Significant cost savings could be expected in the near futurebecause of the strategic focus on the energy rationalisationprogram of producing assets; efficiency improvingequipment (such as waste heat recoveries, electric powerplants for waste gas) have been tendered and purchased.The potential application of electromagnetic methods(CSEM) on existing exploration blocks has also beeninvestigated. New seismic processing developments aswell as reservoir modelling techniques have been applied,thus improving understanding of complex geologicalenvironments. The evaluation of surface geochemicalimaging methods and high resolution crosswell seismic werelaunched.OutlookAs a result of the global financial crisis, which started backin 2008, MOL Group decided to review its existing strategicguidelines with regards to exploration and production. It setout on a program to rationalise its portfolio and expenditures,while in 2010 the Group identified exploration-focusedgrowth as a further means of ensuring long term success.In order to optimise our portfolio on a Group level, we fullyharmonise our project and portfolio management control.MOL and INA management ensures our ability to achievemaximal value creation on a Group level within the fields ofexploration and production.In recent years, MOL has achieved sound results in termsof exploration, and MOL’s accomplishments have alreadyreceived international acclaim. The Group has also provedits operational excellence in Syria and Pakistan and in thecoming years it aims to utilise these experiences effectively.Therefore, a competency driven approach will provide astable basis for our operations and growth.In the near future we are targeting to transform ourexploration success into production and regarding fielddevelopment projects, MOL plans to maximise the value ofits existing portfolio, focusing on the short term impact ofproduction.In light of the current global economic environment, it is inMOL Group’s interest to retain its upstream-focused servicecompanies (Crosco, GES, Geoinform, Rotary) and coordinatetheir activities within a joint strategy. In order to achieve thisgoal, MOL’s harmonised business development prioritisesthe inclusion of our service companies in all countries wherethe Group is present.During the next period MOL aims to strengthen itsinternational presence, in part through forming new alliancesas well as by deepening already existing partnerships andthrough active portfolio development. On the long term,MOL plans to keep its position as a key regional energyplayer while simultaneously becoming a global benchmarkfor upstream excellence.Exploration and ProductionKurdistan Region of Iraq, Bijell-1 exploration well18 MOL GROUP AnnUAL REPORT 2010 19
InterviewwithZoltán ÁldottWhat plans does the Exploration and ProductionDivision have for 2011, and how do you see its future onthe longer term?It is well-known that production in Central Europe isabout to decline in the coming years, in accordancewith our expectations. I would like to highlight thatproduction activities in this area started already in the1930s. In order to maintain current production levelsand reserves sizes, we must turn our attention to otherregions, however those countries, where MOL Group’sE&P activities have already achieved substantialresults, and hold significant further potential, willremain in focus. Our upstream portfolio has becomemore widespread. By the end of the decade and inthe forthcoming years we are trying to seek newopportunities in territories where we have accumulatedsignificant expertise over the past years. One could saythat starting from the heart of Central Europe, we areopening up to distant parts of the world as well.Why does MOL Group emphasise the significance ofpartnerships?The key to success in today’s world lies in cooperation.This is of course the case in Central Europe, but holdsparticularly true with regards to regions far away. Nationaloil companies hold vast proportions of petroleum reservesand therefore forging ties with these companies, as well aswith authorities in the petroleum industry is essential to us.Much can be learned from these partnerships, both interms of oil industry expertise as well as culturally. Thistype of cooperation also helps to strengthen MOL’sinternational presence, which in turn fuels our ability toadapt to global changes.Zoltán ÁldottExecutive VicePresident,Explorationand Production(MOL Group)President of INAManagementBoardHow would you describe the internationalassessment of MOL’s upstream performance?The international acknowledgement of ourupstream activities is absolutely positive, andthe market is clearly appreciating our efforts andinternational presence. We are particularly proudof the results published by Herold, which rankedMOL Group as no. 1 in Europe in terms of oil andgas production efficiency in 2010.Although it is an integrated player, MOL used tobe thought of as mainly a downstream company.However, it is now gradually emerging as animportant upstream player as well due to recent years’portfolio development. Our new, exploration drivenstrategy, recent changes in the industry, as well as oursuccessful track record all underpin our belief that the key toour further growth lies in locating new exploration blocks.How can a Hungarian company become successful indistant regions, such as the Middle East or South Asia?First of all, it should be highlighted that success in projectmanagement does not depend solely on distance but onthe company’s competences and knowledge. As in the caseof all our projects, first and foremost we must prove ourexpertise in smooth operation and project execution. It isclear that oil companies should be risk takers to a certainextent and should be ready to handle not just technicalbut also political problems. Successful resolution of theexperienced difficulties is always appreciated by themarket and it is essential to be prepared for the changese.g. in the local environment. Nevertheless, choice oflocal partners is also pivotal: in Pakistan, for instance, ourpartnership with several local companies equips us withcountry-specific knowledge of vital importance.How does MOL contribute to social developmentinternationally?MOL has always stressed the importance of its socialresponsibilities. For example, we contribute to theimprovement of living conditions for Iraqis through thetax revenues of our Pearl project and other projects inthe Kurdistan Region of Iraq - in particular in the area ofelectricity generation. Or mentioning Pakistan, MOLGroup was ready to provide aid to the local peoplefollowing the biggest flood catastrophe of the lasthundred years. Our branch office dispatched the firstconsignment of relief items to help people in the floodaffecteddistricts. Food and non-food items (tents,medicines) were handed over to the representatives ofthe regions (Kohat and Nowshera).What role does Kurdistan Region of Iraq play in MOL’s future?Kurdistan Region of Iraq is without a doubt one of the flagships ofour international upstream portfolio. It is exceptionally importantfor a number of reasons, including our recent exploration successes,the huge potential of the region and our blocks, as well as thestrategic geographic location of Iraq, enabling it to potentiallyplay a vital role in Europe’s future energy supply.Following our success last year, in 2011 the second phase of theexploration program in Akri-Bijeel Block will continue, duringwhich we plan to undertake exploratory drillings. In order tofully evaluate the potential of the block, the simultaneousappraisal program will involve the drilling of several appraisalwells, the acquisition of 3D seismic as well as extended welltests. Trial production in Shaikan Block will already begin in thecoming year, and four other appraisal wells are planned. Weare convinced that both blocks will contribute to a substantialincrease in the size of our reserves and our production levels inthe future.What sort of resources do large-scale projects such asthose in the Kurdistan Region of Iraq, in Pakistan or inSyria require? How are these projects managed?The day-to-day running of such projects covers manydiverse tasks and requires the work of experts fromvarious fields. Analysts monitoring the political andsecurity situation in a particular country; geologiststaking part in exploration activities; engineersinvolved in the drilling process must all worktogether, both in our home offices as well as in thefields. The number of those involved in the projectdepends on both the stage and the speed of theproject. In the case of Akri-Bijeel Block, currently weare working on the exploration phase of the project,with a relatively low number of on-site technicalexperts. However, the number of people involvedwill increase with the start of the appraisal programdue to the parallel drilling and other tasks, such assurface activities. With the onset of production, aneven greater number of experts will take part, asis the case in MOL’s Pakistani producing assets orINA’s Syrian blocks. For example, in Syria, where theGroup’s average production this year is scheduled toreach more than 20 mboepd, we employ around 300people with the support of the head office in Zagreb.Looking towards the future, I can state that theSyrian Hayan project is an important milestone andshould be followed by several similar projects in terms of both theirscale and success, as a means to reach our long term targets.Exploration and Production20 MOL Group annual report 2010 21
Page 1 and 2: MOL GROuP ANNuAL REPORT 2010MOL GRO
Page 4 and 5: Key financial and operating dataKey
Page 6 and 7: Overview of the environmentWorld ec
Page 8 and 9: Exploration and ProductionHIGHLIGHT
Page 12 and 13: upstreaPortfolio EleentsRuSSIASPE 2
Page 14 and 15: ize MOL and INA sales channels in C
Page 16 and 17: PetrochemicalsPetrochemicalsPetroch
Page 18 and 19: Downstream portfolioelementsDomesti
Page 20 and 21: The most important events of 2010Th
Page 22 and 23: Gas and PowerGas and PowerThe Gas a
Page 24 and 25: Financial and Operational Performan
Page 26 and 27: 1.) We have audited the accompanyin
Page 28 and 29: Moderating growth in world economy,
Page 30 and 31: Higher personal expenses due to ful
Page 32 and 33: Unit OPEX slightly increasedStronge
Page 34 and 35: …and in SPE P1 reserves2010 was t
Page 36 and 37: In Slovakia sales volumes recovered
Page 38 and 39: has been granted an IPPC and a Buil
Page 40 and 41: Refining & MarketingCAPEX down by 5
Page 42 and 43: INDEPENDENT AuDITOR’S REPORTMOL H
Page 44 and 45: Consolidated balance sheet31 Decemb
Page 46 and 47: Consolidated cash flow statement31
Page 48 and 49: Joint venturesA joint venture is a
Page 50 and 51: vi) HedgingFor the purpose of hedge
Page 52 and 53: off. Upon determination of economic
Page 54 and 55: At each balance sheet date, the Com
Page 56 and 57: IAS 1 Presentation of Financial Sta
Page 58 and 59: Exploration costsTransfers from exp
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6 Subsidiaries and jointly controll
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The purchase price allocation for t
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10 Investments in associated compan
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15 Other current assets16 Cash and
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Changes in the number of ordinary,
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The following table summarises the
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28 Financial (income) / expense30 I
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The Group may use cross currency sw
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Capital managementThe primary objec
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Operating leasesOperating lease lia
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37 Notes to the consolidated statem
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Historical SummaryHistorical Summar
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Gross reserves (according to SPE ru
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Petrochmical production (kt) 2005 2
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InterviewwithGyörgy MosonyiThe str
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Objective Result Fulfillment of the
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effluents. We found that the persis
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The main programme elements are Ext
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Employee engagementWe conduct a Gro
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Ethical notifications received and
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4 Sustainability data (Performance
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5 Notes on Non-Financial Reporting5
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6 Assurance statements6.1 Independe
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CorporateCorporate GovernanceCorpor
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The Board of Directors prepares a f
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The chairman of the Supervisory Boa
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The main role of Financial Risk Man
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7.10.11.8.9.7. Mr. József Molnár
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6. Mr. József Simola (44)Corporate
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7.Mr. József Kohán (59)Member of
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Ownership Structure31.12.2009 31.12
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GlossaryAverage production costTota
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Putting into productionAccomplishme
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Content tableTopic of interestCover
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Statementresponsibilityofundersigne
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MOL GROUP Annual Report

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