Equity
Hungary MOL may agree to lower payments in Syria to avoid further production drop - KBC (2)
(Adds clarification of comment by KBC)
Hungarian oil and gas group MOL is in negotiations with the Syrian government about future payments of gas deliveries, KBC Securities said in its daily research note, in which it summed up a conference call between the company and analysts.
Following some misinterpretations in the media, KBC clarified its pervious comment on INA’s Syrian operations.
The clarification is as follows (analyst: Péter Császár):
“As far as investors have been informed by INA’s stock exchange announcement on 14 November 2011, INA did not receive one monthly payment from the Syrian party (i.e. the GPC) for the produced hydrocarbon quantities for September 2011. The payment was due at the end of October 2011.
“INA’s employees are in contact with the GPC to resolve the issue. This implies that neither MOL nor INA or their representatives are in negotiations with the Syrian government about future payments for gas deliveries.
“Since the continuation of production is in the common interests of both parties (i.e. Syria and INA), we believe at least part of the payments should continue to cover local production costs.
“Since MOL uses cash accounting for revenues, profits will only be recognized if receivables are collected. By contrast, costs are recognized as they occur. This suggests that even in the case of maintained production, MOL’s profits from Syria are likely to come in below our expectations. Although still a very unlikely scenario, we estimate that the full shutdown of MOL’s Syrian production would wipe out roughly HUF 32.4bn from our EBIT estimate for 2012, which translates into 9.0% of our overall EBIT forecast for next year."
Original KBC comment, as of 16 Nov:
“To avoid any further cuts in production volumes, MOL appears to be willing to agree to lower payments that will still cover the firm’s local fixed costs," said Péter Császár, analyst at KBC.
“Since MOL uses cash accounting for revenues, profits will only be recognized if receivables are collected. By contrast, costs are recognized as they occur. This suggests that even in the case of maintained production, MOL’s profits from Syria are likely to be lower than our expectations," he added.
Although at this point Császár regards this as a “very unlikely scenario", he estimates that a full shutdown of MOL’s Syrian production would wipe out roughly HUF 32.4 bn from his EBIT estimate for 2012, which translates into 9.0% of his overall EBIT forecast for next year.
Due to lower spending year-to-date (HUF 165 bn, down 31% yr/yr), MOL has trimmed its capital expenditures target for 2011 and now expects to plough roughly HUF 300 bn into capital investments in 2011 versus KBC’s forecast of HUF 350 bn, the analyst ntoed.
“MOL said the change was due to the delay in the Hayan development in Syria. MOL targets capital expenditures at around USD 2.0 bn in 2012 (or HUF 440 bn at the current USD/HUF rate), almost 20% above our estimate. We see the target as very ambitious and thus believe MOL has a lot of flexibility in this guidance (mainly to the downside)," Császár concluded.
Hungarian oil and gas group MOL is in negotiations with the Syrian government about future payments of gas deliveries, KBC Securities said in its daily research note, in which it summed up a conference call between the company and analysts.
Following some misinterpretations in the media, KBC clarified its pervious comment on INA’s Syrian operations.
The clarification is as follows (analyst: Péter Császár):
“As far as investors have been informed by INA’s stock exchange announcement on 14 November 2011, INA did not receive one monthly payment from the Syrian party (i.e. the GPC) for the produced hydrocarbon quantities for September 2011. The payment was due at the end of October 2011.
“INA’s employees are in contact with the GPC to resolve the issue. This implies that neither MOL nor INA or their representatives are in negotiations with the Syrian government about future payments for gas deliveries.
“Since the continuation of production is in the common interests of both parties (i.e. Syria and INA), we believe at least part of the payments should continue to cover local production costs.
“Since MOL uses cash accounting for revenues, profits will only be recognized if receivables are collected. By contrast, costs are recognized as they occur. This suggests that even in the case of maintained production, MOL’s profits from Syria are likely to come in below our expectations. Although still a very unlikely scenario, we estimate that the full shutdown of MOL’s Syrian production would wipe out roughly HUF 32.4bn from our EBIT estimate for 2012, which translates into 9.0% of our overall EBIT forecast for next year."
Original KBC comment, as of 16 Nov:
“To avoid any further cuts in production volumes, MOL appears to be willing to agree to lower payments that will still cover the firm’s local fixed costs," said Péter Császár, analyst at KBC.
“Since MOL uses cash accounting for revenues, profits will only be recognized if receivables are collected. By contrast, costs are recognized as they occur. This suggests that even in the case of maintained production, MOL’s profits from Syria are likely to be lower than our expectations," he added.
Although at this point Császár regards this as a “very unlikely scenario", he estimates that a full shutdown of MOL’s Syrian production would wipe out roughly HUF 32.4 bn from his EBIT estimate for 2012, which translates into 9.0% of his overall EBIT forecast for next year.
Due to lower spending year-to-date (HUF 165 bn, down 31% yr/yr), MOL has trimmed its capital expenditures target for 2011 and now expects to plough roughly HUF 300 bn into capital investments in 2011 versus KBC’s forecast of HUF 350 bn, the analyst ntoed.
“MOL said the change was due to the delay in the Hayan development in Syria. MOL targets capital expenditures at around USD 2.0 bn in 2012 (or HUF 440 bn at the current USD/HUF rate), almost 20% above our estimate. We see the target as very ambitious and thus believe MOL has a lot of flexibility in this guidance (mainly to the downside)," Császár concluded.
