News

Factors which had a bearing on the PGNiG Group's financial performance

The Q4 loss reported by the PGNiG Group was attributable chiefly to a remarkably high cost of imported gas, which was not covered by the applicable tariff for gaseous fuels.

The price at which the PGNiG Group purchased natural gas in the fourth quarter of 2008 was based on prices of oil products in the first three quarters of 2008. The nine-month average price of crude oil for the fourth quarter of 2008 was USD 112 per boe, up by 9% compared with the average price for the third quarter of 2008 and up by as much as 66% relative to the average price for the fourth quarter of 2007. The purchase price of imported gas soared by 79% on the back of an increase in the nine-month average price recorded in the fourth quarter of last year.

The fourth quarter of 2008 witnessed a further 25% depreciation of the Polish currency against the US dollar, which negatively impacted the PGNiG Group's results by translating into higher purchase prices of imported natural gas. On the other hand, the weaker złoty had a positive effect on crude oil sales revenue - by slightly offsetting the decline in oil prices on the global markets - and the results of the geophysical, geological and exploration companies, since contracts for their services conducted abroad are denominated in the US dollars.

In addition, compared with the fourth quarter of 2007, in Q4 2008 there was far less natural gas used from the storage facilities, which resulted in the fall of margin on sales of methane-rich gas.

Strong Results in Distribution

In the last quarter of 2008, the Distribution segment recorded a robust operating profit of PLN 154m. However, it should be noted that in the fourth quarter of 2007, the segment's EBIT was reduced by a PLN 1.3bn valuation allowance for tangible assets. Net of the allowance, the segment's result would have been PLN 44m. Taking into account this value, the difference between the segment's result in the fourth quarter of 2007 and the same period in 2008 was PLN 110m. This was linked to higher distribution margins (the new tariff effective from April 25th 2008) with a lower volume of distributed gas.

Exploration and Production

Natural Gas

In the fourth quarter of 2008, the production volume edged down by 4 percent relative to the same period of last year due to a lower demand from customers connected directly to the fields. At the same time, the volume of natural gas sold fell by 10 percent on the back of a decrease in demand from industrial customers, including mainly nitrogen plants (down by 14 percent) and heat plants (down by 11 percent).

Despite the 10-percent year-on-year drop in the gas sales volume in the fourth quarter of 2008, the PGNiG Group managed to increase its revenues on gas sales by 10 percent thanks to the two tariff increases for gaseous fuels in 2008.

Crude Oil

In the fourth quarter of 2008, oil production volume reached 138 thousand tonnes, which represents an 8-percent decline relative to the same period of 2007. The Group also recorded lower sales revenue, which fell by 39 percent, compared with the fourth quarter of 2007. The downward change in revenue can be attributed to a 37-percent drop in crude oil prices on the global markets. Compared with the third quarter of 2008, crude oil prices plunged by 52 percent, eroding revenue on crude oil sales by 21 percent.

Implementation of the PGNiG Group's Strategy

The Group consistently implements its Strategy until 2015, adopted in the fourth quarter of 2008. It is worth noting that PGNiG has not limited any of its investment plans, due to the fact that it takes a dozen-or-so years' perspective on its projects. The most important for the Group are its strategic investment projects: the Skanled pipeline project, development of the fields in Norway, and in Poland - extension of the storage facilities and exploration for and development of new deposits, leading to higher production of hydrocarbons. In 2009, the PGNiG Group intends to allocate approx. PLN 5bn to investment projects, including in particular exploration for and development of deposits, construction of underground gas storage facilities, and distribution.

The Group's investment projects budget for the current year includes amounts allocated to equity investments. The PGNiG Group is contemplating entry into the power sector in cooperation with partners from the industry. It is taking into consideration projects where it would exclusively supply gas to power plants, but it does not exclude the possibility of making equity investments in such ventures.

Joanna Zakrzewska

Spokesperson of PGNiG S.A.

Tel.: (+48) 22 691 79 30

joanna.zakrzewska@pgnig.pl