LOTOS GROUP STRATEGY Stability and sustainable growth

Transcription

1 LOTOS GROUP STRATEGY Stability and sustainable grwth LOTOS Grup strategy

2 page 10 TRENDS IN THE OIL & GAS MARKET page 3 LOTOS GROUP TODAY page 28 KEY PERFORMANCE INDICATORS AND FINANCIAL GOALS page 39 APPENDICES page 16 STRATEGY OBJECTIVES AND INITIATIVES page 34 SUMMARY LOTOS Grup strategy

3 LOTOS GROUP TODAY LOTOS Grup strategy

4 LOTOS Grup tday Summary f the strategy implementatin The refinery's strng cmpetitive psitin Majr business bjectives fr brand awareness, market shares, prductin vlumes, cmpetitiveness and prductin standards were delivered Acquisitins f the Heimdal and Sleipner upstream assets cmpleted Market cnditins (il prices, crack spreads and USD/PLN exchange rate), regulatry envirnment (e.g. changed cst f achieving the Natinal Indicative Target), cnsiderable difficulty with the Yme prject, lack f restructuring resulted in significant deteriratin f key financials 30% share in the dmestic fuel market 10% share f the dmestic retail fuel market Safety f technlgical prcesses LOTOS Grup strategy

5 LOTOS Grup tday Strengths and grwth pprtunities Upstream Refining strengths Cperatin with majr players in the regin (Nrway) State-f-the-art and technlgically-advanced units grwth pprtunities Grwing prtfli diversificatin and high field prfitability Ability t prcess a wide range f crude il types t imprve cmmercial flexibility Lgistics Marketing Retail Secnd largest rail transprt market player in Pland, with mdern assets Advantageus sea lcatin and high share in whlesale market Cuntrywide netwrk f 480 petrl statins, leader f the prmising highway petrl statin segment Entering freign markets, ffering new transprt services Openness t diversificatin f supply surces fr greater energy security and ecnmic efficiency Ability t develp an innvative ffer f high-quality prducts and services t leverage the netwrk ptential LOTOS Grup strategy

6 LOTOS Grup tday Unique prjects and implementatin skills Upstream (1) Refining Effective refining margin USD per barrel +2 USD develpment f the B8 field: diversificatin and dubling f il prductin frm the Baltic Sea. Reserves: 30.0 mbe (2) First il frm Utgard field in Nrway using Sleipner infrastructure. Reserves: 8.2 mbe B4/B6 field: first prject t develp Baltic Sea natural gas resurces. Strng partner. Reserves: 17.9 mbe (4.3 bcm as fr 100% stake) Slmn Factr t exceed 10.5 nce new units start perating; LOTOS refinery t cntinue as Eurpean leader in efficiency (1st quartile) the prject is 15pp ahead f schedule (ca. 48% vs 33%) (3) Diversified prtfli f ecnmically attractive prjects Unique experience in effective implementatin f majr investment prjects (1) as per LOTOS stake (2) barrels f il equivalent (3) as at Nvember 30th 2016 LOTOS Grup strategy

7 LOTOS Grup tday Stable financials EBITDA LIFO (1) PLN bn Operating cash flws and capital expenditure PLN bn M M M 2016 Upstream Dwnstream Other Capital expenditure Net cash frm perating activities (1) net f ne-ff items LOTOS Grup strategy

8 LOTOS Grup tday Sund balance sheet and imprving debt situatin Net debt (1) PLN bn Net debt/ebitda LIFO (2) PLN bn x 3.8x 2.6x Sept (1) brrwings, ther debt instruments and finance lease liabilities less cash and cash equivalents (2) net f ne ff items LOTOS Grup strategy

9 LOTOS Grup tday Strengthening f Pland's energy security Business bjectives and energy security Ensuring undisrupted energy supplies at ptimum prices, diversifying surces f supplies and develping explratin and prductin activities Maintaining mandatry stcks t guarantee Pland's energy security Prducing highest quality fuels Plish Parliament (Sejm) Ministry f Energy Crprate Scial Respnsibility Active participatin and expert supprt in prjects initiated by the state and internatinal rganisatins t imprve energy security Activity in energy-related law-making prcesses in Pland and the EU Plish Oil Industry and Trade Organisatin LOTOS Grup strategy

10 TRENDS IN THE OIL & GAS MARKET LOTOS Grup strategy

11 Trends in the il & gas market Key lng-term market pprtunities and challenges POLAND WORLD Majr changes in the mix f energy surces and envirnmental plicy Accelerating advances in technlgy Grwing cmpetitin n dynamic market Pland's energy security Shift in the structure f fuel demand Shale gas revlutin EU's climate plicy Electric and hybrid vehicles Industry 4.0 Weakening demand fr il prducts in EU (energy efficiency) New refining capacities in Middle East and Asia Change in the il prducts imprt and exprt directins US as an il & gas exprter Own energy surces Diversified supply directins Flexibility in prcurement LOTOS Grup strategy

12 Trends in the il & gas market Liquid fuels and natural gas remain imprtant surces f energy despite dynamic grwth f renewables Glbal cnsumptin f primary energy including Eurpe billin te (1) Liquid (2) Gas Cal Nuclear Hydr Renewables Key trends Increase in glbal demand fr energy due t rising per capita GDP and grwing ppulatin in nn-oecd cuntries Demand fr liquid and gaseus fuels t remain steady, e.g. thanks t strng develpment f transprt in nn-oecd cuntries Rapidly grwing share f renewables in the energy mix (1) tns f il equivalent (2) bifuels included Surce: Grupa LOTOS, Base case, BP Energy Outlk 2035 LOTOS Grup strategy

13 Trends in the il & gas market Deficit f middle distillates with a cncurrent versupply f gasline Glbal demand fr refining prducts (1) mbe/d Eurpe: demand fr key prducts and internatinal balance mbe/d Eurpe JET -1.3 Net -1.4 imprts % Net imprts % 13% drp in demand Increase in exprts f gasline t 1.4 mbe/d 10% grwth in demand Imprts f aviatin fuel (3) and kersene up t 0.5 mbe/d rest f the wrld ON Net imprts (2) % 3% grwth in demand Imprts f diesel and light fuel il up t 1.0 mbe/d (1) gasline, naphtha, diesel, light fuel il, JET, heavy fuel il and ther (2) including light fuel il (3) including kersene Surce: JBC Energy SuDeP LOTOS Grup strategy

14 Trends in the il & gas market Reginal demand fr key fuel prducts is nt frecasted t drp Frecasted demand fr main transprt fuels gasline, diesel, light fuel il, aviatin fuel (millin tnnes) Western Eurpe Central and Eastern Eurpe Key cnclusins % % Cntinued grwth f CEE ecnmies implies further increase in fuel cnsumptin, ultimately t Western Eurpean levels Fuel efficiency measures will nly reduce the rate f grwth in CEE The still grwing CEE market is cnsidered mre prmising fr fuel prducers in the cming years Surce: Grupa LOTOS, WdMckenzie, PWC, in-huse analysis LOTOS Grup strategy

15 Trends in the il & gas market Pland a market with cnsiderable ptential fr grwth Slvakia Pland Czech Republic Cumulative GDP grwth Fuel market grwth (1) Implied grwth rate f the market (assuming n disruptins) (1) gasline + diesel + light fuel il Surce: JBC Energy SuDeP LOTOS Grup strategy

16 STRATEGY OBJECTIVES AND INITIATIVES LOTOS Grup strategy

17 Strategy A visin fr stable and sustainable grwth Prducer f premium quality fuels and chemicals with an ptimum degree f vertical integratin, prviding highly specialised lgistics and maintenance services and a natinal leader in implementing innvatin in line with cre business supprt cre business activities. LOTOS Grup strategy

18 Strategy Strategic bjectives 1 Effective use f assets alng entire value chain 2 Efficient prcesses guaranteeing stability 3 Readiness t implement innvatin 4 Active pprtunity and risk management 5 Strng team, cherent CSR stry and safety LOTOS Grup strategy

19 Strategy Strategic bjectives 1 Grwth initiatives 1 Effective use f assets alng entire value chain 1.1. New balanced cncept fr develping upstream prtfli 1.2. Cmpetitive edge with innvative technlgies and new prducts 1.3. LOTOS Energy Hub in retail and fcus n high service quality 2 Efficient prcesses guaranteeing stability 2.1. Increased resilience t adverse external cnditins thanks t lw csts 2.2. Excellence in integrated margin management and diversificatin f feedstck surces Efficiency Imprvement Prgramme 3 Readiness t implement innvatin 3.1. Funding fr implementatin f innvative prjects 3.2. Own experts and infrastructure engaged t build a new develpment mdel in partnership with research institutins 4 Active management f pprtunities and risks 4.1. Strng culture f pen dialgue and early respnse t risk symptms 4.2. Risk management t ptimise value fr stakehlders 5 Strng team, cherent CSR stry and safety 5.1. Talent develpment as key surce f cmpetitive advantage 5.2. Integrated CSR plicy 5.3. Rbust safety culture LOTOS Grup strategy

20 Strategy Upstream: safe develpment, balanced prtfli, ptimised structure Resurce prfile: balanced prtfli (licence diversificatin and structure) Increasing invlvement in field develpment prjects Gradually increasing the rle f il and gas explratin Expanding the asset prtfli by capturing market pprtunities Reducing the share f mature fields in the prtfli Lcatin: presence n predictable markets Develping business in Nrway (arund hubs) and Pland Gegraphical diversificatin in respnse t market cnditins Ecnmics: lw ttal cst Cst ptimisatin in Pland, new cst structure Cperatin with effective peratrs Effective use f assets (platfrms and vessels) and ptential divestment Our ambitin: t be a leader in the Baltic regin and a trusted partner internatinally CAPEX: PLN 3.0bn, in 2018 part f PLN 3.3bn CAPEX allcatin decisin in 2018 Grupa LOTOS LOTOS Grup strategy strategy fr Sleipner, ft. Øyvind Hagen (Statil) 20

21 Strategy Refining: superir cmpetitive advantage driven by innvatin Mre high-margin prducts: enhancing refinery flexibility thrugh investment in state-f-the-art technlgies Building a new lefin cmplex (with an ETBE unit) Prducing gasline frm naphtha, which is nw sld abrad t extend the margin chain r New prducts: adding new prduct categries t expand the ffering Prductin f high-margin Grup 2 and Grup 3 base ils (using internally generated feedstck hydrwax) r Increased refining efficiency: imprving reliability f energy supply and entry int the capacity market (peak demand capacity) Building a Cmbined Heat Pwer plant t meet internal needs electricity and prcess steam Our ambitin: t preserve the technlgy advantage CAPEX: PLN 2.5bn (1) in 2018 part f PLN 3.3bn CAPEX allcatin decisin in 2018 (1) prjects: EFRA, Hydrgen Recvery Unit and planned upgrade and replacement activity Grupa LOTOS LOTOS Grup strategy strategy fr

22 Strategy Retail: ptimising the retail netwrk, innvating the prduct and service prtfli Further standardisatin and rganic grwth petrl statins Custmer service and sales prcess ptimisatin Revamping the lyalty rewards scheme with up-t-date technlgy slutins Intrducing a new quality in hspitality in partnership with market leaders Upgrading n-site facilities: car wash statins, electric car charging pints LOTOS Energy Hub, alternative fuels Acquisitin pprtunities Seeking ut nn-rganic pprtunities t expand the netwrk Capturing pprtunities t acquire cmplementary petrl statin netwrk Our ambitin: new quality f LOTOS retail CAPEX: PLN 0.6bn - part f PLN 3.3bn CAPEX allcatin decisin in 2018 Grupa LOTOS LOTOS Grup strategy strategy fr

23 Strategy Efficiency Imprvement Prgramme: lwer expenses and higher margin Higher cst efficiency Imprved efficiency Optimising the Grup structure Gradual simplificatin f crprate prcedures Mre effective prcurement Cnslidatin f vlumes and prcurement supprt specialisatin Strnger fcus n quality and terms f prcurement and supply Imprved IT State-f-the-art IT tls enhancing supprt f business prcesses Optimisatin f integrated margin Advancing the integratin f management mechanisms alng the value chain thrugh: Advanced cntrl, simulatrs, ptimised planning prcesses Leveraging gegraphical lcatin and technlgy advantage ver cmpetitrs Prfessinal develpment in sales Our ambitin: sustainable reductin f perating expenses and efficiency imprvement alng the entire value chain Grupa LOTOS LOTOS Grup strategy strategy fr

24 Strategy New mdels f cllabratin with research institutins and start-ups, cmplemented by a strng culture f prmting prprietary innvatin Stable partners Lng-term cllabrative interactin with leading research centres Effective interactin based n a reversed research agenda setting mdel with LOTOS being the leader Prductin implementatin f third-party innvatins supprted by the fund Fast decisin making allwing us t test and develp ideas using ur wn infrastructure Implementatin f ready innvative prjects and innvatin fund Use f externally surced funds, active participatin in gvernment-spnsred prgrammes and frging partnerships with natinal incubatrs and acceleratrs at hme Pilt prjects t be prepared and launched in 2017, with full-scale implementatin after 2018 Prprietary innvatins Innvatin fstering system (simplificatin f prcedures and an incentive system) Pilt launched in Q Grupa LOTOS LOTOS Grup strategy strategy fr

25 Strategy Extensive research agenda enabling real business grwth in the existing as well as new prmising markets Business align innvatins Bifuels Prductin f secnd- and third-generatin bifuels Advancing the c-hydrgenatin technlgy (achievement f NIT ) CNG/LNG CNG/LNG filling mdel at service statins Expanding sea transprt infrastructure Hydrgen Hydrgen energy strage Rad transprt applicatins New business pprtunities New electric mbility mdel Clean energy strage and electric vehicle charging mdels New charging pints n main transprt rutes in Pland New business mdels and slutins develped using innvatin funds Prfessinal maintanace services (including ffshre) Creating synergies with lcal shipyards and develping services likely t prvide stable revenue streams in the future Our ambitin: leadership in implementing innvatins Grupa LOTOS LOTOS Grup strategy strategy fr

26 Strategy A strng culture f pen dialgue and early respnse, with mre effective risk appetite management in the lng run Risk management mdel LOTOS 1. Line Business 2. Line Risk, finance, cmpliance (1) 3. Line Internal audit Operating a mature risk management system with strng risk awareness culture The three lines f defense cncept embedded int day-t-day business peratins We will perfect ur prfessinal skills (be practive in defining risk appetite) and harmnise the level f expsure acrss the LOTOS Grup Our ambitin: excellence in risk management (1) Cmpliance new integrated functin at Grupa LOTOS legal cmpliance f peratins Grupa LOTOS LOTOS Grup strategy strategy fr

27 Strategy Taking respnsibility fr internal and external stakehlders. A key cmpetitive strength An emplyer f chice Prfessinally designed evaluatin mdel t prvide up-t-date, persnalised feedback t staff Onging infrmatin exchange within the rganisatin taking advantage f internal team diversity Interactin with stakehlders Prgrammes t permanently slve scial and envirnmental issues imprtant t stakehlders An rganisatin with a rbust safety culture Raising awareness f the imprtance f prmting safety culture acrss the rganisatin, striving fr management excellence, and prtecting infrastructure and lgistics chain (in the real wrld als in cyberspace) Our ambitin: active c-peratin with stakehlders LOTOS Grup strategy

28 KEY PERFORMANCE INDICATORS AND FINANCIAL GOALS LOTOS Grup strategy

29 Key perfrmance indicatrs and financial gals Macrecnmic assumptins fr Min and max values value lw value - high GDP grwth in Pland (1) (%) USD/PLN exchange rate crude il (2) (USD/bbl) natural gas (3) (USD/be) crack spreads gasline (4) diesel il (5) heavy fuel il (6) (1) Internatinal Mnetary Fund (2) Natinal Balancing Pint (3) Brent Dtd (4) Premium Unl 100 ppm CIF ARA (5) ULSD 10ppm Carges (6) 3.5 PCT Barges FOB Rtterdam LOTOS Grup strategy

30 Key perfrmance indicatrs and financial gals Financial ambitins. Current average annual LIFO-based EBITDA (1) t be dubled in PLN bn dubled Preparatin and launch f a balanced prtfli f innvative investment prjects ca. 2 ca. 4 Effective implementatin f running investment prjects Prjects under implementatin Prjects pending FID (2) In 2018, the CAPEX strategy fr cming years will be updated and CAPEX f apprximately PLN 3.3bn will be allcated t new grwth prjects (1) net f ne-ff items (2) Final Investment Decisin LOTOS Grup strategy

31 Key perfrmance indicatrs and financial gals Strng ptencial fr grwth investments assuming cntinuatin f current prjects: CAPEX in (1) Develpment (2) : B4/B6, Utgard, Frigg Gamma Delta, Yme Prductin: B8, B3, Heimdal, Sleipner and Lithuania Explratin: il and gas fields (n-shre and ff-shre licences) EFRA Prject cntinued Maintenance upgrade, replacement, catalysts and ther Retail netwrk ptimalisatin thrugh petrl statin relcatin and standardisatin CAPEX Upstream Refining Retail New (3) (1) estimates (2) r ther similar prject (3) grwth CAPEX after t 2018 (t be allcated amng segments) LOTOS Grup strategy

32 Key perfrmance indicatrs and financial gals Key perfrmance indicatrs. Twfld increase in average annual EBITDA LIFO (1). Debt rati capped at 1.5x (2) and dividend capacity Net debt / EBITDA LIFO 2.6x (3) 1.5x 1.5x Average annual EBITDA LIFO (1) PLN bn (4) (5) Average annual CAPEX PLN bn -1.4 (1) net f ne-ff items (2) debt rati = net debt/ebitda LIFO target level f 1.5 expected t be reached at the end f 2018 (3) value as at December 31st 2015 (4) average fr : FY M2016 annualised (5) assuming the B4/B6 prject is fully cnslidated (LOTOS' interest in the prject: 51%) -1.4 Grwth prjects after 2018 Upstream Refining Retail LOTOS Grup strategy

33 Key perfrmance indicatrs and financial gals Optimal financial mdel resilient t stress testing EBITDA LIFO analysis (1) PLN bn Scenari 1 Base scenari Scenari 2 Brent: 50 USD (2) FX: 3,63 (2) Margin: -1 USD (2) Brent: 80 USD (2) FX: 3,35 (2) Margin: -0,5 USD (2) (-) Increase/decrease in average annual EBITDA LIFO (1) depending n the scenari Grwth prjects after 2018 Upstream Dwnstream (1) net f ne-ff items. (2) price per barrel f crude il (USD/bbl); USD/PLN exchange rate; drp f mdel refining margin (USD/bbl) LOTOS Grup strategy

34 SUMMARY LOTOS Grup strategy

35 Summary Strategic bjectives 1 Effective use f assets alng entire value chain 2 Efficient prcesses guaranteeing stability 3 Readiness t implement innvatins 4 Active pprtunity and risk management 5 Strng team, cherent CSR stry and safety LOTOS Grup strategy

36 Summary Key perfrmance indicatrs Average annual EBITDA LIFO dubled in Targeted net debt/ebitda LIFO belw 1.5x CAPEX f 9.4bn ver 6 years 2P reserves f mre than 60 mbe and hydrcarbn prductin between kbe/d petrl statins LTIF (1) <3 (1) Lst Time Injury Frequency Rate LOTOS Grup strategy

37 Summary Key perfrmance indicatrs Safety LTIF (1) < 3 Operatinal and financial metrics UPSTREAM REFINING RETAIL Operatinal metrics 2P reserves (2) ca. 60 mbe Prductin ca. 22 kbe/d (3) 10.5m tnnes 500+ petrl statins; standardisatin EBITDA LIFO bn PLN (4) average annual in CAPEX bn PLN ttal ca. PLN 1.5 ca. PLN 1.8 ca. PLN 0.3 Net debt/ebitda (5) less than 1.5x (5) OPEX savings PLN 200m annually (run rate) vs 2015 cst base Custmer satisfactin Net Prmter Scre (NPS) implemented, first measurements in 2017 Dividend capacity yes (1) Lst Time Injury Frequency Rate (2) 2P reserves: prved and prbable (3) average annual prjected prductin vlume in barrels f il equivalent (il and gas) per day (4) net f ne-ff items (5) at the end f 2018 LOTOS Grup strategy

38 Summary Key perfrmance indicatrs Safety LTIF (1) < 3 Operatinal and financial metrics Operatinal metrics UPSTREAM REFINING RETAIL 2P reserves (2) mre than 60 mbe 10.5m tnnes 550 petrl statins Prductin kbe/d (3) EBITDA LIFO bn PLN (4) average annual in CAPEX bn PLN ttal ca. PLN 1.5 ca. PLN 0.7 ca. PLN 0.3 Net debt/ebitda less than 1.5x OPEX savings Custmer satisfactin PLN 300m annually (run rate) vs 2015 cst base Psitive trend in NPS Dividend capacity yes NOTE: Additinal CAPEX f apprximately PLN 3.3bn, t be allcated amng segments in 2018 fr (1) Lst Time Injury Frequency Rate (2) 2P reserves: prved and prbable (3) average annual prjected prductin vlume in barrels f il equivalent (il and gas) per day (4) net f ne-ff items. LOTOS Grup strategy

39 APPENDICES Appendix 1. LOTOS histry Appendix 2. Key market assumptins Appendix 3. Upstream prjects. Schedule and ecnmics Appendix 4. Refining prjects. Schedule and ecnmics LOTOS Grup strategy

40 Appendix 1. LOTOS Histry Cnstructin f Gdańsk refinery with thrughput capacity f 3m tnnes begins First prducts: gasline, kersene and diesel il Engine il prductin is launched Jet fuel and industrial asphalt prductin is launched LOTOS mineral il is placed n the market Rafineria Gdańska, statestck cmpany, is established Establishment f LOTOS Asfalt LOTOS Straż Establishment f LOTOS Paliwa, LOTOS Jasł LOTOS Czechwice Annual thrughput capacity increase t 10.5m tnnes Fllw-n public ffering f Grupa LOTOS shares Establishment f LOTOS Nrge Change f name t Grupa LOTOS Establishment f LOTOS Klej, LOTOS Oil LOTOS Serwis, and LOTOS Lab First listing n the WSE Acquisitin f Ess and Slvnaft chains Cnslidatin f PETROBALTIC and refineries based in suthern Pland Annual thrughput capacity increase t 6m tnnes Acquisitin f Genafta, Lithuania Acquisitin f Heimdal assets Acquisitin f Sleipner assets LOTOS Grup strategy

41 Appendix 2.1 Key market assumptins. USD/PLN exchange rates USD/PLN FX rate (1) GDP grwth rate (2) 4,1 3,4 3,3 3,7 3,7 3,7 3,7 3,1 3,0 3, (1) cmpany s assumptins (2) Internatinal Mnetary Fund frecast LOTOS Grup strategy

42 Appendix 2.2 Key market assumptins. Prjected crack spreads Qutatins (1) Crack spreads fr key prducts USD/t Brent Dated (USD/bbl) NBP (USD/be) Gasline Diesel Heavy fuel il (1) nminal prices LOTOS Grup strategy

43 Appendix 3. Upstream prjects schedule and ecnmics (1) field platfrm recnstructin full prductin launch CAPEX m PLN (1) Reserves m be (2) Prductin target k be/d (3) B Utgard B4/B6 Develpment Develpment First il First il Yme FID Develpment First il Frigg Gamma Delta and Langfjellet after FID befre FID FID Develpment Preparatin f develpment cncept (1) as per LOTOS stake (2) planned amunt f future CAPEX n the prject, exclusive f histrical CAPEX. (3) future EBITDA and utput figures are estimates based n average annual amunts fr the first five years f prductin frm the field (4) target prductin is an estimate based n average annual vlumes fr the first five years f prductin frm the field LOTOS Grup strategy

44 Appendix 4. Refining prjects schedule and ecnmics prject Wrking plans and specificatins Cmmercial peratin EFRA Cnstructin ca. PLN 2.300m Delayed cking unit (DCU) with auxiliary infrastructure Wrking plans and specificatins Cmmercial peratin HRU Cnstructin ca. PLN 150m Hydrgen recvery unit LOTOS Grup strategy

45 Grupa LOTOS S.A. LOTOS Grup strategy