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bne July 2021 Companies & Markets I 7
and production company PGNiG. Orlen had earlier also taken over the power company Enea.
Once the integration of Lotos and PGNiG is completed, which is expected late this year, Fitch Ratings said that this would be credit positive for Orlen, as it will benefit from “larger scale, stronger business diversification and expansion into the more stable utility sector.”
Like other companies in the global field of oil and gas, Orlen, too, is aware of the challenges that the decarbonisation of the energy sector is to bring about. Global majors are already feeling the heat, with a group of dissident directors recently
“The overall strategic direction will prioritize investments in the petrochemical, renewable electricity generation and retail segments”
voted through to sit on ExxonMobil’s board or Royal Dutch Shell being told in no vague terms by a court it had to almost halve its emissions in just under a decade.
Orlen’s strategy does encompass novelties that the drive to mitigate climate change is enforcing on the company. As part of the company’s PLN140bn investment drive by 2030 – which includes PLN85bn for renewable energy and new petrochemical projects, two of the company’s three growth engines (the third being retail) – Orlen plans getting into offshore and onshore wind, solar energy, as well as energy storage.
The company is also investing in hydrogen with first two hydrogen refuelling stations for buses and passenger cars in major cities Poznan and Katowice. The stations, as well as a hydrogen fuel production hub in Trzebinia – which is under construction and will go online by the end of the year – mark Orlen’s growing interest in alternative fuels, as burning climate-warming fossil fuels is coming under increasing pressure from regulators and financiers.
Orlen plans to announce the strategy for the combined grouping with Lotos and PGNiG in the second half of 2021.
“The overall strategic direction will prioritize investments in the petrochemical, renewable electricity generation and retail segments. We view the broad strategic targets as positive in light of long-term challenges related to energy transition,” Fitch Ratings wrote.
“While the all-share merger is in line with the financial
policy, the updated strategy will still be an important factor driving Orlen's rating. In particular capex and shareholder remuneration plans will be assessed in light of Orlen’s planned focus on retail, petrochemical and renewables assets amid energy transition as well as the potential for the merged entity to play a significant role in Poland's bid to reduce reliance on coal for electricity,” Fitch Ratings added.
The positive reception of the consolidation plans – with the stock rising 43% so far this year – eclipses the company being the darling of the government and the quite un-business-like controversies that have come with that status.
Orlen has been accused of serving the government’s agenda
of stifling criticism in the media after it took over Polska Press, a publisher of several national and local media last year.
The takeover – and Orlen’s weak justifications for it – provoked questions about whether the United Right government was thus laying ground to secure positive coverage in numerous local media in the run-up to general and local elections, both due in 2023.
The company’s CEO, Daniel Obajtek, has not escaped controversy, either. Unknown prior to PiS’s taking over power, Obajtek rose to the top spot in Poland’s business from being an elected official in the rural community of Pcim in southern Poland. Recently, the opposition-aligned media have been all over Obajtek for alleged shenanigans while he was still an official in Pcim and for his allegedly pot- holed financial statements, especially with regard to real estate he owns.
So far the company’s net take has only diminished under Obajtek, from PLN5.6bn in 2018 – the year he took over at the company’s helm – to PLN4.3bn in 2019 and PLN3.4bn last year, latterly due to the pandemic. The company’s debt was PLN12bn in 2020, nearly five times the figure for 2019 and twice the 2018 level – an effect of taking over Enea’s debt.
Nevertheless, analysts tip Orlen’s share price to continue rising, at least until there are any wider oil industry shifts such as in Opec production quotas or shale oil production. "The refining industry was hit hard during the pandemic and any event that promises the containment [of the virus] will be immediately discounted by the market," BOS Bank analyst Lukasz Prokopiuk recently told the newspaper Puls Biznesu.
“Analysts tip Orlen’s share price to continue rising, at least until there are any wider oil industry shifts such as in Opec production quotas or shale oil production”
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