Strategy 2030: ORLEN as a green energy leader and a guarantor of energy security in Central Europe

ORLEN 2030 Strategy highlights:

• ORLEN as an energy transition leader in the region
•  25% absolute reduction target for CO2 equivalent emissions in refining, petrochemicals and upstream by 2030
•  40% reduction in kg CO2 e/MWh in the energy segment by 2030
• 15% reduction in NCI by 2030
• net zero carbon emissions by 2050
• approximately 40% of the ambitious capex of around EUR 70bn (PLN 320bn) allocated to green investments
• delivering over 9 GW of installed renewable energy capacity (onshore and offshore wind, solar PV)
• more than 10,000 electric vehicle charging points in Central Europe
• approximately EUR 85bn (PLN 400bn) in cumulative EBITDA in 2023–2030
• diversified portfolio = greater resilience to market fluctuations
• cutting reliance on Russian supplies
• confirmed progressive dividend policy and enhanced dividend attractiveness

‘The energy crisis, which began even before the war in Ukraine, has demonstrated there is no turning back from the energy transition. ORLEN has long recognised that. Back in 2020 we were the first company in Central Europe to announce a strategy to achieve carbon neutrality and a few months later – our vision for growth to 2030. This ambitious yet realistic plan is paying off today. We have built a leading energy company in CE, generating today over EUR 20bn in quarterly revenue, capable of spending roughly EUR 9bn on investments annually. Our strength is reflected in the upadated strategy. Mergers with other oil&gas companies in Poland (LOTOS and PGNiG) carried out in 2022 will allow us to double investment expenditures compared with 2020, to EUR 70bn by 2030, of which as much as 40% has been allocated to green projects. That will help us reduce reliance on fossil fuels. By delivering the strategy we will be able to reduce fossil fuel consumption and generate stable profits that we want to share with our shareholders,’ said Daniel Obajtek, PKN ORLEN’s CEO and President of the Management Board.

Ambitious goals for challenging times

ORLEN has outlined new reduction targets seeking to cut CO2 emissions in upstream, refining and petrochemicals by 25% by 2030; to reduce emissions (CO2/MWh) in the energy segment by as much as 40% and achieve a 15% reduction in the carbon intensity of its energy products (NCI). The Group has also committed to phase out coal power by 2035. All these efforts will bring ORLEN significantly closer to achieving the ambitious goal of emission neutrality in 2050.

The foundations of the transition process are the decisions adopted as part of the Paris Agreement. But it is no longer just about climate protection. The war in Ukraine has demonstrated that efforts to enhance energy security, including by cutting reliance on raw materials from Russia, are equally important. Therefore, in line with the adopted diversification strategy, PKN ORLEN is expanding its imports portfolio based on crude oil and gas supplies from different regions of the world. The strategic alliance with Saudi Aramco will provide the Polish company with enough crude oil to cover roughly 45% of the total demand of all ORLEN Group refineries. The contract signed by ORLEN with American company Sempra Infrastructure to receive one million tonnes of LNG enables further diversification of the portfolio and gas supplies.

Regional leader of the green transition with a broad portfolio of renewable assets

The ORLEN Group plans to spend more than EUR 25bn on green projects, with a strong focus on renewables. Its renewable power generation capacity is expected to increase four times, to an impressive 9 GW by 2030. The Group wants to develop onshore and offshore renewable energy projects both in Poland and on international markets. Its plans include investing in offshore (mainly in the Baltic and the North Sea) and onshore wind power projects, solar photovoltaics, energy storage facilities and hydroelectric power generation.

ORLEN aspires also to become Central Europe’s leader in biogas and biofuel production. By 2030, it plans to operate a strong group of biogas plants producing a total of 1 bcm of biogas. In the biofuels segment, the ORLEN Group intends to manufacture more than 3 million tonnes of biocomponents per annum. The Group has ramped up its electric mobility plans: it intends to implement an ambitious international electric mobility strategy with a focus on the Polish, Czech and German markets, which envisages the construction of more than 10,000 charging points.

ORLEN wants to become a regional leader in the production, transport, distribution and use of renewable hydrogen for industrial and transport applications, with an ambition to achieve target production capacities in excess 130 kt per year. ORLEN also plans to invest in carbon capture infrastructure with a view to achieving, among other things, the Group’s decarbonisation goals. The target is to capture about 3 million tonnes of CO2 emissions per annum. The Group’s plans also include investing in nuclear energy. By 2030, ORLEN intends to have one SMR reactor (300 MW of installed capacity) and the potential to install more SMRs in the coming years.

Maximising profits from existing business areas

The updated strategy of the ORLEN Group places strong emphasis on strengthening its position as a key player in the gas production sector in Central Europe as well as investments to step up production in Norway (to more than 12 bcm of gas by 2030). The Group wants to position itself as a proven gas supplier in the region through new LNG supply contracts and by building a fleet of its own and chartered LNG carriers.ORLEN will also reinforce its position as the operator of the most competitive refining assets portfolio in Central Europe. Another key aspect is building a strong petrochemicals segment (manufacturing advanced and speciality products) with a growing share in the Group’s product mix (above 25% in 2030). There are also plans to construct, in cooperation with the Company’s partner Saudi Aramco, a new plant which would be integrated with the refinery, and which would complement the ORLEN Group’s portfolio.

As regards conventional power generation, ORLEN seeks to develop a portfolio of assets that will comprise the CCGT units, including new projects to decarbonise and balance the Polish power system (replacing the obsolete coal-fired power plants and CHP plants). For example, a new CCGT unit is planned to be built in Litvínov, the Czech Republic. Ultimately, the Group intends to have about 4 GW of installed CCGT capacity in 2030.

With regard to the retail segment, PKN ORLEN aims to consolidate its position as a leading seller of a broad range of energy products on the Central European market. The strategy provides for expansion of the retail network to 3,500 sites and further investments in the energy of the future: low-carbon fuels and electric mobility.

Stable financial foundations with a progressive dividend policy

The ORLEN Group’s strategy is based on a precise financial model. Diverse sources of value creation guarantee stable business growth: they will allow the Group to build resilience to market volatility and realise value in the energy transition areas. Achievement of the strategic objectives will help double the Group’s base EBITDA to almost EUR 13bn (approximately PLN 60bn). Half of the growth will be driven by new investment projects, aligned with long-term technology, consumer and environmental trends.

Despite ambitious investment plans, ORLEN’s strategy also provides for attractive profit distributions to shareholders. With the strategy update it is introducing a new, more attractive dividend policy. In accordance with the new policy, PKN ORLEN will make annual dividend distributions in the amount equal to 40% of adjusted free cash flow[1] generated by the ORLEN Group in the preceding financial year. The distribution amount will be no less than the base (guaranteed) dividend, which has been set at PLN 4,0 per share for 2022, to be successively raised each year by 15 grosz until it reaches PLN 5,2 per share in 2030. This means an increase in the base (guaranteed) dividend by as much as 49% over the decade.

At the same time, given the sound results reported by the Group for 2022, the Management Board decided to make an initial recommendation to pay dividend from the 2022 profit at PLN 5,5 per share. The final recommendation, confirming this amount, will be issued as soon as the audited PKN ORLEN annual report for 2022 is approved by the Management Board and Supervisory Board.

[1] Operating cash flow minus investing cash flow