Notes to the financial statements

46. Material Events Subsequent to the Balance-Sheet Date

No material events occurred in the period from the balance-sheet date until the date of these consolidated financial statements except for the following:

  1. Starting from January 1st 2011, the Parent Undertaking has introduced hedge accounting with respect to cash flow hedges (i.e. foreign-currency denominated loans intended for financing of the 10+ Programme, designated as hedges of future USD-denominated petroleum product sales transactions).
  2. As of January 1st 2011, Grupa LOTOS S.A. has used the accounting method to measure the foreign exchange differences for the purpose of corporate income tax settlements.
  3. Starting from January 1st 2011, the Group changed its accounting policies as regards the exchange rates used to translate business transactions denominated in foreign currencies. As of January 1st 2011, such business transactions will be recognised as at the transaction date (i) using the exchange rate actually applied on that date given the nature of the transaction – in the case of sale or purchase of foreign currencies, and (ii) using the mid-exchange rate quoted for a given currency by the National Bank of Poland for a day preceding the transaction date – in the case of payment of receivables or liabilities where there is no rationale for using the actual exchange rate, and in the case of other transactions. Application of the new accounting policies will not affect the Group’s total net result, but will affect the values presented in the operating and financial parts of the statement of comprehensive income.
  4. On January 10th 2011, the General Shareholders Meeting of LOTOS Gaz S.A. adopted a resolution to dissolve LOTOS Gaz S.A. by way of its liquidation. Furthermore, on January 3rd 2011 the Management Board of LOTOS Gaz S.A. filed a petition with the Commercial Division of the District Court of Płock requesting a declaration of bankruptcy of LOTOS Gaz S.A. According to the information received by the Company, the petition was effectively withdrawn, and the bankruptcy proceedings were discontinued on January 7th 2011.
  5. On January 18th 2011, following completion of the APA 2010 licence round, LOTOS Exploration and Production Norge AS was granted a 25% interest in, and the operator status with respect to, license PL 503B located in the Norwegian Sea. The remaining 75% interest in the license was distributed in equal parts among three other companies, including Skagen 44AS, Edison International Norway Branch and 4Sea Energy AS.

    In line with a programme of work for the aggregate area covering licence PL503 and the adjacent licence PL 503B described above (i.e. an area of approx. 1,500 sq km), 3D seismic surveys are planned to be carried out in mid-2011, on the basis of which a decision will be made whether to drill an exploration well. The cost of the work corresponding to the 25% license interest is estimated at NOK 17.5m (i.e. PLN 8.7m, translated at the NOK mid-exchange rate quoted by the National Bank of Poland for January 19th 2011).
  6. Following approvals by the General Shareholders Meeting of LOTOS Petrobaltic S.A. and the Lithuanian anti-trust authority, on February 3rd 2011 UAB LOTOS Baltija (a subsidiary of LOTOS Petrobaltic S.A.) acquired 100% of shares in UAB Meditus, which holds 59.41% of shares in AB Geonafta. LOTOS Petrobaltic S.A. directly holds 40.59% of shares in AB Geonafta, therefore, as a result of the transaction, LOTOS Petrobaltic S.A. gained control of AB Geonafta.

    AB Geonafta is the parent undertaking of its own group, which comprises:
    - UAB Minijos Nafta (50% of shares held by AB Geonafta),
    - UAB Genciu Nafta (100% of shares held by AB Geonafta),
    - UAB Manifoldas (50% of shares held by AB Geonafta).

    As at December 31st 2010, the AB Geonafta Group’s net assets amounted to PLN 229m (see Note 21).

    The business of AB Geonafta and its group members, including UAB Genciu Nafta, UAB Minijos Nafta and UAB Manifoldas, consists in oil exploration and production in Lithuania. Oil production operations are conducted on shore. As at the transaction date, the volume of crude oil reserves and resources (2P and 2C) attributable to the AB Geonafta Group was approximately 1 million tonnes.

    The price of acquisition of UAB Meditus, which holds 59.41% of shares in AB Geonafta, comprises EUR 56.8m adjusted for net debt and a portion of the potential payment to be received from one of AB Geonafta’s debtors. Pursuant to the agreement, the final acquisition price will be determined not later than within 90 days from the transaction closing date.

    Given the fact that as at the business combination date, the Group held a 40.59% stake in AB Geonafta, acquired jointly with its group through the purchase of 100% shares in UAB Meditus by UAB LOTOS Baltija, the business combination will be accounted for and presented as a business combination achieved in stages within the meaning of the revised IFRS 3 Business Combinations, based on the fair values of identifiable assets acquired and liabilities assumed. In a business combination achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognises the resulting gain or loss in finance income or expenses. As at the date of approval of these consolidated financial statements, the provisional accounting for the business combination referred to above was not yet complete. The business combination will be provisionally accounted for in the consolidated financial statements for the first quarter of 2011.
  7. On February 11th 2011, LOTOS Jasło S.A. entered into an agreement with an external partner concerning sale of five investment areas, including an organised part of business and a block of 95.5% shares in PLASTEKOL Organizacja Odzysku S.A.
  8. On February 21st 2011, the Management Board of Grupa LOTOS S.A. was notified that LOTOS Exploration and Production Norge AS had relinquished the 50% interest in licence PL 556 in the Norwegian Sea, awarded to it as part of the APA 2009 license round.

    As the operator of licence PL 556 (the remaining 50% interest in the licence having been awarded to Skeie Energy AS), LOTOS Exploration and Production Norge AS had recommended that no commitments be made to undertake exploratory drilling as part of another phase of the field development process. LOTOS Exploration and Production Norge AS's recommendation and decision to relinquish its rights to licence PL 556 were based on an evaluation of the geological potential of the licence area, made as part of the first exploration phase which ended on February 19th 2011.
  9. On March 23rd 2011, LOTOS Petrobaltic S.A. and Grupa LOTOS S.A. executed an agreement whereby Grupa LOTOS S.A. purchased 1 share in AB Geonafta for LTL 3 thousand (PLN 3.5 thousand).

    Following the transaction, the shareholder structure of AB Geonafta is as follows:
    LOTOS Petrobaltic S.A. – 40.59%,
    UAB Meditus – 59.41%,
    Grupa LOTOS S.A. – 0.00062%.
  10. On April 7th and April 8th 2011, following the transactions carried out as part of the squeeze-out described in Note 2 hereof and after relevent entries were made in the share books of LOTOS Czechowice S.A. and LOTOS Jasło S.A., Grupa LOTOS S.A. held 100% of the share capital in LOTOS Czechowice S.A. and 100% in the share capital of LOTOS Jasło S.A.

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.