PGNiG: solid performance despite market challenges

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After the nine months to September 30th 2021, the PGNiG Group posted nearly PLN 37.5bn in revenue, around PLN 7.4bn in EBITDA and PLN 3.1bn in net profit. The volume of gas sold was in excess of 24 bcm, a year-on-year increase of 8%.

„The third quarter ushered in an unprecedented surge in gas prices, but the prices have followed an upward trend since the year’s beginning. Between January and the end of September, the prices of gas on European exchanges nearly quadrupled, translating into a steep increase in PGNiG’s costs of gas purchasing. In spite of that, in the first nine months of 2021, the Group generated solid operating results,” stressed Paweł Majewski, President of the Management Board of PGNiG SA.

In the nine months to September 30th 2021, the PGNiG Group generated PLN 37.49bn in revenue, up by 37% on the same period of 2020, when revenue amounted to PLN 27.43bn. Operating expenses reached PLN 32.68bn vs PLN 19.19bn the year before, having grown by 70%. The Group’s EBITDA came in at PLN 7.39bn, EBIT reached PLN 4.82bn, and net profit was PLN 3.1bn – down by 31%, 42% and 49%, respectively, year on year.

However, the decline in operating profit was a consequence of one-offs, mainly the inclusion in last year’s result of the refund of overpayment for natural gas deliveries after PGNiG had won its arbitration case against Gazprom. Excluding the refund and the effect of impairment losses on non-current assets, the PGNiG Group’s EBITDA and EBIT for the nine months ended September 30th 2021 would have risen by 4% and 2%, respectively.

The higher hydrocarbon prices have materially altered the PGNiG Group’s EBITDA structure. In the nine months ended September 30th 2021, Exploration & Production was the Group’s most profitable business segment, accounting for 73% of total EBITDA, compared with 7% in the same period of 2020. The contributions from Distribution and Generation also went up in percentage terms. After the nine months ended September 30th 2021, the former accounted for 28% and the latter for 8% of the PGNiG Group’s EBITDA. A year earlier, the respective shares were 14% and 5%. The Trade & Storage segment, which includes PGNiG’s trading activities, delivered an operating loss, taking 9% off the EBITDA figure.

„The negative EBITDA performance of Trade & Storage segment is illustrative of the challenges faced by gas traders. However, seeing that its business is well diversified, the PGNiG Group is able to deliver positive results even amid market headwinds, primarily on the back of consistent efforts to grow the Exploration & Production business, especially on the Norwegian market. During the first three quarters of 2021, we produced twice as much gas on the Norwegian Continental Shelf as we did a year ago,” notedPaweł Majewski.

Exploration & Production

The segment’s revenue for the nine months ended September 30th 2021 came to PLN 7.03bn, up by 128% on the year before, when the booked result was PLN 3.08bn. The EBITDA figure increased year on year from PLN 0.72bn to PLN 5.42bn. The rising hydrocarbon prices were a key driver behind the major improvement in the segment’s financial metrics. The average of Brent crude prices for the first nine months of 2021 was PLN 257 per barrel, up by 57% on the same period of 2020. The rise in gas prices was even sharper, reaching as much as 235% year on year (based on the arithmetic mean of prices quoted on the Day-Ahead Market of the Polish Power Exchange).

The PGNiG Group’s crude oil output was 938 thousand tonnes, a slight decline compared with 2020, when the volume of crude oil produced by the Group came to 963 thousand tonnes after the nine months to September 30th. The natural gas output increased significantly, by 9%, to 3.59 bcm, compared with 3.3 bcm in the previous year. The growth was driven chiefly by a 103% increase in the volume of gas produced on the Norwegian Continental Shelf – from 0.32 bcm to 0.65 bcm. Natural gas production from Pakistani assets grew by 19%, from 0.21 bcm to 0.25 bcm. Domestic production volumes fell slightly, from 2.78 bcm to 2.69 bcm.

Trade & Storage

The rising hydrocarbon prices combined with a higher volume of gas sales translated into a strong increase in the Trade & Storage segment’s revenue, which reached PLN 29.92bn, relative to PLN 21.08bn in the nine months to September 30th last year. At the same time, operating expenses also grew noticeably, dragging the segment’s EBITDA into negative territory, to PLN -0.64bn, compared with PLN 8.19bn a year earlier (PLN 3.27bn excluding the refund of overpayment following the favourable arbitral award against Gazprom).

The volume of gas sales in the nine months to September 30th 2021 reached 24.05 bcm, up by 8% compared with the same period of 2020, when it amounted to 22.28 bcm. The largest volumes of gas were sold on the Polish Power Exchange: 7.8 bcm vs 6.55 bcm a year earlier (+19% year on year). Retail sales grew strongly, to 6.52 bcm, ca 0.9 bcm more than the year before (+16% year on year), surpassing the volume of sales to wholesale customers, which dropped by 7% year on year, from 6.51 bcm to 6.06 bcm. The volume of gas sold abroad amounted to 3.66 bcm in the nine months ended September 30th 2021, a level broadly similar to that recorded in the same period of the previous year (3.62 bcm).

Distribution

In the nine months to September 30th 2021, the Distribution segment saw a 16% increase in revenue, to PLN 3.85bn, up from PLN 3.32bn booked for the same period last year. The volume of distributed gas grew by the same percentage, to 9.32 bcm from 8.03 bcm in the first three quarters of 2020. EBITDA came in at PLN 2.1bn, up by 36%, from PLN 1.54bn recorded a year earlier.

Generation

Revenue from the Generation business grew by 17%, from PLN 1.87bn to PLN 2.18bn. EBITDA for the nine months to September 30th 2021 reached PLN 0.61bn, up from PLN 0.57bn a year earlier, which represents a year-on-year increase of 8%.

The volume of heat sold in the nine months ended September 30th 2021 amounted to 27.27 PJ, having risen more than 5% on the same period of 2020, from 25.92 PJ. The main factor behind the increase were the weather conditions, as the average air temperature was about 1.3 degrees Celsius lower than the year before, at about 10.3 degrees Celsius. Electricity production fell by 8% to 2.28 TWh, compared with 2.47 TWh in the same period of 2020.

PGNiG