Hungarian oil and gas company MOL Group will lower capital spending by 25 per cent in 2020 and slow production while holding on to liquidity as it prepares to ride out the impact from COVID-19.
MOL withdrew its EBITDA guidance for 2020, is cutting capital spending to below US$1.5 billion this year following a project-by-project review to delay non-essential investment and conducting a complete review of operational expenditure to preserve case, the company said in a statement.
MOL will also adjust operations to minimise the spread of COVID-19 and adapt its production volumes to the altered market demand.
In an operational update on key businesses, MOL said that its production was around 110 million boepd in Q1, in line with earlier guidance. “Lower demand for fuels, full storage capacities and reduced refinery runs may however lead to temporary production curtailment in some of our international assets, potentially offset by more entitlement barrels due to the low oil price. In light of the uncertain macroeconomic environment, we are changing production guidance to 115-120 mboepd from 120 mboepd (assuming a 6-month contribution from ACG). We have put in place a set of actions to adjust expenditures and reduce our portfolio breakeven towards $25/boe,” it said.
It’s downstream business, due to lockdowns in core countries of operations, have resulted in a significant drop in demand of 20-40 per cent for key product groups. “While this has created operational challenges and a need for continuous optimisation across our high-quality downstream assets, we are also making use of currently attractive margins by keeping all refineries running, even if at reduced rates. MOL will continue to provide a safe and steady supply of oil and chemical products in all core countries,” it added.
Meanwhile, for consumer services, after a strong operational and financial performance in Q1, MOL Group said it has experienced declining sales as borders have been closed and social activities restricted. As a result, MOL Group has refocused operations to provide reliable and safe supply across its network and remains cash flow positive. Targets and guidance set for 2020 are being withdrawn here as well, given the unknown duration of measures restricting non-essential travel.
Additionally, MOL will retain after-tax profits from 2019 fully until the situation normalises, MOL said, as it looks to “weather a potentially longer-lasting crisis and grab opportunities once normalisation begins.”
The company, which closed the acquisition transaction for a 9.57 per cent share in Azerbaijan’s ACG oilfield recently, plans to maintain ample liquidity with around $2 -2.5 billion on hand.
These measures are being put in place not only to mitigate the impact of the current situation on the group, but also to allow MOL to emerge from the crisis stronger, the company said.
MOL Group’s Chairman-CEO Zsolt Hernádi said: “The world is facing an unprecedented challenge. Our life has changed completely in the last few weeks. The energy industry, while better positioned to weather the economic hardships than some others, enters a period of uncertainty it has probably never faced before, with scenarios ranging to extremes, which were impossible to imagine even a few weeks ago. MOL enters this difficult period in a good shape – and I am sure it will emerge from it even stronger, and certainly with important lessons learnt.”