Our approach to sustainable development
Implementation of the strategy in 2021
We are changing

Summary of the year

At the date of issue of this report all eyes are on the dramatic events taking place across Poland’s eastern border. The growing uncertainty in global commodity markets has proven only major players with diversified business operations will be able to tackle new challenges, particularly those relating to energy security.

Zofia Paryła President of the Grupa LOTOS Management Board

Summary of the year

In LOTOS 2021 will be remembered as the year in which the structure of the merger with PKN Orlen was defined, consent was obtained to enter into demerger agreements and acceptance was obtained for internal transformation – also to set up a processing refinery. It was a time of demanding challenges which we managed to address.

Krzysztof Nowicki Vice-President of the Management Board, Mergers and Acquisitions

Summary of the year

In 2021 we conducted the first stage of the refinery’s partial refurbishment shutdown. We completed the latter half of that in March and April of this year. The outcome of the newly-implemented concept is raising the degree of detail in diagnostic tests and inspections on plant, which will extend the period between the next maintenance-related shutdowns from 4 to 5 years.

Piotr Walczak Vice-President of the Management Board, Refining & Marketing

Summary of the year

In terms of investments, the launch of the flagship project to continue ramping up the level of oil conversion, i.e. the Hydrocracking Oil Block should be considered to be significant in 2021, as should extraction from the Yme deposit in Norway.

Jarosław Wróbel Vice-President of the Management Board, Investments and Innovations

Summary of the year

2021 also saw the further digitalization of LOTOS. As we treated security issues as a top priority, we continued work making it possible to utilize in full the potential offered by cyberspace. We also meticulously tracked the amendments to EU legislation, mostly including the Fit for 55 package and incorporated them in our activities and plans.

Jarosław Wittstock Vice President of the Management Board, Corporate Affairs

Zofia Paryła President of the Grupa LOTOS Management Board

Krzysztof Nowicki Vice-President of the Management Board, Mergers and Acquisitions

Piotr Walczak Vice-President of the Management Board, Refining & Marketing

Jarosław Wróbel Vice-President of the Management Board, Investments and Innovations

Jarosław Wittstock Vice President of the Management Board, Corporate Affairs

2021
Key results

In 2021, Grupa LOTOS S.A. earned a net profit of PLN 2,519.9 million. Operating profit was PLN 2,527.5 million (vs operating loss of PLN -1,512.5 million in 2020).

Sources of net profit earned by Grupa LOTOS S.A. in 2021 (PLNm)

The 63.7% increase in revenue was mainly attributable to a significant rise in the prices of petroleum products on global markets. The Company’s net finance income was PLN 511.3 million. It

In 2021, the Grupa LOTOS refinery processed 9.9 million tonnes of crude oil and the utilisation rate of its nominal refining capacity was 98.8% (i.e. close to full capacity), despite the planned cyclic maintenance shutdown, which was for the first time performed as a partial shutdown.

Crude oil throughput in Gdańsk (k tons)

In 2021, the LOTOS Group’s average daily production of crude oil and natural gas was 17.3 thousand boe/d (a decrease of 14.6% year on year). Approximately 64% of that total output, i.e. 11.2 thousand boe/d, came from the Norwegian fields.

2 519.9 PLN
million

Net profit

4 229 PLN
million

EBITDA LIFO

17 348 boe
/d

Average daily production of crude oil and natural gas

2.9 PLN
bn

Strong operating cash flows

A merger between PKN ORLEN and the LOTOS Group is underway to create a strong multi-utility conglomerate poised to become a major player in the European and global markets. It will be the largest merger in the fuel and energy sector in this part of the world, the starting point for a new chapter in the history of Poland and the life of these two major competitors, soon to become a single entity.

LOTOS competence centers
within the multi-utility conglomerate

Owing to the LOTOS Group’s extensive experience, Gdańsk has been selected to host the conglomerate’s hydrogen technology hub which will be created to pursue research and development projects and to integrate and coordinate all endeavors in this area. The hub’s primary focus will be to facilitate the production of green hydrogen, encourage its use for transportation purposes and develop better ways of compressing and storing it in pure form. In 2022, the Pure H2 project will enter its crucial stage. The LOTOS Group’s Green H2 project is also underway aimed at the construction of a large-scale green hydrogen production plant. In September 2021, we also initiated another hydrogen project dubbed VETNI.

The best outcomes are generated by mergers that rely on the competencies and experience of the organizations involved that are capable of making wise strategic choices. Such are the assumptions behind the merger of PKN ORLEN with the LOTOS Group and the intended structure of the future multi-utility conglomerate.

Another line of business will be base oils and lubricants. This choice has been made based on the LOTOS Group’s well-established product quality and brand recognizability in this context, supported by a well-developed sales and distribution network. Another argument is the intended execution of an investment project aimed at the production of group 2 and 3 base oils in a yet-to-be-built Hydrocracking Oil Unit. The total value of the investment project will exceed PLN 1.4 billion. Once complete, the Gdańsk refinery will produce high-quality base lubricating oils starting as early as in 2025.

The best outcomes are generated by mergers that rely on the competencies and experience of the organizations involved that are capable of making wise strategic choices. Such are the assumptions behind the merger of PKN ORLEN with the LOTOS Group and the intended structure of the future multi-utility conglomerate.

A rail logistics center will also be established in Gdańsk. LOTOS Kolej’s strong market position will be additionally reinforced by PKN ORLEN’s assets within the merged conglomerate. The LOTOS Group’s coastal location and the intended construction of a shipping terminal on the Martwa Wisła are additional major advantages. LOTOS Kolej is currently Poland’s second largest rail operator specializing in the carriage of dangerous goods.

The best outcomes are generated by mergers that rely on the competencies and experience of the organizations involved that are capable of making wise strategic choices. Such are the assumptions behind the merger of PKN ORLEN with the LOTOS Group and the intended structure of the future multi-utility conglomerate.

The fourth intended competence center will be focused on the provision of maintenance and repair services related to offshore wind energy projects in the Baltic Sea. The activities currently pursued by LOTOS Petrobaltic are aligned with these assumptions. In the context of strictly exploration and production endeavors, the leading role will be played by PGNiG, to which competencies in this area will be transferred from both LOTOS Petrobaltic and ORLEN Upstream.

The best outcomes are generated by mergers that rely on the competencies and experience of the organizations involved that are capable of making wise strategic choices. Such are the assumptions behind the merger of PKN ORLEN with the LOTOS Group and the intended structure of the future multi-utility conglomerate.

Another competence center will be focused on marine fuels. The LOTOS Group’s coastal location and extensive experience in this area argue in favor of the continued development of this business in Gdańsk. Already today, LOTOS is a direct supplier of top-quality marine fuels to all Polish ports. The Group is consistently expanding its presence in the market for low-sulfur marine fuels.

The best outcomes are generated by mergers that rely on the competencies and experience of the organizations involved that are capable of making wise strategic choices. Such are the assumptions behind the merger of PKN ORLEN with the LOTOS Group and the intended structure of the future multi-utility conglomerate.

Our
business model

The LOTOS Group is the second largest fuel producer in Poland.

The company holds a leading position in many other domestic markets, including oils, bitumens and rail freight. In addition to the production and processing of crude oil and natural gas, the Group’s business includes the sale of high-quality petroleum products and the provision of specialized logistics and maintenance services.

Exploration and production - offshore

Group's 2P reserves are mostly located beneath the seabed of the Baltic Sea (63%) and the Norwegian Sea (33%).

Exploration and production - onshore

Poland, Lituania

Crude oil processing

Grupa Lotos S.A.’s refinery processed approximately 9.9 million tons of crude oil and produced 11 million tons of products in 2021.

Retail fuel sales - CODO i DOFO

Operations on the Polish retail fuel market are conducted by LOTOS Paliwa through: development and management of the CODO (Company Owned Dealer Operated) and DOFO (Dealer Owned Franchise Operated) service station networks.

Logistics

The LOTOS Group consistently adapts its logistics operations to the requirements of its trading operations and builds an efficient distribution system meeting the expectations of its customers, while being continually optimised.

Hydrogen

LOTOS Group has launched an investment program to build a large-scale green hydrogen production facility.

Products

Fuels, jet fuel, crude gasoline, liquefied proban-butane gas, asphaltenes, heavy fuel oil

Offshore maintenance services

Strategic direction of development

External sources of supply

In the process of manufacturing refinery products, the Company uses crude oil, intermediates, chemicals and petroleum-based materials.

Direct sales of the exploration and production segment to third parties

Exploration and production - offshore

Group's 2P reserves are mostly located beneath the seabed of the Baltic Sea (63%) and the Norwegian Sea (33%).

Exploration and production - onshore

Poland, Lituania

Crude oil processing

Grupa Lotos S.A.’s refinery processed approximately 9.9 million tons of crude oil and produced 11 million tons of products in 2021.

Retail fuel sales - CODO i DOFO

Operations on the Polish retail fuel market are conducted by LOTOS Paliwa through: development and management of the CODO (Company Owned Dealer Operated) and DOFO (Dealer Owned Franchise Operated) service station networks.

Logistics

The LOTOS Group consistently adapts its logistics operations to the requirements of its trading operations and builds an efficient distribution system meeting the expectations of its customers, while being continually optimised.

Hydrogen

LOTOS Group has launched an investment program to build a large-scale green hydrogen production facility.

Products

Fuels, jet fuel, crude gasoline, liquefied proban-butane gas, asphaltenes, heavy fuel oil

Offshore maintenance services

Strategic direction of development

External sources of supply

In the process of manufacturing refinery products, the Company uses crude oil, intermediates, chemicals and petroleum-based materials.

Direct sales of the exploration and production segment to third parties

The LOTOS Group’s strategy takes into account sustainable development, i.e. reducing the environmental impact.

In harmony with the natural environment and society

LOTOS supports the construction of the hydrogen economy

The LOTOS Group is active in the area of building awareness of hydrogen use. LOTOS participates in the Clean Transport Package and the Ministry of Climate's work on a national hydrogen strategy. In late 2021, the government adopted the "Polish Hydrogen Strategy until 2030 with an Outlook until 2040” which aims to create a Polish hydrogen industry and its development to achieve climate neutrality and maintain the competitiveness of the Polish economy.

Ethical supply chain

Grupa LOTOS, in its cooperation with suppliers, relies on transparent principles developed within the Group relating to the procedures for the purchase of goods and services and procedures that support systematic management of the customer base (CRM) and strictly adheres to the principles of business partner verification.

Employee volunteerism

In the LOTOS Group, employee volunteerism has been running for many years. We have a large group of socially committed employees. Staff volunteers provide community service using their time, knowledge and skills. Under the Employee Volunteerism Program, employees can, among other things, apply for funding for their original volunteerism projects.

Occupational health and safety

The scope of activities carried out by the occupational health and safety service is based on the applicable laws in this respect. In order to identify and eliminate threats and minimize risks, the LOTOS Group applies a number of tools to improve this area, e.g. through OHS inspections and reviews, OHS training, direct talks with employees, and the incentive programs in place. Inspections of working conditions (thematic, ad hoc, checklist-based) are aimed at verifying the compliance of the actual working environment conditions with the OHS regulations and principles.

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