PKN to sell Lotos assets to Aramco, Mol ahead of merger

Market: Crude oil, Oil products
12/01/22

Saudi Arabia's state-controlled Saudi Aramco is poised to re-enter Europe's refining sector after agreeing to buy some of Polish firm Grupa Lotos' assets ahead of its planned takeover by domestic rival PKN Orlen.

PKN today announced a package of asset sales designed to win EU competition approval for the Lotos deal. The pick of them is an agreement to sell Aramco a 30pc stake in Lotos' 210,000 b/d Gdansk refinery for a headline price of 1.15bn zlotys ($255mn). The final price will factor in any debt held by the refinery. Aramco has also agreed to buy Lotos' refined products supply and logistics company in Poland for 1bn zlotys, and a stake in its jet fuel supply joint venture Lotos Air BP Polska.

PKN said it will sign a term contract to buy 200,000-337,000 b/d of crude from Aramco if the Gdansk sale goes through. This could take a sizeable chunk of demand away from Russia, which is Poland's main crude supplier. PKN, which already has a contract for 100,000 b/d of Saudi crude that is renewed on a yearly basis, said if the deal is completed Saudi crude could represent as much as 45pc of its total crude slate. It said it plans to direct the new Saudi supply to several of its refineries, including Plock and Gdansk in Poland, Mazeikiai in Lithuania, and Litvinov and Kralupy in the Czech Republic.

"The investments will widen Aramco's presence in the European downstream sector and further expand its crude imports into Poland, which aligns with PKN Orlen's strategy of diversifying its energy supplies," Aramco said today.

Tracking data show PKN's Saudi term supplies are delivered to the port of Gdansk from storage in Sidi Kerir, Egypt. PKN's refineries also receive pipeline shipments of Russian Urals, along with Caspian, North Sea, US and west African grades. The shift to a higher Saudi intake will likely tighten PKN's reliance on spot purchases.

The proposed Gdansk acquisition is Saudi Arabia's second step in strengthening its marketing foothold in Europe this week. Yesterday, German commodities trader and refiner Klesch Group said it had agreed a deal with Aramco's trading subsidiary ATC for the supply of 110,000 b/d of non-Saudi crude over a three-year period. Unlike Aramco, ATC does not typically trade Saudi crude. It has previously operated crude-for-products supply deals with PKN and Greek refiner Motor Oil Hellas (MOH).

Aramco has focused on Asia-Pacific to grow its international refining footprint in more recent years, but it does have past experience in Europe, having previously owned a stake in MOH. Expanding its presence in Europe's downstream sector will help the firm to optimise its Red Sea-facing terminals, such as Yanbu, Jeddah, Shuqaiq and Rabigh.

Retail sales

Other Lotos assets being divested ahead of the PKN merger are staying in European hands. Hungarian firm Mol has agreed to buy 417 Lotos filling stations in Poland for $610mn. These include 270 owned by retail subsidiary Lotos Paliwa. Mol expects to gain country-wide market coverage and potentially become Poland's third-largest motor fuel retailer as a result of the deal.

Mol said it also signed a long-term fuel supply agreement with PKN for its future Polish retail network. It has no refining assets in Poland, although it owns the 120,000 b/d Bratislava refinery in neighbouring Slovakia. Subject to the Polish acquisition being approved, Mol will divest 144 retail stations in Hungary and 41 in Slovakia to PKN for $259mn, marking the Polish firm's entry into the Hungarian retail market.

Other Lotos divestment deals agreed today include the sale of biofuels subsidiary Lotos Biopaliwa to Hungary's Rossi Biofuel, in which Mol holds a minority stake, and the sale of storage and bitumen assets to Polish trading firm Unimot. The latter deal includes an agreement for Unimot to buy 500,000 t/yr of bitumen from the Gdansk refinery.

PKN said it will present all of these deals to the European Commission within seven days and aims to finalise them within 12 months assuming it receives the EU's approval.

By Tomasz Stepien, Bela Fincziczki and Ruxandra Iordache

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