L REPORTL 2008 A ANNU Economic, social and environmental performance MOL GROUP MOL ANNUAL REPORT 2008 I. Review of the year 2 MOL at a glance 3 Awards in 2008 4 Key financial and operating data 6 Letter from the Chairman - CEO and the Group CEO 10 Overview of the environment II. Our businesses 14 Exploration and Production 20 Refining and Marketing 26 Petrochemicals 30 Gas Transmission 35 Gas and Power 38 Our strategic partner INA III. Financial and Operational Performance 44 Management Discussion and Analysis 78 Independent auditors’ report 80 Consolidated financial statements (IFRS) 86 Notes to the financial statements 174 Historical summary of financial information 176 Key group operating data 184 Supplementary oil and gas industry disclosures required by FASB 69 IV. Sustainability: non-financial performance 194 Overview and targets 198 Caring for the environment 204 Focusing on people 211 Awards and recognitions 212 Sustainability performance data 216 Assurance letter V. Corporate Governance 220 Corporate Governance 232 Integrated Risk Management Function 234 Board of Directors 238 Executive Board 240 Supervisory Board 242 Report of the Supervisory Board 244 Corporate and shareholder information 248 Glossary 256 Topic of interest 258 Shareholder Information CONTENT Mol at a glance MOL is a leading integrated oil and gas group in Central and Eastern Europe. We are one of the most efficient Upstream and Downstream players in Europe on a per barrel basis. We are market leaders in each of our core activities in Hungary and Slovakia. Our market capitalisation was at USD 5 bn at the end of 2008. Our shares are listed on the Budapest, Luxembourg and Warsaw Stock Exchanges and the DRs traded on London’s International Order Book and on OTC in the US. Our main objective is to provide sustainable growth in our captive markets and to exploit potential in new markets. OUR CORE ACTIVITIES IN A SNAPSHOT Exploration and Production: We have over 70 years of experience in oil and gas exploration and production in Hungary where we are the dominant market player. We have already built a sizeable concentrated international upstream portfolio in the last two decades. Using our core competences, we operate in 10 countries and have recorded several significant discoveries in Hungary, Russia and Pakistan in recent years. Refining and Marketing: We operate three high complexity refineries with outstanding product yields (Duna, Bratislava and Mantova). Retail and wholesale activities are supported by extensive crude and product pipeline system. We operate a regional filling station network of over 1,000 sites in 10 countries and manage 6 brands within our multi-brand strategy. Petrochemicals: We are among the top ten polymer market players in Europe. We supply polyethylene and polypropylene mainly to European plastic processing companies. The production facilities are located in Tiszaújváros (TVK Plc.) and Bratislava (Slovnaft Petrochemicals, s.r.o.) and units are operated in integrated manner jointly optimized with refining. Natural Gas Transmission: FGSZ Ltd. is the exclusive holder of the natural gas transmission licence and the transmission system operator licence in Hungary. The company owns and maintains full operational control of the total domestic high-pressure pipeline system. In addition to domestic natural gas transmission operations, FGSZ also transmits natural gas to Serbia and Bosnia- Herzegovina. Gas and Power: The activities of this new division enable us to take full advantage of the synergies between oil, gas and power production, which provide further growth opportunities for the MOL Group and enhance the flexibility and diversification of the portfolio. Our power business has commenced with the development of an attractive power portfolio on the basis of the MOL-CEZ strategic partnership. The EBITDA (excluding special items) contribution of the various segments in 2008 was: Exploration and Production 44%, Refining and Marketing 39%, Gas and Power 14% and Petrochemicals 3%. 2 MOL ANNUAL REPORT 2008 AWARDS IN 2008 Downstream Healthy employees Business at healthy of the Year workplaces Platts ENWHP Healthy Workplace Safety Awards Award – Special Award DuPont AmCham CSR Best Best IR by a Practice Award Hungarian company Hungarian PR IR Magazine Association PR team HR team of the year of the year MTI IVM-Bridge MOL AT A GLANCE 3 Key Financial and Operating data Key exploration and Production data 2007 2008 08/07 % Gross crude oil reserves (MM bbl) 1 189.5 204.5 7.9 Gross natural gas reserves (MM boe)1/2 151.1 147.8 (2.2) Total gross hydrocarbon reserves (MM boe)1/2 340.6 352.3 3.4 Average crude oil production (M bbl/day)3 50.1 46.2 (7.8) Average natural gas production (M boe/day)3 40.3 40.1 (0.5) Total hydrocarbon production (M boe/day)3 90.4 86.3 (4.5) Key Refining and Marketing data 2007 2008 08/07 % Total refinery throughput (kt) 16,303 18,141 11.3 Total crude oil product sales4 (kt) 15,501 17,735 14.4 Gas and heating oil fuel yield (%) MOL+SN5 39.4 39.2 (0.2) Gas and heating oil fuel yield (%) IES5 48.5 50.6 2.1 Gasoline yield (%) MOL+SN5 19.2 19.0 (0.2) Gasoline yield (%) IES5 14.6 14.2 (0.4) Fuel oil yield (%) MOL+SN5 2.3 2.0 (0.3) Fuel oil yield (%) IES5 2.7 2.2 (0.5) Total number of filling stations6 992 1,076 8.5 Key Petrochemical data 2007 2008 08/07 % Olefin sales (kt) 277 240 (13.4) Polymer sales (kt) 1,209 1,118 (7.5) Key Natural Gas data 2007 2008 08/07 % Hungarian natural gas transmission (m cm) 14,961 15,140 1.2 Transit natural gas transmission (m cm) 2,390 2,427 1.5 Environmental and social performance data 2007 2008 08/07 % 7 CO2 emissions under EU ETS (mt) 4.09 6.42 57.0 Lost time injury frequency 1.49 0.97 (34.9) 1 SPE 2P without INA 2 Including condensate 3 Excluding MMBF Ltd. production 4 Exluding LPG and gas products but including feedstock transfer to Petrochemical segment 5 In case of the yield, the deviation is in percentage point 6 Only fully consolidated subsidiaries 7 The increase in the CO2 emissions was caused by the start of Duna Refinery steam boiler full operation, and the inclusion of steam crackers in Petrochemical division and the emissions of IES and TVK power plant 4 MOL ANNUAL REPORT 2008 2007 2008 2008 Key fi nancial data - IFRS 08/07 % (HUF bn) (HUF bn) (USD mn) Net revenue 2,594.0 3,535.0 36.3 20,576.3 EBITDA 496.0 351.1 (29.2) 2,043.8 Operating profi t 355.5 199.2 (44.0) 1,159.6 Operating profi t excluding special items* 299.4 193.9 (35.2) 1,128.8 Profi t before tax 344.3 158.0 (54.1) 919.4 Profi t for the year attributable to equity holders of the parent 257.8 141.4 (45.2) 823.2 Profi t for the year attributable to equity holders of the parent excluding special item* 210.4 137.1 (34.8) 798.3 Operating cash fl ow 315.5 347.2 10.1 2,021.0 Capital expenditures and investments 363.4 578.9 59.3 3,369.6 Basic EPS - HUF and USD 3,057.0 1,604.0 (47.5) 9.3 Return On Equity (ROE) % 32.5 12.7 (60.9) - Return On Capital Employed (ROACE) %** 22.4 10.2 (54.5) n.a. Clean ROACE* %** 18.6 9.9 (46.8) n.a. *Excluding the one-off gain on the acquisition of TVK shares realised in 2007 (HUF 14.4 bn), the fi ne imposed by the European Commission in association with paraffi n trading (HUF 5.8 bn) realised in 2008, the repayment by the Slovak Ministry of Finance of the unfounded penalty in 2008 (HUF 4.6 bn) as well as the receivable for subsequent settlement from E.ON in connection with the gas business sale for FY 2008 and FY 2007 (HUF 6.4 bn and HUF 44.3 bn, respectively). **Based on NOPLAT Net sales revenue (USD bn) EBITDA (USD bn) 0 10 20 0 1 2 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 EBITDA - CCS based (USD bn) Gearing (%) 0 1 2 -20 0 20 40 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 Market Capitalisation (USD bn) MOL shares on BSE 0 10 20 2004 2005 2006 2007 2008 35.000 12 2004 30.000 10 25.000 8 2005 20.000 6 2006 15.000 10.000 4 2007 5.000 2 2008 0 0 Closing price (HUF) Turnover (mn PCS) KEY FINANCIAL AND OPERATING DATA 5 Letter from the Chairman – CEO and the Group CEO Dear Shareholders, 2008 was a turbulent year for the world economy and a year of extreme oil price volatility. The global recession has imposed a variety of direct and indirect shocks on the Central European oil and gas industry. Yet, even if MOL faces a tough economic environment, we believe that the MOL Group benefits from a strong competitive advantage over our peers that will serve the Group well, at home and abroad. MOL is already internationally recognised as one of the best performing integrated companies in Europe. Our refineries are characterized by an outstanding configuration, a favourable middle distillate yield and a stable regional market share, and as such, enjoy a strong position to withstand a fall in market demand. This high efficiency of our refineries continues to prove the key element of our international competitive advantage and in 2008, we were awarded “Downstream Business of the Year” by Platts, the world’s leading provider of energy information.