Post-merger fourth-quarter 2022 results posted by ORLEN Group provide solid foundation to support economic growth and enhance energy security for Poland

Sales at Polish fuel stations were not a significant contributor to the ORLEN Group’s overall performance in the fourth quarter of 2022, accounting for just around 3% of its total LIFO-based EBITDA. For the first time, the reported results reflected the consolidated performance of four companies: PKN ORLEN, Energa, LOTOS and PGNiG. In the three months to December 31st 2022, the combined ORLEN Group generated more than PLN 100bn in revenue, with a net profit margin of only 8% (PLN 8.1bn*). The fact that the ORLEN Group currently enjoys stable revenue levels is attributable, among other things, to the elimination of illegal fuel trade, which before 2016 had a negative impact on the performance of legally operating fuel companies in Poland. In 2022 alone, the ORLEN Group paid PLN 39bn in taxes to the state budget, an increase of about PLN 13bn on 2015. Throughout 2022, the ORLEN Group spent PLN 19.6bn on projects seeking to permanently improve energy security and independence, including renewable energy development projects. The massive capital spending programme was enabled by the mergers and profits delivered by the Group.

‘The fourth-quarter results clearly demonstrate that the merger of PKN ORLEN, LOTOS and PGNiG made sense and is already delivering tangible results. A powerful group has emerged from the transactions, whose strong foundations provide a guarantee of financial stability, lasting value and potential to further generate shareholder returns. We have solid foundations for delivering further growth and strategic projects, which are essential to the future of the ORLEN Group and Poland’s economy. We invest our profits. Last year alone, ORLEN, already as a combined group, allocated a record PLN 19.6bn to what is the largest CAPEX programme in the Group’s history. This year, the figure will rise to as much as PLN 36bn. The huge sum will be largely allocated to an effective energy transition, including renewable energy and zero-carbon nuclear technology development projects, allowing us to build long-term energy security for Poland. Our projects create new jobs and provide local contractors with opportunities for growth that powers the Polish economy. As a result of the merger, we will also allocate almost PLN 14bn this year to freeze gas prices for 7 million households in Poland and 35 thousand vulnerable consumers like hospitals, schools and nurseries, protecting Poles against the impact of the energy crisis,’ explained Daniel Obajtek, CEO and President of the Management Board of PKN ORLEN S.A.

In the fourth quarter of 2022, the ORLEN Group generated*:
- Revenue of PLN 102.3bn
- LIFO-based EBITDA of PLN 16.1bn
- Net profit of PLN 8.1bn
* net of a one-off gain on the bargain purchase of PGNiG.

In 2022, the ORLEN Group generated**:
- Revenue of PLN 278.5bn
- LIFO-based EBITDA of PLN 38.7bn
- Net profit of PLN 21.5bn
** net of a one-off gain on the bargain purchase of LOTOS and PGNiG.

Acquisitions and investments.
Last year PKN ORLEN closed its mergers with the PGNiG Group (in November) and with the LOTOS Group (three months earlier), which marked the establishment of Central Europe’s largest energy group ranking among top 150 companies in the world by revenue and serving more than 100 million customers. Over the fourth quarter of 2022, PKN ORLEN was successfully implementing the merger remedies agreed with the European Commission as a condition to its acquisition of LOTOS. For example, it finalised a series of transactions with Saudi Aramco, of which an integral part was an agreement on crude oil supplies to the entire combined ORLEN Group, not only in Poland, but across the region. PKN ORLEN, Saudi Aramco and its subsidiary SABIC also signed a memorandum of understanding to cooperate on a potential petrochemical project in Gdańsk. Some of the merger remedies were implemented in the retail segment. The ORLEN Group acquired and began to rebrand 79 fuel stations in Hungary, previously branded as Lukoil. The Group will additionally purchase 103 fuel stations located in Slovakia and Hungary by mid-2024. In the fourth quarter of 2022, the ORLEN Group also launched a process of rebranding and integrating LOTOS fuel stations into its Polish network, all of them already operating under the ORLEN colours.

The Group was also engaged in continued projects to harness renewable energy sources, including development of an offshore wind farm. A strategic decision was made to build an offshore installation terminal for offshore wind farms in Poland, the first such installation on Poland’s territorial sea. The terminal will be located in the Port of Świnoujście and will be one of the most advanced facilities of this kind in Europe. The joint venture project between the ORLEN Group and Northland Power will require 76 state-of-the-art 15 MW turbines from Vestas, whose components will be manufactured at the supplier’s new plant in Szczecin. The turbine manufacturing plant, to be manned by a staff of 700, is scheduled for completion in 2024, while the ORLEN Group’s installation terminal at the Port of Świnoujście will commence operations in 2025.

At the end of last year, the ORLEN Group also completed a project to construct one of Poland’s largest solar PV farms, located near Wielbark (Province of Olsztyn). The 62 MW solar farm will operate at full capacity starting from this quarter, generating clean energy for more than 30 thousand households. At the same time, work is under way to build another solar farm, with a capacity of 65 MW, in Przykona (Province of Poznań), with the construction scheduled to start in the middle of this year.

The Group is also investing in biogas and biomethane production, building Poland’s first green biogas plant to make a real contribution to reducing CO
2 emissions from heavy goods transport. The pilot plant being built in Głąbowo (Province of Olsztyn) will produce over 7 million cubic metres of biomethane annually, which will then be converted into fuel, bioLNG. This volume allows a truck to travel 22 million kilometres. The project, with an estimated value of approximately PLN 180m, is to be launched in mid-2024.

The ORLEN Group is also successful in its upstream oil and gas activities. In December 2022, PGNiG Upstream Norway and LOTOS Exploration & Production Norge were awarded interests in four exploration licences on the Norwegian Continental Shelf. Together with the latest awards, the ORLEN Group now holds 98 licences in Norway.

Despite allocating billions of złoty to new investments, the Group managed to reduced its debt by PLN 7.2bn (q/q) and PLN 14.6bn (y/y), with the ratio of net debt to EBITDA at (-) 0.08x. In view of PKN ORLEN’s successful merger with Grupa LOTOS and PGNiG and stable financial position, the Group was assigned the highest rating ever. Moody’s Investors Service upgraded PKN ORLEN’s rating to A3, while Fitch Ratings upgraded PKN ORLEN’s Long-Term Issuer Default Rating (IDR) by two notches, to BBB+. Given its sound financial footing and consistent implementation of business objectives across all areas of operations, on October 3rd 2022 PKN ORLEN paid dividend for 2021 in the amount of PLN 3.5 per share, that is at a level consistent with the Group’s strategy.

In the fourth quarter of last year, the ORLEN Group posted LIFO-based EBITDA net of a one-off gain on the bargain purchase of the PGNiG Group of PLN 16.1bn. Revenue was in excess of PLN 100bn, driven mainly by the consolidation of the newly acquired LOTOS Group and PGNiG Group, of which 35% was generated by foreign sales. The positive impact of the merger on the Group’s performance is reflected in the results of the refining business, which recorded an over 40% year-on-year increase in sales volumes and the strong global upstream segment with total 2P recoverable reserves of 1.3 billion boe (barrels of oil equivalent) per day. In contrast, sales at fuel stations in Poland accounted for just around 3% of the total LIFO-based EBITDA.

In the fourth quarter of 2022, the
refining segment posted LIFO-based EBITDA of PLN 10.9bn, including PLN 3.6bn attributable to the newly acquired LOTOS Group. The segment’s performance was driven by supportive macro conditions. Oil throughput at the ORLEN Group refineries was 11.2 mt (98% capacity utilisation). 43% y/y sales growth was reported in the three months to December 31st 2022, including 30% in gasoline, 53% in diesel oil, 61% in LPG and 40% in JET aviation fuel, with a 3% drop in heavy fuel oil. Sales rose 75% in Poland, 14% in the Czech Republic and 3% in Lithuania.

Operating profit of the
upstream segment for the last quarter of 2022 amounted to PLN 6.3bn, reflecting mainly the consolidation of the PGNiG Group’s and LOTOS Group’s results, totalling approximately PLN 6.1bn. Sales in the third quarter rose 73% year on year: crude oil sales went up sevenfold, with natural gas and gas condensate up by, respectively, 3% and 42%. The acquisition of the PGNiG Group translated into a significant increase in oil and gas reserves as well as production volumes, mainly in Poland and Norway. At the end of the year, total oil and gas reserves stood at 1.3 billion boe.

Despite lower demand for petrochemicals as a result of the economic slump, the
petrochemicals segment delivered a solid LIFO-based EBITDA of PLN 583m. According to forecasts, the value of the global petrochemicals and base plastics market is expected to double by 2030. For this reason, in line with its strategic objectives PKN ORLEN is investing to develop the segment’s assets, focusing on advanced petrochemicals, including recycling.

In the fourth quarter of 2022, the power generation segment posted EBITDA of PLN 364m. Total electricity output of the ORLEN Group in the period was 3.8 TWh, having increased 17% y/y taking into account the new generation sources. Almost half of the energy was generated by renewable and gas-powered sources.

In the fourth quarter of 2022, the ORLEN Group’s retail segment earned EBITDA of PLN 665m, with sales up 6% in Poland, 5% in the Czech Republic and 2% in Lithuania.
At the end of 2022, the ORLEN Group’s retail network comprised 3,097 fuel stations, a net y/y addition of 216. The new stations were opened mainly in Poland and Hungary following implementation of the merger remedies relating to the acquisition of the LOTOS Group, as well as in Slovakia as a result of launching and rebranding of self-service stations acquired from a local network. The ORLEN network across the region already comprises a total of 2,459 non-fuel outlets, including 1,847 in Poland, 334 in the Czech Republic, 173 in Germany, 29 in Lithuania, 17 in Slovakia and 59 in Hungary. PKN ORLEN was also developing the alternative fuel infrastructure, having already made available to customers 637 alternative refuelling points, including 493 in Poland, 125 in the Czech Republic and 19 in Germany.

As a result of lower demand for natural gas and declining sales and distribution volumes, in the three months to December 31st 2022
the gas segment posted EBITDA of PLN (-) 2.1bn. Gas imports to Poland in the period amounted to 39.7 TWh, with LNG accounting for 52% of the total. Eighteen gas carriers were unloaded at the Świnoujście LNG Terminal. The volume of gas stored by the ORLEN Group at the end of 2022 was 28.7 TWh. Thus, the gas storage facilities in Poland were filled at 97%.