Integrated Annual Report of LOTOS Capital Group 2016

Value Creation Model

  • The values we create bring benefits not only to the LOTOS Group but also to its many stakeholders.
  • All the segments comprising our value chain are profitable.

The LOTOS Group’s Value Creation Model has been founded on thorough, realistic analyses and long-term forecasts of the global oil market, and therefore should ensure stable and secure growth of the LOTOS Group in 2017−2022.

Reset view
Trends and the market environment
What factors influenced the price of oil in 2016?
What specific factors drove the rebound in oil prices in 2016?
Key long-term market opportunities and challenges
Major changes in the mix of energy sources and environmental policy:
Accelerating advances in technology:
Growing competition on a dynamic market:
Poland's energy security:

A full description of our business model is available in an interactive form on our Integrated Report: http://2016.raportroczny.lotos.pl/en/our-strategy/value-creation-model

Responsibility

OUR CONTRIBUTION

Total environmental protection expenditures and investments: PLN 2,317,654

  • A diversified stream of cash flows is partly ensured by the operation of 11* producing fields
    (* the onshore fields in Lithuania are treated as one source)
  • In 2016, six new exploration licenses were acquired
  • As at the end of 2016, 2P hydrocarbon reserves stood at 72.7 mboe
  • At the end of 2016, 2C contingent resources totalled 51 mboe
  • Contribution to Poland's energy security
  • Total output in 2016 was 9.8 mboe
  • Daily output in 2017-2022 is estimated within the range of 30,000-50,000 boe/d
  • Headcount in the Upstream segment: 503 employees
  • There were no environmental incidents in 2016
VALUE CREATION AREAS

Commitment to process safety, including care for ensuring safety in the immediate vicinity of production plants and in the neighbouring areas

Constant and consistent efforts to mitigate the harmful effects of our operations on the environment

OUR CONTRIBUTION

In 2016, investment expenditure on the entire refinery reached PLN 741.1m, including:

  • Asset replacement – PLN 15.2m
  • New units – PLN 635.94m
  • Elimination of bottlenecks – PLN 87.7m
  • Investments related to emission reduction / environmental protection – PLN 1.4m
  • Safety and other – PLN 0.8m

In 2016, employee training costs in the Refining segment were as follows: PLN 688,781.40 (PLN 0.69m) for all types of training and PLN 256,534.29 (PLN 0.26m) for technical training (the figure includes the cost of training to obtain professional qualifications but excludes the cost of obligatory OSH training)

In 2016, the Risk Based Inspection covering 15 key units was completed.

We devote 40 days a year to training performed at the process units, and 45 days a year to fire safety training

Expenditures on safety-related projects: PLN 1,700,000

Annual expenditure on pro-environmental projects: PLN 71m

  • In 2016, the key units' operational uptime, understood as average operational uptime of all the units, was 99.4%
  • There were no environmental penalties in 2016
  • In 2016, the carbon (CO2) emissions intensity ratio was down year on year (29.1 kg CO2/CWT vs 29.8 kg CO2/CWT in 2015)
  • There were no leaks into the environment
  • In 2016, the emission rates were as follows:
    • SO2 - 1,614 tonnes (down by 956 tonnes compared with 2015)
    • NOx - 863 tonnes (down by 272 tonnes compared with 2015)
    • particulate matter - 134 tonnes (down by 97 tonnes compared with 2015)
  • Effective water and wastewater management system, as evidenced by the annual average values of all wastewater quality indicators (except for boron), which did not exceed 50% of the allowable limits
VALUE CREATION AREAS

Products that meet the needs of our customers and trading partners and are a source of revenue supporting company growth and cash-flow generation.

Methodical development of the service station chain based on detailed business analyses, without compromising our commitment to top product quality and customer satisfaction.

A desirable and reliable partner

OUR CONTRIBUTION

487 service stations selling LOTOS Group's products and other services to travellers

26 new stations joined the chain in 2016

  • In 2016, 16.2% of the LOTOS Group's purchases of feedstock, merchandise and petroleum materials were domestic purchases (up by 1.3pp on 2015)
  • 80% of satisfied customers and 1st place in the service station customer satisfaction survey carried out in the first half of 2017
  • Over the past five years, the number of service stations in the LOTOS chain grew by 161; last year, the company opened 11 new CODO stations and eight new DOFO stations
  • As at December 31st 2016, trade receivables from the Group’s five largest customers represented 32% of total trade receivables (the individual customers' shares ranged from 2% to 11%)

Efficiency

VALUE CREATION AREAS

Ensuring a balanced and diversified portfolio of upstream assets and building a resource base to ensure long-term business continuity

Ensuring high operational uptime of the wells without compromising any of the stringent safety, environmental or regulatory standards

OUR CONTRIBUTION

Production efficiency: in 2016, the average lifting cost was USD 12.7/boe

  • In 2016, the Upstream segment generated an adjusted EBITDA of PLN 688m
  • The segment's EBITDA accounted for 26.6% of the LOTOS Group's total EBITDA for 2016
  • Maximisation of uptime - the Upstream segment's average uptime in 2016 was 91% (the ratio was lower than average due to scheduled and unscheduled production stoppages in Norway)
VALUE CREATION AREAS

Building actively our competitive advantage by maximising production efficiency

OUR CONTRIBUTION

A year-on-year increase in refining volumes (the record 10.4m tonnes in 2016 vs 10.2m tonnes in 2015)

Key investments in 2016 were related to:

  • Adaptation of production units, including:
    • construction of a Hydrogen Recovery Unit
    • finalising the activities related to expansion of the natural gas feed system for the refinery and conversion of the CHP plant steam generators so they can be fuelled with natural gas
  • upgrade of the Claus unit - its adaptation to receive oxygen-enriched air mixture and construction of an oxygen separation plant
  • The Solomon Index is 9.1 for the fuel refinery and 0.5 for the lube refinery (data for 2014)
  • The model refining margin for 2016 was 6.93
    (down by 10.8% compared with 2015)
  • Reduction of the failure rate and the fugitive emission of hydrocarbons into the air; improvement of the working conditions, for instance through modernisation of the DCM (methylene chloride) unit
  • In 2016, the key units' operational uptime, understood as average operational uptime of all the units, was 99.4%
VALUE CREATION AREAS

Development of auxiliary services

OUR CONTRIBUTION

In 2016, the volume of products sold by the LOTOS Group was 11,061 thousand tonnes, up 1.3% year on year

In 2016, the LOTOS Group's expenditures on purchases of feedstock, merchandise and petroleum materials totalled PLN 14,241.1m

Transport by sea: Over 7.5m tonnes of crude oil, petroleum products, and fuel components were loaded and unloaded for or by Grupa LOTOS at sea ports in 2016; During the year, the Group received or dispatched 335 tankers

Railway transport: In 2016, LOTOS Kolej transported 12.7m tonnes of cargo

  • The Marketing segment's operating profit before depreciation and amortisation excluding non-cash impairment losses (adjusted EBITDA) was PLN 155.8m in 2016 (up by PLN 44m)
  • In 2016, the LOTOS Group had a 29.5% share of the fuels market in Poland
  • The LOTOS Group's share of the overall registered retail sales of fuels was 11% (up from 10.3% in 2015)
  • Cost of merchandise and materials sold in 2016: PLN 859,861 thousand
  • Volume of fuels sold in Poland in 2016: 6.1m tonnes (vs 5.3m tonnes in 2015)
  • Transport by sea: In 2016, approximately 4.4m tonnes of crude oil were delivered to Grupa LOTOS by sea
  • Railway transport: LOTOS Kolej increased its share of the Polish rail freight market from 9.91% to 10.20% (in terms of tonne-kilometres, based on the Office of Rail Transport data for 2016) and retained the second position among rail cargo carriers
  • The average commercial speed rose by approximately 4 km/h (ca. 20%) year on year

Innovativeness

  • In 2016, six new exploration licenses were acquired
VALUE CREATION AREAS

Developing the employees' know-how and competence by creating an innovation-oriented work culture and continuously motivating employees to look for ways to increase efficiency of their daily work

OUR CONTRIBUTION

Investments in growth and improvement of the refinery's crude distillate yields – capex of PLN 15.5m

Costs of the overhaul and maintenance project (including costs of its preparation and carrying out in spring 2017) were PLN 292m

  • Percentage of innovators in selected companies of the LOTOS Group, understood as the percentage of employees putting forward ideas for innovation at their company:
    • 20% LOTOS Oil
    • 15% LOTOS Asfalt
    • 9% LOTOS Petrobaltic
  • Three companies launched 51 projects with a view to implementing their employees' ideas for innovation in various areas of their operation
  • Collaboration with global brands - in 2016 we teamed up with new partners, including the Subway brand

Security

VALUE CREATION AREAS

Ensuring a balanced and diversified portfolio of upstream assets and building a resource base to ensure long-term business continuity

Ensuring high operational uptime of the wells without compromising any of the stringent safety, environmental or regulatory standards

OUR CONTRIBUTION

Growth of the Upstream segment's business thanks to increased production of hydrocarbons; in 2016, hydrocarbon output remained steady at 26,700 boe/d (more than double the previous year's figure)

In 2016, investment expenditure in the Upstream segment totalled PLN 374m*
(* including expenditure on the B4B6 project calculated pro rata to the 51% licence interest)

Investment expenditure on exploration for and appraisal of hydrocarbon reserves totalled PLN 78.5m*
(* including expenditure on the B4B6 project calculated pro rata to the 51% licence interest)

Total environmental protection expenditures and investments: PLN 2,317,654

  • A diversified stream of cash flows is partly ensured by the operation of 11* producing fields
    (* the onshore fields in Lithuania are treated as one source)
  • In 2016, six new exploration licenses were acquired
  • As at the end of 2016, 2P hydrocarbon reserves stood at 72.7 mboe
  • At the end of 2016, 2C contingent resources totalled 51 mboe
  • Contribution to Poland's energy security
  • Total output in 2016 was 9.8 mboe
  • Daily output in 2017-2022 is estimated within the range of 30,000-50,000 boe/d
  • Headcount in the Upstream segment: 503 employees
  • There were no environmental incidents in 2016
VALUE CREATION AREAS

Commitment to process safety, including care for ensuring safety in the immediate vicinity of production plants and in the neighbouring areas

Constant and consistent efforts to mitigate the harmful effects of our operations on the environment

OUR CONTRIBUTION

In 2016, investment expenditure on the entire refinery reached PLN 741.1m, including:

  • Asset replacement – PLN 15.2m
  • New units – PLN 635.94m
  • Elimination of bottlenecks – PLN 87.7m
  • Investments related to emission reduction / environmental protection – PLN 1.4m
  • Safety and other – PLN 0.8m

In 2016, employee training costs in the Refining segment were as follows: PLN 688,781.40 (PLN 0.69m) for all types of training and PLN 256,534.29 (PLN 0.26m) for technical training (the figure includes the cost of training to obtain professional qualifications but excludes the cost of obligatory OSH training)

In 2016, the Risk Based Inspection covering 15 key units was completed.

We devote 40 days a year to training performed at the process units, and 45 days a year to fire safety training

Expenditures on safety-related projects: PLN 1,700,000

Annual expenditure on pro-environmental projects: PLN 71m

  • In 2016, the key units' operational uptime, understood as average operational uptime of all the units, was 99.4%
  • There were no environmental penalties in 2016
  • In 2016, the carbon (CO2) emissions intensity ratio was down year on year (29.1 kg CO2/CWT vs 29.8 kg CO2/CWT in 2015)
  • There were no leaks into the environment
  • In 2016, the emission rates were as follows:
    • SO2 - 1,614 tonnes (down by 956 tonnes compared with 2015)
    • NOx - 863 tonnes (down by 272 tonnes compared with 2015)
    • particulate matter - 134 tonnes (down by 97 tonnes compared with 2015)
  • Effective water and wastewater management system, as evidenced by the annual average values of all wastewater quality indicators (except for boron), which did not exceed 50% of the allowable limits
  • In 2016, 16.2% of the LOTOS Group's purchases of feedstock, merchandise and petroleum materials were domestic purchases (up by 1.3pp on 2015)
  • As at December 31st 2016, trade receivables from the Group’s five largest customers represented 32% of total trade receivables (the individual customers' shares ranged from 2% to 11%)

Sales and logistics

MARKETING SEGMENT
What drives our success in this area
  • The LOTOS Group manages a chain of 487 service stations conveniently located throughout the country We are the leader in the promising MSA market − our chain includes 17 stations situated in Motorway Service Areas by the A1, A2, A4 and A6 motorways and the S3 and S7 expressways
VALUE CREATION
AREAS
OUR CONTRIBUTION

In 2016, the volume of products sold by the LOTOS Group was 11,061 thousand tonnes, up 1.3% year on year

487 service stations selling LOTOS Group's products and other services to travellers

  • The Marketing segment's operating profit before depreciation and amortisation excluding non-cash impairment losses (adjusted EBITDA) was PLN 155.8m in 2016 (up by PLN 44m)
  • In 2016, the LOTOS Group had a 29.5% share of the fuels market in Poland
  • The LOTOS Group's share of the overall registered retail sales of fuels was 11% (up from 10.3% in 2015)
  • 80% of satisfied customers and 1st place in the service station customer satisfaction survey carried out in the first half of 2017
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.
OUR CONTRIBUTION

26 new stations joined the chain in 2016

  • Cost of merchandise and materials sold in 2016: PLN 859,861 thousand
  • Volume of fuels sold in Poland in 2016: 6.1m tonnes (vs 5.3m tonnes in 2015)
  • Collaboration with global brands - in 2016 we teamed up with new partners, including the Subway brand
  • Over the past five years, the number of service stations in the LOTOS chain grew by 161; last year, the company opened 11 new CODO stations and eight new DOFO stations
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.
OUR CONTRIBUTION

In 2016, the LOTOS Group's expenditures on purchases of feedstock, merchandise and petroleum materials totalled PLN 14,241.1m

  • In 2016, 16.2% of the LOTOS Group's purchases of feedstock, merchandise and petroleum materials were domestic purchases (up by 1.3pp on 2015)
  • As at December 31st 2016, trade receivables from the Group’s five largest customers represented 32% of total trade receivables (the individual customers' shares ranged from 2% to 11%)
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.
OUR CONTRIBUTION

Transport by sea: Over 7.5m tonnes of crude oil, petroleum products, and fuel components were loaded and unloaded for or by Grupa LOTOS at sea ports in 2016; During the year, the Group received or dispatched 335 tankers

Railway transport: In 2016, LOTOS Kolej transported 12.7m tonnes of cargo

  • Transport by sea: In 2016, approximately 4.4m tonnes of crude oil were delivered to Grupa LOTOS by sea
  • Railway transport: LOTOS Kolej increased its share of the Polish rail freight market from 9.91% to 10.20% (in terms of tonne-kilometres, based on the Office of Rail Transport data for 2016) and retained the second position among rail cargo carriers
  • The average commercial speed rose by approximately 4 km/h (ca. 20%) year on year
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.

Crude oil and natural gas
exploration and production

UPSTREAM SEGMENT
What drives our success in this area
  • Cooperation with major players in the region (Norway)
  • Good knowledge of the Baltic Sea and the Norwegian Continental Shelf geography
  • Drilling and production expertise
  • Experience and operator status in the Norwegian market
  • Work with strong and experienced partners operating globally
VALUE CREATION
AREAS
OUR CONTRIBUTION

Production efficiency: in 2016, the average lifting cost was USD 12.7/boe

Growth of the Upstream segment's business thanks to increased production of hydrocarbons; in 2016, hydrocarbon output remained steady at 26,700 boe/d (more than double the previous year's figure)

In 2016, investment expenditure in the Upstream segment totalled PLN 374m*
(* including expenditure on the B4B6 project calculated pro rata to the 51% licence interest)

Investment expenditure on exploration for and appraisal of hydrocarbon reserves totalled PLN 78.5m*
(* including expenditure on the B4B6 project calculated pro rata to the 51% licence interest)

  • A diversified stream of cash flows is partly ensured by the operation of 11* producing fields
    (* the onshore fields in Lithuania are treated as one source)
  • In 2016, six new exploration licenses were acquired
  • As at the end of 2016, 2P hydrocarbon reserves stood at 72.7 mboe
  • At the end of 2016, 2C contingent resources totalled 51 mboe
  • In 2016, the Upstream segment generated an adjusted EBITDA of PLN 688m
  • The segment's EBITDA accounted for 26.6% of the LOTOS Group's total EBITDA for 2016
  • Contribution to Poland's energy security
  • Total output in 2016 was 9.8 mboe
  • Daily output in 2017-2022 is estimated within the range of 30,000-50,000 boe/d
  • Headcount in the Upstream segment: 503 employees
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.
OUR CONTRIBUTION

Total environmental protection expenditures and investments: PLN 2,317,654

  • Maximisation of uptime - the Upstream segment's average uptime in 2016 was 91% (the ratio was lower than average due to scheduled and unscheduled production stoppages in Norway)
  • There were no environmental incidents in 2016
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.

Refining operations

REFINING SEGMENT
What drives our success in this area
  • We have modern and technologically advanced process units. Grupa LOTOS operates one of the most modern and youngest refineries in Europe with an annual processing capacity of approximately 10.5m tonnes of crude oil
  • Based on the Company’s own estimates, its Nelson Complexity Index is the highest in Poland and one of the highest in Europe
  • The technological configuration of the refinery combined with its favourable location enable Grupa LOTOS to flexibly select various types of crude, and thus vary the production volumes for particular finished product groups in line with changes in the domestic demand structure and export opportunities
VALUE CREATION
AREAS
OUR CONTRIBUTION

A year-on-year increase in refining volumes (the record 10.4m tonnes in 2016 vs 10.2m tonnes in 2015)

In 2016, investment expenditure on the entire refinery reached PLN 741.1m, including:

  • Asset replacement – PLN 15.2m
  • New units – PLN 635.94m
  • Elimination of bottlenecks – PLN 87.7m
  • Investments related to emission reduction / environmental protection – PLN 1.4m
  • Safety and other – PLN 0.8m

Investments in growth and improvement of the refinery's crude distillate yields – capex of PLN 15.5m

Costs of the overhaul and maintenance project (including costs of its preparation and carrying out in spring 2017) were PLN 292m

  • The Solomon Index is 9.1 for the fuel refinery and 0.5 for the lube refinery (data for 2014)
  • The model refining margin for 2016 was 6.93
    (down by 10.8% compared with 2015)
  • In 2016, the carbon (CO2) emissions intensity ratio was down year on year (29.1 kg CO2/CWT vs 29.8 kg CO2/CWT in 2015)
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.
OUR CONTRIBUTION

In 2016, employee training costs in the Refining segment were as follows: PLN 688,781.40 (PLN 0.69m) for all types of training and PLN 256,534.29 (PLN 0.26m) for technical training (the figure includes the cost of training to obtain professional qualifications but excludes the cost of obligatory OSH training)

  • Percentage of innovators in selected companies of the LOTOS Group, understood as the percentage of employees putting forward ideas for innovation at their company:
    • 20% LOTOS Oil
    • 15% LOTOS Asfalt
    • 9% LOTOS Petrobaltic
  • Three companies launched 51 projects with a view to implementing their employees' ideas for innovation in various areas of their operation
  • There were no environmental incidents in 2016
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.
OUR CONTRIBUTION

In 2016, the Risk Based Inspection covering 15 key units was completed.

We devote 40 days a year to training performed at the process units, and 45 days a year to fire safety training

Expenditures on safety-related projects: PLN 1,700,000

  • In 2016, the key units' operational uptime, understood as average operational uptime of all the units, was 99.4%
  • There were no leaks into the environment
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.
OUR CONTRIBUTION

Annual expenditure on pro-environmental projects: PLN 71m

Key investments in 2016 were related to:

  • Adaptation of production units, including:
    • construction of a Hydrogen Recovery Unit
    • finalising the activities related to expansion of the natural gas feed system for the refinery and conversion of the CHP plant steam generators so they can be fuelled with natural gas
  • upgrade of the Claus unit - its adaptation to receive oxygen-enriched air mixture and construction of an oxygen separation plant
  • There were no environmental penalties in 2016
  • Reduction of the failure rate and the fugitive emission of hydrocarbons into the air; improvement of the working conditions, for instance through modernisation of the DCM (methylene chloride) unit
  • In 2016, the emission rates were as follows:
    • SO2 - 1,614 tonnes (down by 956 tonnes compared with 2015)
    • NOx - 863 tonnes (down by 272 tonnes compared with 2015)
    • particulate matter - 134 tonnes (down by 97 tonnes compared with 2015)
  • Effective water and wastewater management system, as evidenced by the annual average values of all wastewater quality indicators (except for boron), which did not exceed 50% of the allowable limits
CAPITAL
  • financial capital
    Financial capital represents tangible resources in the form of a pool of funds available to the organization in connection with its operations. It refers to the available capital as well as the organization's debt and equity finance ability.
  • manufacturing
    capital
    Manufacturing capital represents tangible resources and, depending on the industry, may comprise: buildings, equipment, machinery, technology, and infrastructure (e.g. roads, bridges, waste and water treatment plants) that are used in the production of goods and provision of services.
  • intellectual
    capital
    Intellectual capital represents intangible resources based on knowledge. It comprises factors such as investments in R&D, innovation, employees' creative and intellectual capabilities.
  • human capital
    Human capital represents intangible resources made up of individual employees' skills and expertise, experience and motivation, as well as capacity to develop.
  • social capital
    Social capital represents intangible resources built by reciprocal benefits from trust and high-quality relations between the company and its social environment.
  • natural capital
    Natural capital represents tangible resources used by the organization in the production of goods and provision of services, including renewable and non-renewable resources.

The LOTOS Group's
business

The LOTOS Group's business is divided into three segments which together comprise a complete value chain – from exploration for hydrocarbons to sales of finished products.

Our hydrocarbon exploration efforts, followed by production operations, form the basis for the manufacturing and sale of basic products from our portfolio. By acquiring new production licenses, we seek to improve our competitive edge. Additionally, involvement in exploration activities allows us to successively extend our production activities.

The LOTOS Group produces crude oil and natural gas from the following sources:
  • fields located in Poland: crude oil with minor quantities of associated gas,
  • Lithuanian fields – crude oil,
  • Norwegian fields – gas and condensate (i.e. light crude), with natural gas predominating in the output mix.

Operations in this segment start with the processing of the extracted hydrocarbons into a semi-finished product ready for further processing. All the activities performed as part of the refining business make up the key phase in the transformation of manufacturing capital, after which we have a marketable product.

The Grupa LOTOS refinery, with the annual processing capacity of approximately 10.5m tonnes of crude oil, is one of the most advanced and youngest refineries in Europe.

Grupa LOTOS sells its products domestically (to international corporations) and abroad (exports by sea and by land), while its subsidiaries make and sell products dedicated to specific industries, including the fuel, lubrication oil and bitumen industries.

The LOTOS Group's products are available throughout Poland and abroad. Our engine oils are sold in 45 countries, and we enjoy the leading position in the Polish market of road bitumens.

The three links of our value chain can be viewed as phases that allow us to:

  • Create value

    in the 'oil and gas exploration and production' phase

  • Add value

    in the 'refining and marketing' phase

  • Make a return on
    / monetise investments

    in the 'sales and logistics' phase

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