In H1 2012, LOTOS turned in revenue of PLN 16,216.4m, up 22% year on year.

- In the first half of the year, we fully leveraged LOTOS’ operating potential, expanded through the 10+ Programme - says Paweł Olechnowicz, President of the Management Board and CEO of Grupa LOTOS S.A. - It is reflected in the record-high crude throughput in the second quarter of the year and steadily increasing sales volumes.
 
Grupa LOTOS S.A. decided to recognise a PLN 935m impairment loss on assets related to the Yme licence (which reduced its net consolidated result by PLN 289m). Accordingly, the carrying amount of the Yme assets at the end of June 2012 was PLN 330m. The impairment losses recognised to date generated a deferred tax asset of PLN 1,051m.

-In the first quarter of 2012, the operator on the Yme field recognised an impairment loss, so we cannot stand idly by - says Mariusz Machajewski, Vice-President of the Management Board and CFO of Grupa LOTOS S.A. - The field is still a valuable asset, which means that we are not leaning towards writing it down.” In accordance with Norwegian law, the Yme licence is generating considerable tax assets as a form of tax compensation for incurred expenditure. This means that if we produce oil under the Norwegian jurisdiction, we will not pay any related taxes until the asset is utilised. Therefore, we are actively seeking production opportunities in Norway.

Excluding the effect of the impairment loss, LOTOS would have posted PLN 472m in operating profit and PLN 336m in net profit for H1 2012.

LOTOS closer to development of offshore gas fields in the Baltic Sea

In Q2 2012, LOTOS Petrobaltic was producing crude oil and gas from the B3 field in the Baltic Sea. In April 2012, temporary production from the B8 field was discontinued. Preparations were being made for further drilling, as per the field development plan. An analysis of samples from the B8 field confirmed the feasibility of improving the crude oil recovery factor with the use of appropriate technologies.

- Drillings in the B8 field have proved that the launch of crude production is a viable opportunity - emphasises Zbigniew Paszkowicz, Vice-President of the Management Board, Chief Exploration & Production Officer of Grupa LOTOS S.A. - Moreover, we are in advanced negotiations with an international business partner over joint development of the B4 and B6 gas fields in the Baltic Sea.” Production from these fields is scheduled to start in 2016.

In H2 2012, LOTOS E&P Norge intends to drill two exploratory wells on the Norwegian Continental Shelf, one in the PL498 licence area (as the operator) and one in the PL497/PL497B licence area (as a partner). In the period under review, LOTOS Geonafta was producing crude oil from the Girkaliai, Kretinga, Nausodis and Genciu onshore fields in Lithuania. Also, the company completed drilling a production well on the Auksoras field, where test production commenced in mid-July 2012.

LOTOS is leveraging the potential created by the 10+ Programme and investing in technological advancement.

In the analysed period, the refinery of Grupa LOTOS processed a record-high volume of crude oil – 2,415.5 thousand tonnes, up 6.3% quarter on quarter and 8.8% year on year. In the entire H1 2012, LOTOS processed nearly 4.7m tonnes of crude, which represents a 6% increase on H1 2011. An improvement of the refining margin to the average quarterly value of 6.52 USD/bbl, effective use of the refinery’s operational flexibility and selection of lighter types of crude helped to increase the yields of motor gasolines in Q2 2012 (by 56.8 thousand tonnes on Q1 2012). During the period, the crack margin on motor gasolines rose by 42 USD/t on Q1 2012. The aviation fuel output was also at its record high, rising 38.4 thousand tonnes on Q1 2012 and 52 thousand tonnes on Q2 2011. The crack margin on aviation fuel went up 12 USD/t.

- June marked the first anniversary of the completion of the 10+ Programme. Now, all the newly built units are fully integrated with the whole refinery, enhancing its flexibility and production capacity - concludes Marek Sokołowski, Vice-President of the Management Board and Chief Operation Officer of Grupa LOTOS S.A. - This year, we have been pursuing new investment projects. In July, the xylene fraction unit was placed in service, while in September all of our installations and the CHP plant will be almost entirely gas-fired, allowing us to reduce emissions and market additional volumes of LPG and heavy fuel oil.

Improved wholesale and retail sales

At the end of June 2012, the share of LOTOS in the domestic fuel market was 34.1%, significantly exceeding the strategic target for 2011-2015, set at 30%. The Company also reported a 3pp (y-o-y) increase in its gasoline market share. The improvement was achieved in a period when liquid fuel consumption in Poland shrank by 7.1% year on year.

In H1 2012, LOTOS continued to expand its retail network, particularly by opening further economy service stations under the new OPTIMA brand. LOTOS is currently the most rapidly growing network of service stations in Poland (a nearly 16% increase year on year). The expansion of the LOTOS network is contributing directly to the brand’s higher share in the retail market and improved performance of the retail segment. At the end of Q2 2012, LOTOS’ share in the retail fuel market (in terms of total gasoline and diesel oil sales) was 8% (end of Q2 2011: 7.6%). The share of diesel oil sold under the LOTOS brand in the total volume of diesel oil sold at service stations rose to 9.6% (up 0.6pp on Q2 2011).

Press Office, Grupa LOTOS S.A., ul. Elbląska 135, 80-718 Gdańsk, tel. No. +48 58 308 87 31, +48 58 308 83 88, e-mail: media@grupalotos.pl