In H1 2011, operating profit of the Exploration and Production segment went up by PLN 107m year on year, mainly on the back of higher revenue from sales of geophysical/geological and drilling services, which was related to the intensified exploration for shale gas in Poland. In H1 and Q2 2011, revenue from sales of geophysical/geological and drilling services grew by over 30% year on year. The improvement in the segment's operating profit was also attributable to a substantial increase in the profitability of crude oil sales, driven by the rising crude prices on global markets, on average by 43%.

The strong performance of the Exploration and Production segment partially offset the decline in the Group's operating profit following from a 5 pp drop in the profitability of high-methane gas sales. In H1 2011, the PGNiG Group posted an operating profit of PLN 1.1bn.

In Q2 2011, sales revenue went up by 8%, to PLN 4.5bn. The Group recorded an operating loss of PLN 106m against an operating loss of PLN 25m in the same period of 2010. Net loss was PLN 20m versus a net loss of PLN 2m in Q2 2010.

Profitability of gas sales declined

The very high cost of gas in H1 2011, higher by almost PLN 900m year on year, weighed most heavily on the Group's financial performance during the period. In H1 2011, the profitability of high-methane gas sales fell to -1%. The main cause of the change was a 13% increase in the unit purchase price of imported gas, caused primarily by persistently high prices of crude oil on the global markets attributable to, among others, the unstable situation in North Africa. Accordingly, the protracting tariff procedures and postponed introduction of a new tariff resulted in the Group losing on margins on natural gas sales.

In Q2 2011 alone, the sales margin on high-methane gas was also negative at -4%.

PGNiG Group's results for H1 2011 (PLN million)

PGNiG Group's results for Q2 2011 (PLN million)

Sales of natural gas to industrial customers grew

In H1 2011, sales of natural gas reached 7.6bn cubic metres, remaining flat year on year. However, when broken down by customer group, the structure of sales shows significant changes. In H1 2011, gas sales to industrial customers advanced by 4% year on year, with the largest rise (by 13%) recorded by nitrogen plants. In H1 2011, sales of natural gas to households declined by 6%, mainly due to the higher average air temperature compared with the corresponding period of 2010.

In Q2 2011, the natural gas sales volume was 2.8bn cubic metres, having grown by 3%. In the period between the quarters under review, the demand from industrial customers rose by 8%. The largest growth was recorded in sales to nitrogen plants, which purchased 22% more gas year on year. On the other hand, sales to households retreated by 8%.

In H1 2011, the production of natural gas was 2.1bn cubic meters, a level similar to that recorded in H1 2010. In Q2 2011, the production volume rose by 3% (30m cubic metres) year on year. The steady growth in gas output resulted from the execution of investment projects of varying scale in the area of gas exploration and production, as part of the strategy pursued by the PGNiG Group.

Revenue on sales of crude oil increased

The production of crude oil and condensate in the second quarter of 2010 and 2011 is, as in each year, affected by a month-long overhaul stoppage at the largest crude production facility, in Dębno. During that period, crude oil output was lower than the volumes achieved in the other quarters of each year. However, in the second quarter of 2011, the stoppage at the Dębno facility lasted three weeks longer than usually due to the fact that one of the customers was not able to offtake natural gas, and also it was impossible to pump crude oil into the PERN pipeline due to a failure at one of the storage tanks in Dębno. This drove crude production down by 12% (12 thousand tonnes) in Q2 2011 relative to Q2 2010. Over H1 2011, crude oil production decreased by 6% (15 thousand tonnes) year on year. The lower volumes of crude oil production in the first half and second quarter of 2011 were reflected in lower sales volumes.

An over 40% increase in the medium-term price of crude oil on global markets between the first half of 2010 and 2011, and the fact that the złoty strengthened against the dollar by 7% on average over the period brought about a 34% growth in the unit price of crude oil sold by the PGNiG Group. As a consequence, revenue from sales of crude oil rose by 26% (PLN 98m) in the first half of 2011, despite the lower sales volume. The same happened in the second quarter of 2011.

Injection of gas into underground storage facilities

In Q2 2011, due to a 12% increase in the volume of gas imports, PGNiG was able to inject by 36% more gas into its storage facilities. As a result, at the end of June 2011, the amount of gas stored in the facilities was 1.2bn cubic metres. It was possible to increase the volume of gas imports thanks to the execution of an annex to the Yamal Contract, whereby the maximum volume of gas supplies in 2011 was increased to 9.77bn cubic meters.

Joanna Zakrzewska

Spokesperson