Poland’s Natural Gas Revolution: Energy, Security & Geopolitics

Andrzej J. Kozłowski Executive Director – Strategy & Project Portfolio Management PKN ORLEN S.A.

Houston, October 19, 2011 Agenda

1 PKN ORLEN – leading energy company in Central Europe

2 Shale gas in – great opportunity not to be missed

2 PKN ORLEN is one of Central Europe’s largest refiners and operators of filling stations

Comparison of PKN ORLEN and regional peers, 2010

Crude throughput, m tonnes Location of PKN ORLEN assets in Europe 28.3 21.8 21.0 Refining

Number of stations, ths. 2.7 2.3 1.5 Fuel retail

Petchem capacity, PP, ths. tonnes 675 535 Petro- chemicals 80

Source: ICIS

3 PKN ORLEN is the largest company in Central Europe

Largest companies in Central Europe

Company Country Industry sector Revenues, 2010 USD bn

Poland Oil & Gas 27.7

Hungary Oil & Gas 20.6

Czech Automotive Rep. 11.5

Ukraine Oil & Gas 11.5

Czech Power & Utilities Rep. 10.4

Ukraine Power & Utilities 9.4

Ukraine Power & Utilities 7.1

Source: Deloitte TOP500 2011

4 Multi-utility is a foundation for further PKN ORLEN’s value growth

PKN ORLEN’s positioning

Upstream Power Refining Wholesale Petchem oil & gas Generation & Marketing & Logistics

. One of the key . Power segment as . World-class refinery . Leading supplier . Decisive holders of Poland’s a stable assets, in Poland and of petro- wholesale market shale gas contributor to abroad chemicals to the leader in Poland, exploration Group’s revenues Polish market as Lithuania and licenses . Retail - regional well as a major player in . Number of leader in terms of significant neighboring . Balanced portfolio projects deployed, fuels sales, network exporter markets of upstream assets e.g. gas-fueled size and brand in stable regions – CCGT power plant, recognition . One of the . Extensive Poland, Baltic a number of wind largest network of depots Basin, North Africa, farms, efficiency . Best in class retail producers in and pipelines North America improvement network efficiency CEE and one of and non-fuel value the largest in . Crude oil supply proposition Europe as a by pipelines and whole sea terminals Strategic objectives

5 Agenda

1 PKN ORLEN – leading energy company in Central Europe

2 Shale gas in Poland – great opportunity not to be missed

6 Poland – strong and dynamic economy, which resisted the 2008-2009 crisis

GDP real growth rate GDP growth rates in the Europe Average 2000-2010 2010, y-o-y real growth in %

3.9% 0+ 2+ 3+ 1.8% 1.4% . Poland with population of 38 million people it is 6th largest country in the European Union

Productivity growth . OECD member since 2000-2010 change 1996 and NATO in 1999, member of the European 38% Union since May 1, 2004 24% 9% . An attractive place for foreign investors: amount of FDI stock in Poland is the highest out Human Development Index 2000-2010 value change of all new EU members, it reached USD 193 bn in 5.6% 4.8% 2010, out of which over 1.0% 11% comes from the US (largest non-European investor)

Source: Eurostat, United Nations, PKN ORLEN

7 Poland is a great place to invest and develop business for many companies (including those from North America)

FDI inflow to Poland, 1995-2010 Selected US investments in Poland USD bn, % 100% = USD 193 bn

By sector By country . Computers factory Other 16% . Asset management Trade 16% 48% Other and repairs operations center

Real estate 18% . Cars factory 11% USA Finance 19% . R&D and BPO centers 12% France Nether- . Shared service center Manufac- 14% 32% lands turing 15% Germany . BPO and shared service center . More than 750 US companies operate in Poland . Knowledge center for Europe . They employ over 200 000 employees . 99% of the companies recommend . IT center and factories Poland as a good place for investment

. Helicopters factory Source: OECD, KPMG, PAIiIZ, companies, press

8 Poland has growing appetite for energy with natural gas having great potential for growth

Primary energy consumption in Poland, 1990-2030 Mtoe, %

2010 structure +40% Other 7% 132 Natural -7% gas 13% 102 94 45% Coal

22% Crude oil

13% 1990 2010 2030 Lignite

. 1990-2010: decrease of energy . Natural gas consumption in 2010 in Poland consumption due to improving efficiency of exceeded 500 bcf production . Natural gas share in primary energy production in . 2010-2030 dynamic energy consumption Poland is still below EU average of 26% due to economic growth

Source: Central Statistical Office in Poland, PKN ORLEN

9 The energy market in Poland evolves, facing several structural challenges

Key challenges and opportunities for Polish energy market

. Opportunity to exploit potential of vast shale gas Significant shale reserves gas reserves . Shale gas will play a key role in economic, environmental and energy security dimensions

. Coal has played a significant role so far Coal as main . Reducing carbon emissions by i.e. deploying of CCS energy source technologies remains a major challenge

. Diversication of energy mix via introduction of clean Need of energy technologies clean energy investments . Wind, solar and biomass are technologies to be implemented on larger scale

. Nuclear energy is an important element of a Nuclear energy diversified clean energy portfolio development . How to responsibly pursue nuclear energy in order to meet future energy demand growth

Source: PKN ORLEN

10 In comparison with other developed countries, gas demand in Poland is low but it is expected to grow significantly

Natural gas consumption per capita in … but expected to grow significantly Poland is one of the lowest in the EU …

Natural gas consumption per capita in 2010 Natural gas demand forecasts million cubic feet per day per capita trillion cubic feet

Netherlands 188 1,6 Increased usage UK 146 scenario 1,4 Italy 121

Austria 116 1,2

Hungary 105 1,0 Germany 96 Base Spain 72 0,8 scenario “As is” France 69 scenario 0,6 Poland 36

Bulgaria 27 2010 2015 2020 2025 2030 2035

Source: BP Statistical Review, Eurostat, CERA, PKN ORLEN

11 There are several factors impacting the gas market in Poland

Natural gas market structure by consumer Imports provide over 70% of Polish gas supply group, 2010

Polish gas supply, % Other Imports (other) consumers 5% Electricity Small private plants, heat 7 consumers plants and CHP 10% 7% Other 28 industrial Domestic Industry consumers 57% 35% Residential Nitrogen 28% plants Import from 15% 65

Transmission grid is well developed, but needs Storage capacity plays an important role to be extended to enable export of shale gas

8 underground gas 7 storage facilities operate in Poland with a total working 10-20 8 2 capacity of 1 838 mln cubic meters 1

xx 3

20 5 Potential export - 4

routs (bcm/y) 15 6

12 Poland’s shale gas reserves are estimated to be the largest in Europe

EIA Assessment of European Unconventional Plays Unconventional plays location

. EIA estimates Polish unconventional resources at 187 tcf (technically recoverable resources) . Full exploration of these reserves would cover domestic demand for over 300 years . Average composite success factor1 in Poland was the highest in Europe (31%, compared to 26% in Western Europe and 23% in Eastern Europe)

1 Composite success factor = Play success factor * Prospective area success factor Source: IHS CERA, PKN ORLEN, Morgan Stanley 13 Polish shale gas potential has already attracted many global players, PKN ORLEN will play a key role among Polish companies

Polish shale gas locations and selected players involved, 2011

Area Popul. density Licence Sq. miles Persons/sq. mile 1. Lublin 374 224 8 2 2. Garwolin 342 215 7 3 4 3. Lubartów 447 181 5 1 6 4. Wierzbica 271 119 5. Bełżyce 394 224 6. Hrubieszów 160 141 x PKN Orlen’s licences 7. Sieradz 354 211 Shale-gas exploration 8. Łódź 267 211 areas in Poland Total 2 609 Source: Ministry of Environment of Poland, GUS

14 Shale gas exploration concept enjoys a strong support among public and authorities

Polish citizens in general support shale gas So are the global and local leaders

Do you support shale gas exploration „The United States and Poland are both and production? fortunate to possess vast shale gas reserves. As of August 2011 The development of these resources has the potential to spur economic growth in our respective nations, to significantly reduce "I do not carbon emissions, and to strengthen our "Yes" have an opinion" energy security” 73% 23% Daniel Poneman U.S. Deputy Secretary of Energy 4% "No" „We are not sceptical about shale gas production. EU energy policies must take into account local specifics” Günter Verheugen former EU Commissioner

„We are determined to make the exploration and production of shale gas in Poland a fact”

Source: DemosEuropa, CBOS, Press

15 Geological and regulatory and challenges are the key uncertainties with reference to the shale gas development in Poland

Possible Key risk area Description mitigation

. More precise knowledge about specifics of Polish deposits is . Deeper Geological needed geological research . Differences between Polish and US shale gas deposits generate risk related to a level of future exploration cost

. The present model of calculation of tariffs for trade in natural . Proper Regulatory & gas is limiting the market competition legislating environmental . Discussions about potential negative influence of shale gas projects exploration on the environment

. The current gas infrastructure development in Poland does not . Intensification of

Infrastructure fully meet the requirements of unconventional gas production infrastructure . Current infrastructure development plans may not be sufficient development for extensive shale gas exploration

. The issued concessions for initial exploration phase give . Proper lobbing Tax & priority, but not definite right for further exploration and tax system concessions . Polish tax system may be changed, as the exploration of projects shale gas comes to reality

16 Despite the challenges, Poland is „the place to be” for shale gas industry

Poland might become a world- …and...with unique most convenient position in the …with...that good is stability… stable… significant player... heartlocation of Europe in the heart of Europe Top 10 gas reserve holders Instability index (EIU) Poland’s location in the region 2010+ Polish shale gas est. reserves, tcf 2010, index points

Russia 1,581 Venezuela 6.7 Iran 1,046 Iran 5.4 Qatar 894 Turkmenistan 5.4 Turkmenistan 284 Russia 5.0 Russia Saudi Arabia 283 Qatar 4.2 EU USA 273 Saudi Arabia 4.2 UAE 213 UAE 4.2 Venezuela 193 Poland 2.9 Poland 187 USA 2.5

Ø 4.5

. Poland stands out in a world of shale opportunity and is likely to become the next major global shale development. It’s advantages: favorable geology, fiscal regime, pricing, developed market, and access . Poland is well-positioned to be the next shale gas success story

Source: BP Statistical Review, EIU

17 Thank you for your attention!

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