PKN ORLEN has signed sales agreements with DWORY for sale of ethylbenzene, butadiene and C4 fraction

Polski Koncern Naftowy ORLEN S.A. (“PKN ORLEN”), Central Europe’s largest downstream oil company, hereby informs that on 18 January 2007 PKN ORLEN signed three, multi-year agreements with Firma Chemiczna DWORY S.A. (“DWORY”) headquartered in Oswiecim, Poland. The agreements signed are for the sale by PKN ORLEN to DWORY of ethylbenzene, butadiene 1.3, and C4 fractions.

The subject of the first agreement is for the sale by PKN ORLEN of ethylbenzene to DWORY for an annual amount of 120 thousand tons, but not less than 105 thousand tons (“Ethylbenzene Agreement”). The estimated value of the Ethylbenzene Agreement over its total period (i.e. a minimum of 15 years) amounts to approximately PLN 6 billion. Ethylbenzene sales will start not later than 1 January 2010 but PKN ORLEN is granted the right to delay the date of starting sales once and no more, by a maximum of 9 months, with no consequences for PKN ORLEN. The Ethylbenzene Agreement is valid from the 18 January 2007 and may not be terminated by either party within 15 years from the starting date of ethylbenzene sales.
In the case that one or more of the conditions of the Ethylbenzene Agreement are not realized by one of the parties, i.e. lack of delivery or non-acceptance of an amount of the product exceeding +/-5% of the planned deliveries fixed for the quarterly order, each party has a right to calculate a contractual penalty of up to 10% of the non-delivered/non-accepted quantity of ethylbenzene in that particular period. The amount of the penalty will be calculated based on the prices for the last day of that particular period. The parties to the Ethylbenzene Agreement have reserved the right to claim compensation, on the general bases, as specified in Polish law, exceeding the amount of the calculated contractual penalties but not exceeding the value of the non-delivered/non-accepted product.

The subject of the second agreement is the sale by PKN ORLEN of butadiene 1.3 to DWORY for an amount of not less than 57 thousand tons in 2007 and not less than 60 thousand tons per annum in the period from 1 January 2008 to 31 December 2023 (“Butadiene Agreement”). In total PKN ORLEN will sell not less than 897 thousand tons of butadiene 1.3 in the total contractual period of the Butadiene Agreement. The estimated value of the Butadiene Agreement, for the total period amounts to approximately PLN 2.5 billion.
In the case that one or more of the conditions of the Butadiene Agreement are not realized by one of the parties, i.e. lack of delivery or non-acceptance of an amount of the product exceeding +/- 10% per month and +/- 5% per quarter of the planned deliveries, each party to the Budtadiene Agreement has the right to calculate a contractual penalty of up to 10% of the non-delivered/non-accepted quantity of butadiene in that particular period. The parties to the Butadiene Agreement have reserved the right to claim compensation, on the general bases, as specified in Polish law, exceeding the amount of the calculated contractual penalties.

The subject of the third agreement is for the sale by PKN ORLEN of a C4 fraction to DWORY for an amount that will be established in an annually updated plan of deliveries, but will be for not less than 20.6 thousand tons in 2007 (“C4 Fraction Agreement”). The C4 Fraction Agreement was signed for the period 1 February 2007 to 31 December 2022. The estimated value of the C4 Fraction Agreement for the total contractual period amounts to approximately PLN 68 million.
In case of unrealisation of the C4 Fraction Agreement conditions by one of the party, i.e. lack of delivery or acceptance of the product in the amount exceeding +/- 5% of the planned deliveries, each party has a right to calculate the contractual penalty of up to 10% of the non-delivered/non-accepted product quantity. Additionally DWORY has a right to contractual penalty of 10% of fraction C4 sold to the third parties. Parties of the C4 Fraction Agreement reserved the possibility to claim the compensation, on the general bases, as specified in Polish law, exceeding the amount of calculated contractual penalties. In the case that one or more of the conditions of the C4 Fraction Agreement are not realized by one of the parties, i.e. lack of delivery or non-acceptance of an amount of the product exceeding +/- 5% of the planned deliveries, each party has the right to calculate a contractual penalty of 10% of the non-delivered/non-accepted quantity. In addition, DWORY has the right to a contractual penalty of 10% of the C4 fraction sold to third parties. Parties to the C4 Fraction Agreement have reserved the right to claim compensation, on the general bases, as specified in Polish law, exceeding the amount of the calculated contractual penalties.

In accordance with the “Regulation of the Minister of Finance dated 19 October 2005 on current and periodic information to be published by the issuers of securities” the agreements signed by PKN ORLEN constitute “significant agreements” due to the fact that their total value within the termination period exceeds 10% of PKN ORLEN’s equity.

The signing by PKN ORLEN of the above Agreements with DWORY is connected with the conducting of ETYLOBENZEN Plock as a limited liability company (“ETYLOBENZEN Plock”), in which PKN ORLEN holds 51% of the shares of the initial capital and DWORY holds 49% of the initial capital. On 18 January 2007 PKN ORLEN signed with DWORY a convention regarding strategic cooperation between PKN ORLEN and DWORY.
In reference to this convention, PKN ORLEN is obliged to conclude a sale agreement in accordance with which DWORY will sell to PKN ORLEN all its shares in ETYLOBENZEN Plock. The subject of the sale will be all the shares held by DWORY in ETYLOBENZEN Plock i.e. 588 shares (with a par value PLN 10 000 for each share and a total par value amounting PLN 5,880,000) representing 49% of the shares in ETYLOBENZEN Plock’s initial capital.
The sales agreement will be concluded on a date specified by PKN ORLEN, but not later than 30 June 2007.

See also: Regulatory announcement 62/2006 dated 17 October 2006.

This announcement has been prepared pursuant to par. 5 section 1 subsection 3 and § 9 of the Regulation of the Minister of Finance dated 19 October, 2005 on current and periodic information to be published by issuers of securities (Journal of Laws No. 209, item 1744).