PGNiG and LOTOS team up to explore for oil and gas

abarrelfullabarrelfull wrote on 18 Sep 2012 08:20
Tags: europe lotos pgnig poland upstream

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Grupa LOTOS S.A. and Polskie Górnictwo Naftowe i Gazownictwo SA entered into an agreement for joint exploration for conventional and unconventional oil and gas and commercial cooperation. The two companies will assess the potential of PGNiG's seven exploration licences.

The cooperation is to speed up exploration for hydrocarbons in Poland to raise output of oil and gas produced domestically. Pursuant to the agreement, the two companies will develop a joint exploration programme in order to diversify risks and combine human, technical and financial resources in an effort to expand their upstream operations.

PGNiG and LOTOS will cooperate on licence areas in the Provinces of Gdańsk, Szczecin, Olsztyn and Lublin. The agreement offers LOTOS an option to acquire a share in each licence, with PGNiG having reserved the right to act as the operator on the licences.

The two companies will set up a working team to plan the technical, economic and legal details of the cooperation. PGNiG and LOTOS will also share knowledge on their ongoing projects and development plans in order to identify areas of common interest, which are not limited to the seven licences covered by the agreement but extend to field development projects and efforts to secure further licences.

- The theoretical and practical knowledge of geologists, adequate risk management and a robust financial base are key to success in gas exploration projects. I want to leverage these assets the best I can and I am glad that for our prospective licences in the north of Poland we have acquired a partner whose business profile aligns well with our own capabilities. The promise of increased supply of price competitive natural gas is an important incentive for LOTOS, one of our key customers, to engage in exploration projects. It is the business ventures where the synergies and sources of motivation of both partners are clear that have the best chance for success and raise hopes for increased exploration for hydrocarbons at home. They should result in increased production from domestic deposits - said Grażyna Piotrowska-Oliwa, President of the PGNiG Management Board.

Poland's average gas consumption is over 14.5 billion cubic metres a year. One third of the demand is covered from domestic sources.

- The agreement we signed today is of material importance to the national energy security - stressed Paweł Olechnowicz, LOTOS CEO. - We expect that the joint effort with help increase the volumes of both oil and gas produced in Poland and, consequently, further diversify the sources of supply for domestic customers. Importantly, our cooperation is not limited to the licences identified earlier. Options are open for joint offshore projects and projects outside Poland as well as for commercial cooperation.

PGNiG and LOTOS are interested in striking commercial cooperation involving the purchase of crude oil produced by PGNiG. The first samples of crude have already arrived at the refinery in Gdańsk and are being thoroughly tested for their technical and processing requirements. If the tests are passed successfully, LOTOS may resolve to purchase crude oil from PGNiG.

Grupa LOTOS is a corporate group comprising – in addition to Grupa LOTOS S.A. (the parent company), LOTOS Czechowice, LOTOS Jasło and LOTOS Petrobaltic (engaged in the prospecting for and production of crude oil and natural gas from the Baltic Sea) – more than a dozen subsidiaries trading under the LOTOS brand name. After the first half of 2012, LOTOS turned in PLN 16,216.4m in revenue. This represents a 22-percent improvement year over year.

At the end of June 2012, the share of LOTOS in the Polish fuel market stood at 34.1%, well above the strategic target for the years 2011-2015, set at the level of 30%. At the same time, LOTOS recorded a year-on-year increase in its share in the gasoline market by 3 pp.

Through LOTOS Petrobaltic and LOTOS Norge, the Group is also involved in E&P operations on the Polish and Norwegian Continental Shelf, where it exploits crude oil reserves. Moreover, having acquired 100% of the shares in LOTOS Geonafta, the Group gained access to onshore crude oil reserves in the territory of Lithuania. In 2011, LOTOS produced 230 thousad tonnes of crude oil. In line with its strategy for 2011-2015, LOTOS is looking to produce 1.2 million tonnes of crude oil annually by 2015.

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