The operating result for Q2 reached the level ofPLN 453 million (growth by 202 per cent) and was achieved throughimproved profitability on sales activity and increased volume of crudeoil sales.

 

The non regulated oil sales have beentraditionally the most profitable business activity of PGNiG. Theexcellent performance results of the upstream segment have been drivenby 80 per cent growth of the oil sales volume as compared to Q2 2005.The increase in the sales volume has not been fully reflected in therevenue growth, primarily due to strengthening of the zloty against thedollar and lower export revenues.

 

The revenues from exploration services arebecoming another major driver of the performance results of the PGNiGGroup. After the first half of the year they are the second largestrevenue source, right after gas sales. It is worth noting that therevenues are generated chiefly from foreign contracts where the PGNiGGroup successfully operates in a fully competitive market. The revenuesfrom exploration services raised by PLN 160 million in the first halfof the year (57 per cent growth dynamics).

 

The above results confirm that the PGNiG Group hasbeen systematically expanding the scope of business activity beyond thegas trade segment. It is exactly the non regulated business where thecompany has been effectively creating value and improving itsperformance. For several years now, the gas sales price applied byPGNiG is lower than the price of imported gas and PGNiG has beenincurring losses on the sales activity. It is worth reminding that onlyin Q4 of the last year PGNiG reported a loss of PLN 225 million on theregulated gas sales. With effective sales policy and favourablemacroeconomic conditions the company managed to reduce the losses onimported gas sales in Q1 and Q2 2007. 

 

The reduced demand for gas from the customers ofdistribution companies has led to a lower result in the distributionsegment.   Summing up, the financial results of PGNiG confirm that theGroup continues to pursue the value creation path and is steadilyimproving the performance efficiency of its business. The netprofitability of PGNiG increased from 3.4% in Q2 2006 up to 10.3% in Q22007. The rating outlook is stable.

 

PGNiG is consistently implementing projects aimedat building the company value. Through the investment in theacquisition of the fields on the Norwegian Continental Shelf, PGNiGwill gain access to foreign resources, which is in line with thestrategy to improve the energy security and opens up new businessopportunities for PGNiG. On 20 June 2007, PGNiG joined and acquired,free of charge, 15% interest in the SKANLED consortium, which developsa gas pipeline from Karsto in Norway to Sweden and Denmark. After theacquisition of interest in the fields on the Norwegian ContinentalShelf and the signing of the Letter of Intent with Energinet.dkconcerning the construction of the Baltic Pipe, which is to connect thePolish and Danish gas systems, the participation of PGNiG in theSKANLED Consortium is another important step towards securing naturalgas supply from Scandinavia to Poland. This means coming back to thestrategic agreement with the Danish and Norwegian partners from 2001and constitutes an element of the strategy of diversifying the gassupply to Poland.
 
On 11 June, PGNiG was informed that its bidsubmitted on 7 November for exploration on Bahariya Block 3 in Egyptwas accepted by Egyptian General Petroleum Company. This was the firstbidding round for exploration licenses in Egypt in which PGNiGsubmitted its bid. Currently, the company is preparing to take part ina bidding round for exploration licences in Libya.

 

A tender procedure is underway for construction ofLubiatów Mi?dzychód Grotów production facility, the largest investmentproject in the upstream segment being currently implemented by PGNiGfor the value of PLN 500 million.

 

On 29 June, PGNiG successfully completed the legalunbundling of six Distribution System Operators. It was a key step inthe process of legal unbundling of the commercial activity from thephysical gas distribution and alignment of the business with therequirements of the European Gas Directive (2003/55/EC) and the amendedEnergy Law.