Integrated Annual Report of LOTOS Capital Group 2016

How our model works

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

1. Crude oil and natural gas exploration and production / Upstream segment

Exploration and production operations carried out by the Company allow it to diversify revenue and optimise total margins while reducing its dependence on business cycles in each market segment. The acquisition of new production licenses is aimed at improving our competitive edge. 

The LOTOS Group produces crude oil and natural gas from the following sources:

• From Polish fields – crude oil with a small proportion of associated gas,
• From Lithuanian fields – crude oil,
• From Norwegian fields – gas and condensate (i.e. light crude), with natural gas predominating in the output mix.

Why are our production operations efficient?

• We can boast a thorough knowledge of the geographical region of the Baltic Sea Shelf and Norwegian Continental Shelf.
• We are highly competent in drilling and exploration work.
• We have the expertise and status of an operator.
• We are partners with strong and experienced players with international presence.

2. Refining operations/Refining segment

Operations in this segment start with the processing of the extracted hydrocarbons into a semi-product ready for further processing. This marks a key phase in the transformation of manufacturing capital, after which the Company has a marketable product. Our 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.

Why are our refining operations efficient?

• We operate state-of-the-art and technologically advanced production units located in one of the most modern European refineries with the annual processing capacity of approximately 10.5m tonnes of crude oil.
• We rank first in Poland and high in Europe in terms of the Nelson Complexity Index (crude oil processing complexity ratio).
• With our refinery’s technological configuration, coupled with its location advantages, we enjoy significant flexibility in selecting oil grades. This makes it possible to smoothly adapt the production volumes for individual finished product groups to the domestic demand and export opportunities.

3. Sales and logistics / Marketing segment

The LOTOS Group markets its products in Poland (sales to foreign companies operating in the country) and on foreign markets (exports by sea and by land). LOTOS Group companies target their sales at individual sectors, i.e. fuels, lubricants, and bitumens. Products of the LOTOS Group are available in Poland and abroad. Engine oils are sold in 45 countries. The Company is among the leaders in the domestic market of road bitumens.

Why are our marketing operations efficient?

• The LOTOS Group manages a chain of 487 conveniently located service stations all over the country. 
• We are the leader of the promising MSA market; our service station chain includes 17 Motorway Service Areas along the A1, A2, A4 and A6 motorways, as well as S3 and S7 expressways.

There are three phases in the operation of our value chain, which can be matched to the business segments: upstream, refining and marketing:

• Creating value − performed through the ”oil and gas exploration and production” phase in the upstream segment;
• Adding value − performed through the ”refining and marketing” phase in the refining and marketing segments;
• Making a return on investments, known as ‘monetising’ − performed through the ”sales and logistics” phase in the marketing segment.