Unit operating costs in the UK have been halved from $30 per barrel to $15 since 2014, testament to these changes and proof that it is still possible to make money in the North Sea, even at the current oil price. Below, we will explore how MOL has leveraged its strengths in exploration, development and production in both the UK and Norway, and describe the adjustments that we believe can make the North Sea an even more favourable place in which to invest – even in a $50 per barrel world. UK Portfolio: MOL’s presence in the UK and Norway has been successfully built up over the past couple of years. MOL Group entered the UK in 2014, through the acquisition of the Winter shall UK portfolio followed by the acquisition of a position in the Scott hub. Both acquisitions were completed before the oil price collapse. Our portfolio is a mixture of development projects and producing assets; exposure to exploration is limited as the UK is not a particularly attractive place to explore. The Scott area is a mature and strategic hub with a number of stranded discoveries in close proximity. Broom, Cladhan and Scolty-Crathes are subsea tiebacks at different stages of maturity. Catcher is our flagship development project and, at just under USD 500 million, represents the single largest investment by MOL in the UK. The project is progressing well with all sub-sea facilities in place, 11 development wells drilled to date and the FPSO nearing completion in the yard in Singapore. In addition, the joint venture has been able to reduce overall project cost significantly. The mature UK basin is sensitive to oil price levels and the MOL portfolio in the UK has clearly been impacted. The reduction in operating costs in the last two years is encouraging but this drive for cost efficiency needs to continue to ensure a longer future for the basin. This requires operators, joint venture partners and the supply chain to work closely together and have common strategic goals. It is also good to see the UK and Scottish governments taking more interest in the views of the offshore oil and gas industry. NCS Exploration: The approach in the NCS has been to build through exploration. This was commenced through the acquisition of Ithaca Norge in 2015. The portfolio has grown since the initial acquisition through farm-ins and successful applications in license rounds. The most prospective play is Mandal High, which has attracted the attention of a number of the principal upstream companies in Norway. MOL plans to test the play concept with a number of exploration wells in the next few years. In all, the addition of the Norway portfolio has more than doubled MOL’s un-risked recoverable resource potential to 1.2 billion barrels. In the UK, MOL has a non-operated position in all development and producing assets. The UK team is small in size but experienced, and is able to add value by working actively with operators and other joint venture partners. This has been achieved through doing independent technical work as well as taking a lead role on commercial issues. Examples are the re-focus of infill drilling campaigns on lower risk targets, and an increased focus on the cost efficiency of mature producing assets. In Norway, MOL is the operator of the majority of our licenses. Activities are concentrated in core areas in the mature part of the Norwegian North Sea located close to existing infrastructure, which facilitates quick transformation from discovery to producing barrels. These core areas are characterised by massive proven hydrocarbon source volumes, multiple reservoir levels and the availability of recent 3D seismic surveys. The exploration team uses state of the art technology to identify and de-risk new play concepts. In fact the Norway team forms our Exploration Centre of Excellence for the global E&P division. To Develop Opportunities: Going forward, a key aim in the UK is to utilise the tax loss pool that has been built up as a result of the three development projects that have been completed. For Norway, new play concepts are being matured. Should exploration be successful, a logical next step will be to develop these opportunities and at this stage the strategic partnerships that have been built up will be vitally important. From a tax optimisation point of view, the addition of a producing asset to the portfolio would also make sense post-discovery. The UK and Norway share a common geological setting and operating environment. With operations in both countries MOL is able to compare and contrast. There are significant differences in the commercial, tax and regulatory regimes which have driven the shape of the portfolios in both countries. The UK provides exposure to a higher oil price environment, whereas Norway has a tax regime that encourages exploration. Norway is relatively unexplored compared to the UK with significant resource yet to be discovered. What is particularly encouraging is that development costs have come down considerably over the last few years. Taxes and Decommissioning: In the UK, the new regulator is now more actively engaged. MOL believe it is time for changes to the regulatory and tax regime to reflect the maturity of the basin. The recent abolition of PRT and reduction of SCT has not been particularly helpful in stimulating new investment and is only beneficial to those companies generating a profit. These are not the newer entrants willing and able to invest in the basin. The lack of meaningful tax relief on exploration and appraisal drilling should be addressed. In particular tax incentives for appraisal drilling would help de-risk and mature stranded discoveries. These discoveries are often stranded because de-risking the volumes through appraisal renders the overall project uneconomic. In addition the fractured equity positions of stranded discoveries and potential host facilities should be addressed using area development plans that allocate the assets to the owners that are most likely to maximise economic return. At the other end of the spectrum the uncertainty around tax relief on decommissioning is blocking. The transfer of mature assets from unfocussed super majors to more agile and efficient companies. The ability to transfer the tax positions from seller to buyer is one potential solution, but it would arguably make more sense if the decommissioning liability stays with those companies that have been the beneficiary of the majority of the profit out of the asset in question. Financially robust joint venture partners like MOL are exposed to the risk of financially vulnerable partners, in particular, in cases where the security for decommissioning expenditure is not in place. This is another area where the OGA should play a much more active role and force all field owners to have decommissioning security in place, in line with joint operating agreements. The existing infrastructure has a finite active lifetime and the inability to develop stranded discoveries will be an opportunity forever lost. Enter Tomorrow: Upstream will continue to play a key role for MOL Group in the future as set out in our corporate strategy, “MOL Group 2030 – Enter Tomorrow.” The overall goal is to keep the business profitable in a low oil price environment with a focus on creating value, not only on delivering volume. Over the next five years the Upstream division expects to generate USD 1 billion of free cash flow from its operations, assuming an oil price of $50 per barrel and organic investment of around USD 2 billion. Three quarters of our oil and gas production comes from mature basins in Croatia and Hungary. Production optimisation activities have intensified over the last few years and the established decline has actually been reversed. Nevertheless, we recognise that reserves are finite and decline will set in again. The baseline has been set at maintaining current production levels but the ambition is to keep the Upstream business at the current reserves level too. It is recognized that these targets cannot be delivered from our existing assets, and therefore acquisitions are required. MOL is not in a rush; we will focus on those hubs where we have already established strategic footholds and can create value. Where we can bring our internal experience and capabilities to bear – as we have in the North Sea – those will be the areas we look at closest. The writer has been MOL Group’s Executive Vice President of Upstream since October 2016. He studied mechanical engineering at the Technical University of Munich (TUM) and the Massachusetts Institute of Technology (MIT). He also studied economics and business administration at the University of St. Gallen (HSG) and Harvard Business School (HBS) Published in Daily Times, September 12th 2017.