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In Q1-Q3 2012, the Group's operating result was down by nearly PLN 1.5bn, despite a 25% rise in sales revenue, to PLN 20.1bn. The Group posted an operating loss of PLN 77m for the period, vs. a PLN 1.4bn profit in Q1-Q3 2011. The decline was chiefly caused by the rising cost of gas purchases.

The March 2012 increase in gas tariffs by approximately 17% proved insufficient to offset the rising cost of gas. As a result of the inadequate tariff and strong movements of exchange rates, the Group recorded a negative margin on sales of high-methane gas for six consecutive quarters. In Q3 2012 and Q3 2012, the margin on gas sales was -9% and -2%, respectively, while in Q1-Q3 2012 the margin was -11%, substantially down on -1% reported for Q1-Q3 2011.

The negative margin on sales of the Group's key product directly translated into weaker performance of the Trade and Storage segment.

Stronger performance by E&P and Distribution segments

In Q1-Q3 2012, the Exploration and Production segment generated an operating profit of PLN 1.2bn, more than in the entire 2011, when the profit was PLN 1.1bn. This positive performance came on the back of higher revenue from crude oil sales, strict control of operating expenses, especially costs of contracted services and employee benefits, as well as a lower number of dry wells.

The Company also reported sound performance of its Distribution segment.  In Q1-Q3 2012, the segment's operating profit was PLN 551m, having increased 11% year on year. This was achieved on higher volumes of distributed gas and lower operating expenses.

PGNiG Group's performance in Q1-Q3 2012 (PLNm)

Wyniki Grupy PGNiG w III kwartale 2012 roku (mln zł)

Higher natural gas sales

In Q1-Q3 2012, the volume of gas sales was 10.5bn cubic metres, up from 10.1bn cubic metres in the corresponding period of 2011. Year to date, each customer group purchased more gas than in 2011, with growth rates from 3 to 5%. There was no major year-on-year change in demand in Q2 and Q3 2012 – the increase in gas consumption was driven by low air temperatures in Q1 2012.

In Q3 2012, the volume of gas sales was 2.5bn cubic metres, and stayed relatively flat on Q3 2011.

Twofold increase in gas supplies from countries west and south of Poland

The consistent policy of diversifying gas supply sources and developing storage capacities brought fruit in Q1-Q3 2012 when a significant change in the structure of imports occurred. Thanks to the use of the extended Lasów interconnector, the virtual reverse flow at the Yamal pipeline, and the Moravia interconnector, a total of 1.4bn cubic metres of gas was sourced from countries west and south of Poland, which represents a twofold increase over Q1-Q3 2011, when imports from the West were 700m cubic metres. Despite these changes, the average cost of purchased gas was higher than the tariff price. Consequently, in Q3 2012 the Company had to recognise an additional impairment loss of PLN 60m on gas inventories.

Higher crude production and stronger revenue from crude sales

Crude oil output grew 3% in Q1-Q3 2012, to 353 thousand tonnes. In May and June 2011, production of crude oil at the Dębno facility was reduced due to the limited ability to receive gas by one of CHPs. In the corresponding months of 2012, production proceeded as planned, hence the positive year-on-year change in the output.

On a cumulative basis, the increase in revenue from sales of crude oil was primarily attributable to the higher USD/PLN exchange rate, which pushed the price of crude up by 16% in złoty terms. Compared with 2011, the average price of crude in dollar terms remained level over the first nine months of 2012, while in Q3 alone it fell 3%.

Crude oil production in 2012 is forecast at 480 thousand tonnes, and in 2013 – taking into account the Skarv project – at 1,120 thousand tonnes.

Utilisation of gas storage capacities

After the withdrawal of significant volumes of gas in Q1 2012, during two subsequent quarters the Company injected 1.2bn cubic metres of gas into its storage facilities. The largest quantities of (almost 800m cubic metres) were injected in Q2 2012. In Q3 2012 alone, 430m cubic metres of gas was injected, which together with the gas already stored represents a considerable proportion of the total storage capacity.

Consolidation of PGNiG Termika

In Q1-Q3 2012, the volume of heat sales grew 2%, to 26 PJ, while the volume of electricity sales remained at 2.4 TWh. The third quarter is generally the low season for PGNiG Termika. Moreover, in September 2012 the Żerań CHP plant was shut down for 18 days due to a fire. The cost of repairing the fire damage was estimated at approximately PLN 12m.

Revenue from sales of heat rose year to date, following the tariff increase in July 2011 and 2012 and larger volumes of heat sales in Q1 2012, driven by low temperatures and higher availability of the Siekierki CHP plant compared with Q1 2011. On a cumulative basis, revenue on electricity sales was stable, with a drop in revenue from sales of certificates of origin. The marked decline in the volume of electricity sales in Q3 2012 was attributable to the temporary shut-down of the Żerań CHP plant.