PKN ORLEN interested in AB Mazeikiu Nafta

Today, Polski Koncern Naftowy ORLEN S.A. (“PKN ORLEN”) presented the Government of Lithuania (“GOL”) with a comprehensive offer (the „Offer”) to purchase 287,665,941 shares (a 40.6621% stake) in AB Mažeikių Nafta (the “Company” or „Mažeikių Nafta”). Moreover, should the GOL purchase the 379,918,411 shares (53.7022% stake) which are currently owned by Yukos International UK B.V. („Yukos”), PKN ORLEN offered to purchase those shares from the GOL for the same price as the price currently offered for the 40.6621% stake.

As expected by the GOL, the Offer contains all the elements which the GOL believes to be significant from the point of view of selection of a strategic shareholder for Mažeikių Nafta, including an attractive price for the Seller, securing the supply of crude oil to the Company and a description of the proposed management of the Company. PKN ORLEN has also proposed certain additional elements which make the offer even the more attractive, including bridge financing of the purchase of shares from Yukos and the purchase of the 53.7022% stake for the same price per share as the price now offered for the 40.6621% stake.
All corporate approvals have been granted with respect to the Offer, including the consent of the Supervisory Board of PKN ORLEN.

Crude Oil Supplies
As part of our recent due diligence, we have spoken with selected crude oil producers and traders, concerning the future supply of crude to the Company. We received favourable responses from the potential suppliers, including the existing suppliers of PKN ORLEN. Upon those preliminary commitments we are confident that we will secure the Company’s crude supply and that we could sign supply contracts shortly after acquiring the majority stake in the Company. PKN ORLEN has developed a detailed action plan aimed at ensuring continuous supply of crude to Mažeikių Nafta,.

PKN ORLEN has also analysed in detail the alternative ways of supplying crude to Mažeikių Nafta. The analysis includes, among other things, all the logistics and cost related issues of supplying crude oil from various geographic directions. Taking the above analyses into account we believe that the supply of crude oil to Mažeikių Nafta is not threatened in any way.

Additionally, PKN ORLEN is taking steps to enter into upstream. Mažeikių Nafta will have the opportunity to participate alongside PKN ORLEN in all upstream projects which will strengthen the safety of crude supplies to the Company.

Investment Programme
We base this assumption on the substantial experience of PKN ORLEN gained in the course of implementation of its own capital expenditures programme at the Płock refinery. PKN ORLEN and its technical advisors have reviewed in detail the investments proposed by the Mažeikių Nafta management team. PKN ORLEN's intentions for the Company include making substantial investments at the Company’s facilities at the cost of about USD 1 billion. The proposed investments include, among other things:
1) Projects related to production of clean fuels and implementation of ecological standards.

2) Bottom-of-the-barrel upgrade project (visbreaker vacuum flash, VGO hydrotreater/FCC expansion and power plant fuel system modifications).

3) Construction of a white product pipeline to Klaipeda.

4) Expansion of the Refinery’s crude processing capacity to 11 million MT per year.

5) Construction of a propylene recovery element of the Light Olefins project.

6) Development of the Ventus Nafta retail network in Lithuania and other Baltic States.

We are confident that completion of the capital expenditure programme proposed by PKN ORLEN will permit Mažeikių Nafta to establish a strong, modern, integrated fuel and petrochemical facility.

Management of Mažeikių Nafta
Following transaction completion, we are prepared to consider the option of that some of the members of the Supervisory and Management Boards will be appointed by the GOL, depending on the shareholding structure and in compliance with the new Corporate Governance rules.

At the operational level, PKN ORLEN expects to work closely with the Mažeikių Nafta management to define and develop potential value creation initiatives, and to ensure efficient and bidirectional knowledge exchange between the two entities. This would likely take the form of joint value creation teams, including experts from both Mažeikių Nafta and PKN ORLEN Group, which could include teams dedicated to business / functional areas (refining, wholesale, retail, purchasing, etc.) and/or support areas (communication, accounting, etc). In this respect we will draw upon our experience gathered in the course of asset integration (among others in the course of implementation of the Partnership Programme in the Czech holding of Unipetrol).

PKN ORLEN intends to implement a training programme aimed at further developing and integrating the Company into our business, including implementing the best practices of PKN ORLEN in the area of work safety. Mažeikių Nafta itself has managed to implement a number of operational improvements, including de-bottlenecking project, reduction in percentage fuel loss and loss on crude for the refinery and implementation of more effective maintenance planning procedures. We believe that these changes could not have been achieved without a competent and strong management.

PKN ORLEN has substantial experience in the integration of large business entities acquired in the course of, among other things:

1/ merger of Petrochemia Plock with Centrala Produktow Naftowych, which resulted in the establishment of a largest company in Poland in view of annual sales;

2/ acquisition of the Unipetrol Group (one of the three largest industrial businesses in the Czech Republic);

3/ merger of our chain of petrol stations in Germany with the PKN ORLEN Group (including about 500 petrol stations).

Regional Security
The investment by PKN ORLEN, a flagship enterprise of the allied state that is also tied with Lithuania through the membership in the European Union and the NATO alliance, constitutes a guarantee of implementation of the economic activities in compliance with the state interest of the Republic of Lithuania. The presence of PKN ORLEN in Mažeikių Nafta provides a new quality in assuring energy safety of Lithuania and Poland as well as the entire Baltic Region. This investment will be binding our countries. Mažeikių Nafta, which processed about 9.25 million tons of crude in 2005, will become a significant element of the leading oil company in Central and Eastern Europe. Because of its potential and experience, PKN ORLEN (it processed about 15.7 million tons of REBCO in 2005) guarantees modernisation and development of Mažeikių Nafta in line with the best world standards. PKN ORLEN’s presence in Mažeikių Nafta creates an opportunity for Poland and Lithuania to develop partnership relations with Russia in the energy sector.

PKN ORLEN is convinced that the GOL will objectively review our Offer and compare it will all the competitive offers. We believe that such thorough comparative analysis will clearly indicate that this Offer is the most favourable for Mažeikių Nafta, the GOL and all the other shareholders of the Company. PKN ORLEN counts on having the opportunity to present the Offer to the Prime Minister Algirdas Brazauskas himself.