Mazeikiu Nafta - The biggest transaction in the history

The biggest transaction in the history of the Polish economy crowns the consistent implementation of PKN ORLEN’s 2005 – 2009 strategy, which provides for various value-building activities, including acquisitions in the region. The inclusion of AB Mažeikių Nafta (MN) in Grupa ORLEN creates the largest oil corporation in Central Europe with crude oil processing capacity totaling a regional record of 31.7 m tons per year.

Yesterday PKN ORLEN issued to the Vilnius branch of SEB - Skandinaviska Enskilda Banken an irrevocable transfer order to Yukos International UK B.V. Today Yukos transferred shares in MN to the account of PKN ORLEN and the two entities signed an agreement finalizing the transaction.

Also today PKN ORLEN concluded its transaction with the Lithuanian government - transferring payment, receiving shares and signing an agreement between the Polish corporation and its partners representing the Lithuanian government.

Concurrently with the conclusion of the transaction, PKN ORLEN submitted an application to the Lithuanian Securities and Exchange Commission to approve the documents in connection with the MTO on the remaining 5.64% of the floating shares in MN. Approval of the MTO by the appropriate authorities (securities commissions) is expected late in December 2006, and the share buyout process should start on January 4, 2007. The MTO process is expected to close by January 17, 2007.

The new Supervisory Board additionally appointed Igor Chalupec, President & CEO of PKN ORLEN and Piotr Kownacki, Vice President of PKN ORLEN in charge of Audit & Regulations to the Management Board of AB Mažeikių Nafta. During its first meeting the Management Board of MN appointed Igor Chalupec to the position of President & CEO of MN. As informed earlier, the competences of the Management Board of MN are focused on strategic decisions (in a similar way to a Supervisory Board under Polish legislation). At present, the Management Board of MN consists of 7 members, including 6 proposed by PKN ORLEN S.A. and one by the Government of Lithuania.

Under Lithuanian law, persons sitting on the Management Board of a parent company may not be members of the Supervisory Board of a subsidiary. They may, however, sit on the Management Board of the company. This is due to differences in the role of the Management Board within the company’s corporate governance as compared to their Polish counterparts. The majority of the day-to-day operating management is handled by the Chief Executive Officer, whereas the competencies of the Management Board are directed towards strategic decisions (in a similar way to a Supervisory Board under Polish legislation).

In accordance with policies implemented two years ago by the PKN ORLEN Group, persons delegated by PKN ORLEN to the Supervisory Board and the Management Board of AB Mažeikių Nafta will relinquish all remuneration for their work on the statutory bodies of the company. The process of structural integration of the AB Mažeikių Nafta refinery will be significantly accelerated, because of PKN ORLEN’s prior experience in acquiring the Czech-based UNIPETROL holding. This will be possible thanks to the immediate implementation within MN of a segment management structure, mirroring that of Grupa ORLEN, as well as the centralization of crude oil procurement throughout the Group.