Consolidated financial statements

Auditor’s opinion

To the Supervisory Board of Grupa LOTOS S.A.

  1. We have audited the attached consolidated financial statements of Capital Group Grupa LOTOS S.A. (‘the Group’), for which the holding company is Grupa LOTOS S.A. (‘the Company‘) located in Gdańsk at 135 Elbląska Street, for the year ended 31 December 2010 containing, the consolidated statement of financial position as at 31 December 2010, the consolidated statement of comprehensive income, the consolidated statement of cash flow, the consolidated statement of changes in equity for the period from 1 January 2010 to 31 December 2010 and the additional notes and explanations (‘the attached consolidated financial statements’).
  2. The truth and fairness (1)  of the attached consolidated financial statements, the preparation of the attached consolidated financial statements in accordance with the required applicable accounting policies and the proper maintenance of the consolidation documentation are the responsibility of the Company’s Management Board. In addition, the Company’s Management Board and Members of the Supervisory Board are required to ensure that the attached consolidated financial statements and the Directors’ Report meet the requirements of the Accounting Act dated 29 September 1994 (2009 Journal of Laws No. 152 item 1223 with subsequent amendments – ‘the Accounting Act’). Our responsibility was to audit the attached consolidated financial statements and to express an opinion on whether, based on our audit, these financial statements comply, in all material respects, with the required applicable accounting policies and whether they truly and fairly (2)  reflect, in all material respects, the financial position and results of the operations of the Group.
  3. We conducted our audit of the attached consolidated financial statements in accordance with:
    • chapter 7 of the Accounting Act,
    • national auditing standards issued by the National Council of Statutory Auditors,
    in order to obtain reasonable assurance whether these financial statements are free of material misstatement. In particular, the audit included examining, to a large extent on a test basis, documentation supporting the amounts and disclosures in the attached consolidated financial statements. The audit also included assessing the accounting principles adopted and used and significant estimates made by the Management Board, as well as evaluating the overall presentation of the attached consolidated financial statements. We believe our audit has provided a reasonable basis to express our opinion on the attached consolidated financial statements treated as a whole.
  4.  The consolidated financial statements for the prior financial year ended 31 December 2009 were subject to an audit by a key certified auditor acting for another authorised audit firm who issued a qualified opinion with an emphasis of matter on these financial statements, dated 26 April 2010. The qualification concerned the lack of ability to verify the impact of the issues, which were the subject of the qualifications in the auditors’ opinion issued to the consolidated financial statements of the Lithuanian Capital Group of AB Geonafta on the value of the shares held by the Group in the dominant entity of the AB Geonafta Capital Group. The emphasis of matter concerned the assets related to capital expenditures incurred on the exploration of gas fields B-4 and B-6 as well as the costs of drilling in the total amount of 47.8 million zlotys.
  5. In our opinion, the attached consolidated financial statements, in all material respects:
    • present truly and fairly all information material for the assessment of the results of the Group’s operations for the period from 1 January 2010 to 31 December 2010, as well as its financial position (3) as at 31 December 2010;
    • have been prepared in accordance with International Financial Reporting Standards as adopted by the EU;
    • are in respect of the form and content, in accordance with the legal regulations governing the preparation of financial statements.
  6. As disclosed in note No. 17 of the additional notes and explanations to the attached consolidated financial statements, the Group recognized under construction in progress the expenditures incurred by LOTOS Exploration and Production Norge AS for the purchase of 20% interest in Norwegian production licenses relating to the YME field as well as the costs of drilling and other costs of said field exploration in the total amount of 1,151 million zlotys. The Group carried out an impairment test for the said assets described in the mentioned note, based on the analysis of discounted cash flows for the 20% interest held in hydrocarbons’ reserves acquired as part of the production licenses for the development of the YME field. Without qualifying our opinion, we draw attention to the uncertainty indicated by the Company’s Management concerning recoverability of these assets recognized  in the attached consolidated financial statements in respect of the YME field due to the fact that the forecasted cash flows are determined by a series of future events, in particular, by market volatility of crude oil prices.
  7. We have read the ‘Directors’ Report for the period from 1 January 2010 to 31 December 2010 and the rules of preparation of annual statements’ (‘the Directors’ Report’) and concluded that the information derived from the attached consolidated financial statements reconciles with these financial statements. The information included in the Directors’ Report corresponds with the relevant regulations of the Decree of the Minister of Finance dated 19 February 2009 on current and periodic information published by issuers of securities and conditions for recognition as equivalent the information required by laws of non-EU member states (Journal of Laws No. 33, item 259).

on behalf of
Ernst & Young Audit sp. z o.o.
Rondo ONZ 1, 00-124 Warsaw
Reg. No 130
 

Key Certified Auditor

Marcin Zieliński
certified auditor
No. 10402

Partner

Jacek Hryniuk

Warsaw, 11 April 2011

(1) Translation of the following expression in Polish: ‘rzetelność i jasność’

(2) Translation of the following expression in Polish: ‘rzetelne i jasne’

(3) Translation of the following expression in Polish: ‘sytuacja majątkowa i finansowa’

This is a translation of a document originally issued in Polish
The notes to the financial statements, presented on following pages, are their integral part.

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