According to Russian business newswire Interfax, MOL’s Managing Director has said that MOL plans to expand its oil production business in Russia, and is not ruling out cooperation with RussNeft and Lukoil. Mr Fasimon added that the company's strategy is to work with local partners. He said that both RussNeft and Lukoil are potential partners, but declined to disclose the volume of potential investments.
For us, the news indicates that MOL is actively seeking upstream opportunities in Russia. Although MOL’s targeted reserve replacement cost ratio of USD 6.5/bbl seems to be very low, when compared to recent deals (crude oil reserves were usually traded in the 10-15 range in 2005), it also includes the low exploration/development costs at ZMB field. These are well below the targeted average replacement cost, thereby providing MOL with more room to pay the market price for potential new upstream assets.
The information is not really new for the market but it boosted speculation yesterday that MOL might enter into an alliance with Lukoil, which could also involve a potential buying of MOL shares by the Russian giant. Coupled with the news of rising crude oil prices, it drove up MOL's share price by 4.8% yesterday (versus 2-3% price increase of CEE oils on average). Seeing no reason to revise our oil macro assumtions/earnings forecasts for the coming years, we retain our Hold recommendation on the stock.