Polish Oil and Gas Company
Company Overview
November 2018 Agenda 1. PGNiG Group & Polish Gas Market
2. PGNiG Segments
Exploration and Production
Trade and Storage
Distribution
Generation
3. Strategy, CAPEX
4. Appendix Agenda
PGNiG Group and Polish Gas Market Poland’s no.1 integrated group in the oil and gas sector
4 3rd biggest Polish company on the Warsaw Stock Exchange**
The share price of PGNiG and WIG20 from January 2012 together with the rate of return Listed on WSE since September 2005 PLN rate of return 8,0 PGNiG WIG20 (relative rate) *** 80% Market cap, of PLN 37.5bn 7,0 (EUR 8.7bn, USD 10bn)* 60% 6,0 Significant share in WIG 20 40% based on number of shares in 5,0 20% the index: 4.19% 4,0 0%
3,0 -20%
2,0 -40% Q1'12 Q3'12 Q1'13 Q4'13 Q2'14 Q1'15 Q3'15 Q1'16 Q4'16 Q2'17 Q1'18 Q3'18 Market cap. of PGNiG from January 2017 together with the largest companies on the WSE
PGNIG PKN Orlen PZU PKO BP PGE SAN PL PEKAO Shareholders (as at September 30, 2018)
PLN bn 55 Free Float 28.12% PKO BP 49.3 Average daily 45 PKN Orlen 44.7 turnover in 9M 2018:
PGNiG 37.5 PLN 22.4m State Treasury PZU 35.6 35 71.88% SAN PL 35.3
PEKAO 27.4 25 PGE 22.4
15 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
* PGNiG = 6.49 PLN and EUR/PLN = 4.29; USD/PLN = 3.76 (as at November 22nd 2018) ** in terms of market cap as at November 22nd 2018 (without dividend) *** WIG20 quotation chart, taking into account relative changes in percentage in relation to the PGNiG exchange rate 5 Gas market in Poland: Low consumption with growth potential Natural gas sales by sector in the world Natural gas consumption by country in 2016 in 2016
bcm 90 2016 80,5 Non-combusted 5% 80
70 64,5 Transport 1% 60 Buildings Inputs to 21% 50 power 39% 40 28,0 29,0 30 17,3 20 10,6 7,8 8,7 8,9 Industry 10 33%
0 Czech Republic Austria Hungary Romania Poland Spain Ukraine Italy Germany
Natural gas sales by sector by PGNiG in Poland in 2017 and 2016 Primary energy consumption by fuel in 2016 2017 Others 2% 100% Power Plants 5% 4% 12% 9% 16% Nuclear energy 10% 8% 80% 2016 Residential and 27% 43% Renewables Commercial 29% 37% 60% 40% Natural gas
40% 43% Oil Industry 51% 49% 20% Coal 17% 0% EU Poland Source: BP Statistical Review 2017, BP Energy Outlook 2018 / 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% 5 000 Oil 4 707 4 426 4 148 Asia Pacific 4 000 3 861 30% 3 534 Africa Coal Oil 27% 3 204 Gas 26% 3 000 2 874 Middle East Gas Coal 21% 2 499 20% Europe & Eurasia 2 182 1 920 S & C America 2 000 1 767 Renewables 14% North America 10% 1 000 Hydro Hydro 7% Nuclear Nuclear 5%
Renewables 0% 0 1990 1995 2000 2005 2010 2016 2020 2025 2030 2035 2040 1990 1995 2000 2005 2010 2016 2020 2025 2030 2035 2040
Annual LNG supply by region Annual LNG demand by region m t m t 500 400 345 413 334 392 318 296 MENA* 400 361 North America 340 300 265 311 240 246 Latin America 279 284 Australia 300 Asia (without JKT) Other 200
200 North America MENA*
100 Europe 100 South Asia
Japan/Korea Africa /Taiwan 0 0 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020
* Middle East-North Africa / Source: IHS, BP Energy Outlook 2018 7 Exploration & Production
Agenda Operating segments Trade & Storage of PGNiG Group
Distribution
Generation PGNiG Group’s financials 2010-2017
PGNiG Group’s EBITDA** 5th biggest company in Central and Eastern Europe* PLNbn 7,5 6,6 3rd biggest oil company in the 6,4 6,0 5,6 6,1 region* 6,0 4,4 4,6 3,9 Stable EBITDA level due 3,1 2,4 2,2 4,5 3,5 3,4 to diversified inflows sources 1,2 2,0 0,6 0,6 3,0 1,0 0,8 1,9 0,5 0,2 2,3 2,6 2,5 1,5 2,0 2,3 1,7 1,6 1,6 0,7 0,8 0,8 0,0 -0,1 0,5 0,5 0,5 -0,4 2010 2011 2012 2013 2014 2015 2016*** 2017 -1,5 Heat and Power Generation Distribution Trade and Storage Expoloration and Production
EBITDA breakdown
PGNiG Group’s revenue and net profit 2017 Trade & Storage -7% PLNbn Expoloration & 40 36,46 Revenue 35,86 Production 10% 34,30 33,20 59% 35 32,12 2016
28,73 43% 30 37% 23,00 25 21,28 13% Distribution 20 38%
15 Generation 13% 10 Other segments’ contribution to EBITDA in 2017: -3%; in 2016: -3% 2,82 Net profit 2,92 5 2,46 1,63 2,23 1,92 2,14 2,35
0 2010 2011 2012 2013 2014 2015 2016 2017
* Source: TOP 500 CEE 2018 / ** EBITDA 2010-2015 before intra-group eliminations and excluding „Other segments” *** restated, -0.2 PLNbn of other segments not presented on chart 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 38,8 38,9 39,2 39,1 37,6 37,9 40 Average daily production – over 4,9 2,1 3,1 4,2 3,5 3,9 3,4 30,9 31,3 31,4 114,000 boe*** 6,0 5,8 5,6 5,9 6,1 6,4 6,1 30 3,4 3,6 3,7 2,4 PGNiG’s resource base 3,1 4,0 3,7 4,5 4,5 4,5 in Poland**: 20 proved gas reserves 527 mm boe 27,2 27,9 27,8 27,2 (81.8 bcm) 26,0 25,8 25,0 24,8 24,5 25,1 10 proved oil reserves 133 mm boe (17.2 m tonnes) 0 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F Natural gas Poland Natural gas Abroad Crude oil and condensate Poland Crude oil and condensate Abroad Oil & Gas concessions in Poland**: 21 exploration/appraisal Reserves of natural gas and crude oil 25 combined licences 1 „suspended” due to incomplete mm boe Crude oil/NGL/Condensate Gas 1 000 transformation procedure 854 860 847 805 796 795 204 production 768 770 800
600 Exploration & Production 680 685 675 643 622 589 609 632 activities: 400 54 production facilities in Poland over 2 thousand producing wells 200
174 175 172 162 174 179 161 163 0 2010 2011 2012 2013 2014 2015 2016 2017
* High-methane gas equivalent; ** As at June 30th 2018; *** As at December 31st 2017 10 100 120 140 Exploration 0,0 1,0 2,0 3,0 4,0 Explorationand Average 20 40 60 80 0 USD/ Q1 PLNbn 77 * restated Q2 79 bbl 2010 2010 1,2 Q3 76 prices Q4 87 105 Q1 of of 117 Q2 Production’s 2011 2011 crude 1,9 113 Q3 109 Q4 119 Q1 oil 109 Q2 2012 110 Q3 2012 EBITDA 2,0 110 Q4 & 113 Q1 103 Q2 2013 Production 110 Q3 2013 3,4 109 Q4 108 Q1 110 Q2 2014 102 Q3 2014 Q4 3,1 76 Q1 54 Q2 62 2015 Q3 50 Q4 43 2015 2,4 Q1 35 Q2 46 2016 financial Q3 46 v Q4 50 2016* 2,2 Q1 54 Q2 50 2017 Q3 52 Q4 61 Q1 2017 67 3,9 2018 Q2 75 Q3 75 results Segment’s Segment’s PLNm PLNm from gas from sales recorded theby PLN condensate up PLN 299m Revenue sold an increase in the volumes of oil higher prices of oil and gas Revenue Revenue Revenue 1 271 +46% 5 289 +16% 291m (+37%) 291m
1 854 6 118 in Q3 2018 vsQ3 2017. results results from sales from of crude and oil Operating expenses Operating expenses growth driven by -
731 4 151 20% for for 732 3 314 for yoy Q3 Q3 2018 vs Q3 2017 FY2017 vs FY2016* increase inincrease revenue EBITDA EBITDA +75% 798 +72% 2 206 yoy 1 376
3 865 . segment +146% +108% EBIT 540 EBIT 1 138 and
1 123 2 805 . 11 International E&P activities – Norway
Licenses 20
USD 360m (Skarv) Licence cost NOK 1.95bn (Morvin, Vale, Vilje, Gina Krog)
Skarv CAPEX (PGNiG’s part) approx. USD 800m
55 mm boe (Skarv, Snadd) Reserves of the licence (2P) for PGNiG 28 mm boe (Morvin, Vale, Vilje, Gina Krog, Ærfugl, Skogul)
Production in Norway In H2 2018, on the Norwegian Continental Shelf, PGNiG UN, as a project mm boe Crude oil Natural gas partner, will continue to produce hydrocarbons from the Skarv, Morvin, 9,0 8,6 Vilje, Vale, and Gina Krog fields and will proceed with the development of 8,0 7,4 7,0 7,0 the Skogul and Ærfugl fields. 7,0 5,8 5,9 On October 18th 2018 PGNiG Upstream Norway AS signs agreement to 4,9 6,0 purchase 30% interest in license PL044 from Equinor Energy AS what is 4,1 3,4 5,0 4,3 3,8 equivalent to 42.38% interest in the Tommeliten Alpha field. The aggregate 4,0 3,1 3,3 resources corresponding to the interest purchased by PUN amount to approx. 52 mboe. The purchase price of the interest is USD 220 million 3,0 2,1
2,0 3,7 PGNiG also prepares a development plan for the Fogelberg field. 3,3 3,5 3,2 2,7 2,6 1,0 2,2
0,0 2013 2014 2015 2016 2017 2018F 2019F
12 International E&P activities – Pakistan and other
Assets: Pakistan Other foreign activity in 2017
Seismic works: Acquisitions of seismic data: Algeria, Austria, Croatia, Colombia, Myanmar, Tunisia, Egypt, Germany. Processing and interpretation of seismic data: Algeria, Austria, Spain, Iran, Yemen, Norway, Pakistan, Switzerland and Morocco.
Licence Kirthar Drilling works: Main drilling areas: Pakistan, Kazakhstan, Ukraine agreement May 18th 2005 Libya shares PGNiG 70%, Pakistan Petroleum 30% Since 2008, one license for mining (LC113). area 956 sq km In mid-2014, a force majeure notification. location Sindh province, folded belt Kirthar In 2017 and 2018, activities limiting the impact of force majeure and verification of obligations 2 wells, 100 km 2D (fulfilled) the prospects of the license. 14.2 bcm of natural gas estimated reserves (10.5 bcm Rehman, 3.7 bcm Rizq)
In the first half of 2018, appraisal and production operations included brining the Rizq-2 well on stream and completing the drilling work on the Rehman-4 production well and start drilling of the Roshan-1 exploration well. Another Rehman–5 production well is planned to be drilled in the second half of 2018. Concurrently, drilling work will commence on further production wells (Rizq-3 and Rehman-6). In addition, 2D and 3D seismic work will start on the Roshan-1 field.
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 bcm wholesale markets, sales and trading of electricity 20 17,5 storage of gas 15,4 15,2 15,3 15,0 16 1,7 14,3 13,7 1,0 1,6 2,0 13,3 2,3 Polish market growth: CAGR +2.7% 2005-2017 1,0 2,1 0,3 1,6 1,2 Contract for natural gas deliveries with Gazprom 12 9,0 9,3 9,0 10,2 9,7 („Yamal contract”) until 2022: 8 8,7 8,1 8,2 10.2 bcm annually, 85% Take-or-Pay 4
Contract for LNG with Qatargas until 2034: 4,2 4,3 4,3 4,2 4,0 4,0 3,9 3,8 0 1.3 bcm annually, 100% Take-or-Pay. Deliveries since June 2016 2010 2011 2012 2013 2014 2015 2016 2017
side agreement (the total volume will increase to 2.7 bcm per annum, LNG Western/Southern direction Eastern direction Domestic production in 2018-2020 volume will be increased to 2.9 bcm) LNG Portfolio of PGNiG Group Contract for LNG with Cheniere until 2042: bcm 12 0.73 bcm in the period of 2019-2022 10 1.95 bcm annualy in the period of 2023-2042 Contracts for LNG with Venture Global until 2043: 8 FOB 1.35 bcm annually. Deliveries since 2022 (at the earliest) 6 2.2 bcm of gas sold by PGNiG Supply & Trading to 4
customers outside of Poland in 2017 2 DES
Tariffs: 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Gas sales: Cost of gas + operating costs + margin Qatargas Centrica Cheniere Spot transactions Venture Global LNG Port Arthur LNG (HOA) Retail: PGNiG Retail’s cost base including cost of gas on the commodity exchange Storage: Cost + return on capital (6.0% WACC x PLN 3.6bn RAB) (until March 2019) 14 Trade & Storage’s financial results
Trade and Storage’s EBITDA Segment performance PLNbn 1,2 affected by increasing market
1,0 prices of gas and crude oil in 1,0 0,8 Q3 2018 vs Q3 2017. 0,8 Revenue from gas sales up PLN 1,261m yoy 0,6 0,6 0,6 0,5 (to PLN 5.1bn in Q3 2018). Higher cost of gas in the segment due to 0,4 rising prices of crude oil and natural gas. 0,2 0,2 Segment’s results for FY 2017 vs FY 2016* 0,0 PLNm -0,1 +8% +12% -171% -258% -0,2 -0,4
-0,4
31 135 31
30 495 30 28 28 180
2010 2011 2012 2013 2014 2015 2016* 2017 27 775
640
435
-
- 614 * restated 405
Revenue Operating EBITDA EBIT expenses Segment’s results for Q3 2018 vs Q3 2017 Sales of natural gas of PGNiG SA, PGNiG Retail and PST Data restated for comparability in connection with the bcm application of the new IFRS 9 and IFRS 15 Financial 30 26,8 Reporting Standard with effect from 1 January 2018 24,7 PLNm 25 23,0 2,2 +29% +31% -68% -56% 2,5 18,7 2,3
20 8,5 6 068 5 5 552
16,2 4 625 1,8 9,1 4 294 8,3 15 1,4 3,7
0,1
331
280
516
- 469
7,5 -
- - 8,6 10 7,7 6,9 Revenue Operating 7,3 EBITDA EBIT expenses 5 8,6 6,2 5,5 5,1 6,1 0 2013 2014 2015 2016 2017 PGNiG Supply & Trading Polish Power Exchange Retail Wholesale
15 15 Distribution
Stable network’s growth and increase of distributed volumes (+3.4% CAGR 2005-2017) The owner of approximately
thou. km bcm 96% of Poland’s distribution 220,0 13 network and nearly 99% of the 11,6 210,0 12 10,9 gas service lines. 200,0 11 9,9 10,1 190,0 9,6 9,8 9,5 10 Transports natural gas from gas 180,0 183 9 sellers to households, industrial 180 170,0 177 173 8 and wholesale customers. 160,0 7 150,0 Responsible for operation, 6 140,0 148 150 maintenance and development 130,0 140 5 of gas pipelines. 120,0 4 '11 '12 '13 '14 '15 '16 '17 Segment comprises of Polska Distribution network with service lines(lhs, thou. km) Volume of distributed gas (rhs, bcm) Spółka Gazownictwa (PSG).
Coverage of distribution network Tariff: The new Tariff No. 6 approved by the President of the Energy Regulatory Office in January 2018 and has applied from March 1st 2018. Cost + return on capital (6.2% WACC x PLN 12.1bn RAB)
16 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 3,0 Segment’s Distribution’s PLNbn PLNbn 2010 2,3 2011 1,24 CAPEX EBITDA 2011 1,6 2012 1,14 2012 1,7 2013 1,34 financial 2013 1,6 2014 1,12 2014 2,0 2015 1,19 results 2015 2,3 2016 1,11 2016 2,6 2017 1,27 2017 2,5 Segment’s Segment’s Reporting with effect from Standard2018 1January newthe of application comparability for withDatarestatedthe connection in PLNm PLNm cum. of cum. EBITDA PLN 16bn 2016in PSG’s 2017 Q3 vs from bylower tariff and net revenue Segment’s Revenue Revenue 1 085 4 915 1 084 4 937 strategic balancing results results Operating Operating expenses expenses
732 +1% 3 280 +3% performance affected goal IFRS IFRS for for Q3 2018 vs Q3 2017 for for FY2017 vs FY2016 736 3 369 . is 9 and IFRS 15 Financial IFRS 15and9 in Q3 2018 2018 Q3 in to EBITDA EBITDA - generate
581 2 559 3% 579 2 493 - 2022. EBIT EBIT - -
353 2 1 635 4% % 347 1 568 17 Heat and Power Generation
Share on the domestic market *: Generation segment operating data heat power 10% volume of heat sales 11% Installed heat power 5.3 GWt Share on the Warsaw market: largest producer of heat and electricity in cogeneration Installed electric power 1.1 Gwe estimated coverage of total heat demand about 70% estimated total electricity demand around 65% heat supplied to the city network about 98%. Heat sales in Q3 2018 (regulated) 2.9 PJ Timeline: January 2012 – acquisition of 99.8% stake of Vattenfall Heat Poland Produced electricity sales in Q3 2018 0.5 TWh S.A. from Vattenfall AB for PLN 3bn in cash (PLN 3.5bn EV) Acquisition of 20.4% of the share capital of the Polish Mining Group as a result of the investment of PLN 800m Production of heat and own generation electricity
Expansion of heat and power generation and distribution: PJ TWh 44 43,0 4,0 April 2016: purchase from JSW SA of Przedsiębiorstwo Energetyki 3,9 Cieplnej („PEC”) for PLN 190m, including 14 local heat plants, 260 42 3,9 3,8 MW of total heat output 40,2 42,1 39,5 3,8 August 2016: purchase from JSW SA of Spółka Energetyczna 40 3,7 3,7 39,0 3,8 3,7 40,2 „Jastrzębie” („SEJ”) for PLN 327m, including 5 CHP, 130 MW of 3,7 38 3,7 3,6 electricity output, 540 MW of heat output 38,7 38,7 38,2 36,2 3,6 September 2017: The merger of PGNiG TERMIKA EP 36 3,6 3,6 (formerly SEJ) and PEC 36,6 3,5 3,5 Tariff: 34 3,4 Heat tariffs benchmarking scheme creates significant upside for 32 3,3 profitability as PGNiG Termika produces low-cost heat 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Heat production (left axis) Electricity production (right axis)
* Source: Thermal energy in numbers 2016 18 Generation’s 0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 Investments Generation’s Combined 4 PLNbn * 2010 97 2010* 0,44 - 2011 according to Polish accounting standards; 2012 standards; accounting to Polish according 2011 expenditure Polska (PLN 900 specialised A commercial 2016 An contractor In Total Agreement 50 MWe / survey 50 January m agreement , EBITDA power 450 JV loan aligning Energia, gas Heat PGNiG m 2011* 0,49 related of for . agreement firm, operation 2016 output from - the fired Sale on ECSW’s and responsible totalling and : each to : project’s key cancellation 450 of the block Tauron and Electricity 2012 0,47 Power between preconditions lender MWe improper existing PLN current status for Polska in ) and financial for 600 . - supporting of 2013 data before data intercompany before 2013 Plant ECSW Warsaw PGNiG execution commercial market 240 2013 the 0,50 m, the ended Energia for and MWt refinancing contract with Stalowa to the conditions its in PLN supply of . at Bank project Total coordination 2016 the agreements 2014 0,46 Ż 300 and contract era of 0 CAPEX . Gospodarstwa eliminations . . 5 m Wola restructuring ECSW’s The impos bcm ń to results plant finance project . on 2015 of 0,70 PLN to ition (Q gas an debt the 4 1 EPCM ( of . for 6 20 will ECSW’s was Krajowego 2019 expected bn to penalties 14 20 PGNiG (project be 2016 0,76 signed basis years ) ) resumed further start . and and finance) for in October general date PGNiG Tauron 2017 capital 0,84 by of a Segment’s Segment’s PLNm PLNm vs Q3 2017. Q3 vs materials prices electricity higher volumes, sales electricity higher include segment’s performance Key Revenue Revenue + +
262 15% 2 195 3 % 302 2 251 the to contributors results results and Operating Operating expenses expenses + +
350 1 796 2018 Q3 in 3 2 % % higher cost of raw raw of cost higher 362 for 1 826 for Q3 Q3 2018 vs Q3 2017 FY2017 vs FY2016 EBITDA EBITDA 22 +55% 759 +11% 34 843 +31% EBIT EBIT -87 399 +7% -60 425 19 Strategy, CAPEX PGNiG Group Strategy for 2017-2022
The new PGNiG Group Strategy for 2017–2022 (extended until 2026)
#1Mission statement #2 Vision #3 Primary objective We are a responsible and effective We are a trustworthy supplier of energy Increasing the PGNiG Group's value and provider of innovative for households and businesses ensuring its financial stability energy solutions
Trustworthy Responsible Value growth
The customers can depend on premium We act transparently, in line with the Our primary ambition is to create added quality and reliability of our services principles of corporate social responsibility value for our shareholders and customers
Energy supplier Effective Financial stability Our customers are offered a full range of We have implemented process and cost We seek to secure long-term financial stability energy products (gas + electricity + heat + optimisation measures and creditworthiness other/services) Households and businesses Innovative solutions
We care for and value all our customers: We are an innovation leader in the energy households, businesses, and institutions sector
21 The Group’s key strategic objectives
Strategic objective competitive position while supporting the development and ensuring security of the gas market in Poland
PGNiG's strong Development of gas competitive position market in Poland
Securing new gas supply More rapid expansion of sources to strengthen the Group's distribution network in order to competitive position following expiry of Paramount enable more new customer the Yamal contract in 2022 objective connections and gas market growth
Production projects in Norway Expanding the upstream focused on increasing annual gas business in Poland to replenish output to ca. 2.5 bcm from 2022 Increase hydrocarbon reserves and to maintain onwards the PGNiG Group's high levels of production value and ensuring its financial Significant improvement of Participation in the Norwegian stability customer service quality through Corridor project to secure direct digitalisation of service channels and gas imports from Norway 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
22 Ambitions in the key business areas
1. Exploration and 2. Wholesale 3. Retail production Increase the base of documented Diversified gas supply portfolio after 2022 Maximising retail margins hydrocarbon reserves by 35% (to Increasing the overall volume of natural Maintaining the total volume of retail 1,208 mm boe in 2022) gas sales by 7% (to 178 TWh in 2022) gas sales at ca. 67-69 TWh/year Increase annual hydrocarbon Cumulative natural gas sales volume on production by 41% (to 55 mm boe in wholesale markets in Poland and abroad 2022) 1000 TWh
4. Storage 5. Distribution 6. Power and heat generation Securing access to storage More than 300 thousand new service Increase power and heat sales capacities adjusted to actual lines in 2017–2022 volumes by 20% (to 18 TWh in 2022) demand The annual growth rate in the number of Improve storage efficiency 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
23 CAPEX and EBITDA for 2017-2022
CAPEX breakdown for 2017-2022 EBITDA for 2017 – 2022
PLNbn PLNbn
Exploration 15 45% 9.2 & Production PLN 33.7bn cumulative EBITDA Distribution 10 29% Ambitious investment 5.6 Power programme: & Heat 5 13% long-term growth of the generation Group's EBITDA, particularly in 2023−2026 (at the annual Storage 0.3 1% & Trade average of ca. PLN 9.2bn)
Other growth Keeping debt at safe levels 4 12% projects 2017−2022 annual 2023−2026 annual (net debt/EBITDA below 2.0) average average Total more than 2017-2022 PLN 34bn
Annual average 5.7 2017–2022
Annual CAPEX 2012 – 2017 Almost half of CAPEX (45%) will be spent on
PLNbn Generation Distribution Trade & Storage Exploration & Production hydrocarbon exploration and production. 8,0 6,8 7,0 Average annual capital expenditure in 6,0 2017−2022 at ca. PLN 5.7bn. 5,0 3,2* 3,9 3,6 4,0 3,3 0,4 3,1 0,3 2,9 1,1 3,0 1,1 0,5 0,5 1,3 0,4 2,0 0,6 0,3 0,5 1,2 1,1 1,3 0,2 0,1 0,1 1,0 1,9 2,1 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
* Includes PLN 3bn for acquisition of PGNiG Termika 24 Appendix Q3 2018 financial highlights
Group’s EBITDA by segment in Q3 2017 vs Q3 2018 [PLNm] Q3 2017 Q3 2018 D%
PLNm Revenue 6,034* 7,595 +26% 1500 1376 1300 Operating expenses (excl. D&A) -4,955* -6,127 +24% 1100 900 798 EBITDA 1,079 1,469 +36% 700 581 579 500 Depreciation and amortisation -661 -643 -3% 300 100 22 34 EBIT 418 826 +98% -100 -42 -52 -300 -280 Net finance income/costs 22 -41 -3x -500 -469 Q3'17 Q3'18 Q3'17 Q3'18 Q3'17 Q3'18 Q3'17 Q3'18 Q3'17 Q3'18 Net profit 367 552 +50% E&P T&S Distribution Generation Other *Data restated to ensure comparability following the adoption of amended IFRS 15. Exploration and Production Revenue from sales of gas up PLN 291m (+37%) yoy, sales of crude and condensate up PLN 299m (+89%) yoy. PGNiG Group’s EBITDA in Q3 2017 vs Q3 2018** Cost of dry wells at PLN -165m, compared with PLN -54m in Q3 2017. PLNm 1 800 Trade and Storage 1 600 -189 Revenue from gas sales up +33% and cost of gas up 37% yoy chiefly 1 400 +578 driven by rising oil and gas prices. -2 +12 -9 1,469 1 200 Cost of transactions hedging revenue from gas sales at PLN -139m. 1 000 1,079 Effect of gas inventory write-downs higher by PLN -38m. In Q3 2017, gas 800 inventory write-down reversals of PLN +64m. 600
Distribution 400
A stable distribution volume and a -7% yoy drop in revenue from distribution 200 services. 0 Net revenue from system balancing up PLN +56m yoy. Q3 2017 E&P T&S Distribution Generation Other and Q3 2018 Eliminations Generation **Eliminations in Q3 2018: PLN +1m, Q3 2017: PLN 0m Volumes of electricity (produced from own sources) up +28% yoy, with higher prices and costs of coal.
26 Operating expenses in Q3 2018 vs Q3 2017
[PLNm] Q3 2017 Q3 2018 D% Comments: PLN 1,056m (+34%) yoy increase in the cost of gas Cost of gas sold -3,072 -4,129 +34% sold, due to higher prices of oil and gas.
Fuels for heat and power generation -77 -96 +25% Higher yoy cost of dry wells and seismic surveys (PLN -165m). Six dry wells written off in Q3 2018 vs three in Other raw materials and consumables used -450 -334 -26% Q3 2017 (PLN -54m). Other raw materials and consumables used down Employee benefits expense -589 -626 +6% PLN 116m (-26%) yoy, mainly due to lower costs of electricity for trading (down PLN 105m, or -33% yoy). Transmission services -247* -249 +1% Reversal of impairment loss on non-current assets of PLN +132m in Q3 2018 vs PLN +33m in Q3 2017. Other services -421* -463 +10% Depreciation and amortisation charges up yoy (Q3 LNG regasification services -90 -93 +3% 2018: PLN -661m, Q3 2017: PLN -643m). Lower other income/expenses in Q3 2018 yoy, due to, Taxes and charges -103 -108 +5% among other factors, a PLN -38m increase in gas inventory write-downs (vs a PLN +64m write-down Other net income and expenses** -200 -328 +64% reversal in Q3 2017) and recognition of the provision for energy efficiency buy-out price of PLN -17m, Change in inventory write-downs 16 -18 -2x compared with the provision of PLN -35m recognised Change in provisions -98 -25 -75% in Q3 2017. Net exchange differences related to operating Recognition and reversal of impairment losses on -13 -26 +2x activities: PLN -47m in Q3 2018 vs PLN +45m in Q3 property, plant and equipment and intangible assets 2017. Cost of dry wells and seismic surveys written-off -54 -165 +3x Net loss on derivative instruments charged to other expenses: PLN -65m in Q3 2018, vs net gain of PLN Impairment losses on non-current assets 33 132 +4x +30m in Q3 2017. Work performed by the entity and capitalised 219 232 +6%
Depreciation and amortisation -643 -661 +3%
Total operating expenses -5,616 -6,770 +21%
Operating expenses net of cost of gas sold -2,544 -2,641 +4%
* Data restated to ensure comparability following the adoption of amended IFRS 15. ** Other expenses shown above do not include taxes and charges, or impairment losses on property, plant and equipment and intangible assets. 27 Performance drivers
9-month average crude oil price PLN weaker yoy against USD and EUR Revenue up on rising up 32% yoy in Q3 2018 PLN USD/bbl hydrocarbon prices and 4,5 100 +1% higher gas sales volumes.
4.31 Rising unit cost of gas. 4.26 80 75.34 4,0
60 +2% 51.73 +46%
3,5 3.63 3.70 51.43 +32% 67.67 40
3,0 20 04'16 07'16 10'16 12'16 03'17 06'17 09'17 12'17 03'18 06'18 09'18 04'16 07'16 10'16 12'16 03'17 06'17 09'17 12'17 03'18 06'18 09'18
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
POLPX DAM gas prices and the average price of contracts weighted by volume Comments: Selling prices at POLPX: the largest volumes PLN/MWh of gas were traded on the POLPX and other POLPX (Day-Ahead Market) Volume-weighted average price of contracts traded on POLPX (by delivery date) gas exchanges under contracts with maturities of a quarter, season 160 (summer/winter) and year. These were complemented by monthly/weekly futures and spot contracts. The volume-weighted average price of 91.02 89.58 contracts traded on the POLPX for a given 81.25 83.96 78.72 quarter is calculated based on the prices of 80 76.36 76,70 83,79 81.16 81.48 contracts for delivery in that quarter. +19%
average price quoted average price quoted on DAMg in Q3 +52% on DAMg in Q3 2017: 74.03 2018: 112.21 40 04'16 06'16 09'16 12'16 03'17 06'17 09'17 12'17 03'18 06'18 09'18 2 Gas sales and imports structure
Imports of natural gas to Poland Gas sales outside the PGNiG Group by company A marked increase in the Q3 2018 share of LNG in Q3 2018 gas LNG 19% [mcm] Q3 2017 Q3 2018 D% imports.
PGNiG Group: 4,594 5,114 +11% Five gas tankers were Western and 14% southern direction unloaded in Q3 2018 under 10% 54% PGNiG SA 3,021 3,144 +4% the contract with Qatargas. Q3 2017 Group’s sales of gas 32% PGNiG OD 1,121 1,115 -1% broadly flat yoy. Increase in sales by PST (foreign PST 452 855 +89% operations). Eastern direction 71%
PGNiG Group’s gas sales volumes, gas inventory levels, and gas imports
bcm 12,5
9.9 10,0 8.8 8.0 7.3 7,5 5.4 5.4 5.1 4.6 5,0 4.3 Comments: 3.7 3.8 3.2 3.3 3.5 3.4 3.0 3.0 3.3 LNG terminal stocks: 70 mcm after regasification (as at September 30th 2018). 2,5 2.9 2.9 3.0 2.2 2.3 2.1 0.9 1.7 1.1 0,0 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
Gas inventory levels Volume of gas sold by PGNiG Group Volume of gas imported to Poland
29 Gas transport routes
Interconnections Northern Gate Project
POLAND – NORWAY (up to 10 bcm, 2022) POLAND – LITHUANIA (1.7/2.4 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 (30.7 bcm*) capacity up to do 6.1 bcm*) VYSOKOYE (5.5 bcm*)
GCP (1.5 bcm*) POLAND – UKRAINE (5 bcm, 2020)
POLAND – CZECH REP, DROZDOVITSE/ (6.5/5 bcm, 2019) HERMANOWICE CIESZYN, (4.4 bcm*) (0.5 bcm) POLAND – SLOVAKIA (5.7/4.7 bcm, 2020)
Existing interconnectors LNG TERMINAL Interconnectors planned, under construction (transmission capacity into/from Polish grid)
* Technical capacity 30 Gas trading and retail sales
Gas sold to key customers: above 25 mcm annually 4.4 bcm of gas sold in 2016 7.0 bcm of gas sold in 2017 Production Export 0.4 bcm in 2016 PGNiG S.A. 0.7 bcm in 2017 Direct sales Sources of gas 0.7 bcm in 2016 0.8 bcm in 2017 Polish Power Exchange 9.0 bcm in 2016 8.5 bcm in 2017
7.0m customers Polish Power Exchange PGNiG Obrót 7.2 bcm of gas consumed in 2016 (POLPX) Detaliczny 7.6 bcm of gas consumed in 2017
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.
31 Changes on the Polish gas market
Gas sales volume (mcm) 2014 2015 2016 2017 Gas market deregulation is affecting PGNiG's share in Total PGNiG Group 18.6 23.0 24.3 26.8 imports and sales structure PGNiG SA (without Pakistan) 13.8 13.2 14.5 16.9 Since August 1st 2014, the PGNiG Group's including PGNiG SA through PPE 3.7 8.1 9.0 8.4 gas sales volumes have included both PGNiG SA's sales through the exchange and PGNiG Obrót Detaliczny (Retail) 3.0 7.5 7.3 7.6 PGNiG OD's sales to end customers and on the exchange. 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- PGNiG's share in gas imports to Poland* System's entry points (excluding transit volumes via the Yamal pipeline and including 100% volumes for export), monthly data The increase of PGNiG's share in imports observed in Q1 2016 caused mainly by 80% reduced exports to Ukraine. Data in the chart do not show PGNiG SA's share in the Polish gas market,
60% %
They have been sourced from reports
91 93%
: : :
7 published by OGP Gaz-System on the
40% 1 volumes of gas flowing through Q3’18 Q3’ interconnectors.
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 12'16 03'17 06'17 09'17 12'17 03'18 06'18 09'18
32 Tariff Model in Poland
Type of activity Regulatory mechanism Monthly average gas prices in European import contracts and PGNiG tariff price Direct sales None PLN / ths. cm 2000 Gas sales Cost of gas + operating costs + margin 1600 PGNiG Retail’s cost base including cost of gas on Retail PPE Including cost of imports + cost of production (with 1200 Wholesale return on capital invested in E&P) Storage Cost + return on capital 800 (until March 2018) (6.0% WACC x PLN 3.6bn RAB) Distribution (set in 2018) Cost + return on capital 400 (6.2% WACC x PLN 12.1bn RAB) BAFA price Russian gas at German border PGNiG Selling Price (Industrial tariff) 0 Detariffication schedule for gas market in Poland Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Levels of obligatory trading on Polish Power Exchange
Until January 1 October 1 the end 2017 2017 of 2023 30% 40% 55% max Eliminating gas fuel Eliminating gas fuel Maintained the trading tariffs for trading tariffs for other obligation of providing wholesalers and end business customers tariffs for households. In 2013 From January 1, 2014 From January 1, 2015 customers purchasing (including both bigger gas fuel (i) at a virtual industrial companies gas trading point, (ii) in and small & medium Liberalization of gas market in Poland is being implemented, based on the form of LNG or CNG, enterprises). obligatory trading on gas exchange in Warsaw and gradual removal of and (iii) under tender, tariffs for certain segments of industrial customers. auction or public procurement procedures pursuant to the provisions of the Public Procurement Law.
33 Debt and sources of funding Comments: On December 21st 2017, due to a mismatch Sources of funding (as at September 30th 2018) between its investment programme and the PLNm PLN 1.5bn bond programme of July 4th 2012, PGNiG TERMIKA entered into agreements available used terminating the bond programme. As a result, the total value of guaranteed bonds reached PLN 7bn. On December 21st 2017, PGNiG S.A. signed a PLN 5bn bond programme agreement. 6,200 Dividend per share for financial year 5,000 PLN
0,30 1,200 800 1,000 270 0.19 0.20 0.20 0.17 0.18 Underwritten bonds (programme Domestic bonds (December 2022) BGK programme (2024) Reserve Based Loan (2022) 0,20 0,15 0.15 valid until 2020) 0.12 0.13 0,090.08 Debt at quarter end 0,10 0.07* PLNbn
10 0,00 Debt Net debt 05 06 07 08 09 10 11 12 13 14 15 16 17 18 8 Strategic objective: up to 50% of consolidated 6.4 6.4 net profit to be distributed as dividend in 6 2015−2022 (provided that the financial 3.8 condition is stable and financing for investment 4 3.0 projects is secured). 2.2 1.1 1,3 1.4 2 0.8 0.7 0.5 0.7 0.4 * On October 29th 2018, a decision was made 0 to pay an interim dividend of PLN 0.07 per Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 share from the Company’s 2018 profit. The -2 -1.5 -1.6 -1.4 dividend record date is November 26th 2018. -2.0 -2.4 The dividend payment date is December 3rd -4 2018.
34 Statement of financial position, statement of cash flows, financial ratios and workforce
Group’s statement of financial position Workforce (as at September 30th 2018)* (as at September 30th 2018) thousand Non-current Current Equity 40 PLNm Other segments Generation Distribution Trade & Storage Exploration & Production
31.0 29.0 13,412 30 2.0 1.1 1.6 25.5 25.3 24.7 24.8 1.1 35,985 1.3 1.9 1.8 1.5 1.1 1.8 13.1 1.9 1.8 37,523 20 12.2 8,022 10.7 11.6 6,928 10.8 11.1 Assets Equity and liabilities 4.1 3.9 10 3.5 2.9 3.0 3.0 Profitability and liquidity ratios 10.8 10.2 8.9 7.7 7.0 6.9 9.4% 10% 8.7% 0 7.8% 7.3% Dec 31 2013 Dec 31 2014 Dec 31 2015 Dec 31 2016 Dec 31 2017 Sep 30 2018 8% 6.9%
6% Consolidated cash flows (Jan 1−Sep 30 2018) 5.8% 6.1% 4% 5.5% 4.7% PLNm 4.3% 10 000 2%
0% 2014 2015 2016 2017 9M 2018 267 8 000 805 ROE ROA 1,969 819 3 2,621 2.4 6 000 2.2 1.8 1.9 2 1.4 3,887 2.0 4 000 1,700 1.6 1 1.4 1.3 1.2 2 000 2,581 2,758 0 2014 2015 2016 2017 9M 2018 Current ratio Quick ratio 0 Cash (Jan 1, Profit before Depreciation Income tax Other Change at the Investing CF Financing CF Cash (Sep 30, 2018) tax and paid adjustments end of the 2018) amortization period expense
* Changes in the presentation of corporate centre data, leading to changes in the Trade & Storage and Other segments in 2016.
35 Production and sales volumes
NATURAL GAS PRODUCTION, PGNIG Group [mcm] 9M 2018 Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 9M 2017 Q3 2017 Q2 2017 Q1 2017 FY 2016 Q4 2016 Q3 2016 HIGH-METHANE GAS (E) 1,361 436 461 464 1,863 461 1,402 459 469 474 1,919 473 449 including in Poland 960 323 314 323 1,315 335 980 325 327 328 1,401 347 346 including in Norway 401 113 147 141 548 126 422 134 142 146 518 126 103 NITROGEN-RICH GAS (Ls/Lw as E equiv.) 1,990 659 612 719 2,674 731 1,943 664 567 712 2,540 692 582 including in Poland 1,839 606 559 674 2,524 684 1,840 627 533 680 2,481 670 570 including in Pakistan 151 53 53 45 150 47 103 37 34 32 59 22 12 TOTAL (measured as E equivalent) 3,351 1,095 1,073 1,183 4,537 1,192 3,345 1,123 1,036 1,186 4,458 1,165 1,031
NATURAL GAS SALES, PGNiG Group [mcm] HIGH-METHANE GAS (E) 19,325 4,777 5,134 9,414 25,291 7,603 17,688 4,298 5,079 8,311 22,895 6,921 4,004 including PST sales outside PGNiG Group 2,568 855 715 998 2,186 603 1,583 452 482 649 2,510 561 614 NITROGEN-RICH GAS (Ls/Lw as E equiv.) 1,136 337 308 491 1,496 419 1,077 296 312 469 1,371 417 244 TOTAL (measured as E equivalent) 20,461 5,114 5,442 9,905 26,787 8,022 18,765 4,594 5,391 8,780 24,266 7,338 4,248 including sales directly from the fields 627 211 179 237 796 226 570 182 161 227 718 209 129
NATURAL GAS IMPORTS, PGNiG SA [mcm] Total 10,580 3,324 3,419 3,837 13,714 3,673 10,041 3,488 3,334 3,219 11,527 2,968 3,020 including: sources east of Poland 7,941 2,357 2,602 2,982 9,656 2,540 7,116 1,889 2,518 2,709 10,248 2,539 2,429 including: LNG 1,955 635 815 505 1,715 383 1,332 470 475 387 974 380 384
CRUDE OIL, PGNiG Group [thousand tonnes] Production of crude oil and condensate 992 320 324 348 1,257 329 928 313 269 346 1,318 344 298 including in Poland 599 202 189 208 787 220 567 203 148 216 763 207 177 including in Norway 393 118 135 140 470 109 361 110 121 130 555 137 121
Sales of crude oil and condensate 1,032 309 294 429 1,270 313 957 251 316 390 1,346 325 287 including in Poland 592 194 188 210 791 222 569 190 161 218 753 198 179 including in Norway 440 115 106 219 479 91 388 61 155 172 593 127 108
GENERATION Production of heat, net (sales) [TJ] 26,404 2,942 4,425 19,037 42,607 14,195 28,412 3,476 6,848 18,088 39,527 15,079 2,945 Production of electricity, net, secondary gen. (for sale) [GWh] 2,661 523 599 1,539 3,882 1,280 2,602 407 737 1,458 3,604 1,204 418
36 Glossary
2P Proven reserves of fossil fuels bbl Barrel
BGK Bank Gospodarstwa Krajowego 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 expenses
CNG Compressed Natural Gas 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
JV Joint Venture
PPE Polish Power Exchange
PSG Polska Spółka Gazownictwa
PST PGNiG Supply & Trading GmbH RAB Regulatory Asset Base
WIG 20 Capitalization-weighted stock market index of the twenty largest companies on the Warsaw Stock Exchange
WSE Warsaw Stock Exchange
37 Contact details
Marcin Piechota More information Head of the Investor Relations Division Phone:+48 22 589 43 22 Mobile:+48 885 889 890 Email: marcin.piechota@pgnig.pl
Piotr Gałek Investor Relations Specialist Phone:+48 22 589 48 46 Mobile:+48 723 235 652 Email: [email protected]
Aleksander Kutnik Investor Relations Specialist Phone:+48 22 589 47 97 Mobile:+48 723 239 162 Email: [email protected]
Anna Galińska Investor Relations website Investor Relations Specialist www.ri.pgnig.pl Phone:+48 22 106 41 09 Mobile:+48 723 514 086 Email: [email protected]
Polskie Górnictwo Naftowe i Gazownictwo S.A. ul. M. Kasprzaka 25 01-224 Warsaw, Poland Fax:+48 22 691 81 23 www.en.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 information and statements relating to future, but not to 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 could 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.