EBITDA came in at PLN 6.1bn, a slight 4% decrease on 2014, and EBIT was PLN 3.3bn, down 14% year on year. The Group’s financial performance was affected by the falling oil prices, lower gas tariffs, and discounts for customers.

The Exploration and Production and the Distribution segments accounted for the largest share of the 2015 operating profit. However, unlike in 2014, it was the increase reported by the Distribution and Generation segments that played a major role in driving the Group’s profit and helped maintain EBITDA at PLN 6.1bn.

Despite the challenging external landscape, the PGNiG Group’s financial standing is robust, with net debt close to zero as at the end of 2015. In August 2015, the Company paid a record high dividend of PLN 1.18bn, i.e. PLN 0.20 per share.

Distribution

Operating profit in the Distribution segment grew 27.4% year on year in 2015, to PLN 1.45bn, on EBITDA of PLN 2.34bn, up PLN 337m. Several factors contributed to the strong performance, including a PLN 302m (or 7.1%) rise in revenue, primarily driven by increased volumes of gas transmitted via the distribution system, and a higher distribution tariff.

The segment’s operating expenses remained virtually the same − down by PLN 10m (0.3%).

Generation

The segment’s operating profit for 2015 was PLN 367m, up PLN 205m year on year. EBITDA totalled PLN 679m, having improved 46.7% year on year, with the strong improvement in performance underpinned by higher revenue from sales of heat and a lower cost of coal as the segment’s principal fuel used for heat generation (the average coal price fell 9% year on year).

Exploration and Production

At the end of 2015, operating profit of the Exploration and Production segment was PLN 1.1bn, down by PLN 911m (-45.4%) year on year. Revenue fell PLN 1.2bn (or 20.0%) on the end of 2014, to PLN 4.86bn.

The revenue decline reflected the fall in crude oil prices (in the Polish zloty terms, the average price of Brent in 2015 was approximately 36% lower than in 2014). The retreat of crude oil prices, adversely affecting profitability of the Group’s exploration projects, also depressed the demand for exploration services provided by the segment companies – revenue from geophysical and exploration services in 2015 decreased by PLN 416m year on year.

Increased production volumes in Norway helped partly offset the negative impact of depressed energy commodity prices. Last year, the production of gas, oil and NGL grew nearly by half, to 8.5 million barrels of oil equivalent, yet output from the developed assets is expected to decline in the coming years due to natural depletion. Following the acquisition of four new licences by our Norwegian subsidiary in 2015, we now hold interests in 19 licences on the Norwegian Continental Shelf.

Trade and Storage

The segment’s revenue in 2015 was up by PLN 2.9bn (or 10.1%) year on year, driven principally by higher revenue from gas sold on the Polish Power Exchange, whose volume was 8.33 bcm at the end of 2014, relative to 3.74 bcm the year before. This had to do with the Company fulfilling its obligation to trade gas on the PPE. It is important to note that in 2015 PGNiG exceeded the required minimum level of gas traded on the exchange by 15%. 2015 operating profit in the Trade and Storage segment totalled PLN 381m, down PLN 202m on the PLN 583m reported for 2014.

The decline in the segment’s operating result is due to the ongoing deregulation of the Polish gas market, which allows the segment’s largest customers to diversify their gas fuel supplies. In 2015, PGNiG SA and PGNiG OD reduced their tariffs for gas fuel sales several times. As a result, the average tariff price in Q4 2015 was lower by ca. 10% compared with 2014. Additionally, in response to the changing market conditions, the Group companies selling gas fuel in Poland launched discount schemes to make their offering more attractive to customers.

The segment’s operating result also declined due to a higher write-down on inventories of gas fuel, up by PLN 190m in 2015.

Summary

The global slump in oil prices posed a major challenge for all players in the oil and gas industry. However, despite the challenging external environment, PGNiG SA managed to maintain a stable market position and delivered improved performance in the Distribution and Generation segments.

The Company is renegotiating terms of gas imports through arbitration. Given the growing competitive pressures on the domestic market, PGNiG SA must take special care to secure low purchase prices. The task currently facing the Management Board is to adjust the Group’s structure to the updated strategy. The Efficiency Improvement Programme and efforts to professionalise our operations across the segments will continue.

PGNiG SA Communications Department