Orlen group delivers solid performance across all segments
22-10-2015   
After the nine months of 2015, the ORLEN Group delivered a nearly PLN 3bn year-on-year improvement in LIFO-based EBITDA (before impairment losses on assets). Q3 2015 alone was closed with an operating profit (LIFO-based EBITDA) of PLN 2.1bn (before impairment losses on Czech petrochemical assets of PLN 0.1bn). In addition, the Group reported higher sales across all segments and record-breaking retail performance. These excellent results were supported by a favourable macroeconomic environment, with a higher downstream margin and continued fall in crude oil prices. Of particular importance were the ORLEN Group’s strategic growth-oriented projects implemented over the past quarter. In the area of petrochemical operations, the Group signed a contract for the construction of a new polyethylene unit (PE3) at the Litvínov plant in the Czech Republic. Also, September saw the launch of construction work in a project to build Poland’s largest 596 MWe CCGT plant in Płock. First steps were also taken to acquire promising oil and gas assets in Poland and Canada.

For Q3 2015, PKN ORLEN reported:
  • LIFO-based EBITDA of PLN 2.1bn;
  • Record-high LIFO-based EBITDA in the retail segment of PLN 539m, up 22% (y/y);
  • Total sales growth of 5% (y/y) across all segments.
The LIFO-based EBITDA of PLN 2.1bn, before impairment losses on Czech petrochemical assets of (-) PLN 0.1bn, was achieved on higher crude throughput and sales volumes (y/y). PKN ORLEN’s performance in Q3 2015 was also driven by a USD 2.6/bbl (y/y) rise in downstream margin, a USD 52/bbl fall in average Brent crude oil price (y/y), as well as a 20% depreciation of the złoty against the US dollar (y/y). The positive effect of macroeconomic environment and higher sales volumes were offset mainly by the repurchase of a portion of mandatory stocks and the remeasurement of inventories to net realisable value (NRV) to reflect declining oil prices. Relative to the same period of the previous year, PKN ORLEN saw increased diesel oil consumption in all its home markets, while gasoline consumption increased only in Poland, declining in Germany and Lithuania and remaining stable in the Czech Republic.

“Combined with our commitment to operational excellence, the favourable macroeconomic conditions have contributed to robust performance. It is evident in the financial figures for the nine months of the year, adjusted for the effect of impairment losses, showing an increase in LIFO-based EBITDA of more than 70% against the three quarters of 2014. However, even more important in terms of building PKN ORLEN’s long-term value, is that the past quarter saw further strengthening of our foundations for further sustainable growth. The projects we launched – Poland’s largest CCGT unit in Płock, the acquisition of oil and gas deposits in Poland and Canada, and the construction of a state-of-the-art polyethylene unit in the Czech Republic – showcase the consistency with which we pursue our strategic goals,” said Jacek Krawiec, CEO and President of the PKN ORLEN Management Board.

Q3 2015 was a record-breaking period for PKN ORLEN’s retail segment, with LIFO-based EBITDA coming in at PLN 539m, up 22% year-on-year. The result was an effect of a 2% overall year-on-year increase in sales volumes, driven by a 3% increase in Poland and 11% increase in the Czech Republic, with flat sales in Lithuania and a 1% decrease in Germany. In Q3 2015, the ORLEN Group’s market shares went up − by 0.5 pp (y/y) in Poland and 0.4 pp (y/y) in the Czech Republic. The Company also continued to expand its non-fuel sales network, which at the end of the reporting period comprised 1,335 Stop Cafe and Stop Cafe Bistro outlets across Poland, 135 more than a year earlier.

Compared with the corresponding period last year, in its downstream business PKN ORLEN reported a 6% overall growth in sales in all relevant markets. The result was attributable to an increase in gasoline sales by 14%, diesel oil sales by 21%, olefin sales by 7% and PVC sales by 3%, leading to a LIFO-based EBITDA of almost PLN 1.7bn. The strong results were supported by a 13% year-on-year increase in crude throughput and higher capacity utilisation, which increased 4 pp (y/)y. The segment’s performance was also boosted by the higher downstream margin (up USD 2.6/bbl), lower oil prices, and the złoty’s depreciation against the US dollar (by 20% year-on-year). On the other hand, the euro’s weakening against the US dollar (by 16% y-ear-on-year) and lower (y/y) sales of fertilizers (down 3%), PTA (down 18%) and polyolefins (down 28%), caused by a breakdown at the ethylene unit at Czech Unipetrol, had a negative impact on the results. In Q3 2015, a contract was signed with Technip for the construction of a new polyethylene unit (PE3) at the Litvínov plant − the ORLEN Group’s largest capex project on the Czech market, the largest project ever in the Czech petrochemical industry, and one of Europe’s most advanced facilities of this kind. The contract’s value is CZK 5.8bn (EUR 213m) and the overall cost of the project, which is scheduled to come on stream in mid-2018, is estimated at CZK 8.5bn (EUR 314m). The new facility, which is to replace the existing PE1 unit, will have an annual production capacity of 270,000 tonnes.

A milestone event in the power generation segment in Q3 2015 was the start of construction work on a CCGT unit at the Płock Production Plant. The new unit, with a capacity of 596 MWe, is to start cogenerating heat and electricity in late 2017. The unit, with its state-of-the-art combined cycle gas turbine (CCGT), will supply steam and electricity to the Płock Production Plant, while any surplus of electricity output is to be supplied to the National Power Grid. In Q3, the unit’s main buildings and systems were being designed, earthmoving and foundation works were being carried out and the turbine tests were completed, so that the turbine could be prepared for transport from Berlin to Płock. In the meantime, contractors were selected for a majority of projects to modernise the Płock Production Plant’s infrastructure. In Włocławek, construction, erection and start-up works were continued on various systems of the 463 MWe CCGT unit. Additionally, GAZ-SYSTEM and PSE completed their respective works on the gas and power grid connections, and a transmission agreement was signed.

In the upstream segment, PKN ORLEN is taking consistent steps in pursuit of its strategic objectives, including the segment’s sustainable growth and annual production potential of 6 m boe by 2017. To make this possible, in Q3 2015 the Company began preparations to acquire production assets in Poland and Canada. Following the acquisition of all shares in FX Energy for approximately USD 83m, the Company’s resource base (2P) will grow by 8.4 million boe. With the addition of promising conventional deposits located in two areas (Płotki and Edge) in the Polish Lowlands, PKN ORLEN’s production portfolio will be better balanced. FX Energy also has an exploration play in the Lublin basin, adjacent to ORLEN Upstream’s licence areas (Wołomin and Garwolin), and conventional oil producing assets in Montana and Nevada, US. In addition, PKN ORLEN signed an agreement to acquire all the shares in Canada’s Kicking Horse Energy for CAD 293m. Its key assets, situated in the region of Kakwa, Alberta, are characterised by high production potential. Deposits’ efficiency in the region is among the highest in Western Canada, carrying a low risk and ensuring good prospects for the ORLEN Group’s growth. Once the transaction is consummated, which is scheduled for Q4 2015, PKN ORLEN expects to increase its daily production by over 4,000 barrels of oil equivalent (boe), and to expand its resource base by approximately 30 million boe of 2P reserves.

In September 2015, the Company also acquired from DEA Deutsche Erdoel AG 100% interests in two conventional licence areas with considerable exploration potential, located in the Lesser Poland and Subcarpathia. Under the project (Bieszczady), 2D seismic acquisition began over two blocks and preparations were made to test the well tightness. It was also in this area that ORLEN Upstream launched, in October, a new exploration and appraisal project – Miocen. Sieraków, another conventional project pursued in Poland, saw preparations to develop a portion of the licence area and continued analysis of data to verify its potential. As part of the Karbon project, new 2D seismic profiles were acquired and analysed in Q3 2015. Preparations are also under way for 3D seismic surveys over two licence blocks. As regards unconventional projects (Lublin Shale), wells and drilling sites were being decommissioned in the Garwolin and Wierzbica licence areas, preparatory work was being carried out to conduct a 3D seismic survey, and (Mid-Poland Unconventionals) analysis of new 2D seismic data was completed. Preparations are currently under way for the first drilling. In Canada, drilling of 9 new wells (8.3 net) was commenced, 6 fracturing operations (5.3 net) were carried out, and 3 wells (2.3 net) were brought on stream. Production in Q3 2015 averaged approximately 6.8 thousand boe/day (43% – liquid hydrocarbons), having declined on the previous quarter due to restart of some modernization works on TransCanada Pipeline logistic infrastructure mainly in Ferrier and Pouce Coupe areas In Q3 2015, PKN ORLEN’s financial position remained sound, with financial leverage at 23.6% (as at the end of September). In the three quarters of 2015, the Company’s capital expenditure was close to PLN 1.9bn, with the largest amount allocated to growth capex.

In Q3 2015, PKN ORLEN embraced the current trends in corporate reporting, issuing its first integrated annual report looking into both financial and non-financial aspects of its operations. The report received a special award in The Best Annual Report 2014 competition of the Accounting and Tax Institute. On top of that, PKN ORLEN was again recognised as the best managed company in Poland in the 11th edition of Eurmoney’s ‘Best managed companies in CEE 2015’ survey. Independent analysts from leading financial institutions across the globe rewarded the Company for its ambitious development plans and strong management competence.
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