SOLID PERFORMANCE BY PKN ORLEN ON SUPPORTIVE MACROECONOMIC ENVIRONMENT, HIGHER OUTPUT AND SALES

In Q2 2015, the ORLEN Group's LIFO-based EBITDA before impairment losses on property, plant and equipment came in at PLN 2.9bn. The strong result was driven by a supportive macroeconomic environment, with a growing downstream margin and falling crude oil prices. The Group also reported higher sales across all segments. A solid result was posted by the Retail segment, despite a year-on-year decline in fuel margins in Poland, the Czech Republic and Lithuania. In Q2 2015, PKN ORLEN managed to reduce its debt and financial leverage, keeping its debt ratios at optimum levels. On July 8th 2015, as previously announced, the dividend of PLN 1.65 per share was paid to the shareholders.

The ORLEN Group carried on its power generation projects, and completed Unipetrol's acquisition of a 32% interest in Česká Rafinérská from Eni.

For Q2 2015, PKN ORLEN reported:

• LIFO-based EBITDA growth of PLN 2.0bn (y/y)
• Crude throughput and capacity utilisation growth of, respectively, 26% and 15pp (y/y)
• Total sales growth of 15% (y/y), with sales growing across all segments
• Operating cash flows of PLN 2.7bn
• Financial leverage of 19.8%

The key drivers of PKN ORLEN's performance in Q2 2015 included a USD 4.7/bbl rise in downstream margin, a 22% depreciation of the złoty against the US dollar (y/y), as well as a USD 48/bbl fall of the average Brent crude oil price (y/y). LIFO-based EBITDA before impairment of assets recognised to rationalise upstream expenditures came in at PLN 2.9bn, up by PLN 2.0bn on the same period last year. The increase was possible thanks to significantly higher crude throughput and sales volumes, among other factors. Save for Germany, in all its geographical markets PKN ORLEN saw increased diesel oil consumption, with gasoline consumption stable, at levels virtually unchanged year on year. The largest contributor to LIFO-based EBITDA in Q2 2015 was the Downstream segment, adding PLN 2.7bn to the overall result.

“The favourable macro conditions are a boon, but we are far from relying on them as a solid long-term foundation for the Group's further value creation. This is why, alongside robust bottom-line performance, in Q2 we also delivered strong financial ratios – we reduced our debt and maintained the financial leverage at a safe level. As a result of these efforts, the Company enjoys a sound financial standing, as confirmed by its PLN 2.7bn operating cash flows and investors' confidence reflected in our soaring share price, which kept setting new all-time highs,” said Jacek Krawiec, PKN ORLEN CEO.

Last quarter was another successful period for the Retail segment, which generated LIFO-based EBITDA of PLN 343m, on total sales growth of 1% (y/y). The segment's strong performance was supported by wider fuel margins in Germany, and a year-on-year improvement in non-fuel margins in Poland and the Czech Republic. It could have been better, though, but for shrinking fuel margins in Poland, the Czech Republic and Lithuania, and non-fuel margin in Germany. PKN ORLEN continued the expansion of its Stop Cafe and Stop Cafe Bistro network in Poland. At the quarter's end, it comprised 1,308 outlets, up by 159 (y/y).

Q2 2015 saw a strong rise (by 18% y/y) in total volumes of downstream sales which, combined with the favourable macroeconomic environment, led to LIFO-based EBITDA of PLN 2.7bn. Year on year, sales of gasoline grew by 19%, of diesel oil – by 28%, of olefins – by 17%, of polyolefins – by 4%, of fertilizers – by 18%, of PVC – by 4%, and of PTA – by 47%. The Q2 results were also supported by the USD 4.7/bbl (y/y) rise in downstream margin and the 22% depreciation of the złoty against the US dollar, being somewhat offset by the 19% weakening of the euro against the dollar. In Q2, the Group completed the acquisition of an equity interest in Česká Rafinérská from Eni, which will allow it to increase the volumes of crude oil processed by the Czech refineries.

“Our consistent efforts to build ORLEN's potential to deliver integrated value growth have enabled us to efficiently and effectively translate a supportive macroeconomic environment into excellent results. The rise in production and sales across all segments − despite lower fuel margins in the Retail area − augmented the positive effect of higher downstream margins with crude oil prices significantly below last year's levels,” said Sławomir Jędrzejczyk, CFO and Vice-President of the PKN ORLEN Management Board.

In Q2 2015, PKN ORLEN continued its power generation projects in the downstream segment. Activities at the 463 MWe CCGT unit in Włocławek included further assembly work on steam turbine pipelines and auxiliary systems, post-assembly tests, tightness testing, and chemical cleaning of the unit systems. Close to half of the systems were tested and declared ready for commissioning. Procedures for the first application of voltage were agreed with PSE, and the procedure for feeding gas into the gas station was agreed with GAZ-SYSTEM. A test run of the turbine is planned as early as in the second half of the year, while electricity production and sale are expected to commence at the end of 2015 or at the beginning of 2016. At the 596 WMe CCGT project in Płock work was underway on the design of the main buildings, and planning for the site development was completed. To secure transmission easements for power lines, negotiations were held with the landowners. In Q2, the gas turbine rotor was successfully tested for balance at the Siemens factory in Berlin. The current work on the project is related to tendering procedures, design of the necessary infrastructure at the Płock Production Plant (including the water and sewage system connections), and the gas supply contract.

Following changes in the macroeconomic environment and based on the results of exploration activities completed to date in Poland, a review of the upstream segment's projects were undertaken to determine viability of some of the running projects. To this end, the key reservoir and geomechanical parameters of the rocks in Polish shale reservoirs were compared with the corresponding parameters of North American shales. The results of exploration work and production tests carried out under exploration licences as part of the Lublin Shale project (including drilling and fracturing treatments performed using the currently available technologies applied in the U.S.) show that certain prospects which had previously been assessed as promising unconventional hydrocarbon plays turned out to be limited in area, and technically viable production can be expected only in few locations. Therefore, a decision was made to narrow down the areas where exploration activities will be continued, and to rationalise capital expenditure. As a result, an impairment loss of PLN 421m was recognised on the Lublin Shale project in the financial statements for Q2 2015.

ORLEN Upstream will proceed with exploration work under the project over a limited area offering higher exploration potential. Currently, two further fracturing operations and seismic surveys are being planned; the plans will take into account the findings of the work completed to date. Work will continue on another unconventional project, Mid Poland Unconventionals, which focuses on exploration for tight gas deposits. In 2016, the first exploration well is to be drilled under the Sieradz licence. In cooperation with academic centres, research institutes and the National Centre for Research and Development (NCBiR), PKN ORLEN will continue to engage in initiatives designed to adapt available production technologies to the properties of Polish shale formations.

With the Group's diversified portfolio of exploration and production assets, the funds released from the pool of resources previously earmarked for unconventional hydrocarbon projects may be used to intensify exploration for conventional hydrocarbons in Poland. The Karbon project in the Lublin reservoir and the Sieraków project, where PKN ORLEN and PGNiG SA are working on the development of a part of the licence area, will be continued. PKN ORLEN is also taking steps to further build its portfolio of assets in Poland. On July 20th 2015, ORLEN Upstream entered with PGNiG SA into an agreement for joint operations in eight licence areas in the Karpaty region (Bieszczady project). The parties will jointly perform research and analyses with a view to pursuing conventional hydrocarbon exploration, appraisal and production projects in the Podkarpackie Province. Proceedings are also underway to obtain new licences from the Ministry of Environment, and steps are being taken to acquire from third parties licences (or interests in licences) with a greater exploration potential.

The upstream segment also continues to expand its production assets in Canada. ORLEN Upstream Canada's production was 5.8 thousand boe/d in 2014 and 7.1 thousand boe/d in H1 2015. The company is working to increase its resource base and further limit upstream-specific risks by acquiring profitable production assets at the time of depressed crude oil prices. PKN ORLEN's strategy for 2014−2017 announced in July 2014 provides for capital expenditure of PLN 3.2bn in the upstream segment, to be spent mainly on (conventional and unconventional) exploration projects in Poland and development of production from the assets in Canada. An additional pool of funds has been earmarked for acquisition of promising assets in Poland and on other markets, depending on the attractiveness of the available projects and the Company's free cash flow.