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Hungary's MOL to Bulk Up in Chemicals for the Future

Reuters, November 15, 2016
Reuters

Hungarian oil group MOL will invest in new chemical plants to cut its dependence on producing fuel for cars, while also buying more upstream assets and selling goods and services in its petrol stations, its head Zsolt Hernadi said. Central Eastern Europe's leading fuel retailer, with around 2,000 such stations and four refineries, aims to invest around $1.5 billion every five years until 2030 to expand chemicals, while retaining its integrated downstream focus.

MOL operates refineries in Hungary, Slovakia and Croatia and has exploration and production assets in the North Sea and countries including Pakistan, Iraq, and Russia. It plans to adjust its refineries to an increased share of non-motor fuel products in the next 15 years, MOL's chief executive and chairman Hernadi told Reuters on Friday. Motor fuel output should drop below 50 percent, from 70 percent, to provide feedstock for MOL's chemicals business.

"Strategic chemical investments will probably be the biggest engines," Hernadi said, adding that MOL already had plans on how to spend two-thirds of the $1.5 billion planned investments in chemicals in the next five years. These new investments would come on top of two already running projects: a low-density polyethylene plant which will start operating this year at its Slovnaft unit and a synthetic rubber plant to be completed by the end of 2017 in Hungary. The new investments will be chemical plants, launching new product chains that will be high-value added products, he said, declining to give further details. "There will be cases when we will buy a license, and cases when we will need to enter into a joint venture," he added.

While fossil fuel sales will continue to be MOL's main cash-generator over the next 15 years, these investments are vital for the company's future, he said. MOL would deliver EBITDA (earnings before interest, taxes, depreciation and amortisation) of around $2 billion a year, Hernadi said. On Friday, it reported a year-on-year drop in EBITDA to 164.5 billion forints in the third quarter, but lifted its forecast for 2016 to $2.2 billion.

INCREASING DIVIDENDS

MOL paid out a total of 55 billion forints this year on 2015 earnings and plans to increase its dividend payouts further in coming years, by "single digit", Hernadi said. While the role of upstream has declined in profit generation due to low oil prices, it provides an important "natural hedge" for MOL's downstream operations and it aims to maintain a output of 105,000 to 110,000 barrels per day for the next five years.

",For us to maintain this 105,000 to 110,000 barrels per day production, we will need to purchase further upstream assets, this will be inevitable" Hernadi said. He declined to comment on any potential asset sales or purchases in upstream.

But he said MOL would be "opportunistic" in further acquisitions in the retail fuel business in Central Europe, where last year it bought Italian Eni's Hungarian and Slovenian petrol stations.

"MOL will be able to finance its investments from the company's cash generation ability," Hernadi said.

He said in its retail business, MOL would transform its petrol stations into consumer services centers, where it will serve electric cars, provide postal and shared car services, and sell a wide-range of consumer goods.

"MOL's approach will change: it will conduct an FMCG-type (fast-moving consumer goods) operation," Hernadi said.

 

(Reporting by Krisztina Than; Editing by Alexander Smith)

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