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Projected future financial standing

In the coming periods, the financial standing of the PGNiG Group will be materially affected by changes in the prices of hydrocarbons on global commodity markets and fluctuations in foreign exchange rates. These factors will be of particular importance for the PGNiG Group’s performance in the Exploration & Production and Trade & Storage segments.

Any changes in crude oil prices affect revenues of the Group members engaged in crude production and sale, and determine the demand for seismic and exploration services offered by the Group companies. Rising crude oil prices have a positive effect on the results generated by the Exploration and Production segment. Long-term forecasts of crude oil prices strongly influence projected cash flows from production assets and as a consequence entail the need for revaluation of property, plant and equipment. On the other hand, in view of the fact that the prices of gas purchased by PGNiG under the Yamal and Qatar Contracts are linked to prices of crude oil, rising crude prices have just the opposite effect on the results generated by the Trade and Storage segment. Any increase in crude oil prices translates into a higher cost of gas purchased by PGNiG. The PGNiG Group’s financial results will also be materially affected by the situation on the domestic currency market. Any strengthening of the złoty against foreign currencies (primarily the US dollar) will have a positive effect on the performance of the Trade and Storage segment by driving down PGNiG’s gas purchase costs, although it must be noted that the effect of exchange rate fluctuations is mitigated by the PGNiG Group’s hedging policy.

The PGNiG Group’s financial results will also be affected by the position of the President of URE regarding the level of gas fuel sale and distribution tariffs and heat sale tariffs. In addition, the progressing deregulation of the gas market in Poland will continue to put pressure on the performance of the PGNiG Group’s Trade and Storage companies engaged in the provision of gas sale services. Competition for customers has prompted the launch of a number of discount schemes dedicated to customers buying gas from the Group and the change in pricing terms to reflect market prices. These factors may have an adverse effect on the profitability of the Trade and Storage segment by eroding its margins.

However, the PGNiG Group companies have put in place a number of initiatives to improve efficiency. These initiatives focus, without limitation, on optimisation of the cost base and are expected to have a favourable effect on the PGNiG Group’s financial results. In the case of the Generation segment, the Group’s performance will also be considerably affected by support programmes for electricity from high-efficiency cogeneration and renewable sources. Legislative changes in this area and fluctuations in market prices of certificates of origin (both red and green) will have a bearing on the segment’s financial position. Another key factor affecting the performance of the Generation segment relates to prices of fuels used in the production of heat and electricity. In the coming quarters, the Group intends to maintain a high level of capital expenditures. Spending will focus primarily on projects involving maintenance of hydrocarbon production rates as well as projects in the exploration for and appraisal of crude oil and natural gas deposits and the development of the power generation segment.