MOL Rt History

Company Perspectives:

We are market leaders in each of our core activities in Hungary. Our main objective is to provide superior levels of shareholder return by fully exploiting our market potential, by implementing a dynamic development and expansion strategy and by realizing where possible the potential for further internal efficiency improvements.

Key Dates:

1882:

The first Hungarian oil refinery is established in Fiume.

1933:

Fanto United Hungarian Mineral Oil Factories Co. is created.

1938:

MOART oil exploration and production company is established.

1948:

The Hungarian oil and gas industry is nationalized.

1957:

OKGT, National Crude Oil and Gas Trust is created.

1991:

Seven OKGT companies merged to form Magyar Olaj- es Gazipari Rt (MOL).

1995:

MOL is privatized with a listing on the Budapest Stock Exchange.

1998:

MOL adopts a regional expansion strategy.

1999:

The company launches an oil production joint venture with Yukos in Russia.

2000:

The company acquires a 36 percent of Slovnaft oil refinery in Slovakia.

2002:

Full control of Slovnaft is acquired.

2003:

MOL acquires a stake in Croatia's INA.

2004:

The company acquires Shell's service station network in Rumania and sells a majority of its natural gas business to E.On.

2005:

MOL launches its bid for a stake in Bosnia's Energopetrol.

Company History:

Hungary's largest company, MOL Rt (formerly MOL Magyar Olaj- es Gazipari Rt) is also the leading integrated oil company in Eastern and Central Europe, beating out Austria's OMV and Poland's PKN Orlen. MOL is active in crude oil exploration and production, largely through a joint-venture in Siberia, as well as refining, transportation, storage, and retail and wholesale distribution. The company operates Hungary's largest service station network, through which it sells its own branded gasoline. In Hungary, MOL operates 400 stations. The company also operates service stations in Croatia and Slovenia. Romania is the group's largest foreign retail market with 130 stations, including 60 stations purchased from Shell at the end of 2004. MOL also operated a natural gas production and distribution business through 2004. In December of that year, however, the company sold most of its money-losing gas business to Germany's E.On for EUR2.1 billion. MOL is listed on the Budapest and Luxembourg Stock Exchanges. The Hungarian government retains a 23 percent stake in MOL. In 2004, the company posted sales of $7.9 million.

First Refinery Operations in the 19th Century

The first efforts to develop an oil industry in Hungary came toward the mid-19th century, with the processing of the crude oil found in shallow deposits in the Transylvania and Mura regions. These supplies were limited, however, and production levels were unable to support and fund the development of a full-scale refinery. The rising demand for oil, in particular for lighting paraffin lamps, forced the region to import oil from other parts of the Austro-Hungarian empire and beyond.

New tax and tariff legislation passed in 1882 provided a more favorable environment for the development of a domestic oil industry. By the end of that year, the country saw its first refinery, built in Fiume. The newly established Hungarian Petroleum Industry Co. began construction on a second refinery in Budapest in 1883. That plant began operations the following year.

Other plants followed, including another refinery in Budapest built by the Budapest Mineral Oil Company in 1891. The number of refineries continued to increase in what was then Hungary, a larger geographic territory than the later modern Hungarian state. By the turn of the 20th century, as many as 13 refineries were in operation.

Hungary's oil sector had further been stimulated by new government policy adopted in 1893 that provided subsidies and other incentives for both domestic and international companies willing to undertake exploration efforts in the region. A number of exploration initiatives were undertaken, while production at the existing shallow oil fields continued. Yet the effort to produce a domestic supply of oil was hampered by a lack of expertise, aging equipment, outmoded technology, and, most importantly, a reluctance to invest capital. By 1905, the total production of crude oil in Hungary remained below 55,000 tons.

In the meantime, demand for oil and oil products rose strongly. The build-up of the empire's army, an ongoing effort launched in the later part of the 19th century, played a major part in stimulating demand for petroleum. By the beginning of World War I, the country's refineries had neared a total production of nearly 600,000 tons. The empire's reliance on imports left its crude oil supply highly vulnerable.

In 1911, the government adopted a proposal made five years earlier according to which the state would take charge of exploration in the region. The passage of a new Mining Act gave the government a monopoly on oil exploration and production as well as the right to award concessions to both domestic and foreign companies. The government itself set up its own exploration wing, the Treasury Exploration Company, and began exploiting the existing gas fields in Transylvania. A second field, in Egbell, yielded oil in 1914. At the same time, the government awarded the first exploration concession to the United Kingdom's Anglo-Persian Oil Company, for the Mura and Izaszacsal region.

Postempire Production

Hungary's oil exploration and production effort was largely severely undermined by the advent of World War I, although production of natural gas continued at a new site in Transylvania during the war. However, following the breakup of the Austrian-Hungarian empire at the end of World War I, the borders of Hungary were redrawn. All of the country's former oil and gas fields now lay outside of the new country. Meanwhile, the new Hungarian government lacked the funding needed to launch its own exploration operations. Instead, the government turned to the Anglo-Persian Oil Company, which, in 1920, was awarded the exploration concession for a region spanning some 60,000 square kilometers. Anglo Persian established a new subsidiary, Hungarian Oil Syndicate Ltd., in 1921. After several years of fruitless searching for petroleum deposits, the British company abandoned its concession.

Another company, The European Gas and Electric Company, or EUROGASCO, was granted an exploration concession to the area of Hungary west of the Danube river in 1933. EUROGASCO, initially a joint venture between British and American interests that later came under the control of the Standard Oil Company, launched exploratory drilling in 1934. By 1937, the company had succeeded in located a field in the Budafapuszta and established the Hungarian-American Oil Industry, or MAORT, to exploit the site in 1938.

The Treasury Exploration Company by then had relaunched its own exploration program, searching in the Great Hungarian Plain and in the region around Bukkszek. The exploration of the Great Hungarian Plain was unsuccessful; in Bukkszek, the state-run company drilled some 50 exploratory wells through the 1930s. In 1937, company finally discovered an exploitable site in Bukkszek.

By 1939, MAORT, supplemented by production at the state-run Bukkszek field, was capable of supplying some 90 percent of Hungary's oil needs, and by 1940 nearly 100 percent of the country's oil supply demand was met with its domestic production.

In the meantime, the country had rebuilt its refining industry, since the breakup of the Austro-Hungarian empire had also placed most of the larger refineries outside of Hungary's borders. Only six refineries remained, including the Hungarian Petroleum Industry Co. and the Budapest Mineral Oil company. Following the empire's breakup, the country's smaller refineries were merged into a single company, Fanto Works Co. in 1924. In 1933, Fanto was merged with Hungarian Petroleum Industry and the Budapest Mineral Oil, forming Fanto United Hungarian Mineral Oil Factories Co. Several other refineries were built in the post-World War I period, including Nyirbogdany Petroleum Factory in 1922 and the Szoreg Petroleum Factory in 1931. In 1930, the Anglo-Dutch Shell Company constructed a refinery on Csepel island in Budapest. With a production capacity of 130,000 tons per year, that facility was then Hungary's largest and most modern.

Post-World War II Reconstruction

Hungary's oil industry was temporarily boosted during World War II with the restoration of its former borders. By 1943, the country's refining capacity had topped 800,000 tons. The MAORT production operation, which, along with the Anglo-Dutch Shell refinery and other Allied-owned facilities, was requisitioned by the Hungarian government during the war, continued to supply all of the country's crude oil needs. Other production facilities in the country's reacquired territories boosted production, which neared 850,000 tons per year by 1943.

By the end of the war, however, most of Hungary's oil industry lay in ruins. Whatever had survived the bombing of the country had been stripped clean of equipment by the retreating German army. The restoration of Hungary's borders to their pre-war limits placed a number of refineries and oil fields out of its reach once again. The Soviet Union took over those parts of the country's oil industry that had fallen under German ownership during the war. In 1948 and 1949, the Soviet-dominated Hungarian government carried out a nationalization of the country's oil refinery sector. As part of that process, a number of companies, including Fanto United Hungarian Mineral Oil Factories Co., were shut down.

Under Soviet domination, Hungary set up a new oil company in 1946, called the Hungarian Soviet Crude Oil Co., or MASZOVOL. That company began drilling for oil in Berkboszormeny, on the Great Hungarian Plain. That site was followed by a second drilling site, at Biharnagybajom. The latter site proved more successful, and in 1947 the first oil field was opened in the Great Hungarian Plain. MASZOVOL also began production at a natural gas field in Kaba in 1949.

Exploration and production operations continued into the 1950s. MASZOVOL became MASZOLAJ (the Hungarian Soviet Oil Co.) in 1949, then took over the former MAORT operations in 1952. Exploration operations continued throughout the 1950s, focusing on existing wells in the Trans-Danubian region and on the potential of the Great Hungarian Plain. A number of successful wells were established, such as at Nagylengyel, which produced some 1.2 million tons of crude oil in 1955. A number of natural gas reserves had been discovered as well, notably in Nadudvar and Rakoczifalva in 1953.

During the 1950s, the Hungarian government exerted increasing control over the country's oil industry. In 1957, the state combined much of the country's crude oil operations into a single, government-owned company, the Orszagos Koolaj- es Gazipari Troszt (OKGT) or the National Crude Oil and Gas Trust. The OKGT also took over the country's natural gas industry in 1960.

Hungary's industrialization in the postwar period stimulated the country's refinery sector. A new atmospheric distillation plant was constructed in 1961, followed by the reconstruction of the Szony refinery in 1962. That year, a new refinery was built at Szazhalombatta in order to refine crude oil from the Soviet Union. The Danube Oil Company was established in 1965, with an initial capacity of one million tons per year, which was then doubled by 1968. Another refinery, in Tisza was established in the early 1970s, becoming the country's largest, with a capacity of three million tons per year.

Eastern and Central European Leader in the 2000s

Throughout the 1980s, the OKGT grew into Hungary's largest corporation, with more than 43,000 employees, and operations stretching beyond oil exploration, refining, and distribution to include machinery manufacture and a variety of other businesses. The OKGT was unusual among other Eastern and Central European oil companies in that it remained a single entity in control of the entire domestic petrochemicals market. Nonetheless, Hungary remained the most open of the Soviet bloc countries and even allowed a level of investment in the domestic industry. Shell, for example, had launched operations in the country in the early 1970s. By the end of the 1980s, a number of other oil industry players, including British Petroleum, Total, Agip, and Aral had been allowed to establish operations in Hungary.

The collapse of Soviet domination in 1989 opened new prospects for the country's oil industry. The Hungarian government quickly opted for a free market economy and began plans to open up the oil industry for competition. As a preparation for this, the OKGT was restructured. Many of the group's unrelated businesses were stripped away, and by 1992 the company's payroll had been cut in half. Seven of the former OKGT-controlled companies were merged together, forming Magyar Olaj- es Gazipari Rt, more popularly known as MOL.

MOL's privatization took place over several stages in the early 1990s. In 1995, the Hungarian government passed a new Privatization Act. MOL reincorporated as a limited liability company and listed its shares on the Budapest Stock Exchange that year, with a float of some 67 percent of its shares. The Hungarian government retained control of the remainder.

In 1998, MOL, now facing competition at home, launched a new strategy to become a regional powerhouse. The company began expanding its network of service stations into neighboring markets such as Croatia, Slovenia, and Rumania. MOL also began looking for acquisition targets among the slowly privatizing markets in Eastern and Central Europe. In 1999, the company reached an agreement with the Croatian government to acquire a large stake in that country's INA oil company. However, the deal fell through.

In 2000, MOL moved into Slovakia, acquiring a 36 percent stake in its Slovnaft refinery. MOL boosted its stake in Slovnaft to full control in 2002. MOL also moved to secure its future oil production, forming a joint venture with Russia's then fast-rising Yukos to win a major concession in Malobalyk, in Siberia, in 1999. MOL's share of the joint venture surpassed its domestic production levels by 2003. In that same year, MOL finally succeeded in buying a 25 percent stake in INA.

MOL's empire building continued throughout 2004. The company added to its network of service stations, notably through the purchase of some 60 stations in Rumania from Royal Dutch Shell in November of that year. One month later, MOL took a step toward focusing itself as a pure oil company player. In December 2004, the company sold off most of its money-losing natural gas business to Germany's E.On for EUR2.1 billion (US$2.7 billion). The sale provided MOL with a war chest for further expansion. In January 2005, the company announced that it was entering the bidding for a stake in Energopetrol, the largest oil company in Bosnia, which went up for sale in March 2005. All evidence suggested that MOL planned to hold on to its position as the top oil company in Central and Eastern Europe into the 21st century.

Principal Subsidiaries: Balatongáz Kft. (Ltd); Geofizikai Szolgáltató Kft. (GES Kft.); GEOINFORM Mélyfúrási Információ Szolgáltató Kft.; KUNPETROL Kiskunhalasi Szolgáltató Kft.; MOL Austria Handels GmbH; MOL Földgáztároló Rt.; MOL INVEST Vagyonkezelo és Értékesíto Részvénytársaság; MOL Natural Gas Supply Plc.; MOL Natural Gas Transmission Plc.; MOL Romania Petroleum Products Srl; MOL Slovensko spol. s.r.o.; MOL-LUB Lubricant Production Distribution and Service Ltd; MOLTRADE-Mineralimpex Kereskedelmi Rt.; MOLTRANS Tankautós Fuvarozó Kft.; Petrolszolg Karbantartó és Szolgáltató Kft.; Terméktároló Rt.

Principal Competitors: Shell Nederland B.V.; Total SA; Crosco doo; OMV Aktiengesellschaft; Polski Koncern Naftowy Orlen S.A.

Further Reading:

• "All for One, and One for All?," Economist, June 30, 2001, p. 2.
• Harvan, Rob, "MOL--A Force to Be Reckoned With," World Refining, March 2004, p. 6.
• Higginson, Matthew, "MOL Buys Stations," Budapest Business Journal, November 29, 2004.
• "Hungary: Mol Sells Gas Interests to E.On," Petroleum Economist, December 2004, p. 39.
• "Hungary's New Empire Builder," Economist, July 19, 2003, p. 55.
• "Mol Has Submitted a Bid with Its Croatian Affiliate, Ina, to Buy a Stake in Bosnia's Largest Oil Firm, Energopetrol, Which Is Majority Owned by the State," Petroleum Economist, January 2005, p. 42.
• "MOL Looks toward a Regional Role," Euromoney, April 2002, p. 60.
• "MOL Opens the Door for Gas Sale," FSU Energy, September 5, 2003, p.11.
• "MOL, OMV Battle for Downstream Supremacy in Eastern Europe," International Petroleum Finance, January 2003, p. 9.
• "Oil in Eastern Europe--MOL's milestone," Economist, April 8, 2000, p. 72.
• "State Oil Firm Gears up for Competition," Petroleum Economist, September 1992, p. 20.

Source: International Directory of Company Histories, Vol. 70. St. James Press, 2005.

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