Matt, many thanks for joining us today, for our readers who might be unaware of all that ORLEN Upstream Canada

does, can you give us a brief overview of its work?

ORLEN Upstream Canada (OUC) is a subsidiary of PKN ORLEN, an integrated oil and gas company based in Poland. PKN ORLEN is the largest oil company in Central and Eastern Europe, has almost 2,700 gas stations, 600 mbopd of refining capacity, and has investments in petrochemical, upstream and energy. The company currently employees nearly 20,000 people. Current market capitalization is the equivalent of approximately C$10 Billion with 27% of the outstanding shares owned by the Polish government, the rest a public float.

OUC is the Canadian arm of the Upstream Segment of PKN ORLEN and concentrates on development of oil and gas fields in Alberta. We currently produce approximately 12 mboepd from the Kakwa, Pouce Coupe, Kaybob, Ferrier and Lochend areas of the basin of which about 50% is liquids. We also have ownership in assets in New Brunswick and an ownership in Pieridae Energy, the operators of the Goldboro LNG project. We operate the vast majority of our assets.

Our business continues to grow, both organically and inorganically as the right opportunities present themselves, with a target of 16 mboepd for the Upstream Segment of PKN ORLEN in 2017 (current production in Poland is about 1,700 boepd). Further growth beyond this point will be the subject of review when the PKN ORLEN strategy is next updated.

Can you share your primary role and responsibility in ORLEN Upstream Canada?

I am President of OUC and am responsible for all parts of the business here in Canada. We have a team of about 50 employees in the office that take care every aspect of our drilling and operations and it’s my responsibility to make sure we’re all moving in the same direction consistent with ORLEN’s strategy and targets.

In your opinion, what are the key challenges for the company in 2016? How did the strategic focus change since

2015?

As with the rest of the industry, the reduced oil and gas prices have significantly impacted our cash flow and therefore our ability to fund drilling in the basin. This challenge is not unique to us, however our balance sheet has allowed us to continue drilling through the year further allowing us to take advantage of costs that have reduced significantly in the recent past. Maintaining continuity, safety, and cost control has been a significant challenge for us as many employees in the sector worry about their futures.

Our strategic focus has not changed since 2015, however our method of achieving it has shifted slightly. These prices present an opportunity to acquire the right assets at levels not seen in the recent past. While last year was focused on drilling and a larger acquisition, this year has shifted towards consolidation around or existing positions and a reduction in our drilling program.

What originally attracted PKN ORLEN in Canada?

PKN ORLEN and in particular ORLEN Upstream (in Poland) was attracted to Canada for all the reasons that we, as Canadians, like to operate here. The resource base is unparalleled in almost any other country in the world, with a breadth of opportunities that spans both developing and established plays in a large spectrum of types from dry gas to bitumen, conventional and unconventional. This opportunity set has drawn a highly educated workforce and a well-developed market with best-in-class E&P technology that together with a company size distribution that makes entry at different sizes possible, allows for a company like PKN ORLEN to enter and operate efficiently and effectively. Layer on top of that a stable financial system and tax regime means that it is a very attractive place to do business.

What are your top priorities in 2016? Where would you like ORLEN Upstream Canada to be by the end of the year?

Our top priorities are to continue to operate our production and rigs in a safe and efficient manner. We will manage our capital expenditures and cash flow such that we can continue our drilling program through 2017, even at prices lower than current levels. If the right opportunity presents itself, we’ll acquire with concentration on consolidation around our existing asset base.

I would love to see OUC in a position of being able to grow beyond our targets in a higher oil price environment, however we are positioning ourselves to manage our balance sheet and maintain the flexibility to react when things recover. Exiting the year at production levels equal to where we started is our target – in the order of 12-13 mboepd.

What are the lessons you have learnt since the downturn? Can you provide an example how market conditions

have effected ORLEN Upstream Canada in a positive way?

As difficult as it has been for many, I believe that a downturn like this has positive effects on the industry. In times of high oil prices, we as an industry tend to not worry as much about costs and innovation, whereas low oil prices drive us to look for new, more efficient and cost effective ways of doing things. The lessons during this downturn are the same we learnt last time around forgot to a certain extent – efficiency, cost and discipline are critical to coming out of the downturn a stronger company.

Reduction of costs, both on a service and operations side of things has been the biggest positive us in this downturn. We have seen costs reduced from 20% to 50% in some cases and while some argue this is not sustainable, it certainly has a positive effect on our ability to continue generating value.

If you could wave a magic wand over the industry, what kind of ‘business innovation’ would you like to implement?

“Green” frac technology that allows us to address all stakeholder concerns while reducing water usage and maintaining or even improving completion effectiveness. While the process of fracture stimulation is well accepted in the Western Provinces, it continues to be a significant concern in provinces that are not acquainted with oil and gas development. “Green” frac technology may allow us to operate in these provinces while decreasing water usage and becoming more environmentally friendly in the rest of the country.

About Matt Rees

Mr. Rees is a Professional Engineer with extensive experience in Western Canadian and International onshore & offshore operations.  He holds a Mechanical Engineering degree from University of Victoria and a Masters in Business Administration, from University of Calgary. Mr. Rees has a broad range of experience including Reservoir and Production Engineering, Business Development, Commercial Transactions and Corporate Planning in Canada, Latin America and the United Kingdom.  Most recently Mr. Rees was involved in Talisman – Sinopec’s North Sea operations.

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