Upstream

HIGHLIGHTS

  • Upstream presence in a total of 12 countries
  • SPE 2P reserves of 682 MMboe as of end 2011
  • 117 MMboe of SPE 2P reserve addition in 2011
  • Daily production of 147.4 mboepd achieved in 2011

MOL Group’s upstream portfolio is composed of valuable exploration assets in 12 countries with ongoing production in 8 countries. Our traditional core area is Central and Eastern Europe, with recent focus on Russia and Kazakhstan (due to their reserve addition) as well as on our flagship assets in the Kurdistan Region of Iraq. In the short and middle terms, field development and reserve bookings are expected to drive growth via reserve replacement ratios possibly exceeding 130%. With substantial production increases expected from 2014 onwards, our reserves base’s long-term growth potential relies on our ability to further expand our existing exploration portfolio and to meet the challenges of an ever-changing industry environment.

 

 

COMPETITIVE ADVANTAGES

An integrated oil and gas company with over 70 years of experience in Central Europe and two decades of international exposure abroad, MOL Group is now in a position to reap the benefits of its proven track record and its outstanding exploration drilling success. In addition, it has been ranked among the leading European low-cost onshore producers. MOL Group boasts an outstanding exploration success rate in the past three years (close to 67% in Hungary and 60% abroad). Further organic growth in our diversified upstream portfolio is strengthened by MOL and INA’s complementary skill bases. Our company has a well-established presence and thriving partnerships in the CIS region, the Middle East and North Africa, as well as Sub-Saharan Africa.

 

KEY ACHIEVEMENTS

Central and Eastern Europe

The CEE region is MOL Group’s traditional core region. Besides ongoing exploration operations, MOL Group also applies EOR/IOR methods to mitigate natural field decline.

  • Reserves (SPE 2P, 2011 Y/E): 405 MMboe
  • Production (2011): 99.6 mboepd

Hungarian production in 2011 amounted to 48.8 mboepd. Oil output reached 12.4 mboepd, whereas condensate production was 4.8 mboepd. Natural gas production (net dry gas value) totalled 31.6 mboepd. Despite declining production, MOL maintained favourable efficiency ratings thanks to its 40-year track record in applying EOR/IOR technologies. In 2011, the company fully completed the production-enhancement project in Algyő. Thanks to previous successful exploration activities, five new gas wells were put into production in Southern Békés county. MOL began the implementation of an energy rationalisation project at our two major gas plants in 2011; this project will be completed in the first half of 2012. In addition, MOL executed a production-enhancement project in Southern Hungary.

As for conventional exploration activities, MOL once again achieved a high success ratio of 56% in 2011. Out of a total nine exploration wells, five proved successful in identifying hydrocarbon in commercial quantities. As a result, we added 2.4 MMboe to our existing reserves base. MOL remained dedicated to maintaining strong partnerships in its domestic operations. For example, together with Hungarian Horizon Energy, MOL drilled and completed four wells in Eastern Hungary.

Significant strides were made in Hungarian unconventional exploration in 2011. Our main priorities are testing commercial production (Beru-4) and drilling to increase hydrocarbon volume (Beru-6). Exploration in the Derecske basin continued: the hydraulic fracturing of the Beru-4 well at the end of 2011 proved technically successful. The start of the pilot production phase is expected in the first half of 2012. A new well (Beru-6) was drilled to prove gas at a greater depth to increase initial gas volumes. Preliminary results suggest the well found gas in the expected reservoirs. In addition, the Beru-6 well encountered gas in a conventional reservoir on top of the target areas. The test is scheduled for early 2012. In the Makó and Békés basins, MOL met all local authority conditions and converted potential areas into mining plots.

In 2011, total Croatian production amounted to 9.1 mboepd crude oil, 6.0 mboepd condensate and 35.7 mboepd gas. As a result of field decline, this corresponds to decreases of 6% in crude oil, of 7% in onshore natural gas, as well as of 13% in condensate production compared to 2010. Offshore gas production was also lower than planned, decreasing by 4% compared to prior year, due to the delayed start-up of the Izabela field (EdINA), where production has still not yet commenced. Further decreases were caused by maintenance works in the Aiza Laura Contract Area (INAgip) and by higher water cuts and natural decline in the North Adriatic Contract Area (INAgip). Most EOR project procurement activities were extended to 2012 under the Public Procurement Act, whereas procurement related to surface infrastructure and facilities began in October 2011. Regarding Croatian exploration activities, the drilling of two onshore wells was postponed to 2012 due to Crosco’s delayed drilling rig move from Syria. Based on the results of the Dinaridi exploration study undertaken in 2011, the acquisition of 2D seismic surveys in the Dalmatia inland area is planned for the second half of 2012.

The exploration licence tender process of the Croatian Ministry of the Economy was cancelled. Despite the revocation of licences for exploration in the continental part of Croatia, INA remains dedicated to its Croatian commitments. It is currently the only entity with the necessary equipment, experience, knowledge and projects to accelerate exploration activities in continental Croatia, pending the decision of the new government regarding licensing.

In the field of unconventional exploration, INA completed preparations for the first unconventional operations on the Croatian side of the Drava basin.

MOL Group and its Romanian partner, Expert Petroleum, were awarded three blocks in Western Romania’s Pannonian basin in July 2010. Relevant concession agreements, along with the Joint Operating Agreement (JOA), were signed on 19 April 2011; parliamentary ratification is expected in 2012. MOL Group is ready to begin the work programme of the mandatory exploration phase as soon as ratification is obtained. The planned work programme includes 600 km of 2D seismic survey acquisition, 1,700 sqkm of 3D seismic surveys and 19 exploration wells, including unconventional wells.

The CIS region

In Russia, MOL Group has four assets in different project phases with a significant undeveloped resource base. Increased production is expected from the Matjushkinsky and Baitex Blocks while MOL Group recently added significant reserves in Kazakhstan.

  • Reserves (SPE 2P, 2011 Y/E): 222 MMboe
  • Production (2011):  18.7 mboepd
  • ZMB field: a mature developed field; a cash-generating project
  • Baitugan field: a low-risk field under development with exploration activity
  • Matjushkinsky Block: under development with intensive exploration activities
  • Surgut-7 Block: ongoing exploration activities
  • Fedorovsky Block: under appraisal and early development with first production expected in 2015

In Russia’s Zapadno-Malobalik (ZMB) field, MOL Group’s share of production in 2011 amounted to 10.6 mboepd. The gas utilisation programme was completed by the construction of a gas turbine power station with the implementation of three new generators in 2011. In accordance with governmental regulations, associated gas utilisation exceeded 95% at the end of the year. The construction of certain water injection system elements, the new office building and technology planning for the coming years were also completed in 2011. Currently, there are 144 production and 77 water injection wells in operation in this field.

In the Matjushkinsky Block production in 2011 increased to 3.3 mboepd, a 9% rise compared to 2010. This was mainly a consequence of development activities in the Severo-Ledovoye field, which continued with the drilling of 25 additional wells. A total of 23 wells were put into production by the end of the year while a further well was being drilled and one being tested. The necessary expansion of oil treatment facilities and a power generation plant were completed. The purchase and construction of a 40 km oil transmission pipeline, connecting central and local oil facilities, began. At the moment, 13 production and 5 injection wells are in operation in the Matjushkinsky field, along with 33 production and 3 injection wells in the Severo-Ledovoye field. In the Matjushkinsky Block, one exploration well was drilled on the Verkhne-Laryegan structure. The well produced surface-flowing oil when tested.

Production in 2011 reached 4.8 mboepd in the Baitugan field, an increase of 4% compared to 2010. In 2011, a total of 34 oil producer and 2 water injector wells were drilled. In parallel, the installation of remote measuring stations and water injection centres, the building of a fibreglass pipe water trunk line and a plastic-coated steel pipe water injection line as well as the expansion of power systems were completed in 2011. The reconstruction of the central processing station continued. Installation activities at the gas turbine-based power station began for making use of associated gas. Moreover, preparations for a new field development plan, based on a 3D seismic survey, were completed and subsequently approved by state authorities.

In the Surgut-7 Block, the hydrofracturing of the Jurassic layers of Atayskaya-2 produced oil but, as a consequence of unusual weather conditions, testing was stopped. In lack of a winter road the 3D seismic survey and the reinterpretation of Ayskaya-1 and Atayskaya-2 wells could not be carried out in 2011.

In 2010, Kazakhstan’s Ministry of Energy and Mineral Resources approved the extension of our exploration licence for the Rozhkovsky area of the Fedorovsky Block for an additional four years.  The Rozhkovsky U-21 appraisal well, spudded in October 2010, encountered significant amounts of gas and condensate reserves in the Tournaisian carbonate section. The drilling of the third appraisal well (Rozhkovsky U-22) was completed in June 2011. Rozhkovsky U-23, the next well, was finished, reaching a final depth of 4,500 m in October 2011, with promising hydrocarbon saturation. The wells are scheduled to be tested in 2012. Reserve calculation and trial production plans have been approved by the Kazakh Government. The reserve audit executed at end of 2011 resulted in a significant addition of 37 MMboe to MOL Group’s  SPE 2P reserves (corresponding to 5% of total Group reserves). The start of early production is scheduled for 2015.

Middle East, South Asia and Africa

MOL Group has a well-established presence and partnerships in the Middle East and South Asia. MOL Group also has a diverse African portfolio with assets in Egypt, Cameroon and Angola.

  • Reserves (SPE 2P, 2011 Y/E): 55 MMboe
  • Production (2011):  29.2 mboepd
  • Kurdistan Region of Iraq: a flagship project under intensive appraisal
  • Oman: a significant asset, now in the exploration phase
  • Syria first oil production started in 2005
  • Pakistan: four high potential blocks in different project stages

In the Kurdistan Region of Iraq, MOL Group’s intensive drilling programme continued. In the Akri-Bijeel Block, the Bekhme-1 exploration well was completed in October 2011, reaching a total depth of 5,000 m. The well was then suspended and is currently awaiting further evaluation. However, the results provided MOL Group with substantial data on geological structures and will contribute to additional exploration activities. The block’s reserve potential remains unchanged. The Bijell-3 appraisal well site was prepared and the drilling rig moved there from the Bekhme-1 site.

In the Shaikan Block, which is operated by Gulf Keystone Petroleum, the appraisal programme continued with the drilling of Shaikan-2 and Shaikan-4 appraisal wells along with the spudding of Shaikan-5 and Shaikan-6 wells. On testing, the Shaikan-2 well produced 8.1 mboepd of 26° API oil and 393 boepd of gas. Shaikan-1 and Shaikan-3 wells produced 197.4 mboe during 2011 in total (100% working interest). Extended well test surface technology is being improved to meet export pipeline specifications.

In Oman’s Block 43B, new seismic data validated the previous model and a drillable object was mapped in the Hawasina area. Following volumetric and economic estimates, the geo-technical planning of the exploration well was completed. This plan was approved by the Omani Ministry of Oil and Gas. Well spudding is scheduled for mid-2012.

In Syria’s Hayan Block, Gas Treatment Plant (GTP) commissioning was carried out as part of the scheduled work programme, resulting in significant increases in gas and condensate production and the commencement of LPG production. The provisional acceptance certificate was issued on 6 March 2011, after which the Hayan Petroleum Company took over the plant and the guarantee period commenced. Thanks to the successful drilling programme, GTP was operated at maximum capacity and production increment was higher than expected. Because of high crude oil prices, cost reimbursement was also higher.

Oil and condensate output in 2011 amounted to 6.8 mboepd on average, while gas production reached 13.5 mboepd.

In Syria’s Aphamia Block, two exploration wells drilled in 2010 have encouraged further exploration activities. INA entered the second two-year extension of the initial exploration phase on 11 November 2010. The Beer As Sib-2H well was planned to confirm the commercial viability of the already proven saturated hydrocarbon structures, Beer As Sib and Mudawara. Well drilling was originally scheduled for 2011, but had to be postponed due to the security situation and the sanctions against Syria.

Syria’s oil industry has been facing serious financial difficulties and operational obstacles since the introduction of European Union sanctions. Export sanctions and limited crude oil storage capacity in the country forced production companies to cut back on their output. INA closed five oil wells until the end of 2011 and four others until the end of February 2012. Since the last quarter of 2011, the company has encountered significant difficulties in the collection of receivables from its Syrian partner for its share of hydrocarbon production.

Due to the overall security situation in Syria and as employee safety is our primary concern, INA temporarily withdrew all employees not required for ongoing day-to-day operations.

According to Croatian Government regulations, INA cannot continue performing its regular business operations and activities in Syria. Therefore, INA announced on 27 February 2012 that it delivered force majeure notice to the General Petroleum Company (GPC) of Syria. Until the termination of the force majeure, no revenues and no production share are to be recognised. Force majeure does not mean the termination of the agreement and the simultaneous exit from the project. It is a protection mechanism for the agreement parties in the event of unforeseeable circumstances with the aim of continuing the agreement’s execution after the cessation of these circumstances, without damages for the announcing party.

In Pakistan, MOL Group has interests in four blocks, namely the Tal Block (in the exploration/development/production phase), the Karak Block (in the appraisal phase), and the Margala and Margala North Blocks (both in the exploration phase).

Exploration, appraisal and development operations continued in Pakistan’s Tal Block. MOL Group’s share of 2011 production from the Tal Block amounted to 4.8 mboepd of gas and 0.7 mboepd of condensate. At 2011 year-end, ten producing wells were operating in the block. The Tolanj X-1 well was the sixth independent discovery. Early production from the Maramzai-1 and Mamikhel-1 wells is in progress, while the tie-in works of the Makori East-1 discovery to the Makori Early Production Facility are scheduled for early 2012. The drilling of the first appraisal well, Makori East-2, started in July 2011. The processing and interpretation of the 3D seismic survey carried out in 2010 were carried out successfully and located two appraisal wells on the Mami Khel and Maramzai structures, along with one new exploration well (MardanKhel-1). In the second half of 2011, one new development well, Manzalai-9, was successfully drilled.

In the Karak Block, the first exploration well, Halini-1, was spudded in January 2011 and drilled successfully to a final depth of 5,350 m. In September, the well was declared to be an oil discovery with two reservoir layers and has been considered for immediate completion so as to start early production. The consortium plans to acquire 3D seismic surveys of the structure in 2012 and upon its interpretation to drill additional wells to delineate the exact potential extent, size and reserves of the discovery.

In the Margala and Margala North Blocks, after the negative results of the Margala-1 well, the main purpose of subsequent exploration work was to explore the block’s remaining potential. A new 2D seismic survey of 150 km began in October 2011 along targeted areas to confirm drillable prospects.

In India’s Himalayan Foothills, the Kasauli-1 well on the HF-ONN-2001/1 Block was spudded in March 2010 and reached its targeted depth in July 2011. The well encountered no reservoir and was declared dry, then plugged and abandoned. Relinquishment of the block is ongoing.

In Egypt, INA is the operator of the Sidi Rahman and Rizk development leases of the East Yidma concession, while it has non-operator status in three other concessions (Ras Qattara, West Abu Gharadig and North Bahariya). Its share of production in Egypt was around 1.8 mboepd in 2011 (a 9% decrease compared to 2010). Investment in 2011 primarily focused on drilling activities with nine wells drilled in total. Five development wells produced oil. The Zarif Deep-1 exploration well was drilled in the Ras Qattara concession to find possible hydrocarbon accumulations at deeper levels but the well was plugged and abandoned when found to be dry. The Abrar South-1 exploration well in the North Bahariya concession was put into production in July. In addition, a water injection well was also drilled in West Abu Gharadig concession to optimise the production rate.

Production from our non-operated offshore blocks in Angola contributed 1.6 mboepd to MOL Group results in 2011, remaining approximately at the same level as the previous year. Out of the previous three blocks, Block 3/85 was integrated into Block 3/05 during 2011, and the other one (Block 3/91) will also be integrated into Block 3/05 from 2013 onwards. Operations in 2011 focused on well interventions to improve performance; in addition, some major new development projects were started. However, annual workover activities were postponed to 2012 thanks to excellent well performance. The exploration period of Block 3/05A expired on 30 April 2011. Field development plans for Caco-Gazela and Punja fields in Block 3/05A were submitted for approval by the authorities.

Activities in Cameroon’s Ngosso Block in 2011 included the acquisition and interpretation of a 2D seismic survey and the completion of other G&G studies.

Technological considerations

To maintain our operations at the highest possible level and to remain up-to-date with industry developments, MOL Group places strong emphasis on developments in technology. In 2011, the company made significant strides in the area of ultra-high resolution 2D seismic acquisition. In addition, the first micro seismic monitoring survey was carried out during hydraulic fracturing operations on the Beru-4 well. Because of our commitment to applying the best available technology, new coring and well-site coring processing technology was put into practice in MOL Group operations in the Kurdistan Region of Iraq.

MOL Group joined an international consortium to develop next generation seismic sequence stratigraphic software. Intensive training programmes began so as to maintain our engineers’ technical and geo-knowledge. The first Ultra High Temperature High Pressure (UHTHP) well hydraulic fracturing design, planning and successful execution was carried out in the Derecske basin, an operation unique in continental Europe to date. Exploration laboratories expanded their service portfolios to suit the geological characteristics of formations under MOL Group’s exploration focus. MOL Group also supported the design and tendering of extended well test surface technology for the Bijeel-1 well in the Kurdistan Region of Iraq.

Finally, the use of reservoirs with high inert content (CO2) hydrocarbon fields, primarily at Mezőcsokonya and Inke in Hungary, began, which involved power plant investment.

Based on our 2011 R&D successes, it is clear that MOL Group achieved significant results in increasing production capacity of oil and gas production wells and technologies in low productivity fields through the efficiency and reserve-enhancing operations of its Exploration & Production Division. Several domestic reserve grading and classification reports were prepared as well as two international ones for the Rozhkovsky area in Kazakhstan and the Baitugan field in Russia. The successful outcome of these activities will help pave the way for our operations in years to come.

 
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