Polish Oil and Gas Company
Company Overview
December 2016 Agenda
1. PGNiG Group & Polish Gas Market
2. PGNiG Segments
Exploration and Production
Trade and Storage
Distribution
Generation
3. Strategy, CAPEX, Debt
4. Appendix - Financial Results of Q3 and FY 2015
2 Agenda
PGNiG Group and Polish Gas Market
3 Poland’s no.1 integrated group in the oil and gas sector
Natural gas (direct sales) Conventional and unconventional deposits in Poland, Norway and Crude oil Pakistan Geological, geophysical and drilling services
EXPLORATION AND PRODUCTION
) Natural gas (wholesale)
gas
production Natural Natural
( Natural gas (retail)
DISTRIBUTION Natural gas (imports) Electricity
TRADE AND STORAGE
Electricity
gas
Natural Natural
Coal Heat distribution
Biomass Heat HEAT AND ELECTRICITY GENERATION AND DISTRIBUTION
4 Fifth largest Polish company on the Warsaw Stock Exchange**
Stock performance since January 1st, 2016 Listed on WSE since
PLN September 2005 5,8 Market cap. of PLN 28bn 5,6 (EUR 6.3bn, USD 6.7bn)* 5,4
5,2 Significant share
5 in WIG 20 index: 5.2%
4,8
4,6
4,4
4,2 01'16 02'16 03'16 04'16 05'16 06'16 07'16 08'16 09'16 10'16 11'16 PGNiG WIG20 Shareholders (as on September 30, 2016)
Treasury Shares Stock performance since January 1st, 2012 1.6%
PLN 7 Free float 28.6% PGNiG WIG20 Average daily 6,5 turnover in 2015: PLN 28m 6 (~EUR 6.3m / 5,5 USD 6.7m) State Treasury 70.4% 5
4,5
4
3,5
3 2012-01-02 2013-01-04 2014-01-10 2015-01-13 2016-01-12
* PGNiG = 4.75 PLN and EUR/PLN = 4.42; USD/PLN = 4.17 (as on November 29th 2016) / ** In terms of market cap. 5 Gas market in Poland: Low consumption with growth potential
Natural gas consumption by country in 2015 Natural gas sales by sector in UE in 2014
bcm 80 74,6 Others 3% 70 Power Plants 23% Residential 60 and Commercial 43% 50
40 27,6 30
20 15,1 16,3 Industry 10,3 31% 10 7,2 Residential and Commercial Industry Power Plants Others 0 Czech Republic Romania Poland Belgium Spain Germany
Natural gas sales by sector by PGNiG in 2015 and 2014 Primary energy consumption by fuel in 2015 2015 2% 8%
100% 5% 2% 12% Nuclear energy 8% 16% 2014 80% 13% 41% 45% Renewables 50% 22% 26% 60% Natural gas
40% 45% 37% Oil 53% Residential and Commercial Industry Power Plants Others 20%
16% Coal 0% EU Poland
Source: BP Statistical Review 2015 , BP Energy Outlook 2016 and EuroGas Statistical Report 2015/ Gas consumption comprises sales, as well as in-house consumption and change of inventories 6 Gas market worldwide
Primary energy consumption by fuel Natural gas demand m t oil eq. 40% 5000 Oil 4 428 4 136 3 874 Asia Pacific 4000 3 521 30% Oil 30% Coal 3 066 3 160 Africa Gas 26% 2 880 Coal 25% 3000 2 505 Gas Middle East 20% 2 182 1 925 2000 1 768 Europe & Eurasia
S & C America 10% Renewables 8% 1000 Hydro Hydro 7% Nuclear Nuclear 5% North America Renewables 0% 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 1990 1995 2000 2005 2010 2014 2015 2020 2025 2030 2035
Annual LNG supply by region Annual LNG demand by region m t m t 500 400 345 413 334 392 318 400 361 North America 296 MENA* 340 300 265 311 246 Australia 240 Latin America 279 284 300
Other 200 Asia (without JKT)
200 MENA* North America
South Asia 100 100 Europe Africa Japan/Korea/Taiw 0 0 an 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020
* Middle East-North Africa / Source: IHS, BP Energy Outlook 2016 7 Exploration & Production
Agenda Operating segments Trade & Storage of PGNiG Group
Distribution
Generation
8 PGNiG Group’s financials 2010-2015
PGNiG Group’s EBITDA** Fifth biggest company in Central
PLNbn and Eastern Europe* 7 6,4 5,6 6,1 Third biggest oil company in the 6 4,6 region* 5 4,4 3,1 2,4 Stable EBITDA level due 4 3,5 3,4 1,2 2,0 0,6 to diversified inflows sources 3 1,0 0,8 1,9 0,5 0,2 2 2,3 2,0 2,3 1,7 1,6 1 1,6 0,5 0,7 0 -0,1 0,5 0,5 2010 2011 2012 2013 2014 2015 -1 Expoloration and Production Trade and Storage Distribution Heat and Power Generation EBITDA breakdown
2015 Expoloration and PGNiG Group’s revenue and net profit Distribution 2014 Production 39% 40% 31% PLNbn 40 50% 34,30 Revenue 36,46 35 32,12 7% 28,73 12% 30 23,00 25 21,28 Heat and Trade and Power Storage 20 Generation 11% 10% 15
10 2,82 5 2,46 1,63 2,23 1,92 Net profit 2,14
0 2010 2011 2012 2013 2014 2015
* Source: Rzeczpospolita: Europa 500 / ** EBITDA before intra-group eliminations and excluding „Other segments” 9 Exploration & Production summary
Production volumes* PGNiG SA is a leader in production of gas and crude mm boe 50 oil in Poland 40,3 40,1 37,6 37,9 38,6 38,7 40 Average daily production – over 2,1 4,9 4,0 4,2 4,2 30,9 31,3 31,4 3,1 100,000 boe 6,0 5,8 5,6 5,6 5,5 6,2 30 3,7 3,4 3,6 2,4 3,1 4,0 3,9 4,5 5,2
20 PGNiG’s resource base
27,9 27,8 in Poland: 27,2 27,2 26,0 25,8 25,1 24,5 24,5 10 proved gas reserves 504 mm boe (78.1 bcm)** 0 proved oil reserves 131 mm boe 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F (17.9 m tonnes) Natural gas Poland Natural gas Abroad Crude oil and condensate Poland Crude oil and condensate Abroad
Oil & Gas concessions in Poland: Reserves of natural gas and crude oil 61 exploration/appraisal
mm boe Crude oil/NGL/Condensate Gas 227 production 1000 854 860 847 805 796 768 800 Exploration & Production activities: 600 680 685 675 57 production facilities in Poland 643 622 589 400 over 2 thousand producing wells
200
174 175 172 162 174 179 0 2010 2011 2012 2013 2014 2015
* Natural gas sold at cost within the Group / ** High-methane gas equivalent 10 Exploration & Production financial results
Exploration and Production’s EBITDA Low oil price affects E&P’s
PLNbn results 4,0 Revenue from sales of oil and condensate in 2015 down by PLN 0.7bn
3,0 Net impairment losses, dry wells and seismics written off at: PLN -846m in 2015 2,0 PLN -1.037bn in 2014 3,4 3,1 2,4 Segment’s results for FY 2015 1,0
1,9 2,0 -20% -8% -23% -45%
1,2 PLNm
6 6 071
0,0
4 855 4
2010 2011 2012 2013 2014 2015
4 4 065
3 760 3
3 3 143
2 426 2
2 2 006 1 095 1
Operating Revenue EBITDA EBIT expenses Average prices of crude oil Segment’s results for Q1-3 2016
USD/bbl -17% 20% -57% -86%
120 5
6 PLNm
3 3 712
110 9
30
3 09 3
2 91 2
2 2 2 2 440
100
1 1 272
90 990 179 80 Operating Revenue EBITDA EBIT 70 expenses
60
50
40 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 2013 2014 2015
11 International E&P activities – Norway
Licenses 18
USD 360m (Skarv) Licence cost NOK 1.95bn (Morvin, Vale, Vilje, Gina Krog)
Skarv CAPEX (PGNiG’s part) approx. USD 800m
59 mmboe (Skarv) Reserves of the licence (2P) for PGNiG 29 mmboe (Morvin, Vale, Vilje, Gina Krog) Skarv
Morvin
Production in Norway
mm boe 9 8,6 Crude oil Natural gas 8 7,2 7,4 7,5 Vale 7 5,8 Vilje 6 4,9 Gina 4,2 4,2 5 4,3 4,0 Krog
4 3,1
3 2,1
2 3,7 2,7 3,2 3,2 3,2 1 2,2
0 2013 2014 2015 2016F 2017F 2018F
12 International E&P activities – Africa and Asia
African assets: Lybia Asian assets: Pakistan
Ghadames/Murzuq concession
Kirthar concession
agreement February 25th 2008 agreement May 18th 2005 shares PGNiG - 100% shares PGNiG 70%, Pakistan Petroleum 30% area 5,494 sq km area 956 sq km Awbari province, location Sindh province, folded belt Kirthar location Murzuq basin 3,000 km 2D; obligations 2 wells, 100 km 2D (fulfilled) 1,500 sq km 3D, obligations 11.5 bcm of natural gas 8 wells estimated reserves 146 bcm of natural gas, 4.5 bcm of natural gas (Pab formation) estimated reserves 15m tonnes of condensate The Rizq-1 well proved the existence of a second deposit within the Kirthar Q4 2013: asset write-off at PLN 420m and a provision for PLN 137m for future licence area. license obligations. Surface installation (cost: USD 13m) allow to increase extraction to 800 cm/min Force majeure clause activated.
13 Gas supply & sales
Trade and Storage segment comprises: Sources of gas supply of PGNiG SA in Poland
sales of natural gas both imported and domestic to retail and wholesale bcm markets, sales and trading of electricity 18 15,2 15,3 15,0 14,3 storage of gas. 13,7 13,3 1,6 2,0 14 1,0 2,1 Polish market growth: CAGR +1.6% 2005-2015 1,6 1,2
Contract for natural gas deliveries with Gazprom 9 9,0 9,3 9,0 8,7 („Yamal contract”) until 2022: 8,1 8,2 10.2 bcm annually, 85% Take-or-Pay 5 Contract for LNG with Qatargas until 2034: 4,2 4,3 4,3 4,2 4,0 4,0 0 1.3 bcm annually, 100% Take-or-Pay. Deliveries since June 2016 2010 2011 2012 2013 2014 2015 2.3 bcm of gas sold by PGNiG Supply & Trading to Western/Southern direction Eastern direction Domestic production customers outside of Poland in 2015 Storage capacity bcm 3,5 3,2 Tariffs: 3,0 2,8 Gas sales: Cost of gas + operating costs + margin 3
2,5 Retail: PGNiG Retail’s cost base including cost of gas on the 2,1 commodity exchange 1,8 1,8 2 1,6
Wholesale: Including cost of imports + cost of production (with return 1,5 on capital invested in E&P) 1 Storage: Cost + return on capital (6.0% WACC x PLN 3.7bn RAB) (until March 2017) 0,5
0 2009 2010 2011 2012 2013 2014 2015
14 Trade & Storage’s financial results
Trade and Storage’s EBITDA Lower unit gas purchase costs PLNbn 1,2 coupled with pressure on selling prices 1,0
0,8
0,6 1,0 0,4 0,8 0,6 0,5 0,2 Segment’s results for FY 2015 10% 11% -18% -35%
-0,1 0,2
0,0 PLNm
2010 2011 2012 2013 2014 2015
-0,2
31 31 742
31 31 361
28 28 825
28 28 242
764
623
583 381
Operating Revenue EBITDA EBIT expenses Sales of natural gas of PGNiG SA, PGNiG Retail and PST Segment’s results for Q1-3 2016 bcm -15% -15% 1% -9% 25 23,0 PLNm
2,30
18,7
20
16,2 1,76
09
23 23 120
8,3 22 488
1
15 1,38 3,7 2
758
76
19 19 6 632
0,1 57 19 19 037
Operating 10 8,6 Revenue EBITDA EBIT 7,7 7,3 expenses
5 6,2 5,5 5,1 0 2013 2014 2015 PGNiG Supply & Trading Polish Commodity Exchange Retail Wholesale 15 15 Gas trading and retail sales in Poland after August 1st 2014
Gas sold to key customers: above 25 mcm annually 4.6 bcm in 2014 4.3 bcm in 2015 Production
PGNiG SA Direct sales 0.93 bcm in 2014 0.72 bcm in 2015 Gas purchase Polish Power Exchange 3.74 bcm in 2014 8.09 bcm in 2015
6.7m customers Polish Power Exchange 7.7 bcm of gas consumed in 2014, including PGNiG Retail (TGE) over 3.2 bcm supplied by PGNiG Retail between August and December in 2014 7.5 bcm of gas consumed in 2015
Sales made on PPE by PGNiG SA and purchases made on PPE by PGNiG Retail, 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.
Measured as high-methane gas equivalent (without intragroup eliminations).
16 Distribution
Stable network’s growth and increase of distributed volumes (+1.6% CAGR 2005-2015) PSG (Polish Gas Company),
thou. km bcm a PGNiG’s subsidiary has 97% 150 11 market share 140 10 Supplies natural gas from gas 130 9 sellers to households, industrial
120 8 and wholesale customers
110 7 Responsible for operation,
100 6 maintenance and development of gas pipelines 90 5 Distribution network (lhs, thou. km) Volume of distributed gas (rhs, bcm) 80 4 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Coverage of distribution network Tariff: cost + return on capital (7.2% WACC x x PLN 11.9bn RAB) – PLN 150m gap (until December 2016).
17 1,00 1,05 1,10 1,15 1,20 1,25 1,30 1,35 1,40 Distribution’s 0,0 0,5 1,0 1,5 2,0 2,5 Segment’s Distribution’s PLNbn PLNbn
2010 2,3 1,24 2011
CAPEX
EBITDA
2011 1,6
1,14 2012
financial 2012 1,7
1,34 2013
2013 1,6
results 1,12 2014
2014 2,0
1,19 2015 2015 2,3
Segment’s Segment’s in 2016 generate PSG’s V Tariff prices up 3% year on Revenue Revenue olumes 2% 3 424 4 283 7%
3 499
4 585
results results strategic - 2022
Operating Operating
expenses expenses up 2% yearon EBITDA - 0% 2 272 2% 3 145
for for for
2 221 3 135
Q1 FY2015
goal - 3 2016 EBITDA EBITDA at 17% 1 814 8% 2 002
PLN 16bn is
1 965 2 339
to to year EBIT EBIT 11% 1 152 1 138 27% year
PLNm 1 278 1 450 PLNm
18
Heat and Power Generation
PGNiG Termika - the largest heat producer PGNiG Termika operating data in Poland with over 11% of heat capacities
Covering approx. 70% of the total heat demand in Installed heat power 4,782 MWt Warsaw, as well as 98% of heat distributed through city’s heating network Installed electric power 1,015 MWe Timeline: January 2012 – acquisition of 99.8% stake of Vattenfall Heat Poland Heat sales in 2015 (regulated) 36.2 PJ S.A. from Vattenfall AB for PLN 3bn in cash (PLN 3.5bn EV) April 2016: The acquisition of up to 17.1% of the share capital of the Polish Mining group as a result of the investment of PLN 500m Produced electricity sales in 2015 3.5 TWh Expansion of heat and power generation and distribution: April 2016: purchase of JSW SA Thermal Energy Enterprise („PEC”) for PLN 190m Production of heat and electricity 14 local heat plants TJ GWh 260 MW of total heat output 44000 3800 3750 288 km of heat distribution network 42000 3700 August 2016: purchase of JSW SA Energy Company „Jastrzębie” 3650 („SEJ”) 40000 3600 5 CHP 38000 3550 130 MW of electricity output 3500 36000 540 MW of heat output 3450 3400 Total cost: PLN 372m 34000 Heat production (left axis) Electricity production (right axis) 3350 32000 3300 Tariff: 2007 2008 2009 2010 2011 2012 2013 2014 2015 Heat tariffs benchmarking scheme creates significant upside for profitability as PGNiG Termika produces low-cost heat
19 Generation’s financial results
Generation’s EBITDA Heat and electricity prices up PLNbn with volumes slightly down 0,8 Reduced fuel prices and 0,7 attractive tariff boost results 0,6
0,5
0,4 0,68 0,3 0,50 0,49 0,47 0,46 Segment’s results for FY 2015 0,2 0,44 -3% -15% 47% 127%
PLNm
0,1
0 1 943 1 887 1
2010* 2011* 2012 2013 2014 2015 1 781
1 520 1
679
463
367 162
Operating Investments Revenue EBITDA EBIT expenses
Segment’s results for Q1-3 2016 400 MWe gas-fired block in Warsaw at Żerań plant (H1 2019) 13% 5% 34% 66%
PLNm
146 MWt biomass-fired boiler in Warsaw at Siekierki plant (2016) 9
43 1 1
Combined Heat and Power Plant Stalowa Wola
1 138 1
60
1
50/50 JV PGNiG and Tauron Polska Energia. Total CAPEX PLN 1.6bn (project finance)
5
417
30 1 1 270 Agreement for Sale of Electricity. PGNiG to supply 0.5 bcm of gas for 14 years 182 Total power output: 450 MWe and 240 MWt 1 088 Operating In January 2016: cancellation of the contract and imposition of penalties for general Revenue EBITDA EBIT contractor related to the improper execution of the contract expenses
* 2010-2011 according to Polish accounting standards; 2012-2013 data before intercompany eliminations. 20 Strategy, CAPEX, financing
21 Strategy of PGNiG Group for 2014-2022
Following a review of the PGNiG Group Strategy for 2014–2022, the PGNiG Group's vision and primary objective have been updated
#1Mission statement #2 Vision #3Primary objective Our vision is to grow from a guarantor To increase PGNiG's value through of gas supplies into an active, profitable development of the production business To maintain EBITDA at current levels until and competitive player on the area and efficient use of infrastructure 2017 and increase it to hydrocarbon production and energy while securing uninterrupted supplies approx. PLN 7.4bn in 2022 markets, based on the diversity of natural gas of gas supply sources
Strategic goals A Value protection B Driver C Growth Maintaining stable value of sales Maximising cash flows from infrastructure Strengthening and transforming the (both in retail and wholesale) and generation areas exploration and production area D Growth Foundations Laying foundations for growth along the value chain
22 Pillars of the PGNiG Group Strategy for 2014-2022
Strategy of the PGNiG Group for 2014−2022
Maintaining stable value of sales Maximising cash flows from Strengthening and transforming the A (both in retail and wholesale) B infrastructure and generation areas C exploration and production area
1a Optimising natural gas portfolio management 3a Maximising value from transmission 5 Maintaining the current volumes of domestic and implementing a new wholesale model infrastructure – gas distribution production from conventional deposits
1b Implementing new diversification projects 3b Maximising value from transmission 6 Confirming the geological and economic infrastructure – heat distribution potential of shale gas deposits in Poland 1c Developing international LNG trading Taking active part in developing energy 4 Expanding the upstream business Developing and implementing a new retail market regulations 7 2a outside of Poland model Expanding PST's international sales 2b operations
D Laying foundations for growth along the value chain 8a Efficiency Improvement Programme in core business 8b Disposal of non-core property 8c Disposal of non-core companies
9 Creating an organisation based on efficient human resource management, focused on objectives and resource acquisition 10 Stepping up R&D activities and searching for innovative areas of growth
New and modified initiatives are marked in blue 23 Key strategic objectives #1 #2 #3 Stabilisation of EBITDA at ~PLN 7.4bn in 2022 Hydrocarbon production in Poland Diversifying PGNiG's gas supply portfolio maintained at approximately Increase in average annual capital beyond 2022 expenditure on organic growth and 33 mmboe a year acquisitions by approximately 30% relative to 2008−2013
#4 #5 #6
Increase in total crude oil and gas Development of new business areas by Significant enhancement of the production volume (in Poland and expanding the value chain in the PGNiG Group’s operational abroad) to approximately 55-60 distribution segment through addition of efficiency (savings of approximately mmboe in 2022 through acquisition of heat assets PLN 800–900m) exploration and production assets
24 CAPEX estimate for the years 2014-2022: PLN 40-50 billion
CAPEX breakdown for 2014-2022 (excl. potential M&A’s) Annual CAPEX 2009 – 2015
Generation 8% Trade and PLNbn Storage 8,0 10% 7,5
7,0 CAPEX until Exploration and 2022: Production 54% PLN 40-50bn 6,0 Distribution 28% 4,7 5,0 4,5
3,8 3,9 4,0 Includes 3,3 3,3 PLN 3bn for 3,0 CAPEX breakdown for 2016 acquisition of PGNiG Termika 2,0
Generation 15% 1,0 Trade and Storage Exploration and 0,0 6% 2009 2010 2011 2012 2013 2014 2015 Production CAPEX in 2016: 42% PLN 3.3bn
Distribution 36%
25 Debt and sources of financing
Sources of funding (as at September 30th 2016) Dividend per share
PLNm PLN 10 000 0,30 available used
8 000 0,20
6 000 0,10
8,400 4 000 0,00 2,000 3,020 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2 000 Up to 50% of consolidated net profit to 370 2,500 be paid as dividend in 2015−2022 290 1,000 1,200 2,160 0 (provided that the financial situation is Underwritten bonds Domestic bonds BGK programme (2024) Reserve Based Loan (2022) Eurobonds (programm valid (programmes valid until 2019- (2017) until 2016; emission valid until stable, financing sources for 2022) 2017) investment projects are secured and PGNiG SA receives dividends from subsidiaries for a given year)
Debt as at end of quarter Comment: PLNbn 10 Available financing programmes for PLN Debt Net debt 15bn, including PLN 10bn underwritten. 7.3 8 In August 2015, PGNiG Upstream 6.4 6.4 6.4 6.4 6.4 5.8 International signed a new reserve based 5.4 5.2 6 loan agreement, with loan amount raised to USD 400m. This increased the scale of 4 self-financing of PUI and the financing 3.4 1.6 capacity of the PGNiG Group. The loan is a 2 2.9 0.1 0.8 seven-year revolving facility with a grace
0 period of 30 months. 0.7 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 -0.2 -2 -1.9 -1.7
26 Appendix
27 Financial highlights – 2015
[PLNm] 2014 2015 % EBITDA down 4%, with oil and gas prices declining Revenue 34,304 36,464 6%
Operating expenses (excl. D&A) (27,959) (30,384) 9%
EBITDA 6,345 6,080 (4%)
Depreciation and amortisation expense (2,502) (2,790) 12%
EBIT 3,843 3,290 (14%)
Net finance income/(costs) (346) (225) (35%)
Net profit 2,822 2,136 (24%) PGNiG stock price in 2015 PLN Revenue from E gas sales up PLN 2.8bn, to Net impairment losses, provisions and dry 8 PLN 28.5bn in 2015, with sales volume up wells and seismics written off at PLN -1,062m 4.3 bcm year on year, to 21.7 bcm, driven by in 2015, compared with PLN -1,513m in 2014 the exchange sale requirement. (change: +451m PLN). 7 Revenue from sales of crude oil and Depreciation/amortisation charge up PLN
condensate down PLN 709m, with sales 288m year on year on higher sales volumes 6 volumes up 222 thousand tonnes year on in Norway (units-of-production method) and year (consolidation of assets acquired from placement in service of the Wierzchowice Total on the Norwegian Continental Shelf as underground storage facility. 5 of Q1 2015). Income tax up PLN 74m, with effective tax Cost of gas sold up PLN 3.3bn, to PLN 22bn rate up from 22% to 29% (effect of tax 4 in 2015 (exchange sale requirement), with a settlements in Norway). decrease in costs reported by PGNiG SA. Separate net profit of PGNiG SA in 2015: PGNiG WIG20 3 PLN 1.5bn vs PLN 1.9bn in 2014. 2015-01-02 2015-03-30 2015-06-26 2015-09-18 2015-12-14
28 Financial highlights Q1−Q3 2016
[PLNm] Q1-3 2015 Q1-3 2016 % Major impact of falling Revenue 26,695 23,050 (14%) commodity prices on operating performance Operating expenses (excl. D&A) (21,386) (18,781) (12%)
EBITDA 5,309 4,269 (20%)
EBITDA adjusted* 5,458 4,983 (9%)
Depreciation and amortisation (2,073) (1,956) (6%)
EBIT 3,236 2,313 (29%)
Net finance income/(costs) (155) (14) (91%)
Net profit 2,157 1,628 (25%) Performance of the PGNiG stock in Q1−3 2016 PLN Revenue from high-methane (E) gas sales Significant impact of non-current assets 5,8 down PLN 3.8bn yoy (PLN 17.3bn in 9M impairment loss in Q1-3 2016 and Q1-3 2016), with stable sales volumes yoy, at over 2015: PLN -714m and PLN -149m, 5,6 16 bcm. respectively. Adjusted EBITDA fall down by 5,4 Revenue from crude oil and condensate 9% yoy. sales down PLN 422m in 9M 2016, with sales PLN 93m net foreign exchange gains on the 5,2 volumes also down yoy, to 1,021 thousand USD-denominated reserve based loan in 9M 5 tonnes. 2016 vs PLN 52m net foreign exchange Cost of gas sold down 19%, or PLN 3.0bn losses in 9M 2015. 4,8 year on year. Equity method accounting for interest in PGG 4,6 Depreciation/amortisation charges in Norway had an effect of reducing net profit by PLN down PLN 165m yoy on re-evaluation of 60m. 4,4 Skarv reserves at the end of 2015. PGNiG WIG20 4,2 01'16 02'16 03'16 04'16 05'16 06'16 07'16 08'16 09'16
* EBITDA adjusted for non-current assets impairment loss. 29 Performance drivers
Yoy appreciation of USD In Q3 2016, 9-month average Marked impact of recent of crude oil prices down 36% yoy and EUR against PLN periods' tariff reductions on PLN USD/bbl 4,5 120 4.34 gas selling prices; average 4.19 regulated price down 15% 100 yoy and 4% qoq in Q3 2016 4,0 +3.6% 3.89 80 3.77 64 -36% +3.3% 60 -9% 3,5 50 46
40 41 Quarterly average USD/PLN exchange rate 3M moving average of Brent oil price in USD Quarterly average EUR/PLN exchange rate 9M moving average of oil price in USD 3,0 20 04'15 06'15 09'15 12'15 03'16 06'16 09'16 04'14 06'14 09'14 12'14 03'15 06'15 09'15 12'15 03'16 06'16 09'16
Comments: Price in the chart is calculated on the Average tariff price of gas fuel in Poland and gas price on the PPE combined tariff-price sales of PGNiG SA and PGNiG OD to customers in Poland. It PLN/MWh 117 120 115 excludes transactions on the Polish Power 112 Exchange, discounts, and gas sold directly 110 106 105 102 from the fields. 100 94 The largest volumes of gas were traded on 90 90 the PPE and other gas exchanges under contracts with maturities of a quarter, season 80 (summer/winter) and gas year, 70 with the spot market playing a
60 complementary role in gas trading.
50 PPE (day ahead market) PGNiG Group's average tariff price of gas fuel in Poland 40 01'14 02'14 04'14 05'14 07'14 08'14 09'14 11'14 12'14 02'15 03'15 05'15 06'15 08'15 09'15 11'15 12'15 02'16 03'16 05'16 06'16 08'16 09'16
30 Efficiency Improvement Programme – almost PLN 1bn in savings by 2017 Programme objectives: The Programme aims to To set efficiency improvement targets for the individual segments and entities within the permanently reduce the PGNiG Group and to define related benefits to quality improvement. manageable cost base across To define the scope of action and to assign specific tasks to individual business segments core PGNiG Group segments based on identified areas for improvement. To implement initiatives designed to improve the PGNiG Group's operating efficiency by the end of 2017.
Operating expenses covered by the EIP
Manageable OPEX – PLN 177m in savings generated in Q1−Q3 2016 PLN 5bn
PLNm Key cost items (excluding 1200 PPE): Planned gains (accumulated) Total OPEX • Gas purchase costs Achieved gains (accumulated) PLN 29bn in 1000 • Other fuel purchase +7% 2013 costs
800 • Transmission service costs +5% 600 Other OPEX − PLN • Depreciation and 24bn amortisation 979 400 835 789 571 612 200 260 275 0 2014 2015 2016 2017
31 Gas transport routes
Interconnections Northern Gate Project
POLAND – LITHUANIA (1.7/2.4 bcm, 2021) LNG TERMINAL (I stage - 5 bcm)
POLAND – NORWAY TIETIEROWKA (3-10 bcm) (0.2 bcm)
YAMAL pipeline Włocławek YAMAL pipeline (reverse flow : 8.5 bcm Lwówek (32.3 bcm) technical capacity) Fixed or interruptible WYSOKOJE 8.5 bcm from Jan. 2015 (5.5 bcm)
HRUBIESZÓW LASÓW (0.3 bcm) (1.5 bcm) POLAND – UKRAINE POLAND – CZECH REP. (7/8 bcm) (6.5/5 bcm, 2018/2019) DROZDOWICZE GAZ-MORAVIA (5.7 bcm) Southern Interconnector (0.5 bcm) POLAND – SLOVAKIA (5.7/4.7 bcm, 2019)
Existing interconnections LNG TERMINAL
Planned or under construction connections (capacity to / from Polish gas system)
32 Trade and Storage
PGNiG Group (PGNiG SA, PGNiG Retail, PGNiG Supply&Trading) UGS Capacity: 2005-2015: +1,5 bcm – gas sales volumes by customer group Existing UGS CUGS In development bcm Kosakowo Current/target capacity
UGS 119/250 UGS Exports 0,19 Daszewo Swarzów 90 Polish Power 5,69 30 Exchange (TGE) 6,30 1,66 1,95 Refineries and 0,95 petrochemical 1,01 Power plants 0,83 and heat plants 0,69 UGS Nitrogen plants 1,32 1,42 Bonikowo 200 Trade, services, 1,20 other 1,07 Other industrial 2,21 customers 1,66 Q1-3'15 Households 2,55 Q1-3'16 2,65
0,0 2,0 4,0 6,0 8,0 UGS Husów 500 UGS Strachocina Margin on gas fuel (high-methane gas) 360
12% UGS Wierzchowice CUGS Mogilno UGS Brzeźnica 1200 601/800 100 10% Accumulated Quarter 10% 8% 8% Current no. of storage facilities: 9 (in salt caverns: 2) 8% 7% 7% 7% Current capacity approx. 3.2 bcm 6% 5% 5% 6% Planned increased capacity for 2016: CUGS Kosakowo +25 mcm 9% 9% 4% 8% Required strategic gas reserves: 30 days (of daily average import) 8% 7% 7% 7% 6% 6% 2%
0% Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16
33 Changes on the Polish gas market
Gas sales volume (mcm) 2014 2015 Q1-3 2016 Gas market deregulation is affecting PGNiG's share in imports and sales structure Total PGNiG Group 18,609 23,000 16,993
Comments: PGNiG SA 13,641 13,228 10,061 Since August 1st 2014, the PGNiG Group's gas sales volumes have included both PGNiG SA's including PGNiG SA through PPE 3,742 8,089 6,141 sales through the exchange and PGNiG Retail's sales to end customers and on the exchange. PGNiG Retail 3,209 7,502 4,959 PGNiG Retail's sales include nitrogen-rich gas, presented in the table as Group E gas equivalent.
* Notes: The chart presents PGNiG SA's share in gas flowing into Poland through OGP Gaz-System's PGNiG's share in gas imports to Poland* entry points (excluding transit volumes via the Yamal pipeline and including volumes for export), monthly data. The increase of PGNiG's 100% share in imports observed in Q1 2016 caused
mainly by reduced exports to Ukraine.
80% Data in the chart do not show PGNiG SA's share in the Polish gas market. 60% They have been sourced from reports published by OGP Gaz-System on the volumes
40% of gas flowing through interconnectors.
09.2015: 88% 09.2015: 09.2016: 87% 09.2016:
20%
0% 01'13 04'13 06'13 09'13 12'13 03'14 06'14 09'14 12'14 03'15 06'15 09'15 12'15 03'16 06'16 09'16
* PGNiG SA's share in gas flowing into Poland through OGP Gaz-System's entry points (excluding transit volumes via the Yamal pipeline and including volumes for export), monthly data 34 Tariff Model in Poland
Type of activity Regulatory mechanism Monthly average gas prices in European import contracts and PGNiG tariff price
PLN / ths. cm Direct sales None 2000
Gas sales Cost of gas + operating costs + margin 1600 PGNiG Retail’s cost base including cost of gas on Retail PPE 1200 Including cost of imports + cost of production (with Wholesale return on capital invested in E&P) 800 Storage Cost + return on capital (6.0% WACC x PLN 3.7bn
(until March 2017) RAB) 400 Distribution Cost + return on capital (7.2% WACC x PLN 11.9bn BAFA price Russian gas at German border (until December 2016) RAB) – 150m gap PGNiG Selling Price (Industrial tariff) 0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Gas tariff set on blended cost of gas: Levels of obligatory trading on Polish Power Exchange Less costly domestic production supports imports
Import cost Loss on import 30% 40% 55% Sales max Profit: difference price between sales price and cost of production In 2013 From January 1, 2014 From January 1, 2015
Cost of import Liberalization of gas market in Poland is being implemented, based on obligatory trading on gas exchange in Warsaw and gradual removal of Cost of domestic production tariffs for certain segments of industrial customers.
Domestic production Import
35 Statement of financial position, statement of cash flows, financial ratios and headcount
PGNiG Group's statement of financial Headcount (at year end) position (as at September 30th 2016)
thousand PLNm 40 60 000 Non-current Current Equity 33,1 50 000 32,3 31,2 11 655 2,2 29,3 40 000 30 2,3 2,0 1,1 1,1 1,6 25,7 31 166 1,1 30 000 13,9 1,3 13,3 1,1 20 000 13,1 12,2 37 168 20 9 239 10,7 10 000 5,0 8 418 4,7 0 4,4 4,2 Assets Equity and liabilities 10 3,7 12,1 Profitability and liquidity ratios 11,0 10,8 10,2 8,9 ROE ROA 0 11% Dec 31 2011 Dec 31 2012 Dec 31 2013 Dec 31 2014 Dec 31 2015 9,4% 8,2% Other segments Generation Distribution Trade and Storage Exploration and Production 8% 6,6% 6,7% 6,9% 5,8% 4,3% 4,7% 4,3% 5% 4,0%
st th 2% Consolidated cash flows (Jan 1 −Sep 30 2016) 2011 2012 2013 2 014 2015
PLNm 12 000 3 2,5 Current ratio 2,2 10 000 +700 -216 Quick ratio +1,956 -455 -2,664 2 1,6 1,2 2,1 8 000 0,9 +2,167 1,6 1 -1,949 1,1 6 000 0,9 0,7 0 4 000 2011 2012 2013 2 014 2015 6,238 5,561 2 000
0 Cash (Jan 1 Profit before tax Depreciation and Income tax paid Other Working capital Investing CF Financing CF Cash (Sep 30 2016) amortisation adjustments movements 2016) expense 36 Production and sales volumes
NATURAL GAS PRODUCTION, PGNiG Group (mcm) Q3 2016 Q2 2016 Q1 2016 FY 2015 Q4 2015 Q3 2015 Q2 2015 Q1 2015 FY 2014 Q4 2014 Q3 2014 Q2 2014 Q1 2014 HIGH-METHANE GAS (E) 450 487 509 2,031 508 515 507 501 1 876 440 475 482 479 including in Poland 346 349 359 1,458 369 359 362 367 1 457 368 361 362 367 including in Norway 104 138 150 573 138 156 145 134 419 73 114 120 112 NITROGEN-RICH GAS (Ls/Lw as E equiv.) 582 596 670 2,599 691 622 602 684 2 627 692 582 650 704 including in Poland 570 584 657 2,547 677 610 589 671 2 569 677 567 636 690 including in Pakistan 12 13 13 52 13 12 13 13 58 14 15 15 14 TOTAL (measured as E equivalent) 1,032 1,083 1,179 4,629 1,198 1,137 1,109 1,185 4,503 1,132 1,057 1,132 1,182 Total production in kboe/d 72 77 84 81 84 80 79 83 80 79 74 80 85
NATURAL GAS SALES, PGNiG Group (mcm) HIGH-METHANE GAS (E) 4,027 4,439 7,572 21,665 6,151 3,674 4,521 7,320 17,358 6,470 3,284 3,078 4,526 including PST sales outside PGNiG Group 614 571 764 2,271 608 639 502 522 1,760 488 363 444 465 NITROGEN-RICH GAS (Ls/Lw as E equiv.) 244 299 413 1,335 390 262 282 401 1,252 334 272 271 375 TOTAL (measured as E equivalent) 4,270 4,738 7,986 23,000 6,541 3,936 4,803 7,721 18,609 6,804 3,556 3,349 4,900 including sales directly from the fields 4,027 189 230 764 201 176 175 212 800 205 177 180 238
GAS IMPORTS by PGNiG SA (mcm) Total 3,020 2,837 2,704 9,330 1,863 2,398 2,495 2,574 9,700 2,423 2,143 2,594 2,541 including: sources east of Poland 2,429 2,623 2,657 8,155 1,774 2,329 2,219 1,833 8,097 1,751 1,805 2,515 2,026 including: LNG 384 210
CRUDE OIL, PGNiG Group (thousand tonnes) Production of crude oil and condensate 298 328 348 1,428 358 367 317 386 1,207 271 304 310 322 including in Poland 177 176 203 765 207 204 147 207 789 214 188 184 203 including in Norway 121 152 145 664 151 163 170 180 418 57 116 126 119 Total production in kbbl/d 24 26 28 29 29 29 26 31 24 22 24 25 26
Sales of crude oil and condensate 287 336 398 1,391 315 356 372 348 1,169 249 262 373 287 including in Poland 179 172 205 772 211 196 148 217 780 213 181 185 201 including in Norway 108 164 193 619 104 160 224 131 389 36 81 188 85
GENERATION Production of heat, net (sales) (TJ) 2,969 5,309 16,152 36,209 12,643 2,701 5,810 15,055 36,617 12,980 2,867 5,336 15,434 Production of electricity, net, secondary generation (for sale) (GWh) 418 590 1,390 3,487 1,136 328 674 1,349 3,555 1,132 386 648 1,390
37 Glossary
2P Proven reserves of fossil fuels bbl barrel
BGK Bank Gospodarstwa Krajowego boe / mmboe Barrel of oil equivalent / Million barrel of oil equivalent (one barrel is approx. 0.136 tonnes)
CAGR Compound annual growth rate
CAPEX Capital expenses cm / bcm cubic meters / billion cubic meters
D&A Depreciation and Amortization
DCF Discounted cash flow
EBIT Earnings before interest and taxes
EBITDA Earnings before interest, taxes, depreciation and amortization
EIP Efficiency Improvement Programme
JV Joint Venture
OPEX Operating expenses
PPE Polish Power Exchange
PSG Polska Spółka Gazownictwa
PST PGNiG Supply & Trading GmbH
PUI PGNiG Upstream International
RAB Regulatory Asset Base
UGS / CUGS Underground Gas Storage facility / Cavern Underground Gas Storage facility
WIG 20 Capitalization-weighted stock market index of the twenty largest companies on the Warsaw Stock Exchange
WSE Warsaw Stock Exchange
38 Contact information
Aleksandra Dobosiewicz More information IR Manager Desk: +48 22 589 46 71 Mobile:+48 665 004 847 Fax: +48 22 691 81 23 E-mail: aleksandra.dobosiewicz@pgnig.pl
Weronika Zając IR Specialist Desk: +48 22 589 46 51 Mobile:+48 885 888 870 Fax: +48 22 691 81 23 E-mail: [email protected]
Marcin Piechota Senior IR Specialist Desk: +48 22 589 43 22 Mobile:+48 885 889 890 Investor Relations website: Fax: +48 22 691 81 23 www.ri.pgnig.pl E-mail: [email protected]
Polskie Górnictwo Naftowe i Gazownictwo S.A. M. Kasprzaka 25 01-224 Warsaw www.pgnig.pl
Disclaimer All opinions, assessments and forecasts contained in this presentation (Presentation) are prepared by Polskie Górnictwo Naftowe i Gazownictwo S.A. (PGNiG) on the basis of publicly available information. The information contained in the Presentation may be changed without prior notice, may be incomplete or shortened and may not contain all relevant information regarding the proposed transaction. The information contained in this Presentation shall not constitute an investment offer, an investment recommendation or an offer to provide any service. The Presentation includes also information and statements that are related to the future and not past events. Any such forward looking statements are based on assumptions and expectations of PGNiG, but due to their future and uncertain character they bear the risk that the actual future facts or events may differ significantly from such forward looking statements included in the Presentation. The Presentation should not be relied upon when making any decisions or taking any actions. For more information concerning PGNiG please refer to its current and periodic reports. PGNiG shall not be liable for the accuracy, completeness or the use of the information provided in the Presentation and does not undertake to update it. The information contained in this Presentation does not constitute legal advice or other professional advice.
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