OREANDA-NEWS. The Extraordinary General Meeting of Grupa LOTOS S.A. to be held on September 8th 2014 will decide whether to approve increasing the Company's share capital by issuing new shares, which would be offered to the Company's existing shareholders. LOTOS expects to raise approximately PLN 1bn through the issue.

The proceeds will be used to finance the Company's strategy, which envisages further investments to increase the refinery's complexity and step up hydrocarbon production.   How much money is obtained from the issue will depend on the macroeconomic climate, capital market conditions, demand for the shares, and final terms and conditions of the offering.

In connection with the proposed share capital increase, Grupa LOTOS S.A. will offer PLN 55m new ordinary shares to its existing shareholders holding pre-emptive rights to acquire the shares. The proposed record date for the pre-emptive rights is November 18th 2014.

- Today, LOTOS is not only a pillar of Poland's energy security, but also an engine of the country's economic growth - says Pawel Olechnowicz, CEO of Grupa LOTOS. - By pursuing investment projects in Poland, we intend to foster industrial growth, create new jobs, and improve Poland's competitiveness on international markets. Following the successful implementation of the 10+ Programme, investments in state-of-the-art liquid fuel production technologies and development of our hydrocarbon exploration and production operations will be key to the Company's success.

The shareholders holding Company shares as at the end of the record date (i.e. November 18th 2014) will have pre-emptive rights to acquire the new shares. Each share held as at the end of the record date will confer one pre-emptive right.

The number of new shares which may be subscribed for in exercise of one pre-emptive right will be calculated and announced by the Company's Management Board prior to opening of the subscription. The pre-emptive rights exercise period will be specified in the prospectus for the new shares, which will be prepared and, following its approval by the Polish Financial Supervision Authority, published in connection with the public offering of the new shares.  

As the decision-making process concerning the choice of the Yme field development concept is getting protracted (the decision was originally expected at the end of Q1 2014) and no development scenario has been selected, LOTOS has decided to recognise further impairment loss reducing the carrying amount of its Yme assets. As at June 30th 2014, the Group recognised impairment equal to the full amount of its investment in the Yme project, which will reduce the Group's net earnings for the first half of 2014 by about PLN 191m. The final amount of the impairment loss is undergoing a review and may change by the date of issue of the consolidated financial statements for H1 2014 (planned August 19th 2014).

Recognition of the impairment loss does not preclude the possibility of the Company using tax shield in Norway, enabling it to recover the funds invested in the Yme fields (e.g. by acquiring further production assets on the Norwegian Continental Shelf).

- LOTOS is a transparent company, strictly adhering to corporate governance rules. Given the failure of the Yme field operator and licence holders to reach a decision on the future of the project, the Management Board resolved to recognise an impairment loss for the full amount of the capital expenditure incurred by the Company on the Yme assets. In the context of our plans to issue new shares, this is a manifestation of our fair and responsible approach towards our current and future shareholders - said Mariusz Machajewski, Vice-President and Chief Financial Officer at Grupa LOTOS S.A. - Please note that LOTOS intends to apply the full amount of the issue proceeds to future investments in line with the 2013-2015 Effective and Rising Programme.

Based on its investment plans for the coming years, LOTOS intends to scale up its crude oil and natural gas production from Baltic Sea fields. Additionally, the Company plans to launch production from the B8 field at a rate of 250 thousand tonnes of crude annually by the end of 2015. The field's production potential is estimated at some 3.5 million tonnes of crude oil. The Company also plans to launch natural gas production from the B4 and B6 fields by the end of 2017. With the combined production potential of approximately 4 bcm, the fields are expected to yield 250 mcm of gas per annum.

To optimise production and improve the efficiency of the Gdansk refinery, LOTOS plans to construct a number of facilities, including a delayed coking unit (DCU) and a hydrocarbon recovery unit (HRU). The DCU would improve the refinery's annual output of motor fuels by 900 thousand tonnes and allow it to increase its refining margin by approximately USD 2/bbl. The unit is scheduled to come on stream in 2017-2018. With the HRU, LOTOS would gain an additional 100 thousand tonnes of LPG and 25 thousand tonnes of gasoline annually, which will be placed on the market. The unit is scheduled to be placed in service in autumn 2016.

In the retail area, LOTOS intends to continue the dynamic expansion of its service station network and improve sales efficiency. In line with its strategy until 2015, the Company plans to achieve a 10% share in the retail fuel market (9.2% after Q1 2014).