OREANDA-NEWS. Despite difficult macroeconomic conditions in Q1 2014, LOTOS posted close to PLN 7.2bn in revenue, delivering an operating profit of PLN 17m.

The steps taken as part of the Efficiency and Growth 2013-2015 programme have produced measurable effects. In Q1 2014, the Company's financial liquidity continued to improve and its debt was reduced. As at March 31st 2014, the ratio of financial debt to equity was 66% (down 7pp year on year).

"Despite strong macroeconomic headwinds, we are consistently pursuing the programme approved last year to complement our strategy until 2015," concluded Pawel Olechnowicz, President of the Grupa LOTOS Management Board, adding: "We are dynamically expanding our exploration and production capabilities, increasing our shares in wholesale and retail markets, and reducing debt. All this is rewarded by the market."

On the other hand, the financial results were under continued pressure from deteriorating crack margins on key products (particularly diesel oil, aviation fuel and light fuel oil) and a decline in Brent/Urals differential (down 2% quarter on quarter and 19% year on year), which drove the model refining margin down to USD 5.05/bbl in the period under review.

It should be stressed that, having completed the 10+ Programme, LOTOS now has one of the world's most advanced refineries, which gives it a substantial competitive advantage. According to a benchmark report published by Total (European Refining Margin Indicator), the average margin for refineries located in north-western Europe was a mere USD 0.9/bbl in Q1 2014, having fallen 75% year on year.

Despite a shrinking domestic wholesale market for liquid fuels, in January and February 2014 LOTOS recorded higher sales and increased its market share by 1.7pp, to 33.7%.

The upstream segment's revenue for Q1 2014 was close to PLN 260m - up both year on year (38%) and quarter on quarter (50%), mainly on the back of production and sales of condensate and gas from the Heimdal assets acquired in 2013. The segment's EBITDA in the analysed period was almost PLN 157m (up 53% year on year). In Q1 2014, LOTOS produced more than 1.1 million boe in total, including 650 thousand boe from Norwegian deposits, 340 thousand boe from Poland and 140 thousand boe from Lithuanian licences.

Q1 2014 saw the completion of drilling work on the 25/5-9 (Trell) well in the PL102F licence area (started in December 2013). The operator is Total E&P Norge AS. The well discovered an accumulation of hydrocarbons, and LOTOS Norge is currently analysing the drilling results and interpreting 3D seismic to estimate the size of the accumulation.

On January 21st 2014, LOTOS Norge was awarded two new exploration licences on the North Sea in the APA 2013 licensing round.

In Q1 2014, LOTOS Petrobaltic continued to produce crude oil from the B3 field. In the Gotlandia licence area, preparations were made for the drilling of the B27-1 exploration well by the newly acquired LOTOS Petrobaltic rig. In the period under review, 3D seismic was analysed for the Gaz Poludnie, Leba, Rozewie, Sambia W and Sambia E licence areas.

In Q1 2014, production at the LOTOS refinery in Gdansk remained broadly flat on Q1 2013. In the period under review, the refinery's workload was adjusted to accommodate difficult market conditions. The refinery's capacity utilisation rate was 87.5%, compared with the average capacity utilisation rate for OECD countries of about 80% in the same period.

Over this past year, LOTOS remained Poland's fastest growing network of service stations. After the first two months of 2014, the share of LOTOS in the domestic retail fuel market rose further to 9.3%, up 0.8pp year on year, bringing the Company closer to its strategic target of 10%. Additionally, the retail segment reported an operating profit of PLN 3.4m for Q1 2014, thanks to operational optimisation measures.