ORLEN Group's strategic transaction in Norway

PGNiG Upstream Norway, a company of the ORLEN Group, is set to assume control of the entire operations of the hydrocarbon producer KUFPEC Norway. Following this transaction, the ORLEN Group's natural gas output in Norway will increase by one-third, reaching over 4 billion cubic meters (bcm) annually. Daily hydrocarbon production is anticipated to surpass 100 thousand barrels of oil equivalent (boe) by the end of 2024. The newly acquired business encompasses interests in five fields where the ORLEN Group is already active. The gas produced from these fields will be transported to Poland via the Baltic Pipe pipeline.

Following a competitive acquisition process, the Norwegian arm of the ORLEN Group has entered into an agreement to buy 100 percent of shares in KUFPEC Norway, a subsidiary of Kuwait Foreign Petroleum Exploration Company, k.s.c.c. The acquisition of control of KUFPEC Norway will expand holdings of PGNIG Upstream Norway (PUN) in the producing fields of Gina Krog, Sleipner Vest, Sleipner Ost, Gungne and Utgard. The transaction, scheduled to be finalised by the end of the year, is subject to approval by the Norwegian authorities. The purchase of KUFPEC Norway shares will be fully financed with funds generated by PUN from its operations on the Norwegian Continental Shelf.

“We have successfully concluded a strategic deal on the Norwegian Continental Shelf. With the acquisition of KUFPEC Norway, the ORLEN Group's gas production in Norway is set to grow by more than 1 bcm per year. This significantly enhances our capacity to meet the demand of the Polish market and the entire region utilising our own gas resources. Beyond advancing the ORLEN Group's strategic goals, this transaction brings synergies that boost our development potential in Norway. We have secured control of fields where we already hold direct interests acquired through previous transactions, this will ensure seamless integration of the acquired assets, optimisation of operating costs and, by significantly scaling up our operations, access to attractive funding for further investments,” says Daniel Obajtek, CEO and President of the ORLEN Management Board.

Unlike PUN’s previous acquisitions in Norway, the agreement covers the acquisition of all shares in KUFPEC Norway along with all its assets. The contractual price of the transaction is set at USD 445 million as of 1 January 2023 and includes the value of the acquired fields, as well as the value of the remaining assets of KUFPEC Norway AS, including the significant cash balance. PUN expects that when at the time of completion of the transaction, the value of cash in the acquired company will exceed USD 200 million. This will enable a very quick return on investment, which is estimated at approximately one and a half years from the moment of the settlement of transaction.

Post-transaction, PGNiG Upstream Norway's daily production is projected to exceed 100 thousand boe in 2024, positioning the Company among major oil and gas producers in Norway. PUN will then advance from the 10th to 8th largest company operating on the Norwegian Continental Shelf in terms of annual hydrocarbon output.

The acquisition of KUFPEC is expected to increase recoverable reserves within PUN’s portfolio to nearly 400 million boe. Over 80 percent of these new resources will consist of natural gas, which is in line with ORLEN's strategy to maximise gas production for supplying the Polish market and other countries in the region. All existing producing fields, including approved development projects are connected to existing infrastructure enabling gas transport to Poland through the Baltic Pipe pipeline.

The newly acquired interests include a 30-percent stake in the Gina Krog field. As a result of this acquisition, PGNiG Upstream Norway's interest in the field will increase to more than 41 percent. Earlier this year, the Gina Krog platform was connected to the onshore electricity grid, minimising carbon emissions associated with oil and gas production. In addition, PUN, along with its licence partners, recently announced the discovery of additional gas reserves in the vicinity of Gina Krog.

Together with the five producing fields, the ORLEN Group will gain control of an interest in the Eirin gas field, scheduled for development via a tie-back to Gina Krog infrastructure. This will facilitate the rapid commencement of gas supplies from Eirin while ensuring attractive profitability and low carbon emissions from production.

This is the second transaction completed by the ORLEN Group in Norway in 2023. Earlier, PUN purchased interests in the Sabina and Adriana fields in the Skarv production area, estimated to hold reserves in the range of 38 to 88 million boe. Between 2017 and 2022, the Company completed 10 acquisitions, including the acquisition of production assets from INEOS E&P Norge, increasing its natural gas production from 0.5 bcm in 2017 to 3.1 bcm in 2022. The 2023 gas output is projected to surpass 3 bcm, and the acquisition of KUFPEC will boost production next year to more than 4 bcm.

PGNiG Upstream Norway is actively pursuing a programme to further increase its hydrocarbon output. In June this year, the Company and its licence partners received Norwegian authority approvals for the development of eight fields. PUN’s share of the total reserves in those fields exceeds 100 million boe. In October this year, production began from the first production wells in the Tommeliten Alpha field, in which PGNiG Upstream Norway holds more than a 42 percent interest. At peak production, the field is expected to provide the Company with at least 0.5 bcm of gas annually.

In May this year, ORLEN completed the process it initiated in late 2022 to integrate its Norwegian operations by consolidating the production assets of PGNiG Upstream Norway and LOTOS Exploration & Production Norge. The two companies became part of the ORLEN Group as a result of the acquisition of Grupa LOTOS and PGNiG in 2022.

Upon completion of the acquisition of KUFPEC, the ORLEN Group will hold 94 licenses on the Norwegian Continental Shelf and will become the 5th largest license holder among companies operating in the area. PUN will rank 9th in terms of recoverable reserves, totalling about 400 million boe, including some 60 bcm of natural gas reserves, and 7th in terms of natural gas output, exceeding 4 bcm of gas per year.