Grupa LOTOS S.A. (the “Company”) announces that on September 28th 2021 LOTOS Oil Sp. z o.o. (“LOTOS Oil”), a wholly-owned subsidiary of the Company, and Kinetics Technology S.p.A. of Rome (“Kinetics Technology”) signed an Engineering Procurement & Construction Lump Sum Turnkey Contract ( the “EPC-LSTK Contract”) for the entire technical scope of work under the Hydrocracked Base Oil Project (the “HBO Project”). The scope of the HBO Project includes, among other works: (i) the construction of new facilities – a hydrocracking unit that is to operate based on the catalytic dewaxing and hydrotreating processes under a licence from Chevron Lummus Global; feedstock and product tanks; interconnecting pipelines; a power supply station; (ii) adaptation and upgrade of existing facilities on the premises of the Grupa LOTOS’ refinery in Gdańsk, interlinked operationally or technically with the new facilities.

The business rationale behind the HBO Project is to improve the economics of crude oil processing by generating higher margins as a result of production and sale of new high-margin products (i.e. base oils of Group II). The launch of the new hydrocracker will enhance the LOTOS Group’s overall competitive position in the production and sale of base oils, enabling the market roll-out of base oils of Group II, including the Brightstock grade. 

The HBO Project is consistent with the Company’s strategy for 2017–2022. The HBO Project will not be divested in the implementation of remedies imposed by the European Commission as a condition for its approval of the concentration involving the merger of Grupa LOTOS S.A. with Polski Koncern Naftowy ORLEN S.A., as reported by the Company in the Current Report No. 16/2021.

The value of the EPC‑LSTK Contract is close to EUR 0.22bn, while total capital expenditure on the HBO Project is estimated at EUR 0.32bn. The Company has granted a PLN 0.34bn loan to LOTOS Oil to finance the first phase of works under the HBO Project. Full external funding for the HBO Project is currently being arranged.

The provisions of the EPC-LSTK Contract do not differ from standard terms commonly applied in contracts of such type.

In line with the Project HBO execution schedule, all units and facilities forming the technical scope of the HBO Project should be commissioned and operational in the first half of 2025.

Legal basis: Article 17(1) of MAR – Inside information