For Q1 2015, LOTOS reported EBITDA of PLN 446m (up 92% year on year) and operating profit close to PLN 268m (Q1 2014: PLN 17.3m). In the same period, the Company generated operating cash flows of PLN 321m (up 27% year on year).

LOTOS continues to make progress on its B8 field development plan. Also, preparations are under way for the B4 and B6 field development project and launch of the EFRA programme.

In the past quarter, the Gdańsk refinery’s workload was adjusted to market conditions, which remained positive. The refinery’s capacity utilisation rate in Q1 2015 was just below 93% (up 5.1 pp year on year). With its operations stable, the refinery maintained a throughput of 2,379.2 thousand tonnes (up 5% year on year). Efficient downstream operations enabled LOTOS to take advantage of a period of strong refining margins (USD 9.4/bbl in Q1 2015).

“The Q1 2015 macroeconomic landscape favoured oil companies with a clear strategy and operations that have been optimised for increased efficiency,” commented Paweł Olechnowicz, Grupa LOTOS CEO. “LOTOS is one of such companies, as demonstrated by its financial performance, as well as upstream and downstream projects in the pipeline.”

The Company felt the effect of exchange rate movements in Q1 2015, as its net result, of PLN -101.4m, was dragged down by net finance cost (PLN -377.1m), driven chiefly by the złoty depreciating against the US dollar.

First oil from B8 field expected by the end of the year. Norwegian gas supports upstream performance

In April 2015, LOTOS Petrobaltic announced the results of the tender process for the ‘Petrobaltic’ platform conversion project. Once its upgrade is completed, the platform will be deployed to produce oil from the Baltic Sea B8 field. The contract was awarded to the consortium of Energomontaż-Północ Gdynia and Stocznia Remontowa NAUTA.

Having considered the conditions on the global oil market and based on thorough technical analyses, LOTOS Petrobaltic made a decision to modify the scope of the ‘Petrobaltic’ platform upgrade project.

The recent tender process has helped reduce the estimated cost of the conversion work by as much as 40%, which will greatly enhance the economic viability of the B8 development programme.

LOTOS Petrobaltic has confirmed its plans to launch production from the B8 field in Q4 2015. The full field development is scheduled for completion by June 30th 2016. Recoverable reserves in the B8 field are estimated at 3.5 million tonnes of oil (over 27 million bbl). The company expects the annual output to reach 250 thousand tonnes (over 5.3 thousand bbl/d).

Total production in Norway, Poland and Lithuania in the first three months of this year amounted to 1.03 million boe, which translates into daily production volumes of approximately 12.7 thousand boe (up 1% year on year). LOTOS output is diversified into crude oil (approximately 55%) and natural gas (approximately 45%), which is very important in the context of fluctuating commodity prices.

Stronger retail EBITDA and EBIT

As at the end of March 2015, the LOTOS retail network comprised 445 service stations. In Q1 2015, four new locations were added to the network: two in the LOTOS Optima economy segment, and two in the Premium segment.

In the period under review, 251 thousand tonnes of fuels were sold (up 3.6 year on year).

For Q1 2015, the retail segment posted EBITDA of PLN 21m (up 17.6% year on year) and EBIT of PLN 6.2m (up 82.4% year on year), with the growth driven primarily by efforts taken to optimise the network operations.

Time to invest

In 2014, Grupa LOTOS S.A. carried out the year’s largest equity offering on the Warsaw Stock Exchange, raising PLN 1bn to finance further fast-paced growth. The issue proceeds will be applied towards partial financing of the EFRA project (i.e. construction of a delayed coking unit) and development of the B4 and B6 gas fields in the Baltic Sea.

The new coking facility, to be sited at the Gdańsk refinery, will enable deeper conversion of crude oil and improve the Company’s refining margin by some USD 2/bbl. Grupa LOTOS estimates the total cost of the EFRA programme at ca. PLN 2.3bn. The issue proceeds are expected to contribute PLN 530m−650m to the project’s financing. The EFRA project is to be completed in the first quarter of 2018.

The second objective of the issue is to partially finance the development of the B4/B6 gas fields in the Baltic Sea, which hold approximately 4 billion cubic metres of natural gas. Grupa LOTOS total expenditure on the development of the fields is estimated at ca. PLN 800m, given the Company’s interest in the project of 51%. The Company intends to apply PLN 350m−470m from the issue proceeds towards partial financing of the project. Production from the B4/B6 fields is planned to commence at the end of 2017 or beginning of 2018.

Q1 2015 highlights:

• EBITDA: PLN 446m (up 92% year on year)
• EBIT: PLN 268m (up 251m year on year)
• Cash flows: PLN 321m (up 27% year on year)
• Oil and gas production volume: 12.7 thousand boe/d (up 1% year on year)
• Capacity utilisation: 93%

 Q1 2015 macroeconomic highlights:

• Model refining margin: USD 9.4/bbl (up 85.7% year on year and up 28.1% quarter on quarter)
• Brent/Urals differential: USD 1.78/bbl (up 29.9% year on year and up 15.6 quarter on quarter)
• USD/PLN exchange rate at end of Q1 2015: up 25.7% year on year; average quarterly USD/PLN exchange rate: up 21.9% year on year

Communication Office, Grupa LOTOS S.A., ul. Elbląska 135, 80-718 Gdańsk, Poland, Tel. No.: (+48 58) 308 87 31, (+48 58) 308 83 88, (+48 58) 308 83 55, E-mail: media@grupalotos.pl