ORLEN GROUP FACTS FIGURES COMMENTS

Transcription

1 ORLEN GROUP FACTS FIGURES COMMENTS 01

2 OUR MISSION We discover and process natural resources to fuel the future. OUR CREDO ORLEN. Fuelling the future. OUR CORE VALUES RESPONSIBILITY We respect our customers, shareholders, the natural environment and local communities. PROGRESS We explore new possibilities. PEOPLE We are characterised by our know-how, teamwork and integrity. ENERGY We are enthusiastic about what we do. DEPENDABILITY You can rely on us. 02

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4 ORLEN GROUP FACTS FIGURES COMMENTS 4 OUR COMPANY CORPORATE GOVERNANCE RESPONSIBLE DEVELOPMENT RISKS AND OPPORTUNITIES OUR STRATEGY OUR OPERATIONS FINANCIAL RESULTS TABLE OF CONTENTS

5 LADIES AND GENTELEMEN, DEAR SHAREHOLDERS, For the ORLEN Group and other companies in the petrochemical and refining industry, a key success factor is the ability to seize the opportunities arising from shifts in the economic and market landscape to maximise profit and further strengthen the company s financial and competitive position. Looking back at this past year, we can safely say that we successfully delivered on all these objectives. Our robust financial performance was also appreciated by the market on November 21 st 2016 PKN ORLEN for the first time topped the list of the most valuable companies on the Warsaw Stock Ex. In the years ahead we aim to further grow our business in line with the ambitious goals we set ourselves in the ORLEN Group Strategy that was unveiled in December last year. The global macroeconomic and market developments had a major influence on our operations and financial performance in The price of Brent crude averaged just under USD 44 per barrel in 2016, representing a 17% drop on 2015 and a 12-year low. The overall downstream margin also retreated on tighter gasoline and petrochemical margins. Continued low oil prices supported our financial results and created attractive upside opportunities for PKN ORLEN and other oil companies that had managed to diversify their revenue sources sufficiently in advance and could fully exploit the market conditions. The last quarter of 2016 marked a watershed on the domestic fuel market as new legislation helped to significantly curtail grey market in fuels, driving up consumption of diesel oil and enabling businesses engaged in the official trade in fuels to fully leverage their competitive advantage LIFO-based EBITDA adjusted for the effect of impairment losses on non-current assets reached a record level of PLN 9.4bn. Total sales volumes grew 2%, with a record 10 billion litres of fuels sold last year. The full-year results were adversely impacted by maintenance shutdowns, including the downtime of the steam cracker in Litvínov, the Czech Republic. In downstream, we moved forward on the major expansion projects aimed at improving efficiency of the Group s production assets. In the Czech Republic, a project to build the new PE3 polyethylene unit was launched in 2016 as one of the ORLEN Group s most-awaited investments, which will help to solidify PKN ORLEN s position on Central Europe s chemical and petrochemical markets. Another of our key petrochemical projects, to build a metathesis unit in Płock, entered the construction phase. Launched in early 2017, the visbreaker project is another major downstream efficiency improvement initiative, expected to increase crude distillate yields and operational availability of the refinery. Last year, progress was made on the construction of Poland s largest CCGT plants: in Włocławek (463 MWe) and Płock (596 MWe). In parallel, we took steps to make our service stations more energy self-sufficient. Pilot photovoltaic solar energy projects implemented at PKN ORLEN facilities delivered promising results, which are now being analysed. The project to deploy wind turbines at petrol stations, which is expected to take our green technology solutions to the next level, was at a preliminary stage. In 2016, the ORLEN Group maintained its position of the retail market leader in the region. Our retail chain reported 1.4 million transactions daily, contributing to a record EBITDA of PLN 1.8bn. We also broadened our range of non-fuel products and services, with around 1,691 Stop Cafe and Stop Cafe Bistro outlets operating on our home markets, including 1,500 in Poland, 168 in the Czech Republic, and 23 in Lithuania. We made strategic efforts to roll out our food & beverage and on-site convenience store formats. But not only that we now also strategically target a strong customer orientation and unique purchasing experience, planning to open 130 new-format Stop.Cafe and O!Shop outlets this year. Our macro environment, and the persistently low oil prices in particular, had a strong bearing on the direction of our activities in upstream. In 2016, total 2P reserves of our production projects increased from 97 million boe to around 114 million boe at the end of Last year we also carried out further work in our licence areas in Poland: under a letter of intent signed with PGNiG, drilling of an exploration well began in the Poznań region, and ORLEN Upstream independently launched a drilling programme in the Kraków province. Our new corporate strategy announced late last year provides for cautious continuation of upstream projects with the purpose of increasing the output and 2P reserves. 2

6 We managed to deliver our expansion plans while maintaining a stable financial position. In 2016, we reduced our debt and the net debt ratio, and managed to further expand the portfolio of available funding sources. During the year, PKN ORLEN, through its subsidiary ORLEN Capital AB, successfully placed a EUR 750m eurobond issue. The largest issue of investment grade corporate eurobonds made its debut on the Catalyst markets of the Warsaw Stock Ex. Last year we made efforts to secure reliable feedstock supply sources, enhancing the security of fuel supplies in Poland. We also significantly strengthened our crude oil supplier base by extending the contract with Saudi Aramco for another year. A new contract setting oil transmission rates was signed with MERO, and we entered into a contract with Jadranski Naftovod of Croatia whereby crude oil will be transported to our Czech refineries via the Janaf pipeline. Amendments were signed to contracts with Rosneft and Tatneft for the supply of crude oil to our Czech refineries. Also, natural gas supplies were secured for another five years under a long-term contract with PGNiG. In the Czech Republic, we brought PE3, our largest petrochemical unit, to the construction phase. The project will increase the utilisation of the ethylene unit and facilitate stronger integration of petrochemical and refining production at the Unipetrol Group. As part of the process to optimise the ORLEN Group s asset base in the Czech Republic, Benzina and Česká Rafinérská were merged with Unipetrol RPA, with the latter transaction closed in early To better respond to the very demanding and competitive market, and to open up to new business challenges, Spolana, previously a part of ANWIL, was incorporated into the Unipetrol Group through an intra-group acquisition. The ORLEN Lietuva Group delivered very good results last year. Capitalising on the favourable macroeconomic situation, it worked at nearly full capacity and substantially improved efficiency in recent years. Aware of how sensitive the Mažeikiai refinery is to s in the macroeconomic landscape, we focused on preparing it for leaner times. The ORLEN Group proceeded with consolidation processes, to more flexibly respond to market challenges. In 2016, we completed the sale of ORLEN Transport. The aim of the process to dispose of non-core assets is to build PKN ORLEN s value in the long run. Throughout 2016 we worked on strengthening our innovation-oriented corporate culture. Initiatives in this area included the launch of Innovations, Start-ups, an online cooperation and knowledge sharing platform dedicated to new technology solutions. Also the crowdsourcing contest, closed in 2016, to find solutions for recovery and utilisation of low-temperature heat, attracted keen interest from innovators the world over. Currently, we are working on projects combining power generation and retail, to improve energy self-sufficiency of our petrol stations. We are also running pilot tests of solutions based on such natural elements as bacteria absorbing industrial odours or algea used to produce fuel biocomponents. PKN ORLEN s strategy, adopted in December 2016, is our response to the major shifts taking place in the economic, social and technological landscape. We identified the strategic directions to follow throughout the next five years and formulated detailed financial objectives for 2017 and Our plans for profit and capex figures are ambitious but feasible. In 2017 and 2018, PKN ORLEN expects to spend an average of PLN 5.4bn a year on investment projects, of which PLN 3.7bn in Downstream, PLN 0.6bn in Retail, and up to PLN 0.8bn in Upstream. Annual LIFO-based EBITDA in the period is expected to average PLN 8.8bn. The ORLEN Group enjoys a sound market and financial standing, so its strategy until 2021 does not herald any revolutionary s but guarantees stable growth. A key factor contributing to our further steady development is the dedication of our People, one of the pillars of PKN ORLEN s strategy. Our staff s commitment to all their day-to-day duties determines the ORLEN Group s market success. I would like to thank them for their work. My special thanks go to Members of the Supervisory Board for their support in everything we do to meet our strategic objectives and build up PKN ORLEN s strength. Wojciech Jasiński President of the Management Board, CEO PKN ORLEN S.A. 3

7 OUR COMPANY PKN ORLEN is the parent of an international oil and energy group, the largest company in Central and Eastern Europe, and the only Polish company included in the prestigious Fortune 500 list of the world s largest companies. In 2016, PKN ORLEN topped the list of the largest companies on the Warsaw Stock Ex by market capitalisation, and for the past several years ORLEN has been recognised as the most valuable Polish brand. PKN ORLEN is the only company in its region to be included for the fourth consecutive time in the list of The Most Ethical Companies by the US-based Ethisphere Institute. PKN ORLEN SHAREHOLDERS¹ 27.52% STATE TREASURY 8.32% 7.01% NATIONALE- -NEDERLANDEN OFE AVIVA OFE 57.15% OTHER 1) Based on disclosures for the PKN ORLEN Extraordinary General Meeting of January 24 th ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR COMPANY

8 POLAND CANADA CZECH GERMANY REPUBLIC LITHUANIA 5 HOME MARKETS 3 OPERATING SEGMENTS DOWNSTREAM 19,700 DEDICATED STAFF THE WORLD S MOST ETHICAL COMPANY 2016 RETAIL TOP EMPLOYER POLSKA 2016 UPSTREAM 30m tonnes OF VARIOUS CRUDE OILS PROCESSED INTEGRATED DOWNSTREAM ASSETS SPANNING COUNTRIES 3 IN EUROPE A RANGE OF OVER REFINED AND 50 PETROCHEMICAL PRODUCTS 114m boe OF 2P OIL AND GAS RESERVES IN POLAND AND CANADA CEE S LARGEST CHAIN OF MORE TNAH SERVICE 2,700 STATIONS 84 EXPORT MARKETS Listed on the WSE since 1999 Indices: WIG, WIG20, WIG30, WIG-Poland, WIG-PALIWA, RESPECT Index, FTSE4Good Emerging Index 2016 year-end market capitalisation: PLN 36.5bn ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR COMPANY 5

9 ORLEN GROUP OPERATING SEGMENTS UPSTREAM CANADA POLAND E&P projects in Poland and Canada. Total 2P² oil and gas reserves of 114m boe¹ average production at 13,600 boe/d. DOWNSTREAM PRODUCTION 6 refineries³ in Poland, the Czech Republic and Lithuania with a total capacity in excess of 35m tonnes. REFINING PKN ORLEN, Unipetrol, ORLEN Lietuva, ORLEN Południe POWER GENERATION CCGT plants in Włocławek and Płock, CHP plants in Płock and other locations PETROCHEMICALS PKN ORLEN, Unipetrol, ANWIL and Basell Orlen Polyolefins 3,800 kilometre-long pipeline network and 43 storage depots. LOGISTICS Growth-oriented projects: CCGT projects in Włocławek (463 MWe) and Płock (596 MWe), polyethylene unit in Unipetrol, metathesis unit in PKN ORLEN. CRUDE OIL AND REFINED PRODUCT PIPELINES TERMINALS RAIL ROAD SALES WHOLESALE Fuels and other refined products WHOLESALE Petrochemicals RETAIL SALE Fuels and non-fuel products 1) Barrel of oil equivalent. 2) Proven and probable reserves. 3) The Paramo refinery does not conduct crude oil processing operations. 6 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR COMPANY

10 1766 RETAIL 572 GERMANY 363 POLAND 25 LITHUANIA Over 2,700 service stations. CZECH REPUBLIC Total retail market share of 17.7% (Poland, Germany, Czech Republic, Lithuania). 1,700 Stop Cafe and Stop Cafe Bistro locations in Poland, Czech Republic and Lithuania. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR COMPANY 7

11 PLN 1.8 bn RECORD EBITDA IN RETAIL PLN 9.4 bn RECORD LIFO-BASED EBITDA ¹ 10 bn litres PLN 5.7 bn RECORD NET PROFIT PLN 0.9 bn 2.00 PLN per share 2015 DIVIDEND PAID 39.5 m tonnes RECORD SALES VOLUMES PLN 79.6 bn REVENUE 114 m boe 2P OIL AND GAS RESERVES RECORD FUEL SALES PLN 3.9 bn ORLEN BRAND VALUE ² 30.1 m tonnes CRUDE THROUGHPUT PLN 3.00 per share 2016 DIVIDEND RECOMMENDED BY THE MANAGEMENT BOARD 2016 HIGHLIGHTS 1) Before impairment losses on assets of PLN 0.2bn, including mainly PLN 0.3bn in reversals of impairment losses on Unipetrol s refining assets, and PLN 0.1bn in impairment losses on ORLEN Oil s assets and ORLEN Upstream s Polish assets. 2) According to a ranking by the Rzeczpospolita daily. TOP 10 PRODUCTS BY SHARE OF REVENUE [PLN m] ,078 DIESEL OIL 20,446 PETROL 2,317 HEAVY FUEL OIL ,905 LPG 1,802 JET A -1 1,571 PTA 1,159 ETHYLENE 1,139 EKOTERM LIGHT FUEL OIL 1,101 BITUMENS 996 POLYVINYL CHLORIDE 8 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR COMPANY

12 LINKS BETWEEN BUSINESS SEGMENTS UPSTREAM CRUDE OIL NATURAL GAS POWER GENERATION REFINING PETROCHEMICALS FERTILIZER COMPLEX DOWNSTREAM OIL BLENDING CHEMICALS PLASTICS RETAIL HEAT AND ELECTRICITY INDUSTRY AUTOMOTIVE BITUMENS JET FUEL BUNKER OILS FERTILIZERS PB 95, PB 98 PETROL DIESEL OIL ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR COMPANY 9

13 10 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY

14 OUR STRATEGY Wojciech Jasiński President of the Management Board, Chief Executive Officer With PKN ORLEN s record-breaking performance and all-time high market capitalisation, 2016 was an exceptional year for us. We are very pleased with these results, and motivated to set more and more ambitious targets, as evidenced by the Group s new strategy announced last year. The primary strategic directions were outlined in response to the global challenges related to alternative energy sources, technological progress and social s. We intend to further strengthen PKN ORLEN s market position and pursue key growth-oriented projects. This would not be possible but for our talented and fully committed staff, as well as modern management culture. We will also support the development of innovations as our contribution to building a strong competitive position for PKN ORLEN and the national economy. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY 11

15 STRATEGY IMPLEMENTATION IN Summary of strategic activities in Over the past three years, PKN ORLEN has consistently delivered on its strategic objectives, exceeding the annual average LIFO-based EBITDA target for by PLN 2.3bn, with the actual figure averaging PLN 7.4bn in The stable financial position allowed the Company to put in motion growth projects and progressively increase dividend payouts, which totalled PLN 2.2bn in At the same time, the financial ratios were kept at safe levels. The robust financial performance has been appreciated by the market on November 21 st 2016 PKN ORLEN for the first time topped the list of the most valuable companies on the Warsaw Stock Ex, with its market capitalisation surging by PLN 13.8bn from July 23 rd 2014 (the strategy announcement date) to November 21 st Higher earnings Growth programme LIFO-BASED EBITDA BEFORE IMPAIRMENT [PLNbn] TARGET ACTUAL CAPITAL EXPENDITURE [PLNbn] VALUE CREATION average average¹ average average² Further strengthening of financial foundations FINANCIAL LEVERAGE [%] Dividend growth DIVIDEND PER SHARE [PLN] FINANCIAL STRENGTH < Modern management culture PEOPLE MOST VALUABLE POLISH BRAND WORTH PLN 3.9bn IN 2016 (according to a ranking by the Rzeczpospolita daily) THE MOST VALUABLE COMPANY ON WSE RECORD MARKET CAPITALISATION OF PLN 36.5bn (November 21 st 2016) 1) Before impairment of non-current assets: PLN (5.4) bn in 2014, PLN (1.0) bn in 2015; PLN (2.1) bn on average in ) Including acquisitions in the Upstream segment in of PLN 2.1bn, or PLN 0.7bn on average per year in ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY

16 STRATEGY IMPLEMENTATION BY SEGMENT IN 2016 DOWNSTREAM RETAIL UPSTREAM Record LIFO-based EBITDA: PLN 8.1bn.¹ High volumes of crude processed: 30.1m tonnes, and high sales volumes: 30.7m tonnes. White products yield at the ORLEN Group at 78% and a nearly 1pp yoy reduction of energy intensity ratio. 8.1pp yoy growth of share in the Czech wholesale fuel market following the acquisition of interest in Česká Rafinérská. High production potential of the ORLEN Group refineries maintained, despite increased scope of maintenance shutdowns and emergency shutdown of the Kralupy refinery. Execution of a contract for construction of a metathesis unit in Płock. Record EBITDA: PLN 1.8bn. Increase in sales volumes of 2.5% yoy, including 5.6% yoy in Poland and 14.8% yoy in the Czech Republic. Improvement in fuel margins on the Polish and German markets. Record fuel sales of 10bn litres. Completion of the process to rebrand BLISKA service stations to ORLEN. Opening of 133 new catering outlets in Poland and the Czech Republic in Launch of Stop Cafe 2.0, a new catering format. Increase in total oil and gas reserves (2P) to 114m boe average output of 13.6 thousand boe/d. DOWNSTREAM Value of the Downstream segment (Refining, Petrochemicals, Power Generation) is created through extension of the integrated value chain, consistent development of the product portfolio, and increase in the conversion ratio. A number of growthoriented projects are being carried out to increase competitiveness of the segment. In 2016, Unipetrol started the construction of a new polyethylene unit (PE3) at the Litvínov plant in the Czech Republic; the new unit will be one of Europe s most advanced facilities of this kind. PKN ORLEN continued to pursue two large power generation projects expected to bring benefits from industrial cogeneration: construction of the 463 MWe CCGT plant in Włocławek and of the 596 MWe CCGT unit in Płock. Another milestone in the Downstream segment was the Supervisory Board s approval of the construction of an advanced metathesis unit in Płock. Value creation initiatives undertaken in the Downstream segment helped achieve LIFO-based EBITDA of PLN 8.1bn in 2016, with capex of PLN 3.5bn allocated to the segment in RETAIL Value creation in the Retail segment is achieved through the development of the network of modern CODO service stations, development of the DOFO channel, as well as growth in fuel sales in the Group s home markets (Poland, the Czech Republic, Lithuania, Germany) and higher non-fuel sales. As at the end of 2016, the ORLEN Group operated a network of 2,726 service stations, which posted a 2.5% year-on-year increase in sales volumes. A range of initiatives were undertaken in the Retail segment, including the launch of new products and services and implementation of a new catering format called Stop Cafe 2.0. In the Czech Republic, further growth was seen in fuel sales volumes (incorporation of 20 out of the 68 stations acquired from OMV in 2015), as well as in non-fuel sales (37 new Stop Cafe outlets). Value creation initiatives in the Retail segment contributed to the segment s EBITDA of PLN 1.8bn. Capex allocated to the segment amounted to PLN 0.5bn. 1) Before impairment of non-current assets: PLN 0.3bn in reversals of impairment losses on Unipetrol s refining assets. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY 13

17 UPSTREAM In 2016, the ORLEN Group continued to restructure its portfolio of assets in Poland, which was related to the acquisition of new areas for exploration (Poręba Tarnawa licence, Skołyszyn licence, Edge area) and abandoning of less promising licence areas (further exploration work to focus only on selected areas of the Lublin Shale, Karbon, Mid Poland Unconventionals, and Karpaty projects). Furthermore, the ORLEN Group, via its subsidiary ORLEN Upstream Canada, conducts production operations in the Alberta province in Canada, using horizontal drilling and hydraulic fracturing technologies. In 2016, a gas treatment system was placed in service in the Ferrier/Strachan area. The ORLEN Group also holds production assets in New Brunswick and a share in a project to construct Goldboro LNG terminal. The ORLEN Group has oil and gas 2P reserves totalling 114m boe, and its average daily output in 2016 was 13,600 boe, with average daily production in Q reaching 13,900 boe STRATEGY Pillars of the strategy for The vision for growth set out in the new strategy fits well with global trends in energy sources, technological progress and social shifts, which are bound to create new consumer behaviours and expectations. PKN ORLEN aims to focus on solidifying its market position, becoming more customer-oriented, Integrated assets and strong market position of the Downstream segment exploiting the integrated value chain, with a growing role of the petrochemical business and cautious continuation of projects in the Upstream. Strong focus on innovation with value-creating potential is another vital element of the strategy. Security of feedstock supplies Operational excellence Effective sales strategy VALUE CREATION FINANCIAL STRENGTH Development of the product and service range and high customer satisfaction in the Retail segment Cautious continuation strategy in the Upstream segment Solid foundations Secured financing Dividend paid Modern service station network Unique purchasing experience Operational excellence Increased production in Poland and Canada Cautious continuation Investment-grade rating Financial leverage below 30% Diversified financing sources Non-organic growth opportunities Consistent growth of dividend per share Dividend amount dependent on financial position PEOPLE Innovations that create value Focus on safety and the environment Actions motivated by ORLEN s core values Culture of innovation Internal and external innovations No accidents at work Process safety Care for the natural environment Responsibility Growth People Energy Reliability 14 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY

18 Key financial and operating targets for The rapidly changing market environment forces the Company to adjust its planning horizon. Consequently, its goals and aspirations are presented differently in the new strategy. The time horizon for strategic directions is five years, but specific financial and operating targets cover only 2017 and 2018 given strong volatility of the macro environment. Key objectives of the PKN ORLEN strategy for : Annual average LIFO-based EBITDA of PLN 8.8bn. Annual average capital expenditure of PLN 5.4bn. Financial leverage maintained below 30%. Stable growth of dividend per share. LIFO-BASED EBITDA BEFORE IMPAIRMENT [PLNbn] CAPITAL EXPENDITURE [PLNbn] (0.9) Downstream Retail Upstream Corporate Functions EBITDA LIFO average Downstream Retail Upstream Corporate Functions average ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY 15

19 Strategic assumptions by segment DOWNSTREAM VALUE LEVERS OBJECTIVES FOR RAW MATERIAL SECURITY Diversification of crude supply sources. Security of natural gas supplies. OPERATIONAL EXCELLENCE Integrated management of production assets in Poland, the Czech Republic and Lithuania. Further improvement of key performance indicators to ensure more flexibility in the ways to respond to market and regulatory challenges Increased depth of conversion and improved high-margin product yields. STRONG MARKET POSITION Growth in the share of home markets, including through attractive product portfolio. Expansion of infrastructure which facilitates reaching customers and adds competitive advantage. SALES AND LOGISTICS ¹ Share of the fuel market: growth by over 5pp. Leveraging the opportunities created by reduced grey market in Poland. Petrochemical sales: growth by over 1.2m tonnes. Sales of electricity: over 3.4 TWh. Logistics costs: unit cost improvement by 6%. PRODUCTION¹ Projects underway: PKN ORLEN: CCGT Płock, visbreaker, metathesis unit, ORLEN Lietuva: PPF splitter, Unipetrol: Polyethylene 3, ANWIL: expansion of fertilizer unit, ORLEN Południe: glycol unit. Preparation of new growth projects. Improvement of key performance indicators: crude processing: up by over 3m tonnes, white product yield: up by 1pp, improvement of the refinery s energy intensity and availability of units by 1pp and 2pp, respectively. LIFO-BASED EBITDA GROWTH ² [PLNbn] 7.1 LIFO-BASED EBITDA 2016 LIFO-BASED EBITDA average ANNUAL AVERAGE CAPITAL EXPENDITURE ² [PLNbn] Growth Maintenance and regulatory average The capital expenditure includes cost of reconstruction of the steam cracker at Unipetrol (PLN 0.6bn). 1) Quantitative indicators pertain to the 2018 target relative to ) 2016 LIFO-based EBITDA and capital expenditure are based on forecast 2016 performance, as specified in the strategy of the ORLEN Group which was presented on December 16 th ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY

20 RETAIL VALUE LEVERS OBJECTIVES FOR MODERN SERVICE STATION NETWORK Further development of the service station chain (CODO and DOFO stations). Marketing of fuels with better parameters based on improved fuel additives. Preparations to start selling alternative fuels. UNIQUE PURCHASING EXPERIENCE New products and services. Tailored offering based on Big Data. Increased customer satisfaction and further development of the loyalty scheme. OPERATIONAL EXCELLENCE Consistent improvement in terms of break-even point. Use of new technologies. MODERN SERVICE STATION NETWORK ¹ Organic growth of the service station network: approx. 100 new stations. Share of the fuel market: up by over 1pp. Adapting service stations to start sales of alternative fuels. UNIQUE PURCHASING EXPERIENCE (STOP CAFE 2.0 FORMAT)¹ Improvement of the store and Stop Cafe formats. Gross non-fuel margin: up by 17%. New products and services: financial services, e-commerce platform and click&collect, car sharing and car fleet management, mobile payments, remote order placement, flexible and tailored offering based on Big Data. International fleet programme. EBITDA GROWTH ² [PLNbn] EBITDA 2016 EBITDA average ANNUAL AVERAGE CAPITAL EXPENDITURE² [PLNbn] OPERATIONAL EXCELLENCE¹ Improved cost efficiency of the service stations. Unit margin: up by 8%. Growth Maintenance and regulatory average 1) Quantitative indicators pertain to the 2018 target relative to ) 2016 EBITDA and capital expenditure are based on forecast 2016 performance, as specified in the strategy of the ORLEN Group which was presented on December 16 th ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY 17

21 UPSTREAM VALUE LEVERS OBJECTIVES FOR INCREASED PRODUCTION IN POLAND AND CANADA Growth in production volumes and 2P reserves. Focus on quality assets and the most profitable projects. CAUTIOUS CONTINUATION Responding flexibly to s in the oil and gas market. Capital expenditure adjusted to the macro environment. OPERATIONAL EXCELLENCE Consistent improvement in key performance indicators. Synergies within the segment in Poland and Canada. INCREASED PRODUCTION IN POLAND AND CANADA ¹ Production increase of 2,400 boe/d, to 15,700 boe/d: Poland: 300 boe/d, Canada: 2,100 boe/d. Increase in 2P hydrocarbon reserves of 9.3 mboe, to 113m boe: Poland: + 7.1m boe, Canada: + 2.2m boe. Number of wells (net) increased to 26: Poland: 8 wells, Canada: 18 wells. OPERATIONAL EXCELLENCE ¹ Netback of over PLN 70 /boe. EBITDA GROWTH ² [PLNbn] 0.2 EBITDA 2016 EBITDA average ANNUAL AVERAGE CAPITAL EXPENDITURE ² [PLNbn] Growth³ 1) Quantitative indicators pertain to the 2018 target relative to ) 2016 EBITDA and capital expenditure are based on forecast 2016 performance, as specified in the strategy of the ORLEN Group which was presented on December 16 th ) Including in 2016 Poland: PLN 0.2bn, Canada: PLN 0,4bn; average Poland PLN 0.4bn, Canada: PLN 0.4bn average 18 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY

22 IMPLEMENTATION OF INVESTMENT PROJECTS CAPITAL EXPENDITURE BY SEGMENT [PLNm] POWER GENERATION PETROCHEMICALS REFINING 3,533 1,069 1, Downstream Retail Upstream Corporate Functions 136 4,673 CAPEX 2016 Major investment projects pursued in 2016 included: Construction of CCGTs with related auxiliary infrastructure in Włocławek and Płock. Construction of a new polyethylene unit (PE3) in Litvínov. Construction of a metathesis unit in Płock. Launch of 70 service stations (including CODO stations: 35 in Poland, 10 in Germany and 25 in the Czech Republic). Upgrade and rebranding of 67 service stations (including CODO stations: 50 in Poland, 11 in the Czech Republic and 6 in Germany). Opening of 133 new Stop Cafes, Stop Cafe Bistros and Stop Cafes 2.0 in Poland and the Czech Republic. Canada PLN 344m / Poland PLN 181m. Assessment of project implementation CANADA 7% GERMANY 3% POLAND 51% LITHUANIA 2% The ORLEN Group manages its capex structure taking into account the market environment, and focuses on the most effective investment projects. CZECH REPUBLIC 37% The Group has a stable financial position and sufficient cash flows as well as available financing sources to implement its investment plans. CAPITAL EXPENDITURE BY MARKET ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY 19

23 MARKET OUTLOOK FOR 2017 EXPECTED MACROECONOMIC ENVIRONMENT 2017 GDP forecast: 3.6% in Poland, 2.9% in the Czech Republic, 1.5% in Germany, 2.4% in Lithuania. Brent crude price crude oil price in the base case scenario is expected to grow relative to the average price in 2016, driven by higher demand and the largest producers arrangements to reduce the supply. Model downstream margin forecast decline in annual average margin compared with 2016, primarily as a result of lower year-on-year margins on petrochemical products. Despite the projected decrease, high margin levels are expected, supported by the favourable macro climate, i.e. low crude prices and higher fuel and petrochemical product consumption. EXPECTED MARKET TRENDS Expected increase in demand for fuel, both petrol and diesel oil, in Poland, the Czech Republic and the Baltic States, stabilisation of demand in Germany. LEGISLATIVE CHANGES Grey market for fuel implementation of solutions to curb the grey market: fuel package (as of August 1st 2016), energy package (as of end of Q1 2017), transport package (planned launch in Q2 2017). Emergency stocks gradual reduction of emergency stocks from the equivalent of 60 days to the equivalent of 53 days in 2017 (approximately 0.3m tonnes) and, in consequence, lower working capital. NIT in 2017, the NIT in Poland will remain und at 7.1%. The NIT for PKN ORLEN will be reduced to 5.822%. Turnover tax work is underway to introduce a tax on retail turnover, including for service stations. ORLEN GROUP S INVESTMENTS Major growth projects in 2017: Construction of a new polyethylene unit (PE3) in Litvínov. Construction of a CCGT and related auxiliary infrastructure in Płock. Construction of a metathesis unit in Płock. Construction of new service stations. Incorporation of 40 OMV stations into the network in the Czech Republic. Upgrade of the stations and development of non-fuel offering. Continuation of exploration and production projects in Poland and Canada. Capital expenditure: 50% Canada / 50% Poland. Scheduled maintenance shutdowns at the ORLEN Group in 2017: PKN ORLEN: DRW III, hydrocracking, HOG, reforming, and PX/PTA units. ORLEN Lietuva Group: fluid catalytic cracking unit, hydrogen production plant, visbreaker. Unipetrol Group: visbreaker (Litvínov), hydrocracker (Litvínov), HON unit (Kralupy). ANWIL: PVC. Basell Orlen Polyolefins: polyethylene / polypropylene. CAPEX 2017 ¹ Capital expenditure by segment in 2017 [PLNbn] Maintenance and regulatory 2.1 Downstream Growth Retail Upstream 1) Potential expenditure on asset acquisitions not included. 20 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR STRATEGY

24 CORPORATE GOVERNANCE ORLEN GROUP FACTS FIGURES COMMENTS 2016 CORPORATE GOVERNANCE 21

25 LADIES AND GENTLEMEN, in 2016, the ORLEN Group demonstrated that it was well positioned to rise to the challenges that were ahead. With the consistent roll-out of its strategy, highest management standards, and coherent vision for growth, the Company successfully leveraged its strong market standing and competitive edge. That was recognised and appreciated by the shareholders: PKN ORLEN s stock price and market capitalisation reached an all-time high at the close of 2016, after announcement of the strategy. Importantly, the ORLEN Group s excellent performance went hand in hand with key investments, mainly in the Downstream and Power Generation. As usual, the Retail segment delivered an outstanding performance, supported by the constant development of its product and service portfolio to meet the needs of service station customers. The Company also consistently built its know-how in the Upstream, expanded its asset base and increased the output of its Polish and Canadian assets, in keeping with the adopted strategy. The Company s organisational culture invariably remains its major competitive advantage. We are glad to see that it is innovation-driven, and the initiatives carried out in 2016 prove that PKN ORLEN looks for innovation both in and outside the Company. What is even more important for its stable growth, it is able to achieve its business goals in a transparent and sustainable manner. In 2016, PKN ORLEN was not only included in the WSE s RESPECT Index again, but also received yet another Most Ethical Company title, which is awarded to the world s most ethical businesses. The beginning of 2017 saw the first listing of the Company s stock in London s FTSE4Good Emerging Index, bringing together companies from over 20 countries which show outstanding performance in environmental protection, social responsibility and corporate governance. In 2016 the Company continued to apply highest standards of corporate governance and shareholder communication. In accordance with the adopted strategy, shareholders were paid higher dividend than a year before. All stakeholder groups received access to exhaustive information about both financial and non-financial aspects of the Company s operations in the ORLEN Group s 2015 Integrated Report, which was highly appreciated by experts. The Company s financial and non-financial reporting, investor relations, and corporate governance rules were also recognised by the Institute of Accountancy and Taxes, which has just recently awarded the prestigious Transparent Company 2016 title to PKN ORLEN. A year ago, when I attempted to identify the challenges for the coming 12 months, I focused mainly on the need to revise the strategic assumptions against the backdrop of the dynamically changing business environment. Today we know that the new strategy was well received by the market and the shareholders. I am certain that, combined with the Company s excellent organisation and strong financial footing, it forms a solid foundation for the ORLEN Group s future sustainable growth. Angelina Sarota Chairwoman of the Supervisory Board PKN ORLEN S.A. 22 ORLEN GROUP FACTS FIGURES COMMENTS 2016 CORPORATE GOVERNANCE

26 CORPORATE GOVERNANCE RULES APPLIED BY PKN ORLEN The full text of the Corporate Governance Compliance Statement of PKN ORLEN S.A. is available at in the Investor Relations section, under WSE best practices. In 2016, PKN ORLEN applied all rules contained in the Code of Best Practice for WSE Listed Companies 2016 ( Code of Best Practice ) applicable on the Warsaw Stock Ex ( WSE ). The Code is available from the WSE website at: and from the shareholders section on PKN ORLEN s corporate website at: COMMUNICATION WITH THE CAPITAL MARKET One of the key tools for communication with representatives of the capital market is the Investor Relations section on the corporate website at which is presented both in Polish and in English. The section contains information communicated mainly to investors and analysts, including: current and periodic reports, presentations relating to the publication of financial results and other events, multimedia files with recordings of teleconferences and videoconferences, interactive charts and tables presenting the Company s historical financials in different time horizons, which may be embedded in Excel sheets, performance of the PKN ORLEN stock and main stock ex indices, contact form for website visitors, newsletter and RSS channel, interactive calendar with an option of setting SMS or notifications of key events at the Company, retail investors tab. The Investor Relations section also contains a Corporate Governance tab, which is where the Company s annual reports on compliance with WSE best practices, as well as the Code of Best Practice for WSE Listed Companies itself, can all be downloaded. In addition, it presents a brief statement of the best practices applied by the Company, and all other information required by the Code. The General Meeting tab in the Investor Relations section contains complete documentation and information concerning the Company s General Meetings and a contact form relating to the GM. The Company offers multiple opportunities for its shareholders, investors and stock ex analysts to gain knowledge about its business. PKN ORLEN s website presents expert publications and coverage of industry conferences, and includes an expert blog of PKN ORLEN s Chief Economist ( with his comments on current market developments. The Company also posts short communications via its Twitter account ( In addition, PKN ORLEN maintains direct contacts with the capital market through regular meetings with investors and analysts in Poland and abroad. It holds general-access conferences following all major corporate events such as the publication of quarterly results or strategy announcement, which are web-streamed along with simultaneous interpretation into English. Furthermore, the Company organises one-on-one and group meetings, as well as conference calls with capital market stakeholders. Roadshows for Polish and foreign investors are held on a regular basis. Market participants can attend site visits to meet the PKN ORLEN s key management personnel at its head office and in other locations where the Company operates. PKN ORLEN also organises Investor and Analyst Days, during which thematic workshops are conducted by Management Board members, executive directors and selected managers to present various aspects of the Company s activity. In 2016, the Company held meetings with 358 representatives of financial institutions (including 153 Polish and 205 foreign ones) and participated in 11 investor conferences. In 2016, for the fourth year running, PKN ORLEN paid dividend of PLN 2 per share to its shareholders. The Company makes every effort to publish its periodic reports as soon as practicable after the close of a reporting period. In 2016, quarterly and halfyear reports were published on average 23 days after period end, and full-year reports were published 84 days after year end. ORLEN GROUP FACTS FIGURES COMMENTS 2016 CORPORATE GOVERNANCE 23

27 Capital market participants appreciate the Company s efforts, as reflected in the awards and distinctions received by the Company in 2016: The Bulls and Bears award in the WIG20 Company of the Year category according to the Gazeta Giełdy i Inwestorów Parkiet daily. Awards of the Investor Relations Survey at the WIG 30 Index Companies, a joint initiative of Izba Domów Maklerskich (Brokerage House Chamber) and Gazeta Giełdy i Inwestorów Parkiet: 2 nd place in the Best Retail Investor Relations category, 2 nd place in the Best Institutional Investor Relations category. PKN ORLEN secured top spot in the Transparent Company of the Year 2016 ranking organised by the Institute of Accountancy and Taxes and Gazeta Giełdy i Inwestorów Parkiet. ORLEN Capital AB, PKN ORLEN s subsidiary, won the WSE award for leaders of the Polish capital market in the category Best IPO Value on the Catalyst Market in 2016, for the introduction to trading of 7-year eurobonds worth EUR 750m. The Company maintained its presence in the 10 th edition of the Respect Index, and at the start of 2017 its shares were included in the FTSE4Good Emerging Index, measuring the performance of companies from more than 20 countries which demonstrate strong Environmental, Social and Governance (ESG) practices. For the fourth time running, PKN ORLEN received The Best of The Best special award in the Best Annual Report competition organised by the Institute of Accountancy and Taxes. In the same contest it also received the following awards: best Integrated Report, best application of IFRS/IAS, best Reporting Team. COMMUNICATION WITH THE CAPITAL MARKET MEETINGS TELECONFERENCES WEBSITES WEBCASTS One-on-one meetings Group meetings Roadshows Site visits Conferences In Poland Abroad INTERACTIVE TOOLS: Charts and tables for comparing financial indicators Charts and tables showing share prices, and a return on investment calculator Newsletters Event calendar alerts CORPORATE WEBSITE ANNUAL GENERAL MEETING MATERIALS: Web contact form Guide for shareholders on How to participate in the General Meeting of PKN ORLEN Draft resolutions and a full set of documents OTHER: BROADCAST Industry information service EVENTS and Chief Economist s Blog Quarterly earnings briefings Corporate Twitter account Strategy announcement General Meetings of Shareholders CORPORATE GOVERNANCE: Other Company s annual reports on compliance with best practices Code of Best Practice for Listed Companies Information on best practices observed by PKN ORLEN Rules and criteria for appointing the auditor Diversity policy 24 ORLEN GROUP FACTS FIGURES COMMENTS 2016 CORPORATE GOVERNANCE

28 CORPORATE GOVERNANCE AT PKN ORLEN GENERAL MEETING OF SHAREHOLDERS NOMINATION AND REMUNERATION COMMITTEE CORPORATE GOVERNANCE COMMITTEE SUPERVISORY BOARD AUDIT COMMITTEE STRATEGY AND DEVELOPMENT COMMITTEE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE MANAGEMENT BOARD OF PKN ORLEN S.A. The rules of operation for PKN ORLEN s governing bodies are defined in: The Company s Articles of Association, Rules of Procedure for the General Meeting of PKN ORLEN, Rules of Procedure for the Supervisory Board of PKN ORLEN, Rules of Procedure for the Management Board of PKN ORLEN. The documents are available on PKN ORLEN s website, at in the Company section (under Corporate Bylaws ) and Investor Relations section (under General Meetings ). For an amendment to PKN ORLEN s Articles of Association to take effect, a relevant resolution must be passed by the General Meeting and a relevant entry must be made in the Business Register. A resolution of the General Meeting to amend the Articles of Association is passed by a majority of three-quarters of votes. The General Meeting may authorise the Supervisory Board to prepare the consolidated text of the amended Articles of Association or to make other editing s specified in a resolution of the General Meeting. Following entry of the amended Articles of Association in the Business Register, a relevant current report is published by PKN ORLEN. The Company and Investor Relations sections of the PKN ORLEN corporate website contain the most current information on the composition of the Company s Supervisory Board and Management Board, as well as annual statements on compliance with the Code of Best Practice for WSE Listed Companies. The Company has established a special team responsible for supervision of the Company s compliance with corporate governance disclosure obligations as specified in the Stock Ex Rules and legal regulations concerning disclosure of current and periodic information. It consists of three Supervisory Board members delegated by the Supervisory Board to individually perform those duties. In 2016, they held several meetings with representatives of the Management Board and employees, discussing the alignment of the Company s internal organisational documents with amendments to the Code of Best Practice for WSE Listed Companies, and regulations on the Company s disclosure obligations on the capital market effective as of July 3 rd Other matters under discussion included new rules of reporting information to the capital market vis-à-vis the rules which had been in effect prior to the amendment of applicable laws. Matters on the agenda also concerned uncertainties as to the interpretation of new EU regulations. ORLEN GROUP FACTS FIGURES COMMENTS 2016 CORPORATE GOVERNANCE 25

29 SPECIAL SHAREHOLDER RIGHTS One PKN ORLEN share confers the right to one vote at the Company s General Meeting. The shareholders voting rights are limited in such a way that no shareholder may exercise voting rights representing more than 10% of total voting rights as at the GM date. This limitation does not apply to the State Treasury and the depositary bank which has issued depositary receipts representing Company shares under an agreement with the Company (if the bank exercises voting rights attached to such Company shares). The State Treasury has the right to appoint and remove one member of the Company s Supervisory Board. Further, one member of the PKN ORLEN Management Board is appointed and removed by the Supervisory Board at the request of the minister competent for the State Treasury. Pursuant to the Company s Articles of Association, as long as the State Treasury is entitled to appoint a member of the Supervisory Board, passing a resolution to approve the disposal of or creation of any encumbrance over shares in the Company s material subsidiaries requires that the Supervisory Board member appointed by the State Treasury votes in favour of such resolution. Special rights of the State Treasury as a shareholder may also arise under the generally applicable laws set out below: Act of March 18 th 2010 on special rights vested in the minister competent for energy and how those rights should be exercised at certain companies or groups of companies operating in the power, crude oil and gas fuels sectors, Act on Control of Certain Investments of July 24 th 2015, Act on State Property Management of December 16 th GENERAL MEETING IN 2016 Shareholders met twice in 2016, at an Extraordinary General Meeting held on January 29 th and at the Annual General Meeting held on June 3 rd. At the Extraordinary General Meeting, shareholders made decisions regarding the number of Supervisory Board members and s on the Supervisory Board. The Annual General Meeting approved the Directors Reports on the Company s and the ORLEN Group s operations in 2015, as well as the separate and consolidated financial statements for 2015, and granted discharge to all members of the Management and Supervisory Boards in respect of performance of their duties. Having considered the Management Board s recommendation and the Supervisory Board s opinion on the matter, the General Meeting resolved on the following allocation of the net profit for 2015 of PLN 1,047,519,491.84: PLN 855,418, to be distributed as dividend of PLN 2.00 per share, the balance of PLN 192,101, to be transferred to the Company s statutory reserves funds. The Annual General Meeting set the dividend record date for July 15 th 2016 and the dividend payment date for August 5 th The Meeting also made appointments to the Supervisory Board for a new term. PKN ORLEN SUPERVISORY BOARD PKN ORLEN MANAGEMENT BOARD Composition of the Supervisory Board as at December 31 st 2016: Composition of the Management Board as at December 31 st 2016: Angelina Sarota Radosław L. Kwaśnicki Mateusz Bochacik Artur Gabor Adrian Dworzyński Agnieszka Krzętowska Wiesław Tomasz Protasewicz Chairwoman of the Supervisory Board Deputy Chairman of the Supervisory Board Secretary of the Supervisory Board Independent Member of the Supervisory Board Independent Member of the Supervisory Board Independent Member of the Supervisory Board Independent Member of the Supervisory Board Wojciech Jasiński Mirosław Kochalski CEO, President of the Management Board Vice President of the Management Board, Corporate Affairs CFO, Vice President of the Management Board Member of the Management Board, Development and Power Generation Member of the Management Board, Production Member of the Management Board, Sales Sławomir Jędrzejczyk Piotr Chełmiński Krystian Pater Zbigniew Leszczyński 26 ORLEN GROUP FACTS FIGURES COMMENTS 2016 CORPORATE GOVERNANCE

30 OUR OPERATIONS ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 27

31 RESEARCH AND DEVELOPMENT For a number of years, the ORLEN Group has engaged in innovative projects and analysed processes to identify development opportunities. Expansion of the R&D portfolio and innovation are reflected in the new ORLEN Group Strategy for , and are seen as key elements of its pillar: People Innovations that Create Value. Research projects conducted at PLN ORLEN included work on terephtalic acid recovery from process waste. In addition, an industrial test was performed to assess the option of refining naphtha from the hydrockracker in the reforming plant to improve yields from the aromatics complex. The Company initiated research on Methodology for forecasting and monitoring of the quality of petrol transferred for long-term storage in salt caverns. Production technology for base naphtha and petrol as an element in preventing feedstock and product management disruptions, co-funded by the European Regional Development Fund under the INNOCHEM Programme. In 2015, PKN ORLEN was the first Polish company to launch a crowdsourcing project targeting the global community. The Company teamed with NineSigma, owner of the NineSights platform, to look for an idea to effectively use low-temperature heat that is generated in the first crude oil processing step and irretrievably lost to the atmosphere. In 2016, the competition was closed and the selected companies: Polish PWPO-T PROMONT, leader of a Polish-Swedish consortium specialised in chemical engineering, Indian design firm Guha Industries, and German research centre ILK Dresden, were invited to join the next project stage. In collaboration with the University of Warmia and Mazury and the University of Szczecin, PKN ORLEN continued an advanced biofuels project with the objective of identifying alternative sources of next-generation biocomponents. PKN ORLEN also launched Innovations, Start-ups, an online cooperation and knowledge sharing-platform for new-technology solutions. This type of advanced communication tools is used by the most innovative companies to promote innovation networking and ensure mutual benefits to the cooperating parties. The new website, targeted mainly at the start-ups and innovators community, is available at and provides a number of collaboration opportunities for innovators. One of them is Innowacje@orlen, an application that can be used to submit innovation proposals for the key areas of PKN ORLEN s operations, including Production, Power Generation, or Marketing and Sales. The Accelerator and Crowdsourcing sections provide details on the Group s current programmes for inventors, academics and businesses, encouraging them to present innovative solutions and cooperate closely with PKN ORLEN s top experts on their implementation. Other examples of PKN ORLEN s initiatives are networking meetings, such as the one during the 590 Congress in Rzeszów, or workshops run by PKN ORLEN experts for Polish start-ups at Impact 16 event in Kraków. The Unipetrol Group carried out research into motor fuel production processes and deeper refining of heavy fractions from crude oil processing. Efforts continued to explore the possibilities of using renewable energy sources in motor fuel production, along with work on low-sulfur fuel components and on improved-durability and wear resistance road bitumen. The company s R&D projects also included management of light hydrocarbons from pyrolysis and quality improvement of propylene used for polypropylene production, its production optimisation, and launch of new REACH-compliant catalytic systems. 28 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

32 ANWIL entered into a number of cooperation agreements: with the New Chemical Syntheses Institute on research into the application of gypsum from flue gas desulfurisation for nitrate fertiliser production, with the Nicolaus Copernicus University in Toruń on development of a conditioning technology for sludge from brine cleaning in the chlorine production plant, and with the Electrotechnical Institute of Warsaw on kinetic activation of catalysts used in production processes. Work also continued on the implementation of a production technology for nanocomposite-modified PVC. External funding from the INNOCHEM programme was obtained for the project entitled Development of the production technology for PVC-based ceramic composites. The ORLEN Lietuva Group continued its projects focused on production process energy efficiency improvement. A number of environmental projects were also in progress, such as reduction of dust emissions from the FCC unit, SO 2 ) and NOx emission reduction at the on-site CHP plant, and an emission monitoring system for the FCC, sulfur recovery and hydrogen generation plants. ORLEN OIL conducted research into the implementation of new products and quality modification of its existing products, new approval processes, use of lubricating oils, and defining new lubricating oil technology development directions to respond to customer expectations saw the development and launch of technologies for new products: 22 in the automotive oils segment, 13 in the service fluids segment, and 10 in the industrial oils segment, while modifications covered 14 products in the industrial oils, lubricating greases and automotive segment. The ORLEN Południe Group continued its development project entitled Glycerine conversion to 1,2-propylene glycol. A contract was signed for the purchase of the FEED and licence. Work also continued on 1 st and 2 nd generation biofuels. NEV fraction production was launched and the output is used as feedstock for the cracking plant. An anti-caking agent for fertilisers was developed thanks to funding obtained from the INNOCHEM Sectoral Programme for the project Biodegradable anti-caking agents for the fertilisers industry. The ORLEN Upstream Group continued its involvement in R&D projects as part of the Blue Gas programme, which is an element of a joint project by the National Centre for Research and Development and Agencja Rozwoju Przemysłu S.A. Its purpose is to support integrated R&D projects to develop and commercialise upstream technologies. In 2016, work was carried out in the Lubień Kujawski licence area to confirm the parameters and suitability of salt deposits for natural gas storage. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 29

33 DOWNSTREAM SEGMENT PRODUCTION MAXIMUM PROCESSING CAPACITY [million tonnes] PROCESSING CAPACITY UTILISATION 86% 93% 62% 91% ORLEN GROUP 78% 35.2 WHITE PRODUCT YIELD 80% 79% 73% 47% CZECH REPUBLIC LITHUANIA OLEFINS UNIT CAPACITY UTILISATION 70% 18% POLAND 87% 16.3 PTA UNIT CAPACITY UTILISATION 87% SALES [ 000 tonnes] ORLEN GROUP POLAND CZECH REPUBLIC LITHUANIA REFINING POLAND CZECH REPUBLIC LITHUANIA ORLEN GROUP 6,808 1,961 3,301 4, ,966 1,920 18,225 4,334 3, ,070 5,256 9,114 26,440 TOTAL SALES 30,708,000 tonnes FUELS HEAVY FRACTIONS OTHER REFINED PRODUCTS TOTAL PETROCHEMICALS POLAND CZECH REPUBLIC ORLEN GROUP , ,049 3,103 1,165 4,268 15,173 9,114 6,421 OLEFINS POLYOLEFINS BENZENE PLASTICS FERTILISERS PTA OTHER PETROCHEMICAL PRODUCTS TOTAL POLAND LITHUANIA CZECH REPUBLIC 30 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

34 LOGISTICS TOTAL LENGTH OF PIPELINE NETWORK USED [km] ORLEN GROUP 3,753 POLAND CZECH REPUBLIC LITHUANIA 1,888 1, LENGTH OF FEEDSTOCK PIPELINE NETWORK USED LENGTH OF PRODUCT PIPELINE NETWORK USED 1,695 2, , POWER GENERATION INSTALLED THERMAL CAPACITY [MWt] INSTALLED ELECTRICAL CAPACITY [MWe] 2,721.5 POLAND POLAND 93.0% 89.5% 91.7% 1,040.4 LITHUANIA BOILER EFFICIENCY LITHUANIA 1,399.1 CZECH REPUBLIC 84.2% 76.4% 90.1% CZECH REPUBLIC BOILER AVAILABILITY POLAND CZECH REPUBLIC LITHUANIA ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 31

35 Krystian Pater Member of the Management Board, Production In 2016, we maintained excellent production rates and we successfully dealt with the consequences of unscheduled shut-downs in the Czech Republic, while pursuing key growth projects. In order to strengthen PKN ORLEN s position on the petrochemical market, we commenced construction of a polyethylene unit in Litvínov, Czech Republic, and of a metathesis unit in Płock, which will significantly increase our output of propylene. Maintenance shutdowns and reconstruction of the Czech petrochemical assets did not affect production continuity and we were able to fully meet the demand for our products in all markets. We are particularly satisfied with the achievements of ORLEN Lietuva, which delivered excellent operating and financial performance. MARKET TRENDS DOWNSTREAM SEGMENT CRUDE OIL PRICES In early 2016, a barrel of Brent crude was priced at USD 30; the price rose in mid-year to over USD 48, subsequently reaching even higher levels, to finish the year at USD 55. One of the factors driving the price growth in 2016 was an unexpected agreement of OPEC countries, which will most likely lead to scaling down their production. In 2016, the global oil demand rose by over 1.2 mbbl per day and is projected to maintain that growth rate until The supply expanded by a mere 0.3 mbbl per day. The disproportionate supply and demand growth curves will begin to deplete global oil stocks starting from Most of the publicly available studies and projections for the medium term (until 2020) anticipate price rises. The primary price drivers over the next two years will include the OPEC countries production policy, US producers response to higher oil prices, production in Libya and Nigeria, volatility of the US dollar ex rate, and geopolitics. DOWNSTREAM SALES AND PRODUCTION A robust growth in margins in 2015 and their stabilisation in 2016 were supported by lower crude oil prices in the preceding years and the growing demand for oil refining products. In the short and medium term, refining margins in Europe will be driven by competitive pressures. Over a longer period, they will depend on the demand for refined products. Stable demand for petrol follows mainly from the efforts to reduce emissions of the European economies and to use more biofuels. As regards demand for Diesel oil, 2016 saw the emergence of a number of new factors undermining its growth prospects in the coming years. Global Diesel and petrol consumption are expected to rise at a relatively slow rate of 0.3% annually. However, the global consumption growth is very polarised as European and North American markets remain stable, with the growth attributable entirely to emerging markets. In the long run, a factor supporting demand for oil refining products and thus driving up refining margins will be the petrochemical sector and the expanding applications of modern plastics in the global economy. Central and Eastern Europe is among the fastest-growing markets in terms of demand for petrochemical products manufactured by the ORLEN Group (propylene, ethylene, butadiene, paraxylene, PTA and PVC). DOWNSTREAM POWER GENERATION According to the main scenario (New Policies) of the World Energy Outlook 2016 published by the International Energy Agency, global demand for electricity will grow at 2% annually, increasing by two-thirds by The annual growth rate of the global economy will be 3.4% in that period. Under the present circumstances, coal is the cheapest and the most common source of electricity generation in the world. In the longer run, however, it will be gradually replaced by natural gas, hydropower and renewable sources. Between 2008 and 2014, the share of wind energy increased by 4%, and of solar energy by 3%. By 2040, their share in electricity generation will grow threefold. Power generation from coal will continue to decline in structural terms, while gas-fuelled generation will grow gradually until 2030, to subsequently slightly reduce its share in the global mix. Poland is the key market for the Power Generation area of the ORLEN Group s Downstream segment, offering favourable growth prospects as Poland s energy consumption is lower than in most European countries. Electricity consumption per capita in Poland is still significantly below the EU average, coming to ca. 4.3 MWh in 2016, while the EU average was 5.5 MWh. The demand growth rate until 2020 is estimated at ca. 1.8% (CAGR according to CERA), and the growth will be primarily correlated with the country s economic growth. A sizeable portion of the existing generation capacities in Poland require upgrade or replacement due to ageing and high emission rates.. 32 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

36 ORLEN GROUP S MAIN PRODUCTION ASSETS TYPES OF REFINERIES IN EUROPE REFINERY TYPE AND DESCRIPTION SUPERSITE deep-conversion, complex assets with the potential to make very good returns, often in an advantaged location LYSEKIL GOLD deep-conversion, complex assets with the potential to make very good returns, often at an advantaged location. SILVER less complex assets capable of making adequate returns. NICHE sites which support petrochemical operations, manufacture speciality products, or support niche markets. 4.5 HEIDE 5.2 GÖTEBORG MAŽEIKAI XX NOT CLASSIFIED MAXIMUM ANNUAL PROCESSING CAPACITY ,8 HAMBURG 12.0 SCHWEDT GDAŃSK 16.3 PŁOCK GELSENKIRCHEN GODORF 13.7 KARLSRUHE LEUNA 5.4 LITVÍNOV 3.3 KRALUPY INGLOSTADT TRZEBINIA 6.0 BRATISLAVA JEDLICZE 3.5 DROHOBYCH 8.1 TOTAL PROCESSING CAPACITY OF THE ORLEN GROUP REFINERIES is at 35.2m tonnes SZÁZHALOMBATTA ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 33

37 PKN ORLEN s refinery in Płock is ranked among the most advanced integrated production facilities in Central and Eastern Europe, with the processing capacity of the conversion units at 16.3m tonnes per year. The maximum capacity of the olefins unit, which is of key importance to ORLEN s petrochemical operations, is approximately 700,000 tonnes of ethylene and approximately 380,000 tonnes of propylene. PKN ORLEN-produced monomers are a feedstock for the polymer units at Basell Orlen Polyolefins and the PVC unit at ANWIL. PKN ORLEN also operates a modern PX/PTA complex with an annual production capacity of ca. 690,000 tonnes of terephtalic acid. The other Polish refineries, operated by ORLEN Południe and located in Trzebinia and Jedlicze, specialise in the production of biocomponents, base oils, heating oil, hydrotreated paraffin as well as the regeneration of used oil. ORLEN Lietuva s refinery in Mažeikiai, with an annual production capacity of 10.2m tonnes, is the only facility of that type in the Baltic States (Lithuania, Latvia and Estonia). The Unipetrol Group refineries located in Kralupy and Litvínov have combined production capacities of 8.7m tonnes annually. The Unipetrol Group also has petrochemical assets with a production capacity of approximately 600,000 tonnes per year, including 320,000 tonnes of polyethylene and some 280,000 tonnes of polypropylene. A new polyethylene unit, with an annual capacity of ca. 270,000 tonnes, is under development, and will help increase the utilisation rate of the olefins unit and facilitate stronger integration of the petrochemical and refining production. ANWIL of Włocławek is the only Polish producer of polyvinyl chloride (PVC) and a major producer of fertilisers and sodium hydroxide in Poland. Its annual production capacity is ca. 1.2m tonnes of nitrogen fertilisers, 560,000 tonnes of PCV and granulates, and 360,000 tonnes of sodium hydroxide. Basell Orlen Polyolefins of Płock operates units whose combined production capacity reaches 820,000 tonnes annually (420,000 tonnes of polyethylene and 400,000 tonnes of polypropylene) and its products are distributed both domestically and on foreign markets. KEY OPERATING PARAMETERS CRUDE OIL PROCESSING AND FUEL YIELDS IN ,908 ORLEN GROUP ORLEN GROUP 30,147 LIGHT DISTILLATES 31% 31% 35% 31% 31% 34% MIDDLE DISTILLATES 48% 46% 47% 48% 45% 48% TOTAL 79% 77% 82% 79% 76% 82% PKN ORLEN ORLEN Lietuva UNIPETROL PKN ORLEN ORLEN Lietuva UNIPETROL 34 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

38 ORLEN GROUP DOWNSTREAM SEGMENT MARKET SHARES Wholesale of refined products In 2016, the ORLEN Group conducted wholesale of refined products in Poland, the Czech Republic, Germany, Slovakia, Hungary, Austria, Lithuania, Latvia, Estonia, Finland and Ukraine, as well as (by sea) to West-European handling terminals. The Group s home markets are Poland, Lithuania and the Czech Republic. The ORLEN Group offers a wide variety of refined products, including petrol, Diesel oil, Jet A-1 aviation fuel, heavy and light fuel oil, bitumens, motor oils as well as an extensive range of non-fuel products and semi-products. FUEL MARKET SHARE IN POLAND, CZECH REPUBLIC AND BALTIC STATES IN PETROL DIESEL OIL TOTAL FUELS POLAND pp pp pp 65.0% 66.4% 55.0% 51.4% 57.4% 54.8% CZECH REPUBLIC +6.7 pp +8.6 pp +8.1 pp 58.5% 65.2% 46.7% 55.3% 49.7% 57.8% BALTIC STATES +0.2 pp -0.3 pp -0.2 pp 68.0% 68.2% 76.8% 76.5% 75.2% 75.0% Source: In-house analysis. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 35

39 The ORLEN Group remains the leader in fuel sales in Poland. Last year, its share of the petrol market grew by 1.4% year on year, to reach 66.4%, while its share of the Diesel oil sales market dropped by 3.6%. Importantly, however, the grey market for fuels in Poland contracted as a result of new regulations, thus leading to growing official consumption as presented by the Energy Market Agency, which means that the shares from 2015 and 2016 are hardly comparable. The Czech market share grew, driven by a 4.2m tonne increase in annual production capacities, to 8.7m tonnes per year, following the purchase of Česká Rafinérská shares from Shell and Eni in 2014 and The fuel sales volumes and market shares of the Unipetrol Group were affected by the emergency shutdown of the fluid catalytic cracking unit at the Kralupy refinery starting from May In the Baltic States, there was a strong price pressure from Finnish, Belarusian and Russian suppliers. However, with its large portfolio of trading partners, from major customers to small businesses, and strong position, the Company was able to maintain the lead. Wholesale of petrochemical products The ORLEN Group is one of the largest petrochemical companies in Central and Eastern Europe, the only monomer and polymer producer in Poland, and the manufacturer of most petroleum products on the Czech market. POLYETHYLENE MANUFACTURERS IN EUROPE Europe s production capacities for high-density polyethylene (HDPE) and low-density polyethylene (LDPE) are currently at 13,567,000 tonnes per year. Lyondell Basell Industries the largest polyethylene manufacturer, with an annual production capacity of 2,195,000 tonnes (including its 50% share in BOP (Basell Orlen Polyolefins Sp. z o.o.) and production assets in Germany, France and Poland. Ineos Olefins & Polymers Europe, with an annual production capacity of 1,745,000 tonnes and assets in Belgium, France, Germany, Italy and Norway; and Sabic production capacity of 1,590,000 tonnes per year and assets in Germany, the Netherlands and the UK. The total production capacity of the ORLEN Group, with production sites in Poland and the Czech Republic (including its 50% share in BOP), is ca. 555,000 tonnes per year. The ORLEN Group is building a new Polyethylene 3 unit in the Czech Republic with a production capacity of ca. 270,000 tonnes annually. 16.2% LYONDELL BASELL 12.9% INEOS OLEFINS % SABIC 4.1% ORLEN GROUP 55.1% OTHER Source: In-house analysis based on POLYGLOBE. POLYPROPYLENE MANUFACTURERS IN EUROPE The European polyethylene production capacities are at 11,559,000 tonnes per year. Lyondell Basell Industries has an annual production capacity of 2,365,000 tonnes (including its 50% share in BOP) and assets in Germany, France, Italy, Spain, UK and Poland. Borealis, with an annual production capacity of 1,920,000 tonnes and assets in Belgium, Germany, Austria and Finland; and Total Petrochemicals, with a production capacity of 1,280,000 tonnes per year and assets located in Belgium and France. The total production capacity of the ORLEN Group, with production sites in Poland and the Czech Republic (including its 50% share in BOP), is ca. 480,000 tonnes per year. 20.4% LYONDELL BASELL 16.6% BOREALIS 11.1% TOTAL PETROCHEMICALS 8.7% SABIC 4.2% ORLEN GROUP 39.0% OTHER 2016 Source: In-house analysis based on POLYGLOBE. 36 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

40 PTA MANUFACTURERS IN EUROPE The European PTA production in 2016 was 2,532,000 tonnes. BP Chembel NV the largest PTA manufacturer, with an annual production capacity of 1,400,000 tonnes, located in Belgium. Artlant, with production sites in Portugal and an annual nominal capacity of ca. 750,000 tonnes; owing to long production unit downtimes, since Q its actual output has been limited. PKN ORLEN is the only manufacturer in Europe to have production units fully integrated with paraxylene production, and its production capacity totals 630,000 tonnes per year. PTA projects to be launched in Europe are mostly located in Russia, and include: Etana (750,000 tonnes per year, planned for 2020), Mogilev (600,000 tonnes per year, planned for 2020) and OJSC TANECO (210,000 tonnes per year, planned for 2021). However, due to long lead times and unstable political situation, the projects are uncertain. 36.1% BP CHEMBEL NV 19.3% ARTLANT 16.2% ORLEN GROUP 28.4% OTHER Source: In-house analysis based on PCI PVC MANUFACTURERS IN EUROPE The European nominal PVC production capacities total 7,561,000 tonnes per year. Permanent shutdown of Oltchim and Karpatneftekhim plants with nominal production capacities of ca. 300,000 tonnes annually. Europe s leading PVC manufacturer INOVYN, was formed following the combination of Ineos Chlor and Solvay; its annual production capacity is 2,195,000 tonnes. Other manufacturers, such as Kem One, Vynova, and Vinnolit, have annual PVC production capacities estimated at 881,000, 820,000 and 809,000 tonnes, respectively. ANWIL, with its production capacity of 340,000 tonnes per year, ranks 8 th on the European plastics market. ANWIL s main competitors on the Polish and European markets are BorsodChem, Inovyn and Vynova. 29.0% INOVYN 11.7% KEM ONE 10.8% VYNOVA 10.7% VINNOLIT 6.3% ORLEN GROUP 31.5% OTHER Source: In-house analysis based on IHS ORLEN GROUP S LOGISTICS ASSETS Well-functioning logistics infrastructure is an important element of the ORLEN Group s competitive advantage on the market. The Group uses a network of complementary infrastructure components: fuel terminals, on-shore and off-shore handling depots, and networks of feedstock transmission pipelines. In 2016, the ORLEN Group products were transported by pipelines, railway and by road tankers. In 2016, pipelines were the key mode of transport for the ORLEN Group s feedstocks and products. The total length of the network used in Poland, the Czech Republic, and Lithuania (both owned and leased pipelines) was nearly 3,800 kilometres (including 2,100 kilometres of product pipelines and 1,700 kilometres of feedstock pipelines). On the Polish market, PKN ORLEN used 620 km of pipelines owned by Przedsiębiorstwo Eksploatacji Rurociągów Naftowych Przyjaźń, and 338 km of its own pipelines. Crude oil is mainly transported over the network of pipelines owned by Przedsiębiorstwo Eksploatacji Rurociągów Naftowych Przyjaźń, 887 km long in total, and over the Company s own pipeline, 43 km long, connecting Góra (IKS Solino) and Żółwiniec (link to PERN Przyjaźń pipeline). ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 37

41 For the purpose of its operations involving receipt, storage, release and handling of fuels in Poland, the ORLEN Group used a total of 24 facilities (own fuel terminals as well as terminals owned by other ORLEN Group companies and by third parties). The total storage capacity available to PKN ORLEN (including owned and contracted infrastructure) as at the end of 2016 was approximately 7m cubic metres. In 2016, the ORLEN Group used 1,774 km of pipelines in the Czech Republic (1,100 product pipelines operated by ČEPRO, and 674 km of feedstock pipelines operated by MERO), along with 12 storage and distribution depots owned by stateowned operator ČEPRO, and 2 storage depots leased from other companies. The primary asset of the logistics infrastructure on the Lithuanian market is a 91 km long feedstock pipeline linking the terminal in Būtingė and the refinery in Mažeikiai. Both the terminal and the pipeline are owned by ORLEN Lietuva. On the German market, ORLEN Deutschland uses the storage and distribution capacities of 5 third party-owned depots located in northern Germany. Fuel transport on the German market is entirely by road. LOGISTICS INFRASTRUCTURE USED BY THE ORLEN GROUP IN EUROPE VENTISPILS TERMINAL DZÜKSTE MAŽEIKIAI REFINERY BUTYNGA TERMINAL BIRZAI (PUMPING STATION) ILUKSTE POLOTSK STORAGE DEPOTS RAFINERIE ČESKÁ RAFINÉRSKÁ ČEPRO STORAGE DEPOTS OTHER ENTITIES STORAGE DEPOTS ČEPRO PRODUCT PIPELINES MERO FEEDSTOCK PIPELINES HAMBURG HANNOVER SALZGITTER ROSTOCK MAGDEBURG DĘBOGÓRZE REJOWIEC NOWA WIEŚ WIELKA WROCŁAW LITVÍNOV HNĚVNICE MSTĚTICE HÁJEK CEREKVICE TŘEMOŠNA KRALUPY PARDUBICE HOŘOVICE (TERMINAL) DOMAŽLICE ŠLAPANOV BĚLČICE VČELNA ŚWINOUJŚCIE SZCZECIN SMYSLOV NOWA SÓL BOLESŁAWIEC STŘELICE IKS SOLINO LOUKOV KLOBUKY OSTRÓW WLKP. GDAŃSK MOŚCISKA KOLUSZKI BORONÓW LUBLIN TANQUID WIDEŁKA SOUTH RAFINERY OLSZANICA GUTKOWO PKN ORLEN ŻURAWICA SOKÓŁKA EMILIANÓW ORLEN LIETUVA REFINERY FEEDSTOCK PIPELINES PIPELINES OUT OF SERVICE PŁOCK PRODUCTION PLANT PKN ORLEN FUEL TERMINALS OPERATOR LOGISTYCZNY PALIW PŁYNNYCH DEPOTS IKS SOLINO STORAGE CAVERNS TANQUID RADZIONKÓW PERN PRZYJAŹŃ FEEDSTOCK PIPELINES PERN PRZYJAŹŃ PRODUCT PIPELINES PKN ORLEN PRODUCT PIPELINES PKN ORLEN FEEDSTOCK PIPELINES ORLEN GROUP TRANSPORT STRUCTURE IN 2016 POLAND LITHUANIA CZECH REPUBLIC GERMANY 52% 97% 48% 100% PIPELINES 26% 29% RAILWAY 22% 3% 23% ROAD TANKERS 38 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

42 POWER GENERATION The ORLEN Group is a major producer of electricity and heat, largely used by the Group to meet its own needs. It is also one of the biggest consumers of natural gas in Poland and an active participant in the natural gas deregulation process. Under the ORLEN Group s strategy, the Company has been upgrading its existing power generation infrastructure and implementing new investment projects (CCGT units). The ORLEN Group currently operates power generation units in three countries: In Poland (Płock, Włocławek, Jedlicze and Trzebinia), the Czech Republic (Litvínov, Spolana, Kolin and Pardubice), and Lithuania (Mažeikiai). The largest industrial CHP in Poland and one of the largest in Europe is PKN ORLEN s CHP unit in Płock. The heat and electricity it produces in highefficiency cogeneration are used for production needs and sold to external customers saw formal completion of projects to adapt the CHP to the new environmental requirements, and of a heat and power generation efficiency improvement programme. In 2016, the ORLEN Group also carried out projects to construct CCGT units in Włocławek and Płock. The technological configuration of the 463 MWe CCGT unit in Włocławek will be closely connected with the ANWIL production plant. The unit is scheduled to be commissioned in Q After it is placed in service, it will become the main supplier of process heat and electricity for the ORLEN Group and its surplus electricity output will be sold on the domestic market through PSE. In 2015, the Company launched a project to construct a 596 MWe CCGT unit in Płock. In 2016, key elements of the unit: the gas turbine, the steam turbine, and the generator reached the site and mechanical installation commenced. All administration, planning and easement matters for the unit s 400 kv power line were agreed in The CCGT unit in Płock is scheduled for completion towards the end of Wholesale electricity market operations were expanded into Lithuania and the Czech Republic. At the same time, PKN ORLEN launched electricity sales to end users. POWER GENERATION ASSETS OF THE ORLEN GROUP AND THEIR TECHNICAL PARAMETERS TOTAL ELECTRICAL CAPACITY [MWe] ,040 TOTAL THERMAL CAPACITY [MWt] ORLEN LIETUVA 345 2, CHP PLANTS PROJECTS IN PROGRESS ANWIL 8 90 PKN ORLEN ORLEN POŁUDNIE (TRZEBINIA) 61 SPOLANA LITVÍNOV PARAMO ORLEN POŁUDNIE (JEDLICZE) ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 39

43 DOWNSTREAM SEGMENT SALES VOLUME In 2016, the ORLEN Group achieved a record sales volume in the Downstream segment. It reached 30.7m tonnes, up 1.1% year on year, mainly on the back of higher refining volumes (up 4.9% yoy), with petrochemicals volumes on the Polish and Czech market smaller by 17.5% yoy. Light and middle distillate sales were the key driver of the sales volumes in Refining. In Petrochemicals, shrinking sales of monomers, polymers and PVC were the effect of supply limitations caused by unavailability of the Unipetrol Group s ethylene production unit until November 2016, after its failure in August 2015, and a scheduled shutdown of the olefins unit at PKN ORLEN. -9.4% RECORD SALES VOLUME IN THE DOWNSTREAM SEGMENT 30,708 thousand tonnes ORLEN GROUP DOWNSTREAM SEGMENT SALES IN [PLNm/ 000 tonnes] -8.8% VALUE -13.7% -17.9% -32.0% -51.5% -32.8% -22.3% -18.4% 2.5% -12.1% zmiana , ,202 25,062 22,714 11,528 10,513 4,610 3,786 2,978 2,025 2,341 1, , ,492 1,218 1,532 1,571 5,457 4,794 MIDDLE DISTILLATES 1 LIGHT DISTILLATES 2 HEAVY FRACTIONS 3 MONOMERS 4 POLYMERS 5 AROMATICS 6 FERTILISERS 7 PLASTICS 8 PTA OTHER 9 30, , ,995 12,459 5,437 5,766 4,544 4, ,146 1, ,508 4, % -22.4% -49.2% -30.7% -5.0% VOLUME 6.1% -4.6% -21.1% 3.1% 9.4% 3.9% 1) Diesel oil, light fuel oil, jet fuel. 2) Petrol, LPG. 3) Heavy fuel oil, bitumen, oils. 4) Ethylene, propylene. 5) Polyethylene, polypropylene. 6) Benzene, toluene, paraxylene, orthoxylene. 7) Canwil, ammonium sulfate, ammonium nitrate, other fertilisers. 8) PVC, PVC granules. 9) Other: in volume terms, the item includes chiefly brine, industrial salt, vacuum distillation products, acetone, ammonia, butadiene, phenol, technical gases, glycols, caprolactam, soda lye, and sulfur; in value terms, the item includes sales of the segment s other products, merchandise and materials as well as revenue from sales of services. 40 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

44 Higher PTA sales resulted from intensified production in H and a consistent sales policy on the European markets (Polish and German). The fall in fertiliser sales is attributable to the maintenance shutdowns of ANWIL s production units in June and July ORLEN GROUP DOWNSTREAM SEGMENT SALES REVENUE STRUCTURE IN MIDDLE DISTILLATES LIGHT DISTILLATES HEAVY FRACTIONS MONOMERS POLYMERS AROMATICS FERTILISERS PLASTICS PTA OTHER % 21.4% 7.7% 4.1% 2.3% 1.3% 1.7% 2.5% 3.2% 9.6% % 20.2% 8.1% 5.2% 4.1% 1.6% 1.9% 2.6% 2.7% 9.6% -0.1% 7.7% -4.5% TOTAL 1.1% , ,708 15,192 15,173 8,462 9,114 6,726 6,421 POLAND LITHUANIA CZECH REPUBLIC 49.4% POLAND 50.0% ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUMES ON HOME MARKETS¹ IN [ 000 tonnes] 1) By country of the relevant company s registered office. 29.7% 20.9% LITHUANIA CZECH REPUBLIC 27.9% 22.1% ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUME STRUCTURE ON HOME MARKETS ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 41

45 POLISH MARKET The ORLEN Group Downstream segment s sales on the Polish market in 2016 were on a par with the previous year s level, at 15.1m tonnes. Higher volumes were generated in Refining (up 2.2% yoy), while Petrochemicals volumes went down by 8.1% yoy, due to maintenance shutdown of the olefins unit at PKN ORLEN. In the refined products category, growth was reported in light and middle distillates. Intensified efforts to develop sales to end-users proved successful, with positive performance in sales to foreign groups and SMEs. Jet fuel sales continued an upward trend in 2016, which reinforced the Group s leading position on the market. Dynamic growth of air transport in Poland makes the jet fuel market an important element of the Group s sales strategy. ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUME ON THE POLISH MARKET IN [ 000 tonnes] 2.5% 9.8% -15.1% 4.3% TOTAL -0.1% -15.7% -0.5% -3.9% -16.2% 3.1% , ,173 4,980 5,104 1,634 1,704 2,309 1, ,395 3,728 MIDDLE DISTILLATES LIGHT DISTILLATES HEAVY FRACTIONS MONOMERS AROMATICS FERTILISERS PLASTICS PTA OTHER % 11.2% 12.9% 4.4% 1.4% 6.0% 1.9% 4.0% 24.6% % 10.8% 15.2% 5.2% 1.4% 6.3% 2.2% 3.9% 22.2% ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUME STRUCTURE ON THE POLISH MARKET IN ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

46 ORLEN LIETUVA OPERATING MARKETS Positive macroeconomic environment translated into a higher demand for fuels: in the three Baltic States markets it rose 3.2% yoy for petrol and 4.9% yoy for Diesel oil. Consumption grew the most in Lithuania, where demand for petrol went up by 9.0% yoy, and for Diesel oil by 12.8% yoy. An increase in excise duty adversely affected consumption on the Estonian market. Low market entry barriers in the Baltic States markets caused ORLEN Lietuva to operate in an increasingly competitive environment, under market pressure from importers from Finland and Belarus. Despite that, its total sales volume grew 7.7% yoy in In Ukraine, economic indicators improved but the situation of households, coupled with instability on the financial market and high inflation, produced a large degree of uncertainty and market risk. Despite those constraints, the ORLEN Lietuva Group s sales in Ukraine grew 1.1% year on year. ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUME IN THE ORLEN LIETUVA GROUP S MARKETS IN [ 000 tonnes] 0.8% 11.0% 17.4% TOTAL 7.7% 35.7% , ,114 4,179 4,213 2,480 2,753 1,635 1, MIDDLE DISTILLATES LIGHT DISTILLATES HEAVY FRACTIONS OTHER % 30.2% 21.1% 2.5% % 29.3% 19.3% 2.0% ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUME STRUCTURE IN THE ORLEN LIETUVA GROUP S MARKETS IN ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 43

47 THE CZECH MARKET Favourable market conditions drove up consumption of petrol and Diesel oil, by 1.7% and 4.0% yoy, respectively. In 2015, the Unipetrol Group became the sole owner of the refineries in Litvínov and Kralupy, and the only fuel producer in the Czech Republic. The combined sales of light and middle distillates grew 7.0% yoy, despite production constraints caused by the emergency shutdown of the fluid catalytic cracking unit of the Kralupy refinery from mid-may The 4.5% yoy drop in petrochemicals volumes is mainly attributable to the impact of the ethylene production plant failure in August The plant was placed back in operation in November ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUME ON THE CZECH MARKET IN [ 000 tonnes] 10.8% TOTAL -4.5% -1.1% -24.5% -78.7% -49.2% -75.2% -10.3% -36.8% 3.1% , ,421 2,836 3,142 1,323 1, MIDDLE DISTILLATES LIGHT DISTILLATES HEAVY FRACTIONS MONOMERS POLYMERS AROMATICS FERTILISERS PLASTICS OTHER % 20.4% 7.1% 0.3% 3.8% 0.6% 2.7% 1.0% 15.2% % 19.7% 8.9% 1.4% 7.2% 2.2% 2.9% 1.6% 13.9% ORLEN GROUP DOWNSTREAM SEGMENT SALES VOLUME STRUCTURE IN THE CZECH MARKET IN ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

48 SUPPLY SOURCES CRUDE OIL Crude oil is supplied to PKN ORLEN mainly through the Druzhba pipeline and by sea (and further over the Gdańsk-Płock pipeline). The ORLEN Lietuva refinery is supplied through the Būtingė terminal. In the Unipetrol Group, the feedstock is received chiefly through the southern section of the Druzhba pipeline (Litvínov) and TAL and IKL pipelines (Kralupy). The Litvínov refinery may also receive supplies from TAL and IKL pipelines. In 2016, the following long-term contracts were in force: with Rosnieft Oil Company and Tatneft Europe AG for oil supply through an oil pipeline to the Płock refinery, and with Saudi Arabian Oil Company for oil supply by sea. Those contracts covered over 70% of crude oil supplies to PKN ORLEN. In addition, PKN ORLEN supplies crude oil under separate contracts also to three ORLEN Group refineries: in Litvínov and Kralupy in the Czech Republic, and in Mažeikiai in Lithuania. Crude oil supplies from all sources proceeded as planned in The feedstock for all refineries of the ORLEN Group was procured from oil producers and other companies operating on the international oil market. The feedstock supplied to Płock came primarily from Russia and Saudi Arabia, but was also imported from Kazakhstan, Iran and Azerbaijan. Crude oil for the Czech refiinery was supplied from Russia, Algeria, Saudi Arabia, Azerbaijan and Kazakhstan. The Mažeikiai refinery was primarily supplied with Russian oil, complemented with deliveries from Saudi Arabia and Kazakhstan. In 2016, Rosfnet Oil Company s share in supplies of crude oil exceeded 10% of the ORLEN Group s revenue. NATURAL GAS In 2016, natural gas was supplied under a long-term contract executed with PGNiG in 1997 as well as contracts with alternative suppliers. In September 2016, PKN ORLEN and PGNiG signed a new five-year contract, valued at over PLN 7bn and expiring in The contract makes PGNiG a strategic supplier of gaseous fuel to ORLEN Group companies in Poland. gas trading, and improving trading expertise. Structured in 2016, the new portfolio of gas supply contracts makes it possible to implement optimisation measures covering different suppliers, various gas indices and different supply locations. Furthermore, PKN ORLEN is engaged in a number of exploration and production projects with a view to securing its own sources of natural gas and crude oil. The ORLEN Group takes steps to ensure supply stability and to lower its natural gas procurement costs, including by diversifying supply sources, centralising natural ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 45

49 46 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

50 RETAIL SEGMENT Zbigniew Leszczyński Member of the Management Board, Sales The Retail segment plays a fundamental role in creating a strong ORLEN brand, and thus in building the Group s value. In 2016, the segment once again delivered record-high financial performance, achieved through process optimisation, increased fuel sales, and consistent expansion of our non-fuel offering. We are implementing ambitious growth projects, such as the Stop Cafe catering format and the O!Shop store format, which are a powerful response to the growing expectations of service station customers. We also plan to include new services in our portfolio, reflecting global trends in catering to consumer needs. MARKET TRENDS RETAIL SEGMENT Almost all of 2016 saw low service station fuel prices, which reduced the appeal of economy chains, while premium stations enjoyed growing recognition with customers. Customers became more willing to buy premium fuels, as well as non-fuel and food services. New service station shop concepts were under development in the sector in Service station operators established alliances with major food chains, or started to work on their own formats and brands. Major oil groups focused on implementing new solutions and functionalities relying on new technologies, IT tools and systems, notably in such areas as payment methods, ordering, customer communication, or network management improvement. The Polish market experienced the effects of legislation s aimed at limiting the impact of the grey market. The effects for the Retail segment included an increase in the number of independent stations was another year of growth in the number of service stations, with nearly 200 new sites launched. More than 75% of those were independent operator stations. According to the Polish Organisation of Oil Industry and Trade (POPiHN), there were more than 6,800 service stations operating in Poland as at the end of Main competitors of PKN ORLEN on the Polish market include foreign groups, such as Shell, BP, Statoil, Lukoil, Total, and two self-service chains: AS 24 and IDS. The number of service stations on the Czech market in 2016 stayed flat relative to The market structure evolved, however, as some smaller non-public stations became generalaccess stations, increasing market competition. A significant on the retail fuel market in the Czech Republic was the launch of fuels with additives by most service stations. The German market saw no major structural s in the period. The existing leaders, Aral and Shell, maintained their position. In Lithuania, the Lukoil chain, which continued to be the market leader, was purchased by Amic Energy Management of Austria in Q ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 47

51 SERVICE STATIONS TOTAL SALES [ 000 tonnes] MARKET SHARE POLAND 5,052.4 GERMANY CZECH REPUBLIC LITHUANIA 2, ORLEN GROUP 17.7% GERMANY 6.0% POLAND CZECH REPUBLIC 17.8% LITHUANIA 3.5% ORLEN GROUP 8, % ORLEN GROUP 1, POLAND GERMANY CZECH REPUBLIC 25 LITHUANIA PREMIUM ECONOMY OTHER 1, , CODO/COCO DOFO/DODO TOTAL 2, ,726 1, , TOTAL NUMBER OF SERVICE STATIONS 48 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

52 NUMBER OF STOP CAFE AND STOP CAFE BISTRO CATERING OUTLETS NUMBER OF ORLEN GROUP SERVICE STATIONS , TOTAL: 1, ,691 POLAND CZECH REPUBLIC LITHUANIA _ ORLEN GROUP Stop Cafe , Stop Cafe BISTRO 41 Stop Cafe 2.0 Central Europe s LEADER with 2,726 service stations With a network of 2,726 service stations in the premium and economy segments, the ORLEN Group is the undisputed leader on the retail fuel market in Central Europe. In Poland, our service stations operate under the ORLEN brand in the premium segment and under the Bliska brand in the economy segment. In the Czech Republic, we use the Benzina Plus and Benzina brands, respectively, and in Lithuania the ORLEN brand (premium segment). On the German market, our service stations operate mainly in the economy segment under the STAR brand, complemented by more than a dozen of Familia supermarket stations. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 49

53 POLISH MARKET POLAND 35.9% pp 34.8% As at the end of 2016, the ORLEN Group boasted a network of 1,766 service stations in Poland. The Group s investment programme was centred on the construction of new service stations and motorway service areas, upgrade of the existing sites, and completion of rebranding of BLISKA stations to ORLEN. In mid-2016, a new shop and catering format: Stop Cafe 2.0 was launched. New functionalities offered to fleet customers and marketing campaigns allowed the ORLEN network to strengthen its position on the Polish market and to increase total fuel sales volumes by 5.6% yoy The decrease in the market share of the ORLEN Group in Poland is statistical. In 2016, the grey market for fuels in Poland contracted as a result of new regulations, leading to growth in official consumption as presented by the Energy Market Agency. In effect, market shares from 2015 and 2016 are not comparable. GERMANY 6.0% 0.0 pp 6.0% Expanding road network in Poland is driving development of motorway service areas next to motorways and expressways. As at the end of 2016, there were 72 motorway service areas in Poland, of which 28 (39%) were owned by the ORLEN Group. CZECH REPUBLIC % +1.7 pp 17.8% OTHER MARKETS The ORLEN Group has been present on the German market, considered the largest retail market in Europe, since The ORLEN Deutschland GmbH-owned chain included 572 service stations as at the end of 2016 (4% of all stations in Germany), keeping its 6.0% market share. The ORLEN Group remained the leader in terms of the number of service stations in the Czech Republic. As at the end of 2016, Benzina increased the number of its sites by 24, managing a total of 363 stations. With the completed investment projects, such as incorporation of 20 stations purchased from OMV, and a consistent retail price management policy, our share of the Czech market expanded to 17.8%. As at the end of 2016, in Lithuania the ORLEN Group had 25 service stations, managed by AB Ventus-Nafta (a subsidiary), which means a market share of 3.5%. LITHUANIA 3.6% pp 3.5% ORLEN GROUP S SHARE OF RETAIL FUEL MARKET 50 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

54 RETAIL SEGMENT SALES VOLUME The Retail segment s sales volume increased by 2.5% yoy in 2016, reaching 8.2m tonnes. Sales growth was recorded in the Polish, Czech and Lithuanian markets, and on higher fuel sales volumes at ORLEN Deutschland stations, accompanied by the company s lower sales of middle distillates in the wholesale format. ORLEN GROUP RETAIL SEGMENT SALES IN [PLNm/ 000 tonnes] -8.1% -2.0% ORLEN GROUP RETAIL SEGMENT SALES REVENUE STRUCTURE IN VALUE 8.7% -3.9% 47.9% 39.7% 12.4% , ,841 15,567 14,305 12,084 11,838 3,401 3, MIDDLE LIGHT MIDDLE LIGHT OTHER DISTILLATES 1 DISTILLATES 3 2 DISTILLATES DISTILLATES OTHER 7, , ,986 5,051 3,000 3, % 50.1% 38.9% 11.0% VOLUME 1.3% 4.5% 1) Diesel oil; light fuel oil sold by ORLEN Deutschland. 2) Petrol, LPG. 3) Other includes revenue from non-fuel products and services. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 51

55 SALES MARKETS ORLEN GROUP RETAIL SEGMENT SALES VOLUMES ON HOME MARKETS IN [ 000 tonnes] 5.6% 2.5% -5.7% 14.8% 3.1% , , , , , , POLAND GERMANY CZECH REPUBLIC LITHUANIA % 30.0% 7.5% 0.8% % 32.6% 6.7% 0.8% ORLEN GROUP RETAIL SEGMENT SALES VOLUME STRUCTURE ON HOME MARKETS IN Polish market The fuel sales volume on the Polish market increased by 5.6% yoy in 2016, to 5m tonnes. Premium fuel sales (VERVA) went up by 12.0% yoy. In 2016, the ORLEN Group again reported growth of its fleet sales volumes (by more than 10% yoy), which reached a record-high 31.8% of the segment s total also saw the start of the Group s work on a new international fleet strategy to provide Polish customers with access to refuelling points in most European countries. Sales to SMEs grew by 16.9% yoy. 52 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

56 Tests of a convenience shop and new catering corner format were completed in the first half of A new Stop Cafe 2.0 project was launched in the ORLEN retail network as a combination of the catering and convenience shop concept. ORLEN GROUP RETAIL SEGMENT SALES VOLUME ON THE POLISH MARKET IN [ 000 tonnes] 4.7% German market In 2016, the ORLEN Group recorded a 5.7% yoy drop in total fuel sales on the German market. This figure reflects both retail sales at services stations and sales of middle distillates to wholesale customers. ORLEN Deutschland s retail volumes went up by 2.6% yoy, notably thanks to higher Diesel oil sales. However, the improved performance of the Retail segment failed to offset a drop in Diesel oil and light fuel oil wholesale volumes. ORLEN GROUP RETAIL SEGMENT SALES VOLUME ON THE GERMAN MARKET IN [ 000 tonnes] TOTAL 7.3% TOTAL -9.3% -1.0% 5.6% -5.7% , , , , , , , , , , , ,106.3 MIDDLE DISTILLATES LIGHT DISTILLATES MIDDLE DISTILLATES LIGHT DISTILLATES % 35.8% % 45.1% % 35.2% % 42.9% ORLEN GROUP RETAIL SEGMENT SALES VOLUME STRUCTURE ON THE POLISH MARKET IN ORLEN GROUP RETAIL SEGMENT SALES VOLUME STRUCTURE ON THE GERMAN MARKET IN ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 53

57 Czech market 2016 was another year of high growth in fuel sales in the Benzina network, reaching 14.8% yoy. The annual average sales per station also rose, by 6.7% yoy, to 2.1m litres. Improved availability of VERVA fuels at further Benzina stations translated into an increase of 2.2pp yoy in the share of those fuels in the total volumes, to 19.3%. A decision was also made to switch to a single brand on the Czech market: the service stations are to be ultimately managed under revamped Benzina brand. The only exception will be the developing network of self-service stations (Benzina Express). Benzina stations are to form a premium network. As at the end of 2016, the ORLEN Group managed a network of 363 stations in the Czech Republic, operating as Benzina Plus (114 stations), Benzina (231 stations), Benzina Express (5 self-service stations), and 13 stations as simplified brand outlets saw initiation of the process to take over 68 stations in the Czech Republic purchased a year earlier from OMV. Lithuanian market The ORLEN Group s fuel sales volumes in Lithuania grew 3.1% yoy in A significant increase in middle distillate sales was coupled with a year-on-year drop in light distillates. ORLEN GROUP RETAIL SEGMENT SALES VOLUME ON THE CZECH MARKET IN [ 000 tonnes] ORLEN GROUP RETAIL SEGMENT SALES VOLUME ON THE LITHUANIAN MARKET IN [ 000 tonnes] TOTAL 14.8% 14.8% 14.8% TOTAL 3.1% 10.2% -13.9% MIDDLE DISTILLATES LIGHT DISTILLATES MIDDLE DISTILLATES LIGHT DISTILLATES % 33.2% % 24.5% % 33.2% % 29.4% ORLEN GROUP RETAIL SEGMENT SALES VOLUME STRUCTURE ON THE CZECH MARKET IN ORLEN GROUP RETAIL SEGMENT SALES VOLUME STRUCTURE ON THE LITHUANIAN MARKETIN IN ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

58 UPSTREAM SEGMENT Janusz Radomski President of the Management Board at ORLEN Upstream The Upstream segment has a significant position in PKN ORLEN s value creation map, and is consistently increasing its contribution to the Group s performance. We are expanding our resource base and acquiring the knowhow that is particularly valuable in the upstream industry. By optimising work and focusing on the most promising projects, we expect to leverage the strong potential for production growth, both in Poland and Canada. ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 55

59 UPSTREAM The ORLEN Group s new strategy envisages further expansion of upstream operations to increase production volumes and oil and gas resources under control. Competence building in the Upstream segment required setting up an international team of experts, capable of building and managing a diversified asset portfolio, and using state-of-the-technology exploration and production methods. OIL AND GAS RESERVES (2P) [m boe] MARKET TRENDS UPSTREAM SEGMENT PRODUCTION [m boe per year] AVERAGE PRODUCTION [ 000 boe per day] PRODUCTION STRUCTURE [%] WELLS, NET [number] LICENCES [number] 46 LIQUID GASEOUS 10 LIQUID GASEOUS A ca. 30% growth in global demand for primary energy by 2040, envisaged in the New Policies scenario of the International Energy Agency, entails growing use of all fuels. Among fossil fuels, natural gas is expected to see the largest consumption growth by 2040, at nearly 50%, while crude oil consumption is projected to increase by ca. 12%. According to IEA s main scenario, the demand for energy in OECD countries in will decline at an annual average rate of 0.1%, while non-oecd economies will generate annual average energy consumption growth of 1.6%. The largest growth in total demand for oil in IEA s main scenario until 2040 will take place in India, translating into the annual average growth rate (CAGR) of 3.8%. China, accounting for the second-largest increase in total oil consumption, will overtake the US and become the world s largest oil consumer as early as at the beginning of the decade. In , due to falling crude oil and natural gas prices, combined with limited access to financing, the vast majority of upstream companies in the world decided to limit the scope of their current projects and focus on those with the highest progress rate, and on the most promising exploration areas. At the crude oil supply end, OPEC is expected to resume active market management, the first sign of which was a formal meeting of OPEC countries in November 2016, the decision to reduce oil production in H1 2017, and non-opec countries, including Russia, joining the agreement. Improved financial performance of upstream companies was accompanied by more activity on the mergers and acquisitions market, notably in the US, where the prevailing trend was consolidation of licensed areas. According to IEA s main scenario, by 2040 gas consumption will grow in almost every leading consumer country, except Japan and Russia. The global market will see a growing share of LNG supply, which IEA expects to increase its market share two times by Based on projections, the US and Australia will account for two-thirds of the total gas production growth by 2020, however, from the start of the decade to 2040, significant gas supply growth will be generated by a broader circle of producers, with East Africa and Argentina joining in as new important market players. CANADA POLAND 56 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

60 Operations in Poland In 2016, the ORLEN Group continued to optimise its portfolio of assets by acquiring new licences and withdrawing from less promising exploration areas. In Poland, as at the end of 2016 ORLEN Upstream and its subsidiary, FX Energy, worked (independently or with a partner, PGNiG) in 31 licence areas, having the surface area of ca. 19,000 square kilometres, located in 9 provinces and spanning 3 crude oil basins. The ORLEN Group holds 100% interests in 17 licences, a 51% interest in 1 licence, and 49% interests in 13 licences. As at the end of 2016, the Group had 2P domestic reserves of 11.3 mboe, with annual average production of 1,200 boe per day. EDGE SIERAKÓW KARBON PŁOTKI LUBLIN SHALE MID-POLAND UNCONVENTIONALS WARSZAWA UPSTREAM SEGMENT ASSETS IN POLAND 100% INTEREST HELD BY THE ORLEN GROUP KARPATY MIOCEN BIESZCZADY 51% INTEREST HELD BY THE ORLEN GROUP (PROJECT DEVELOPED WITH A PARTNER) 49% INTEREST HELD BY THE ORLEN GROUP (PROJECT DEVELOPED WITH A PARTNER) XXX PROJECT NAME ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 57

61 Operations in Canada The ORLEN Group operates in Canada primarily in Alberta, and holds production assets covering a total area of almost 1,600 square kilometres. Its annual average production of hydrocarbons reached 12,200 boe per day in 2016, while the 2P reserves as at the year-end totalled mboe. Operations on the stable Canadian market are aligned with the risk profile set out in the strategy. Good deposit parameters of the assets and growing operations in a well-surveyed area mitigate the investment risks. The Canadian market also offers good access to drilling and well services, as well as qualified personnel experienced in unconventional hydrocarbon extraction. Equally important are the stable tax regime and business-friendly regulatory environment. In 2016, a gas treatment system owned by ORLEN Upstream Canada was placed in service in the Ferrier/Strachan area. Its daily production capacity is 1.1m cubic metres of reservoir fluid, which translates into the capacity to process 6,500 boe per day. The ORLEN Group also holds production assets in New Brunswick and a 10.7% interest in the liquefied gas export terminal construction project (Goldboro LNG) on the eastern coast of Canada. UPSTREAM SEGMENT ASSETS IN CANADA POUCE COUPE MONTNEY KAKWA MONTNEY KAYBOB DUNVEGAN ALBERTA GOLDBORO LNG FERRIER/STRACHAN CARDIUM MONCTON SUB-BASIN HIRAM BROCK LOCHEND CARDIUM NEW BRUNSWICK NOVA SCOTIA XX XX PROJECT NAME GEOLOGICAL FORMATION NAME 58 ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS

62 UPSTREAM SEGMENT SALES VOLUME ORLEN GROUP UPSTREAM SEGMENT SALES VOLUME IN [ 000 tonnes] 101% 153% 333% % -21% 251% VALUE VOLUME 106% 80% CRUDE OIL NATURAL GAS OTHER CRUDE OIL NATURAL GAS OTHER Until the end of 2015, hydrocarbon production and sales were conducted by the Upstream segment in Canada. Following acquisition of the entire stake in American FX Energy in December 2015, in 2016 the production and sales of hydrocarbons were also carried out on the Polish market In 2016, combined sales on the two markets reached nearly 5m boe, up 80% yoy. 10.0% 90.0% POLAND CANADA 0.0% 100.0% ORLEN GROUP UPSTREAM SEGMENT SALES VOLUME STRUCTURE ORLEN GROUP FACTS FIGURES COMMENTS 2016 OUR OPERATIONS 59

63 RESPONSIBLE DEVELOPMENT 60 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT

64 Business strategies are expected to address challenges posed by civilisational s, progress and advancement, and evolving stakeholder expectations. Responsible leadership and, consequently, sustainable growth of a business, is the way to mitigate risks, build trust in the brand and enhance its reputation. Responsible management across the ORLEN Group is driven by our awareness of the Company s impact on its immediate and more distant environment, and predictions of its effects and the brunt to be borne by future generations. CORPORATE SOCIAL RESPONSIBILITY The ORLEN Group s Corporate Social Responsibility (CSR) strategy states that value growth should be aligned with the interests of external stakeholders and rely on sustainable and responsible use of resources. The CSR strategy identifies three principal areas of activity Organisation, Close Environment and Distant Environment. In the first, Organisation, the key goal is to build lasting relations with employees based on diversity, sense of security, development opportunities, as well as combining social and professional roles. In the Close Environment, priority is given to developing social conscience and responsibility in trading partners and customers through sharing best practices and knowledge, and implementing most exacting CSR standards. In the Distant Environment, PKN ORLEN promotes innovation and fosters the highest industry standards in business ethics and environmental protection. As part of the first area, the ORLEN Group strives to create a culture based on trust, equal opportunities and fair treatment of all employees regardless of sex, age, job position, length of service, trade union membership, religion, nationality, belief, physical appearance or sexual orientation. The Group follows transparent human rights and non-discrimination policies and is committed to ensuring work-life balance. Key activities in the strategy s second area, namely activities related to promoting social conscience and responsibility, include employee volunteering projects. The assumptions underlying the Employee Volunteering Programme have been revised, and now it is also open to initiatives put forward by the employees. By expanding the catalogue of activities, the Group has been able to steadily increase the number of charity campaigns and of the participating employees. Innovative projects seeking to reduce the ORLEN Group s environmental footprint represent the third pillar of the CSR strategy. Corporate environmental responsibility is much more than just compliance with environmental laws and regulations or undertaking educational projects addressed to employees, customers, suppliers and local communities. It also encompasses implementation of environmental management systems and investing in innovative, environmentally-friendly technologies which bring benefits and are a source of competitive advantage on the market. ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT 61

65 Listed below are some of our CSR projects: ORGANISATION ORLEN Olympics and Chemists Day with the participation of several thousand of Company employees from five countries (Poland, Lithuania, the Czech Republic, Germany and Canada) and a family picnic open to all inhabitants of Płock. 660 participants of the Open Doors Day at the Płock production plant for the families of PKN ORLEN employees. The It s a Good Idea to Help grant competition nearly 2,000 volunteers and 777 beneficiaries in 4 provinces. We Act Together to Help voluntary scheme 760 volunteers and more than 260 beneficiaries. Eco-Volunteering programme in Płock and Warsaw as part of the Earth Day 144 volunteers. Good Energy Factory a volunteering programme of employees of the Płock production plant for the benefit of the local community: long-term partnership with foster care institutions in Płock and its vicinity 450 volunteers and nearly 500 beneficiaries. Project Management Day event organised to create a project community at the Company, and apply in practice mechanisms of knowledge management in projects; it contributes to the development of project management skills and culture 150 employees involved across the ORLEN Group. CLOSE ENVIRONMENT More than 33,000 participants of the ORLEN Warsaw Marathon. More than 100,000 participants of Central Europe s biggest motor and entertainment show VERVA Street Racing, organised in the vicinity of the National Stadium in Warsaw, combining world-class motor sports and entertainment. Funding provided to more than 150 fire brigades from all over the country for safety related activities. The ORLEN Group s first ever Integrated Report. DISTANT ENVIRONMENT Maintaining the prestigious title of The World s Most Ethical Company. Promotion of Poland s economy projects promoting Polish achievements: Congress 590, 100% Polish, Poland s 200 Largest Companies, I Buy Because It s Polish, and Poland s Compass. Continued participation in the project to restore the peregrine falcon population in Poland, run since 1999 in cooperation with the SOKÓŁ ( FALCON ) Wildlife OVER 2,000 COMPETITORS IN ORLEN OLYMPICS Continuation of the cross-sectoral partnership programme support for the Grant Fund for Płock Foundation and the Good Neighbourhood Grant Fund for Ostrów Wielkopolski Association. Nationwide social campaign Gym Class with the Champion, seeking to promote sports and broadly understood physical activity as elements inevitable for a child s proper development number of children: 11,172, number of athletes: 88, number of towns: 35. More than 500 participants of walk-through events at the Płock production plant. OVER 11,000 CHILDREN PARTICIPATED IN GYM CLASS WITH THE CHAMPION Protection Association. Since the first in 2002, 42 chicks of the peregrine falcon, a species threatened with extinction, have hatched in the grounds of the PKN ORLEN Płock production plant. A proprietary project called Future Fuelled by Knowledge. THE WORLD S MOST ETHICAL COMPANY ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT

66 RESPONSIBLE EMPLOYER Mirosław Kochalski Vice President of the Management Board, Corporate Affairs Modern management culture and friendly working environment are among PKN ORLEN s key competitive advantages. We promote solutions that facilitate maintaining a good work-life balance. Our personal development initiatives, employee benefits, a wide range of training courses, and knowledge sharing opportunities are highly rated not only by employees themselves but also by independent expert panels, which invariably distinguish PKN ORLEN as Poland s leading employer. The number of ORLEN Group employees went down by 202 in 2016 and was 19,730 at the year end. The reduction followed mainly from the sale of ORLEN Transport and the reorganisation at ORLEN Oil and ORLEN Administracja. At the same time, the headcount in the Power Generation segment of PKN ORLEN, the ORLEN Upstream Group, and the maintenance units of ORLEN Serwis, ORLEN EKO and Centrum Serwisowe was increased as a result of business growth. The annual average headcount at the ORLEN Group was 19,749 in 2016, down by 244 year on year. 19,730 DEDICATED STAFF NUMBER OF EMPLOYEES AT ORLEN GROUP COMPANIES AS AT THE END OF 2016 AND 2015 PKN ORLEN UNIPETROL GROUP ORLEN SERWIS ORLEN LIETUVA GROUP ANWIL ORLEN OCHRONA GROUP OTHER ,786 4,576 1,605 1,582 1,244 1,055 4,882 Including: 827 employees ORLEN POŁUDNIE 604 employees ORLEN LABORATORIUM 446 employees ORLEN KSIĘGOWOŚĆ ,651 3,831 1,293 1,569 1,939 1,028 5, employees ORLEN POŁUDNIE 591 employees ORLEN LABORATORIUM 540 employees ORLEN TRANSPORT 448 employees ORLEN KSIĘGOWOŚĆ ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT 63

67 WORKFORCE STRUCTURE AT THE ORLEN GROUP IN % 56% 44% 26% MEN WOMEN BLUE-COLLAR STAFF WHITE-COLLAR STAFF GENDER JOB TYPE 39% 35% 23% 3% EDUCATION TERTIARY SECONDARY VOCATIONAL PRIMARY 89.0% 11,0% 83.8% 16.2% MEN WOMEN MEN WOMEN MANAGEMENT BOARDS OF ORLEN GROUP COMPANIES SUPERVISORY BOARDS OF ORLEN GROUP COMPANIES In 2016, work continued on building employee engagement in the ORLEN Group. At 16 companies, an employee opinion survey and an evaluation of employee needs were carried out and initiatives were developed and launched to improve employee satisfaction and engagement. In 2016, the Group continued its recruitment policy aiming to employ high-class specialists with educational background and competences ensuring the continuity and high standard of business and technology processes. We participated in job fairs at universities of technology and helped students and graduates gain hands-on job experience by organising internship and work placement programmes. ORLEN Group companies worked with secondary schools and universities to align the curricula to workforce needs and to help potential future employees develop industry-specific skills when still at school. The Adaptation Programme, which allows new employees to familiarise themselves with ORLEN Group operations, organisational culture, values and standards of conduct, was continued. 64 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT

68 PKN ORLEN s activities in professional development and training were focused both on enhancing employee qualifications to meet the business goals in individual areas of activities and on developing the desired attitudes and corporate culture supporting implementation of our strategy and increasing employee engagement. As part of leadership development, we continued the Leader Zone programme a multi-module programme carried out in the form of workshops for the management, designed to improve their skills in team management, development of team potential, enhancement of team engagement and innovativeness, as well as building managers integrity. To support strategy implementation in 2016, we continued with the ORLEN Talent Academy project for managers at the ORLEN Group and with the Ex-Change knowledge transfer mentoring programme. Our staff could also participate in open lectures held under the Vector programme, which in 2016 included meetings with opinion leaders and people of authority as a new form of inspiration. In addition, PKN ORLEN entered its team in the Global Management Challenge, an incentivising project for talented employees aimed at developing general business awareness and held as a team competition. In 2016, PKN ORLEN employees were offered opportunities to undergo specialist training and attend postgraduate courses, MBA courses, industry conferences and seminars in Poland and abroad. The principles of social dialogue at PKN ORLEN are founded on internal regulations and generally applicable laws, which facilitates development of constructive and lasting solutions in partnership with employee representatives. The Group s employees are provided with various benefits, including: co-financing of employee holidays or sanatorium treatment, child care, holidays for children and teenagers, school starter kits, financial support for families with low income, recreation and sports activities, cultural and educational activities, non-repayable allowances, rehabilitation benefits, repayable housing loans, and Christmas gifts for children. The Company also provides extensive medical care going beyond the scope of occupational medicine. As an employer implementing modern-day solutions aimed at keeping the balance between work and family life, PKN ORLEN carried out the Family-Friendly Employer project, offering such benefits as additional two days off to care for a child under three years old, a nursery school for children of ORLEN Group employees, one additional hour for breastfeeding, medical care during pregnancy, baby feeding rooms, gifts for newborn children of our employees, and sending Company updates to employees on parental/childcare leaves. EMPLOYEE VOLUNTEERING PROGRAMME Our Employee Volunteering Programme has operated since 2004 and has become a fixed element of our corporate culture. It comprises three different programmes and forms of engagement grant-giving, integration, and campaigns, through which the employer provides financial, expert and organisational support to social and charitable activities initiated and carried out by the employees. In 2016, employees combined training sessions with assistance to those in need by signing up for the We Act Together to Help voluntary scheme. Those initiatives produced tangible results as the volunteers renovated facilities and cleaned up day care centres grounds, erected playgrounds, organised educational workshops and sports activities also saw the inauguration of the Good Energy Factory voluntary scheme, under which employees of the Płock production plant carried out renovation and construction work for the local community. Last year, a total of 450 volunteers implemented 8 major renovation projects with enormous scopes of work renovation of playgrounds and green areas, as well as over 40 rooms used daily by nearly 500 children from care and education facilities. The Company s employees received grants to implement their own social initiatives for local communities under the It s a Good Idea to Help grant programme. For instance, they helped patients of hospices and hospitals and organised workshops for children. In addition, they also carried out two large environmental campaigns involving entire families. One, to mark the Earth Day, involved cleaning up the Vistula river bank in Płock, the other, in Warsaw, restoring the ecosystem of the Czerniakowskie Lake. As the year drew to its close, the spotlight was on the 10 th edition of the Christmas volunteering project Become a Santa Claus Helper Make Someone s Dreams Come True. As part of the project, employees purchased and donated more than 1,500 Christmas gifts to children under the care of day care centres, orphanages and foster family group homes in different regions of Poland. In 2016, ORLEN volunteering initiatives attracted more than 2,000 volunteers, including employees of the Company and the service stations as well as their family members, who all came together to complete almost 80 social projects and supported nearly 4,000 beneficiaries. OVER 2,000 VOLUNTEERS ALMOST 4,000 RECIPIENTS ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT 65

69 Piotr Chełmiński Member of the Management Board, Development and Power Generation Occupational health and safety and process safety are priority areas in our strategy. In 2016, thanks to the high motivation and commitment of the entire team, we achieved a very good Total Recordable Rate, proving that PKN ORLEN is a safe place for both employees and contractors. We also seek to develop the ORLEN Group s production assets in a sustainable manner, with due regard to the natural environment and local communities. SAFETY Safety is one of the ORLEN Group s priorities. Our safety policy is put in action by integrating all aspects, standards, best practices, and new knowledge and technology advances in the field of workplace safety into the operations of the ORLEN Group companies. Our primary goal in 2016 was to create uniform ORLEN Group safety standards for the Group companies operational areas. These standards will be implemented in as a strategic project. Once put in place, they will ensure a uniformly high level of safety at our facilities in Poland, the Czech Republic and Lithuania, making the ORLEN Group stand out against other industry players. An important aspect of work to enhance an accident-free safety culture across the ORLEN Group in 2016 was efforts to raise awareness of safe working practices and encourage a proactive approach among employees and contractors. These efforts took the form of various projects and schemes, including Report a Workplace Hazard, OHS Incentive Programme, Safety First, Safety is Our Priority, Staff Support System, and ORLEN Group Health and Safety Week. To ensure our process safety management system meets the highest standards, the sixteenth edition of a postgraduate programme in industrial process safety for ORLEN Group employees was held last year. Fifty-four employees completed the course. Our safety improvement initiatives undertaken in 2016 were recognised by independent experts. For instance, our subsidiary ANWIL received an award from the Ministry of Family, Labour and Social Policy in the 44th Nationwide Working Conditions Improvement Competition. The safety improvement measures that we implemented in 2016 helped us keep the Total Recordable Rate (TRR) for employees and contractors at a level close to that achieved in 2015 (0.87 in 2016 vs 0.86 in 2015). Fewer TIER 1 1 emergencies were reported last year three TIER 1 incidents compared with five in To meet the needs of the ORLEN Group s constantly evolving occupational safety area, a new OHS management concept is planned for implementation in It will be based on building and developing the ORLEN Group s uniform safety standards, while enhancing the excellence in operations and in preventive measures related to personal and process safety. According to the new concept, an important element of the ORLEN Group s safety management system is building a safety culture in which employees identify with the Group s work safety standards and take responsibility for their own and their colleagues safety. Human life and health are primary values and they should be afforded special protection in the workplace. Together we create a working environment that motivates employees and contractors to practice personal safety in and outside the workplace. 1) TIER 1 events events with a significant impact related to a sudden and unexpected substance release due to ineffective protection layers. 66 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT

70 ENVIRONMENTAL PROTECTION Reducing the environmental footprint has long been our top priority. The projects carried out in 2016 chiefly involved adaptation of plant and process units to new environmental requirements and standards. These efforts included administrative work on applications to terms of integrated permits for our plants, as well as capex projects related to our production plant and equipment. The key environmental protection initiatives carried out in 2016 included installation of photovoltaic modules at selected service stations in Poland. The most important environmental project completed in 2016 at the Płock production plant was the construction of flue gas denitrification and dust removal units for the CHP plant, as well as construction of a flue gas desulfurisation unit. Operation of the unit in 2016 reduced SO 2 emissions from the CHP plant by more than 95% year on year. Major projects carried out at the other companies of the ORLEN Group included: construction of DeNOx and DeSOx units; installation of a new system for continuous monitoring of emissions at the T700 power plant; extension of the systems for continuous monitoring of emissions at the Unipetrol Group s refineries in Litvínov and Kralupy; and adaptation of a power node at ORLEN Południe to applicable laws on flue gas and dust emissions. In 2016, we conducted ongoing monitoring of emissions, air quality, waste volumes, noise emissions, wastewater pollutants, surface water and groundwater, and greenhouse gas emissions. The ORLEN Group has implemented ISO environmental protection standards. We operate an ISO Environmental Management System certified by Bureau Veritas Certification until The certification is a proof of the achievement of a maximum neutral impact on our immediate environment and a reduced environmental impact of our processes. PKN ORLEN has biomass and biofuel production certified under the ISCC EU system, which confirms compliance with standards of sustainable use of renewable energy sources. ISCC aims to protect the biosphere, ensure rational land management, promote sustainable social development, and reduce greenhouse gas emissions. An ISO Energy Management System is being implemented at the production plant in Płock, PTA plant in Włocławek, office buildings in Płock and Włocławek, terminals and service stations, in order to increase energy efficiency, which will ultimately lead to lower costs and reduced greenhouse gas emissions. The system will be certified in The Group continued its activities under the Responsible Care Programme by carrying out the following projects: Catch the Hare photo competition, I Care for the Environment, Wildlife Watchers, and A Tree for a Bottle the New Edition. We engaged in initiatives promoting environmental knowledge and in outreach projects, and we continued the programme for reintroduction of the endangered peregrine falcon in Poland. ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT 67

71 CHARITABLE ORLEN PKN ORLEN has pioneered support for local communities within the framework of cross-sectoral cooperation, with a view to improving the quality of life in the areas where the Company operates. Its grant programme is addressed mainly to local NGOs that run innovative projects for local communities, but a few years ago it was also opened to individuals. The pursued projects aim to improve the quality and standard of life, promote equal opportunities, and establish partnerships. They support entrepreneurship based own capabilities and competences. The cross-sectoral cooperation project relies on the know-how provided by UNDP (United Nations Development Programme). In Płock, it is managed by the Grant Fund for Płock Foundation launched by the Płock municipal authorities, PKN ORLEN and Basell Orlen Polyolefins. Good Neighbourhood Grant Fund for Ostrów Wielkopolski Association, which has received financial aid from PKN ORLEN since its inception, pursues its goals in a similar fashion. The Company also embarks on new projects. In 2016, PKN ORLEN became one of the sponsors of the Polish National Foundation, whose goal is to promote and protect Poland s economy and image. The Company also sponsored the World Youth Day, a religious, cultural and social event. In accordance with its CSR strategy, PKN ORLEN strives to involve customers in charity initiatives. Since 2006, they have been offered an opportunity to donate points received in the VITAY customer loyalty programme to support foster family group homes. Since 2015, they can also support environmental initiatives. In 2016 alone, customers donated over 2.5m VITAY points. The cash equivalent of the points was allocated to finance animal care, treatment and rehabilitation for eagles, and planting of trees in urban areas. There are two foundations operating within the ORLEN Group. The first is the ORLEN GIFT FROM THE HEART Foundation. Established by PKN ORLEN in 2001, it is one of corporate foundations with the longest presence in Poland. In 2014, the ANWIL for Włocławek Foundation was set up by ANWIL. The activities of the ORLEN GIFT FROM THE HEART Foundation are centered on a few specific areas. The key programme, run since the Foundation s inception, seeks to promote foster families in the form of foster family group homes. The broad range of activities in that area are undertaken to improve awareness of this form of foster care and provide practical and financial support. The Foundation supports some 350 foster family group homes and childcare facilities, with over 2,500 children in care, which is almost half of all such institutions in Poland. The Foundation also runs scholarship programmes. A project that enjoys strong popularity on a local scale is My Above-Average Interests for students of colleges and high schools in Płock and its county. The Masters of Chemistry scholarship is addressed to the most talented students with outstanding performance in hard sciences, in particular chemistry. The Life to the Full programme supports Paralympic athletes, the best Polish athletes with disabilities, and gold medallists from the 2012 Summer Paralympic Games in London. In 2016, it was joined by further Paralympians, medallists at the Paralympic Games in Rio de Janeiro. Another area of the Foundation s activity is safety issues, with assistance provided to institutions having safety at the core of their mission. Also, for several years the Foundation has conducted a social campaign No to Smoke, encouraging people to ensure safety at their own homes and in their immediate environment. The Foundation carries out many activities aimed at promoting culture, science, national traditions, sports and other forms of physical activity. In 2016, it launched a new project to encourage staff to volunteer at hospices in Poland and improve the quality of care in establishments selected by the employees. The first edition of the programme attracted wide interest, with 140 people offering financial support to eight establishments. Based on an opinion from a panel comprising Foundation representatives and the Founder, the donations were awarded to all institutions entered in the programme. The ANWIL for Włocławek Foundation provides support to a wide spectrum of projects benefitting local residents. It helps implement projects in various areas, including education, healthcare, environmental protection, safety, sports, culture and arts. The Foundation provides assistance to business circles and initiatives designed to improve the economic growth of Włocławek. It particularly focuses on projects targeted at young people. 350 FAMILY GROUP HOMES AND CHILDCARE CENTRES WITH MORE THAN 2,500 CHILDREN SUPPORTED BY THE ORLEN GIFT FROM THE HEART FOUNDATION 68 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT

72 SOCIAL PROJECTS In 2016, the focus in social projects was on several areas. One was the sponsorship of projects supporting national culture and protecting the national heritage, and specifically initiatives promoting cinematography, theatre, music and literature. As a national Company, PLN ORLEN supported major Polish institutions and cultural projects, such as: the Fryderyk Chopin Institute, National Museum in Warsaw, Jan Kiepura Festival in Krynica-Zdrój, and the Gdynia Film Festival. PKN ORLEN also partnered with the Kamienica Theatre of Warsaw. Another important area of social activities was education. As a leader in the petrochemical industry, we apply our extensive expertise to promote education and knowledge of science, especially chemistry. This involves participation in scientific initiatives (congresses, conferences, competitions) designed to facilitate knowledge transfer and initiation of measures aimed at encouraging children and teenagers to learn and acquire new skills. To this end, we helped organise the next edition of the My Above-Average Interests scholarship programme for the most talented teenagers in and around Płock, as well as a series of scientific conferences and seminars in cooperation with the Płock branch of the Warsaw University of Technology. Another strategic dimension of our social efforts was projects aiming to improve safety on Polish roads. As we operate in an area closely tied to the automotive industry, we have implemented a number of initiatives to improve road safety. One of them is the ORLEN Safe Roads campaign launched in In 2016, we organised the Big Driver s License Test in partnership with TVP, the public television network. The project seeks to encourage proper behaviour, translating into improved road safety. Also, members of the VITAY programme were invited to donate their points for the financing of upgrades to pedestrian crossings located near educational facilities. PKN ORLEN partnered with the GOPR mountain rescue organisation, and implemented the ORLEN for Eagles programme designed to protect the Polish eagle population. Having in mind the need to maintain a healthy work-life balance, the Company joined the Two Hours for the Family project. PKN ORLEN also provided assistance to a number of initiatives related to national remembrance and tradition, such as the Patria Nostra history competition, targeted at junior and senior high school students and seeking to promote Polish history, foster patriotic values and behaviour. PKN ORLEN also lent its support to the Guardian of Memory project, which honours persons and institutions with outstanding contribution to preserving and restoring the memory of important events in Poland s history. On the local scale, the Company participated in the Indomitable Soldiers of Mazovia scientific conference. We are also active in promoting the Polish economy and popularising Poland on the international arena. PKN ORLEN was one of the sponsors of the 590 Congress, a platform for exchanging ideas and experiences between specialists in business, science, politics and legislation. In an effort to promote Polish companies and Polish products, we assisted in the implementation of such projects as: Poland s 200 Largest Companies, 100% Polish, I Buy Because It s Polish and Poland s Compass. With a view to popularising Polish culture and arts, as well as to establish positive relations with Chinese partners, PKN ORLEN sponsored the 1 st edition of the Polish Circles of Art in China festival. PKN ORLEN is strongly committed to pursuing efforts designed to counteract social exclusion and promote equal opportunities, in particular in respect of employment of people with disabilities, children from disadvantaged families and people from the 55+ age group. One expression of our involvement in helping the needy is support for charitable social initiatives, as well as those promoting rehabilitation for people with motor or intellectual disabilities through sports. We continued partnership with the Integration Foundation, working to help the disabled, by sponsoring the Person without Obstacles competition. PKN ORLEN also took part in the 22 nd edition of the Płock ORLEN Polish Open, an international tennis tournament for disabled persons. The Company actively collaborated with local communities, particularly in Płock and other places where it operates, including under dedicated partnership programmes such as ORLEN for Płock, seeking to improve the quality of life of Płock s inhabitants. The programme saw continued implementation of projects in cooperation with the Płock Municipality and NGOs, and the initiation of a few projects with social partners, including Football Holidays with ORLEN, Safe Holidays with ORLEN, and free swimming lessons. PKN ORLEN also continued partnerships under the Grant Fund for Płock Foundation, which supports projects dedicated to the town s residents and related to sports, social assistance and culture. The Foundation is active in streetworking in Płock, helping children exposed to increased risk of social exclusion. In 2016, a large portion of our charitable, sponsorship and CSR activities were focused on supporting rescue services, the Police, Fire Service and the Voluntary Water Rescue Service, cultural institutions: the Płock Symphonic Orchestra, Museum of Mazovia and the Dramatic Theatre, as well as education through continued partnership with the Płock Branch of the Warsaw University of Technology. PKN ORLEN also sponsored the ORLEN Wisła Płock handballers and provided assistance to the Wisła Płock football team. ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT 69

73 PROMOTING SPORTS AND HEALTHY LIVING Being Poland s largest company, we feel responsible for supporting Polish national sports and teams, which bring so much joy and excitement to so many Poles, and we fully appreciate the importance of promoting amateur sports as well as a healthy and active lifestyles. For many years now, PKN ORLEN has been supporting some of the sport disciplines closest to Poles hearts: field and track, volleyball and motor sports. The Company is also involved in promoting sports among children and teenagers by organising events addressed specifically to this target group. Key programmes and projects: ORLEN Warsaw Marathon National Running Day, the largest and fastest running event in Poland. VERVA Street Racing largest motor sports event in this part of Europe, 110,000 spectators in 2016 and a total of 500,000 participants in seven editions. Track and field sponsorship PKN ORLEN is a patron of track and field, RIO 2016 olympic medals (Anita Włodarczyk s gold medal, Piotr Małachowski s silver medal). ORLEN Team sponsorship of Poland s best cross-country rally team; Kuba Przygoński 15 th in the Dakar rally, TOP 10 of the ORLEN Team at the FIA 2016 World Cup, appearances in seven cross-country rallies. Volleyball sponsorship one of the largest sponsorship projects in Polish sports: indoor national teams of all age categories, beach volleyball national team, championship tournaments and social programmes. Sponsorship of ORLEN Wisła Płock continued partnership with the handball team which successfully competes in domestic games (runner-up) and internationally (a regular in the Champions League). Sponsorship of Wisła Płock partnering with a football team which was promoted to the top flight of Polish football in the 2015/2016 season. VERVA Activejet Team a sponsorship project for a cycling team (UCI Professional Continental Teams) synergising the efforts of PKN ORLEN and Group companies from Germany (STAR), the Czech Republic (Benzina) and Poland (ORLEN Paliwa). MORE THAN 33,000 PARTICIPANTS IN THE ORLEN WARSAW MARATHON OVER 100,000 PARTICIPANTS IN VERVA STREET RACING OVER 100,000 PARTICIPANTS We have maintained our proprietary platform for communicating and discussing the most important social, economic and political issues Future Fuelled by Knowledge. The overarching goal of this project is to trigger transfer of knowledge, indicate possible courses of action and identify specific solutions to complex problems. We pursue these goals by such initiatives as organising conferences and panel discussions on various subjects, and publishing comprehensive expert reports. In 2016, PKN ORLEN co-organised and actively participated in debates, including as part of the Economic Forum in Krynica and the 590 Congress in Rzeszów. Conclusions formulated during the above events, the most important expert opinions and summaries are presented on the Future Fuelled by Knowledge website ( The website publishes comprehensive analytical reports on crucial issues and challenges in the industry. One example is the Game of Innovation report published in An important element of the Future Fuelled by Knowledge project is the blog of Mr Adam Czyżewski, PKN ORLEN s Chief Economist. Using this channel, the Company s expert explains, in an easy to understand manner, complex macroeconomic processes and how they affect our daily lives, fuel prices, stability of the economy, and the growth of the energy sector. To reach a broader audience with its communication concerning the Company and its activities as part of Future Fuelled by Knowledge, for the past four years the ORLEN Group has been also active on Twitter. The corporate profile allows the Company to comment on major economic and industry developments in realtime, as well as share information on day-to-day operations of the ORLEN Group. 70 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RESPONSIBLE DEVELOPMENT

74 FINANCIAL RESULTS Sławomir Jędrzejczyk Vice President of the Management Board, Chief Financial Officer In 2016, PKN ORLEN posted record-high financial results, with contributions from all segments. Consistent implementation of key investment projects, successful efforts to tackle grey market for fuels, and supportive (although not as favourable as in 2015) macroeconomic environment, translated into outstanding cash flows. With our consistent pursuit of growth-oriented projects, the ORLEN Group s competitive position is consolidating, making us perfectly placed to face future challenges and achieve further strategic objectives. ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS 71

75 REVENUE In 2016, the ORLEN Group generated revenue of PLN 79,553m, down 9.9% on the previous year, which reflected falling prices of key ORLEN products, affected by the downward trend in the price of crude oil. Revenue of the Downstream segment decreased by 13.7% year on year, driven by lower market prices of crude oil and petroleum products. Compared with a year earlier, the ORLEN Group reported a 1.1% growth of sales volumes, to nearly 31m tonnes. The increase was due to higher sales of refined products across all markets, achieved despite reduced sales of petrochemical products owing to the unavailability of the Unipetrol Group s ethylene production unit following its failure in August 2015, the regular maintenance shutdown of the olefins unit at PKN ORLEN, and production units downtime at ANWIL. Revenue of the Retail segment declined by 3.2% relative to the previous year, primarily as a result of lower product prices at service stations. The segment recorded a 2.5% year-on-year increase in sales volumes on the Polish, Czech and Lithuanian markets, and at ORLEN Deutschland s service stations, although the volumes of middle distillates sold by the German company in the wholesale market fell. Revenue generated in the Upstream segment was up 105.6% on 2015 thanks to a rapid growth in the segment s production (up 80.0% yoy), including as a result of the acquisitions of Kicking Horse Energy Ltd. and FX Energy in Q Revenue generated by the Corporate Functions segment improved by 21.9% year on year. 1,500 PRICES OF CRUDE OIL AND KEY ORLEN GROUP PRODUCTS 1, ETHYLENE PROPYLENE PETROL AVIATION (JET) FUEL DIESEL OIL LIGHT FUEL OIL BRENT CRUDE % DOWNSTREAM 64.5% 37.5% RETAIL 35.2% ORLEN GROUP REVENUE BY SEGMENT 0.6% UPSTREAM 0.2% 0.1% CORPORATE FUNCTIONS 0.1% 72 ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS

76 LIFO-BASED EBITDA OPERATING PROFIT BEFORE DEPRECIATION AND AMORTISATION, WITH INVENTORY VALUED USING THE LIFO METHOD 1 In 2016, the ORLEN Group once again posted record-high LIFO-based EBITDA before impairment losses on non-current assets of PLN 9,412m 2. The realised profit was by PLN 674m higher year on year. DRIVERS OF YOY CHANGE IN LIFO-BASED EBITDA [PLNm] PLN +674m Negative effect of macroeconomic factors, including in particular lower fuel margins, amounted to PLN (631m) yoy, with positive effect of the Brent/ Urals differential, petrochemical product margins, and the depreciation of PLN against USD and EUR. The negative volume-related effect of PLN (880m), reported despite higher sales volumes, was mainly attributable to lower sales of high-margin petrochemical products by the Unipetrol Group, due to the unavailability (until November 2016) of the ethylene production unit following its failure in August ,738 (631) (880) 2,185 9, The positive effect of other factors included chiefly absence of the negative effect of accounting for the repurchase of the 5th and 6th tranche of emergency stocks in 2015 (PLN 1,157m yoy) and a positive in net other income (expenses) of PLN 1,252m yoy after factoring out impairment losses on assets, resulting mainly from recognition of income from compensation paid by insurers in respect of the failure of the Unipetrol Group s ethylene production unit in August LIFO-BASED EBITDA 2015 MACRO VOLUME OTHER LIFO-BASED EBITDA 2016 After accounting for impairment losses on non-current assets, the ORLEN Group s LIFO-based EBITDA in 2016 amounted to PLN 9,557m. Positive effect of s in crude oil prices on the valuation of inventories was PLN 85m, raising the ORLEN Group s EBITDA to PLN 9,642m in ) For the purpose of its financial statements, the ORLEN Group measures its inventory at weighted-average cost, in accordance with the International Financial Reporting Standards. As the IFRS prohibit the use of the LIFO method of inventory valuation, it is not used as part of the accounting policies applied at the ORLEN Group and, consequently, in the Group s financial statements. As a result, an increase in crude oil prices has a positive effect on the reported performance, while a decrease produces an adverse effect. Therefore, we present additional information on operating results determined with the use of the LIFO method of inventory valuation. 2) In 2016, reversal of net impairment losses on property, plant and equipment amounted to PLN 145m and was chiefly attributable to reversal of impairment losses on the Unipetrol Group s refining assets of PLN 316m in 2016 and recognition of impairment losses of PLN (73m) on the ORLEN Upstream Group s exploration assets in Poland and PLN (55m) on ORLEN Oil s assets. In 2015, net impairment losses on property, plant and equipment amounted to PLN (993m) and comprised mainly impairment losses of PLN (429m) on the ORLEN Upstream Group s exploration assets in Poland, PLN (423m) on production assets in Canada, and PLN (93m) on the Unipetrol Group s petrochemical assets due to the fire accident at the ethylene plant in August ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS 73

77 Downstream DOWNSTREAM DRIVERS OF YOY CHANGE IN LIFO-BASED EBITDA [PLNm] 7,776 LIFO-BASED EBITDA 2015 (594) PLN +331m (1,228) MACRO VOLUME OTHER 2,153 8,107 LIFO-BASED EBITDA 2016 The Downstream segment s LIFO-based EBITDA before impairment of noncurrent assets was PLN 8,107m in 2016, up PLN 331m on the previous year. Negative effect of macroeconomic factors, including in particular lower fuel crack spreads, amounted to PLN (594m) yoy, with positive effect of the Brent/ Urals differential, petrochemical product margins, and the depreciation of PLN against USD and EUR. The negative volume-related effect of PLN (1,228m) was mainly attributable to maintenance shutdowns of the ORLEN Group petrochemical plants. The positive effect of other factors amounted to PLN 2,153m year on year and included mainly: PLN 1,157m (yoy) no negative effect of accounting for the repurchase of the 5th and 6th tranche of emergency stocks of PLN (297m) (yoy) in January 2015 and PLN (860m) (yoy) in August 2015, PLN 1,326m (yoy) positive in net other income (expenses) after factoring out impairment losses on assets, resulting mainly from recognition of the income from compensation of PLN 1,280m paid by insurers in respect of the failure of the Unipetrol Group s ethylene production unit in 2015, PLN (330m) (yoy) other factors, including mainly the negative effect of tighter margins on refined products, to some extent offset by the positive effect of a in inventory write-downs following remeasurement of inventories at net realisable value. Taking into account impairment losses of PLN 218m, the ORLEN Group s LIFO-based EBITDA for 2016 came in at PLN 8,325m. Positive effect of s in crude oil prices on the valuation of inventories was PLN 85m, raising the ORLEN Group s EBITDA to PLN 8,410m in The segment s capital expenditure increased by PLN 1,291m year on year, to PLN 3,533m. Retail RETAIL DRIVERS OF YOY CHANGE IN LIFO-BASED EBITDA [PLNm] In 2016, the Retail segment posted LIFO-based EBITDA before impairment of non-current assets of PLN 1,801m, up PLN 262m on the previous year. 1, PLN +262m 142 (103) 1,801 The result was acheieved on the back of improved fuel margins in Poland and Germany, with the margins falling in the Czech Republic and Lithuania. Growing margins on non-fuel products and services, as well as higher retail sales volumes across all markets, were also positive contributors. The Retail segment s operating performance was affected by higher costs, including higher operating costs incurred by service stations on the 2.5% year-on-year growth in sales volumes. The segment s capital expenditure went up by PLN 31m year on year, to PLN 479m. EBITDA 2015 FUEL NON-FUEL VOLUME OTHER EBITDA 2016 MARGIN MARGIN 74 ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS

78 Upstream UPSTREAM DRIVERS OF YOY CHANGE IN LIFO-BASED EBITDA [PLNm] PLN +211m (37) EBITDA 2015 MACRO VOLUME OTHER EBITDA 2016 The Upstream segment s LIFO-based EBITDA before impairment of noncurrent assets was PLN 255m in 2016, up PLN 211m on the previous year. Macroeconomic factors associated with falling crude oil prices on global markets had a negative effect on the segment s performance. However, the acquisitions of Kicking Horse Energy Ltd. and FX Energy in 2015 contributed to an increase in hydrocarbon production on the Canadian and Polish markets, which improved the segment s financial results. Other factors included net other income of PLN 47m (yoy) after factoring out impairment losses on assets; the figure was due mainly to the adjustment of acquisition price allocation related to the acquisition of FX Energy. The segment s capital expenditure increased by PLN 237m year on year, to PLN 525m. Corporate Functions CORPORATE FUNCTIONS DRIVERS OF YOY CHANGE IN LIFO-BASED EBITDA [PLNm] PLN (130)m (621) 0 0 (130) (751) In 2016, EBITDA reported by the Corporate Functions segment was PLN (130m) lower than in The decrease followed chiefly from a year-on-year in net other income (expenses) of PLN (107m) after factoring out impairment losses on non-current assets, including mainly a one-off effect of the remeasurement of provisions. EBITDA 2015 MACRO VOLUME OTHER EBITDA 2016 FINANCE INCOME AND COST AND NET PROFIT In 2016, the ORLEN Group s net finance costs came in at PLN (645)m and included mainly foreign ex losses of PLN (542)m, net interest expense of PLN (157)m, and net settlement and valuation of financial instruments of PLN 58m. After accounting for tax expense of PLN (1,147)m, the ORLEN Group posted a net profit of PLN 5,740m for 2016, up PLN 2,507m year on year. ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS 75

79 FINANCIAL POSITION TOTAL ASSETS [PLNm] FINANCIAL HIGHLIGHTS FROM THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION PLN +2,959m PLN +4,463m 2,724 (684) 55,559 1,956 3,214 (255) ,137 EBITDA 2015 TOTAL ASSETS AS AT DEC PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS OTHER NON-CURRENT ASSETS INVENTORIES TRADE AND OTHER RECEIVABLES CASH AND CASH EQUIVALENTS OTHER CURRENT ASSETS TOTAL ASSETS AS AT DEC As at December 31 st 2016, the ORLEN Group s total assets grew by PLN 7,422m on December 31 st This growth came as a result of s in property, plant and equipment and intangible assets, including mainly capital expenditure of PLN 4,673m and depreciation and amortisation of PLN (2,110m), as well as a net decrease of PLN 145m in impairment losses on property, plant and equipment and intangible assets, and PLN 481m in ex differences on translating foreign operations of the ORLEN Group companies. The key drivers of growth in current assets were a PLN 2,724m increase in cash and cash equivalents, a PLN 1,956m increase in trade and other receivables, as well as a PLN (217m) decrease in other financial assets, including mainly measurement of cash-flow hedges, with an increase in inventories. 76 ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS

80 TOTAL EQUITY AND LIABILITIES [PLNm] FINANCIAL HIGHLIGHTS FROM THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION PLN +7,422m 2, ,559 5,041 (723) 48,137 EBITDA 2015 TOTAL EQUITY AND LIABILITIES AS AT DEC EQUITY BORROWINGS AND OTHER DEBT INSTRUMENTS TRADE AND OTHER PAYABLES OTHER EQUITY AND LIABILITIES TOTAL EQUITY AND LIABILITIES AS AT DEC As at December 31 st 2016, the ORLEN Group s total equity and liabilities grew by PLN 7,422m on December 31 st The increase in equity as at the end of 2016 followed chiefly from recognition of a PLN 5,740m net profit for 2016 and distribution of the net profit for 2015, including payment of PLN (855m) as dividend to PKN ORLEN shareholders. The Group s debt fell as a result of repayment of borrowings in the amount of PLN (1,052m) and PLN 329m net ex losses on remeasurement and valuation of foreign currency loans. The increase in trade and other payables as at the end of 2016 was due mainly to the purchase of crude oil and biocomponents. ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS 77

81 CASH FLOWS FREE CASH FLOWS [PLNm] 9, (4,436) EBITDA 2015 (912) (1,518) 3,447 LIFO-BASED EBITDA 2016 LIFO EFFECT LOWER WORKING CAPITAL NET CASH USED IN INVESTING ACTIVITIES DIVIDEND OTHER NET DEBT REDUCTION The positive effect of a PLN 816m drop in net working capital was achieved mainly on the back of an increase in payables related to the purchase of crude oil and biocomponents, and tax liabilities, with a simultaneous growth in trade receivables after the end of maintenance shutdowns at the Unipetrol Group. Net cash used in investing activities included mainly net payments for the purchase of property, plant and equipment, intangible assets and perpetual usufruct rights to land of PLN (4,892m), received dividends of PLN 317m, and proceeds from the sale of ORLEN Transport of PLN 74m. Dividend paid amounted to PLN (912m), of which PLN (855m) was paid out to PKN ORLEN shareholders. Other factors included the share of net profit/loss of equity-accounted entities, income tax paid, interest paid, ex differences on operating activities and revaluation of debt, and compensation of PLN (222m) in respect of the failure of the Unipetrol Group s production unit in ORLEN GROUP FACTS FIGURES COMMENTS 2016 FINANCIAL RESULTS

82 RISKS AND OPPORTUNITIES RISK MANAGEMENT In the course of its business, the ORLEN Group monitors and assesses its risk exposures on an ongoing basis and takes steps to minimise their effect on its financial position. In 2016, we updated the Enterprise Risk Management Policy and Procedure in place at PKN ORLEN and other Group companies, which define the operation of the Enterprise Risk Management System in a comprehensive and structured manner. An Audit, Control and Enterprise Risk Management Office has been set up under these internal regulations to coordinate the ERM processes across all levels of the organisation, to provide independent and objective assessment of risk management and internal control systems, and analyse business processes. Audits and inspections are carried out on the basis of annual plans approved by the Management Board, the Supervisory Board and the Supervisory Board s Audit Committee. Ad-hoc audits and inspections are also conducted when and as requested by the Company s Supervisory or Management Board. ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES 79

83 KEY ROLES IN THE ENTERPRISE RISK MANAGEMENT SYSTEM PKN ORLEN MANAGEMENT BOARD PKN ORLEN SUPERVISORY BOARD'S AUDIT COMMITTEE Monitor the Enterprise Risk Management System Approve Company /Group risk assessment Monitor the Enterpise Risk Management System AUDIT, CONTROL AND ENTERPRISE RISK MANAGEMENT OFFICE Coordinate the enterprise risk management process and provide tools and methodologies to process participants RISK OWNERS PROCESS OWNERS CONTROL OWNERS Manage key risk components Assess risk at process level Coordinate self-assessment of controls Oversee control of processes in which they participate Conduct self-assessment of controls ORLEN GROUP EMPLOYEES Identify risks Communicate potential risks to the Audit, Control and Enterprise Risk Management Office The methodology adopted by the Audit, Control and Enterprise Risk Management Office helps to identify risks based on a common model and match them to business processes and strategic objectives. The ERM (Enterprise Risk Management) System is one of the tools used to support effective implementation of the strategic and operating objectives. It facilitates comprehensive identification of risks and controls and their assessment at the project, process and organisation levels. PKN ORLEN was the first Polish corporation outside the financial sector to implement a comprehensive Enterprise Risk Management System, and the solutions it applies are consistent with the best practices in the field. Under the Enterprise Risk Model in place, all identified risks are classified into the following categories: I. Strategic risks directly related to strategic objectives, specific actions and performance indicators (KPIs). For the purpose of detailed identification of strategic risks, sub-strategies are developed for the areas assigned to individual owners, who carry out quarterly risk assessments. II. Project risks understood as uncertain events or circumstances which, if materialised, may have a negative impact on one or more project objectives. These risks are subject to ongoing assessment during project implementation and to self-assessments carried out at least once a year. III. Process/operational risks identified within the existing business processes and directly affecting key process objectives, they enable effective process management. Risks are assessed by business areas annually in a selfassessment process, where the main goal is to verify the effectiveness of controls that keep the risks within acceptable levels. 80 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES

84 CLASSIFICATION OF RISKS AND PROCESSES, AND ERM CONTROLS RISKS / PROCESSES RISK DESCRIPTION RISK MITIGATION METHODS STRATEGIC OBJECTIVES AND ASSUMPTIONS ROLES AND RESPONSIBILITIES INTERNAL CONSISTENCY NEW REGULATIONS WORKPLACE ACCIDENTS AND OTHER RISKS PROJECT BUDGET OVERRUNS SCHEDULE OVERRUNS CHANGES TO PROJECT SCOPE ROLES AND RESPONSIBILITIES Inconsistent, unrealistic strategic objectives and assumptions. Change of strategic objectives/ assumptions in the course of a process. Inappropriate division of responsibilities among organisational units. No decision-making centre. Inconsistencies between strategic objectives within the organisation. Adverse legislative s. Public administration unable to effectively enforce law. Insufficient knowledge of workplace safety standards among contractors. Threats to workplace safety and fire safety related to the presence of third-party contractors at the ORLEN Group s facilities. Underestimated project costs. Incorrect assumptions made about time to complete. Incomplete project execution. Project overruns. Inappropriate division of responsibilities among organisational units. No decision-making centre. Regularly check the validity of and monitor key strategic objectives against the changing environment (regulations, market, key suppliers, etc.). High degree of employee specialisation, appropriate delegation of duties and responsibilities by precisely defining the scopes of duties. Develop sub-strategies for individual areas to support detailed strategic risk identification. Strategies reviewed and approved by the Management Board. Participate in public consultations on draft legislation to limit the risk of unfavourable regulations coming into force. Oversee and manage contractors by implementing tools to monitor work safety. Implement uniform requirements for contractors and subcontractors in line with ORLEN Group Safety Standard No. 9. Ongoing monitoring of contractor operations; define KPIs for delays resulting in additional costs (penalties) to the supplier. Ongoing supervision of project progress by inspectors, regular assessment of progress against project milestones, and enforcement of execution. Ongoing analysis of the project environment, with a possibility to the project scope if circumstances so require. Develop and implement a methodology for division of duties among the project team to avoid conflicts of interest; a dedicated IT tool employed to support project execution. SYSTEMS Lack of IT systems to support project execution. Identify alternative IT systems at the project planning stage or test other systems enabling project execution. TECHNOLOGY Limited market of technology providers. Partnerships with licensors where technology cannot be acquired through standard purchase procedures. WEATHER CONDITIONS Inclement weather (unexpected and extreme weather conditions, etc.). Plan selected project works based on analysis of historical weather trends to minimise the risk of adverse impact. ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES 81

85 PROCESS / OPERATIONAL PROCUREMENT Crude oil deliveries (by land or sea) that do not meet quantity or quality requirements. Planning of crude oil supplies that meet quality requirements. Purchase of investment services and biocomponents. Ensuring continuity of production. Monitor shipments by land and sea; use dedicated statistical and analytical tools, and analyse industry and news sites. Monitor the market of selected crude grades for availability and purchase opportunities; confirm economic viability of each transaction made outside a contract. Select suppliers in line with applicable procedures and documents (market research, lead times, supplier evaluation, etc.). Put internal procedures in place enabling effective emergency response (direct purchases of services and feedstocks). PRODUCTION Incorrect maintenance planning and management in the production area. Operational inefficiencies in the context of balancing production along the supply chain. Failure to achieve the assumed efficiency gains in implemented initiatives. IT system in place supporting overhaul and maintenance planning for production facilities; document s to plans and approval of individual plan components in the system. Ensure the area responsible for production balancing has tools to implement the process in an optimal way; procedures and processes in place should define the people responsible and time frames for the provision of production balancing input data, as well as the data scope. Monitor and review initiatives on an ongoing basis based on relevant expertise to ensure implementation of projects offering the highest potential (efficiency gains). DISTRIBUTION AND LOGISTICS Environmental pollution caused by distribution processes. Failure to keep the required levels of physically available emergency stocks. Failure of logistics infrastructure affecting supply continuity or resulting in product loss. Periodic inspections of fuel contamination levels at fuel terminals. Constantly monitor actual stock levels and report on compliance with required minimum levels. Periodically inspect logistics infrastructure and provide report updates. RETAIL Ineffective contract execution and price negotiation processes. Failure to observe ethical standards, employee fraud, property embezzlement and other misconduct. Pricing policy fails to maximise advantage and fully exploit market potential. Pricing policy setting the rules of cooperation with trading partners and systematic preventive mechanisms designed to avoid irregularities; accept prices/discounts/payment terms in contracts prior to signing; check the terms of contracts for correctness prior to their entry into the system and verify customers buying power. Check the applied ethical standards and knowledge of the Code of Ethics, and investigate any indications of fraud or breach of ethical standards. Dedicated price management tools ensuring an effective pricing policy. Check and monitor the correctness of retail price s entered into systems. 82 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES

86 WHOLESALE Readiness to quickly respond to s in the supply chain and production and make relevant adjustments to sales targets. Ineffective commercial contract execution and terms negotiation processes. Pricing policy fails to maximise advantage and fully exploit market potential. Implement sales plans based on volumes agreed with customers under relevant contracts/orders. Constantly monitor performance against sales and production targets with the assistance of wholesale and supply chain management teams. Negotiate commercial terms and sign contracts as per received powers of attorney/authorisations; commercial terms of contracts to be reviewed in consultation with other organisational units. There is a formal process in place for contract execution and issuing opinions on contracts. Pricing formulas approved by the area responsible for pricing policies; additional verification by the business area responsible for sales of products; a formal price negotiation process has been put in place for petrochemical products. FINANCE Commodity risk related to s in refining and petrochemical margins on sales of products, Brent/Urals differential, crude oil and product prices, prices of CO 2 emission allowances, and prices of commodities in cash-and-carry-arbitrage transactions. Foreign ex risk related to currency exposures arising in connection with cash inflows and outflows, investments, receivables and liabilities, and assets and liabilities denominated in foreign currencies. Interest rate risk related to assets and liabilities generating interest income or interest expense depending on floating interest rates. Liquidity risk related to an unforeseen shortage of cash or unavailability of financing sources. Risk of loss of cash and deposits the risk of bankruptcy of domestic or foreign banks with which ORLEN Group keeps or deposits its cash. Credit risk related to payment default on the part of the customers receiving our products or services. Cash flow planning. Market risk management policy and hedging strategies, which specify the principles for measuring individual risk exposures, the parameters and time horizon of the hedges, and applied hedging instruments. Short- and long-term cash flow planning; short-term liquidity management policy defining the rules for liquidity reporting and consolidation at PKN ORLEN and other ORLEN Group companies; the ORLEN Group pursues a policy to diversify its financing sources and uses diverse instruments to effectively manage its liquidity. Bank short-term credit rating; short-term liquidity management policy, funding sources diversification policy, and effective liquidity management tools. Customer solvency and creditworthiness evaluation. Employ the adopted trade credit and debt collection management policies and procedures. ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES 83

87 LAW AND REGULATIONS Changes in existing regulations or introduction of new regulations having a material effect on the ORLEN Group, its financial position and performance. Listed below is the key legislation governing the oil sector: Act on Biocomponents and Liquid Biofuels of August 25 th 2006 (as amended), imposing the requirement for domestic refineries and fuel importers to achieve the National Indicative Target, i.e. ensure the required minimum share of renewable fuels (biocomponents) in the total volume of liquid fuels, Act Amending the Value Added Tax Act and Certain Other Acts (the Fuel Package) of July 7 th 2016 and the Act Amending the Energy Law and Certain Other Acts (the Energy Package) of July 22 nd 2016, which introduced a number of fundamental s to the regulation of the liquid fuel market in Poland, including new rules for accounting for VAT on imports of liquid fuels to Poland and a close link between tax requirements and licence requirements in Poland, Act Amending the Energy Law and Certain Other Acts of November 30 th 2016, providing for a timetable for the deregulation of gas prices in Poland, according to which the liberalisation of gas prices for industrial consumers is to take effect on October 1 st 2017, and for households on January 1 st 2024, Act Amending the Energy Law and Certain Other Acts, which has reinstated the certifcate-based support mechanism for high-efficiency co-generation until 2018; in the coming years, the ORLEN Group will be exposed to risks related to certificate allocation, risk of s in certificate prices, and the risk of substitution fee increases, Energy Efficiency Act of October 1 st 2016, introducing an energy audit mechanism, which helps to improve financial performance through energy usage optimisation and reducing environmental impacts, Emergency stocks in line with new regulations, producers and traders must pay a fee in ex for a gradual reduction in the amount of physical stocks they are required to maintain; the level of emergency operational stocks was reduced from the equivalent of 68 days to 60 days in 2016 and to 53 days in Monitor legislative s in relevant jurisdictions and actively participate in law-making processes. CORPORATE MANAGEMENT Insufficient IT system safeguards. Improperly configured operational planning and supply chain optimisation model conducive to non-optimal business decision-making. Procedure in place for managing logical access to IT systems covering, among others, authorisation of requests for the assignment or modification of privileges in IT systems, limited access to the operating system, database and hardware layers, and complex password security. Periodic reviews and updates to the operational planning model and daily monitoring of progress in the implementation of the operational plan by the supply chain management area. Planning data used in corporate and operational planning are defined and delivered in standardised formats according to the work schedule. 84 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES

88 OPPORTUNITIES A vision of growth for the ORLEN Group fits with global trends in energy usage (crude oil usage, alternative fuels, energy storage), technology (smart everything, Internet of Things, advanced robotics, 3D print) and social processes (changing patterns of social behaviour, urbanisation, demographics) that will create new consumer behaviours and expectations. PRODUCT INNOVATION FUTUTRE ECONOMY SMART EVERYTHING INTERNET OF THINGS ADVANCED ROBOTICS BIG DATA AND DIGITALIZATION COMMUNICATION AUTONOMOUS VEHICLES SOCIAL BEHAVIOUR NEW BUSINESS MODELS URBANIZATION emobillity CRUDE OIL USAGE ENERGY STORAGE GEOPOLITICS DEMOGRAPHY 3D PRINTING OTHER TRENDS ECOLOGY ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES 85

89 Global s have been gathering pace in recent years and have a growing, yet unpredictable, impact on the world around us. To respond to those processes, the ORLEN Group will consistently adapt its business model across all its segments: 1. Integrated assets and strong market position of the Downstream segment With integrated assets in three Central European countries, 30 million tonnes of various crude oil types processed every year, and a portfolio of over 50 refined and petrochemical products sold to more than 80 countries across the globe, the ORLEN Group is perfectly placed to further expand its Downstream business. Key activities to be undertaken in the Downstream segment over the period covered by the Strategy will be aimed at ensuring security of feedstock supplies, further improvement of the operational excellence, and strengthening of the Group s market position. In the area of feedstock supply security, the ORLEN Group will seek to diversify its oil supply sources and secure natural gas supplies. It will at the same time strive for greater integration, more flexibility in how it responds to market and regulatory challenges, and increased yield of high-margin products at its refineries in Poland, the Czech Republic and Lithuania. Growth of the share in home markets (e.g. through attractive product portfolio) and expansion of the infrastructure which facilitates reaching customers have been identified as the two pillars that will support reinforcement of the Group s market position. 2. Development of the product and service range and high customer satisfaction in the Retail segment The Retail segment comprises more than 2,700 service stations, making up the largest retail chain in Central Europe. They handle 1.4 million transactions daily. In Poland alone, they sell 6.6 billion litres of fuel every year, with substantial volumes bought by customers actively participating in the Vitay loyalty scheme and fleet customers. The key growth drivers in the Retail segment are the modern service station network, ensuring unique procurement experience, and further operational excellence improvement. PKN ORLEN will develop its network of CODO and DOFO stations (nearly 200 new sites by 2021), plans to introduce quality fuels, and is getting ready to sell alternative fuels. The ORLEN Group is a regional pioneer in the installation of electric car quick charging points in cooperation with TESLA, a leading manufacturer of electric vehicles. By undertaking a number of initiatives, the Retail segment will transform to provide customers with unique purchasing experience. It plans to launch new products and services, leveraging its competitive advantages and business experience (large and dense network of service stations and a sizeable customer base). In the coming years, PKN ORLEN intends to open upgraded Stop Cafe 2.0 catering outlets. The concept was well received by the customers and the extended product range is a promise of higher non-fuel margin. Tailored offering (based on Big Data) and development of the loyalty scheme will help increase customer satisfaction. As part of its optimisation efforts, the ORLEN Group will implement a number of initiatives to cut costs and boost revenue (e.g. customer satisfaction surveys, optimisation of land assets, optimisation of the network cost, more service stations with premium fuels). Another element of key importance to the segment is implementation of projects to support sales, as they are necessary to start many significant initiatives. 86 ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES

90 3. Cautious continuation strategy in the Upstream segment Growth of the Upstream segment over the last four years helped to build a solid asset portfolio. In , PKN ORLEN took a number of steps to increase its production potential in Poland (acquisition of two licences from Deutsche Erdoel AG, entering into a joint operating agreement with PGNiG, securing new licences from the Ministry of Environment, and acquisition of FX Energy) and Canada (acquisition of the first Canadian subsidiary TriOil Resources, followed by two other transactions: purchase of Birchill Exploration and Kicking Horse Energy). The ORLEN Group has a strong asset base for value creation: production of 5 mboe in 2016, 2P reserves of 114 mboe, and assets to effectively increase production and steadily improve cost efficiency. Under the current Strategy, the ORLEN Group will build its value in the Upstream segment based on cautious continuation of the current efforts, i.e. increasing production in Poland and Canada and further improvement of operational excellence. The plans include growing production volumes and 2P reserves, and focus on the most profitable projects. Challenges posed by the prevailing low hydrocarbon prices are believed to be temporary and in the medium term the prices are expected to show an upward trend again. The ORLEN Group will closely watch and flexibly respond to developments in the oil and gas market. Consistent improvement of key performance indicators (e.g. better well economics, optimised scope of work) and synergies within the segment in Poland and Canada (e.g. transfer of know-how from Canada, one of the most technologically advanced oil and gas markets) are key elements for the operational excellence improvement in the Upstream segment. 4. Innovations that create value The ORLEN Group s innovation management model brings together all aspects of the Group s strategy and the innovations themselves are understood to mean much more than development and implementation of new products only. Special attention is paid to product, process and marketing innovations. Projects related to the current value chain are given key priority. The ORLEN Group offers its employees and innovators certain forms of support which are not easily available and can tip the scales for the commercial success of innovative projects from specialist laboratories up to a vast retail network. Because of the role of intellectual capital in modern economy, strong focus is put on development of staff competencies. The ORLEN Group consistently builds a team of experts, especially in the area of R&D, and develops a system to support leaders. The innovation strategy relies on external and internal innovations supported with an advanced management model. To stimulate external innovation, the ORLEN Group carries out projects facilitating cooperation as part of an external ecosystem of innovations, successful implementation of state-of-the-art commercial solutions and use of special tools for project implementation (Accelerator, Crowdsourcing, Innovation Lab). Internal innovations are efforts to streamline technological and organisational processes, develop the portfolio of R&D projects, and tap synergies within the ORLEN Group. The ORLEN Group supports the culture of innovation to fully benefit from internal and external innovations. Innovation is promoted as the desired attitude across the organisation, and the fast-track decision-making process for innovative projects ensures ability to flexibly respond to market needs. ORLEN GROUP FACTS FIGURES COMMENTS 2016 RISKS AND OPPORTUNITIES 87

91 CONTACTS PKN ORLEN SA Chemików Płock, Poland phone: fax: Warsaw Office: Bielańska 12, Warsaw, Poland phone: fax: Press Office: phone: fax: media@orlen.pl Investor Relations Office: phone: fax: ir@orlen.pl ORLEN Upstream Sp. z o.o. Prosta Warsaw, Poland phone: fax: UNIPETROL, a.s. Na Pankráci 127, Praha 4, Czech Republic phone: fax: ORLEN Lietuva Akcinė bendrovė ORLEN Lietuva Juodeikiai, Mažeikių r., Lithuania phone: fax: ORLEN Deutschland GmbH Kurt-Wagener-Straße Elmshorn, Germany phone: +49 [0] fax: +49 [0] This publication is printed on FSC-certified paper 88

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