2014 highlights

Performance

• Production on the rise since mid-2014, 98 mboepd average production delivered in 2014, exceeding original targets
• 2P reserves of 555 MMboe at 2014 year-end
• Organic reserves replacement ratio of 103% with a reserves life index of 15 years
• Exploration spending increased by 60% compared to 2013
• Unit OPEX kept at a competitive level of USD 8.4/boe
• Successfully finalising the major organisational restructuring of MOL Group Upstream

Portfolio

• Mitigating production decline and maximising cash flow generation in the matured CEE region
• Diversified portfolio ensures presence in the world’s key oil and gas regions, such as the North Sea, the Kurdistan Region of Iraq, CIS countries and Pakistan
• Successfully closed two deals in the UK North Sea region
• Started commercial production in the Akri-Bijeel block in the Kurdistan Region of Iraq
• Balancing risk and seeking new exploration and development opportunities arising from the current oil price environment

We have made significant steps towards optimising and broadening the MOL Group Upstream portfolio , with the objectives of improving total production , extending know -how and balancing overall upstream risk profile.

Alexander Dodds – Executive Vice President,
Group Exploration and Production

What have been the most important tasks for MOL Group Upstream in 2014?

“MOL Group has set out on an ambitious journey to renew its Group Exploration & Production business, focusing on the improvement of three key pillars: our people, processes and portfolio. One of our main achievements in the last year and a half has been the restructuring of the E&P organisation: we successfully completed our senior management team, adding experienced international managers, and also recruited crucial senior level experts. We moved from an asset-based to a regionbased organisational structure, which allows us to be more efficient in terms of how we make use of our people and how we manage our processes. We have made significant steps towards optimising and broadening the MOL Group Upstream portfolio, with the objectives of improving total production, extending know-how and balancing overall upstream risk profile.”

Alexander Dodds – Executive Vice President,
Group Exploration and Production

MOL Group Upstream has over 75 years of mainly onshore production experience, and is actively working to expand its portfolio with additional offshore activities. Our portfolio consists of oil and gas exploration and production assets in 13 countries with production activity in 8 countries.
MOL Group remains committed to ensuring safe operations that protect people and the environment, and are in accordance with the principles of sustainable development. We aim to keep the organic reserve replacement ratio above 100% on a three year average, while targeting flat to declining unit cost across all countries where we operate. We intend to achieve a production growth rate of at least 10-15% per annum. In 2014, we managed to reverse the declining trend in our production and are now firmly on a growth path. In 2015, we aim to ramp up total organic production to 105-110 mboepd, 10% above the 2014 level. Growth will be fuelled by new production additions from:
(1) THE NORTH SEA REGION. The Cladhan development is now almost on track for first oil in H2 2015, thus adding to the barrels produced by recently acquired producing fields.
(2) THE KURDISTAN REGION OF IRAQ. Following the approval of the Field Development Plan in 2014, commercial production started from the Akri-Bijeel block. In the Shaikan block, a second production facility was completed in 2014, enabling total block production capacity to reach 40 mboepd. We expect a gradual increase in production from both the Akri-Bijeel and Shaikan blocks, following debottlenecking activities on surface facilities and the tie-in of new wells.

Through its North Sea expansion, MOL Group’s presence has been firmly established on the global map of offshore E&P in a stable, lower risk area. Moreover, following the closing of the second M&A transaction, we will benefit from pronounced operational syner gies on the North-Sea portfolio.

Alexander Dodds – Executive Vice President,
Group Exploration and Production

(3) THE CEE REGION. The CEE region, including Hungary and Croatia, will remain the backbone of MOL Group’s production in the upcoming five to ten years. We aim to mitigate the production decline and maximise cash flow, focusing on efficiency improvement measures and reducing unit production costs. In Hungary, our objective is to keep production decline below 5%. Meanwhile in Croatia, major development projects will enable us to increase production.

The achievement of planned growth targets will be underpinned by further improvement in our capabilities and a focus on portfolio optimisation, through both organic and inorganic means. Through INA, we have a track record of more than 16 years of shallow offshore experience, and we also intend to develop further our knowhow in other regions. The fruitful relationships we have built in the industry, with local communities, and with the governments of countries where we operate enable us to operate safely and more efficiently, which is especially important in politically unstable environments.

We have an established presence and thriving partnerships in the ME A region, Pakistan, and the CIS. Following the divestments of Russian assets in 2013/14, our active portfolio management approach continues. As a key inorganic step, MOL Group entered the North Sea region, and in 2014 successfully closed two deals. This strategic development allows MOL Group not only to increase the overall production level and enhance its offshore experience, but also to decrease the average political risk profile of the Upstream portfolio. The North Sea area refion serves a new hub of technology knowhow from which the whole Group will benefit. MOL Group remains committed to its exploration strategy as the basis of long-term sustainable growth.

We actively seek opportunities to enhance our international exploration portfolio through both organic and inorganic steps. (1) In the 28th UK Bid Round, MOL Group acquired four exploration licences. (2) In Pakistan, exploration activities will continue in the TAL and Karak blocks. The first exploration well drilled in the Ghauri block has already resulted in an oil discovery in 2014, and early production activities will follow in 2015. In the Margala North block, the first exploration well to explore below the Main Boundary Thrust in the Margala Hills was spudded. (3) In Kazakhstan, MOL increased its 2P reserves to 60 MM boe after the successful completion of the appraisal programme in Fedorovsky block. Moreover, discovery was made in the Bashkirian reservoir of the Rozhkovsky field and negotiations with Kazakh State Authorities are underway to extend our exploration license.(4) In Hungary, MOL was awarded three new exploration licences in two bid rounds. (5) In Croatia, two blocks were granted to INA in the First Offshore Bid Round, and INA is due to bid for licences in the First Onshore Bid Round.

The North Sea area will remain a focus of MOL Group business development, with ambitions to extend our presence in this region. Moreover, we continue to seek new exploration and development opportunities in our core CEE countries, as well as in the ME A region and CIS countries. MOL Group is well positioned to utilise opportunities that arise from the current lower oil price environment, which enables us to balance risk and seek new exploration and development opportunities.

KEY ACHIEVEMENTS

In 2015 we intend to increase production further and complete the information acquisition campaign, which should serve as valuable information for further delineation of the reservoir in the Akri-Bijeel block in the Kurdistan Region of Iraq.

Carl Grenz – Chief Operating Officer,
Exploration and Production

THE MIDDLE EAST, ASIA AND AFRICA

MOL Group has strengthened its presence in these regions by expanding its portfolio and carrying out accelerated work programmes. In the Kurdistan Region of Iraq, the Field Development Plan for the operated Akri-Bijeel block was officially approved, and commercial production on the block has started. MOL Group has a close, long-term co-operation in Kurdistan with the Regional Government and we are committed to maintaining our presence in the Kurdistan Region of Iraq.

A key milestone was reached for MOL Group with the official approval of the Akri-Bijeel block Field Development Plan (FDP) by the Ministry of Natural Resources. This was followed by the start of commercial production from the Bijeel-1 Production Facility. Moreover, extensive parallel drilling and well testing activities resulted in an improved understanding of the complexities of the reservoirs in the Bijeel field. In the Bakrman area, a 3D seismic survey of the discovery was completed and the first appraisal well, Bakrman–2, reached its target Triassic depth, showing a better-than-anticipated structure. In the Shaikan block, the second production facility (PF-2) became operational. The block has been producing from seven wells through two production facilities, with total production capacity of 40 mboepd. In the Pakistani TAL block, six discoveries have been made since 1999. Processing facilities in the TAL block, including the Makori Gas Processing Facility (commissioned in 2014) achieved gross block production of approximately 77 mboepd. The Mamikhel and Maramzai fields were declared commercial in 2014 and development plans were submitted to the Government of Pakistan. Drilling activities increased from two rig operations to four in the operated blocks, with three rigs deployed in the TAL block. Four wells were spudded and their completion is expected in 2015, two were exploratory and two were development wells. Three new wells came into production. In the Karak block, extended well test production from the Halini-1 exploration well continued. The locations of two exploration wells to be drilled in 2015 were identified. The first exploration well was drilled in the Ghauri block in 2014, resulting in an oil discovery. In the Margala North blocks, drilling of the first exploration well commenced. This is the first well being drilled in the northern part of the Potwar Basin (North of MBT), and is thus expected to have a significant impact on the future exploration approach in the area.

MOL Group will continue to expand its position in exploration in Pakistan.

In Oman, MOL Group continued pre-drilling exploration activities with the completion ofG&G studies, performing a 2D/3D seismic acquisition campaign, seismic processing and partial interpretation of seismic data. We also started preparations for drilling of the first exploration well, expected to be spudded in Q4 2015.

THE CIS REGION

An intensive field development programme is underway in the Russian Baitugan block. In Kazakhstan, we move towards development phase in the Fedorovsky block following additional reserve bookings in 2014.

In Russia, MOL Group divested 49% of shares in BaiTex LLC to the Turkish Petroleum Corporation (TPAO) in April 2014. In order to optimise operations and establish strategic partnerships, MOL Group remained the operator, with a majority stake. In the Baitugan Block, the 2014 development drilling programme was carried out with 4-6 rigs. Construction of infield infrastructure was finished and 52 producing and injection wells were drilled to continue last year’s production growth. In the Yerilkinsky block, completion of 3D seismic interpretation in 2014 confirmed the block’s exploration potential, and the first exploration well is planned for Q3 2015. In the Matjushkinsky block, the focus remained on exploration, including the interpretation of the recent 2D seismic survey, expected to clarify the remaining potential of the block.

In the Fedorovsky block in Kazakhstan, a successful appraisal program was completed in May 2014. Based on the testing results of the U-24 appraisal well, a new discovery was made in the Bashkirian reservoir of the Rozhkovsky field. After an independent reserve audit, MOL Group booked an additional 24 MM boe reserves and now holds 60 MM boe of reserves in the block. Kazakh state authorities have approved the declaration of commerciality. In 2015, MOL Group will proceed with preparations to begin the first phase of the development project.

THE CENTRAL EASTERN EUROPEAN REGION

The CEE region, where MOL Group has more than 75 years of E&P experience, has successfully preserved its core role in the Group’s Upstream portfolio. Strategic focus is placed on maximising recovery from matured fields, mitigating production decline, maximising cash flow and building on extensive know-how, whilst taking steps to optimise the portfolio and improve cost efficiency.

In the CEE region, MOL Group successfully uses its technical experience and know - how to counterbalance declinin g mature production.

Mike Pausche – Senior Vice President,
Field Operations

Through continuous implementation of new projects, MOL Group seeks to achieve its strategic goal in Hungary to limit the production decline rate to 5%. As part of the conventional exploration program, gas and gas condensate discoveries were made. The unconventional exploration project continued in the Derecske Basin. In addition, 11 field development projects were completed and five new development wells were drilled. To ease the pressure of declining production on unit production costs, an extensive cost optimisation programme has commenced. In order to expand its acreage, MOL Group contracted for the Szeged Basin West concession and the Jászberény geothermal block in the First Bid Round. Furthermore, in the Second Bid Round announced in June 2014, MOL Group was awarded the Okány Eastern concession block. INA’s main goal is to stop the natural decline in Croatia and even increase production in 2015. INA’s efforts have already yielded positive results as crude oil production in Croatia has increased for the first time in more than a decade, largely due to the successful well optimisation programme. Accelerated onshore exploration and development activities conducted over the past years in Croatia have already resulted in a moderated, 5% production decline rate in 2014. An important milestone was reached in the Ivanić-Žutica EOR project as the permit or trial work on CO₂ injection in the Ivanić Field was obtained from the Ministry. 2015 will bring completion of the first phase of the EOR project with a positive effect on production in the Ivanić field, and the start of CO₂ injection in the Žutica field. Offshore development drilling activities continued in 2014. Five development wells were drilled, yielding 1.6 mboepd in incremental gas production for INA. Gas production started at the Izabela field in July 2014, and at the Ika JZ field in November 2014. To further enhance the exploration portfolio, INA bid for licences offered in the First Offshore Bid Round and was subsequently awarded two exploration blocks, South Adriatic 25 and South Adriatic 26. INA will proceed with negotiations and the signing of the PS A Agreement. IN A has also expressed its interest in licences offered in the First Onshore Bid Round, the award of which will follow in Q1 2015.

THE NORTH SEA

In 2014, MOL Group closed deals with Wintershall and Premier Oil, and was awarded of four exploration licences in the 28th UK Bid Round.

MOL Group entered the UK North Sea basin after acquiring a portfolio of non-operated offshore assets with 14 licences from German BASF Group member Wintershall. At that time, the Cladhan development was already underway, and the Catcher development was being progressed to field approval status. The Cladhan development is now almost complete and should be on track for first oil in H2 2015. Catcher has been fully approved and is moving forward with first wells planned for drilling in Q2 2015 and the FPSO construction in Japan underway. December 2014 saw completion of the acquisition of shares in the Scott, Telford and Rochelle fields from Premier. In 2014, MOL Group was awarded four firm blocks in the 28th UK Bid Round.

The strategic steps taken in the North Sea region allow MOL Group not only to increase its reserves and overall production, but also to simultaneously decrease the political risk profile of MOL Group’s Upstream portfolio. Entry into the North Sea area also enables MOL Group to enhance shallow offshore experience and create a new hub. We see room for cost efficiency improvements in the supply chain and have established a proactive and collaborative relationship with operators to help reduce costs in the low oil price environment.

The North Sea will remain a focus area for MOL Group’s business development. MOL Group is well positioned to utilise opportunities that arise from the current low oil price environment, which enables us to balance risk and seek new exploration and development opportunities.

Brian Glover – Senior Vice President,
Exploration & Business Development