Polish Oil and Gas Company
Company Overview
August 2020 Agenda
1. PGNiG Group & Polish Gas Market 2. PGNiG Segments
Exploration and Production Trade and Storage Distribution Generation 3. Strategy, CAPEX 4. Appendix Key events in Q1 2020
Appointment of the President and members of the Management Board by the PGNiG Supervisory Board January Satisfaction of the condition precedent to the agreement whereby PGNiG UN purchased 01 an interest in the Duva field from Pandion Energy Appointment of Ms Magdalena Zegarska as Vice President of the PGNiG Management February 02 Board Launch of production from the Skogul field in Norway by PGNiG Upstream Norway
President of URE’s decision on the Distribution Tariff of Polska Spółka Gazownictwa March 03 Issue by the Arbitration Court of Stockholm of a final award in the arbitration proceedings brought by PGNiG against PAO Gazprom/OOO Gazprom Export, concerning change of the contract price of gas supplied by PAO Gazprom and OOO Gazprom Export under the Yamal Contract
3 Key events in Q2 2020
Receipt from Gazprom of a declaration of compliance with the new pricing terms under the Yamal contract April 04 PGNiG Upstream Norway launched production from the Ærfugl field in Norway Execution of an agreement to book additional regasification capacities at the LNG May 05 Terminal in Świnoujście Commencement of exclusive negotiations with Tauron Polska Energia on PGNiG’s acquisition of 100% of shares in TAURON Ciepło Execution of an annex to the Yamal contract between PGNiG and Gazprom and June repayment of approximately USD 1.5bn net to PGNiG 06 Adoption of a directional action plan for future investments in the sector of renewable energy sources
President of URE’s decision on the Retail Tariff of PGNiG Obrót Detaliczny
4 PGNiG Group and Polish Gas Market Poland’s no.1 integrated group in the oil and gas sector
6 2nd biggest Polish company on the Warsaw Stock Exchange*
Listed on WSE since The share price of PGNiG and WIG20 from January 2012 together with the rate of return September 2005 PLN rate of return PGNiG WIG20 (relative rate)** Market cap, of PLN 31.2bn 8,0 120% (EUR 7.1bn, USD 8.4bn)* 7,0 90% 6,0 60%
Share in WIG20***: 3.48% 5,0 30%
4,0 0%
3,0 -30%
2,0 -60% Q1'12 Q2'12 Q4'12 Q1'13 Q3'13 Q1'14 Q2'14 Q4'14 Q2'15 Q3'15 Q1'16 Q2'16 Q4'16 Q2'17 Q3'17 Q1'18 Q2'18 Q4'18 Q2'19 Q3'19 Q1'20 Q3'20 Shareholders Market cap. of PGNiG from January 2017 together with largest companies on the WSE (June 30th, 2020) PLNbn PGNIG PKN Orlen PZU PKO BP KGHM Santander Pekao CD Projekt 55,0
Free Float 28.12% 45,0 Average daily CD Projekt 39,2 35,0 turnover in PGNiG 31,2 H1 2020: PKO BP 27.5 25,0 KGHM 26.7 PLN 25.4M PZU 24.3 PKN Orlen 23,0 Santander 15,9 State Treasury 15,0 Pekao 14,2 71.88% 5,0 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q1'20 Q2'20 Q3'20
* In terms of market cap as at 25th of August 2020 (without dividend): PGNiG = 4.545 EUR/PLN = 4.3915, USD/PLN = 3.7144 ** WIG20 quotation chart, taking into account relative changes in percentage in relation to the PGNiG stock price (as at August 25th 2020) *** Based on the WIG20 index portfolio (end of 2019) published in WSE 2019 Yearbook 7 Gas market in Poland: Low consumption with growth potential
Natural gas sales by sector in the world in 2017 2017 Natural gas consumption by country in 2019 Non-combusted 6% bcm Transport 100 88,7 2% Buildings 80 70,8 21% Inputs to power 39% 60 36,1 40 28,2 20,4 20 8,3 8,9 9,8 10,9 Industry 32% 0 Czechia Austria Hungary Romania Poland Ukraine Spain Italy Germany
Natural gas sales by sector by PGNiG Primary energy consumption by fuel (data for July 2020) in Poland in 2018 and 2017 2018 100% 11% 7% Others 3% Nuclear energy 17% 80% 15% Power Plants Renewables Residential and 15% 2% 12% Commercial 60% 25% 31% 35% Natural gas 37% 2017 40% Oil 38% 49% 20% 45% Coal 11% 0% EU Poland Industry 48%
Source: BP Statistical Review 2020, BP Energy Outlook 2019 / Gas consumption comprises sales, as well as in-house consumption and change of inventories 8 Gas market worldwide
Annual LNG supply by region Primary energy consumption by fuel 500 mln t 40% 413 Oil 392 361 400 340 North America 311 30% 284 279 Australia Coal Oil 27% 300 Gas 26% Other Gas 20% Coal 21% 200 MENA* Renewables 14% 100 South Asia 10% Hydro Hydro 7% Africa Nuclear Nuclear 5% 0 Renewables 2014 2015 2016 2017 2018 2019 2020 0% 1990 1995 2000 2005 2010 2016 2020 2025 2030 2035 2040
Annual LNG demand by region Natural gas demand
mln t 5 000 mln t 400 345 4 707 334 4 426 318 4 148 Asia Pacific 296 3 861 MENA* 4 000 3 534 300 265 240 246 Africa Latin America 3 204 3 000 2 874 Middle East Asia (without JKT) 2 499 200 2 182 Europe & North America 2 000 1 767 1 920 Eurasia 100 Europe S & C America 1 000 Japan/Korea /Taiwan North America 0 0 2014 2015 2016 2017 2018 2019 2020 1990 1995 2000 2005 2010 2016 2020 2025 2030 2035 2040
* Middle East-North Africa / Source: IHS, BP Energy Outlook 2018 9 Exploration & Production
Operating segments Trade & Storage of PGNiG Group
Distribution
Generation PGNiG Group’s financials 2010-2019
6th biggest company in Central PGNiG Group’s EBITDA** and Eastern Europe* 7,1 PLNbn 3rd biggest oil company in the 7,5 6,6 6,4 6,0 5,5 5,6 6,1 region* 6,0 4,4 4,6 5,0 2,2 3,9 Stable EBITDA level due 4,5 3,5 3,1 2,4 3,4 3,4 1,2 2,0 0,6 0,6 to diversified inflows sources 3,0 1,0 0,8 1,9 0,5 0,2 2,3 2,6 2,5 2,4 2,0 1,5 2,0 2,3 1,7 1,6 1,6 0,7 0,8 0,8 0,8 0,9 0,0 -0,1 0,5 0,5 0,5 -0,4 -0,8 -0,5 EBITDA breakdown -1,5 2010 2011 2012 2013 2014 2015 2016*** 2017*** 2018*** 2019*** Heat and Power Generation Distribution Trade and Storage Expoloration and Production 2019 Trade & Storage PGNiG Group’s revenue and net profit -9% Expoloration & 45 PLNbn 41,23 Revenue 42,02 Production 36,46 61% 2018 40 34,30 35,86 71% 32,12 33,20 35 28,73 -12% 30 23,00 25 21,28
34% 20 Distribution 11% 15 36% 10 2,46 2,23 1,92 2,82 2,14 2,35 2,92 3,21 5 1,63 Net profit 1,37 Generation 0 16% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Other segments’ contribution to EBITDA in 2019: -4%; in 2018: -4%
* Source: TOP 500 CEE 2019 / ** EBITDA 2010-2015 before intra-group eliminations and excluding „Other segments” *** restated, other segments not presented on chart 11 Leader in production of gas and crude oil in Poland
PGNiG’s resource base Production volumes* mboe in Poland**: 50 40,3 41,3 44,2 37,6 37,9 38,8 38,9 39,6 38,3 proved gas reserves: 557 mm boe 5,0 40 4,6 31,4 2,1 3,1 4,9 4,2 3,5 3,9 3,3 5,7 (86.4 bcm) 30,9 31,3 5,8 6,0 5,8 5,6 5,9 6,1 6,3 6,0 30 3,7 3,4 3,6 7,7 proved oil reserves: 113 mm boe 2,4 3,1 4,0 3,7 4,5 4,8 4,3 5,8 (15.4 m tonnes) 20 27,2 27,9 27,8 27,2 26,0 25,8 25,0 24,8 24,6 24,6 25,1 25,8 Oil & Gas concessions 10 0 in Poland**: 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 12 exploration/appraisal Natural gas Poland Natural gas abroad Crude oil and condensate Poland Crude oil and condensate abroad 35 combined licences Reserves of natural gas and crude oil mboe Exploration & Production 1 000 Crude oil/NGL/Condensate Gas 884 854 860 847 858 805 796 activities: 800 768 770 795 54 production facilities in Poland 600 over 2 thousand producing wells 680 685 675 684 715 643 622 589 609 632 400
200 174 175 172 162 174 179 161 163 174 169 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
*High-methane gas equivalent / **As at December 31st 2019 12 100 120 20 40 60 80 0,0 1,0 2,0 3,0 4,0 5,0 0 Exploration & * restated Explorationand Average 108 USD/ Q1 PLNbn 2010 110 1,2 Q2 bbl 2014 102 Q3 Q4 76 2011 prices 1,9 Q1 54 Q2 62 2015 2012 Q3 50 2,0 of of Production’s Q4 43 Brent Q1 35 2013 3,4 Q2 46 2016 crude Production Q3 46 2014 Q4 50 3,1 EBITDA Q1 54 oil Q2 50 2017 2015 2,4 Q3 52 Q4 61 2016* Q1 67 2,2 Q2 75 2018 Q3 75 financial 2017 3,9 Q4 68 Q1 63 Q2 69 2018 2019 5,0 Q3 62 Q4 63 2019 Q1 3,4 51 2020 results Q2 31 PLNm PLNm Segment’s Segment’s Revenue Revenue - - 33% 1 279 7 671 24%
851 5 822 results results Operating expenses Operating for for for FY expenses + -
18% 3 715 849 5 % Q2 Q2 2019
999 3 518 2018 vs FY vs Q2 Q2 2020 EBITDA EBITDA - - 2019 76% 692 5 019 33%
173 3 360 - - 134% EBIT EBIT 431 3 956 42%
-148 2 304 13 International E&P activities – Norway
Reserves in Norway (as at June 30th, 2020) Natural Gas Crude Oil & NGL TOTAL (mboe) Skarv 9.6 4.3 15.9 Ærfugl & Snadd Outer 23.4 7.5 30,8 Gina Krog 8.7 7.4 18.9 Vilje 0.0 3.1 3.1 Vale 0.8 0.4 1.2 Morvin 0.4 0.2 0,8 Tommeliten Alpha 37.6 15.6 55.5 Skogul 2.6 0.2 2.9 Duva 15.4 8.3 27.3 King Lear 13.6 9.3 22.9 Alve Nord 3.4 1.0 5.1 Total 115.5 57.3 184.4 Production in Norway Crude oil Natural gas mboe
12,0 9,5
9,0 8,6 7,8 7,4 7,1 7,2 6,4 5,8 5,0 6,0 4,9 4,3 4,1 3,5 4,6 3,9 3,3 3,1 3,0 2,1 4,5 3,7 3,3 3,5 3,2 3,2 2,2 2,7 3,1 0,0 PGNiG Upstream Norway has been extracting hydrocarbons from the Skarv, Morvin, 2013 2014 2015 2016 2017 2018 2019 2020F 2021F Vilje, Vale, Gina Krog, Ærfugl (formerly Snadd), Skogul (formerly Storklakken) fields and working on the development of the Tommeliten Alpha, King Lear, Duva and Fogelberg fields. 14 International E&P activities – Pakistan and other
Assets: Pakistan Other foreign activity in 2019 Seismic works: agreement May 18th 2005 shares PGNiG 70%, Pakistan Petroleum 30% Seismic data acquisition in: Germany, the Netherlands, United Kingdom, Hungary, Georgia, Egypt, Mozambique, the United Arab Emirates. area 956 sq km Seismic data processing and interpretation in: the Netherlands, Austria, India, location Sindh province, folded belt Kirthar Pakistan, Colombia, Mexico. obligations 8 wells, 2D and 3D seismic Drilling works: 6.94 bcm of natural gas Main drilling areas: Pakistan, Chad, Kazakhstan, Ukraine. estimated reserves (5.07 bcm/32.6 mboe Rehman, 1.87 bcm/12.1 mboe Rizq) Libya Since 2008, one license for mining (LC113), but in mid-2014, a force majeure notification. Gas from the Rehman and Rizq fields is produced via facilities located in the Rehman field. PGNiG’s share in In 2017-2019, activities limiting the impact of force majeure and verification of the production from the Rehman and Rizq fields, carried the prospects of the license. out from eight wells in H1 2020, amounted to some 125 UAE mcm of gas (measured as high-methane gas . equivalent). Positive results were obtained from the In December 2018, acquisition of rights to explore Rizq-3 production well (work commenced in July for, to appraise and to produce hydrocarbons in 2019). Rehman-7 well is currently during depostis tests Ras Al Khaimah Emirate. (work commenced in February 2020). Block In January 2019 contracts between PGNiG and No. 5 its partners (RAKPA and RAK Gas) were signed. Licence Kirthar As a result, PGNiG acquired a 90% interest in Block no. 5 with an area of 619 sq km.
15 Gas supply & sales
Sources of gas supply of PGNiG SA in Poland Contract for natural gas deliveries with Gazprom („Yamal contract”) until 2022: bcm 10.2 bcm annually, 85% Take-or-Pay 20 17,5 17,3 18,6 15,2 15,3 15,0 15,4 Contract for LNG with Qatargas until 2034: 1,7 3,4 16 14,3 13,7 13,3 1,0 2,7 1,0 1,6 2,0 2,1 2,3 1,8 2,5 1.3 bcm annually, 100% Take-or-Pay. Deliveries since June 2016 1,6 0,3 12 1,2 side agreement (the total volume will increase to 2.7 bcm per annum, in 2018-2020 9,3 8 9,0 9,0 8,7 8,1 8,2 10,2 9,7 9,0 8,9 volume will be increased to 2.9 bcm)
4 Contract for LNG with Cheniere until 2042: 3,9 3,8 4,2 4,3 4,3 4,2 4,0 4,0 3,8 3,8 0.73 bcm in the period of 2019-2022 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1.95 bcm annualy in the period of 2023-2042 LNG Western/Southern direction Eastern direction Domestic production Contracts for LNG with Venture Global and Port Arthur: LNG Portfolio of PGNiG Group 7.4 bcm annually. Deliveries at the earliest since 2022 until 2043 bcm 5.2 bcm of gas sold by PGNiG Supply & Trading to customers in 2019 14 Qatargas 12 Centrica Tariffs: Cheniere 10 Spot transactions Gas sales: Cost of gas + operating costs + margin free-on-board Venture Global LNG 8 (FOB) Retail: PGNiG Retail’s cost base including cost of gas on the commodity Port Arthur LNG 6 exchange (from 1st January 2020 to 30th June 2020, average gas fuel price up 2.9%) 4 delivery 2 ex-ship Storage: Cost + return on capital (6.1% WACC x PLN 3.5bn RAB) (since April (DES) 2019) 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
16 bcm 10 15 20 25 30 35 Trade & * 0 5 -1,0 -0,5 PLNbn 0,0 0,5 1,0 1,5 restated Trade Trade and Sales of Sales of natural gas of PGNiG 2013 2010 16,2 6,2 8,6 0,1 1,4 1,0 PGNiG (abroad) & Supply Trading 2011 - Storage’s 0,1 2014 18,7 5,5 7,7 3,7 1,8 Storage’s 2012 0,5 EBITDA 2015 23,0 5,1 7,3 8,3 2,3 2013 0,2 2014 Polish Power ExchangePolish Power 0,8 SA 2016 24,7 6,1 6,9 9,1 2,5 financial , PGNiG Retail 2015 0,6 26,8 2017 8,6 7,5 8,5 2,2 2016* 0,6 Retail 2017 results - and PST 0,4 2018 29,1 8,8 7,6 8,8 3,9 2018 - 0,8 Wholesale 2019 30,7 8,9 7,7 9,1 5,0 2019 - 0,5 PLNm PLNm Segment’s Segment’s Revenue 6 184 Revenue 31 704 - +5% 13%
5 395 33 250 results results for for for FY Operating expenses Operating expenses
6 396 Q2 2019 - -32 471 +5% 80% 2018 1 310 -33 934 vs FY vs Q2 Q2 2020 2019 EBITDA EBITDA - - -162 45% 42x -848
6 646 -470 - - 34% 32x EBIT -212 EBIT -1 037
6 587 -684 17 Distribution
The owner of approximately 97% of Stable network’s growth and increase of distributed volumes (+2.3% CAGR 2005-2019) Poland’s distribution network and thou. km bcm nearly 99% of the gas service lines*. 220 14 11,6 11,7 11,5 200 10,9 12 Transports natural gas from gas 9,9 10,1 9,5 9,6 9,8 sellers to households, industrial and 180 191 10 183 186 wholesale customers. 177 180 160 173 8 Responsible for operation, 140 6 maintenance and development of 148 150 140 Distribution network with service lines(lhs, thou. km) Volume of distributed gas (rhs, bcm) 120 4 gas pipelines. '11 '12 '13 '14 '15 '16 '17 '18 '19 Segment comprises of Polska Spółka Gazownictwa (PSG). Coverage of distribution network Tariff: (ca. 64,4% of Poland) Tariff No. 8 approved by the President of the Energy Regulatory Office in March 2020 and has been applied from April 3rd 2020. Cost + return on capital (6.0% WACC x PLN 13.1bn RAB)
* As at December 31st 2017 18 PLNbn 2,0 2,5 0,0 0,5 1,0 1,5 2,0 2,5 3,0 0,0 0,5 1,0 1,5 PLNbn Distribution’s Distribution’s Segment’s 2010 2011 2,3 1,24 2011 1,6 2012 1,14 CAPEX EBITDA 2012 1,7 2013 1,34 2013 1,6 financial 2014 1,12 2014 2,0 2015 1,19 2015 2,3 2016 1,11 2016 results 2,6 2017 1,27 2017 2,5 2018 1,81 2018 2,4 2019 2019 2,28 2,0 PLNm PLNm Segment’s Segment’s Revenue Revenue
1 084 4 927 - - 7% 6%
1 015 4 587 results results for for FY for for Operating Operating expenses expenses +4% +
844 Q2 2019 -3 469 4% 2018 877 -3 607 vs FY vs Q2 Q2 2020 2019 EBITDA EBITDA - - 16% 490 17% 2 385
405 1 995 - EBIT EBIT - 33% 241 43% 1 458
138 980 19 Heat and Power Generation
Share on the domestic market*: PGNiG Termika Group operating data heat power 10% Installed heat power 5.1 GWt volume of heat sales 11% Share on the Warsaw market: Installed electric power 1.2 Gwe largest producer of heat and 39.3 PJ electricity in cogeneration Heat sales in 2019 (regulated) estimated coverage of total heat Produced electricity sales in 2019 3.9 TWh demand about 70% estimated total electricity demand around 50% Production of heat and own generation electricity heat supplied to the city network about 98%. PJ TWh 43,0 44 4,1 42,6 4,0 4,0 42 3,9 40,2 3,8 40,7 3,9 39,5 40 3,7 3,7 39,0 3,7 3,9 39,1 3,8 Tariff: 40,2 3,7 38 3,8 3,7 3,6 38,7 38,7 36,2 3,6 Heat tariffs benchmarking scheme 38,2 36 3,6 36,6 3,6 3,5 3,4 creates significant upside for 34 3,5 profitability as PGNiG Termika 3,3 32 3,2 produces low-cost heat 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Heat production (left axis) Electricity production (right axis)
* Source: Thermal energy in numbers 2018 20 * 2010 Generation’s 0,6 0,8 1,0 0,0 0,2 0,4 Generation’s Investments - PLNbn 2011 according to Polish accounting standards; 2012 standards; accounting to Polish according 2011 CAPEX 130 P Combined 500 2010* 0,44 eak MWt MWe - load Total Agreement JV 2011* 0,49 attributable PGNiG gas gas power Heat boiler EBITDA - - fired and 2012 fired for 0,47 output and Sale house Tauron boilers block to : Power 450 of 2013 0,50 financial CO Electricity Polska MWe of in 2 was the in Plant Warsaw 2014 and 0,46 Energia 2019 . completed Żerań PGNiG - 240 2013 data before data intercompany before 2013 Stalowa : . 2015 MWt 0,70 Total PLN at to CHP supply Ż results CAPEX era 493 . Wola 2016 0,76 plant, ń 0 m . plant 5 PLN . bcm ( H 2017 0,84 comprising 1 2 of . ( eliminations 6 H 20 bn gas 2 20 20 for 2018 0,79 ) . 20 14 . ) years . three 2019 0,86 PLNm PLNm Segment’s Segment’s Revenue Revenue +11% 457 2 3877 + 7 % 505 2 565 results results Operating expenses Operating expenses for for FY for for +17% 496 +11% -2 072 Q2 Q2 2019
551 -2 416 2018 vs FY vs Q2 Q2 2020 +89% EBITDA EBITDA 2019 62 788 +9%
117 856 +24% - EBIT EBIT -38 316 53%
-47 149 21 Strategy, CAPEX PGNiG Group Strategy for 2017-2022 – strategic objectives
Strategic objective: competitive position while supporting the development and ensuring security of the gas market in Poland PGNiG's strong competitive position Development of gas market in Poland
Securing new gas supply sources to strengthen the network in order to Group's competitive position following expiry of the Yamal More rapid expansion of distribution contract in 2022 Increase enable more new customer connections and gas market growth the PGNiG Group's Production projects in Norway focused on increasing annual gas output to ca. 2.5 bcm from 2022 onwards value and ensuring Expanding the upstream business in Poland to replenish its financial hydrocarbon reserves and to maintain high levels of production Participation in the Norwegian Corridor project to stability secure direct gas imports from Norway Significant improvement of customer service quality through digitalisation of service channels and expansion of the product portfolio expansion Developing gas and LNG trading functions to make PGNiG more competitive on gas markets in Europe and in Poland
23 Ambitions in the key business areas
1. Exploration and 2. Wholesale 3. Retail Production Increase the base of documented hydrocarbon Diversified gas supply portfolio after 2022 Maximising retail margins reserves by 35% (to 1,208 mm boe in 2022) Increasing the overall volume of natural gas sales by Maintaining the total volume of retail gas sales at Increase annual hydrocarbon production by 41% 7% (to 178 TWh in 2022) ca. 67-69 TWh/year (to 55 mm boe in 2022) Cumulative natural gas sales volume on wholesale markets in Poland and abroad 1000 TWh
4. Storage 5. Distribution 6. Power and Heat Generation Securing access to storage capacities adjusted More than 300 thousand new service lines in 2017– Increase power and heat sales volumes by 20% to actual demand 2022 (to 18 TWh in 2022) Improve storage efficiency The annual growth rate in the number of service lines by 17% Increase gas distribution volume by 16% (to 12.3 bcm in 2022)
7. Corporate Centre
Effective execution of R&D&I projects Operational efficiency improvement across the PGNiG Group Enhancing the PGNiG Group's image
24 PGNiG Group’s areas of interest within the RES segment
Wind power Photovoltaic Bio-methane Energy storage Hydrogen generation
Initially, acquisitions of completed projects Franchising as the Research, development and innovation and gradual build-up of own development dominant model projects capabilities
At the PGNiG Group, a team of seasoned RES experts and analysts are looking into other potential areas for growth.
Based on its analyses and strategic model simulations, the PGNiG Management Board decided to allocate up to PLN 4bn over a period beyond PGNiG’s strategic 2022 time horizon to the implementation and acquisition of projects related, among other things, to RES generation. Ultimately, this will help the Group achieve generating capacity of up to 900 MW, making PGNiG one of the leading producers of energy from renewable sources in Poland. CAPEX and EBITDA for 2017-2022
Average annual capital expenditure in 2017−2022 at ca. Annual CAPEX 2012 – 2018
PLN 5.7bn. PLNbn 8,0 6,8 Generation Distribution Trade & Storage Exploration & Production 7,0 6,6 EBITDA for 2017 – 2022 6,0 1,6 PLNbn 4,7 9.2 5,0 3,2* 3,9 3,6 0,6 4,0 3,3 2,3 0,4 2,9 3,1 0,3 1,8 3,0 1,1 1,1 0,5 0,5 1,3 0,4 0,2 5.6 0,6 0,3 1,2 0,1 2,0 0,5 1,1 1,3 0,2 0,1 0,1 2,5 1,0 1,9 2,1 2,2 1,5 1,4 1,3 1,2 0,0 Dec 31 2012 Dec 31 2013 Dec 31 2014 Dec 31 2015 Dec 31 2016 Dec 31 2017 Dec 31 2018 Dec 31 2019 CAPEX breakdown for 2017-2022 Strategic Plan in %
2017−2022 annual average 2023−2026 annual average E&P 5,95 9,05 45%
PLN 33.7bn cumulative EBITDA Distribution 5,35 4,65 29%
Ambitious investment programme: Generation 2,76 2,24 13% long-term growth of the Group's EBITDA, T&S 0,33 0,1 1% particularly in 2023−2026 (at the annual average of ca. PLN 9.2bn) Other grow projects 0,35 3,65 12%
Keeping debt at safe levels 2017-2022 Total 14,74 19,56 (net debt/EBITDA below 2.0) 2017-2022 annual 5,7 average CAPEX spent 2017-2019 Plan for 2020-2022 PLNbn
26 Appendices
1. Financial highlights Q2 2020 2. Operating expenses 3. External factors and gas markets 4. Gas sales and imports structure 5. Gas transport routes 6. Gas trading and retail sales 7. Changes on the Polish gas market 8. Debt and sources of funding 9. CAPEX, statement of financial position, statement of cash flows 10. Production and sales volumes Financial highlights for Q2 2020
[PLNm] Q2 2019* Q2 2020 D% Exploration and Production Revenue 8,284 7,282 -12% Revenue from sale of gas down PLN -274m (-40%) yoy, and revenue from sale of crude oil and condensate down PLN -171m (-35%) yoy. Operating expenses (excl. D&A) -7,322 -8 -100% Recognition of a PLN -94m impairment loss on non-current assets in Q2 2020, EBITDA 962 7,274 8x compared with PLN -206m in Q2 2019. EBITDA (net of impairment losses on property, plant and 1,202 7,371 6x equipment) Trade and Storage Depreciation and amortisation expense -677 -825 22% Operating expenses on gas down as a result of recognition of the effect of settlement EBIT 285 6,449 23x under the annex to the Yamal contract of PLN 5,689m along with the net exchange gains on the carrying amount of settlements of PLN 300m. Net finance costs 7 149 21x Revenue from sale of gas down -16% yoy, with a +4% yoy increase in gas volumes Net profit 232 5,141 22x sold outside the Group. Gain/loss realised on hedging instruments designated for hedge accounting and recognised in revenue: PLN +171m (Q2 2019: +102m). Group’s EBITDA by segment in Q2 2020 vs Q2 2019** Reversal of gas inventory write-downs in Q2 2020: PLN +108m vs recognition of PLNm write-downs in Q2 2019: PLN -152m. 6,646 Distribution Gas distribution volume down -8% yoy and revenue from distribution services up +3% yoy. Net income/cost of system balancing down PLN -179m yoy. 692 490 405 Generation 173 62 117 Higer revenue from sale of heat (up 18% yoy), with the average air temperature 1.7°C lower in Q2 2020, heat volumes sold up 12% yoy, and a higher heat sales tariff at -162 -110 -47 PGNiG Termika SA. Q2'19 Q2'20 Q2'19 Q2'20 Q2'19 Q2'20 Q2'19 Q2'20 Q2'19 Q2'20 Revenue from sale of electricity generated from the segment’s own sources down E&P T&S Distribution* Generation Other -13% yoy, with sales volumes down -14%.
**Data restated for comparability following analysis of regulations concerning recognition of underground infrastructure lease contracts/decisions and taking into account the interpretation issued by the IFRS Interpretations Committee in preparing the financial statements as at December 31st 2019. **Eliminations in Q2 2019: PLN -10m; Q2 2020: PLN -20m.
28 Operating expenses in Q2 2020 vs Q2 2019
[PLNm] Q2 2019* Q2 2020 D% Comments:
Cost of gas sold -4,846 -2,764 -43% In June 2020, the reduction of operating expenses by PLN 5,689m was recognized Effect of the annex executed with PAO Gazprom/OOO Gazprom as follows: - 4,915 - Export on the cost of gas in 2014–2019 PLN 4,915m relating to gas costs for 2014-2019 Fuels for heat and power generation -168 -155 -8% PLN 774m relating to gas costs for 2020 Other raw materials and consumables used -460 -516 12% In addition, inventories were reduced by PLN 42m and property, plant and Employee benefits expense -834 -801 -4% equipment – by PLN 5m.
Transmission services -258 -260 1% The Q2 2020 financial results were also affected by net exchange gains on the carrying amount of mutual settlements (approximately PLN 300m yoy). Other services -441 -440 - As a result of the above, as well as the changes in the Yamal contract pricing LNG regasification services -95 -97 2% formula effective from March 1st and lower prices of natural gas on commodity Taxes and charges -45 -66 46% exchanges, a -43% yoy drop in costs of gas sold was recorded. Higher costs of other raw materials and consumables used, mainly due to an Other income and expenses** -265 14 -105% increase in energy costs for trading purposes of PLN -74m, or 21% yoy. Change in inventory write-downs -94 108 -2x Employee benefits expense down (-4%) yoy, mainly as a result of lower employee Change in provisions -62 -62 - benefits in the Distribution segment. Recognition and reversal of impairment losses on property, plant -251 -158 -37% Higher costs of dry wells and seismic surveys (PLN -61m in Q2 2020 vs PLN -11m and equipment and intangible assets in Q2 2019). Three dry wells written off in Q2 2020. Cost of dry wells and seismic surveys written-off -11 -61 7x Recognition of impairment loss on non-current assets of PLN -97m in Q2 2020, vs Impairment losses on non-current assets -240 -97 -60% PLN -240m in Q2 2019.
Work performed by the entity and capitalised 246 223 -9% Reversal of gas inventory write-downs of PLN +108m in Q2 2020 vs PLN -152m of write-downs recognised in Q2 2019. Depreciation and amortisation expense -677 -825 22% Increase in depreciation and amortisation expense mainly as a result of higher Total operating expenses - 7,999 -833 -90% depreciation and amortisation in the E&P segment (Norway) and Generation (mainly
Operating expenses net of cost of gas sold -3,153 1,931 -2x CO2 certificates).
*Data restated for comparability following analysis of regulations concerning recognition of underground infrastructure lease contracts/decisions and taking into account the interpretation issued by the IFRS Interpretations Committee in preparing the financial statements as at December 31st 2019. ** Other expenses shown above do not include taxes and charges, or impairment losses on property, plant and equipment and intangible assets.
29 External and market factors
USD/PLN exchange USD/PLN and EUR/PLN exchange rates Temperatures* Q2 2020 rate up 7.4% yoy in Q2 2020, PLN Q2 2019 °C Q2 2019 Q2 2020 4,8 20,0 to PLN 4.09. Quarterly average USD/PLN exchange rate 4.50 14.9 13.2 +5% (yoy) EUR/PLN exchange Quarterly average EUR/PLN exchange rate 15,0 4,4 4.28 rate up 5.1% yoy in Q2 2020, -1.7 °C to PLN 4.50. 4.09 10,0 4,0 Average temperature* 3.81 down 1.7°C yoy in Q2 2020. 5,0 +7% (yoy) 3,6 0,0
Average temperature in quarter 3,2 -5,0 04'17 07'17 10'17 01'18 04'18 07'18 09'18 12'18 03'19 06'19 09'19 12'19 03'20 06'20 04'17 07'17 10'17 01'18 04'18 07'18 10'18 12'18 03'19 06'19 09'19 12'19 03'20 06'20
3M (quarterly) average oil price 3M and 9M crude oil prices USD/bbl down 54% yoy, to USD 31.44 per Q2 2019 Q2 2020 100 barrel. 3M moving average of Brent oil price in USD 9M moving average of Brent oil price in USD -15% (yoy) 80 68.76 -9% (qoq) 64.23 58.32 9M average oil price down 15% 60 yoy, to USD 58.32 per barrel at 68.40 -54% (yoy) the end of Q2 2020. -38% (qoq) 50.59 31.44 40
20 04'17 07'17 10'17 01'18 04'18 06'18 09'18 12'18 03'19 06'19 09'19 12'19 03'20 06'20
* Reference point for temperature measurement: Rzeszów 30 Gas markets
TTF and GPL gas prices (Month- TTF and GPL gas prices (Month-Ahead contract) Ahead contract) in PLN down 55% PLN/MWh Q2 2019 Q2 2020 in Q2 2020. 140 Trading volumes on POLPX in 120
Q2 2020, including all contracts and 100 -55% yoy -55% yoy maturities, up approximately 6% 57.18 -39% qoq -40% qoq 80 yoy. 42.98 60 Average volume-weighted contract 25.69 40 price down 23% yoy on POLPX and 55.65 49% yoy on the Day-Ahead market 20 TTF Month-Ahead contract price Average TTF Month-Ahead for quarter 41.16 GPL Month-Ahead contract price Average GPL Month-Ahead for quarter 25.24 0 04'17 07'17 10'17 01'18 04'18 07'18 10'18 12'18 03'19 06'19 09'19 12'19 03'20 06'20 Gas prices on POLPX Day-Ahead Market and average volume-weighted price of contracts PLN/MWh -23% (yoy) 160 Q2 2019 -15% (qoq) Q2 2020 Comments: 88.20 91.36 92.26 84.26 71.50 Selling prices on POLPX: the largest volumes 103.36 80 91.02 of gas were traded on the POLPX and other 83.79 89.58 76.70 83.96 104.89 gas exchanges under contracts with 78.72 maturities of a quarter, season 40 (summer/winter) and year. These were complemented by monthly/weekly futures 20 average price average price -49% (yoy) and spot contracts. quoted on quoted on POLPX (Day-Ahead Market) DAMg in Q2 DAMg in Q2 The volume-weighted average price of Volume-weighted average price of contracts traded on POLPX (by delivery date) 2019: 65.05 2020: 33.48 contracts traded on POLPX for a given 10 quarter is calculated based on the prices of 04'17 06'17 09'17 12'17 03'18 06'18 09'18 12'18 03'19 06'19 09'19 12'19 03'20 06'20 contracts for delivery in that quarter.
31 Gas sales and imports structure
Lower share of imports from Imports of natural gas to Poland Gas sales outside the PGNiG Group by company
east of Poland and higher share Q2 2020 of LNG and gas imported from [mcm] Q2 2019 Q2 2020 D% western and southern LNG 30% directions. PGNiG Group: 6,051 6,297 4% 28% Eastern In Q2 2020, 11 gas carriers direction 55% PGNiG SA 3,387 3,795 12% were unloaded at the Q2 2019
Świnoujście Terminal, 13% 59% PGNiG OD 1,566 1,571 - including: six deliveries under Western and the Qatargas contract, two southern PST 1,099 931 -15% direction deliveries from Cheniere, and 15% three spot deliveries. Higher gas sales by the PGNiG PGNiG Group's gas sales volumes, gas inventory levels*, and gas imports
Group driven mainly by PGNiG Gas inventory levels Volume of gas sold by PGNiG Group Volume of gas imported to Poland bcm 12,5 10.6 S.A.’s higher sales on POLPX 9.9 9.2 and abroad (export sales). 10,0 8.6
7,5 6.1 6.3 5.5 5.4 5.1 4.0 5,0 3.7 3.5 3.5 4.0 3.4 3.3 2.9 3.7 Comments: 2,5 3.3 2.6 4.0 3.7 2.2 2.3 2.8 LNG inventories at terminals: approximately 1.4 1.7 47 mcm after regasification (as at June 30 2020). 0,0 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20
* Includes high-methane gas, nitrogen-rich gas stored in Poland and abroad, as well as LNG at the terminals.
32 Gas transport routes
Interconnections Northern Gate Project
POLAND – DENMARK (3 bcm, 2022)
POLAND – NORWAY (up to 10 bcm, 2022) POLAND – LITHUANIA (1.9/2.4 bcm, 2021)
LNG TERMINAL (I stage – 5 bcm, planned II stage TETEROVKA – 7.5 bcm) (0.2 bcm*)
YAMAL MALLNOW Włocławek YAMAL KONDRATKI PIPELINE Lwówek PIPELINE (reverse technical (33.7 bcm*) capacity up to do 6.1 bcm) VYSOKOYE (5.5 bcm*)
GCP (1.6/0,4 bcm*) POLAND – UKRAINE (5/5 bcm, no business decision) POLAND – CZECH REP, DROZDOVITSE/ (6.5/5 bcm, INCREMENTRAL HERMANOWICE procedure in ongoing, 2026) CIESZYN, (4.4 bcm*) (0.6 bcm) POLAND – SLOVAKIA (5.7/4.7 bcm, 2020) * Technical capacity LNG TERMINAL
Existing interconnectors
Interconnectors planned, under construction (transmission capacity into/from Polish grid, year of completion) 33 Gas trading and retail sales
Sales by PGNiG SA 7.4 bcm of gas sold in 2018 8.0 bcm of gas sold in 2019 Production Exports 0.5 bcm in 2018 PGNiG SA 0.5 bcm in 2019 Direct sales Sources of gas 0.9 bcm in 2018 0.8 bcm in 2019 Polish Power Exchange 8.8 bcm in 2018 9.1 bcm in 2019
Polish Power Exchange PGNiG Obrót Sales by PGNiG OD (POLPX) Detaliczny 7.6 bcm of gas sold in 2018 7.6 bcm of gas sold in 2019
Sales made on POLPX by PGNiG SA and purchases made on POLPX by PGNiG Obrót Detaliczny, which commenced operations on August 1st 2014, are not subject to elimination from the consolidated financial statements, and are disclosed under the Trade and Storage segment.
34 Changes on the Polish gas market
Since August 1st 2014, the PGNiG Group's Gas sales volume (mcm) 2015 2016 2017 2018 2019 gas sales volumes have included both PGNiG SA's sales through the exchange and PGNiG Total PGNiG Group 23.0 24.3 26.8 29.0 30.7 OD's sales to end customers and on the exchange. PGNiG SA 13.2* 14.5* 17.0 17.2 17.6 Nitrogen-rich gas presented in the table as Group E gas equivalent. including PGNiG SA through PPE 8.1 9.0 8.4 8.5 8.9
Notes**: PGNiG Obrót Detaliczny 7.5 7.3 7.6 7.9 7.7 The chart presents PGNiG SA's share in gas
flowing into Poland through OGP Gaz- * With Export, without Pakistan System's entry points (excluding transit volumes via the Yamal pipeline and including PGNiG's share in gas imports to Poland** volumes for export), monthly data The increase of PGNiG's share in imports 100% observed in Q1 2016 caused mainly by 80%
reduced exports to Ukraine.
% %
60% 84
Data in the chart do not show PGNiG SA's 91
: : : :
share in the Polish gas market, 8
40% 1
They have been sourced from reports Q4’ published by OGP Gaz-System on the 20% Q4’19 volumes of gas flowing through 0% interconnectors. 01'13 04'13 07'13 10'13 01'14 04'14 07'14 10'14 01'15 04'15 07'15 11'15 02'16 05'16 08'16 11'16 02'17 05'17 08'17 11'17 02'18 05'18 08'18 12'18 03'19 06'19 09'19 12'19
35 Debt and sources of funding
Sources of funding (as at June 30th 2020) PLNm Dividend per share for the financial year available used PLN 0,30
0.20 0.20 0.19 0.18 0.18 0,20 0.17 0.15 0.15 0.12 0.13 10,000 0.09 0.08 0.09 0,10
5,000 150
1,641 0,00 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Revolving credit facility (June 2024) Domestic bonds (December 2022) Reserve Based Loan (2022)
Debt at quarter end On June 24th 2020, the PGNiG Annual General Meeting passed Resolution No. PLNbn 21/2020 to allocate PLN 520,048,337.13 from the 2019 net profit to dividend 10 Debt Net debt payment of PLN 0.09 per share. 8 6.8* The dividend record date was July 20th 2020 and the dividend payment date was 6 August 3rd 2020. 3.7 4.0 4.0* 4.1* 3.7* 4 2.4 2.3 1.4 2 0.7 1.0* 0.4* 0 1.2 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 -2 -0.2 -1.4 -0.6 -2.4 -0.8 -4
*The data reflects the impact of application of IFRS 16.
36 CAPEX, statement of financial position and statement of cash flows
CAPEX incurred as at June 30th 2020* PLNbn Group’s statement of financial position PLNm E&P 1.36 (as at June 30th 2020)
Non-current Current Equity T&S 0.05 62,174 62,174
Distribution 1.17
Generation 0.15 17,870
Total 2.73
43,435 Consolidated cash flows (Jan 1−Jun 30 2020) PLNm
-609 +1,630 +1,696 -3,365 44,304 -2,938 +7,327 -3,119 7,779
3 041 3,663 10,960
Cash (Jan 1, 2020) Profit before tax Depreciation and Income tax paid Other adjustments Change at the end Investing CF Financing CF Cash (Jun 30, amortization of the period 2020) expense Assets Equity and liabilities
* CAPEX including expenditure on acquisition of hydrocarbon deposits; CAPEX incurred in the Other Activities segment: PLN 0.06bn
37 Production and sales volumes
NATURAL GAS PRODUCTION BY THE PGNIG GROUP [mcm] Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 H1 2020 H1 2019 H1 2018 FY 201938FY 2018 FY 2017 HIGH-METHANE GAS (E) 442 444 452 451 439 477 473 436 461 464 886 916 925 1,819 1,834 1,863 including in Poland 336 343 348 337 327 326 336 323 314 323 679 653 637 1,337 1,296 1,315 including in Norway 106 101 104 114 112 151 137 113 147 141 207 263 288 481 538 548 NITROGEN-RICH GAS (Ls/Lw as E equiv.) 582 719 721 645 601 704 722 659 612 719 1,301 1,305 1,331 2,671 2,712 2,674 including in Poland 526 650 668 593 556 661 673 606 559 674 1,176 1,217 1,233 2,478 2,512 2,524 including in Pakistan 56 69 53 52 45 43 49 53 53 45 125 88 98 193 200 150 TOTAL (measured as E equivalent) 1,024 1,163 1,173 1,096 1,040 1,181 1,195 1,095 1,073 1,183 2,187 2,221 2,256 4,489 4,546 4,537
NATURAL GAS SALES BY THE PGNiG GROUP [mcm] HIGH-METHANE GAS (E) 5,955 10,119 8,735 5,175 5,715 9,431 8,141 4,777 5,134 9,414 16,074 15,146 14,548 29,057 27,466 25,291 including PST sales outside PGNiG Group 931 1,362 1,487 1,305 1,099 1,352 1,360 855 716 998 2,293 2,451 1,714 5,242 3,929 2,186 NITROGEN-RICH GAS (Ls/Lw as E equiv.) 342 482 447 350 336 465 442 337 308 491 824 801 799 1,597 1,578 1,496 TOTAL (measured as E equivalent) 6,297 10,601 9,182 5,525 6,051 9,896 8,583 5,114 5,442 9,905 16,898 15,947 15,347 30,654 29,044 26,787 including sales directly from the fields 192 250 235 210 170 229 228 211 179 237 192 399 416 844 855 796
NATURAL GAS IMPORTS BY PGNiG S.A. [mcm] Total 4,012 3,462 3,965 3,508 3,710 3,667 2,949 3,324 3,419 3,837 7,474 7,377 7,256 14,851 13,530 13,714 including: sources east of Poland 2,194 1,923 2,654 2,316 2,186 1,791 1,097 2,357 2,602 2,982 4,117 3,977 5,584 8,946 9,038 9,656 including: LNG 1,213 982 948 706 1,044 727 759 635 815 505 2,195 1,771 1,320 3,425 2,713 1,715
CRUDE OIL, PGNiG GROUP (thousand tonnes) Production of crude oil and condensate 331 325 328 275 290 324 353 320 324 348 656 614 672 1,216 1,345 1,257 including in Poland 167 200 208 184 177 208 219 202 189 208 367 385 397 776 818 787 including in Norway 164 125 120 91 113 116 134 118 135 140 289 229 275 440 527 470
Sales of crude oil and condensate from own production 369 277 361 295 266 288 378 309 294 429 646 554 723 1,210 1,410 1,270 including in Poland 159 210 201 182 177 210 225 194 188 210 369 387 398 771 817 791 including in Norway 210 67 160 113 89 78 153 115 106 219 277 167 325 439 593 479
GENERATION Production of heat, net (sales) (TJ) 6,789 16,048 12,984 3,268 6,040 16,970 14,255 2,942 4,425 19,037 22,837 23,010 23,462 39,263 40,659 42,607 Production of electricity, net, secondary generation (for sale) (GWh) 637 1,382 1,266 425 744 1,513 1,315 523 598 1,539 2,019 2,257 2,137 3,948 3,974 3,882
38 Glossary
bbl Barrel boe / mm boe Barrel of oil equivalent / Million barrel of oil equivalent (one barrel is approx, 0,136 tonnes) CAGR Compound annual growth rate CAPEX Capital expenditure cm / bcm cubic meters / billion cubic meters DES Delivery ex ship formula, LNG seller deliver gas to a buyer at an agreed port of arrival D&A Depreciation and Amortization EBIT Earnings before interest and taxes EBITDA Earnings before interest, taxes, depreciation and amortization FOB Free on board formula, LNG seller will deliver gas to a tanker ship at the loading port JV Joint Venture LNG Liquefied Natural Gas NGL Natural Gas Liquids PPE Polish Power Exchange PSG Polska Spółka Gazownictwa PST PGNiG Supply & Trading GmbH RAB Regulatory Asset Base WACC Weighted average cost of capital WIG 20 Capitalization-weighted stock market index of the twenty largest companies on the Warsaw Stock Exchange WSE Warsaw Stock Exchange
39 Contact details
Marcin Piechota Head of the Investor Relations Division Phone: +48 22 106 43 22 Mobile: +48 885 889 890 e-mail: marcin.piechota@pgnig.pl Weronika Zając Anna Galińska Senior Investor Relations Specialist Investor Relations Specialist Phone: +48 22 106 46 51 Phone: +48 22 106 41 09 Mobile: +48 885 888 870 Mobile: +48 723 514 086 e-mail: [email protected] e-mail: [email protected] Piotr Gałek Aleksander Kutnik Investor Relations Specialist Investor Relations Specialist Phone: +48 22 106 48 46 Phone: +48 22 106 47 97 Mobile: +48 723 235 652 Mobile: +48 723 239 162 Investor Relations website e-mail: [email protected] e-mail: [email protected] www.ri.pgnig.pl Polskie Górnictwo Naftowe i Gazownictwo S.A. ul. M. Kasprzaka 25 01-224 Warsaw fax: +48 22 691 81 23 www.pgnig.pl Disclaimer All opinions, judgements and projections contained in this presentation (“Presentation”) have been prepared by Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) S.A. relying on publicly available information. The information contained herein is subject to change without notice and may be incomplete or condensed, and it may omit some important details. No information contained herein is intended as an investment offer or recommendation or as an offer to provide any services. This Presentation contains forward-looking information and statements that relate to future rather than past events. Any such forward-looking statements are based on our current assumptions, but as they relate to the future and are subject to risks and uncertainties, actual results or events may materially differ from those anticipated in those forward-looking statements. This Presentation should not be acted or relied on in making any investment decisions. More information on PGNiG can be found in its current and periodic reports. PGNiG undertakes no obligation to update, and assumes no responsibility for the accuracy, completeness or use of, information contained in this Presentation. No information contained herein is intended as legal or other professional advice.