1.2 million tonnes of own crude oil production in 2015 and focus on dynamic development of upstream segment - these are the key objectives of LOTOS' newly adopted strategy for the coming years.

Today the Management Board of Grupa LOTOS S.A. presented the strategy for 2011-2015 and development directions for the Group until 2020.

- Currently, the potential and increase in the value of oil companies depend mainly on investments in upstream, both on- and off-shore. This is the direction at which the newly adopted strategy of LOTOS is aimed -comments Paweł Olechnowicz, President of Grupa LOTOS S.A. - In 2015 we expect our company not only to perform successfully in the crude oil refining sector, enjoying an established position on the Polish fuel market, but also to own significant production assets, generating a further increase in the value of the whole LOTOS Group. We can implement this plan using our own sources of financing, but a new investor may accelerate this process.    

More hydrocarbons

In 2011-2015, LOTOS intends to allocate PLN 3.9bn to the pursuit of its strategic objectives in the area of upstream. The amount represents 68% of all expenditure earmarked for the implementation of the strategy. Key objectives set for the upstream segment include:

 • increase hydrocarbon production, in line with the priorities of Poland’s energy policy until 2030;
 • in 2020, have access to proved recoverable reserves of hydrocarbons of approximately 330m boe (barrel of oil equivalent) and increase production to approximately 100 thousand boe/day (5m tonnes of crude oil per annum);
 • drawing from own sources of financing, LOTOS intends to increase production to 24 thousand boe/day (1.2m tonnes of crude oil per annum) by 2015;
 • in acquiring hydrocarbon deposits (crude oil and natural gas, including shale gas), focus on areas with low and moderate risk levels;
 • areas of potential exploration include the Baltic Sea, the Norwegian Sea, the North Sea, the Barents Sea, as well as onshore areas in Poland and Lithuania.

Additional sources of financing obtained in the period covered by the strategy will help increase production and facilitate implementation of the strategic objectives.

LOTOS to launch trading

LOTOS' investments in the trading area in the next four years are expected to amount to PLN 1bn (18% of total expenditure). LOTOS will focus on further development of its trading structures based on an extensive distribution network, effective product logistics and dynamic growth of trading in crude oil and petroleum products.

In the fuel wholesale segment, the strategic objective is to continue efforts aimed to consistently strengthen the market position:

 • 30% share of the Polish fuel market;
 • sales exceeding the production capacity of Grupa LOTOS S.A.'s refinery in Gdańsk by 15%;

In the fuel retail segment, the objective is to dynamically expand the countrywide network of service stations in Poland, as a fully controlled and highly effective distribution channel, through:

 • gaining a 10% share of the Polish retail market by 2015;
 • further development of the service stations network and sales enhancement.

The objective for the lubricating oils area is to maintain the leadership of the Polish market, while for other product groups - to maximise the economic benefits by leveraging resources and market conditions. In order to maximise the integrated margin, LOTOS will focus on optimum use of assets and coordination of its activities in the key areas of the supply chain: planning, supplies, production and distribution. Given its expanded throughput capacities as part of the 10+ Programme, LOTOS intends to further diversify the directions and sources of crude oil supplies through:

 • maintaining the availability of supply sources of crude oil delivered both over pipelines and by sea transport;
 • flexible selection of crude oil grades and supply directions with a view to maximising the integrated margin;
 • increased activity on the international crude oil market;
 • increased share of own production in crude oil supplies.

State-of-the-art refinery near the Baltic Sea

In the operating segment, LOTOS will focus on effective use of Gdańsk refinery's expanded throughput capacity, a further increase of the conversion ratio and optimum use of synergies between the refining and the power generation segments. In 2011-2015, the Company intends to invest PLN 0.8bn (14% of total expenditure) to develop the downstream segment. Strategic objectives include:

 • achieve the highest global standards of production and maintain high competitiveness among European refineries;
 • optimum use of own assets and assets acquired as part of growth-related projects;
 • ensure safe and stable operation of the production and auxiliary facilities, as measured by the minimum availability of 98% during the year;
 • further increase the conversion ratio and intensify processing of crude oil;

In order to meet the ever more stringent environmental requirements, LOTOS has adopted a pro-environmental approach to its development strategy, choosing the best available technologies combined with solutions designed to ensure low emissions and high efficiency of the production processes. This applies both to the production process itself and its output, i.e. streams of environmentally friendly products. The security of the implementation of the projects will be confirmed by indices placing the Gdańsk refinery among the safest refineries in Europe.

Debt reduction and dividend

LOTOS' financial strategy provides primarily for a reduction of debt, measured by the debt to equity ratio at a level not exceeding 0.4 as at the end of the period covered by the strategy. Strategic objectives for profitability include:

 •  EBITDA margin ≥ 9%;
 • ROACE ≥ 12%.

Dividend payments will be subordinated to the objective of optimising the financing structure of the Company. The dividend payout ratio is expected to be 30% of net profit.

Marcin Zachowicz, spokesperson for Grupa LOTOS S.A., ul. Elbląska 135, 80-718 Gdańsk, Poland, tel. +48 58 308 75 70, +48 505 050 454, e-mail: marcin.zachowicz@grupalotos.pl