The announcement of a planned issue of new Grupa LOTOS shares has sent the Company’s stock price down over 13%. What is your comment on that?

- I think that the movements in the price of Grupa LOTOS shares are nothing out of the ordinary. Such market response is often the case when a company is planning a large-scale rights issue. We have seen it before, both at home and abroad. Grupa LOTOS is no exception. There is no cause for concern. In our opinion, the issue should be seen as an opportunity for Grupa LOTOS and its Group, as the planned investments may increase the potential of the Group as a whole and generate additional cash flows, possibly driving up the stock price for the benefit of shareholders.

How are the preparations going?

- We are progressing according to schedule. The State Treasury has declared its intention to subscribe for up to PLN 530m worth of shares, stating that this will not constitute public aid. How can it be so sure? This was thoroughly analysed before. We carried out a private investor test, which yielded positive results. What we are dealing with here is investment in our development rather than state aid, which is essentially a rescue by the government of a company in trouble. In other words, the investments to be financed from issue proceeds are all commercial, market-based projects, and in this context the State Treasury should be viewed as any other investor.

Are you not concerned that the issue may fail?

- As with any other project implemented by the Grupa LOTOS Management Board, we have taken a professional approach to the share issue and are making every effort to ensure that it succeeds. This is why we communicate with the market directly, trying to make it clear to our shareholders why we are issuing new shares and what the consequences will be for the Company, the Group and for them. If I had any concerns regarding the issue, they would be related to external events beyond our control, which could affect the market as a whole. Fortunately, there is no indication that any such events will take place.

What do you mean exactly?

- Turbulences on the crude oil market, for one. Not long ago oil prices were close to hitting USD 80 per barrel, but managed to rebound. I would find it worrying if the price dropped to USD 70 per barrel and kept falling. But for now it seems that the price is going to stabilise at about USD 85 per barrel.

When do you expect LOTOS to receive proceeds from the issue?

- It depends on a number of factors. We are hoping to receive the funds after the share capital increase is registered by the registry court.

Does the issue have anything to do with the petrochemical project Grupa LOTOS is to carry out in partnership with Grupa Azoty?

- No, the issue is related to projects envisioned in the strategy we are currently pursuing. These include completion of efficiency improvement projects at the Gdańsk refinery, as well as projects in the upstream segment.

Such as the extension of the crude oil processing line?

- Correct. The Gdańsk refinery has one of the most advanced process systems in Europe, but it is economically justified to invest in new installations to reduce the output of heavy fractions, which are not making a profit for the Company. Today they are by-products used in the production of bitumens and other products. But we have access to technology that will enable us to crack the heavy fractions into products that offer good rates of return. Accordingly, we are planning to build a delayed coking unit with auxiliary infrastructure as the final element of the process line built under the 10+ Programme (note from editor: Gdańsk refinery capacity expansion programme).

How much will it cost?

- We will be able to reveal the details of the project on the prospectus publication date.

What will be the effects of the process line extension?

- Our refining margin per barrel, already at least two US dollars above the European average, may increase by another two US dollars. This being said, the national energy security − an area where Grupa LOTOS is playing an increasingly important role − depends on how much crude oil is produced rather than how much of it is processed. Therefore, we need our own sources of feedstock as much as we need state-of-the-art process plant. Hence the need to step up production and plan new investments in the upstream segment. According to the LOTOS Group strategy, production is to reach 1.2 million tonnes per year, or ca. 24 thousand barrels of oil equivalent per day, by 2015. After 2015, you expect it to rise significantly, to 5 million tonnes a year, or ca. 100 thousand barrels per day, by 2020. Nothing has changed here. We have a good reason to keep the output figures in the 2016–2020 strategy at levels equal to or higher than those published in the document setting out the Group’s growth directions until 2020. Proceeds from the issue will allow us to step up investment and implement our strategic objectives.

But the output targets were written into the strategy several years ago, when there was no talk of a share issue.

- Indeed, but at that point we were not even considering how, depending of the prevailing market conditions, we would raise funding for our upstream operations. Based on our analyses and following consultations with the majority shareholder, we have decided that a share capital increase through the issue of new shares on a pre-emptive basis is the best option.

Will production continue to be a priority in the next Grupa LOTOS strategy?

- I think so − it is a priority in our current strategy and our development directions until 2020.

What portion of the USD 1.75bn facility contracted to finance the 10+ Programme remains outstanding?

- Approximately 75%.  

The credit facility matures in 2021, but you have indicated that the loan might be repaid early.

- It is a possibility. Whether we use this option depends on the market conditions and the situation within the Group. Our priority is the Group’s continuous development. Hence the current investment projects. Because of our investment needs, we will not make early repayment of the loan in the next two years. What happens afterwards is open to discussion, as a potential financial surplus may be either used to prepay the loan or distributed as dividend to our shareholders, who are entitled to share in the Company’s profits.

One of your strategic objectives is to secure a 10% share in the Polish retail market.

- And we can attain this goal through organic growth. According to the Q1–Q3 2014 data, our retail market share is now 9.1%.

How much would your retail network have to expand to allow Grupa LOTOS to meet the strategic target?

- No such calculations have been made, but I think if we increased the number of service stations from the current 430 or so to 500, this would be enough.

Speculations are rife that Grupa LOTOS is interested in buying Lukoil’s service stations network. Is that true?

- We are ready to explore any realistic and interesting opportunities that come our way for expanding our service station network, taking into account the Company’s financial standing and the economic viability of a potential investment. Each acquisition would enable us to exceed the strategic target. But currently we have no knowledge of any assets for sale.