Magyar Olaj-es Gazipari (MOL) is a leading international, integrated oil and gas company headquartered in Budapest, Hungary, with operations in Europe, the Middle East, Central Asia, Africa and the CIS member states. Zoltán Áldott, MOL’s Executive Vice President of Exploration and Production, discusses the company’s efforts and successes in the various regions in which it is active as well as the challenges it faces with declining domestic production.
World Oil: What are some of the company’s major domestic (Hungarian) exploration and development programs scheduled this year and beyond?
Zoltán Áldott: This year and in forthcoming years, MOL’s scheduled Central and Eastern European exploration and development programs are focusing on mitigating the decline of our producing fields in the region. This will be carried out by production intensification projects in several mature fields while also putting our recent discoveries into production in the following years, and drilling and/or testing of eight to 12 exploration wells annually to increase the reserves base while acquiring 3D seismic in order to improve our chance for successful drilling.
WO: Are Hungary’s small oil and gas reserves a matter of geology, or are the resources there but awaiting technology breakthroughs to make them technically or economically recoverable?
Áldott: Hungary has a complex geological setting and hydrocarbon system. In the past 80 years, most of the country’s territory has been explored. The largest oil and gas fields, with a recoverable reserve base above 100 million boe, have been discovered between the ’50s and ’80s and are already in the mature production phase with necessary intensification methodologies used to increase recovery, while the remaining conventional prospects have lower resource potential.
However, with the most up-to-date, state-of-the-art technologies, these smaller prospects are economically recoverable, resulting in significant value generation. By targeting these smaller prospects in our Hungarian exploration activities in 2005, we achieved high success rates in these smaller prospects with nearly a 70% average well success ratio.
In addition, Hungary has significant unconventional hydrocarbon potential, with a sizeable resource base compared to conventional fields in five different basins. In certain basins, we have already launched pilot projects to test this potential, based on which economic production can be achieved in the coming decade.
WO: What technical challenges must be overcome to increase Hungary’s domestic oil and gas production?
Áldott: Due to the mature producing fields in our portfolio and complex geological environments in the Pannonian Basin, in recent years our biggest challenge was to extend the existing experiences in investigation and implementation of enhanced or improved hydrocarbon recovery methods in more complex geological systems and deeper target reservoirs by applying a more integrated evaluation of seismic and porosity modeling. In addition, we integrated modeling of surface and subsurface systems, while also applying more detailed reservoir characterization to define more precise well paths.
In 2007, MOL prepared a detailed screening of EOR and EGR [enhanced oil and gas recovery] opportunities in Hungary, based on which recovery improvement project implementations are being initiated in certain projects, while continuous complex reservoir management also supports putting our undeveloped reserve base into production in order to increase profitability.
WO: How does government policy affect E&P operations in Hungary?
Áldott: Hungary has a predictable regulatory environment, which applies to the mining activities as well. The mining legislation is fully compliant with the EU rules. In recent years regulation in relation to geothermal activities has been passed as well, which is sufficient to give legal certainty for capital investments in that area as well.
WO: How do you see Hungary’s oil and gas production trending in the next few years?
Áldott: Most of MOL’s Hungarian oil and gas fields are in the mature phase, with a normal production decline being recognized as a result of natural depletion in accordance with the latest forecast. Crude oil and gas production from our proved reserve base is expected to decrease by two-thirds from the current level by 2020. However, we put significant efforts to mitigate this decline by increased exploration and accelerated field development activities and/or by launching new improved and enhanced recovery applications.
WO: MOL is conducting E&P programs in Russia, Kazakhstan and Pakistan. Would you speak to the E&P efforts?
Áldott: In Russia, MOL is present in two regions, Volga-Ural and West Siberia, with operatorship in three projects—Baitugan, Surgut-7 and Matjushkinsky—through 100%-owned operating subsidiaries. MOL is a member of a joint venture company operated by Russneft, which owns the ZMB production license.
In the ZMB [Zapadno-Malobalyk] Field, in which MOL acquired 50% share in 2002, MOL has 13,000-bpd production. In recent years, we gained valuable technical knowledge from this project, which we utilize in all of our Russian E&P activities.
Since the acquisition of Baitugan Field in 2006, located in Volga-Urals, as a result of an intensive redevelopment program with 52 wells drilled by MOL to date, production has been increased from 1,800 bpd to 4,400 bpd. By continuing the active redevelopment program, we plan to increase production to over 10,000 bpd.
In the Matjushkinsky Block located in West Siberia, as a result of our successful exploration activities with two discoveries made in 2008, production was increased almost threefold to 3,000 bpd since the acquisition was made in 2007.
We had similar exploration success in the Surgut-7 exploration block, with two successful exploration wells drilled by MOL to date, both finding oil from Jurassic reservoirs.
In Pakistan, MOL had its 10th year of successful activities in 2009, with 14 wells drilled to date, out of which 10 were successful. We had four independent discoveries—Manzalai, Makori, Mamikhel and Maramzai Fields—in the Tal Block, with a new central processing facility being inaugurated on Nov. 11 on Manzalai Field, providing 6% of total gas supplies of Pakistan. Further investments are planned in our three other blocks, Margala, Margala North and Karak, providing further growth potential in Pakistan.
In the Kazakhstani Fedorovskoye Block, which is located west of the giant Karachaganak Field, MOL is the operating shareholder with 27.5% participating interest. After a discovery made by MOL in 2008, the early appraisal activities were successful in 2009, proving the presence of significant amounts of natural gas and condensate. Trial production is planned in the near future to test the potential of the field.
WO: What E&P opportunities is MOL pursuing in other regions?
Áldott: MOL seeks exploration, field development and production opportunities in the Central and Eastern European region, in the Middle East, in Central Asia and in the northern and western part of Africa. Today, MOL Group benefits from significant production in Hungary, Croatia, Russia, Syria, Egypt and Pakistan, while pursuing exploration activities in 15 countries. MOL is continuously analyzing opportunities within its core regions. We enter certain projects on a case-by-case basis, where we see potential for significant value creation either by utilizing our knowledge gained in the past 75 years in exploration and production activities or by applying creative financing or structuring alternatives.
We had one of the top 10 discoveries worldwide in 2009, according to WoodMackenzie, in the Kurdistan region of Iraq, in the Shaikan Block, where heavy oil, light oil, condensate and gas was encountered from four reservoir zones at 7,000 bpd of oil, 21 MMcfd of gas and 6,000 bpd of condensate production level. In addition, we started drilling the Bijell-1 exploration well in our Akri-Bijeel Block in December 2009.
In May 2009, MOL acquired a 10% stake in Pearl Petroleum Limited, which is the sole license holder of two giant gas/condensate fields, Khor Mor and Chemchemal.
In addition, MOL Group is also present in Syria, Egypt, Angola, Namibia, Cameroon, Oman, India, Yemen and Iran through several production and exploration projects.
WO: What are the technical challenges to MOL’s E&P and development projects in Hungary and elsewhere?
Áldott: In domestic operations, due to the special geological setting of the Pannonian Basin, MOL faces challenges caused by a high-pressure, high-temperature environment in deeper zones, which require an integrated and multidisciplinary approach to planning and application of proper drilling, logging, mud logging and mud technologies. The key to success is to have close cooperation between MOL and service companies and use the latest technologies.
Another challenge is CO2 gas injection in deep gas/condensate reservoirs, resulting in the potential for CCS projects. By implementation of extensive laboratory and integrated modeling activities, feasibility of additional EOR and EGR methods were proved in certain cases.
In international operations, MOL faces different geological settings in almost each country in which we operate. In Pakistan, we face poor quality of seismic logs due to complex geology and rough terrain, which can be overcome by designing better surveys—wider azimuth, higher fold—and applying new processing techniques such as multi-focusing.
In Russia, we face challenges related to the specific weather and terrain conditions such as extremely cold winters with frost and thick snow cover, summer swamps and muddy soil in the spring and fall seasons, requiring unique technologies, methods and proper timing. In addition, we face challenges in relation to hard-to-recover reserves, where we apply horizontal drilling, stimulation such as hydraulic fracturing, or water injection in order to increase recovery.
In Kazakhstan, due to the high hydrogen sulfide content of the gas, we are working on developing the economically most reasonable and technically most adequate solution for handling the waste sulfur until the start of the production phase.
WO: Why has MOL been so much more aggressive than oil companies of other former Eastern Block countries when it comes to seeking reserves outside of their borders?
Áldott: There is only a little room to increase the reserve base within our domicile. MOL as a public company is aiming to provide the highest possible returns to shareholders through organic and/or inorganic value creation. To benefit from high value generation throughout the oil and gas value chain, we seek projects to replace reserves and maintain and even increase our production where possible at an appropriate risk level in our focus regions.
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THE AUTHORS
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Zoltán Áldott is MOL’s Exploration and Production Executive Vice President. In 1990 and 1991, he was an associate at Creditum Financial Consulting Ltd. Between 1992 and 1995, he held various positions at Eurocorp Financial Consulting Ltd. He was Manager of MOL’s Privatization Department from 1995 to 1997, and Director of Capital Markets from 1997 to 1999. In 1999, he was Director of Strategy and Business Development. Starting November 2000 he was Chief Strategy Officer and, starting June 2001, as Group Chief Strategy Officer. At the beginning of 2010 he was nominated as President of the Management Board of INA d.d, MOL’s Croatian subsidiary.
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