The higher net profit earned by the Group was achieved mainly on the back of stronger  demand for the services offered by the Group's service companies to third-party operators pursuing exploration and drilling projects in Poland, which translated into expanded revenues from geophysical and geological services in Q1 2011 as compared with Q1 2010. The improvement was attributable to a larger scope of work performed by Geofizyka Toruń for external companies in Poland. The higher revenue from exploration services also results from execution of a large number of projects in Poland and abroad (particularly in the Czech Republic and Mozambique).

An additional positive contributor to the reported profit was a better result on financing activities, due to the valuation of an RBL bank loan advanced to PGNiG Norway. Following a strong appreciation of the Norwegian krone against the U.S, dollar, the valuation yielded foreign exchange gains, which brought the result on financing activities to PLN 64 million in Q1 2011, from PLN 9 million in Q1 2010.

Lower profitability

Higher prices of crude on global markets drove up the unit price of imported gas by 22% year on year. As a result, the margin on sales of high-methane gas shrank from 7% in Q1 2010 to 0% in Q1 2011 - gas sales revenue was sufficient only to cover the cost of obtaining gas. The margin on sales of high-methane gas declined by 2 percentage points relative to Q4 2010.

PGNiG Group's results for Q1 2011 (PLN million)

	Q1 2010	Q1 2011	Change
Sales revenue	6,633	7,045	6%
Operating expenses	(5,406)	(5,866)	9%
EBIT	1,227	1,179	(4%)
Net profit	996	1,025	3%

Increased volumes of processed gas

In Q1 2011, gas processing at the denitriding plants in Odolanów and Grodzisk Wielkopolski grew 10% (35 million cubic metres) year on year. The Grodzisk Wielkopolski plant operated without disruptions throughout the quarter and met the high-methane gas production target, which, at the current volume of nitrogen-rich gas input, is approximately 90 million cubic metres quarterly.

The gas production volume in Q1 2011 was 1,130 million cubic metres, largely in line with the figure reported in Q1 2010. On account of increased withdrawal of gas from the underground storage facilities in Q4 2010, in Q1 2011 imports were increased by 2% (73 million cubic metres), to 3.13 billion cubic metres. A portion of imported gas was used to restock the mandatory reserves at the underground storage facilities, which had been used because of the very cold weather at the beginning of December 2010.

Sales of gas decreased by 2% (85 million cubic metres) relative to Q1 2010, to 4.81 billion cubic metres in Q1 2011. The drop was seen mainly in the group of retail customers (who purchased 6%, or 92 million cubic metres, less gas than in Q1 2010), and was caused by the higher air temperatures in the period, in particular in January, which was much warmer than a year earlier. At the same time, the volumes of gas purchased by industrial customers were higher.

Crude production on track

Crude production has been stable and in line with the Company's assumptions. In Q1 2011, the output of crude, including condensate, fell by 3% (3 thousand tonnes) on Q1 2010, to 133 thousand tonnes. Crude sales volume went down 4% (6 thousand tonnes) year on year, to 129 thousand tonnes in Q1 2011.

In 2011, the annual shut-down of the oil mine in Dębno is taking place in the second quarter of the year, as was the case in 2010. Therefore, crude production may be lower than in Q1 2011, but roughly on a par with Q2 2010.

A 37% increase in crude prices on global markets drove up the unit selling price of oil at PGNiG. Accordingly, revenue from crude sales improved year on year by 30% (PLN 63 million) and reached PLN 272 million in Q1 2011.

The price of crude on global markets is one of the key drivers of the PGNiG Group's financial results. Unfortunately, the political situation in North Africa has pushed the price up to 110-120 USD/boe, and as a consequence the nine-month average grew in Q1 2011 to 81 USD/boe, and in Q2 2011 is expected to approach 90 USD/boe. Given the rise in the crude price, PGNiG decided to apply to the Energy Regulatory Authority for an increase in its gas fuel tariff with effect from June 1st 2011.

Gas volumes in the storage facilities

As at the end of Q1 2011, the underground storage facilities contained 334 million cubic metres of gas, including the mandatory reserves, as compared with 475 million cubic metres as at the end of March 2010. This material depletion of the stocks was caused by the low air temperatures and the larger amounts of gas consumed by end customers in Q4 2010, as well as the fact that the available capacities of the gas storage facility in Wierzchowice are currently reduced because of the expansion project under way at the site.

Joanna Zakrzewska

Spokesperson