Record-High Sales of High-Methane Gas

The year-on-year improvement of the Group's results of almost PLN 1.4bn is attributable to a combination of two factors. Firstly, lower temperatures drove demand for gas. In Q1 2010, revenue from sales of natural gas grew by 8%, to 4.9bn m³. Lower average air temperatures, down by 2^oC quarter on quarter, and more importantly, by 5^oC January on January, fuelled a 360m m³ increase in gas sales, especially to households (a 7% rise in comparison to Q1 2009). There was increased demand for gas from industrial customers as well, including nitrogen plants, which reported an approximately 10% sales growth in comparison to Q1 2009. The volume of natural gas sold to industrial customers rose, but still remains below the levels reported in the first quarter of 2008.

 The other factor contributing to stronger performance was the lower unit cost of gas imports which translated into stronger sales margins. Larger volumes of gas sold and lower cost of gas purchases produced a positive sales margin on high-methane gas of 7%. Nevertheless, margin fell by 7 p.p. in comparison to Q4 2009. This downward trend is bound to continue in Q2 2010 due to the weakening of the złoty against the US dollar and the rising prices of crude oil, which in turn push up the nine-month average used in settlements under our key contract for natural gas supplies.

Lower Sales of Nitrogen-Rich Gas

In Q1 2010, two factors contributed to a PLN 113m (23%) fall in revenue from sales of nitrogen-rich gas. Firstly, the majority of customers in the city of Poznań and the eastern belt of the Greater Poland region had been switched to high-methane gas by the first quarter of 2010. Secondly, the nitrogen-rich gas which initially was to be fed into the distribution network was in fact routed to the Grodzisk denitriding plant.

PGNiG Group (PLNm)	Q1 2009	Q1 2010
Sales revenue	6,379	6,622
EBIT	(457)	1,216
EBITDA	(88)	1,582
Net profit/(loss)	(399)	988

Natural Gas and Crude Oil Production

In Q1 2010, the production of natural gas was 1.138bn m³, i.e. close to the volume recorded in the corresponding period of 2009.

The production of crude oil and condensate was flat, both on year-on-year and quarter-on­ quarter basis. In the discussed period, the production of crude amounted to 137 thousand tones and sales volume was 135 thousand tones. In Q1 2010, 56% of our total production was sold to customers in Poland, and the balance - abroad.

The increase in crude prices on the global markets by 70%, or 32 USD/boe, between Q1 2010 and Q1 2009, translated into higher oil selling prices charged by PGNiG. However, the 17% strengthening of the złoty against the dollar decelerated the rise in the unit oil selling price, which ultimately amounted to 45%. Accordingly, revenue from sales of crude oil and condensate rose by 43%, or PLN 63m, to PLN 207m.

PGNiG Expands Its Product Portfolio

The launch of the nitrogen-rich gas denitriding plant in Grodzisk Wielkopolski allowed us to increase production of certain additional products offered by PGNiG, including LNG, LPG and helium. Revenue from sales of these products rose by 35%, or PLN 8m, compared with Q1 2009.

Performance by Key Segments

In Q1 2010, the operating profit of the Exploration and Production segment was PLN 242m, up by PLN 38m year on year. The rise is attributable to the PLN 64m increase in revenue from crude sales.

The significant improvement of the Trade and Storage segment's operating profit, which reached PLN 446m, stemmed from the larger volume of gas sold (up by 360m m³) and lower segment costs (down by 19%). The segment's result would be even higher, but it was adversely affected by the recognition of a PLN 56m impairment loss on receivables from Zakłady Azotowe Kędzierzyn.

In Q1 2010, the operating result of the Distribution segment was PLN 536m, having increased by PLN 142m year on year.

The Q1 2010 financial results provide a solid platform for implementation of the Group's strategic projects. The PGNiG Group intends to maintain a high level of capital expenditure, chiefly on projects aimed at extending underground gas storage facilities, expanding production capacity and diversifying gas supply sources, as well as on projects related to exploration for and appraisal of crude oil and natural gas deposits and projects designed to create a new segment of operations, namely the power generation business. The significantly improved performance allowed the Group to reduce its debt. Currently, the amount of outstanding loans is approximately PLN 1.2bn, down by 42% relative to the end of 2009.

Joanna Zakrzewska

Spokesperson for PGNiG SA