LOTOS posted PLN 28.6bn in revenue in 2013, with operating profit at PLN 146m and net profit of just under PLN 40m. Upstream operations and efficient processing of crude oil into fuels will power the Company's value creation in 2014.

“Last year was not an easy time for the national and global economy, particularly in the fuel sector. Despite hardships, LOTOS used the time effectively, stepping up its upstream activities and furthering its operational and commercial projects,” commented Paweł Olechnowicz, President of the Grupa LOTOS Management Board. “Another demanding year and more work towards implementing the Company's key '2013-15 Efficiency and Growth' programme are ahead of us.”

The programme, announced in spring last year, focuses principally on key investment projects and the Group's reorganisation. It is closely linked with the Group’s strategy, and was designed with the primary goal of driving growth and value creation.

LOTOS has been effective in managing its liquidity position. In 2013, we repaid another portion of the debt incurred to finance the 10+ Programme, bringing our net debt to equity ratio down by 7pp, to 62%.

Our full-year results were heavily affected by the overall macroeconomic climate, including record-low refining margins. This was compounded by the weakness of the domestic market due to decelerating GDP and the shadow economy, which together depressed our top-line performance.

Exploration programme stepped up and fourth offshore rig deployed in the Baltic

We are consistently enhancing our capabilities in the upstream segment, which is one of our key strategic business areas. In 2013, LOTOS Petrobaltic signed an agreement with Polskie Inwestycje Rozwojowe for the B8 field development project. More than 1,000 square kilometres of seismic data were acquired within LOTOS exploration licence areas in the Baltic. In April 2013, Baltic Gas, a special purpose vehicle, was established to develop the B4 and B6 gas fields. Later in the year, LOTOS Petrobaltic closed the purchase of its fourth offshore rig, which is scheduled to begin drilling operations in the Baltic in spring 2014.

New licences and first oil from Norway

In October 2013, LOTOS Norge, a LOTOS Petrobaltic subsidiary, entered into a series of agreements on purchase of interests in more than a dozen licences on the Norwegian Continental Shelf, referred to as the Heimdal assets. This was the key step towards recovery of funds tied up in the Yme project and also had the effect of doubling production. The Norwegian annual production output attributable to interests held by LOTOS is approximately 240 thousand toe, or 5 thousand boe/d. To compare, throughout the whole of 2013 LOTOS produced some 219.4 thousand tonnes of crude oil (4.4 thousand bbl/d).

Following the December 2013 drilling of an exploration well in the Trell prospect in the PL 102F licence area, the presence of crude oil was confirmed in February 2014. This marked the first time oil had been discovered in a Polish-held Norwegian licence area.

Efficient refinery and new plans

In the refining segment, we are working on a petrochemical project with Grupa Azoty, which is key to LOTOS growth. To fully leverage the benefits of the successful implementation of the 10+ Programme, LOTOS has also been busy with preparations to build a delayed coker unit (DCU) at its Gdańsk refinery, which will directly enhance processing efficiency and help phase out the production of unprofitable heavy fuel oil. Instead, the annual output of motor fuels and coking coal will rise by as much as 900,000 tonnes and approximately 350,000 tonnes, respectively.

Another major success in 2013 was the increase in the conversion ratio at the MHC hydrocracking unit, built as part of the 10+ Programme. The 90% conversion ratio achieved in August 2013 marks enormous progress on the originally designed nameplate ratio of 60%. Assuming the unit works at its average processing capacity of 160 tonnes of feedstock per hour, improving MHC conversion by as little as 5% will raise the output of quality fuels − chiefly diesel oil − by approximately 70 thousand tonnes.

Energy efficiency is another important aspect of the refinery’s operations. After replacing the 35 year-old gasoline and oil units with three state-of-the-art process furnaces, the Gdańsk refinery reduced its energy consumption and emissions, while also improving production capacity and safety. In this way, the refinery – which already boasts the title of the most energy-efficient refinery in Central and Southern Europe according to Solomon Associates – became even more efficient.

Fastest-growing service station chain in Poland

In 2013, LOTOS maintained its leading position as Poland’s fastest growing network of service stations. Apart from opening a large number of new stations (57), in 2013 the Group also focused on developing sales of fuel and non-fuel products. Consequently, LOTOS improved its retail market position and by the end of 2013 had secured a market share of 8.5%, compared with 8% in 2012. Our 2015 goal is to reach 10% on the domestic fuel retail market.

According to the Polish Organisation of Oil Industry and Trade, the Group’s share in the domestic fuel market was 33.3% in 2013. The growing shadow economy in fuel trading and the economic slowdown reduced official diesel oil consumption by 6% in 2013. In contrast, the Group’s share in the domestic diesel oil retail market rose from 9.5% to 10.0% year on year.

Aviation fuel market

In November 2013, the LOTOS Group and BP Europe executed an agreement establishing LOTOS-Air BP Polska. Given the growing consumption of aviation fuel in Poland, the company’s development prospects are strong, especially since by the end of 2013 the newly established entity had already managed to expand its customer base repeatedly, improving Jet A-1 sales at Poland's largest airports (Warsaw, Kraków, Gdańsk and Katowice).

Communication Office
Grupa LOTOS S.A.
ul. Elbląska 135,
80-718 Gdańsk,
tel. 58 308 87 31, 58 308 83 88, 58 308 83 55,
e-mail: media@grupalotos.pl