Mol prepares for Russian upstream buy
Wednesday, November 8, 2006, 17:04
Hungarian oil and gas company Mol Nyrt expects to complete a major upstream acquisition within a year, most likely in Russia, but high oil prices limit the opportunities, a top executive told Reuters according to an MTI report.
Downstream targets in the oil sector are also hard to find, which could force the region's top three players, Austria's OMV and Poland's PKN Orlen as well as Mol, to seek cooperation in order to remain competitive on a global market, the executive said.
”There is pressure on Mol to invest, I can't deny that,” Lajos Alács, Mol's executive vice president for strategy, said in an interview with Reuters on Wednesday. "But based on our talks in Russia, Pakistan and Oman, but most particularly in Russia, I'm certain we'll take steps [on the magnitude of a hundred million dollars] within the next year," he added.
Mol set out last year to triple its upstream production and raise refined product sales by two-thirds by 2010. But the company has not made any major acquisitions in the first year since announcing the strategy and analysts say it is sitting on a pile of cash waiting to be invested.
"With the extremely high crude prices that characterize the industry, investors are not under pressure to sell [...] That makes our position difficult," Alács said. He added that Mol, which has virtually no debt, would be comfortable with raising its gearing to 40% to finance acquisitions and that would mean "billions of dollars worth of resources."
KBC Bank analyst Péter Tordai estimates that if Mol increased gearing to 40% and utilized its treasury shares to finance deals, it would have at least $3 billion at its disposal. Mol competed earlier this year in a tender for Russia's Udmurtneft but lost in the bidding to China's Sinopec, which paid a reported $3.5 billion for the firm.
Alács added that expanding in Russia and cooperating with Russian firms was inevitable for Mol. "We have to accept the geographic reality that any firm that wants to be market leader in this region has to cooperate with Russian firms," Alács said. He added that Mol would likely pick a Russian partner in any deal, which could include a takeover or a new project. He declined to name potential partners but noted that Mol already had extensive ties with Lukoil, Russneft and Gazprom.
In the downstream business, Mol will definitely take part in the privatization of Serbia's NIS, but after that deal, opportunities will have dried up. "There may be some further opportunities but they are limited and minor [...] so for the region to move forward, it will become unavoidable for the three biggest firms [Mol, OMV, PKN] to reevaluate their relationships with one another," Alács said.