December 13, 2013 4:18 pm

Hungary’s Mol buys licences for North Sea oil exploration

North Sea oil rig©EPA

Mol, the Hungarian oil and gas group, has bought 14 licences for offshore oil exploration and production in the North Sea from Wintershall, part of Germany’s BASF, for about $375m, the Budapest-based company said on Friday.

The deal – Mol’s first venture into the world’s fourth-largest hydrocarbon exploration and production region – will add an estimated 28m barrels of oil equivalent to its reserves, equal to about 5 per cent of the group’s total, according to company estimates.

“This is a very, very important transaction and a very, very important step in the history of the Mol group. With this transaction we have opened a new region in our upstream strategy. We have never been part in an offshore asset [before],” said Zsolt Hernádi, Mol’s executive chairman, emphasising that the group planned to co-operate with Wintershall in future developments.

Mol expects its share of the new wells to add 1,000 barrels a day to its total production from next year, rising to peak at 16,000 to 18,000 b/d within five years.

The company said it will finance the deal from its own cash flow.

“It’s very positive news that Mol has done something to improve their production. This was below 100,000 b/d in October. This acquisition could produce about 6 per cent of production by 2015,” said Csaba Sinka, equity analyst with KBC Securities in Budapest.

He said the price of the deal also compares positively to the much larger move by OMV, the Austrian energy group, into the North Sea last August.

FT Video

OMV strides forward with North Sea acquisition

August 2013: OMV’s expansion proves how willing the oil industry is to pay a premium for a high quality asset in the stable North Sea region. Lex’s Stuart Kirk and Vincent Boland look at how markets will react to this pricey deal.

“If we factor in the related future capital expenditure of $500m-$600m, this means Mol is paying about $20 a barrel in this deal, versus $24 a barrel paid by OMV,” Mr Sinka said.

However, Tamas Pletser, analyst with Erste Bank, was less sanguine, deeming the price paid to be “fair value”.

“We see some upside to this valuation [namely] higher crude oil price in the future and [possible] lower tax rates . . . for smaller and technically more challenging areas,” he wrote to clients.

Mr Pletser also noted that Mol had lowered the political risk of its upstream portfolio with the new fields, and that, longer term, skills acquired in the North Sea could stand the company in good stead in other regions, such as the Adriatic or Africa.

Mol shares were trading on Friday afternoon at Ft14,200, up 3 per cent on Thursday’s close.

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