PKN ORLEN’s Q4 2014 consolidated financial results
Delivering on strategic goals in volatile environment. For the twelve months to December 31st 2014 PKN ORLEN posted a record high LIFO-based EBITDA (operating profit before depreciation and amortisation, net of non-cash effect of inventory revaluation and impairment of non-current assets) of PLN 5.2bn, thus delivering on the targets set out in its updated strategy. The ORLEN Group made consistent progress on its development projects in the upstream and power segments. In line with its dividend policy, the Company paid out a dividend of PLN 1.44 per share in 2014. As part of diversification of the funding sources, PKN ORLEN successfully completed a PLN 1bn retail bond programme and a EUR 500m eurobond issue.
PKN ORLEN’s 2014 financial highlights:
- LIFO-based EBITDA of PLN 5.2bn (operating profit before depreciation and amortisation, net of non-cash effect of inventory revaluation and impairment of non-current assets)
- Unprecedented LIFO-based EBIDTA in Retail at PLN 1.4bn
- Revenue in excess of PLN 100bn, despite falling prices of petroleum products
- Large sales volume of nearly 36m tonnes
- Crude output from Canadian assets increased to 8.4 thousand bbl/d
- Value of the ORLEN brand grew to PLN 4.4bn, according to a ranking by the Rzeczpospolita daily
PKN ORLEN’s performance in 2014 was primarily driven by a wider downstream margin, which rose by 3.6 USD/bbl year on year, to 12.6 USD/bbl at the end of Q4 2014; and by the depreciation of the złoty against the US dollar and the euro. Last year also saw a rapid decline in crude oil prices – the average Brent price for the quarter ended December 31st 2014 was 77 USD/bbl, down (-)32USD/bbl on the year before. 2014 LIFO-based EBITDA, before the effect of asset impairment, figured at PLN 5.2bn, having risen by PLN 2.1bn, with strong revenue and stable sales volumes.
PKN ORLEN continued its capex projects across all segments. As part of the efforts to grow the power business, the green light was given to the construction of approximately 600 MWe CCGT unit in Płock, which will be placed in service by the end of 2017. The Company was actively engaged in hydrocarbon exploration, both in Poland and abroad. With the acquisition of the Canadian-based Birchill Exploration LP, the Group's 2P reserves rose to 49.5m boe. In 2014, PKN ORLEN continued to advance its petrochemical projects – a decision was made to launch the Metathesis Unit project, scheduled for completion in 2017, which will help increase the Płock plant's annual output of propylene to 550,000 tonnes. Plans are also in place to grow both petrochemical and refining downstream operations in the Czech Republic, in the context of the acquisition of Česká Rafinérská shares from ENI of Italy, which is being finalised.
Over the past 12 months, a number of market players have been put through their paces, as they had to combine flexibility and ability to read trends with discipline and consistent pursuit of operational excellence in the face of a highly volatile macro environment. The financial performance we delivered proves that we can be flexible and ready to leverage market opportunities. We are determined to stay the course despite the instability - said Jacek Krawiec, PKN ORLEN's CEO.
The retail segment saw its LIFO-based EBITDA for Q4 2014 go up to a record high of PLN 379m, despite its continued struggle against the rampant grey market in Poland. PKN ORLEN's market shares grew across all national markets, with a concurrent 5% year-on-year increase in sales volumes. This result was supported by a year-on-year improvement in fuel margins in all markets except Lithuania, and a year-on-year improvement in non-fuel margins in all markets. In Q4 2014, PKN ORLEN was consistently expanding its non-fuel sales network, adding 50 new outlets to its Stop Cafe and Stop Cafe Bistro chain in Poland. As a result, at the year's end the chain comprised a total of 1,250 locations, up by 203 (y/y).
The downstream segment's LIFO-based EBITDA came in at PLN 987m, up by PLN 531m (y/y). In the same period, the Group reported a 1% overall growth of downstream sales, with sales of refining and petrochemical products up by 1% (y/y) and 3% (y/y), respectively. The positive effect of higher sales was partially offset by overhaul-related downtime and a shift in the product mix towards heavier fractions. Sales of refining products on the Czech market grew on increased capacities following Unipetrol's acquisition from Shell of a 16.3% interest in Česká Rafinérská. The segment's performance was supported by a year-on-year increase in the downstream margin of 3.6 USD/bbl, coupled with a 9% depreciation of the złoty’s average exchange rate against the US dollar.
In December 2014, PKN launched the construction of a 596 MWe CCGT unit in Płock by signing a turn-key delivery contract and an operation and maintenance contract with a consortium of Siemens AG and Siemens Spółka z o.o. The project is planned to come on stream at the end of 2017 and is expected to be an important contributor to the downstream segment's operational excellence. At the current stage, a procedure has been initiated to execute contracts for upgrade work on the Płock Production Plant's infrastructure. The construction of a 463 MWe unit in Włocławek proceeded on schedule. The work included assembly of all ancillary, electricity and automation systems, as well as construction of power and gas connections (PSE Operator and Gaz System). Functional testing of the plant and equipment has commenced and preparatory work is under way to begin the start-up procedure.
In Q4 2014, the upstream segment reported a PLN 56m year-on-year increase in LIFO-based EBITDA. To date, as part of the unconventional hydrocarbon projects in Poland, 11 wells have been drilled, including 7 vertical and 4 horizontal ones, and 3 fracturing operations on horizontal well sections have been completed (of which 3 wells were drilled and one fracturing operation was carried out in 2014). In Q4 2014, a horizontal well (Wierzbica) was drilled and a vertical well (Wołomin) was spudded under the Lublin Shale project. In line with the policy of concentrating exploration efforts on the most promising locations, a decision has been made to abandon further activities on the Hrubieszów licence. As part of conventional projects in Poland, three wells have been drilled (including one in 2014). In Q4 2014, work continued on analysing data as part of the project carried out in the Sieraków area to verify the area's prospects and update the work programme, and the processing and interpretation of new 2D seismics (Lublin) for the Karbon project was completed.
Through consistent development of its presence on the Canadian market, PKN OREN has increased its aggregate oil and gas reserves in Canada to ca. 49,5 mboe (2P) as at the end of 2014. In Q4, drilling of 9 new wells (6 net - adjusted for other partners' interests) was commenced, 14 fracturing operations were carried out (6.2 net), and 18 wells were brought on stream (8.8 net). In total, at the end of Q4 2014 there were 133.2 producing wells (net). The average daily hydrocarbon production in Q4 2014 was ca. 8,000 boe/d, up by 0.9 boe/d (q/q) after new producing wells were brought online.
In Q4 2014, PKN ORLEN's financial position remained sound. The financial leverage was 33% and the net debt to LIFO EBITDA ratio was 1.29.
'The past year should be viewed not only from the perspective of the last three months, when the oil industry benefited from the improved macroeconomic climate. The wider perspective allows us to see that despite the recent positive developments on the market, such as the good downstream margin, we are still dealing with substantial uncertainty. This is why we focus on maintaining solid financial fundamentals to ensure the Company’s sustained growth irrespective of how the macroeconomic conditions may develop,' said Sławomir Jędrzejczyk, PKN ORLEN’s CFO.
In line with its updated strategy, in 2015 PKN ORLEN will proceed with the key projects designed to support the growth of individual business segments. The construction of the Metathesis Unit, intended to boost downstream sales, will be continued. In the retail segment the Company plans to invest in the development of the service station chain, in particular by focusing on the construction of new service areas on motorways and expressways. Given the customers' increased interest in premium service stations, the rebranding of some of the Bliska stations to ORLEN will be continued.
2015 will be a breakthrough year for the heat and power generation segment at PKN ORLEN in view of the planned completion of the Company's key project in this segment, i.e. the CCGT unit in Włocławek, and the unit’s start-up at end of the year. The work on a similar CCGT project in Płock will be continued. In the upstream segment in Poland, it is planned to drill one conventional gas exploration well and four additional wells, perform one fracturing operation and acquire seismic data under licences for unconventional deposits. In Canada, in 2015 PKN ORLEN intends to increase the average hydrocarbon production to 8.9 thousand boe/d. The plans will be implemented with due account being taken of the dynamic changes in the macroeconomic conditions and their effect on oil prices.