UPDATE 2-Hungary's MOL to spend heavily on upstream in 2013

Tue Feb 26, 2013 9:22am EST

Related Topics

* $1.5 bln capex expected in 2013, 2/3 in upstream -CEO

* Main focus of upstream will be Kurdistan region of Iraq

* MOL reports weaker than expected 4th-quarter profits

* Shares down 2.5 pct, in tune with wider Budapest market (Adds CEO comments, analyst, updates share price)

BUDAPEST, Feb 26 (Reuters) - Hungarian oil and gas group MOL said it would invest about $1.5 billion in 2013, focusing mostly on exploration and production, after profits dropped partly due to a loss of Syrian output.

MOL, Hungary's largest company by revenue, reported a lower-than-expected quarterly profit on Tuesday due in part to a temporary withdrawal from Syrian operations and also to weak demand for its refined oil products.

Profit fell in the fourth quarter to 7.7 billion forints ($34.6 million) from 67.5 billion in the third quarter but compared with a loss of 29.1 billion in the last quarter of 2011.

Net profit excluding special items was 11.2 billion forints, below analysts' median forecast for 44.35 billion in a survey by business website portfolio.hu.

Chief Executive Jozsef Molnar acknowledged at a news conference that the result was below expectations.

"The net result is the outcome of a crisis-burdened year, which remains below the value investors typically expect in this business," Molnar said.

He pinned most of the blame on discontinued operations in Syria, saying that without that change, the company's EBITDA (earnings before interest, tax, depreciation and amortisation) would have expanded slightly.

MOL's Croatian unit INA suspended activities in Syria in February 2012, and MOL's average hydrocarbon output dropped to 114,200 barrels per day (bpd) of oil equivalent in the fourth quarter from 143,400 bpd in the same period of 2011.

Its revenue totalled 5.52 trillion forints in 2012, up 3 percent from 5.34 trillion in 2011.

Even with the fall in earnings, MOL strengthened its balance sheet.

"Our indebtedness in 2012 was the lowest in five years at 24.8 percent," Molnar said. "Our first dollar-denominated bond issue (in September) lengthened the average maturity of our loan portfolio. We increased our financial flexibility despite the lost production in Syria."

KURDISTAN, THE EXCITING PART

Nearly two-thirds of MOL's total capital spending of about $1.5 billion this year will go into the upstream business, he said.

The main focus of upstream activity will be in the Kurdistan region of Iraq, where MOL expects to deliver to the market the first barrels of oil after years of exploration. Its investments will continue in Kurdistan, to the tune of $200 million in 2013.

Meanwhile, domestic demand has slumped along with Hungary's economy.

"Hungarian regulated revenues are likely to decline in 2013, and taxes and other government intervention always represent a threat," analysts at Wood & Company said in a note.

"This is probably offset by the recent further success in the Kurdistan region of Iraq, which remains the only exciting part of MOL's operations for now. We remain neutral (HOLD) on the stock."

As for its downstream business, an expected $250 million in benefits from a long-standing restructuring programme will be realised in 2013, Molnar said, partly through increased revenue and partly through reduced costs.

Refining, marketing and other downstream operations will get 31 percent of the planned investment as MOL continues to overhaul its refineries.

In 2014 a further $100 million to $150 million in cost savings can be expected, according to the company presentation.

Molnar said the company reckoned with oil prices at around $110 per barrel on average this year, give or take 10 percent.

MOL's share fell 2.5 percent by 1353 GMT to 17,050 forints, about the same as the wider market. ($1 = 222.5246 Hungarian forints) (Reporting by Krisztina Than/Marton Dunai; Editing by Jane Baird)

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