Strategy implementation in 2019

GRI indicators:

In 2019, PKN ORLEN consistently worked towards the majority of its strategic goals.

  • 103-3

The LIFO-based EBITDA1 came in at PLN 9.2bn, which was PLN 1.1bn less than the annual average planned for 2019–2020. PKN ORLEN was once again awarded the titles of the ‘World’s Most Ethical Company 2019’ and ‘Top Employer Polska 2019’.

1) Before impairment of non-current assets: PLN 0.2bn in 2019.

The lower than assumed LIFO-based EBITDA in 2019 was due mainly to significantly smaller positive effects of the IMO regulations (limiting the content of sulfur in bunker fuel to less than 0.5%) relative to the projections used for the budget. This was caused by the marked slowdown in the global economy in 2019. It turned out much more severe than expected as a result of such factors as costly customs wars, the conflict between the US and Iran, and the meagre growth in the eurozone, all of which fuelled risk aversion that undermined the development prospects for the emerging economies.

The worldwide economic slowdown reduced by half global demand for oil and liquid fuels compared with the projected levels, while oil prices were supported by the conflict between the US and Iran. As a result, model downstream margin fell by USD 2.8 per barrel relative to the budget, driving down LIFO-based EBITDA, which came in nearly PLN 2.7bn short of the target.

Stable financial position allowed the ORLEN Group to carry out growth projects and progressively increase dividend payouts, with the dividend for 2018 totalling some PLN 1.5bn. At the same time, the financial ratios were kept at safe levels.

PKN ORLEN is very well positioned for further growth. It owns state-of-the-art integrated infrastructure capable of processing more than 35 million tonnes of various crude grades per annum, and 2P oil and gas reserves of some 200 mboe at the end of 2019.

Strategy pillars

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1) Before impairment of non-current assets: PLN 0.2bn in 2019.

Operating segments

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Value levers in 2019:

Feedstock security

  • Diversifying oil supply sources
  • Securing natural gas supplies
  • Building a competitive advantage based on low-carbon energy

Operational excellence

  • Further improvements in the efficiency of refinery assets
  • Leveraging synergies offered by integrated production assets
  • Readiness for market and regulatory challenges

Strengthening market position

  • Investments in extending the petrochemical value chain
  • Implementation of an operational programme for biofuels: construction of production facilities, operational adjustments and R&D work
  • Maintaining leading position in home markets by extending the product range

Actual performance in 2019:

Sales and logistics

  • Maintaining the leading position in wholesale fuel sales in Poland (with a slight decrease in the market share as a result of optimisation of the supply sources and logistics and maximisation of the share of own products in the sales structure)
  • Rebuilding of a 19 km section of the rail track from Mažeikiai to Renge by the Lithuanian Railways under an agreement with ORLEN Lietuva, and thus restoring the shortest rail route from the Mažeikiai refinery to Latvia
  • Increase of 5.85% in the unit cost of logistics

Refining Projects

  • Concentration application filed with the European Commission for the planned acquisition of the LOTOS Group by PKN ORLEN
  • Announcement of a tender offer for all shares in Grupa ENERGA of Gdańsk
  • Completion of the metathesis unit project in Płock
  • An agreement to construct the Research and Development Centre in Płock
  • PKN ORLEN Supervisory Board’s approval for the construction of a visbreaking unit at the production plant in Płock
  • Contracts signed by ANWIL to build a nitric acid and neutralisation unit, a granulation plant and ancillary infrastructure as part of the project to expand fertiliser production capacities
  • Mechanical completion and a permit secured to start up the PE3 production unit at Unipetrol
  • Improvement of key indicators:
    • Record-high volumes of crude processed, at 33.9 million tonnes, up 0.5 million tonnes on 2018
    • Increase in light and medium distillate yields
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Value levers in 2019:

Modern service stations network

  • Driving growth of in-store and food sales
  • Continued efforts to enhance the technical quality of the service station infrastructure
  • Adapting service stations to sell alternative fuels
  • Organic growth of the retail chain

Unique customer experience

  • Launch of new services and customer service channels
  • Flexible and personalised products based on big data analytics
  • Improving customer satisfaction and expanding the customer loyalty programme towards e-commerce

Operational excellence

  • Leading position maintained in home markets
  • Optimal product range, food offering and service management
  • Cost efficiency improvement
  • Refining customer service and service station management processes

Actual performance in 2019:

Modern service stations network

  • 33 new stations added to the Group’s retail network
  • Increase in the market shares in all countries where ORLEN is present except for Lithuania (position maintained)
  • Fuel sales at around 10 million tonnes across all operating markets
  • Entry into the Slovak market with 10 service stations
  • Growth of the number of EV charging stations in Poland to 37

Unique customer experience

  • Beginning of the process to acquire 100% of shares in Ruch S.A.
  • Beginning of a project to co-brand PKN ORLEN’s foreign service stations by combining the logotypes of the local Benzina and Star brands with the ORLEN Group’s logotype
  • Stop Cafe 2.0 (Star Connect) food concept at further service stations: 186 in Poland, 60 in the Czech Republic, 1 in Slovakia and 45 in Germany; at the end of 2019 PKN ORLEN already had 558 service stations operating in this format in Poland, 160 in the Czech Republic, 1 in Slovakia, 117 in Germany and 8 in Lithuania
  • Non-fuel margin growth by 13%
  • Implementation and development of new products and services:
    • Roll-out of the ‘Mobile Cashier’ service at the service stations, enabling payments in the forecourt when traffic is at its heaviest
    • More than 460 service stations with the possibility of refuelling a car on both sides
    • Further development of mobile payment services (ORLEN Mobile application) – currently all stations are ready to offer mobile payments
    • Continued partnership with Nextbike Polska whereby 36 PKN ORLEN service stations launched a bike rental service, with a total of 360 (both conventional and electric) bicycles available
    • Development of the food and beverage offering for vegans and vegetarians at ORLEN service stations
  • Tailored offering based on big data
  • Customer satisfaction improvement and further development of the loyalty programme

Operational excellence

  • Improvement of unit margins on fuels in Poland and the Czech Republic; a decrease in the margins in Lithuania (low prices maintained by the market) and in Germany (very high margin levels in 2018, achieved due to logistics problems)
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Value levers in 2019:

Further increase in production

  • Focus on quality assets and the most profitable and promising projects in Poland and Canada

Cautious continuation

  • Responding flexibly to changes in the oil and gas market
  • Adjusting capital expenditure plans to the macro situation
  • Generating positive cash flows

Operational excellence

  • Continuous improvement of key performance indicators
  • Leveraging segment synergies in Poland and Canada

Actual performance in 2019:

Further growth of production and cautious continuation

  • 1% year-on-year growth of average production, to 18,200 boe/d:
    • Poland: 1,000 boe/d
    • Canada: 17,200 boe/d
  • Revision of 2P reserves to 197.3 million boe, caused, inter alia, by a review of the asset portfolio:
    • Poland: 11.0 mboe
    • Canada: 186.3 mboe
  • Increase in the number of wells on a net basis by 0.3; data at the end of 2019:
    • Poland: 3.0 wells, net (no change)
    • Canada: 16.6 wells, net (up by 0.3 well)

Operational excellence

  • Focus on the most prospective and profitable areas, ongoing monitoring of the Upstream project portfolio
  • Production enhancement as part of the projects related to the development of reserves held by the Group
  • Responding flexibly to changes in the market prices of hydrocarbons (adjusting investment expenditure in line with the macroeconomic situation)
  • Initiatives related to continuous improvement of the key operational and financial indicators

Key success factors for the strategy

1 End of year data.

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