MOL GROUP Annual Report

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Unit OPEX slightly increasedStrongest acreage position in Hungaryand CroatiaContinued strong exploration trackrecordPromising exploration projects at theCroatian and Hungarian borderNew partnerships in conventionalexploration2011 work program includes drilling of further wells, commencement of gaspower generation project on Ras Qattara and start of initial production on Rizkdevelopment lease.The 2010 annual average unit OPEX (with exclusion of DD&A) was 6.6 USD/boeon Group level while without INA it increased by 0.4 USD/boe to 5.6 USD/boecompared to 2009 mostly due to higher costs.Intensive exploration activity was carried out in Hungary and we continued withour international exploration projects. In 2010 main activities were carried out inKurdistan Region of Iraq, Syria, Croatia, Pakistan, Kazakhstan, Cameroon andRussia.As at 31 December 2010, the MOL Group had 24 exploration licenses coveringmore than 27,292 square kilometres in Hungary keeping his dominant role in thecountry. In addition, through its subsidiaries the MOL Group participates in theexploration of numerous international exploration blocks located in 13 countries.The Group also has right to explore hydrocarbons in eight onshore blocks, coveringa total area of approximately 59,516 square kilometres and in three offshoreblocks with a total area of 39,813 square kilometres in Croatia.Our strong Group level exploration track record, already observed in thepreceding year, continued further in 2010 as we claimed 14 discoveries out ofa total 20 exploration wells tested in 7 countries, leading to a solid 70% successrate at the drill-bit. In Pakistan, we drilled 1 exploration well in 2010, whichresulted in a commercial discovery, while drilling of another well started in 2010and it was published as commercial discovery in Q1 2011. In Kurdistan Regionof Iraq 2 exploration wells were drilled, both of them resulted in discoveries. InEgypt 3 exploration wells were drilled, 1 of them resulted in discovery. In Croatia2 exploration wells were drilled, both of them deemed successful. In Syria oneexploration well was tested and resulted in discovery in 2010.Our conventional exploration activity in Central Europe reached an outstanding75% success rate in 2010. In Hungary, out of the 10 exploration wells tested in2010, 6 wells were classified as gas producers, 1 well as oil producer addingapproximately 4.1 MMboe to our SPE 2P reserve base. Three wells were qualifiedas dry. Well-test of one well, drilling of which started in 2010, was completed inQ1 2011 and was classified as successful, while one further well is waiting for testin Hungary at the close of this report. In Croatia there were 2 successful onshoredrillings (1 gas and 1 oil producer).In recent years INA’s conventional Croatian onshore exploration activities havefocused on evaluation of less risky prospects located near producing areas in thePannonian Basin. In Zalata – Podravska Slatina area at the Croatian-Hungarianborder, testing of Dravica-1 well was finished, resulting in a gas discovery;furthermore 3D seismic works were also completed. At Novi Gradac – Potonylicense area at the Croatian-Hungarian border, testing of Potony-1 well (inHungary) finished, which became dry. Exploration period was extended by 1 year,effective until August 31, 2011. At Selec-1 on the Sava Depression, one well wasdrilled and tested in 2010, resulting in oil discovery.MOL in combined efforts with Expert Petroleum has won the bid for threeexploration blocks in Romania. Negotiations with the Romanian Authority(NAMR) about the Concession Agreements are ongoing. In 2010 a ParticipationAgreement has been signed to re-develop and rehabilitate gas and condensatereservoirs across the Romanian-Hungarian border in joint efforts. A PreliminaryField Study and work program proposals have been discussed. MOL and CentralUnconventional exploration focusedon Derecske BasinAdriatic offshore explorationMajor discovery in the KurdistanRegion of IraqFurther exploration successes inPakistanEuropean Oil Company (CEOC) signed a Head of Terms in 2010 for rehabilitationand re-development works on 6 oil and gas fields in Hungary.Key focus in unconventional exploration was on Derecske Basin in 2010. MOLhas launched an exploration program by drilling two wells, which both provedthe presence of hydrocarbons in tight reservoirs and already producing gas fromunconventional reservoirs. In 2010 the Derecske project continued by drilling twowells. The first well proved the presence of gas and is ready for the fracturing ofthe reservoir for commercial production. The second well, explored more riskypart of the reservoir the well data are currently under evaluation.In Makó trough previous exploration wells have not justified the preliminaryexpectations and in 2010, after the evaluation of test data and the re-evaluationof the potential in Makó trough, our partnership was terminated with ExxonMobil.In 2010 MOL fulfilled its obligations and submitted final geological reports for thetwo exploratory licenses. MOL provided potential estimations to the Authority tosecure the licenses for further activity.In 2010 at Békés Basin (where the play is similar to Makó) data of Gyula-1 well drilledand fractured by Exxon and the data of Szabadkígyós-1 well were exchanged. Thechance for successful exploration has higher probability in the block compared toMakó trough. In 2010 MOL submitted a final report to the Authority for Block 101with calculations on unconventional potential, which report was approved.Exploration activity was continued on offshore Ivana Block, Croatia in partnershipwith ENI in 2010. In order to explore further gas potential the investigation of thinlayer-typereservoirs was carried out on Ivana Block during 2010, resulting in IvanaSW Thin-Layer Study. Two locations of exploratory wells were proposed; and thetechnical program has been prepared for the first one. 2010 exploration activitiesalso included the start of new G&G interpretation of thin-layer-type reservoirs,post-drilling activities connected to IKA SW2 Dir, and commencement of tworegional studies (geochemical and mineralogical).In the Kurdistan Region of Iraq MOL is the operator of Block Akri-Bijeel with anundiluted working interest of 80% and has a 20% non-operated working interestin Block Shaikan. In the Akri-Bijeel Block the Bijell-1 exploration well was finished,with total depth of 4,377 m. Several successful tests were made in the Jurassic(and earliest Cretaceous) part of the penetrated sequence and as a result the wellproduced 3.7 mboepd oil and 0.1 mboepd gas. Discovery Report on Bijell structurewas submitted to KRG.Shaikan appraisal program was approved in May 2010. It has extended well test ofShaikan-1 well, 3D seismic acquisition and drilling of 6 appraisal wells. Shaikan-3appraisal was drilled and successfully tested in Q1 2011: after acid job the wellproduced up to 9.8 mboepd oil.Surface facility of extended well test was built and oil sale started in Q4 2010. 3Dacquisition in the block was finished and evaluation started.In the Pakistani Tal Block (10% MOL share), the Makori East-1 exploratory drillingwas announced as commercial discovery on 5 November 2010. In the uppermostreservoir section at 3400 m, the first tests showed 3.2 mboepd condensate and1.9 mboepd gas inflow. The sixth discovery of Tal Block was announced from theTolanj X-1 exploratory drilling on 21 February 2011, with preliminary test result of2.9 mboepd gas capacity. The drilling of both wells will continue to penetrate andtest the deeper prospective horizons. In the Margala Block (70% MOL share) theMargala-1 drilling was deepened till January 2011. The well has been suspended,the way forward for Margala blocks is to carry out detailed post-drilled evaluation,in order to fully assess the potential of both block before making any decisionManagement Discussionand Analysis62 MOL Group ANnual Report 2010 63
Confirmed resource presence inKazakhstan and in RussiaProgress in other exploration projects:Oman, Cameroon, India, Syria, Angolaand Egypton future exploration targets. In the Margala North Block (70% MOL share)geochemical survey was performed to reveal the potential of the block. In theKarak Block (operated by MariGas, 40% MOL share) an exploration well wasspudded in January 2011.MOL is the operating shareholder (27.5%) of the Fedorovsky exploration block inKazakhstan. The Rozhkovsky U-21 appraisal drilling was finished in January 2011.First tests showed promising results. The appraisal will continue in 2011 withdrilling of two further appraisal wells and construction of surface facilities for anextended well test to start.In Russia MOL’s exploration activity was focused on Matjushkinskaya and Surgut-7Blocks. On Surgut-7 Block, a stimulation program for the 2 discoveries madeover the previous years began in 2010, including hydrofracturing activities at thefirst discovery well. On Matjushkinskaya Block, preparation works for drilling anexploration well started on Verkhne-Laryegan structure.In Oman, (75% MOL share, partner MariGas) we performed new 2D seismicacquisition, the processing will be finished in Q1 2011. After evaluating the results,an exploratory well is planned to be drilled in 2011.In Cameroon, MOL has 40% non-operated interest in the Ngosso Block. In 2009 3Dseismic acquisition was performed. After the reinterpretation of the 3D seismic,work program was changed, and instead of the planned exploration drilling, a 2Dseismic survey was designed to explore the potential of the North-Eastern partof the block; acquisition started at the end of 2010 and was completed in January2011.In India, MOL farmed into Block HF-ONN-2001/1, operated by ONGC. The35% working interest in the Himalayan Foothills was approved by the IndianGovernment in July 2009. Joint Operating Agreement was signed in November2010. The block is in the second phase of exploration. The drilling of Kasauli-1exploratory well commenced in March 2010 and is expected to reach target depthin mid-2011.In the Syrian Aphamia Block (INA has 100% share) two exploration wells were drilledand confirmed HC saturation of the structures in 2010. Based on the positive testresults of Beer As Sib -1 well further exploration activities are planned, thereforethe second extension of the initial exploration phase was made. A subhorizontalpilot well is planned to be drilled in 2011 with the aim of increasing the productionrate and achieving commercial production.In the Angolan 3/05 concession (4 % INA share) one exploratory well was drilledin 2010, which encountered gas reservoirs at two levels and was plugged andabandoned due to lack of Angolan offshore gas infrastructure. Declarations ofcommercial discoveries for the Punja & Caco/Gazela fields (drilled in previousdecades) were received in 2010. The Field Development Plan for Punja is finishedand it is in progress for Caco/Gazela.In Egypt, one exploration well was drilled on East Yidma concession in 2010,encountering a non-commercial oil accumulation. Furthermore, an oil discoverywas made by the Rawda East-1 exploration well on the North Bahariya concession,while another well drilled on the same concession, was dry and consequentlyplugged and abandoned. Exploration license on East Yidma concession expired inMarch 2011. In 2011 two exploratory wells will be drilled on non-operated blocks.Further activities in Kurdistan Regionof Iraq - Pearl - equity consolidatedSlight decrease in SPE 2P …In May 2009, MOL acquired a 10% stake in Pearl Petroleum Company Limited(Pearl Ltd) from Crescent Petroleum and Dana Gas PJSC. Pearl Ltd was set upto appraise, develop and produce two giant, multi TCF gas-condensate fields(Khor Mor and Chemchemal) in the Kurdistan Region of Iraq. Chemchemal fieldis in exploration phase, while Khor Mor field is under development and producesand supplies gas to local power plants. Local industrial needs have to be primarilysatisfied by the project, but in the future, substantial excess quantities areexpected to be available for export. The project is equity consolidated, whichdisallows recognition of hydrocarbon production share in MOL Group productionvolumes, but reserves as equity reserves still will add to Group reserves in thefuture.MOL Group’s SPE proved plus probable figures are 618.8 MMboe, (including0.9 MMboe MMBF Ltd’s reserves), which presents a decrease of 46.3 MMboecompared to the previous year mainly due to the lack of international discoveryand more strict mining extraction taxation rules in Russia to be implemetedstarting from 2012.The annual Hungarian production in 2010 reduced our gross proved plus probablereserves by 22.0 MMboe. New Hungarian discoveries and field extensionsincreased MOL’s gross proved and probable reserves by 4.1 MMboe, while therevision of reserves increased the gross proved and probable reserves by 10.5MMboe.Reserve revisions in our international portfolio resulted in a decrease in grossproved plus probable reserves of 9.5 MMboe.In accordance with SPE guidelines, as at 31 December, 2010, MOL’s share of grossproved plus probable reserves of the ZMB field was 38.5 MMbbls (43.2 MMblsin previous year). The Baitugan field had 61.9 MMbbls of proved plus probablereserves (63.6 MMbbls in previous year). Proved plus probable reserves of theMatjushkinskaya Block were 29.4 MMbbls (30.5 MMbbls in previous year).The Manzalai and Makori fields in the Tal Block (Pakistan, 8.42% MOL share) had11.9 MMboe of proved plus probable gas and condensate reserves (13.9 MMboein previous year) pertaining to our share according to the SPE reserve evaluationas of 31 December, 2010.Starting from 2009 INA’s reserves are fully consolidated into MOL’s books. INAd.d’s gross proved plus probable reserves according to SPE guidelines as at 31December 2010 amount to 304.6 MMboe consisting of 214.4 MMboe of naturalgas (including condensate and gas liquids) and 90.2 MMboe of crude oil. Previousyear’s data were 325.1 MMboe of total SPE 2P reserves consisting of 231.0 MMboeof natural gas (including condensate and gas liquids) and 94.1 MMboe of crude oilrespectively.More than 63% of INA d.d.’s proved plus probable reserves are located in theCroatian onshore fields with 194.1 MMboe of oil and gas reserves. The large partof these reserves are mainly gas and condensate reserves of 117.7 MMboe but oilreserves are also significant – 76.5 MMboe.Another important part of the Croatian portfolio are the offshore gas fields with56.8 MMboe 2P reserves and with a good potential for further enhancement.Syria is a key area of field development projects but our exploration activity is alsointensive in this country. Syrian projects have 45.7 MMboe of 2P reserves as at 31December 2010.Management Discussionand Analysis64 MOL Group ANnual Report 2010 65
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 10 and 11: OTHER RESuLTSSustainable developmen
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 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
Page 60 and 61: 6 Subsidiaries and jointly controll
Page 62 and 63: The purchase price allocation for t
Page 64 and 65: 10 Investments in associated compan
Page 66 and 67: 15 Other current assets16 Cash and
Page 68 and 69: Changes in the number of ordinary,
Page 70 and 71: The following table summarises the
Page 72 and 73: 28 Financial (income) / expense30 I
Page 75 and 76: The Group may use cross currency sw
Page 77 and 78: Capital managementThe primary objec
Page 79 and 80: Operating leasesOperating lease lia
Page 81 and 82: 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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