Final milestone towards merger of PKN ORLEN with the LOTOS Group

PKN ORLEN has selected four partners through whom it will implement the remedies negotiated with the European Commission as a condition for clearance of its intended acquisition of the LOTOS Group. It has thus achieved a key milestone in building a multi-utility group with a strong financial footing, ensuring energy security for Poland, as well as stable and attractive energy prices for customers. Saudi Arabian Oil Company (Saudi Aramco), the world's largest integrated energy and chemicals company, has become a partner for the refining and wholesale assets and for aviation fuels. Saudi Aramco's presence in the European refining and petrochemical sector, as well as increased oil imports to Poland, will be perfectly in line with PKN ORLEN's efforts to diversify crude oil supplies. PKN ORLEN and Saudi Aramco have also signed agreements opening up the possibility of strategic cooperation in both petrochemical and R&D projects. As far as retail is concerned, PKN ORLEN has guaranteed possible exchange of selected service stations for other locations in Slovakia and entry into a completely new market, that is Hungary. Following the transaction, PKN ORLEN would join the leading fuel retailers on both those markets.
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PKN ORLEN has selected four partners through whom it will implement the remedies negotiated with the European Commission as a condition for clearance of its intended acquisition of the LOTOS Group. It has thus achieved a key milestone in building a multi-utility group with a strong financial footing, ensuring energy security for Poland, as well as stable and attractive energy prices for customers. Saudi Arabian Oil Company (Saudi Aramco), the world's largest integrated energy and chemicals company, has become a partner for the refining and wholesale assets and for aviation fuels. Saudi Aramco's presence in the European refining and petrochemical sector, as well as increased oil imports to Poland, will be perfectly in line with PKN ORLEN's efforts to diversify crude oil supplies. PKN ORLEN and Saudi Aramco have also signed agreements opening up the possibility of strategic cooperation in both petrochemical and R&D projects. As far as retail is concerned, PKN ORLEN has guaranteed possible exchange of selected service stations for other locations in Slovakia and entry into a completely new market, that is Hungary. Following the transaction, PKN ORLEN would join the leading fuel retailers on both those markets.

While PKN ORLEN is the guarantor that the acquisition of the LOTOS Group will be successfully carried out, the merger will be impossible without the involvement of all the partners with whom agreements have now been signed. Invitations to participate in the merger remedies had initially been sent to several dozen companies. Eventually, given the tough and unpredictable market, only eight potential partners sat at the table and four of them have been finally selected through a negotiation process. Saudi Aramco has been selected as a partner for implementing the remedies in the refining and wholesale business, and in aviation fuels. MOL Group has become a partner in retail, Unimot Group has been selected as a partner in logistics, while Rossi Biofuel Zrt. - in biofuels. Agreements negotiated with the four partners have now received all the required corporate approvals, both at PKN ORLEN and the LOTOS Group. They will be submitted to the European Commission as the basis for binding approval of the merger.
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\n'This is a watershed moment for the Polish fuel industry. We are about to finalise the acquisition of LOTOS Group, a deal intended to benefit the entire Polish economy, both companies involved, their respective customers, employees and shareholders. Ever since the process was launched, we have emphasised that the priority is to derive additional benefits from the merger remedies, and we have achieved just that. If the merger is followed through, it would provide an opportunity to ensure supplies to Poland of crude oil of sustainably high quality from Saudi Aramco. Such international partnerships are crucial to our vision of building the largest multi-utility group in this part of Europe. In the retail area, we have negotiated with our Hungarian partner an asset exchange deal, which will directly advance our plans of geographical expansion by strengthening the retail chain in Slovakia, but also through the entry into a completely new market of Hungary. Proceeds from the divestment of fuel stations will partly be applied to acquire another 100 retail sites across the region, in line with our strategic objectives. The merger between PKN ORLEN and the LOTOS Group will mark the inception of a single strong group capable of delivering environmentally friendly energy to the Polish economy and meeting the challenges posed by the fuel and energy transition,' says Daniel Obajtek, President of the PKN ORLEN Management Board.
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\n'These acquisitions will support the diversification of Aramco's product portfolio across the hydrocarbon value chain - including a focus on liquids-to-chemicals pathways. Our expanding global network of refineries and chemical joint ventures allows us to reach new markets with our products, and strategically place crude oil volumes across different geographies. Our business objectives for oil and chemicals are closely aligned with PKN ORLEN, and we are exploring additional opportunities in the European petrochemicals market, as well as in R&D,' says Mohammed Al Qahtani, Aramco Vice President for Downstream.
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\n'Keeping two separate companies with the same owner in one market would increase competitive pressures. On the other hand, their integration would improve operational efficiency boosting financial performance, and would give the combined group more capacity to invest in new promising areas. The acquisition and newly forged partnerships with strong partners would facilitate foreign expansion, as a result of which the ORLEN eagle would come to be recognised throughout the region of Central and Eastern Europe,' says Jacek Sasin, Deputy Prime Minister, Minister of State Assets.
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\nThe acquisition of the LOTOS Group by PKN ORLEN would provide a real opportunity to diversify the sources of feedstock supplies. If the acquisition is finalised, PKN ORLEN will guarantee, under a long-term agreement, crude oil supplies from Saudi Aramco at the level of 200 to 337 thousand barrels per day. It is estimated that post merger this would cover up to 45% of total oil demand from the entire ORLEN Group, in Poland, Lithuania and the Czech Republic.

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In order to maximise benefits of the partnerships with strong global players, PKN ORLEN, under separate agreements with Saudi Aramco and SABIC (one of the world's largest petrochemical companies), is to discuss potential joint investment projects in advanced high-margin petrochemicals. As potential areas for collaboration, opportunities to pursue development projects in Poland or in Central and Eastern Europe will be explored.

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PKN ORLEN and Saudi Aramco have also signed an agreement providing for their possible collaboration in research and development. R&D has been assigned a key priority in the ORLEN2030 strategy, and projects designed to foster innovation have been stepped up over the past three years. One of these projects is a state-of-the art research and development centre launched by PKN ORLEN in 2021, which provides real support in the pursuit of its strategic goals.
\nImplementation of the remedies in the retail area would also enable the merged group to expand geographically by exchanging assets in markets that are key to delivering the strategy of the ORLEN Group as a whole. With the transaction, PKN ORLEN would gain access to 144 service stations in Hungary, bringing the Group closer to achieving its strategic goals and facilitating its expansion into new markets of Central and Eastern Europe. In a single asset exchange deal, PKN ORLEN would gain an over 7% share of the Hungarian market, becoming the fourth largest fuel retailer in terms of the number of service stations in that country. The Group would also expand its existing service station network in Slovakia with 41 new sites. Additionally, the ORLEN network would include around 100 stations under the LOTOS brand not covered by the remedy package required by the European Commission. A portion of proceeds from the divestment of fuel stations will be applied to acquire another 100 retail sites across the region, in line with the Group's strategic objectives. In total, this would add up to some 400 new service stations supporting sales and building recognition of the ORLEN brand in several key markets. In parallel PKN ORLEN will pursue further expansion plans to ultimately have - in line with the ORLEN 2030 strategy - at least 3,500 thousand service stations operating under the Polish brand across the region.
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\n'For MOL, the transaction is a major step in its strategic transformation journey commenced in 2016, which we fast-tracked last year with our updated strategy. The acquisition of ACG assets in Azerbaijan, the construction of a new polyol plant in Hungary and the entry into Poland represent important milestones on the way to achieving our goals. With this acquisition, we will gain a foothold in the largest economy of Central and Eastern Europe, reaching nearly 40 million potential customers. The Hungarians and Poles share historical experiences and have a common goal of ensuring secure energy supplies in Central and Eastern Europe. I believe that the North-South energy corridor will be further strengthened through this agreement,' says Zsolt Hernádi, President of the Management Board and CEO of the MOL Group.
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\nAs declared earlier, no collective redundancies are planned. It is also PKN ORLEN's intention to provide job security for employees of the companies covered by the remedies so that, as specialists, they remain employed at the selected partner companies. Such guarantees are included in the agreements signed with the respective remedies partners. Growing each of these business areas would present a great opportunity primarily for specialists in demanding and unique fields of expertise.
\n
\n'Selection of these investors and the agreements signed with them are a crucial step in the process of creating a multi-utility group. The consolidation is a response to the challenges of the future, also at a time of macroeconomic headwinds. We are confident that our contribution to building the group will help deliver ambitious investment and development plans based on both our refinery in Gdańsk and the competence centres built around the LOTOS Group,' notes Zofia Paryła, President of the LOTOS Group Management Board. 'The partner of the newly built group is a leading global oil and gas company. The other investors are also guarantors that, once completed, the remedy implementation process should receive full approval. This is also vital information for our employees, who are now aware of the stature of the companies they will pursue their further careers with,' she adds.
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\nOnce combined, the strong group will certainly be better placed to engage in initiatives spanning social outreach, culture and sports across the Pomerania region. A coordinated CSR policy will deliver stronger and more thorough support for local communities. The LOTOS Group is strongly committed to supporting social, cultural and sporting initiatives in the Gdańsk province. More than PLN 10m in total was spent on such initiatives in 2020 alone. The merger will not change that. PKN ORLEN has also been actively engaged in CSR projects in the Gdańsk region since 2018. Funds have been allocated primarily for educational (road safety), cultural (support for cultural institutions, sponsorship of film festivals) and community projects. In 2019, PKN ORLEN organised Poland's largest motorsport event, VERVA Street Racing, in Gdynia.
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\nThe consolidation of PKN ORLEN with LOTOS and PGNiG, and, earlier, with the Energa Group, would be an opportunity to build an integrated and diversified fuel and energy group with a total market capitalisation of around PLN 78bn, leveraging the unique strengths of each company as its key advantage. Integration of their assets would help expand the scale of operations and improve financial stability. These would in turn enable the energy transition and provide resilience to market changes, including those triggered by the EU climate policy. The transaction structure was already confirmed in May 2021 under a memorandum of understanding between the Ministry of State Assets, PKN ORLEN, LOTOS Group and PGNiG. The selected merger structure guarantees stable financial condition of the new strong company and takes into account the needs of all shareholders, including those holding minority interests. This means that, upon the acquisition, shareholders of LOTOS Group and PGNiG will acquire new shares in the increased share capital of PKN ORLEN and become its shareholders. As a result, the equity interest held by the Ministry of State Assets in PKN ORLEN would increase.

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While PKN ORLEN is the guarantor that the acquisition of the LOTOS Group will be successfully carried out, the merger will be impossible without the involvement of all the partners with whom agreements have now been signed. Invitations to participate in the merger remedies had initially been sent to several dozen companies. Eventually, given the tough and unpredictable market, only eight potential partners sat at the table and four of them have been finally selected through a negotiation process. Saudi Aramco has been selected as a partner for implementing the remedies in the refining and wholesale business, and in aviation fuels. MOL Group has become a partner in retail, Unimot Group has been selected as a partner in logistics, while Rossi Biofuel Zrt. - in biofuels. Agreements negotiated with the four partners have now received all the required corporate approvals, both at PKN ORLEN and the LOTOS Group. They will be submitted to the European Commission as the basis for binding approval of the merger.

'This is a watershed moment for the Polish fuel industry. We are about to finalise the acquisition of LOTOS Group, a deal intended to benefit the entire Polish economy, both companies involved, their respective customers, employees and shareholders. Ever since the process was launched, we have emphasised that the priority is to derive additional benefits from the merger remedies, and we have achieved just that. If the merger is followed through, it would provide an opportunity to ensure supplies to Poland of crude oil of sustainably high quality from Saudi Aramco. Such international partnerships are crucial to our vision of building the largest multi-utility group in this part of Europe. In the retail area, we have negotiated with our Hungarian partner an asset exchange deal, which will directly advance our plans of geographical expansion by strengthening the retail chain in Slovakia, but also through the entry into a completely new market of Hungary. Proceeds from the divestment of fuel stations will partly be applied to acquire another 100 retail sites across the region, in line with our strategic objectives. The merger between PKN ORLEN and the LOTOS Group will mark the inception of a single strong group capable of delivering environmentally friendly energy to the Polish economy and meeting the challenges posed by the fuel and energy transition,' says Daniel Obajtek, President of the PKN ORLEN Management Board.

'These acquisitions will support the diversification of Aramco's product portfolio across the hydrocarbon value chain - including a focus on liquids-to-chemicals pathways. Our expanding global network of refineries and chemical joint ventures allows us to reach new markets with our products, and strategically place crude oil volumes across different geographies. Our business objectives for oil and chemicals are closely aligned with PKN ORLEN, and we are exploring additional opportunities in the European petrochemicals market, as well as in R&D,' says Mohammed Al Qahtani, Aramco Vice President for Downstream.

'Keeping two separate companies with the same owner in one market would increase competitive pressures. On the other hand, their integration would improve operational efficiency boosting financial performance, and would give the combined group more capacity to invest in new promising areas. The acquisition and newly forged partnerships with strong partners would facilitate foreign expansion, as a result of which the ORLEN eagle would come to be recognised throughout the region of Central and Eastern Europe,' says Jacek Sasin, Deputy Prime Minister, Minister of State Assets.

The acquisition of the LOTOS Group by PKN ORLEN would provide a real opportunity to diversify the sources of feedstock supplies. If the acquisition is finalised, PKN ORLEN will guarantee, under a long-term agreement, crude oil supplies from Saudi Aramco at the level of 200 to 337 thousand barrels per day. It is estimated that post merger this would cover up to 45% of total oil demand from the entire ORLEN Group, in Poland, Lithuania and the Czech Republic.

In order to maximise benefits of the partnerships with strong global players, PKN ORLEN, under separate agreements with Saudi Aramco and SABIC (one of the world's largest petrochemical companies), is to discuss potential joint investment projects in advanced high-margin petrochemicals. As potential areas for collaboration, opportunities to pursue development projects in Poland or in Central and Eastern Europe will be explored.

PKN ORLEN and Saudi Aramco have also signed an agreement providing for their possible collaboration in research and development. R&D has been assigned a key priority in the ORLEN2030 strategy, and projects designed to foster innovation have been stepped up over the past three years. One of these projects is a state-of-the art research and development centre launched by PKN ORLEN in 2021, which provides real support in the pursuit of its strategic goals.
Implementation of the remedies in the retail area would also enable the merged group to expand geographically by exchanging assets in markets that are key to delivering the strategy of the ORLEN Group as a whole. With the transaction, PKN ORLEN would gain access to 144 service stations in Hungary, bringing the Group closer to achieving its strategic goals and facilitating its expansion into new markets of Central and Eastern Europe. In a single asset exchange deal, PKN ORLEN would gain an over 7% share of the Hungarian market, becoming the fourth largest fuel retailer in terms of the number of service stations in that country. The Group would also expand its existing service station network in Slovakia with 41 new sites. Additionally, the ORLEN network would include around 100 stations under the LOTOS brand not covered by the remedy package required by the European Commission. A portion of proceeds from the divestment of fuel stations will be applied to acquire another 100 retail sites across the region, in line with the Group's strategic objectives. In total, this would add up to some 400 new service stations supporting sales and building recognition of the ORLEN brand in several key markets. In parallel PKN ORLEN will pursue further expansion plans to ultimately have - in line with the ORLEN 2030 strategy - at least 3,500 thousand service stations operating under the Polish brand across the region.

'For MOL, the transaction is a major step in its strategic transformation journey commenced in 2016, which we fast-tracked last year with our updated strategy. The acquisition of ACG assets in Azerbaijan, the construction of a new polyol plant in Hungary and the entry into Poland represent important milestones on the way to achieving our goals. With this acquisition, we will gain a foothold in the largest economy of Central and Eastern Europe, reaching nearly 40 million potential customers. The Hungarians and Poles share historical experiences and have a common goal of ensuring secure energy supplies in Central and Eastern Europe. I believe that the North-South energy corridor will be further strengthened through this agreement,' says Zsolt Hernádi, President of the Management Board and CEO of the MOL Group.

As declared earlier, no collective redundancies are planned. It is also PKN ORLEN's intention to provide job security for employees of the companies covered by the remedies so that, as specialists, they remain employed at the selected partner companies. Such guarantees are included in the agreements signed with the respective remedies partners. Growing each of these business areas would present a great opportunity primarily for specialists in demanding and unique fields of expertise.

'Selection of these investors and the agreements signed with them are a crucial step in the process of creating a multi-utility group. The consolidation is a response to the challenges of the future, also at a time of macroeconomic headwinds. We are confident that our contribution to building the group will help deliver ambitious investment and development plans based on both our refinery in Gdańsk and the competence centres built around the LOTOS Group,' notes Zofia Paryła, President of the LOTOS Group Management Board. 'The partner of the newly built group is a leading global oil and gas company. The other investors are also guarantors that, once completed, the remedy implementation process should receive full approval. This is also vital information for our employees, who are now aware of the stature of the companies they will pursue their further careers with,' she adds.

Once combined, the strong group will certainly be better placed to engage in initiatives spanning social outreach, culture and sports across the Pomerania region. A coordinated CSR policy will deliver stronger and more thorough support for local communities. The LOTOS Group is strongly committed to supporting social, cultural and sporting initiatives in the Gdańsk province. More than PLN 10m in total was spent on such initiatives in 2020 alone. The merger will not change that. PKN ORLEN has also been actively engaged in CSR projects in the Gdańsk region since 2018. Funds have been allocated primarily for educational (road safety), cultural (support for cultural institutions, sponsorship of film festivals) and community projects. In 2019, PKN ORLEN organised Poland's largest motorsport event, VERVA Street Racing, in Gdynia.

The consolidation of PKN ORLEN with LOTOS and PGNiG, and, earlier, with the Energa Group, would be an opportunity to build an integrated and diversified fuel and energy group with a total market capitalisation of around PLN 78bn, leveraging the unique strengths of each company as its key advantage. Integration of their assets would help expand the scale of operations and improve financial stability. These would in turn enable the energy transition and provide resilience to market changes, including those triggered by the EU climate policy. The transaction structure was already confirmed in May 2021 under a memorandum of understanding between the Ministry of State Assets, PKN ORLEN, LOTOS Group and PGNiG. The selected merger structure guarantees stable financial condition of the new strong company and takes into account the needs of all shareholders, including those holding minority interests. This means that, upon the acquisition, shareholders of LOTOS Group and PGNiG will acquire new shares in the increased share capital of PKN ORLEN and become its shareholders. As a result, the equity interest held by the Ministry of State Assets in PKN ORLEN would increase.

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