Polskie Górnictwo Naftowe i Gazownictwo S A : PGNiG Group posts record high results for nine months to September 30th 2020

In the nine months to September 30th 2020, the PGNiG Group's EBITDA and EBIT came in at nearly PLN 10.7bn and more than PLN 8.24bn, respectively. Despite low prices of oil and gas and the global economic downturn caused by the coronavirus pandemic, the PGNiG Group once again delivered robust financial performance and strong operating results.

'The coronavirus epidemic affects all segments of our business, as reflected, among others, in the Group's revenue. On the other hand, the significant reduction of gas purchase costs helped us deliver EBIT and EBITDA unparalleled among Polish companies,' said Paweł Majewski, President of the PGNiG Management Board. 'Our solid foundations allow us to continue the PGNiG Group's growth even in an adverse macroeconomic environment,' he added.

In the nine months of the year, PGNiG earned revenue of PLN 27.43bn, down by 7% from PLN 29.65bn reported in the same period last year. At the same time, the Group cut its operating expenses by 31% year on year, from PLN 27.81bn to PLN 19.19bn. As a result, PGNiG's EBITDA increased from PLN 3.98bn to PLN 10.69bn, or by 168% on the previous year. The year-on-year increase in EBIT was even more impressive ­− from PLN 1.85bn to PLN 8.24bn (up 346%).

The results of the PGNiG Group for the first nine months of 2020 remain strong also if adjusted for the effect of impairment losses on property, plant and equipment and settlement of the overpayment for gas supplies under the Yamal contract following the favourable resolution of the arbitration proceedings against Gazprom. Excluding the effect of these, the PGNiG Group's EBITDA would be PLN 5.5bn, an increase of 32% year on year, and EBIT - PLN 3.06bn, an increase of 51% year on year.

'What is of key importance to the PGNiG Group's financial performance in the coming quarters is the change of the pricing formula under the Yamal contract rather than the return of overpayment for gas supplied under that contract in previous years. Winning the arbitration proceedings has helped PGNiG to significantly improve its trading position by creating a stronger link between the costs of gas purchased east of Poland and gas prices in European markets. It is not the money returned by Gazprom that underlies the strength of our Group,' added Paweł Majewski.

The largest contributor to PGNiG's financial performance was the Trade and Storage segment, which delivered 77% of the Group's EBITDA. The Distribution, Exploration and Production, and Generation segments contributed, respectively, 14%, 7% and 5%.

In the nine months to September 30th 2020, the PGNiG Group sold 22.28 bcm of gas outside the Group, 4% more than a year before (21.47 bcm). The PGNiG Group maintained its gas production volume, at 3.3 bcm, and increased the crude oil output by 8%, to 963 thousand tonnes, from 889 thousand tonnes a year earlier. The volume of distributed gas fell by 3%, to 8.03 bcm, from 8.24 bcm in the first three quarters of 2019. Heat sales volumes remained stable at 25.9 PJ, while electricity output declined by 8% year on year, to 2.47 TWh.

In the third quarter alone, PGNiG posted EBITDA of PLN 1.33bn, an increase of 66% on the previous year. At PLN 0.59bn, EBIT was more than four times the figure recorded in the third quarter of 2019 (PLN 0.13bn). Net profit grew more than eight times, to PLN 0.12bn (PLN 0.01bn in the third quarter of 2019), with revenue of PLN 6.39bn, that is 9% less year on year (PLN 7.03bn). The decline in revenue was mainly attributable to low hydrocarbon prices, suppressed, among others, by the global economic slowdown caused by the coronavirus pandemic.

PGNiG Group's results in the third quarter of 2020 by segment are briefly discussed below.

Exploration and Production

The segment's revenue dropped by 23% year on year, from PLN 1.24bn to PLN 0.96bn, on low prices of oil and gas. In the third quarter of 2020, the average price of crude oil fell by 31% year on year, to USD 42.7 per barrel. The average price of gas on the Day-Ahead Market of the Polish Power Exchange decreased by 17% year on year.

The third quarter saw an increase in the PGNiG Group's crude oil and condensate output to 306 thousand tonnes, vs 275 thousand tonnes in the previous year, as the Group increased its production from the Norwegian Continental Shelf by 61% year on year (by 147 thousand and 91 thousand tonnes, respectively). Natural gas production remained stable, at 1.11 bcm.

Trade and Storage

The segment's revenue from gas sales dropped by 10% year on year, from PLN 5.16bn to PLN 4.64bn, on account of low prices of natural gas. The decline was accompanied by a marked year-on-year decrease in the segment's operating expenses, which fell by 25%, from PLN 5.38bn to PLN 4.01bn. This came as an effect of both low gas prices and PGNiG winning the arbitration proceedings against Gazprom, which ensured a much stronger link between the costs of gas imported under the Yamal contract and gas prices in European markets compared with the third quarter of 2019.

In the third quarter of 2020, the volume of gas sold outside the Group was 5.1 bcm, having decreased 3% on the previous year.

Distribution

The volume of gas distributed by the segment decreased by nearly 4%, to 1.84 bcm (relative to 1.93 bcm a year earlier), as a result of, among other factors, an 0.5°C increase in the average quarterly temperature as well as the lower demand for gas due to the pandemic and customers' continued work on upgrading thermal insulation of buildings. The segment's revenue fell to PLN 0.91bn, from PLN 0.96bn a year earlier. It should be noted, though, that revenue from the gas distribution service alone increased to PLN 0.83bn (by 4% year on year), from PLN 0.8bn in the third quarter of 2019.

Generation

The segment's revenue increased by 26% year on year, to PLN 0.39bn from PLN 0.31bn. Revenue from sales of electricity rose by 22% year on year (to PLN 0.12bn), with sales volumes of 0.45 TWh (up 7% year on year). Due to an increase in the average quarterly temperature, heat sales decreased by 6%, to 3.08 PJ. The decrease was offset by a higher heat generation and transmission tariff, leading to a 13% year-on-year increase in revenue from sales of heat, to PLN 0.17bn.