Asset impairment tests were performed based on future expected cash flow, developed on the basis of (a) macroeconomic assumptions and projections of financial results included in the Financial Plan for ORLEN and the ORLEN Group for 2023, (b) updated long-term assumptions for: oil prices, prices of key refining and petrochemical products – based on IHS Markit; gas prices – based on forward curves for the POLPX (Polish Power Exchange) and THE (Trading Hub Europe), and IHS Markit projections; prices of electricity and CO₂ emission allowances – based on KOBIZE data(National Centre for Emissions Balancing and Management), (c) reports on hydrocarbon reserves or assessments of technical experts responsible for field production – for the assets of the Upstream segment, and (d) major climate factors and energy transition policies such as rising CO₂ prices, CO₂ emission reductions and required capital expenditures for individual CGUs, as well as the impact of CO₂ allowances prices on revenue from sale of products.

Net cash flows were discounted to their present value using discount rates reflecting current market estimates of the time value of money and risks typical of the assets measured.

Key macro assumptions used for impairment testing as at 31 December 2022.

After the projection period, extrapolation of cash flows was applied considering the long-term inflation rate for each country.

Key macro assumptions used for impairment testing as at 31 December 2021.

After the projection period, extrapolation of cash flows was applied considering the long-term inflation rate for each country.

Net cash flows planned for the assets of the Refining and the Petrochemicals segments
The ORLEN Group tested the assets of the Refining segment and the Petrochemicals segment for impairment using the discounted future operating cash flows method (value in use).

The long-term macroeconomic forecasts for refining and petrochemical assets were derived from IHS Markit and other auxiliary sources, including forward curves, banks' predictions, and analyses of government agencies, and incorporate analyses and opinions of ORLEN Group experts. These forecasts are based on the following assumptions:

• IHS forecasts predict that oil will remain the main source of energy, with consumption peaking in 2030. Similarly, the peak demand for refining products is projected to be in 2030. The main causes of the shift in demand include the ongoing energy transition, the adoption of alternative fuels, changes in vehicle propulsion technology, and technological innovation.
• In the medium term, the oil market is expected to see a gradual decline in supply, with crude prices supported by persistent natural gas shortages.
• New refining capacities will primarily emerge in Asia and the Middle East, and to a lesser extent in Latin America and Africa.
• The Brent dtd price forecasts have been on the rise due to the recent invasion of Ukraine by Russia.
• According to the IHS forecast, Brent dtd will reach USD 95/bbl in 2023. In 2024-2025, the price of Brent dtd crude will average at USD 88/bbl. For subsequent years, it is projected to rise to USD 104/bbl by 2033.
• Due to anticipated lower imports of the product mainly from the East, the margin for gasoline, which represents the difference between the product's market prices and the Brent dtd crude oil price, will reach USD 229/tonne in 2023. The margin is expected to decrease to USD 182/tonne by 2025 before gradually rising in the subsequent years, to USD 205/tonne in 2033.
• The projected margin of USD 224/tonne for the diesel fuel in 2023, which represents the difference between the product's market prices and the Brent dtd crude oil price, is a result of the anticipated reduction in the supply of imported products from Russia due to sanctions. The diesel margin is forecast to reach USD 112/tonne in 2024, and subsequently decline to USD 98/tonne in 2025. The margin is then anticipated to gradually increase in the following years, to USD 118/tonne by 2033. The primary factor will be the growing demand in the Asia-Pacific region.
• The forecasts for naphtha margins, which represent the difference between the product's market prices and the Brent dtd crude oil price, are continuously increasing due to the rising demand for petrochemicals and, consequently, the higher demand for naphtha. It is expected that in the long term, naphtha prices will increase in comparison to gasoline and become a significant petrochemical feedstock once again, driven by the growing demand for petrochemicals. The kerosene margin is expected to grow steadily from USD 95/tonne in 2023 to USD 154/tonne in 2033.
• In 2023, the forecast spread between the market prices of ethylene and naphtha is EUR 691/t, and is expected to rise to EUR 695/t in 2033. China is expected to continue to be the leading producer and consumer of ethylene. Around 20% of new ethylene production and demand will be accounted for by North America, which is currently approaching the end of its significant petrochemical investment period.
• The spread between propylene and naphtha prices is forecast to be EUR 623/tonne in 2023 and EUR 669/tonne in 2033, with the rise in propylene demand in the coming years expected to follow its historical trend, driven by the economic growth of heavily populated regions such as China and India.
• Forecast price of CO₂ emission allowances in line with the ORLEN Group’s projections.
• The cash flows used for impairment testing accounted for a plan for gradually reducing CO₂ emissions to -25% by 2030, as outlined in the ORLEN Group's Decarbonisation Strategy.
• The entry into force of the European Commission's carbon border adjustment mechanism (CBAM) is anticipated.
• The forecast also took into account the limited availability of crude oil from Russia.
• Replacement capital expenditures at a level that ensures the preservation of the production capacity of existing non-current assets and the expenditures necessary to achieve the planned level of CO₂ emission reductions. In addition, due to the significant level of advancement, the following development projects were also taken into account: in the Refining segment: Visbreaking installation, construction of the HVO unit at ORLEN; Bottom of the Barrel in Lithuania; and in the Petrochemicals segment: Olefins Complex III and PE IV at ORLEN.

The ORLEN Group conducted scenario-based impairment tests on its primary production assets. Three scenarios were developed for the Refining CGU (ORLEN, ORLEN Lietuva, ORLEN Unipetrol) and the Petrochemicals CGU (ORLEN, ORLEN Unipetrol): baseline, pessimistic and optimistic. The baseline scenario is built on the macroeconomic assumptions outlined in the Financial Plan 2023 and the updated macroeconomic forecasts for 2023-2033 that reflect the aforementioned assumptions. The pessimistic and optimistic scenarios were constructed based on one standard deviation of the historical Downstream Margin for 2012-2021 and the estimated probability of the impact of CO₂ emission allowance prices on revenue from sales of refining and petrochemical products.

Weights were assigned to each scenario based on normal distribution and expert evaluation, with a higher probability being assigned to the pessimistic scenario than the optimistic one to maintain a conservative approach.

Net cash flows planned for the Energy segment's assets
The ORLEN Group tested its main energy assets for impairment using the income approach, based on the discounted value of estimated operating cash flows (i.e. the value in use). Among other factors, the following were the main underlying assumptions:

• Macroeconomic assumptions used by the ORLEN Group for source-specific electricity prices, coal and natural gas prices, capacity market rates for the Polish market. To estimate costs associated with the use of biomass, the ORLEN Group relied on ORLEN Group companies' forecasts for biomass prices.
• The short-run marginal cost method was used to prepare energy price forecasts for hourly electricity prices. The model identifies the group of generating units with the lowest variable costs for each hour, giving priority to electricity from thermal units and renewable energy sources (RES).
• Forecast price of CO₂ emission allowances in line with the ORLEN Group’s projections.
• Number of free CO₂ emission allowances as listed by the Minister of the Environment of Poland for 2021-2025.
• Replacement capital expenditures at a level that ensures preservation of the production capacity of the existing fixed assets, including replacement expenditures for the adaptation of industrial emission levels to the requirements of Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010, on industrial emissions and EU Commission Implementing Decision 2021/2326 on Best Available Techniques (BAT) Conclusions published on 30 November 2021.
• Maintain support for energy-generation from the existing renewable energy sources with income from property rights and include revenue from auctions won for the sale of electricity from renewable energy sources and the FIT/FIP mechanism for some of the installations, in accordance with the Law of 20 February 2015 on Renewable Energy Sources and its subsequent amendments (Dz. U. 2017, item 1148).
• Revenue from the capacity market is recognized in accordance with the provisions of the Capacity Market Act of 8 December 2017, as amended (Dz. U. 2021, item 1854, 2022, item 2243). Rates are based on auctions held and won in 2018-2022, and for years beyond the contracted period – on price paths (prices of multi-year capacity contracts are adjusted annually in accordance with capacity power market regulations).
• Estimates of the impact of the regulatory measures to counter excessive increases in electricity prices and implementing a range of solutions concerning energy undertakings and electricity consumers, including: (a) rules governing the freezing of electricity prices in tariffs approved in 2022, (b) electricity consumption limits for residential consumers in 2023, (c) rules governing the application of capped prices, (d) rules governing the calculation of contributions to the Price Difference Payment Fund by electricity producers and trading companies, and (e) rules governing the granting and settlement of compensation from the Price Difference Payment Fund for trading companies for the application of capped prices. The key legal acts comprising the regulatory measures are:
• Act of 7 October 2022 on Special Measures to Protect Electricity Consumers in 2023 in View of the Situation on the Electricity Market, as amended (Dz. U. of 2022, items 2127, 2243, 2687);
• Act of 27 October 2022 on Extraordinary Measures to Limit Electricity Prices and Support Certain Consumers in 2023, as amended (Dz. U. of 2022, items 2243, 2687);
• Regulation of the Council of Ministers of 8 November 2022 on the method of calculating price caps (Dz. U. of 2022, item 2284);
• Regulation of 9 December 2022 amending the Regulation on the method of calculating price caps (Dz. U. of 2022, item 2631).
• The length of the financial projections for each CGU was determined in such a way that the cash flows used to calculate the residual value are as close as possible to the expected cash flows in successive years.
• The cash flow forecasts used to calculate the residual value were extrapolated using a growth rate of 2.0%, which does not exceed the average long-term inflation rates in Poland.

Net cash flows planned for the Retail segment's assets
The ORLEN Group tested the Retail segment's assets for impairment using the discounted future operating cash flows method (value in use) with the following underlying assumptions:

• Fuel and non-fuel margins derived from the Financial Plan 2023 of ORLEN and the ORLEN Group.
• Replacement capital expenditures at a level that ensures the maintenance of the fuel station network.

Net cash flows planned for the Upstream segment's assets
The ORLEN Group tested the Upstream segment's assets for impairment using the discounted future operating cash flows method based on the following assumptions:

• The reserves for the Upstream segment's assets at ORLEN, LOTOS Upstream Group, and PGNiG Upstream Norway AS were estimated by technical experts based on the current hydrocarbon price paths, in which the Brent dtd is expected to reach USD 95/bbl in 2023 according to IHS's forecast. In 2024-2025, the price of Brent dtd crude will average at USD 88/bbl. It is projected that the price will increase gradually, reaching USD 104/bbl in 2033. Prices of natural gas were estimated based on the forward curves for the POLPX (Polish Power Exchange) and THE (Trading Hub Europe), as well as the IHS Markit projections, and they are expected at PLN 613/MWh in 2023. In 2024-2025, the prices of natural gas are forecast to average at PLN 327/MWh. In 2026-2033, the price is expected to fall to PLN 132/MWh in 2033.
• Reserve Reports were prepared for the assets of the Upstream segment in ORLEN Upstream Poland and ORLEN Upstream Canada, using current estimates of oil, gas and condensate prices.
• The 2023 cash flow projections for natural gas-producing assets located in Poland include a statutory obligation to transfer a contribution to the Price Difference Payment Fund.
• Capital expenditures at a level that ensures optimal efficiency at assumed prices.
• Production volume forecasts take into account the current assessment of the prospectivity of the producing fields and exploration assets.
• Value in use was calculated for the assets of the Upstream segment at ORLEN, ORLEN Upstream Polska and LOTOS Exploration and Production Norge AS (LOTOS E&P Norge).
• Fair value less costs to sell (Level 3 inputs as defined in IFRS 13 Fair Value Measurement) was calculated for the assets of the Upstream segment in PGNiG Upstream Norway AS and ORLEN Upstream Canada.

Net cash flows planned for the Gas segment's assets
The ORLEN Group tested the Gas segment's assets for impairment using the discounted future operating cash flows method (value in use) with the following underlying assumptions:

• Prices of natural gas were estimated based on the forward curves for the POLPX (Polish Power Exchange) and THE (Trading Hub Europe), as well as the IHS Markit projections, and they are expected at PLN 613/MWh in 2023. In 2024-2025, the prices of natural gas are forecast to average at PLN 327 /MWh. In 2026-2033, the price is expected to fall to PLN 132/MWh in 2033.
• The 2023 cash flow projections for natural gas-producing assets located in Poland include a statutory obligation to transfer a contribution to the Price Difference Payment Fund.
• Replacement capital expenditures at a level that ensures the maintenance of the assets.

Key climate factors taken into account to determine the recoverable amount of assets
The policies of the European Union, including the rising prices of CO₂ emission allowances and the limits on free allowances, are among the primary factors that have a negative impact on financial performance. The price of CO₂ allowances is forecast to reach EUR 147/tonne in 2033, consistent with the assumptions described earlier.

The ORLEN Group's current strategy includes ambitious ‘green’ targets aligned with global trends in decarbonisation, enabling the Group to achieve carbon neutrality by 2050. The ORLEN Group has included the required capital expenditures for decarbonization in the cash flows for the Refining and Petrochemicals segments' main production assets of ORLEN, ORLEN Unipetrol, and ORLEN Lietuva to achieve its strategic goal of carbon neutrality by 2050, and has planned the gradual reduction in CO₂ emissions to a level of -25% in 2030, in line with the announced Strategy.