INTERVIEW: Azerbaijan entry plays to MOL's mature field expertise: upstream chief

Hungary's MOL is using its expertise in boosting output from mature oil fields to play a significant role in Azerbaijan, as it eyes additional Caspian region opportunities, upstream Vice President Zsombor Marton said in an interview with S&P Global Commodity Insights.

Marton said MOL's entry to the flagship ACG complex in Azerbaijan in 2019 enabled it to apply eight decades of experience operating fields in Hungary and locations such as Pakistan and Kazakhstan, with the company involved in sub-surface modelling and reservoir management.

The developing relationship with state company Socar and BP in Azerbaijan has vindicated the purchase of Chevron's 9.57% stake in the Azeri-Chirag-Gunashli complex, he said, noting the stability of the production-sharing agreement, which expires in 2049 and gives MOL Azeri Light crude cargos, usable in its refineries. Azeri Light remains highly valued in jet fuel and diesel production; Platts, part of Commodity Insights, assessed the grade at a $2.31/b premium to Dated Brent on July 29. MOL also holds an 8.9% stake in the Baku-Tbilisi-Ceyhan export pipeline.

"We feel right now Azerbaijan is a great place because it's very stable, we have marketing rights... and very good relations with Socar," Marton told Commodity Insights on the sidelines of Baku Energy Week in June. "Here there is no disappointment. It's not just that you get in -- but you get your oil, you get your payment -- stability, great relations."

"We are looking into opportunities," he said. "Azerbaijan is one of the focus areas for us."

ACG produced 339,000 b/d of crude in Q1 2024, a 12% drop from a year earlier, but this decline is set to halt, Marton said, citing the startup in April of the $6 billion Azeri Central East facility, alongside MOL's ub-surface role.

Analysts at Commodity Insights expect ACE to help stabilize Azeri crude output in the next couple of years before national output levels resume their decline – partly offset by stable condensate production from the Shah Deniz field and elsewhere.

ACE, the first platform added since 2014, has handling capacity of 100,000 b/d and is expected to take "a couple of years" to ramp up, BP upstream Vice President Gordon Birrell told Commodity Insights separately. January saw the launch of a ground-breaking 4-D seismic monitoring program at ACG.

MOL's entry has been followed by other Hungarian overtures to Azerbaijan. In June, state company MVM said it was buying 5% in the Shah Deniz gas field, a supply source for Europe.

In terms of MOL's role, "reservoir management and sub-surface knowledge is something we are practically contributing," Marton said. "This is where all other non-operating partners [in ACG] very much depend on our knowledge. It matters how you do the efficiency programs -- not just right now, but the coming years' plans."

"Now I think you [will] see a stabilization in the production... and this is what we would expect: that the decline would slow down," he said.

Mature know-how

Managing mature fields in Hungary and Croatia has long been a priority for MOL, but it has recently for the first time formed joint exploration ventures in those countries. In April, the Tura oil field was discovered in Hungary in a partnership with Dutch-owned O&GD. In March, Croatia's Ina -- 49%-owned by MOL -- formed a joint venture with Canada's Vermilion Energy.

"We still produce from 40-, 50-, 60-year-old fields with single-digit production costs [per unit], so we are very cost-efficient and that allows us to always really think about how you manage mature fields," Marton said. "We do a lot of production optimization, a lot of near-field exploration."

He also highlighted MOL's role at Pakistan's TAL oil and gas block, where it is operator while holding only a 10% stake, saying MOL had "learned to appreciate smaller volumes which were neglected in the past" but that were capable of being produced with technology and simplified well design.

In Kazakhstan, MOL has a relatively low-key presence, but started up the Rozhkovskoye gas condensate field in December 2023 together with KazMunaiGaz and Sinopec-owned FIOC. The goal is to get to 1.7 million cu m/d of gas production, plus condensate, and subsequently to 2.5 million cu m/d by 2027, Marton said.

"It would be a natural step, if there is a good opportunity, to have more equity Kazakh oil as well," he said of expansion prospects there.

Challenging Kurdistan

More challenging has been MOL's business in Iraqi Kurdistan, where it is a partner in the Shaikan heavy oil field alongside Gulf Keystone Petroleum. The business there remains circumscribed by a dispute over the export pipeline to Turkey's coast, shut in March 2023. Marton described the situation, entailing exports via truck, as "really sub-optimal because you can't continue investments," but said discussions had turned more "constructive" of late.

Resolving the issue will entail talks between Baghdad, the Kurdish regional authorities and operating companies, with the goal being to maintain the "economic equilibrium" provided by existing production-sharing contracts -- a mechanism not used by Iraq's central authorities, he said. "It's very important to keep the economic equilibrium. In essence, in Baghdad they don't have production-sharing agreements and in the northern part we have PSAs. That's what we signed and that was what we based our work on. We're looking for real economic equilibrium, and to have assurances on past and future payments."

On MOL's low-carbon ambitions, Marton highlighted the potential of geothermal power generation in Hungary and Croatia, and said the company is researching lithium production from highly depleted oil and gas fields that now mainly produce water – with a view to supplying the booming battery industry. The lithium project "could be relevant for other national oil companies because all these big, mature fields with a lot of water production might contain lithium or other critical raw materials," he said. "It's a natural next step after hydrocarbons."