Hungarian Horizon Energy: Solving Problems Creatively

Despite a bit of a breathing period for the exploration and production of hydrocarbons in Hungary, one oil and gas company was happy to share their success stories in the country.

However, Ibolya Ernyey, Vice President, Hungarian Horizon Energy, also spoke frankly about certain challenges encountered by the extraction industry.

She recalled that Hungarian Horizon had been established in 1998, encouraged by the Hungarian government; in 2004, she said, Aspect Energy became the company's partner, a "perfect match."

"As a result of us joining forces, I can proudly say that we've become the second largest natural gas producer in Hungary, after MOL, and revitalized the upstream industry in Hungary."

Before that, she explained that prior to 1998, MOL had previously been in a sort of monopoly position, because they were in possession of all the best acreage; although there was a concession system, it did not function, according to Ms. Ernyey, because of the requirement of environmental impact studies to be paid by the government, which did not have the funds allocated for that.

She said: "Instead of walking away, I accepted that as a challenge and began working with the authorities."

With a bit of perseverance, the concession areas eventually became available as licenses, according to her. "It wasn't perfect from the competition point of view, as licenses were evolving as first-come, first served. Nevertheless, the system worked and the exploration process would get started."

This worked up until October 2010, said Ms. Ernyey, when the Hungarian mining authorities decided to resurrect the former concession system. "That's taken a while, but finally we are here."

In 2005-06, Hungarian Horizon engaged in an expansive 3D seismic campaign, totaling around 4,000 square kilometers. "Based on the promising results, we identified a number of prospects and drilled some 68 wells; out of the 68 wells, 30 were successful."

Hungarian Horizon went on to build a gas plant in Hungary, a sign of the revival of the industry.

"Our total investment has been USD 400 million up to now," she reported.

Then in 2008, it established two companies to address the delays it was experiencing: AGS, an acoustic geological service and CED, a drilling contractor – both of which proved efficacious for overcoming Horizon's hurdles.

Of the company's results, she said, "Our gas production peaked at 1.5 billion cubic meters; for oil and condensate production, our peak was 302 tons/day. Our total net natural gas production exceeded the 1.5 billion cubic meters and 166,000 tons of oil and condensate.

"I think these are very impressive figures, both for a small company like ours, but also for a small country like Hungary."

She said this had been achieved through persistence. "Roadblocks do not stop me," she said,"they just challenged me to think out of the box and solve problems creatively."

Building the right team, said Ms. Ernyey, was also crucial, using local professionals who spoke Hungarian to deal with the authorities and landowners.

In her capacity as the President of the Hydrocarbon Department at the Hungarian Mining Association, she mentioned Hungary's long and deep tradition of mining, hearkening back to 1735 and sustained through communist times, but such industries had eroded following the fall of the Berlin Wall.

In her capacity at the Mining Association, she spoke about some issues relevant to hydrocarbons exploration in Hungary like concessions and the environmental authorities.

"The greatest headache we have now is caused by the environmental authorities," said Ms. Ernyey. "Complying with the rules is not a problem for us; but the way those rules and regulations are implemented is troublesome to say the least."

She offered the industry's expectations for the forthcoming hydrocarbons concessions which are to be tendered later this year in an agreement where the state brings the land and the licensing companies get the permits and pay the bills: "If successful, the state will get its share of the mining royalty and taxes, while the company makes profit. As we are partners, the success of the venture is in the interests of both the company and the state, too.

"That said," she continued, "we would like to see concessions be awarded regularly and on a timely basis – we've waited long enough since October 2010."

She said it was also crucial for Hungary to be aware of the actual scope of its hydrocarbon potential, that it was "not Saudi Arabia."

Ms. Ernyey commented: "We need a stable, predictable fiscal regime that does not punish companies that are making profit. Joining forces to overcome the state budget deficit in an economic crisis is fine, but it has to have its limit otherwise it chases away investors."

In the context of what she termed a high risk, high reward industry, she said: "What we clearly need from the government is ensuring a reasonable, timely approach of the permitting authority – if we don't solve that problem, then the concession process won't be successful."

She noted that in the past 10 years in Hungary more than HUF 180 billion (approx. EUR 6.1 billion) had been invested by hydrocarbons explorers, and out of every EUR 0.34 invested, EUR 0.18 went into government coffers.

Such proceeds, she mentioned, went to the domestic government instead of the Russian government, which was truly food for thought.

"Can you imagine how much state income was lost because of the delay since October 2010? Let's not wait any longer – we have a lot of catching up to do," concluded Hungarian Horizon Energy's Ibolya Ernyey.