The results of the combined ORLEN Group for the second quarter of 2023

“A secure future for Poles is a priority for us. That is why we are harnessing the potential of the Group, strengthened after the mergers, consistently investing the accrued profits to ensure affordable, stable and clean energy and support the creation of new, attractive jobs in all regions of the country. This year, we will spend a record amount of PLN 36bn on projects aimed to permanently improve Poland’s and the region’s energy security and independence. Investment in modern energy solutions, primarily renewable energy and safe nuclear power, remain our key focus. Our endeavours are bearing fruit – we already stand as one of the country’s premier energy producers, with over 60% of our output derived from low- to zero-emission sources. Strong financial performance also translates to increased state budget revenues. In the first half of the year, the ORLEN Group paid nearly PLN 36.5bn in taxes, which is as much as PLN 20bn more than in the same period last year,” says Daniel Obajtek, PKN ORLEN’s CEO and President of the Management Board.
 

In the second quarter of 2023, the combined ORLEN Group reported:

Revenue of PLN 74.6bn

LIFO-based EBITDA of PLN 8.7bn

Net profit of PLN 4.5bn
 

ORLEN is consistently implementing projects that are part of the 2030 strategy updated earlier this year. One of the cornerstones of the strategy is low- and zero-carbon energy. As part of the development of offshore wind energy, the Company has made a conditional investment decision concerning the Baltic Power farm, paving the way to wrap up the design phase. The construction phase is scheduled to begin later this year, once the financing process is completed and all building permits are secured. The joint investment by ORLEN and Northland Power is at this stage the most advanced offshore wind project in Poland.

At the same time, the Polish Ministry of Infrastructure has announced the results of an offshore wind auction in which it awarded six new project locations on the Polish waters of the Baltic Sea. The ORLEN Group emerged as the highest scoring bidder in the case of five locations. In effect, the Group’s energy generation potential in offshore wind may soon expand by about 5,200 MW.

The ORLEN Group has also entered into a conditional agreement with EDP Renewables Polska for the purchase of three wind farms in the Wielkopolska region, with a total capacity of 142 MW. The transaction also includes an option to incorporate photovoltaic assets (with a capacity of up to 159 MW) using, among others, a joint connection. The farms, launched in 2021 and 2022, match the energy consumption of approximately 240,000 households annually. The assets being acquired are not only among the most modern, but also among the most efficient wind farms in Poland. They are powered by 4.2 MW turbines, some of the largest in use in Poland. The transaction is expected to be finalised still this year.

The ORLEN Group also places a strong emphasis on the development of small-scale nuclear energy. In collaboration with the Łukasiewicz Research Network, Orlen Synthos Green Energy will launch a European Centre for Nuclear Energy Personnel Training. Concurrently, an increasing number of universities are joining the agreement to cooperate in the training of personnel in this field. Supported by the Ministry of Education and Science, these initiatives will make it possible to develop in Poland over the coming years nuclear energy production based on homegrown and highly skilled engineers and scientists.

ORLEN is also investing in personnel training in advanced hydrogen technologies. The first edition of the Hydrogen Academy, which ended in June, was attended by 63 lecturers and experts and 30 participants, the best five of whom will soon be able to embark on paid internships at the ORLEN Group. In line with its hydrogen strategy until 2030, ORLEN will launch over 100 hydrogen refuelling stations across Central Europe to serve personal, public, and cargo transport (both road and rail). Approximately half of these stations will be situated in Poland.

The brisk evolution of new technologies, especially in energy, charts ORLEN’s business future. Within a mere two years since its inception, ORLEN VC, Poland’s largest corporate venture capital fund owned by the ORLEN Group, has built a portfolio of eight equity investments, totalling more than PLN 150m. The largest equity investment is a cutting-edge platform enabling the reuse and later recycling of batteries from millions of electric vehicles placed on the market every year. This innovative solution created by Germany’s Circunomics, in which ORLEN VC has become a major shareholder, will help reduce the carbon footprint of EV batteries by up to 50%.

In the second quarter of this year, the ORLEN Group Climate Policy was published, which details the Group’s efforts to achieve climate neutrality by 2050. The document paints a comprehensive picture of ORLEN Group’s approach to managing climate-related issues and systematises its existing initiatives in this area.

ORLEN is also developing its upstream segment. Together with its licence partners, it has secured the permit to develop the Ørn and Alve Nord fields on the Norwegian Continental Shelf, which will yield about 0.4 billion cubic meters of natural gas per year at peak production. Production from the fields will have a carbon footprint more than three times below the global average.

Oil reserves in Norway have also been consistently expanding. The Øst Frigg field, in which PGNiG Upstream Norway holds an interest, may contain double the previously estimated oil volume. The discovery will be developed using infrastructure to be constructed within the Yggdrasil area – one of the largest upstream projects currently under way anywhere on the Norwegian Continental Shelf, in which the ORLEN Group is a partner.

Oil supplies from Norwegian fields have also been secured under a contract signed with bp, providing for the supply of a total of up to 6 million tonnes of crude oil for the Group’s refineries over a year of its term. The first oil tanker will arrive at Naftoport in Gdańsk in the third quarter of this year.

The Group is also bolstering its position in the global LNG market. At the end of June, the second ship from the fleet being developed by the ORLEN Group arrived in Świnoujscie, with a cargo of LNG. Named “Grażyna Gęsicka”, the vessel carried some 65,000 tonnes of LNG to Poland from the US Freeport terminal. The delivery was made based on a spot market transaction.

ORLEN Group is also implementing Europe’s most significant petrochemical venture in two decades. June saw a decision to augment the expansion of the Olefins Complex at the Płock Production Plant, responding to the growing demand for petrochemicals, which are essential for manufacturing everyday items. The expansion of the Olefin Complex will result in the creation of some 650 new jobs. The investment will curtail CO2 emissions per tonne of product by 30%. Once completed, the project will position ORLEN as a petrochemical frontrunner in Europe.

ORLEN is swiftly and effectively capitalising on the benefits of the business combination with Grupa LOTOS and PGNiG. The mergers have substantially bolstered ORLEN’s development and investment capabilities. A prime example is the acquisition, now in its final stage, of 266 fuel stations in Austria, operating under the Turmöl brand. Upon the closing of the transaction, ORLEN will emerge as one of Austria’s top three fuel networks, commanding a 10% retail market share. Thanks to this dynamic expansion, ORLEN customers will have access to a robust and modern network of more than 3.4 thousand fuel stations across seven Central European countries. The combined synergies and benefits unleashed by ORLEN’s acquisition of Grupa LOTOS and PGNiG are projected to exceed PLN 20bn by 2032, twice the amount originally estimated before the two mergers were finalised.

In the second quarter, the combined Group integrated more segments of its business. LOTOS Kolej acquired the assets of ORLEN KolTrans. This will not only allow the Group to secure its logistics needs more efficiently but will also open the way for preparing a more comprehensive and competitive offering for external customers. The merger is set to bolster ORLEN Group’s foothold in the cargo transport industry.

ORLEN Oil and LOTOS Oil have been merged as part of the process to integrate oil companies. This operation will not only solidify the Group’s leadership in the Polish lubricants market but will also pave the way for its dynamic international expansion, including through the launch of advanced finished oil production. ORLEN Oil products are already available in 78 countries worldwide.

Following the acquisition of Grupa Energa, Grupa LOTOS and PGNiG and the adoption of a new growth strategy for the ORLEN Group, the name of Polski Koncern Naftowy ORLEN was changed to ORLEN S.A. The new name, which does not specifically reference petroleum, better reflects the Company’s current business profile and future development plans.

The strength of the combined ORLEN Group is confirmed by the latest list of the world’s 500 largest companies by revenue, compiled by the American magazine Fortune, in which ORLEN advanced by a historic 208 positions. As the largest enterprise in the CEE region, it was also ranked among the top five fastest-growing companies. The ORLEN Group is currently ranked 216th in this prestigious list.

Despite allocating billions of złoty to new investments, in the second quarter of 2023 the Group managed to reduce its debt by PLN (-)24.2bn (y/y), with the ratio of net debt to EBITDA at (-)0.25x. As a result of the successful mergers with Grupa LOTOS and PGNiG as well as strong financial fundamentals, PKN ORLEN’s highest ever ratings were maintained: A3 from Moody’s Investors Service and BBB+ from Fitch Ratings.

The Group’s sound financial position and consistent delivery of business goals in all areas of activity made it possible to recommend a record-breaking dividend payment of PLN 5.5 per share for 2022, aggregating to nearly PLN 6.4 billion due for distribution to Shareholders on 31st August.

In the second quarter of 2023, ORLEN Group’s LIFO-based EBITDA amounted to PLN 8.7bn. Revenue was in excess of PLN 74.6bn, driven mainly by the consolidation of the newly acquired Grupa LOTOS and the PGNiG Group. The positive impact of the mergers on the Group’s performance is reflected in the results of the refining segment, which recorded a 36% year-on-year increase in sales volumes, the global upstream segment, which holds total 2P oil and gas reserves of approximately 1.3 billion boe (barrels of oil equivalent) and increased average production by approximately 140 thousand boe per day (y/y), as well as the gas segment, which generated EBITDA of PLN 5.6bn. In contrast, sales at fuel stations in Poland accounted for just about 1% of the total LIFO-based EBITDA.

The refining segment posted LIFO-based EBITDA of PLN 2.5bn, down almost PLN 3bn (q/q), including PLN 0.5bn attributable to the newly acquired Grupa LOTOS. The result posted by this segment was impacted by the macroeconomic environment as a result of, among others, a change in the mix of crude grades processed, related to the shift from Russian crude. ORLEN Group refineries operated at 90% of capacity, processing 9.5 mt of crude. A 36% y/y sales growth was reported, including 67% in gasoline, 23% in diesel oil, 51% in LPG, 44% in JET aviation fuel, and 10% in heavy fuel oil. Sales rose 48% in Poland and went down in the Czech Republic (-2%) and Lithuania (-10%).

The ORLEN Group will allocate nearly PLN 14bn this year to ensure low gas prices for seven million Polish households and 35 thousand vulnerable consumers, such as hospitals, nursing homes, schools, kindergartens and nurseries. This is one of the reasons the upstream segment posted a result of PLN (-)114m in the last quarter. It was also significantly affected by declines in hydrocarbon prices, including gas by more than (-)60% (y/y) and oil by more than (-)30% (y/y). Average oil and gas production in the second quarter, mainly in Poland and Norway, was about 160,000 boe/d.

Due to a downturn in demand for petrochemicals and the scheduled plant maintenance shutdowns, the petrochemicals segment’s second-quarter LIFO-based EBITDA was PLN (-)120m. According to forecasts, the value of the global petrochemicals and base plastics market will grow steadily until 2030. For this reason, investment continues in the development of the segment’s assets, particularly in modern petrochemicals, including recycling.

In the second quarter of 2023, the power generation segment’s EBITDA came in at PLN 555m, including PLN 592m attributable to the acquired Grupa Energa and PGNiG. In that period, over 60% of the energy was generated by renewable and gas-powered sources. Total energy output of the ORLEN Group was 3.4 TWh of electricity and 17.5 PJ of heat.

As a consequence of such factors as a year-on-year decline in fuel margins, in the second quarter of 2023 the retail segment earned EBITDA of PLN 662m, down PLN (-)35m y/y. Nevertheless, sales during this period saw a 5% growth: gasoline sales increased by 8%, LPG by 4%, and diesel oil by 3%. ORLEN Group’s retail network expanded by 272 fuel stations year on year to a total of 3,157, primarily in Poland, Hungary, and Slovakia. This growth is a result of the implementation of remedies related to the acquisition of Grupa LOTOS, in Slovakia – of the launch and rebranding of self-service stations acquired from a local chain, and in Germany – of the launch of self-service stations acquired from OMV. The Group is currently finalising the acquisition of 266 stations in Austria. The number of non-fuel sales outlets increased year on year by 261, to 2,570, including: 1,902 in Poland, 342 in the Czech Republic, 185 in Germany, 64 in Hungary, 48 in Slovakia, and 29 in Lithuania. ORLEN’s alternative fuel infrastructure is also rapidly expanding. The number of alternative refuelling points available to customers has grown to 672, including 514 in Poland, 139 in the Czech Republic and 19 in Germany. ORLEN is also investing in the courier services segment – the ORLEN Paczka service is now available at approximately 8.3 thousand pick-up points across Poland.

Following the merger with the PGNiG Group, in the six months to June 30th 2023 the gas segment posted EBITDA of PLN 5.6bn. Gas imports to Poland in the period amounted to 35.3 TWh, with LNG accounting for 47% of the total. Fifteen gas carriers were unloaded at the Świnoujście LNG Terminal. The volume of gas stored by the ORLEN Group at the end of June was 19 TWh. To support Polish businesses, ORLEN lowered gas prices for business customers (including bakeries, confectioneries and small businesses), which in June fell to PLN 293/MWh.