Future Portfolio Steering - 2010

During the recession year of 2009, MOL achieved its key targets: it ensured operability and financial stability and maintained its market position. In 2010 a gradual improvement in the business environment is expected; however, MOL finds it important to take a cautious approach to capital expenditure and costs. During this year a strategic review will be finalised and the directions and objectives of the new strategy will be set, providing a balanced portfolio and long term growth for the Group.

Exploration and Production:
In the long term, with the gradual depletion of hydrocarbon reserves, advanced and capital-intensive technologies should be utilized. In several cases oilfields under extreme conditions will be needed to replace reserves and keep production at the expected level. After a sharp drop at the end of 2008, crude oil prices nearly doubled throughout the year which supported exploration activity and has given new impetus to acquisition efforts. Creating the optimal business model, finding appropriate partners and financing for further projects are the key success factors in this area of the industry.
2009 was a milestone in MOL’s upstream history: noticeable momentum for further growth was realised. The Group significantly increased its proven and probable hydrocarbon reserves, and, with the consolidation of INA, also increased production. As a result, the current upstream portfolio has become more extended, diversified and balanced.

Refining and Marketing

In 2009, due to the recession, the business environment for downstream was unfavourable. Differentials between prices of petroleum products and crude oil narrowed significantly, demand for diesel decreased, while consumption of gasoline stagnated. In 2010, thanks to the improvement of the general economic environment, a reversal of last year’s decline is expected. However, downstream still faces unfavourable refinery margins, a series of refinery run cuts, eventual closures and enforced asset sales. In order to maintain/improve our competitive position, energy saving and other efficiency improvement programs are of key importance.
In 2010, MOL’s key target is to substantially improve the value-creation capability of INA downstream through refinery modernisation and the further development of commercial systems and techniques.

Gas
Currently, the two biggest challenges for the energy industry are security of supply and global climate change. According to general global and European trends, natural gas is playing an increasing role in the energy mix. Compared to crude oil, there are abundant resources of gas, which are also in politically non-sensitive areas. Furthermore, gas has significant potential to decrease the carbon footprint.

While gas consumption continues to grow, the exposure to Russian-induced supply disruption also increases. There are several options for improving the security of supply; however, all of them require large investments and a relatively long time for implementation. In view of the “gas crisis” at the beginning of 2009, huge pipeline construction and related projects may count on much stronger political and financial support than one could have expected earlier. MOL is active in several inter-regional infrastructure investment projects.

By acquiring additional gas sources, through upstream acquisitions and in other ways, MOL plans to increase gas sales and the share of gas in its sales portfolio.

Power

Within the next five years, 15% of the region’s energy generation capacity is expected to be decommissioned. As environmental regulations are a key focus for the EU, the demand for new and less polluting power generation technologies is inevitable in Central and Eastern Europe. MOL, together with its strategic partner, CEZ, is currently building CCGT power plants at the Duna and Slovnaft refineries. These new investments are more efficient technologies compared to the national averages, and replace more carbon intensive steam and electricity based units in Hungary and in Slovakia.