Annual Report 2015


Report 2015



MOL delivered Clean CCS EBITDA of HUF 692bn in 2015 (USD 2.5bn), which represented a significant 36% increase year-on-year (13% in USD-terms). This also meant MOL significantly outperformed its USD 2.2bn 2015 Clean CCS EBITDA target for the year. Downstream became the earnings engine of the group in 2015 contributing around two-third of the group EBITDA (as opposed to 2014 when Upstream generated more than half of the Group EBITDA). This was a further testament to MOL’s resilient business model, which enabled the company to improve its underlying financial performance amidst an extremely challenging external environment.

Net operating cash flow (USD 2.11bn) exceeded organic CAPEX (USD 1.26bn) by USD 850mn, leading to an even more robust balance sheet with Net debt/EBITDA ratio declining further to 0.73 in 2015. MOL booked sizeable impairment charges in Upstream in Q4 2015 of HUF 504bn (USD 1.7bn), which were mostly driven by the low oil price environment. These special items affected reported profit lines for both Q4 2015 and for the full year.

  • The Upstream segment’s EBITDA, excluding special items reached HUF 201bn in 2015, which was 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; (3) the 20% weakening of the HUF versus the USD mitigated the oil price decline and also (4) led to lower unit OPEX of USD 7.3/boe (barrel of oil equivalent) in 2015.
  • Downstream Clean CCS 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) materially improving product yields in refining; (4) the internal improvement and strong contribution (USD 210mn) of the Next Downstream Program; and (5) the substantial weakening of the HUF against the USD.
  • 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 loss of HUF 35bn in 2015 excluding special items, the widening of the loss compared to 2014 primarily attributable to lower contribution from oil services companies.
  • Net financial expenses declined to HUF 93bn in 2015 compared to HUF 104bn 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 0.73 from 1.31 in 2014. Net gearing rose marginally to 20.6% from 19.6%.





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, MOL managed to increase its clean CCS EBITDA by 13% compared to 2014 to USD 2.5bn, beating our targets, generating substantial free cash flows and closing the year with an even stronger balance sheet (indebtedness, as measured by Net Debt/EBITDA declining to 0.73). 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.

If 2015 was difficult, 2016 appears to be a real test for the industry with an ever increasing volatility in an already unpredictable oil market. MOL, however, retains a sense of confidence that its resilient integrated business model, its high quality, low-cost asset base, and its constant drive for efficiency would ensure it can navigate through the storm. The primary aim of the Group remains to generate enough operating cash flows to cover the internal investment needs, financial costs, taxes and dividends to shareholders, while retaining a safe and strong balance sheet. With a USD 35-50/bbl oil price view and moderate downstream margin assumptions, MOL believes to be able to deliver around USD 2bn EBITDA in 2016. At the same time, MOL, as part of its alignment process and as a response to the external environment, revised and reduced its organic capital expenditures plan for 2016 to up to USD 1.3bn. This would still imply similar organic CAPEX to 2015. Such spending plan should imply sustained free cash flow generation this year too, allowing MOL to comfortably cover interest and tax expenses, dividends to its shareholders and also potential smaller-scale acquisitions. The balance sheet would remain robust, which is increasingly becoming a distinctive feature and a major value component in a cash-strapped industry. A strong balance sheet not only means safety, but also means opportunity in the current turbulent times, providing MOL a strong platform to react if and when the opportunity arises.

In Downstream, MOL proved in 2015 that it has an efficient, highly cash generative platform which is able to capture market opportunities as it continues to invest into the long-term growth of the business. MOL generated a huge all-time high Clean CCS EBITDA of USD 1.65bn in 2015 and substantial simplified free cash flows of over USD 1bn. While the external environment was clearly an important contributor, this delivery would not have been possible without a material contribution from the internal efficiency programmes, supporting the historic high clean CCS EBITDA generation last year. Of this contribution, the recently launched Next Downstream Program saw USD 210mn contribution in its first year, exceeding our expectations. Asset and efficiency improvement measures added some USD 150mn to the program (compared to our target of USD 110mn for the year), with particular successes achieved in yield improvement, higher operational availability in petrochemicals, alternative crude sourcing and improved retail performance. At the same time, the strategic projects contributed some USD 60mn to the program, primarily on the back of the retail acquisitions and the IES improvement.

In 2016 we continue to implement our Next Downstream Program, which has to deliver another nearly USD 300mn EBITDA uplift until the end of 2017. Further efficiency measures and the petrochemicals growth projects (new butadiene plant in Tiszaújváros, new LDPE plant at Slovnaft) will be major elements of the 2016 contribution. The Next Downstream Program will be instrumental to at least partly offset the expected normalisation of the margin environment. Our assumptions imply somewhat softer margin environment in 2016 compared to the 2015 peaks, but we see both the refinery margin (our assumption is around USD 4-5/bbl in 2016) and the integrated petrochemical margin (our assumption is EUR 400-500/t) to stay above the previous few years’ averages in a low oil price environment.

In Upstream, we have strong foundations with our very low-cost, cash generative CEE production, where we also managed to reverse the recent decline and achieved an overall 7% production growth in 2015. This was primarily on the back of strong on-shore oil production growth of 20% in Croatia and 5% in Hungary in 2015.

Yet, the massive drop in crude prices require further actions. We view the low price environment not as a threat, but as an opportunity to strengthen our business and make it fit to excel even in a USD 35/bbl oil price environment. On the back of the massive success of our Downstream programs, we launch our New Upstream Program in 2016, which ultimately aims for making the business self-funding at USD 35/bbl oil price. The program will include a relentless focus on efficiency across the whole value chain. At the same time, we also adjusted our CAPEX program and plan to spend only on projects, which are robust at lower oil prices. This implies our total organic CAPEX will likely fall to around USD 0.5-0.6bn in 2016. While we also reduced our exploration budget, we do not give up on our efforts to add resources and to convert resources to reserves in the medium term to replace our reserves. Our exploration focus in 2016 will be in Norway, in near-field CEE efforts and in Pakistan. In terms of production, MOL will continue to focus on its extensive production optimisation in the CEE with the aim of increasing production in 2016. The international portfolio is also likely to see higher volumes, primarily in the UK. As a result, we expect production at 105-110 mboepd (thousand barrel of oil equivalent per day) in 2016 and 2017, slightly higher than in 2015 and then further increasing to 110-115 mboepd in 2018.