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Finalisation of Acquisition of Interests in the Norwegian Production Licences
Report no. 48/20082008-08-29

Further to current report No. 23/2008 of May 20th 2008, the Management Board of Grupa LOTOS S.A. reports that as all the conditions precedent have been fulfilled, on August 29th 2008 LOTOS E&P Norge AS acquired all the rights and obligations connected with the ownership of a 10% interest in North Sea production licences No. 316, 316B, 316CS i 316DS. The acquired licences cover the YME field, which is located 110 km off the coast in the southern part of the Norwegian sector of the North Sea, and an additional exploration area.

The value of the agreement in question is USD 52.5m (i.e. PLN 119,1m, translated at the USD/PLN mid exchange rate published by the National Bank of Poland for August 29th 2008), which will be increased by the amount of approx. USD 12m (i.e. PLN 27,2m, translated at the USD/PLN mid exchange rate published by the National Bank of Poland for August 29th 2008)  in connection with the investment expenditure made by Revus Energy in the period (agreed by the parties) preceding the acquisition of the rights and liabilities under the licences. The investment expenditure which remains to be made after August 29th 2008 (corresponding to the 10% interest in the YME field) before production can be started amounts to approx. USD 65m (i.e. PLN 147,5m, translated at the USD/PLN mid exchange rate published by the National Bank of Poland for August 29th 2008).

The recoverable crude oil reserves of the YME field which correspond to the 10% interest held by LOTOS E&P Norge AS, are estimated by the operator (Talisman) at 6.8 million bbl (about 900 thousand tonnes). Production from the field is expected to start in the second half of 2009.

In connection with the acquisition of the rights and obligations associated with the ownership of the 10% interest in North Sea production licences No. 316, 316B, 316CS i 316DS, the Management Board of Grupa LOTOS S.A. further reports that Petrobaltic S.A. (controlled by Grupa LOTOS S.A. in 69%), which holds 100% of the shares in LOTOS E&P Norge AS, issued an unconditional and irrevocable guarantee relative to LOTOS Exploration & Production Norge AS’ exploration and production activities conducted on the Norwegian Continental Shelf. Issuance of the guarantee by Petrobaltic S.A. was necessary in connection with certain formal and legal requirements imposed by the Norwegian government on investors operating on the Norwegian Continental Shelf.

In the guarantee, Petrobaltic S.A. confirmed that it undertakes to assume full financial liability which may arise in connection with LOTOS E&P Norge AS’ activities consisting in exploration for and extraction of the natural resources from the sea bottom, including storage and transport on the Norwegian Continental Shelf using means of transport other than ships.

Petrobaltic S.A. undertook to assume liability for:

  1. any liabilities assumed by LOTOS E&P Norge AS towards the Norwegian state, any Norwegian commune or any other Norwegian authority,
  2. any liability for damages, including recourse liability, incurred by LOTOS E&P Norge AS in accordance with the Norwegian law towards the Norwegian state, any Norwegian commune or any other Norwegian authority as well as any natural or legal persons, including companies, associations and other organisations, in connection with any environmental contamination or personal injury.

In connection with the commencement of operations by LOTOS E&P Norge AS in the area of oil exploration and production, the value of the estimated potential claims under the guarantee may exceed 10% of the Issuer’s equity. In the event that claims in excess of that amount are raised, the Company will report such fact in a separate report.

Basis for publication of this report: Art. 56.1.1 of the Act on Public Offering – inside information.