53
2010
Annual Report
Exploration
Both on the Polish market and abroad there is a
risk of competition from other companies seeking
exploration and prospecting licences or planning
to acquire access to own hydrocarbon reserves.
Certain competitors of the PGNiG Group, espe‑
cially those active globally, enjoy strong market
positions and have fnancial resources larger than
those of PGNiG. Thus they are likely to submit their
bids in tender offers and be able to acquire highly
prospective licences.
Trade in Natural Gas
At present, PGNiG is the largest supplier of natural
gas in Poland. PGNiG’s share in the gas market is
approximately 98%, the remaining 2% is repre‑
sented by suppliers from outside the PGNiG Group
which usually purchase gas from PGNiG. Among
them are local gas distributors who have their own
transmission infrastructure and offer (apart from
traditional network supplies) innovative solutions
of the natural gas supply involving the use of LNG.
An intensifed commercial activity of competitors
which aims at attracting current and potential cus‑
tomers of the PGNiG Group may pose in the future
a tangible threat of customer churn.
Distribution
The liberalisation of the gas market boosts the
activity of gas suppliers who are the competitors
of the PGNiG Group’s Gas Companies. Over the last
few years, the activity of those suppliers has been
regular and steady. They have gradually developed
their gas networks and acquired new customers,
both among households and businesses. Another
issue which poses a serious threat to the Gas
Companies’ business is the tariff policy of the URE,
as it prevents the Gas Companies from operating a
fexible pricing policy for their key customers. With
the lack of fexible pricing, customers may fnd the
offering of the competition very attractive.
Delayed Work
Under the applicable Polish legal regulations,
obtaining oil & gas exploration and prospecting
licences takes from one to one and a half years.
As regards business activity on foreign markets,
it may take even two years from the time that the
winning bid is awarded in a tender for licence until
the relevant contract is ratifed. Moreover, prior to
the commencement of feld work, the Company
is obliged to arrange for numerous formalities,
including obtaining formal and legal permits and
approvals for entering the area, meeting environ‑
mental protection-related requirements and in
some cases requirements related to protection of
archaeological sites, and abiding by the regulations
governing tenders for work contractors. Under the
currently binding legal regulations, another several
months pass before an agreement with the work
contractor is signed. In addition, companies must
frequently wait for a very long time before their
imported equipment receives customs clearance.
These factors create the risk of delayed explor‑
atory work.
Cost of Exploratory Work
Exploratory work is capital intensive, given the
prices of energy carriers and materials. Cost of
exploratory work is especially sensitive to steel
prices, which are passed on prices of casing pipes
and lifting casing used in drilling. An increase in
prices of energy and materials translates into an
increase in the cost of exploratory work. Proftabil‑
ity of foreign exploratory projects will to a signif‑
cant extent depend on the movements in prices of
oil derivative products and in exchange rates.
Political and Economic Situation
Some countries where PGNiG carries out explor‑
atory activity face the risk of armed conficts or
social and political unrest, which may result in
limitation, suspension or discontinuation of the
exploration and production business in such areas.
In certain countries, the operations of exploration
companies may be hindered by lack of adequate
infrastructure, which may be an obstacle in trans‑
porting equipment, staff and materials to the sites.
Problems may also arise in providing supplies and
ensuring appropriate health care. These risks may
lead to limitation or suspension of the Company’s
exploratory activity.
Trade and Storage Distribution
Power Sector
Corporate
Governance
Risks
Employees
Environmental
Protection
The PGNiG Group Glossary
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