We turned PLN 1.6 bn in net profit and PLN 1.7 bn in operating profit. Further, sales revenue rose by 8% on the previous year, to PLN 23 bn. Regrettably, due to crude prices soaring on global markets and the dollar having appreciated against the złoty, gas tariffs in Poland failed to keep up with the rising cost of gas imports, which adversely affected the performance of the Trade and Storage segment.

On the other hand, strong performance was reported by the Exploration and Production segment, with operating profit having risen by 92% year on year, to PLN 1.1 bn. This rate of growth in revenues is to us a source of pride and a confirmation that our strategy to invest in production and exploration is the right one to follow. The major growth in the segment was driven by the rising prices of crude oil, oil production forecasts having been met, and enormous interest in exploration for unconventional gas in Poland. The PGNiG Group successfully participates in projects run by various operators to satisfy the growing market requirements. Our strong financial performance is also a testimony to the competence and professionalism of our personnel.

Although this year’s results are something to be pleased about, we hope for further growth and improvement in our financial performance. PGNiG is actively involved in exploration for unconventional gas, holding 15 exploration and appraisal licences, a number that leaves far behind several dozens of our peers in Poland. We are satisfied with the positive results of the Lubocino-1 well fracturing on the Wejherowo licence. Tests carried out on the well encourage further work – horizontal drilling and more hydraulic fracturing operations. If successful, these efforts may result in a launch of commercial production of shale gas at the end of 2015. Our ambitious plans are capital–intensive: the Group intends to spend ca. PLN 1 bn on gas exploration in 2012. We also aim to forge cooperation with Polish and foreign partners with sights set on shale gas exploration to help increase the budget of the strategic shale gas project. Apart from the Wejherowo licence, drilling will be performed on the Tomaszów Lubelski licence, while exploration work will cover several other licence areas.

Unfortunately, for apparent reasons, exploration work in Libya was suspended in 2011. Also, production from the Skarv field, where ­PGNiG Norway holds an interest, has been delayed. We hope that 2012 will be more generous as regards our presence on the international markets.

As for growth-oriented projects implemented at home, I should mention the Gas Deregulation Programme (PUG). As an outcome of negotiations held with the Polish Energy Regulatory Office (URE) in autumn 2011, we prepared a draft PUG for public consultation in February 2012. It is a step towards liberalisation of the Polish gas market, with the target date set by the URE being January 1^st 2013. Implementation of the PUG initiative is necessary to align the national law with the EU legislation, but it also offers an opportunity to let gas prices be determined by market forces, thus increasing our ability to cover the cost of gas imports.

In 2011, we successfully continued projects designed to bring ­PGNiG closer to achieving its primary objective, which is to secure reliable and uninterrupted gas supplies for households and industrial customers. Attaining this objective requires both time and significant cash outlays to finance extension of the domestic gas system and increase the underground gas storage capacities. Large volumes of gas injected into storage facilities after the 2010/2011 winter season, which was marked by high consumption of the fuel, and the ongoing extension of the underground storage capacities allowed us to secure a record-high level of gas stocks (1.8 bn m³) before the winter season, which is an enormous success. Also, an extension of the cross-border connector to the Czech Republic and the availability of the virtual reverse service on the Yamal line enable us to further diversify gas supply sources.

In this past year, PGNiG consolidated its position in the power segment – a recent addition to our business. Having purchased the assets of Vattenfall Heat Poland (VHP), we are set to become a multi–utility group offering its customers heat, gas and electricity. The acquisition process, initiated in August 2011 and completed in January 2012, will not only help ­PGNiG strengthen its position in the new segment, but will also diversify the sources of revenue streams in line with the adopted growth strategy which identifies power generation as one of the three major growth areas. The takeover of VHP, renamed PGNiG Termika in January 2012, will also enhance development prospects for gas-fired power generation and contribute to increased competition in the Polish power sector. The year 2011 also saw continuation of the 400 MW CCGT project in Stalowa Wola. In July 2011 an agreement was signed to connect the unit at the Stalowa Wola CHP to the transmission network, and the Contract Engineer was selected. Work was also underway to secure financing and select the General Contractor for the project.

It is also worth noting that the ­PGNiG Group has gained a new company – PGNiG Technologie. The company was formed through successful consolidation of four entities providing construction and assembly services for the oil and gas sector.

For the projects planned for 2012–2013, significant capital resources need to be secured. To this end, ­PGNiG aims to extend the scope of its reliance on external financing by increasing its Polish note programme to PLN 7 bn, maintaining attractive funding costs, and launching a Eurobond programme for up to EUR 1.2 bn whereunder EUR 500 m-worth of notes was placed with investors in February 2012.

Summarising this past year, we may say that amidst turbulent market conditions ­PGNiG stock was a safe haven for investors, yielding return on investment in the range of 17.6% (including dividend). The Company achieved the result following the principles of corporate social responsibility. We continuously adhere to these principles, which was rewarded by inclusion of ­PGNiG in the WSE’s RESPECT Index and by the title of socially responsible company of the year 2011 in the Fuels and Energy category of a ranking by the Dziennik Gazeta Prawna daily. It is a guarantee that even our most complex business ventures are implemented in keeping with the principles of sustainable development and to the benefit of our shareholders, employees, local communities and the natural environment.

September 30^th 2012 will mark PGNiG’s 30^th anniversary, an occasion which offers an opportunity to look back. We believe that it was a well–spent time and our operations have provided us with strong foundations for further growth.

We would like to express our gratitude to all of you who contributed to the Company’s success – our shareholders and customers, members of the Supervisory Board and all employees of the PGNiG Group.

Thank you for your trust. Let me assure you that we will strive to further enhance our operations and maximise the Company’s value for the existing and future shareholders.

Yours faithfully,

Grażyna Piotrowska-Oliwa
President of the Management Board ­PGNiG SA

Shale gas Licences Shale gas production Safety An opportunity for Poland

Polish Oil & Gas Company (PGNiG SA) KRS 0000059492, NIP 525-000-80-28, share capital 5 900 000 000 PLN - fully paid Headquarters - 25 M. Kasprzaka Street, 01-224 Warsaw, Poland Phone: +48 22 589 45 55, Fax: +48 22 691 82 73