PKN ORLEN sets new record, with 2017 earnings up pln 1bn

It pursued petrochemical expansion projects in Poland and the Czech Republic, and solidified its position in power generation, with a CCGT unit commissioned in Włocławek and a similar project under way in Płock. PKN ORLEN secured crude oil supplies for 2018 from the world’s leading oil producers, while remaining open to various alternative supply sources and new market opportunities. In upstream, it increased its total 2P oil and gas reserves, in line with the strategic objectives. As part of its effort to strengthen the Group’s ownership structure, in December PKN ORLEN announced a voluntary tender offer to buy up Unipetrol shares. Last year, PKN ORLEN was assigned its best-on-record rating from Moody’s, of Baa2 with stable outlook, and paid its highest dividend ever, totalling PLN 1.3bn, or PLN 3.00 per share. In 2017, the Supervisory Board made appointments to the Management Board for a new three-year term.

PKN ORLEN’s achievements in 2017:

• Record-high LIFO-based EBITDA of PLN 10.4bn
• Record-high crude oil throughput of 33.2 million tonnes and sales volumes of 42.4 million tonnes
• Record-high profit in retail of over PLN 2bn

“Another year of record-breaking results clearly demonstrates that with a well-designed and consistently implemented strategy, supported by operating flexibility and solid business decisions, we have been able to fully harness our potential. Importantly, we maintain our commitment to continually strengthening PKN ORLEN’s competitive position. We invest in new assets, while striving to exploit the existing resources more efficiently. The breakthrough we have achieved in Lithuania and the plan to take full control of Unipetrol are the best examples. We want to further integrate our assets to take full advantage of possible synergies and become more resilient to the negative macroeconomic impacts,” said Wojciech Jasiński, CEO and President of the PKN ORLEN Management Board.

“What pleases us most is that all business segments contributed to the historically record-high results. It shows we are able to effectively leverage our strengths even amid a deteriorating macro environment. This is particularly important in a fast-changing and competitive market like ours,” said Mirosław Kochalski, Vice President of the PKN ORLEN Management Board.

As in previous years, PKN ORLEN won the trust and acclaim of a number of expert organisations, having been again awarded the prestigious titles of The World’s Most Ethical Company and Top Employer Poland. In 2017, PKN ORLEN was included in the global Thomson Reuters list of Top 100 Energy Leaders as one of the 100 and 25 leading names in the energy/oil & gas sectors. It was also recognised for its integrated report in the Best Annual Report 2016 competition, and received the Best in Central & Eastern Europe and Best ESG Communications awards from IR Magazine. PKN ORLEN also ranked 43rd in the Platts TOP250 list of the largest global energy companies, having moved up 15 places over the year. PKN ORLEN’s LIFO-based EBITDA for the fourth quarter of 2017 reached PLN 2bn.

This result was supported by an 8% year-on-year increase in revenue, led by rising oil prices and higher sales volumes, which were partly offset by macro changes relative to the fourth quarter of 2016. The year-on-year comparison was also affected by the compensation received for the steam cracker failure at Unipetrol in the fourth quarter of 2016. The model downstream margin fell USD 0.5/bbl year on year in the period, with the average crude oil price up USD 12/bbl year on year, to USD 61/bbl. In the fourth quarter of 2017, all markets served by PKN ORLEN saw rising volumes of diesel oil consumed, with consumption in Poland up 12% year-on-year. Gasoline consumption was also on the rise in all markets except the Czech Republic, where it remained flat.

The retail segment booked another record-breaking quarter, with LIFO-based EBITDA of PLN 491m. This result came on the back of an 11% year-on-year increase in sales volumes and the growing market shares in Germany, Lithuania and the Czech Republic, where the service stations acquired from OMV were integrated into the PKN ORLEN network last year. Fuel margins in the period were on the rise year on year in the Czech Republic and Germany, stayed broadly flat in Lithuania, and fell in Poland. PKN ORLEN continued to roll out its non-fuel range, with around 1,793 Stop Cafe outlets operated at the period’s end, including 1,571 in Poland (with 180 featuring convenience stores in the new O!Shop format), 199 in the Czech Republic and 23 in Lithuania. In the first quarter of 2018, the Company announced a tender procedure to purchase 23 electric vehicle chargers, to be installed at PKN ORLEN service stations along transit routes throughout Poland under a pilot project by 2019.

Downstream delivered LIFO-based EBITDA of PLN 1.6bn for the fourth quarter of 2017. This reflected a 5% year-on-year rise in throughput and a 4% increase in total sales volumes, which were partly offset by deteriorating macro conditions compared with the same period last year, including a lower Urals-Brent differential, higher costs of energy used for own needs and appreciation of the złoty against foreign currencies. In the fourth quarter, the CCGT unit in Płock reached its maximum capacity of around 600 MWe, and supplied first process steam to the refinery. During the period, various measures were taken to secure an usage permit for the unit, which was obtained in January 2018.

In upstream, 2P oil and gas reserves were increased to 152 million boe at the end of 2017, in line with the strategy, a growth of 38 million boe over the end of the previous year. Upstream LIFO-based EBITDA was PLN 78m, with the average production in the fourth quarter of 2017 at 16.2 thousand boe/d, up 17% year on year. Under licences held in Poland, the drilling of two exploration wells within the Karpaty and Edge areas was completed, while the drilling of three other wells commenced. Also, seismic acquisition and analysis work was continued, and preparations were made to drill further wells. As part of the Canadian operations carried out with partners, the drilling of five wells began, while seven wells were fractured in the fourth quarter. Another five wells were brought on stream. In the Kakwa region, preparations were made to expand the gas pre-treatment facilities. Within the Ferrier area, the construction of a pipeline for the supply of liquid hydrocarbons was completed, and 3D seismic data was acquired.

In 2017, PKN ORLEN remained on a very sound financial footing, reducing its net debt and financial leverage, while diversifying its sources of funding. At the end of 2017, PKN ORLEN’s net debt was PLN 800m, with the financial leverage at 2.2%. In December, the Company successfully placed the second series of its retail bonds worth PLN 200m.