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INTERVIEW: MOL eyes carbon capture expansion, further acquisitions: upstream chief

Highlights

Azerbaijan ACG revenues to boost M&A war chest

Limits to further prospects in Hungary, Croatia

Carbon capture experience key to transition strategy

London — Hungary's MOL plans further investment into carbon capture projects and is on the look out for acquisitions after a tumultuous year in which it boosted output with a stake in Azerbaijan's ACG oil complex while recording its first Norwegian oil discovery, upstream executive vice president Berislav Gaso has told S&P Global Platts.

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Gaso said MOL now faced significant decline at its onshore fields in Hungary and Croatia, but anticipated more upstream deals, enabled by earnings from the company's newly acquired 9.6% stake in the BP-led Azeri Chirag Deepwater Gunashli oil fields, a deal completed a year ago.

Gaso also said MOL aimed to capitalize on decades of experience in carbon capture and storage gained in Croatia and Hungary as the technology gains importance in the energy transition.

MOL cut its breakeven oil price from $30/b to $25/b during the pandemic. And despite an "awful" 2020 marked by operational challenges, low prices and depressed gas demand, "we still delivered $9 in preferred free cash flow on every barrel that we lifted, which is an amazing financial outcome for a depressed macro environment," Gaso said in the interview, conducted last month.

Looking ahead, the ACG stake should help stabilize MOL's upstream production, having provided a significant boost last year, with overall production expected to be in a range of 100-110,000 b/d of oil equivalent over the next five years.

The company can expect "very massive cash generation" from the upstream assets, assuming oil prices in a range of $50-60/b, Gaso said. And "if there is a good [acquisition] opportunity out there, we will do it," he said.

"It won't be of the size of ACG. There won't be a $1.5 billion-plus acquisition, but several hundred million dollars is not excluded at all," he added.

MOL managed to keep its onshore production relatively stable over the last five years, notably in Hungary, but Gaso said this could not be sustained. The company's Hungarian production dates back more than half a century and production from flagship field Algyo peaked in the 1970s at around 30,000 b/d.

Gaso said MOL was scaling back exploration in both Croatia and Hungary and would restrict itself to searching for gas in the Croatian Adriatic. Production from MOL's Croatian and Hungarian oil and gas assets is expected to fall to 45,000-50,000 boe/d over the next few years, from 62,000 boe/d last year, he said.

Azerbaijan entry

Gaso said MOL's entry to Azerbaijan with the purchase of Chevron's stake in ACG remained a sound move, despite the subsequent resumption of fighting over the breakaway Nagorno-Karabakh region, in which rockets landed close to the country's main export route, the Baku-Tbilisi-Ceyhan pipeline, in October, according to government officials.

The violence had not impacted operations, and despite output declining in recent years, ACG remains a "world class" asset, with a highly favorable legal framework and strong production prospects, Gaso said.

Central to those prospects is Azeri Central East, a project targeting 300 million barrels of reserves with a new platform that will be able to handle 100,000 b/d. The project remains on track to start producing in 2023, while BP is working to improve reservoir management and the design and completion of wells at ACG as a whole, Gaso said.

"There's lots of innovation happening. BP... have already said that ACG and the Azerbaijan position is absolutely core to their transformation story. There's a clear commitment by the operator to stay and to extract as much value as possible from ACG," he said.

In the North Sea meanwhile, MOL aims to drill two appraisal wells this year at its PL820S discovery offshore Norway, estimated at 12 million-71 million barrels of oil equivalent, while the UK Catcher field, in which it holds a 20% stake, has "consistently out-performed," Gaso said. Production at Catcher, which came on stream in 2017 and is operated by Harbour Energy, with MOL holding a 20% stake, was restored to 60,000 b/d at the end of 2020 following technical problems earlier in the year.

Transition strategy

On the energy transition, Gaso predicted a growing role for carbon capture and storage and said this played to MOL's strengths due to its experience with carbon injection projects aimed at boosting output at its Croatian and Hungarian fields. The company has identified 70 million mt of "absolutely safe" CO2 storage potential in reservoirs in Croatia and Hungary, he said.

"We have decades of experience in injecting CO2 and applying tertiary methods in upstream. We have one of the most sophisticated enhanced oil recovery projects that we launched in Europe in Croatia," he said, referring to a project at the Ivanic and Zutica fields implemented since 2014.

Gaso went on to highlight the cost of capturing emissions, rather than transporting and storing CO2, as the main obstacle for the industry, saying the cost of CO2 capture typically exceeded European carbon prices. But he predicted carbon prices would rise and governments turn to subsidizing the operating cost of carbon capture projects, rather than just investment costs, and added that "enormous amounts" of technological innovation was taking place in the area.

With oil demand returning to a more "normal mode" in the wake of the pandemic, Gaso said MOL is preparing for a world in which hydrocarbons could account for 50% of energy consumption a decade from now, rather than around 80% today, necessitating a growing focus on efficiency, while the company also increasingly focuses on low-carbon projects.

"As industry participants we have to make sure that we do our utmost to transform and to abide by CO2 targets and Environmental, Social and Corporate Governance ambitions. MOL is in the same boat as others," Gaso said.