“There is no reason to expect a shift from the course adopted in November 2008. Already at that time we indicated that we wanted to transform Orlen into a multi-fuel energy group, by branching out into natural gas and oil extraction and energy generation”, says the PKN Orlen President.

 

He emphasises that, while priority is accorded to shale gas exploration and extraction in Poland, this does not mean the group proposes to give up new business development in the upstream sector abroad, provided suitable opportunities arise. To appraise precisely shale gas reserves in Orlen’s concession blocks in the Lublin region, the group will expand its exploration programme. Plans are for up to six vertical wells and 2 horizontal wells to be drilled, complete with hydraulic fracturing. “At this point we are analysing 600 meters of core samples collected from the two vertical wells drilled late in 2011. This work is scheduled to be completed in June, but the results of preliminary tests are already quite encouraging, indicating as they do that our concession blocks are rich in gas”, says Jacek Krawiec. Only after all the analyses have been completed will the company estimate how many more wells are to be drilled and how much money is needed for investment in this segment. The Orlen President is unwilling to disclose a concrete figure of future spending on shale gas exploration, but he emphasises that the figure will be substantial, “several times higher than the previously declared amount of PLN 700 million over five years”, he admits.

 

Where will the company get money for investment now that its annual report shows a bottom line for 2011 down from PLN 3.1 bn to about PLN 2.01 bn, as a result of revaluation write-downs? “The reduction of profit has no impact on cash generated by Orlen. Besides, money for worthwhile projects will be there”, assures Krawiec. The Orlen Management Board recommended passing the dividend because in these uncertain times it prefers to keep the cash in the company, for development.

 

This year Orlen will spend on investment PLN 3 bn, of which one-half on organic projects, notably on the construction of the steam-and-gas block in Włocławek. “A short list of potential contractors for the first block is ready. The final selection will be made in about three months and at the turn of 2014 the block will come on stream”, says Krawiec. The project is worth about PLN14bn. One surprise in the new strategy is that Orlen might not decide to sell the Mažeikiai (Lithuania) oil refinery it acquired in 2006.

 

Late in 2010 Jacek Krawiec admitted that the acquisition of Mažeikiai was a bad investment. At that time he estimated that, to yield a satisfactory rate of return, the company, which had been bought for US$2.8bn and into which additional US$0.7bn had been put, would need to show earnings of PLN1bn per year. Now the Orlen President says: “In recent months we have improved Mažeikiai’s efficiency, its profit is up by US$30m, year-to-year, and our relations with the Lithuanian side are somewhat better. Today we are leaning towards the option of keeping the Lithuanian assets. The final decision should be known by the end of June. A report by the Nomura Bank, with recommendations on Mažeikiai, will be submitted to the Supervisory Board for discussion in April.

 

Source: Parkiet, 3 April 2012, p. 1, author: Jakub Kurasz

Other articles on the subject:
Rzeczpospolita B, p. 1, “Łupkowy wyścig zbrojeń” [A Shale Arms Race]