PKN Orlen: Signs crude oil supply contract with Rosneft

PKN Orlen has signed an estimated US$ 15bn deal for supplies of REBCO oil from Rosneft (6,44 EUR, 0,81%) for the period 2013-2016, the company said in a market filing. PKN Orlen will receive about 6mt of REBCO oil a year between 1 February 2013 and 31 January 2016, the filing reads. The supplies are to be made via the Druzhba pipeline or, in certain cases, by sea. Thanks to the contract Orlen will have 80% of oil supplies covered by long-term contracts, the company said.

Our view:
This deal is clearly positive as it eliminates an important risk factor for the company. By buying more through long-term contracts, PKN Orlen will be less exposed to the risk of deliveries being re-routed via sea, which could have resulted in crude acquisition costs being some US$ 1-2/bbl higher.