9. ORLEN Group structure and joint arrangements

9.1. ORGANIZATION OF THE GROUP

PKN ORLEN as the Parent Company is a multi-segment entity, appropriately allocated to all operating segments and corporate functions.

1) from 05.01.2015 ORLEN Południe S.A.
2) from 05.01.2015 ORLEN OIL Sp. z o.o
3) from 20.02.2015 ORLEN Serwis S.A.
4) from 10.03.2015 ORLEN Upstream Canada Ltd.
5) from 30.06.2015 ORLEN Paliwa Sp. z o.o.
6) from 30.10.2015 ORLEN Paliwa Sp. z o.o.
7) 29.02.2016 the company was sold
8) from 19.03.2015 Baltic Power Sp. z o.o.
* detailed in note 9.2.1

Activity of core companies belonging to ORLEN Group

STRUCTURED ENTITIES

ORLEN Capital AB

The company’s business is raising funds through the issuance of bonds and other financial instruments for institutional and private investors. ORLEN Capital AB specializes in granting borrowings or loans to Group companies and conduct any other activities related to the financial instruments.

On 30 June 2014 ORLEN Capital AB and PKN ORLEN issued Eurobonds with 7-year redemption of approximately of PLN 2,080 million translated using exchange rate as at 30 June 2014 (representing EUR 500 million).The funds obtained by ORLEN Capital through the issue were transferred to PKN ORLEN under the borrowing agreement. PKN ORLEN is the guarantor of the issued bonds by an irrevocable and unconditional guarantee issued to the bondholders of PLN 4,262 million translated using exchange rate as at 31 December 2015 (equivalent of EUR 1 billion). The guarantee was granted for the time of the Eurobond issue, until 30 June 2021.

ORLEN Finance AB

The company’s business is to conduct financial services through transactions within the ORLEN Group, including intercompany borrowings and loans, as well as any other financial instruments.

As at 31 December 2015 the Group has issued the guarantee to ORLEN Finance of PLN 852 million.

Orlen Insurance Ltd.

Orlen Insurance is an internal insurance company (i.e. captive), which main purpose is insurance and reinsurance the Group's business, matching insurance to the individual needs of its property and the potential loss of margin.

9.2. SUBSIDARIES

9.2.1. Changes in shareholder structure affecting the financial data of the Group

Acquisition of shares

Acquisition of shares of Česká Rafinérská by Unipetrol

In the 1st quarter of 2014, Unipetrol a.s. acquired from Shell Overseas Investments BV (Shell) 152,701 shares of Česká Rafinérská representing 16.335% of this company share capital. The Group recognized a gain on the bargain purchase in other operating income of PLN 180 million, calculated as the difference between the acquired share in equity of Česká Rafinérská of PLN 262 million, and the purchase price of PLN 82 million. As a result of the transaction, Unipetrol’s a.s. share in the capital of Česká Rafinérská increased to 67.56 %.

On 3 July 2014 Unipetrol a.s. accepted the offer of an Italian ENI Holding regarding the acquisition of Česká Rafinérská shares, representing 32.445% of share capital of the company. On 19 December 2014 Unipetrol a.s received approval from the Czech Antimonopoly Office for conclusion of this transaction, however on 5 January 2015 an organization, among other of the united independent fuel station operators on the Czech market – SČS - Unie nezávislých petrolejářů, z.s. filed a complaint to this decision. On 30 March 2015 the Antimonopoly Office dismissed the appeal and declared the decision of 19 December 2014 to be valid.
On 30 April 2015 Unipetrol a.s. acquired from ENI 303,301 shares of Česká Rafinérská for the amount of PLN 97 million translated using the exchange rate as at 30 April 2015 (representing EUR 24 million).
As the result of the transaction, Unipetrol’s a.s. stake in Česká Rafinérská’s share capital increased from 67.555% to 100%. After settlement of the transaction, Unipetrol a.s. obtained control over Česká Rafinérská and started the full method of consolidation of the company. As a result of the settlement in the 2nd quarter of 2015, the Group recognized a gain on bargain purchase in other operating income in the amount of PLN 63 million.

Acquisition of shares of Kicking Horse Energy Inc. by ORLEN Upstream Canada (a subsidiary of ORLEN Upstream)

On 12 October 2015 ORLEN Upstream Canada Ltd. (ORLEN Upstream Canada) signed an agreement to acquire Kicking Horse Energy Inc. (Kicking Horse) domiciled in Calgary, Canada.
Kicking Horse is company engaged in the exploration and extraction of oil and natural gas.
On 30 November 2015 Kicking Horse shareholders and option holders approved the acquisition of company shares by ORLEN Upstream Canada. On 1 December 2015 ORLEN Group acquired all of the outstanding common shares.
The transaction was financed through an increase of equity in ORLEN Upstream Canada (made by ORLEN Upstream Sp. z o.o.) as well as Kicking Horse available lines of credit.

The fair value of the identifiable assets and liabilities of Kicking Horse at the acquisition date:

Acquisition of shares of FX Energy Inc. by ORLEN Upstream

On 13 October 2015 ORLEN Upstream Sp. z o.o. (ORLEN Upstream) signed an agreement to acquire American company FX Energy, Inc. (FX Energy) domiciled in Salt Lake City, Utah, USA. FX Energy is engaged in the exploration and extraction of oil and natural gas mainly in Poland.
As a result, on 31 December 2015 ORLEN Group acquired 100% of the common shares and 100% of preferred shares of FX Energy. The transaction was approved by the Office of Competition and Consumer Protection. Financing of the transaction was provided from own resources of PKN ORLEN as well as available lines of credit.

The fair value of the identifiable assets and liabilities of FX Energy at the acquisition date:

In 2014, the main changes in the shareholder structure of the Group, besides the acquisition of shares in Česká Rafinérská as described above, related also to the acquisition of 100% of shares in Birchill Exploration Limited Partnership for the amount of PLN 707 million.
The settlement of executed transaction did not influence the consolidated statement of profit or loss and other comprehensive income, because fair value of net assets acquired was equal to price paid.

9.2.2. Other changes in the structure of the ORLEN Group

• On 5 January 2015, a merger of Rafineria Trzebinia S.A. and the companies: Rafineria Nafty Jedlicze S.A., Fabryka Parafin Naftowax Sp. z o.o. and Zakładowa Straż Pożarna Sp. z o.o. took place. The company operates under the new name of ORLEN Południe S.A. since 5 January 2015;
• On 5 January 2015, a merger of ORLEN OIL Sp. z o.o and Platinum Oil Sp. z o.o. took place;
• On 22 January 2015 acquisition by PKN ORLEN from Anwil S.A. shares of Przedsiębiorstwo Inwestycyjno-Remontowe “RemWil” Sp. z o.o, domiciled in Włocławek took place;
• On 20 February 2015 a merger of ORLEN Serwis S.A. with ORLEN Automatyka Sp. z o.o. and Przedsiębiorstwo Inwestycyjno-Remontowe RemWil Sp. z o.o. took place;
• On 19 March 2015 a merger of Baltic Power and Baltic Spark took place;
• On 1 June 2015 winding-up proceedings of EkoNaft Sp. z o.o. domiciled in Trzebinia began;
• On 26 June 2015 winding-up proceedings of ORLEN International Exploration & Production Company BV due to closure of the exploration and extraction project on the Latvian shelf began;
• On 30 June 2015 the District Court in Rzeszów made an entry of a merger of ORLEN PetroTank Sp. z o.o. and ORLEN Paliwa Sp. z o.o. into a single entity operating under the name ORLEN Paliwa Sp. z o.o. domiciled in Widełka. PKN ORLEN share in the share capital of ORLEN Paliwa Sp. z o.o. (formerly ORLEN PetroTank Sp. z o.o.) remained unchanged at 100%;
• On 2 July 2015 winding-up procedures of the SIA Balin Energy terminated;
• On 1 August 2015 winding-up proceedings of Pro-Lab Sp. z o.o. domiciled in Włocławek began;
• On 1 October 2015 an increase in the share capital of ORLEN Upstream Sp. z o.o, which were fully subscribed by PKN ORLEN in exchange for a cash contribution of PLN 53 million took place. The proceeds from the capital increase will be earmarked for further exploration activity;
• On 30 October 2015, a merger of ORLEN Gaz Sp. z o.o. and ORLEN Paliwa Sp. z o.o. took place;
• On 18 November 2015 an increase in the share capital of ORLEN Upstream Sp. z o.o., which were fully subscribed by PKN ORLEN, in exchange for a cash contribution of PLN 1,501 million took place;
• On 28 December 2015 deletion from the trade registry RAF-SŁUŻBA RATOWNICZA Sp. z o.o. in liquidation on 14 December 2015 took place;
• On 1 January 2016 a merger of Kicking Horse Energy Inc., KCK Operating Company Ltd., Columbia Natural Resources Canada, Ltd. and Kicking Horse International Exploration Ltd. took place, in the next step merger with ORLEN Upstream Canada;
• On 1 January 2016 a merger of Benzina and Unipetrol RPA took place and a merger of Mogul Slovakia and Unipetrol Slovensko took place;
• On 29 February 2016 a merger of ORLEN Serwis S.A. with ORLEN Wir Sp. z o.o. and Przedsiębiorstwo Usług Technicznych Wircom Sp. z o.o. took place.

Changes in the Group structure are an element of the ORLEN Group strategy, assuming a focus on core activities and allocating the resulting available capital for development of the Group in the most prospective areas.