Polski Koncern Naftowy ORLEN Spólka Akcyjna : Process to acquire PGNiG Group launched by PKN ORLEN

​PKN ORLEN and the State Treasury, represented by the Minister of State Assets, have signed a Letter of Intent concerning acquisition by PKN ORLEN of the PGNiG Group. Following the buy-up of the ENERGA Group shares and the European Commission's conditional antitrust clearance of the acquisition of Grupa Lotos, the planned transaction will be yet another milestone in PKN ORLEN's strategy to build a powerful multi-utility group. PKN ORLEN is at the helm of the process aimed at creating a single, all-Polish group with well diversified revenue sources and significant market standing in Europe.
'The acquisitions will have paved the way for PKN ORLEN to become the key entity behind the process, which requires significant capital strength. Such mergers open up opportunities to generate additional income and cost synergies. It will be a breakthrough process, set to enhance the operational efficiency of both PGNiG and PKN ORLEN. Overall integration of certain markets, spanning distribution, sales and trading, points to further directions of growth,' said Mateusz Morawiecki, the Prime Minister of Poland.'The Polish economy is receiving a powerful boost, and there is more to come. This day marks two milestones - not only have we secured the European Commission's antitrust clearance for PKN ORLEN to acquire Grupa LOTOS, but we have also opened the door for yet another consolidation process, launching the acquisition of PGNiG by PKN ORLEN. The process of building a Polish multi-utility group with a global reach is under way. We are responding to the growing market challenges with the consolidation of state-owned companies,' said Jacek Sasin, Deputy Prime Minister, Minister of State Assets. 'With combined capex budgets, such consolidated players will be able to turn bold and ambitious projects into reality. Poland's energy transformation is a huge challenge, and our role is to make sure it proceeds as efficiently as possible. Having all the capabilities necessary to carry out this process, PKN ORLEN will play the leading role in the planned transaction. We are a part of Europe, where many energy companies have already consolidated with the support of their countries' governments. The creation of multi-utility groups to become major players in Europe and worldwide is also an element of our government's economic policy,' stresses the Deputy Prime Minister and Minister of State Assets.Following the integration of PKN ORLEN, ENERGA Group, LOTOS and PGNiG assets, the total annual revenue of the new group would reach some PLN 200bn, with EBITDA of its key segments close to PLN 20bn a year. The combined entity's operating profit would continue to be driven in approximately 40% by the core business activity, namely the refinery and petrochemical operations, while the upstream segment, with a total annual output of approximately 70 million boe of oil and gas, would account for about 20% of the group's EBIT figure. Retail sales of fuels, gas and energy as well as the regulated distribution business would each generate some 15% of the total figure, with a strong growth potential in the following years. Lastly, the energy generation segment would contribute about 10% to operating profit, but that figure could be doubled by 2030 through the delivery of new capital projects.

'PKN ORLEN is determined to build a strong multi-utility group, which will be more resilient to market volatility and able to face the challenges of a highly competitive market.
This project is central to Poland's economic future, given our need for energy transition. If we want to count as a major player on the business map of Europe, we must see it through,' said Daniel Obajtek, President of the PKN ORLEN Management Board. 'The refining business is cyclical, driven largely by the highly volatile macroeconomic environment.
To continue to invest and grow in the long term, we need solid and well diversified revenue sources. To that end, we are building a single multi-utility powerhouse, which will also be engaged in the regulated energy and gas business. The newly acquired assets of the ENERGA Group and the LOTOS assets to be acquired shortly make a perfect addition to our core business. The proposed integration with PGNiG will further expand our value chain to include natural gas assets, representing another major milestone on our path towards creating a powerful multi-utility group,' adds the President of the PKN ORLEN Management Board.
Under the Letter of Intent, the transaction model and schedule will be determined by a team representing all its parties. PKN ORLEN's role as the transaction leader will be central to that process. The value of PGNiG, including the State Treasury's shareholding, will be determined ahead of the transaction. Necessary procedures before the competent competition authorities, i.e. the European Commission or the Polish Office of Competition and Consumer Protection (UOKiK), will also be carried out.
PKN ORLEN's transactions are in keeping with prevailing global trends. The world's largest fuel companies have long built integrated value chains based on oil and gas production, state-of-the-art power generation, and expansion of their retail muscle. For example, BP, Total, Shell and Equinor have implemented segment-based management models, with the highest priority given to diversified revenue sources. Having successfully closed the acquisition processes, PKN ORLEN will also leverage and reinforce its existing segment-based management system.
The ORLEN Group's plan is to become a business leader of the energy sector's sustainable transformation in the CEE region. In the upstream segment, the consolidation would enhance the combined entity's operational efficiency and capacity to deliver capital investment projects, enabling it to focus on natural gas and crude oil deposits in Poland and Europe. In the case of power generation, an integrated portfolio would be created in Poland based on high-efficiency CCGT units and renewable energy sources, including offshore wind power generation. In this context, the balancing potential of CCGT units to offset the irregular generation profile of renewable energy sources would play a vital role. At the same time, a wide-ranging portfolio of assets under the group's management would optimise wholesale trading in electricity.
Customers will be the ultimate beneficiaries of the creation of a multi-utility group. Leveraging its combined capabilities, the group will be able to offer a broader portfolio of attractive fuel, gas and energy products and services, and will gain considerable potential to further develop the ORLEN brand and the VITAY loyalty scheme offering a number of comprehensive services.
The creation of an integrated group would enable PKN ORLEN to fully tap the potential of its employees and to raise their competencies. In the current market reality, there is a noticeable shortage of workforce, especially in the manufacturing sector. After the consolidation, the group's total headcount would exceed 60 thousand.
The ORLEN Group has an extensive track record in acquisitions, not only in Poland but also on a global scale. Over the years, companies such as ANWIL of Włocławek, Unipetrol of the Czech Republic, ORLEN Lietuva of Lithuania, and most recently Energa have joined the ORLEN Group. Each of these acquisitions has spurred the company's growth by building specific competences, reinforcing its position in the region, and leveraging the workforce potential.
The new group would also have considerable experience in the delivery of major capital investment projects. Over the last three years only, the ORLEN Group has completed three projects with costs in excess of PLN 1bn. These capital investments included a polyethylene unit at the Czech Republic's Unipetrol and two CCGT units in Płock and Włocławek, Poland. The Group also holds a licence for the construction of an offshore wind farm in the Baltic Sea, with a capacity of approximately 1,200 MW. The standard cost of such projects is typically around a dozen billion PLN.
The ORLEN brand enjoys strong recognition throughout the region, driven by solid relations forged by the Group with its customers, employees and partnering institutions. PKN ORLEN is also seeking to enhance its global brand recognition through a co-branding process currently under way within the European network and through sports sponsorship. This is a well-thought-out strategy aimed at building lasting relations with the Group's customers and business partners.