Thanks to committed efforts by Polskie Inwestycje Rozwojowe S.A. and two banks, Bank Gospodarstwa Krajowego and Bank Pekao S.A., LOTOS will obtain financing for development of the B8 field.

Upstream activity

Thanks to committed efforts by Polskie Inwestycje Rozwojowe S.A. and two banks, Bank Gospodarstwa Krajowego and Bank Pekao S.A., LOTOS will obtain financing for development of the B8 field.

On August 25th 2014, a special purpose vehicle, wholly-owned by LOTOS Petrobaltic, entered into agreements with Polskie Inwestycje Rozwojowe, Bank Gospodarstwa Krajowego and Bank Pekao S.A. for the financing of development of the B8 field in the Baltic Sea. The transaction is the first production project in Central Europe to be funded on a project finance basis, and is expected to enhance Poland's energy security.

The project, worth nearly PLN 1.8bn, will consist in development of the B8 field in the Baltic Sea by LOTOS Petrobaltic, an E&P subsidiary of Grupa LOTOS. So far, development work on the B8 field has been financed using the company's internally generated funds. Under the new agreements, the project will be carried out on a project finance basis by a special-purpose vehicle wholly owned by LOTOS Petrobaltic. The B8 field licence and a drilling platform will be transferred by LOTOS Petrobaltic to the SPV as a contribution in kind. The SPV will carry out the remaining development work on the B8 field, including conversion of the drilling platform into a production centre, preparation of subsea infrastructure, and drilling of the last injection wells before the start of production.

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The production potential of the B8 field has been estimated at 3.5m tonnes of crude. Commercial production from the field is expected to be launched late in 2015. Annual production is estimated at about 250 thousand tonnes of crude (about 5.3 thousand barrels of oil equivalent per day (boe/d)).

‘This is a very important investment, consistent with our strategy of supporting projects which involve hydrocarbon exploration and production by Polish companies. We estimate that annual volume of production from the B8 field should be equal to at least one third of the current production of crude in Poland. Following completion of the project, the share of the Baltic Sea fields in Poland's domestic hydrocarbon production should double, to 33%. Higher reliance on our national resources should help us improve the country's energy security,’ said Włodzimierz Karpiński, Minister of State Treasury.

Crude extracted for the B8 field is to be delivered to the LOTOS refinery in Gdańsk, while the associated gas will be supplied to a CHP plant in Władysławowo. The project is consistent with the LOTOS strategy for 2011-2015.

‘The hydrocarbon production segment is the priority in the LOTOS strategy until 2015 and will remain the main focus of the Company's development until 2020,’ emphasised Paweł Olechnowicz, CEO of Grupa LOTOS S.A. ‘The Baltic Sea is identified as the key operating area for LOTOS Petrobaltic in the Efficiency and Growth 2013-2015 programme. According to available geological data, the company’s potential reserves in the Baltic Sea licence areas are estimated at nearly 30 million tonnes of crude oil. We are glad to see Polskie Inwestycje Rozwojowe S.A., Bank Gospodarstwa Krajowego and Bank Pekao S.A. partnering with us on the development of these reserves.’

Thanks to the PLN 430m committed by PIR, we will be able to get the banks involved in the project. Bank Pekao S.A. and Bank Gospodarstwa Krajowego will jointly provide financing of approximately PLN 660m.

‘The project that PIR is now executing in partnership with LOTOS is an excellent example of successful pursuit of the fund's mission. Through advanced financial engineering, we have succeeded in creating conditions that enabled the banks to provide long-term credit facilities. In our part of Europe, no-one has yet carried out such a complex and multifaceted transaction in the crude oil production segment. I would like to extend my great thanks to the team of five professionals at PIR who managed to achieve a financial closing of this exceptionally complex project within ten months,’ said Mariusz Grendowicz, President of the PIR Management Board.

‘We are intent to place our competencies and the strength of our capital at the country's disposal. After airports, roads, railways, water supply systems, the time has come to handle for a strategic energy project that will help boost Poland' crude production. By providing this financing, we proudly reinstate our position as the financial leader supporting Poland's development,’ said Luigi Lovaglio, President of the Management Board of Bank Pekao S.A.

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The agreements have been entered into as part of implementation of the memorandum of understanding signed by LOTOS Petrobaltic and PIR on October 7th 2013. That was PIR's first initially approved project, now entering the implementation phase as its first investment project. Execution of the agreements has come as a fruit of successful cooperation between companies in which the State Treasury holds strategic interests.

‘It is also an example of synergistic partnership between PIR and Bank Gospodarstwa Krajowego as the two pillars of the Polish investments programme,’ added Dariusz Kacprzyk, President of the Management Board of Bank Gospodarstwa Krajowego. ‘I would like to emphasise that as a state-owned bank we combine our mission of supporting the country's social and economic growth with the financing of projects on market terms’.

Financing of the B8 field is an example of a public-private partnership, where Bank Pekao S.A. is the private partner. Benefits from this partnership should accrue to the entire Polish economy. Poland's energy security should improve, accompanied by a concurrent increase in the strategic importance of LOTOS.

Communications Office, Grupa LOTOS S.A., ul. Elbląska 135, 80-718 Gdańsk, Poland, tel. (+48) 58 308 87 31, (+48) 58 308 83 88, e-mail: media@grupalotos.pl