Grupa LOTOS S.A. - Integrated Annual Report 2012
LOTOS Group operational priorities are set forth in the LOTOS Group strategy for 2011–2015 and development directions until 2020. In line with the strategy, most of our efforts are focused on the dynamic growth of the hydrocarbons exploration and production segment, and improvement of trading efficiency combined with optimisation of the operating area. Implementation of the strategic objectives has significantly progressed thanks to the 10+ Programme, which has increased the Gdańsk refinery’s annual capacity to over 10m tonnes of crude.
Our overarching strategic objective is to create value for shareholders through optimised utilisation of human and material resources and implementation of development programmes in the areas of oil exploration and production, processing and trading. These programmes are pursued in compliance with the principles of sustainable growth, which we understand as the continuous effort to reduce our environmental footprint, and paying due regard to the intellectual capital and experience of our personnel.
In the exploration and production area, we have intensified our efforts to expand our resource base, in order to take advantage of the high margins projected for this sector in the long term.
Strategic objectives for the exploration and production business:
- Achievement in 2015 of production volumes in the range of 24,000 boe/d (barrel of oil equivalent/day) – equivalent to 1.2 million tonnes a year;
- Increased production of hydrocarbons in line with the priorities of Poland’s energy policy until 2030;
In the operating area, we are focused on the efficient utilisation of our expanded refining capacities following the 10+ Programme, further increase of the conversion ratio and optimum use of synergies between the refining and power sectors.
Strategic operating goals:
- Achieving world-class production standards and maintaining a strong competitive position among the European refineries;
- Making optimum use of assets held and acquired as part of the growth strategy;
- Ensuring safe and stable operation of the production and ancillary facilities, as measured by the minimum annual availability of 98%;
- Further increasing the conversion ratio and intensifying feedstock processing.
The objective behind our marketing activities is to further develop our retail chain and marketing structures, based on the extended distribution network and efficient product logistics.
Strategic marketing goals:
- Maintain a 30% share in the domestic fuel market;
- Achieve fuel sales exceeding the fuel production capacities of the Grupa LOTOS refinery by 15%;
- Secure a 10% share in the domestic retail market by the end of the forecast period;
- Develop a chain of service stations and intensify sales through the existing chain;
- Maintain the leading position on the Polish lubricants market.
In 2012, we continued to implement our strategy. Despite the volatile market conditions and perceived economic slowdown, the strategic objectives set at the beginning of that year did not change. The long-term perspective of our strategy permits us to flexibly respond to threats and opportunities as they arise.
The key prerequisite for the success of our strategy is intensification of our exploration and production activities. Achieving this objective by the end of 2015 will enable creation of a strong and stable oil conglomerate, with production activities contributing a significant portion of profits. In 2012, crude output was 262,300 tonnes, including 74,600 tonnes produced in Lithuania. This represents a 15.4% increase (by 35,100 tonnes) compared to the 2011 output of 227,200 tonnes. Last year, crude oil was produced from the B3 field and from the B8 field (test production) in the Baltic Sea, and from onshore fields in Lithuania. Output of associated natural gas produced from the Baltic Sea totalled 20.9m Nm3. Production levels were adversely affected by delays on the Yme project, which prevented us from producing any oil from it.
Our work toward attaining strategic goals in the upstream segment will focus on further consistent development of our operations in the Baltic Sea, on the Norwegian Continental Shelf and in Lithuania. Key tasks in the delivery of our strategy for the segment include: continued production from the B3 field, development and launching of production from the B8 field, development of new assets in the Baltic Sea and onshore, following completion of an exploration programme, acquisition of new production assets in Norway, recovery of capital invested in the Yme project, and continued production growth in Lithuania.
In the operating and marketing areas, the LOTOS Group's implementation of strategic objectives and achievement of relevant ratios in 2012 progressed in accordance with the original assumptions. The LOTOS Group's share in the domestic market for fuels (diesel oil, gasoline, light fuel oil) expanded by 0.4pp on the previous year to 34%, thus exceeding its strategic target. The LOTOS Group's share in the retail market (diesel oil, gasoline) grew to 8%. Strategic objectives here will be pursued based on further consistent roll-out of stations in the premium segment (including motorway stations) and dynamic development of the budget LOTOS Optima chain.
Development activities undertaken here are focused on increasing the LOTOS Group’s value through innovative and sustainable development with due regard to its stakeholders’ principles and values. Given the high price of oil and the volatility of the currency markets, a high share of own production relative to the refinery’s processing volumes will improve our stability and enhance profitability. We are striving to build a vertically integrated and economically efficient conglomerate. This requires a commitment to the optimal development of other segments of the business.
The LOTOS Group’s primary development directions until 2020 are consistent with those set for 2010, and include:
- Further optimisation of the management model to achieve the highest available efficiency,
- Access to proven recoverable reserves of hydrocarbons of approximately 330m boe in 2020,
- Increasing production to approximately 110,000 boe/day (equal to 5m tonnes of crude a year),
- Maintaining a 30% share in the domestic fuel market,
- Sales exceeding the fuel production capacities of Grupa LOTOS refinery by 15%,
- Getting an at least 10% share in the domestic retail market,
- Further improving the economic efficiency of crude processing, ensuring full utilisation of the LOTOS Group’s assets,
- Taking steps to optimise power management processes at our refinery, by increasing its connection to other power systems.
The key tasks geared towards building our production potential after 2015 are to:
- Continue production from current fields,
- Develop the B4 and B6 gas fields in partnership with CalEnergy Resources Poland, and put the fields on stream,
- Continue exploration of our licences in order to identify prospective geological structures and subsequently develop and launch production from identified prospects,
- Expand our portfolio of exploration assets – secure new licences by filing relevant applications and participating in licensing rounds, and monitor areas covered by unconventional hydrocarbon exploration licences in Poland for opportunities to acquire shares in selected prospects,
- Maintain and enhance production potential in Lithuania – accelerate drilling in existing fields and pursue exploration activities with a view to developing new areas and evaluating their unconventional potential.