PKN ORLEN’s consolidated financial results for Q1 2016

After the first quarter of 2016, PKN ORLEN reported a solid LIFO-based EBITDA of PLN 1.9bn, comparable to results gained in the corresponding period last year. The result was largely driven by reduced costs of internal energy consumption, due to lower oil and gas prices, and depreciation of the złoty against the US dollar and the euro.

In the reported period, PKN ORLEN consistently pursued its strategic objectives focused on building value. In the Czech Republic, the Czech anti-trust authority cleared the acquisition of 68 service stations from OMV. Production volumes in the upstream segment went up year on year, supported by the output from the assets acquired last year in Poland and Canada. The CCGT unit in Włocławek was successfully connected to the national power grid and the key process components for the CCGT unit in Płock, including the gas turbine, were delivered. In line with the strategy, the Management Board recommended distribution of dividend of PLN 2.00 per share for 2015.

In the first quarter of 2016, PKN ORLEN’s debt and financial leverage remained at safe levels. Net debt was cut by PLN 1.3bn quarter on quarter and financial leverage was 22.4%. Operating cash flows reached PLN 2.9bn.

“With our sound financial standing, we can afford a calm and balanced approach to our strategy. We regularly review and analyse its underlying assumptions to best respond to potential changes in the macroeconomic environment. Within the next several months, we plan to present to our Supervisory Board further strategic development directions,” said Wojciech Jasiński, President of the Management Board of PKN ORLEN.

In the downstream segment, Q1 2016 saw the Company maintain excellent LIFO-based EBITDA of PLN 1.8bn. Factors contributing to this result included reduced costs of internal energy consumption attributable to lower crude oil and natural gas prices, weakening of the złoty against the US dollar and the euro by 6% and 4%, respectively, and higher margins on petrochemical products, chiefly polymers, PVC and fertilizers (yoy), with negative influence (yoy) from lower diesel oil margins (down 51%) as well as a decline in sales of high-margin petrochemical products (as a result of the outage of the Steam Cracker unit at Unipetrol following its failure in Q3 2015, and a maintenance shutdown of Anwil’s PVC production unit).

In Q1 2016, crude throughput grew by 11% and capacity utilisation improved by 2pp (yoy), which pushed sales up by a total of 8% (yoy). Sales went up by 7% in the Czech Republic and by 27% in Lithuania, and fell in Poland by 2%.
Relative to the same period of the previous year, PKN ORLEN saw increased diesel oil consumption in all its home markets. The consumption of gasoline increased in Poland and Lithuania, remaining broadly flat in Germany and the Czech Republic.

In the retail segment, in Q1 2016, PKN ORLEN reported robust LIFO-based EBITDA of PLN 301m, which represents an improvement of PLN 19m on the previous year. Sales volumes were up by a total of 4% (yoy), driven by a 6% increase in Poland, an 18% increase in the Czech Republic and a 7% increase in Lithuania, with sales in Germany declining by 2%. The positive impact of higher (yoy) fuel margins in the Czech Republic and higher non-fuel margins in Poland and the Czech Republic was offset by lower (yoy) fuel margins on the Polish and German markets and the persistent grey market in Poland. In Q1 2016, PKN ORLEN was consistently expanding its non-fuel offering, adding 33 new outlets to its Stop Cafe and Stop Cafe Bistro chain, which comprised a total of 1,591 outlets at the end of the first quarter, including 1,433 in Poland, 135 in the Czech Republic and 23 in Lithuania.

“This was yet another quarter in which we delivered good, stable performance, proving that we are able to leverage the continuing favourable market conditions. In the past quarter, we focused on achieving operational excellence and fully exploiting our potential. The performance delivered by PKN ORLEN in Q1 2016, including a substantial increase in sales volumes that offset lower refining and retail margins, demonstrates our flexibility and readiness to face market challenges,” said Sławomir Jędrzejczyk, Vice-President of the PKN ORLEN Management Board, Chief Financial Officer.

In the power generation area, PKN ORLEN continued activities designed to put the CCGT unit in Włocławek (463 MWe) into operation and the project to build a similar unit in Płock (596 MWe). In Q1 2016, in Włocławek, the first tests of the generating unit’s synchronisation with the national power grid were completed successfully, and the facility began producing electricity. Steps were also taken to optimise the operation of the steam and gas turbines. The project is now entering the critical stage of full-load testing, which will determine whether the unit is ready for commercial operation, scheduled to commence beginning with second half of 2016.

In Płock, PKN ORLEN started construction and assembly work on all the process facilities and the administration building, while the gas turbine and components of the turbine generator set were delivered to the site. The final acceptance process for the distributed control system (DCS) and the tender procedure to select a contractor for the 400kV unit line were completed. The project is expected to be placed in operation in late 2017.

In the upstream segment, in Q1 2016, PKN ORLEN consistently pursued its strategy focused on ensuring the segment’s sustainable growth and reaching an annual production capacity of 6 million boe by 2017. In Poland, the 2D and 3D seismic surveys carried out in 2015 over the Company’s licence areas were completed and 3D surveys were started in new areas. Drilling was performed on two production wells in areas held by FX Energy. Additionally, work was under way on preparatory and land development activities for new wells. In Canada, in early January 2016 ORLEN Upstream Canada Ltd. merged with Kicking Horse Energy Ltd., acquired at the end of 2015. In Q1 2016, drilling of seven (5.9 net*) new wells was commenced, six (4.7 net*) fracturing treatments were carried out, and four (3.5 net*) wells were brought on stream. As at the end of Q1 2016, PKN ORLEN’s 2P oil and gas reserves were approximately 97 million boe.

PKN ORLEN’s commitment, especially in the area of corporate social responsibility and relations with external stakeholders, was once again recognised by independent experts. For the third time PKN ORLEN was named the World’s Most Ethical Company in a poll held by Ethisphere Institute, an American research centre. It was also awarded the Top Employers Polska 2016 certificate for the working conditions offered to its employees.