SOUND LIFO-BASED EBITDA ON THE BACK OF IMPROVED MACROECONOMIC CLIMATE AND HIGHER SALES

In Q3 2014, PKN ORLEN generated LIFO-based EBITDA of PLN 2.1bn, supported by favourable macroeconomic conditions: higher downstream margins and falling crude oil prices. PKN ORLEN's sales volumes grew across all segments. In the upstream, PKN ORLEN continued its oil and gas exploration activities in Poland, while in Canada its hydrocarbon production reached 652 thousand boe.
In Q3 2014, PKN ORLEN reduced its debt by PLN 0.4bn (q/q), and maintained optimum financial leverage. A dividend of PLN 616m, or PLN 1.44 per share, was paid in the period.
In recent months, the Company was distinguished with new prestigious accolades: it was presented with the 'Index of Success' award in the Mergers & Acquisitions category of the CEE TOP500 ranking, received − for the second time − 'The Best of The Best' title for its annual report, and was named 'Top Brand' by the PRESS monthly for the best media image in the Service Stations category.
 
For Q3 2014, PKN ORLEN reported:

• LIFO-based EBITDA up PLN 1.4bn (y/y)
• Total sales growth of 3% (y/y) across the segments
• Financial leverage at 25.9%.

The Company's performance in Q3 2014 strongly benefited from a 3.4 USD/bbl (y/y) rise in downstream margins, to 12.9 USD/bbl. The average exchange rates of the złoty against USD and EUR were up, while the price of Brent crude fell USD (-)8 on Q3 2013. Lower gasoline consumption was seen across PKN ORLEN's markets, and in Poland and Germany diesel oil consumption declined as well.

The PLN 1.4bn growth of LIFO-based EBIDTA, to PLN 2,1bn, was made possible mainly by a 2% increase in the downstream segment's sales and stronger retail sales on all markets.

'We owe the very good performance in Q3 2014 to increased sales, coupled with temporary improvement in the market environment, including a marked rise in the downstream margin. The retail segment is particularly worthy of note, as it reported higher sales volumes, especially in the Czech Republic where we exceeded the 15% market share threshold, despite flagging demand for fuels in almost all of our markets. A 15% increase in sales of petrochemicals is also good news,' said Jacek Krawiec, PKN ORLEN's CEO.

In Q3, the Company continued its efforts focused on maintaining stable financial position. Cash flows from operating activities of PLN 2.2bn mainly comprised earnings before depreciation and amortisation of PLN 1.1bn and a PLN 1.1bn decrease in net working capital. PKN ORLEN managed to reduce its net debt by PLN 0.4bn quarter-on-quarter, and maintained safe leverage, at 25.9%. A dividend of PLN 616m (PLN 1.44 per share) was paid to shareholders in Q3 2014, which represents a 3% dividend yield on the average price of PKN ORLEN shares in 2013.

‘Consistent pursuit of our strategy, supported by positive macroeconomic factors, not only helped us improve our performance but also facilitated further strengthening of the Company's financial stability. Delivering on our commitments to the shareholders, while maintaining a sound financial footing, remains one of the crucial elements of the strategy. But we are aware that the strong macroeconomic conditions may not last long, therefore we will continue to focus on operational excellence and Group-wide optimisation efforts,’ said Sławomir Jędrzejczyk, PKN ORLEN's CFO and Vice-President of the Management Board.

In Q3 2014, the retail segment delivered a strong, LIFO-based EBITDA of PLN 441m despite the persistent grey market and year-on-year declines in fuel margins in Germany and the Czech Republic. During the period, the segment's sales volume rose 2% year on year, with volume improvements reported across all markets and the strongest year-on-year gains seen in Poland (1.6pp). The segment's result was further supported by wider margins on non-fuel products (y/y) and the continued expansion of the non-fuel sales network. As at the end of Q3 2014 the Company operated 1,200 Stop Cafe and Stop Cafe Bistro outlets in Poland, which is 236 more than in the same period last year.

In Q3 2014, LIFO-based EBITDA of the downstream segment came in at PLN 1,766m, up by PLN 1,347m year on year. In the same period, the Group reported a 15% year-on-year growth in sales of petrochemical products, with a slight decrease in sales of refining products (down 1% y/y). The segment benefited from a USD 3.4/bbl rise in the downstream margin (y/y), led by improved margins on core refining and petrochemical products. Last quarter, the Company pursued its power investments and completed the basic assembly of the key CCGT unit components in Włocławek, including the gas turbine, steam turbine, the generator and the boiler. All works, including assembly of the ancillary, electricity and automation systems, as well as construction of power and gas connections (PSE Operator and Gaz-System) proceed on schedule. The concept for a similar project to be launched in Płock is also being considered. The building permit has been secured, the procedure for obtaining building permits for utilities is under way, and a high-voltage unit line and gas connection are being prepared. The project's economic viability is being currently analysed, and the investment decision is expected in Q4 2014.

The Company consistently develops  its upstream operations. By the end of Q3 2014, as part of shale gas exploration projects, ten wells, including seven vertical and three horizontal ones were completed. Q3 2014 saw fracturing treatment in a horizontal well in the Wodynie-Łuków licence area and the start of drilling of another horizontal well in the Wierzbica licence area. Also, 2D seismic data in the Wołomin licence area was acquired and processed and preparations were made to drill a vertical well. As part of its conventional projects in Poland, by the end of Q3 2014 PKN ORLEN drilled two appraisal wells (Sieraków project) and one exploration well (Karbon project). The Company also continued analysis of the data obtained so far.

In Canada, drilling of 20 new wells (11 net) was commenced, 10 fracturing operations were carried out (6.6 net), and 4 wells were brought on stream (2.3 net). In total, at the end of Q3 2014 there were 125.3 producing wells (net). The average daily hydrocarbon production in the quarter was approximately 7.1 thousand boe/d, which represents a q/q increase of 2.6 thousand boe/d. PKN ORLEN's aggregate oil and gas reserves in Canada currently amount to ca. 48 m boe (2P).