In Q4 2010, the Group's revenue gained 17% year on year, and stood at PLN 6.6bn (Q4 2009: PLN 5.7bn); the growth was a combined effect of the higher gas fuel tariff (up by PLN 105 per 1000 m³) and the larger volume of gas sales. The tariff increase was the effect of higher costs of gas imports and the recognition by the President of the Energy Regulatory Office of higher costs of building and maintaining stocks of natural gas (which as of October 1st 2010 amount to 530m m³).

One of the key factors that will affect the PGNiG Group's performance in the coming quarters is the significant increase in global oil prices. Oil prices above USD 110 per boe may drive the nine-month moving average of petroleum product prices in Q2 2011 up to USD 90 per boe. Despite the stable US dollar exchange rate, the crude prices force PGNiG to request an increase in the gas fuel tariff.

In 2010, the Group's sales revenue was up 10%, to PLN 21.3bn, chiefly due to the record high volume of gas sales reported at 14.4bn m³ and the gas the higher tariff compared with 2009. Other key factors which contributed to the PGNiG Group's improved performance in 2010 included a volume discount granted by the gas supplier, higher profits on crude sales, and reversal of impairment losses relating to assets of the Group's distribution companies.

In 2010, the PGNiG Group finally reversed the PLN 1.3bn impairment loss on assets of the distribution companies recognised in 2007.

PGNiG Group's performance in Q1-Q4 2010 (PLNm)

PGNiG Group's performance in Q4 2010 (PLNm)

Debt and CAPEX

As at the end of 2010, the PGNiG Group's total debt was PLN 2.2bn, PLN 171m more than at the end of 2009. Net debt as at the end of the year amounted to PLN 826m, a level similar to that recorded at the end of 2009. The higher debt is attributable primarily to the execution of the PGNiG Group's investment programme.

The Company plans to spend some PLN 5.6bn on its CAPEX projects in 2011. It will be another year of major outlays and one of the most intense periods in PGNiG SA's operating history as regards investment in the upstream segment. The overall objective of the Company's projects launched in 2008 is to enhance Poland's energy security and to maximise the Company's value.

The expenditure on oil and gas exploration, both in Poland and abroad, is budgeted at more than PLN 1.1bn in 2011, of which approx. PLN 100m will be applied towards shale gas exploration in Poland. The Company's major project in Poland is the extension of the Lubiatów-Międzychód-Grotów production facility, which, given the progress of work, should be launched in 2012 (a year ahead of schedule). 2011 is another year when a Lubiatów-Międzychód-Grotów project accounts for the largest portion of planned outlays.

In 2011, an additional amount of approximately PLN 420m will be spend on production diversification efforts and another PLN 1bn - on field development and maintenance at home.

During the year, PGNiG SA is continuing work aimed at extending underground storage facilities, including cavern storage facilities in Kosakowo and Mogilno, and its largest facility in Wierzchowice. The related capital expenditure will be approximately PLN 650m in 2011.

An amount in excess of PLN 1.2bn will be applied towards projects involving modernisation of the distribution network and installation of new service lines.

Higher Gas Production and Sales

In 2010, the PGNiG Group reported record-high sales of natural gas on the back of low temperatures driving demand for gas from households. Gas sales volumes rose by 9%, from 13.3 billion cubic metres in 2009 to 14.4 billion cubic metres in 2010. Stronger demand was recorded from all customer groups: households purchased 371 ^million cubic meters (or 10%) more gas than in 2009, whereas the volume of gas sold to industrial customers was up by 510 million ^cubic meters (or 7%) year on year. The sales of natural gas in Q4 2010 also reached its historically highest level, driven by lower temperatures in October and December compared with the same period in 2009, which contributed to a 152m m³ (or 12%) rise in the volume of gas sales to households. Moreover, demand from industrial customers increased year on year, leading to a growth in sales to that group of customers by 171m m³ (8%).

In 2010, the production of natural gas was 4.2bn m³, up by 2% year on year. Higher output was reported mainly by nitrogen-rich gas mines, from which gas is transmitted to the Grodzisk Wielkopolski Denitriding Plant for processing into high-methane gas to be fed into the transmission system. In Q4 2010 alone, the production of natural gas went up by 4% year on year. As in the case of the production for the entire year, the growth in Q4 was attributable to the nitrogen-rich gas mines. The volume of natural gas processed at the Grodzisk Wielkopolski Denitriding Plant in Q4 2010 doubled year on year due to a low-base effect: in Q4 2009 the plant operated only for a few weeks in connection with a planned overhaul shutdown. 

Significantly Improved Segmental Performance in 2010

In 2010, the Trade and Storage segment generated the best operating performance of all the Group's segments. Its operating profit in the analysed quarter amounted to PLN 815m, up by PLN 703m year on year. The Group reported a substantial increase in the profitability of high-methane gas sales resulting from a 6% decrease in the unit price of imported gas, driven primarily by the weaker US dollar. The segment's better performance also follows from the discount for gas supplied under the contract with Gazprom-Export. The effect of the discount, reflected in a lower gas fuel tariff, will be accounted for as revenue for Q1 2011.

Operating profit generated by the Exploration and Production segment in 2010 was up by PLN 414 million relative to 2009. The strong increase in the Exploration and Production segment's operating profit followed from significantly higher margins on crude sales. Prices at which PGNiG SA sold crude were up by 28%, mainly on the back of crude returning to stronger price performance on the global markets. Additional factors affecting the result of the Exploration and Production segment include a significant decrease in impairment losses on mining assets and a PLN 103 million (or 39%) drop in the cost of dry wells written-off attributable to a reduction of the number of such wells from 16 in 2009 to 7 in 2010.

Crude Oil

Production of crude oil has been stable and has proceeded as planned. In 2010, the production of crude oil and condensate reached 501 thousand tonnes (close to the 2009 level). The sales volumes of crude and condensate were also close to approximately 500 thousand tonnes. Throughout 2010, the price of crude oil on global markets went up by 29% in comparison to 2009. In spite of the strengthening of the złoty against the US dollar by 3%, the selling unit price of crude oil increased by 28%, pushing revenues up by PLN 178m (27%).

In Q4 2010, the crude production dropped by 3% on Q4 2009, to 135 thousand tonnes. This prompted a 2% fall in crude sales by the Group.  A 16% increase in the price of crude oil on global markets, coupled with the depreciation of the złoty against the US dollar by 4% brought about a 20% growth in the unit price of crude oil.

In 2010, The Group sold 58% of its crude oil and condensate to domestic customers, and the remaining 42% - to foreign customers. In Q4 2010, the structure of sales was
similar.

Joanna Zakrzewska

Press Officer