Lotos announced the key elements to its new strategy yesterday. The company substantially extended the refinery upgrade program and also disclosed ambitious upstream expansion plans. Capex financing, however, is expected to result in 70%+ gearing in 2009-10, which makes the company highly sensitive to future refining margin development.
At the first glance, Lotos new strategy holds numerous positive (significant lift in crude production and higher fuel sales estimates) but also negative (one year delay in the implementation of the refinery upgrade program, stretched financing) elements. After investigating each of the key points we come to the conclusion that the new strategy is a movement to the right direction, however, substantially lifts individual risk of the company.