The Group's net profit for Q3 2010 was PLN 345m, which represents an 18% decline on the same quarter of 2009. At the same time, the result exceeded the market consensus forecast almost twofold.. A material factor contributing to the decline was a lower margin on sales of high-methane gas (which accounts for 92% of the total sales volume in Poland), due to higher operating expenses in the reported period. The margin on high-methane gas sales was 2%, which means a deterioration of 10 percentage points relative to Q3 2009. The lower margin on high-methane gas sales can be explained by a 47% year-on-year rise of the unit price of imported gas. Such considerable rise in the cost of purchase of imported gas was due to a 40% increase of the nine-month average of petroleum product prices and a 6% increase in the average exchange rate of the US dollar, which is the settlement currency under the gas purchase contracts.

PGNiG Group's Performance in Q3 2010 (PLNm)

	Q3 2009	Q3 2010	CHANGE
Sales revenue	3,422	3,882	13%
Operating expenses	(2,913)	(3,541)	(22%)
EBIT	508	340	(33%)
Net profit	419	345	(18%)

PGNiG Group's Performance in Q1-Q3 2010 (PLNm)

	Q1-Q3 2009	Q1-Q3 2010	CHANGE
Sales revenue	13,675	14,644	7%
Operating expenses	(13,846)	(13,102)	5%
EBIT	(171)	1,542	---
Net profit	(74)	1,339	---

Strong Performance of the Exploration and Production Segment

In Q3 2010, the Exploration and Production segment generated the best operating performance of all the Group's segments. Its operating profit in the analysed quarter amounted to PLN 246m, up by PLN 253m year on year. Higher crude prices on global markets translated into a 63% rise in revenue from crude sales. Moreover, since Q2 2010 the demand for services performed by the service companies has picked up significantly, which also was reflected in revenue from sales of geophysical and geological services. This is the effect of stronger demand for geophysical and geological work, mainly in Poland. On the other hand, the higher revenue from exploration services reflects a larger scale of operations of the Exploration and Production companies outside Poland - mainly in Uganda, India and the Czech Republic.

Another driver of the Exploration and Production segment's improved performance was a reduction, by as much as 87% (or PLN 154m), of the costs of dry well write-offs. In Q3 2010, there was only one dry well written off, compared with eight dry holes in the same quarter of 2009.

Rise in Gas Production and Sales

Cumulatively for the first three quarters of 2010, the production of natural gas amounted to some 3.12 billion cubic metres, up by 3% (or 87 million cubic metres) year on year. The rise was recorded despite a slight, 1%, year-on-year fall in the volumes produced in Q3 2010. The fall was due to a month-long overhaul stoppage of the Grodzisk Wielkopolski Denitriding Plant. As a result, in Q3 2010 the output of natural gas from the nitrogen-rich gas mine was lower from the Q3 2009 level by PLN 12 million cubic metres.

The volumes of natural gas sales grew by 9%, which was attributable to a 7% rise in demand from industrial customers (the strongest rise was recorded in the case of power and CHP plants). A rise was also seen in demand from households, which - owing to the colder September - purchased 7% more gas than a year earlier. In the first three quarters of 2010, households purchased 9% more gas than in the corresponding period of the previous year. Industrial customers, which from January to September 2010 purchased 6% more gas than a year earlier, also contributed to the increased sales. Sales of natural gas indicate that we can expect a year-on-year rise in sales volumes, to the levels seen before the economic slowdown set in. In the first three quarters of 2010, PGNiG sold 700 million cubic metres^{) more gas than in the corresponding period of the previous year.}  Accordingly, we expect that in 2010 sales of natural gas should come near the 2008 level.

Crude Oil

Production of crude oil has been stable and has proceeded as planned. The production of crude oil and condensate in the second and third quarters of each year is affected by a month-long overhaul stoppage at the largest crude mine, in Dębno. In 2010, the stoppage took place in May, while in 2009 the overhaul had been carried out in the third quarter. As a result, the production volumes in Q3 2010 rose by 36% (34 thousand tonnes), to 130 thousand tonnes. For the first three quarters of 2010, the production volumes reached 357 thousand tonnes (close to the 2009 level).

The rise in crude production in Q3 2010 was reflected in a corresponding rise in sales. A 12% increase in the price of crude oil on global markets between Q3 2009 and Q3 2010, coupled with the weakening of the złoty against the dollar by 6%, brought about a 21% growth of the unit price of crude oil sold by PGNiG.  Therefore, revenue from sales of crude oil rose in Q3 2010 by 63% (PLN 85 million) .

In Q3 2010, 57% of crude oil and condensate sold was purchased by domestic customers, whereas the remaining 43% was export sales.

Joanna Zakrzewska

Spokesperson for PGNiG SA