- MOL Group is performing relatively well financially despite low oil prices by focusing on downstream operations like refining. - It is meeting its production targets but will need to expand its proven oil reserves to sustain long-term growth as existing reserves will only last 13.5 years at current rates. - Replacing the lost potential from the Akri-Bijeel oil field is a key focus as it significantly missed expectations.

1. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
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EQUILOR RESEARCH
MOL Group
01/09/2016
MOL GROUP – COMPANY NOTE
 Management reported they expect the company to hit upper region of end-of-the-year
expectations
 Promising financial performance can be observed despite low oil prices.
 Free cash flow generation stays in focus for the future.
 Further 2P reserve additions are essential to support long-term growth, however the company
to taking a defensive approach for now.
 Downstream improvements expected to save time in the wait for appreciating oil price.
Due to the falling oil prices companies in the sector are in growing need of steep changes in
operational strategies. MOL Group, which orients itself towards downstream operations (as you
can see on the segment EBITDA figure) copes with the challenges relatively well. In their last
quarterly report they beat analysts’ expectations and their yearly targets were left intact. Beside
financial data it is important to pay attention to production targets, and the capability of the
company to achieve those results. This report aims to analyse the company’s prospects for 2016,
and to introduce different solutions for the stagnating production forecasts.
Source: MOL
Monika Kiss
Head of research
(+36) 1 808 9212
monika.kiss@equilor.hu
David Farkas
Analyst Intern
farkas.david94@gmail.com
Shifting strategies
-100.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
FY
2010
FY
2011
FY
2012
FY
2013
FY
2014
FY
2015
Segment CCS EBITDA
Corporate and Other
Downstream
Upstream
Inter Segment Transfers
Gas Midstream

2. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 3
The upstream segment, as it was stressed during the last report, sees reduced capex numbers, as
the company shifts gears and starts to focus on free cash flow generation. Last three quarters the
company has exceeded 105-110 MBOE daily output levels (as seen on the graph below), and its
rolling semi-annual rate, was also over the target. As it can be seen from the figure, the last
quarter brought a minor setback, which was mainly caused by the decrease of the North Sea and
offshore Croatian output. The increase in performance to near maximum levels of current
infrastructure in the Shaikan block already offsets this drawback.
Source: MOL company reports
Looking at the downstream segment, refinery production rates of the company are on track to
meet 2016F expectations. The company owns four refineries, which are running higher hours after
the numerous development investments. As a result, the Hungarian Danube, and the Slovakian
Bratislava refinery is doing relatively well, but INA’s two refineries have significantly lower NCI
indices, showing lower operational efficiency. This is also reflected in the refinery margins of these
facilities.
MOL Group refinery capacity, Nelson Complexity index
Refinery mt/y mboe/d NCI
Danube 8,1 161 10,6
Bratislava 6,1 122 11,5
Rijeka 4,5 90 9,1
Sisak 2,2 44 6,1
MOL Total 20,9 417 10,1
NCI – index representing value creaion of refinery, US average: 9,5, European average: 6,5.
Source: MOL
Upstream operations
Downstream operations
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
MBOE/nap 110 107 101 97 99 92 95 103 103 104 101 108 112 111
90
95
100
105
110
115
Quarterly production (MMBOEPD)
2016
forecast

3. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 4
In addition to the cash-flow generation, a cost reducing program was put in place to ensure the
stability of operations even under $35-50 per barrel oil price scenario. This process is expected to
peak in 2018F, however the question still stands if the disturbed balance of the production mix
was sustainable on the long run. As of today, facts are proving MOL right. Their reserves of 514
MMBOE last for 13.5 years under 2015 production rates, and using only this reserve the company
would be able to deliver the 110-115 MBOED 2018F target. Beside CEE production the firm will
also be able to gain cash flow from its North Sea operations, so one may want to think through
the possible ways of using that money:
• Dividend payments
• Further M&A activities if oil prices have negative outlooks
• Upstream developments in case of appreciating oil prices
• Further 2P (at least 50% chance of extraction) reserve explorations, in order to
avoid a long-term stagnating production rate
Source: MOL reports
In order to sustain long term growth in the daily production rates the company will need an
expansion of its 2P reserves. The Kurdish Akri-Bijeel block boosted production targets before its
reserves were officially measured, but as soon as the reality was unveiled the optimism was faded
and growth was nearly fully removed from the forecasts. The Akri-Bijeel and Shaikan fields are co-
owned with Gulf keystone Petroleum in 80-20% 20-80% split respectively. Unfortunately the
official 2P reserve report for Akri-Bijeel, the block MOL is owner in 80% of, was not available at
the moment of the deal, and later it significantly missed expectations, so the company was forced
to do write-downs, reduce its investments in the area and revise its annual targets. Beginning of
this year the company announced that all operations in the Akri-Bijeel block are finished. The
missing expected output may be replaced from the 1220 MMBOE exploration potential of the
company, although a part of these is not fitting in to the current operational cost targets. The best
options can be identified in the further development of Pakistani interests of the company.
Within the current business environment of MOL we can confidently state that 2016F targets will
be easily reached. The executive board of the company has also reassured this fact, stating that
daily production is expected to be in the upper region of their expectations. However, as it was
already discussed above in order to maintain long term growth the company will need to expand
its 2P reserves. We believe that this is the main reason behind the cash accumulation outlined for
the coming years. Downstream developments are thought to be used to win time for finding the
fields that are the best fit for the company’s portfolio. During this time oil prices may recover
providing a much wider range of choice of affordable potential exploration sites.
Fighting low oil prices
Replacing the lost
potential of Akri-Bijeel
field is key
Summary

4. Equilor Investment Ltd. Tel: (36 1) 430 3980 equilor@equilor.hu Member of the Budapest, Warsaw
1037 Budapest, Montevideo 2/C Fax: (36 1) 430 3981 www.equilor.hu
http://equilor.blog.hu
and Prague Stock Exchanges 5
Research:
Monika Kiss
Head of Research
Direct: (+36 1) 808 9212
monika.kiss@equilor.hu
Balint Kovacs
Analyst
Direct: (+36 1) 430 3452
balint.kovacs@equilor.hu
Zoltan Varga
Analyst
Direct:(+36 1) 436 7015
zoltan.varga@equilor.hu
Institutional sales
Marton Csintalan
Sales Trader
Direct: (+36 1) 436 70 14
marton.csintalan@equilor.hu
Attila Jozsef Szabo
Sales Trader
Direct: (+36 1) 808 92 00
attila.szabo@equilor.hu
Equities Department
Zsolt Vavrek
Equities Department Director
Direct: (+36 1) 430 3991
zsolt.vavrek@equilor.hu
Private Banking
Bertalan Nagy
Private Banking Director
Direct: (+36 1) 436 7019
bertalan.nagy@equilor.hu
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