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Hungary' s Mol seeks acquisitions to counter output drop

BY EDITH BALAZS

BUDAPEST, Hungary (Bloomberg) -- Mol Nyrt. is focusing on new acquisitions as Hungary’s largest refiner seeks to counter a decline in production that put pressure on its profitability.

Mol is seeking to mitigate the drop in production and return to growth by the end of 2014 at the latest after “2013 turned out to be a difficult year,” Chairman Zsolt Hernadi said in a statement to the Budapest bourse. Net income in the fourth quarter plunged to 4.9 billion forint ($21.8 million) from 9.5 billion forint a year earlier and fell short of a 13.4 billion-forint estimate in a Bloomberg poll of five analysts.

“We have a good portfolio base to reverse the falling production trend,” Mol CEO Jozsef Molnar said in a video interview distributed by email today. “Our two blocks in Kurdistan are the most important ones.”

The refiner said it expects production to average 91,000 barrels per day to 96,000 barrels per day in 2014 and sees output rising to as much as 110,000 barrels per day in 2015. Peak production is set to increase to as much as 135,000 barrels per day in the long term with the current portfolio, down from previous Mol forecast that production may peak around 170,000 to 180,000 barrels per day.

Mol’s peak production guidance is negative news, driving the share price lower, Attila Vago, an analyst at Budapest-based brokerage Concorde Securities Zrt., said by phone.

“The company has essentially halved its production estimate for Kurdistan for the 2017-2018 period,” which has a “grave impact on Mol’s valuation as Kurdistan has been the upside,” he said.

Mol, which has exploration projects in over a dozen countries from Cameroon to Oman, saw its production decline an annual 10 percent in 2013. That drop was led by Hungary, Croatia, Russia and the suspension of exploration in Syria. The company, which paid $375 million for 14 exploration licenses in the North Sea last year, will focus on Pakistan, former Soviet states and the North Sea for future buys, it said.

Mol shares dropped as much as 4.3 percent today, the most in three months, and traded 2.3 percent lower at 13,280 forint at 12:16 p.m. in Budapest.

Clean CCS-based Ebitda, a closely-watched gauge of profitability, dropped 12 percent to 122 billion forint in the last quarter of 2013.

The quarterly report sheds light on “several disturbing processes” including the worse-than-expected profitability of the exploration and production unit, analysts at KBC Groep NV’s Budapest-based brokerage KBC Equitas said in an email.

Mol has a realistic chance to pay a dividend this year, CFO Jozsef Simola said in the video interview.

02/25/2014

 

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