Key risks identified at the LOTOS Group

GRI:[ ]
  • Own indicator

The following corporate risk maps show the number of identified corporate opportunities and risks at each assessment level.

Key risks (threats and opportunities) at the LOTOS Group, including materiality levels and mitigation methods

Risk type Level Trend Risk response
Fluctuating supply and demand trends on the fuel market
  • Performing long-term trend analyses and updating strategy to mitigate adverse effects or seize new opportunities to gain a competitive advantage (e.g. in electric mobility)
  • Implementation of development pojects to expand and diversify the existing asset portfolio
  • Implementation of development projects to improve the flexibility of production/refinery processing operations and energy efficency
  • Implementation of innovation projects

Risk type Level Trend Risk response
Climate change threats and opportunities

  • Undertaking new initiatives and projects, such as advanced biofuels, alternative fuels, e.g. hydrogen, LNG, CNG, as well as energy efficency projects – measures to reduce emissions and increase the share of energy from renewable sources
  • Commitment to research and development projects aimed at development projects aimed at developing solutions with a favourable impact on the environment and climate change

  • Monitoring and active participation in legislative processes (presentation of analyses, proposing regulatory solutions beneficial to the organisation), both at the EU and national level – for the LOTOS Group, key climate risks relate to its transformation and pertain to regulatory changes

Risk type Level Trend Risk response
Impact from amended legislation or failure to comply with new national or EU regulations (can be a threat or an oportunity, e.g to obtain financial compensation of CO2 emission indiect cost).

  • Development of a compliance management system by the Compliance Department and External Regulation Department
  • Monitoring new regulations and regulatory changes
  • Active participation in legislative dialogue led by the Regulator and non-governmental organisaions
  • Scenario analyses of possible regulatory impacts
  • Implementation of measures for adapting to planned or enacted regulatory changes
  • Setting up interdisciplinary working teams to make the most of potential opportunities

Risk type Level Trend Risk response
Delays, failure to achieve objectives/targets in the
implementation of strategic

  • Comprehensive, step-by-step project planning
  • Qualification of contractors
  • Project risk management
  • Monitoring of progress made on projects, forecasting of project parameters, and mitigation of emerging risks
  • Active project management, including close oversight and communication with contractors
Opportunity to build a strong competitive position in the green hydrogen production market

ä Planning and implementing programmes and projects to enable green hydrogen production, including:
  • the LOTOS Green H2 programme involving the construction of a largescale plant consisting of electrolysers, hydrogen storage facilities and fuel
    cells or, possibly, hydrogen turbines, controlled with the use of advanced software
  • Vetni project designed to construct a pilot unit for high-efficiency hydrogen production based on solid oxide electrolysers powered by RES
  • potential production of green hydrogen on an offshore platform in an integrated system using purified seawater electrolysis and floating wind turbine
Opportunity to enter the
second generation base oils

ä Implementation of the Hydrocracking Base Oils (HBO) project to further improve the economics of crude oil processing through the production of Group 2 base oils and intermediate fuel products, and the sale of new, high-margin products.
Opportunity to become a
national champion on the
market for installing and
servicing offshore wind farms

LOTOS Petrobaltic plans to provide maintenance services for developers of offshore wind farms, which will be built in the Polish coastal zone of the Baltic Sea. The Company is currently providing services to partners, e.g. in the form of geological surveys of seabed, which will affect decisions on the type of foundations.
Opportunity to improve
energy security of the

  • Execution of a letter of intent with PKN Orlen S.A. and Energa S.A. to analyse the feasibility and possible terms of a joint project to build a CCGT plant in Gdańsk
Opportunity to exploit the
potential of LPB’s offshore
deposits through injecting
and storing CO2

Initiation of public consultations through the preparation and presentation by LOTOS Petrobaltic and its partners in November 2021 of the document entitled 'Green Paper for the Development of CCS in Poland’, which is a set of recommendations on legislative changes to enable the launch of large-scale commercial projects for underground storage of carbon dioxide in Poland.

Risk type Level Trend Risk response
Disrupted or delayed supplies of crude oil or other essential feedstocks

  • Diversification of crude oil supplies in terms of both directions of supply and means of transport used (e.g. maintaining the availability of supply sources for oil supplied by pipeline and by sea)
  • Maintaining adequate levels of work-in-process stocks
  • Production scheduling and procurement planning
  • Providing for relief measures in supply contracts in case a delivery route becomes unavailable
  • Following the adopted oil procurement policy

Risk type Level Trend Risk response
Difficulties with recruitment of qualified staff and retention of competent and experienced employees
  • Building an engaging work environment to enhance productivity
  • Creating space for development and innovation within the organisation
    (activities of the LOTOS Academy, financing of training and higher
    education, possibility of participating in the PhD Theses Implementation Programme)
  • Building a good employer image inside and outside the organisation
  • Building a knowledge management system to enable effective knowledge sharing/transfer and develop staff competencies necessary to achieve near- and long-term business goals

Risk type Level Trend Risk response
Fluctuating prices of feedstock and petroleum products, fluctuating foreign exchange and interest rates. (can be a threat or an opportunity)
  • Following the adopted feedstock and petroleum product price risk management policy and currency risk management policy
  • Monitoring market risk exposure on a daily basis
  • Selecting a trading strategy in line with policy objectives, current market situation and applicable risk limits

Risk type Level Trend Risk response
Mismanagement of working capital and constrained financing capacity ä
  • Assessing and forecasting the Group’s cash flows and liquidity
  • Analysis of financing sources available to the Group
  • Diversification of financing sources.
  • Optimising liquidity and debt across the Group
  • Effective management of strategic project portfolio

Risk type Level Trend Risk response
Insolvent trade partners or counterparties in financial contracts
  • Monitoring of partners’ ratings and financial standing
  • Setting trade credit limits and limits for counterparties in financial contracts in accordance with internal procedures
  • Employment of diverse financial tools to minimise risk

Risk type Level Trend Risk response
Incorrect estimation of resources, including incorrect estimation of hydrocarbon resources and reserves discovered by exploration wells; drilling of dry wells (without hydrocarbon flows)
  • Conduct of geological and reservoir engineering studies depending on the well (exploratory, appraisal, or appraisal and production well)
  • Decision points included in the project (initial phase, execution phase, well results analysis and reservoir evaluation, design phase) to minimise dry well risk
  • Applying international probability-of-success (PoS) standards
  • Cooperation with experienced field operators on the Norwegian Continental Shelf

Risk type Level Trend Risk response
Risk of drilling or production failure, resulting in reduced availability of affected infrastructure Implementing a range of measures to mitigate such risks as blowout, well failure, oil spill, fire, and collision at sea and to monitor their effective oversight, including:
  • monitoring of process parameters
  • equipment performance tests
  • use of appropriate safety measures
  • compliance with applicable safety and operating procedures
Geological reservoir risk and downhole equipment-related risk
  • Reservoir analysis (updating integrated static and dynamic models)
  • Assessing well and pump performance
  • Workover of production wells
  • Injection of chemicals (hydrate inhibitors) reducing the risk of downhole pump failures

Risk type Level Trend Risk response
Failure of refinery processing units
  • Inspecting the technical condition of processing equipment and components in line with maintenance schedules
  • Risk-based inspections of infrastructure
  • Having equipment inspected by the Technical Inspection Office and Company Technical Inspection
  • Identifying Critical Equipment subject to special inspection rules
  • Carrying out annual Failure Prevention Plans and Maintenance/Overhaul Plans
  • Improving staff qualifications, including simulation-based training
  • Automatic control, alarm and shutdown systems

Risk type Level Trend Risk response
Risk of product sales below the target
  • Ongoing analysis of demand change scenarios in each sales channel
  • Adjustment of the refining product mix to market demand changes
  • Standards of maintaining good relations with customers

Risk type Level Trend Risk response
Accidents along the entire production cycle and logistics chain (including road and rail accidents during product transport and aircraft accidents during rig crews transport)
  • Raising employees’ and subcontractors’ awareness of and commitment to safety culture
  • Health and safety risk assessment and process risk analysis
  • Regular inspections of OHS compliance at the workplace
  • Implementation of the annual Health and Safety Plan for the LOTOS Group
  • Supervision of subcontracting; operation of the contractor portal (with updated procedures and guidelines for subcontractors performing on-site work at Grupa LOTOS S.A.)
  • Given the air transport of crews to offshore drilling platforms, with respect to aviation accident risk:
    • o high safety requirements for aircraft fleet – AOC and E12 certificates, IFR approval,
    • o ongoing monitoring of weather conditions and proper logistics of passenger transport by sea,
    • o supervision of the terms of contracts with carriers.
Release of substances which may halt production processes and impact humans and the environment
  • Continuous improvement of the Process Safety Management (PSM) system
  • Implementation of change management policies and procedures
  • Risk analysis for each upgrade and new build project
  • Process safety training for personnel
  • Occupational safety instructions and procedures
  • Registration and reporting of process safety incidents

Risk type Level Trend Risk response
Destruction of critical infrastructure in an act of terrorism ä
  • Periodical drills to check security and communication systems
  • Implemented procedures in case of physical security or protection breaches
  • Participation in the Government Centre for Security’s training
  • Communication with the Provincial Emergency Management Centre
External or internal interference with IT and OT systems (cyberattack) and failures ä
  • Implementation of the ISO 27001 system and Cybersecurity Act requirements
  • Implementation of the Cybersecurity Rules at the LOTOS Group
  • Use of internal system security management procedures
  • IT security audits
  • Regular security tests for ICT infrastructure
  • Raising employees’ awareness of cyber security issues (training, information, tests)
  • Cooperation with CERT ABW Computer Security Incident Response Team
  • Operation and development of the Security Operation Centre (SOC) Office

Risk type Level Trend Risk response
Shrinking market of suppliers of goods and services meeting the requisite quality standards
  • Supplier selection procedures
  • Rules for dealing with key suppliers
  • Maintaining good relations with suppliers based on transparent procedures
Buying from unreliable suppliers involved in VAT ‘carousel frauds’
  • Application of the split payment mechanism
  • Detailed checks of trade partners
  • Inclusion of relevant clauses in contracts with trade partners
  • Due diligence

Rodzaj ryzyka Poziom Trend Reakcja na ryzyko
An intentional act or omission which constitutes violation of the law or a breach of the LOTOS Group’s internal regulations, committed to secure an unlawful gain or causing the Company to sustain undue losses (including corrupt practices).
  • Operation of the LOTOS Group’s Misconduct Prevention Policy, defining a systematic approach to misconduct prevention, including the rules of handling reported or suspected cases of misconduct and methods of communication.
  • Operation of the Compliance Management Policy at the LOTOS Group
  • Operation of the Ethical Conduct Programme, which is pursued through the Code of Ethics, the Ethics Officer and the Ethics Hotline, as well as training activities.
  • Operation at Grupa LOTOS S.A. of the policy for anonymous reporting of potential or actual violations of law to the President of the Management Board and, in special cases, to the Supervisory Board
  • Application of the LOTOS Group’s gift policy
  • Conducting audits and inspections
Violation of data protection laws
  • Application of internal data protection standards, including as part of personal data protection procedures and the security policy
  • Audits, also by external auditors, to verify whether the organisation observes the applicable rules and how it is prepared to comply with the GDPR requirements
  • Raising employees’ awareness (training, meetings)

Rodzaj ryzyka Poziom Trend Reakcja na ryzyko
Leakage from vessels carrying crude oil / products made by the LOTOS Group
  • Working with shipowners that are members of the International Tanker Owners Pollution Federation Ltd. (ITOPF) and hold the required insurance certificates
  • Insurance coverage and membership in the International Oil Pollution Compensation Fund (IOPCF)
Oil spill on rig
  • Maintaining offshore equipment in good technical condition to minimise the risk of accidents on rigs
  • Taking steps to control the risk of formation fluid invasion at the stage of planning and conducting well drilling operations
  • Holding annual drills in oil spill control
  • Selecting the right anti-spill equipment
  • Insurance coverage
Periodical spikes in emissions from the refining process
  • Constantly monitoring the process and emission parameters, including through a continuous emission monitoring system (CEMS) launched in 2020
  • Maintaining high technical standards application of the best available techniques (BAT) requirements
  • Implementation of environmental management plans

Risk type Level Trend Risk response
Employees resisting changes introduced in the LOTOS Group
  • Open communication with employees, trade unions and Works Council about the planned changes
  • Communicating the changes to media
  • Opportunities for employees to gain new qualifications/ retrain
  • Offering support in the event of a change of workplace and relocation; financial assistance
  • Ongoing monitoring of employee sentiment

Risk type Level Trend Risk response
Social protests against the Group’s projects
  • Maintaining good relations with stakeholders. Holding meetings to inform stakeholders about the Group’s projects
  • Open communication on the Group’s current operations and projects
  • Maintaining good relations with industry, local, nationwide and foreign media
  • Working with the supervisory bodies and public authorities to prevent crises that may arise in the course of legislative procedures, whether Polish or EU.
  • Supporting local communities through various CSR programmes/projects

Source: the Company

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