Execution of conditional agreement on purchase of assets on the Norwegian Continental Shelf by LOTOS Exploration & Production Norge (LEPN) – end of the disclosure delay period
Report no. 26/20132013-11-05

Acting pursuant to Art. 57.1 of the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies, dated July 29th 2005, and Par. 2.1.3 of the Minister of Finance’s Regulation on the types of information which may prejudice the legitimate interests of the issuer and the manner in which the issuer should proceed in connection with delayed disclosure of inside information, dated April 13th 2006, on October 18th 2013, the Management Board of Grupa LOTOS S.A. (the “Company”) notified the Polish Financial Supervision Authority (Current Report No. 2/2013) that in connection with the execution of a conditional agreement by the Company's subsidiary, any disclosure of information on the conditional agreement prior to the satisfaction of the contractual conditions could seriously prejudice the Company's legitimate interests, and therefore the Company would delay the disclosure of the relevant details until October 29th 2013.

On October 28th 2013, the Management Board of Grupa LOTOS S.A. notified the Polish Financial Supervision Authority (Current Report No. 3/2013) that certain circumstances had occurred, as a result of which the delayed disclosure could not be made on October 29th 2013, and that its new scheduled date would be November 5th 2013.

Today, November 5th 2013, the Management of Grupa LOTOS S.A. has concluded the delay period for the disclosure of information on the execution of a conditional agreement, dated October 18th 2013, on the purchase of Heimdal assets on the Norwegian Continental Shelf by LOTOS Exploration & Production Norge (LEPN), a subsidiary of LOTOS Petrobaltic, with Centrica Norge, a subsidiary of Centrica Plc. of the UK.
Heimdal is situated in the North Sea, 212 kilometres north west of Stavanger. With its central location, Heimdal is one of the key gas export hubs from Norway to Central Europe and the UK. The licence operator is Statoil Petroleum AS. The other interest holders are Total E&P Norge AS, Petoro AS and Centrica Norge.
Heimdal assets comprise interests in 14 licences, which cover the Heimdal gas processing and transport centre (5% interest); the Atla (20%), SkirneByggve (30%), and Vale (25.8%) producing fields; the Frigg GD (10%), Rind (7.9%), Fulla (50% interest, operator: LEPN) development fields, as well as exploration prospects, including a separate area within the Trell prospect.

2P recoverable gas volumes (70%) and condensate (30%) from the interests in producing fields acquired by LEPN amount to 9m boe (barrels of oil equivalent). 2C contingent resources of the discoveries attributable to LEPN’s interests amount to 31m boe.

Estimated 2013 production from the Atla, Skirne and Vale producing fields corresponding to LEPN’s interests is approximately 5 thousand boe/d, which is approximately 240 thousand toe (tonnes of oil equivalent).
The purchase price is USD 175.8m (PLN 536.3m at the USD/PLN mid-exchange rate quoted by the National Bank of Poland for October 18th 2013), with an agreed transaction date of January 1st 2013. A significant portion of the transaction price (approximately 45%) will be settled using cash flows acquired by LEPN and generated in the period between the agreed acquisition date and the date of the actual settlement. As LEPN holds a tax asset, it will not be required to pay any tax on the cash flows. The Company expects that the accumulated cash flows to be used in the transaction will cover the purchase price in late 2014 and early 2015.
The transaction closing is planned for December 2013.
The Heimdal assets acquisition is part of a wider effort to reach the Company's strategic production target, and is in accordance with its strategy to recover YME project funds, including the release of an approximately PLN 1.07bn (as at September 30th 2013) tax asset. The cash flows on oil and gas production until 2016 will make it possible to recover ca. two thirds of the tax asset.

The agreement is subject to a number of conditions precedent, including the securing of required Norwegian administrative decisions. The conditions precedent must be fulfilled early enough for the transaction to be closed by the end of 2013.

The Company will report on the fulfilment of the conditions precedent in a separate report.

The legal basis for this current report is Art. 56.1.1, in conjunction with Art. 57.1 and Art. 57.3 of the Act on Public Offering.