The Grupa LOTOS refinery operated at full capacity in the third quarter of 2018. The Group considerably improved its operating and financial performance and significantly reduced its debt during the period.

In Q3 2018, revenue amounted to PLN 8.3bn, compared with PLN 6.3bn in Q3 2017 (up 33%). In Q3 2018 alone, the Company earned LIFO-based EBITDA of PLN 888m, an 8% increase over the prior quarter. LIFO-based EBIT was PLN 693m, up 19.4% quarter on quarter, while consolidated net profit came in at PLN 632m. Q3 2018 operating cash flow was close to PLN 1.3bn, compared with PLN 0.5bn in Q2 2018.

The LOTOS Group generated almost PLN 2.25bn in adjusted LIFO-based EBITDA for the first three quarters of 2018, a level comparable to that reported for the same period last year (PLN 2.3bn).

The robust financial performance allowed the Group to considerably reduce its debt. At the end of Q3 2018, net debt stood at PLN 1.9bn, compared with PLN 2.5bn at the end of 2017. Financial leverage decreased by 7.7 percentage points over the end of 2017, to a safe level of 16%. Net debt to LIFO-based EBITDA was 0.6x, compared with 0.8x at the end of 2017 and 1.9x at the end of 2016.

On September 29th 2018, Grupa LOTOS paid a dividend of PLN 1 per share. A total of PLN 185m was distributed as a dividend.

Macroeconomic environment

Q3 2018 saw crude oil and natural gas prices rise significantly, with crude prices up 44% (USD 23/bbl) yoy, and gas prices up 54% (USD 16/boe) yoy. This supported Upstream performance and mitigated the effects of lower hydrocarbon sales volumes.

The Downstream segment witnessed strong volatility in crack spreads expressed in USD/bbl. Sharp declines were seen in crack spreads for heavy fuel oil (down 54%) and gasoline (down 13%), while crack spreads for diesel, light fuel oil and aviation fuel rose 8%, 12% and 10% yoy, respectively. A stronger US dollar, with the quarterly average USD exchange rate up 2%, had a positive impact on these figures.

The model refining margin was USD 7.47, down 13% yoy. Its impact on the adjusted LIFO-based EBITDA was partly offset by maximum capacity utilisation of the Gdańsk refinery, at 105.4%.

Upstream

The sound performance delivered by the Upstream segment was supported by high oil and gas prices. Revenue was PLN 374.5m, compared with PLN 256m last year (up 46% yoy). EBITDA was reported at PLN 197m vs PLN 168m (up 17% yoy).

A decline in production (down 16% yoy), to 17,647 boe/d in Q3 2018, was mainly due to the planned maintenance shutdown in the Sleipner area in the North Sea, where LOTOS Norge produces oil and gas in a consortium. The shutdown lasted from August 31st until September 21st 2018 for the Sleipner East, Loke and Gungne fields and until September 30th 2018 for the Sleipner Vest field. In addition to the planned upgrade and repair works, during the shutdown the required modifications were made to the Sleipner platform, which in the future will be used to process and separate gas and condensate from the Utgard field.

The Utgard project is at an advanced stage of development. The ownership of the Norwegian part of the licence is as follows: Equinor (62% – licence operator), LOTOS Norge (28%) and Total Norge (10%). The field is being developed based on synergies with the existing Sleipner hub infrastructure. According to the adopted schedule, production is slated to start in Q1 2020.

Downstream

In the past quarter, the LOTOS refinery operated smoothly, with oil throughput at a record level of 2,790,000 tonnes. During the first nine months of the year, a total of 7,989,000 tonnes of crude was processed. In Q1–Q3 2018 crude grade diversification was in excess of 30%, meaning that every third barrel of oil processed by the Gdańsk refinery was from sources other than markets east of Poland.

The Downstream segment generated adjusted LIFO-based EBITDA of PLN 688m in Q3 2018. The largest yoy growth in sales was reported for aviation fuel.

Segment revenue was PLN 8.1bn, having increased 33% yoy as a result of higher average net selling prices and an 8.5% rise in sales volumes. Q3 2018 was equally successful for the Retail segment, with revenue at PLN 1.8bn, compared with PLN 1.5bn in Q3 2017 (up 21%). The number of service stations increased by 4, to 489 at the end of the quarter (including 306 CODO stations and 183 DOFO stations). 

Further facilities commissioned under the EFRA project

As at September 30th 2018, the progress of design, procurement, construction and assembly work under the EFRA Project was 96.3%.

In Q3 2018, construction and commissioning work continued on the individual facilities, involving also auxiliary systems and facilities as well as general infrastructure. Commissioning of the hydrogen generation unit (HGU) and hydrowax vacuum distillation unit (HVDU), two of the three key units of the EFRA Project, was underway. Having undergone a guarantee test run, the HVDU unit was placed in commercial operation and now operates under loads adjusted to the current needs of the refinery.

The HGU unit, the semi-finished product tanks of the delayed coking unit (DCU) and further interfacility pipelines were in the trial and testing phase. The following were placed in commercial operation: HVDU unit, sulfur recovery unit (SRU II), sour water stripper (SWS II), amine recovery unit (ARU II) and LPG treatment unit, modernised diesel fuel hydrodesulfurisation unit (HDS), natural gas pipeline (underground and surface), new condensate station (No. 7) and modernised substation (P2/4).

As the risk of delay in reaching the Ready-for Start-Up status by the coking unit materialised (see Current Report No. 21/2018 of the Management Board of Grupa LOTOS S.A. of July 13th 2018), negotiations continue with KT – Kinetics Technology S.p.A (general contractor for the DCU/CNHT unit) to adopt a realistic work schedule.

LOTOS deepens commitment to alternative fuels

Under its strategy for 2017–2022, Grupa LOTOS strives to become a leader in next generation fuels. In order to turn these plans into reality, in September 2018 representatives of Grupa LOTOS and LOTOS Lab, which is the entity responsible for initiating, coordinating, financing and implementing R&D projects at the LOTOS Group, signed documents initiating a joint R&D project with the Warsaw University of Technology. The project will be to prepare the prototypes of selected equipment for low emission transport and energy storage.

In late September, the ‘Pure H₂’ project submitted by LOTOS was placed on the list of projects approved by EU member states and supported as part of the Connecting Europe Facility (CEF) instrument. This means that almost EUR 2m, i.e. approximately 20% of the project budget, will be provided by the EU. The project’s objective is to launch the sale of ultra-high purity hydrogen (99.999%) which could be used primarily as a fuel in public transport vehicles. The plans envisage the construction of a hydrogen purification unit at the Gdańsk refinery and a hydrogen sale and distribution station in the immediate vicinity of the LOTOS Group’s plant, as well as two refuelling points (in Gdańsk and Warsaw). The project, worth almost EUR 10m, is to be placed in service in 2021.

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LOTOS is a Polish corporation whose business is of strategic importance to the national and European energy security, as well as to Poland’s economy. It produces natural gas and crude oil in Poland, Norway and Lithuania. The company owns a refinery in Gdańsk, one of Europe’s most advanced oil refining plants, where crude is processed mainly into high quality fuels, including the LOTOS Dynamic premium brand, as well as aviation and bunker fuels.

LOTOS also operates a chain of close to 500 service stations conveniently located at motorways and expressways, in all large cities and many other locations across the country. As a retailer and wholesaler of fuels, it has nearly a one-third market share at home. It is also Poland’s second largest railway carrier. LOTOS is a leading manufacturer of road bitumens, engine oils and lubricants used in road vehicles, aeroplanes, trains, ships, and even military vehicles.

External Communication Office, Grupa LOTOS S.A., ul. Elbląska 135, 80-718 Gdańsk, Poland, phone: (+48) 58 308 83 88, (+48) 58 308 72 29, email: media@grupalotos.pl