May 8, 2012 / 6:16 AM / 5 years ago

UPDATE 1-Lotos beats expectations on Baltic Sea upstream

* Q1 net at $186 mln vs $136 mln expected

* Earnings boosted by Baltic Sea upstream

* To reassess off-Norway Yme’s value after Talisman analysis

WARSAW, May 8 (Reuters) - Poland’s second-largest refiner Lotos posted a smaller-than-expected annual decline in its first-quarter net earnings on Tuesday, boosted by profits in the upstream segment.

The state-controlled company said it earned a net 597 million zlotys ($186 million), more than a third higher than analysts’ expectations of 437 million zlotys.

As part of a bid to reduce its reliance on Russian oil and dependence on the difficult refining business, Lotos has been seeking to develop an upstream business and holds stakes in several local and foreign projects.

Lotos said it nearly doubled output on its Baltic Sea fields in the first quarter to 5.6 thousand barrels per day, mainly owing to trial production on licence B8.

“There is a positive surprise in upstream. We knew there would be more output from B8, but we did know how much of that would be sold,” said Wojciech Kozlowski, an analyst at Warsaw-based Espirito Santo.

Lotos also continued production in Lithuania, but is still far from launching output in Norway, where it controls a 20 percent stake in an ill-fated oilfield Yme, designed to produce at a peak 40,000 barrels of crude oil per day.

Talisman Energy, which operates the field, last week wrote down the value of Yme by $248 million and removed it from its production forecasts as problems in readying the platform for the North Sea operation persisted.

Lotos, which already booked a $74 million loss on the North Sea project last quarter, said it would await the Canadian group’s analysis of the troubled investment and reassess its value afterwards.

The group also said its optimisation campaign, launched in January and designed to save 220 million zlotys this year, let it salvage 142 million zlotys in its first three months.

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