Polish refiner Lotos looks to buy upstream assets

Poland's second-biggest oil refiner Lotos is looking to buy upstream assets to boost its own oil production, a strategy made all the more important given recent problems with supplies from Russia, its deputy head of investment said.

Most of the crude refined at Lotos's refinery in the northern Polish city of Gdansk comes from Russia via the Druzhba pipeline, but flows via Druzhba were suspended last month due to contamination, sending shockwaves through global oil markets.

Lotos and its bigger rival PKN Orlen have said that their refineries are working normally thanks to supplies via sea and oil reserves. However, France's Total suspended some units at its Leuna refinery in Germany for technical checks.

"We take advantage from our location at the seaside. We intensively use supplies by sea from Primorsk (in Russia) – this is the main element of our actions in this situation. We also use (Poland's) mandatory oil reserves, but to a small extent," Patryk Demski told Reuters on the sidelines of a conference in Katowice this week.

Lotos is expected to merge with Orlen under a government plan to create a bigger player capable of competing on international markets, although the plan needs EU approval and is not imminent.
The suspension of oil flows would not have a significant impact on Lotos's second-quarter results, as margins at its refinery have not fallen drastically, he said.

The disruption caused by the contaminated Russian oil makes Lotos's plans to acquire Norwegian oil assets and reduce its reliance on Russia all the more important, Demski said.

"The necessity to stop oil supplies from Russia confirms the legitimacy of our acquisition plans, which could help us increase our own upstream (business)… our continuous observation of what is happening in the market as well as the project of Norwegian assets acquisitions are an important element of building the diversification of our supply portfolio," Demski said.

Oil majors, including Exxon Mobil, BP and Shell, have scaled down their presence in Norway by selling or merging their assets in the mature region to focus on new growth opportunities elsewhere.
Lotos has been looking for acquisitions in upstream for years.

"We are looking at the oil majors' exit strategy from the Norwegian Continental Shelf and we are considering potential acquisitions," Demski said, adding that Lotos is more interested in buying a structured part of a company's upstream assets rather than a single field.

"All the time we are intensely looking around on the market and 50,000 barrels of daily output is a feasible goal for us," he said.

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