• CLEAN AND ENVIRONMENTALLY FRIENDLY Natural gas is the cleanest and most environmentally friendly of all fossil fuels...Read more

  • WELL DRILLING PADThe size of a typical drilling pad is about 1 hectare. To compare, the floorage of an average shopping centre is 4.5 hectares... Read more

  • SECURING OF WELL DRILLING PADA drilling pad as well as the adjacent pool are reinforced and tightened with concrete slabs. Protective foil is additionally laid where necessary.

  • WORK NOISEWell drilling does not produce onerous noise. The intensity of sounds generated in connection with drilling work is lower than that generated by street traffic.Read more

  • SAFETY OF FRACTURING PROCESSIn Poland, exploration wells in shale rock are drilled to depths of over 2.5 km.Read more

  • COMPOSITION OF FRACTURING FLUIDFracturing fluid is 95% water. Read more

  • NO MAJOR LANDSCAPE INTERFERENCEIf gas production is launched, the land surrounding the isolated, secured zone, is subject to a reclamation treatment. Read more

Notes to the Consolidated Financial Statements – Contents

38. Related Entities

38.1. Related-party transactions

in PLN m

Related party Sales to related parties Purchases from related parties Balance as at Receivables from related parties, gross Receivables from related parties, net Loans to related parties, gross Loans to related parties, net Liabilities to related parties
Equity-accounted associates Dec 31 2012 29  -  Dec 31 2012 4 4  -  -  7
Dec 31 2011 22 (88) Dec 31 2011 2 2  -  -  7
Non-consolidated subsidiaries and associates Dec 31 2012 10 (111) Dec 31 2012 4 4 146 117 10
Dec 31 2011 8 176 Dec 31 2011 2 2 29 -  42
Related entities – total Dec 31 2012 39 (111) Dec 31 2012 8 8 146 117 17
Dec 31 2011 30 88 Dec 31 2011 4 4 29 -  49
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In 2012, there were no material transactions with shareholders.
The principal transactions with the Parent’s shareholders in 2011 were dividend payments discussed in Note 10.

In 2012, neither the Parent nor its subsidiaries entered into any material transactions with related parties otherwise than on arm’s length terms.

The Group prepares documentation for related-party transactions in accordance with Art. 9a of the Corporate Income Tax Act. The procedure is applied each time the PGNiG Group entities execute agreements (including framework agreements), annexes to agreements, orders (detailed agreements) or orders placed under framework agreements with related entities - if the total amounts payable/receivable (to/from one contractor under one agreement) or their equivalent in the złoty exceed in a calendar year the equivalent of EUR 100 thousand in the case of transactions involving goods or EUR 30 thousand in the case of transactions involving rendering of services, sale or delivery of intangible assets. The Group applies the methods and manner of profit calculation and of defining the transaction price as specified in Art. 11 of the Act on Corporate Income Tax, that is the comparable uncontrolled price, resale price, and cost plus method, as well as additional transactional profit methods (profit split, transactional net margin).

38.2. Transactions with entities in which the State Treasury holds equity interests

With respect to the required detail of presentation of transactions entered into with parties related through the State Treasury, the Group applies the exemption provided for in paragraphs 25-27 of IAS 24. As there are no special transactions with such entities, the Company is authorised to present the minimum scope of information required in accordance with the revised IAS 24 (presented below).
The main transactions with entities in which the State Treasury holds equity interests are executed in the course of the Group’s day-to-day operations, i.e. natural gas trading and distribution and sale of crude oil.
In 2012, the Group generated the highest turnovers with the following entities in which the State Treasury holds equity interests: Operator Gazociągów Przesyłowych GAZ-SYSTEM S.A., Polski Koncern Naftowy ORLEN S.A., PGE Górnictwo i Energetyka Konwencjonalna S.A., Grupa LOTOS S.A., KGHM Polska Miedź S.A., Krośnieńskie Huty Szkła KROSNO S.A. w upadłości (in bankruptcy), Zakłady Azotowe PUŁAWY S.A., Zakłady Chemiczne POLICE S.A., Zakłady Azotowe w Tarnowie-Mościcach S.A. and Huta Cynku „Miasteczko Śląskie” S.A.
In 2011, the Company generated the highest turnovers with the following entities in which the State Treasury holds equity interests: Operator Gazociągów Przesyłowych GAZ-SYSTEM S.A., Polski Koncern Naftowy ORLEN S.A., Rafineria Trzebinia S.A., Zakłady Azotowe ANWIL S.A., Zakłady Azotowe PUŁAWY S.A., Zakłady Azotowe KĘDZIERZYN S.A., Zakłady Chemiczne POLICE S.A., Zakłady Azotowe w Tarnowie-Mościcach S.A., and PGE Elektrociepłownia Lublin-Wrotków Sp. z o.o.

38.3. Remuneration paid to members of management and supervisory bodies of the Group companies

in PLN m

Period from Jan 1 – Dec 31 2012 Period from Jan 1– Dec 31 2011
Remuneration paid to management staff 31.01 31.93
Parent 1.89 3.1
Subsidiaries 21.6 20.5
Jointly-controlled entities 6.71 7.53
Associates 0.81 0.8
Remuneration paid to supervisory staff 12.11 9.41
Parent 0.36 0.29
Subsidiaries 7.84 7.13
Jointly-controlled entities 3.21 1.26
Associates 0.7 0.73
Total  43.12 41.34
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38.4. Loans advanced to members of the management and supervisory boards of the Group companies

in PLN m

Dec 31 2012 Dec 31 2011
Management Board members
Interest rate (%) 1%-4% 0%-4%
Maturing in 3–5 years 2–5 years
Value of outstanding loans 0.16 0.12
Supervisory Board members
Interest rate (%) 4% 0%-4%
Maturing in 5 years 2–5 years
Value of outstanding loans 0.01 0.03
Total value of outstanding loans 0.17 0.15
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38.5. Remuneration paid to members of management and supervisory bodies of the Parent

in PLN m

Jan 1 – Dec 31 2012
Name Total amount of remuneration, additional benefits and bonuses paid in 2012 Total amount of remuneration for holding offices in subordinates in 2012 Total remuneration paid in 2012
Total remuneration paid to Management Board members, including: 1.895 2.84 4.735
Grażyna Piotrowska-Oliwa 0.211 0.558 0.769
Radosław Dudziński 0.33 0.858 1.188
Sławomir Hinc 0.336 0.857 1.193
Mirosław Szkałuba 0.369 0.423 0.792
Persons who were Management Board members in the current period but not as at the end of the current period
Kazimierz Chrobak* 0.222  -  0.222
Mieczysław Jakiel* 0.091 0.018 0.109
Ewa Bernacik* 0.106 0.037 0.143
Marek Karabuła** 0.23 0.089 0.319
Total remuneration paid to Supervisory Board members, including: 0.36 0.213 0.573
Chmielewski Wojciech 0.04  -  0.04
Marcin Moryń 0.041  -  0.041
Mieczysław Kawecki 0.041 0.043 0.084
Agnieszka Chmielarz 0.041 0.045 0.086
Józef Głowacki 0.04  -  0.04
Mieczysław Puławski 0.041  -  0.041
Jolanta Siergiej 0.041 0.045 0.086
Janusz Pilitowski 0.04  -  0.04
Ewa Sibrecht-Ośka 0.033  -  0.033
Persons who were Supervisory Board members in the current period but not as at the end of the current period
Grzegorz Banaszek 0.001  -  0.001
Stanisław Rychlicki 0.001 0.08 0.081
Total 2.255 3.053 5.308
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Kazimierz Chrobak, Mieczysław Jakiel and Ewa Bernacik served as proxies until March 21st 2012.

Marek Karabuła served as Member of the Management Board until May 11th 2012.

* Kazimierz Chrobak, Mieczysław Jakiel and Ewa Bernacik served as proxies until March 21st 2012.
** Marek Karabuła served as Member of the Management Board until May 11th 2012.

in PLN m

Jan 1 – Dec 31 2011
Name Total amount of remuneration, additional benefits and bonuses paid in 2011 Total amount of remuneration for holding offices in subordinates in 2011 Total remuneration paid in 2011
Total remuneration paid to Management Board members, including: 3.099 4.364 7.463
Michał Szubski – President 0.356 1.456 1.812
Radosław Dudziński – Vice-President 0.329 1.058 1.387
Sławomir Hinc – Vice-President 0.325 1.058 1.383
Marek Karabuła – Vice-President 0.272 0.271 0.543
Mirosław Szkałuba – Vice-President 0.374 0.357 0.731
Ewa Bernacik – proxy 0.358 0.085 0.443
Mieczysław Jakiel – proxy 0.625 0.041 0.666
Persons who were Management Board members in 2011 but not as at Dec 31 2011:
Tadeusz Kulczyk – proxy* 0.46 0.038 0.498
Total remuneration paid to Supervisory Board members, including: 0.29 0.19 0.48
Stanisław Rychlicki 0.041 0.08 0.121
Marcin Moryń 0.041  -  0.041
Mieczysław Kawecki 0.043 0.041 0.084
Agnieszka Chmielarz 0.041 0.026 0.067
Grzegorz Banaszek 0.041  -  0.041
Mieczysław Puławski 0.041  -  0.041
Jolanta Siergiej 0.042 0.043 0.085
Total 3.389 4.554 7.943
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* On November 29th 2011, the PGNiG Management Board revoked the power of proxy granted to Mr Tadeusz Kulczyk.

On November 29th 2011, the PGNiG Management Board revoked the power of proxy granted to Mr Tadeusz Kulczyk.

38.6. Fees Paid to the audit firm for the mandatory audit of the annual consolidated financial statements of the Group and for the rendering of other services

The consolidated financial statements of the PGNiG Group and the financial statements of PGNiG SA and of its 21 subsidiaries for 2012 were audited by Deloitte Polska Spółka z ograniczoną odpowiedzialnością Sp. k. (formerly: Deloitte Audyt Sp. z o.o.). The agreement with the audit firm was executed for a period of three years (2010–2013). The agreement provides for:

On June 19th 2012, an annex to the agreement was signed, whereby the scope of services provided by the auditor was changed. Translation of the audited financial statements into English was excluded from the agreement, and the scope of the agreement was extended to include:

Following the amendments to the agreement, the auditor's fees changed, also with respect to the comparative period.
The table below presents the fees paid or payable by the Parent to the auditor for 2011–2012, taking into account the changes effected under the annex.

in PLN m

Period from Jan 1 – Dec 31 2012 Period from Jan 1– Dec 31 2011
Audit of the annual consolidated financial statements 0.1 0.1
Audit of the annual separate financial statements 0.12 0.12
Other certification services, including review of financial statements 0.53 0.47
Other services 0.01 0.03
Total 0.76 0.72
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38.7. Non-consolidated joint ventures

In 2012, PGNiG SA cooperated with the following companies in Poland: FX Energy Poland Sp. z o.o., EuroGas Polska Sp. z o.o., Energia Bieszczady Sp. z o.o., Orlen Upstream Sp. z o.o., Aurelian Oil & Gas PLC (through subsidiaries Energia Karpaty Zachodnie Sp. z o.o. Sp.k. and Energia Karpaty Wschodnie Sp. z o.o. Sp. k.), CalEnergy Resources Poland Sp. z o.o., Tauron Polska Energia S.A., KGHM Polska Miedź S.A., PGE Polska Grupa Energetyczna S.A. and ENEA S.A.

FX Energy Poland Sp. z o.o., registered office at ul. Chałubińskiego 8, 00-613 Warsaw

In 2012, PGNiG SA continued cooperation with FX Energy Poland Sp. z o.o. in the following areas covered by licenses awarded to PGNiG SA:

and in the following areas covered by licenses awarded to FX Energy Poland Sp. z o.o.:

In 2012, production continued from the Roszków field in the “Płotki” area, and from the Zaniemyśl field in the “Płotki” – “PTZ” area. Work on the acquisition of the Donatowo-Rusocin 3D seismic survey commenced in the “Płotki” area. While in the “Płotki”-“PTZ” area, work commenced on the reprocessing of the Kaleje-Zaniemyśl 3D seismic survey to select the best location for the Zaniemyśl-4 production well.
In the “Poznań” licence area, in 2012, gas production continued from the Środa Wielkopolska, Kromolice and Kromolice S fields. Work continued also on the development of the Winna Góra and Lisewo gas fields. Drilling of the Komorze-3k borehole, where a new natural gas field was discovered, was also completed. Preparations for hydraulic fracturing were under way in the Pławce-2 (tight gas) exploration borehole. In the Żerków-Pleszew area, processing and interpretation of the second stage 3D seismic survey data was completed. A contractor was selected to perform the drilling work on the Mieczewo-1k exploration well. The installation of a drilling rig for the well began. Miłosław 3D and Taczanów 3D seismic surveys were performed, and the processing of the acquired data began.
234.2 km of 2D seismic was acquired in the “Warszawa-Południe” area and the data was subsequently processed. Reprocessing of four archive seismic profiles with a total length of 44.5 km was completed. Geological interpretation of the Potycz-Boglewice-Grójec area, including 563.7 km of new seismic profiles and 677.7 km archive seismic profiles, was performed.
Analytical work continued for the “Ostrowiec” area. In the “Kutno” area, drilling of the Kutno-2 exploration borehole was completed but proved dry.

EuroGas Polska Sp. z o.o., registered office at ul. Górnośląska 3, 43-200 Pszczyna
Energia Bieszczady Sp. z o.o., registered officeat ul. Śniadeckich 17, 00-654 Warsaw

In 2012, PGNiG SA continued cooperation with EuroGas Polska Sp. z o.o. and Energia Bieszczady Sp. z o.o. in the “Bieszczady” license area under the Agreement for Joint Operations of June 1st 2007. Interests held in the project: PGNiG SA (operator) – 51%, EuroGas Polska Sp. z o.o. – 24%, and Energia Bieszczady Sp. z o.o. – 25%.
In the “Bieszczady” area seismic 2D field work was completed and processing of seismic profiles was commenced in the Jaśliska-Baligród zone. Gravimetric field work and interpretation of the acquired data were completed in the Hoczew-Lutowiska area. The partners in the project decided to secure the Niebieszczany-1 borehole. The subsequent testing of the borehole was scheduled for 2013. Reprocessing of the Kostarowce-Zahutyń 2D archive seismic profiles began. 2D field work was carried out in the Rakowa-Paszowa area.

Orlen Upstream Sp. z o.o., registered office at ul. Przyokopowa 31, 01-208 Warsaw, Poland

In 2012, PGNiG SA continued cooperation with Orlen Upstream Sp. z o.o. in the “Sieraków” area under the agreement for joint operations of June 22nd 2009. Project interests: PGNiG SA (operator) – 51%, Orlen Upstream Sp. z o.o. – 49%.
In 2012, after a geological and geophysical analysis in the “Sieraków” area, the location of the Sieraków-3 borehole was determined and preparatory work commenced at the site.

Aurelian Oil & Gas PLC, registered office at 13/14 Hanover Street London W1S 1YH
Energia Karpaty Zachodnie Sp. z o.o. Sp. k.(a subsidiary of Aurelian Oil & Gas PLC), registered office at ul. Śniadeckich 17, 00-654 Warsaw, Poland
Energia Karpaty Wschodnie Sp. z o.o. Sp. k. (a subsidiary of Aurelian Oil & Gas PLC), registered office at ul. Śniadeckich 17, 00-654 Warsaw, Poland

Under licences awarded to Aurelian Oil & Gas PLC, work was performed in the following areas:

In 2012, in the “Karpaty Zachodnie” area, 110 kilometres of 2D seismic lines were acquired and interpretation of 108 kilometres of the Bielsko–Cieszyn–Bestwina 2D seismic profiles and 27 kilometres of the Budzów 2D seismic profiles commenced.
In 2012, in the “Karpaty Wschodnie” area, the 2D seismic survey from the Jordanów zone was processed and geological interpretation of the Mszana Dolna-Jordanów 2D seismic survey was completed.

Tauron Polska Energia S.A., siedziba: Katowice 40-114, ul. Ks. Piotra Ściegiennego 3
KGHM Polska Miedź S.A., registered office at ul. M. Skłodowskiej–Curie 48, 59-301 Lubin, Poland
PGE Polska Grupa Energetyczna S.A., registered office at ul. Mysia 2, 00-496 Warsaw, Poland
ENEA S.A., registered office at ul. Górecka 1, 60-201 Poznań, Poland.

On July 4th 2012, PGNiG SA entered into a framework agreement concerning shale oil and gas exploration and production in the Wejherowo licence area with four companies: Tauron Polska Energia S.A., KGHM Polska Miedź S.A., PGE Polska Grupa Energetyczna S.A. and Enea S.A. Under the agreement, joint work will be conducted on a part of the Wejherowo licence area held by PGNiG, and specifically in the Kochanowo, Częstkowo and Tępcz zones, where preliminary surveys and analyses have confirmed the presence of unconventional gas. The joint effort will cover about 160 sq km in the Wejherowo licence area. Expenditure on the Kochanowo–Częstkowo–Tępcz (KCT) project is estimated at up to PLN 1.7bn. PGNiG SA will be the licence operator throughout the exploration and appraisal phase.

38.8. Foreign operations

PGNiG SA’s interests in foreign operations

Ukraine

Dewon Z.S.A. is a closely-held (unlisted) joint-stock company, established on November 17th 1999. The company’s core business consists in rendering of services related to production of natural gas, workover of wells and development and exploitation of fields in Ukraine.
The company’s share capital amounts to UAH 11.1m (equivalent to PLN 4.3m, translated at the exchange rate of the NBP quoted for December 31st 2012) and is divided into 120,000 shares with a par value of UAH 92.89 per share. PGNiG SA’s equity interest in the company is UAH 4.1m (equivalent to PLN 1.7m, translated at the exchange rate of the NBP quoted for December 31st 2012). As at December 31st 2012, the value of the shares disclosed in the Parent’s accounts was PLN 2.5m. An impairment loss was recognised for the full value of the shares.
The company’s shareholder structure is as follows:

The company commenced production of natural gas in November 2003 and continued its gas production operations until April 24th 2009.
Dewon Z.S.A. conducted work at the Sakhalin field as part of a joint venture, under an agreement with NAK Nadra Ukrainy (the holder of the license for production of hydrocarbons) and PoltavaNaftoGasGeologia. On April 24th 2009, NAK Nadra Ukrainy’s license to conduct work at the Sakhalin field expired. As of that date, the company’s operations were suspended. The stoppage, resulting first from the lack of licence, and then from the lack of a joint venture agreement with the new holder of the licence (UkrNaftoBurienie), materially affected Dewon’s financial standing.
In mid-2012, after an over three-year break, the company resumed production from the Sakhalin field in eastern Ukraine. On May 15th 2012, a new trilateral joint venture agreement was executed by Ukrnaftoburienie (holder of the licence) and Golden Derrik. Well No. 21 and well No. 113 commenced production on June 25th 2012, and Well no. 18 – on July 7th 2012.

Oman

The share capital of Sahara Petroleum Technology Llc amounts to OMR 0.15m (Omani rial), equivalent to PLN 1.2m, translated at the mid-rate quoted by the NBP for December 24th 2012 (the last exchange rate quoted in 2012), and is divided into 150,000 shares with a par value of OMR 1 per share. PGNiG SA holds an OMR 73.5 thousand interest in the company (equivalent to PLN 0.9m, translated at the mid-rate quoted by the NBP for December 24th 2012, which was the last exchange rate quoted in 2012).
The company’s shareholder structure is as follows:

The company was established in 2000, at the initiative of Zakład Robót Górniczych Krosno Sp. z o.o. (until June 30th 2005 a branch of PGNiG SA, currently a wholly-owned subsidiary of PGNiG SA). The company was established to offer well servicing services, such as application of enhanced recovery techniques or workovers, wireline services, wellhead maintenance services, and to perform light and middle drilling work with using PGNiG’s technological capabilities.
The company has never commenced operations. On June 7th 2009, the shareholders resolved to dissolve the company and appoint a liquidator. At present, the liquidation process is under way.

Germany

On July 1st 2005 in Potsdam, Germany, PGNiG SA and VNG-Verbundnetz Gas AG signed two deeds of incorporation whereby they established two companies under German law:

Each partner acquired a 50% interest in each of the companies. The share capital of each of the companies amounts to EUR 200 thousand (equivalent to PLN 0.8m (translated at the mid-rate of the NBP quoted for December 31st 2012), and their registered offices are located in Potsdam (InterGas Trade GmbH (IGT)) and Leipzig (InterTransGas GmbH (ITG)).
InterGasTrade GmbH has not been registered.
InterTransGas GmbH was entered in the commercial register of Potsdam on August 9th 2005. The company’s core business consists in construction and operation of transmission infrastructure and sale of transmission capacities.
InterTransGas GmbH was established for the purpose of constructing an inter connector pipeline between the Polish and European transmission systems, which is one of the solutions designed to diversify the supplies of gas fuels to Poland.
On January 29th 2009, the General Meeting of InterTransGas GmbH approved the business model for construction of the Börnicke–Hintersee–Police gas pipeline, the business plan for 2009, and the contribution of EUR 3.0m by the shareholders to the company’s capital reserves. The recapitalisation was effected in the form of a contribution to the company’s capital reserves, without issuance of new shares. Each of the shareholders paid the first tranche of EUR 0.7m to the capital reserves in June 2009. The next tranche of EUR 2.3m was paid by each shareholder in July 2010, after the shareholders executed an Annex to the Shareholders Cooperation Agreement on June 30th 2010, defining in detail the terms of cooperation on construction of the Germany–Poland Interconnector Pipeline, particularly with respect to rights and obligations of the ITG shareholders.
On December 13th 2011, the General Meeting of InterTransGas GmbH resolved to withdraw EUR 3.8m from capital reserves, and pay out half of this amount to each shareholder, i.e. to PGNiG SA and VNG AG. The payment was made before the end of December 2011.
Since March 1st 2012, ONTRAS-VNG Gastransport GmbH (ONTRAS) (wholly-owned subsidiary of VNG AG, whose business consists in the rendering of transmission services) has been the German shareholder. ITG shares were transferred by VNG to ONTRAS in the process of unbundling the network operations from production and trading activities.
In 2012, the shareholders of ITG expressed their interest in selling their respective holdings of ITG shares. In 2012, steps were taken with a view to finding a potential buyer.
As at December 31st 2012, PGNiG SA’s interest in InterTransGas GmbH was to EUR 0.8m (equivalent to PLN 3.5m, translated at the mid-rate quoted by the NBP for December 31st 2012). As at December 31st 2012, the value of the shares disclosed in the Parent’s accounting books was PLN 5.2m.
On December 21st 2010, POGC Trading GmbH of Munich was incorporated, with a share capital of EUR 10m (equivalent to PLN 40.9m, translated at the mid-rate quoted by the NBP for December 31st 2012). All the shares were acquired by PGNiG SA in return for a cash contribution made in December 2010. As at December 31st 2012, the value of the shares disclosed in the Parent’s accounting books was PLN 39.7m.
The company's business profile involves purchase and sale of, and trading in, gas, fuels and other forms of energy (related to such products in a physical form), as well as trading in derivatives and financial products, provided that the trading in derivatives and financial products is to be conducted for hedging purposes only. On February 10th 2011, POGC Trading GmbH was entered in the commercial register in Munich.
On August 22nd 2011, the General Meeting of POGC Trading GmbH adopted a resolution to change the company’s name to PGNiG Sales & Trading GmbH. The change was registered on August 25th 2011.
In November 2011, the company commenced activities consisting in purchase of natural gas on the European market for PGNiG SA. In 2012, the company continued the trading activities on the European natural gas market.
In June 2012, PGNiG Sales & Trading GMBH acquired 100% shares in XOOL GmbH of Munich, with a share capital of EUR 0.5m. XOOL GmbH is a natural gas operator with a network of 16,600 end-users in Germany.

Norway

On May 24th 2007, the Parent established its Norwegian subsidiary PGNiG Norway AS, incorporated as a company with limited liability, a special purpose vehicle to implement PGNiG SA’s projects in the Norwegian Continental Shelf (NCS).
PGNiG Norway AS is a wholly-owned subsidiary of PGNiG SA, whose business comprises crude oil and natural gas production, and other similar or related activities. PGNiG Norway AS may also engage in infrastructure projects related to transmission via subsea pipelines (e.g. construction and operation of gas pipelines), and conduct trading and financial activities and other types of activities at all stages of the crude oil and natural gas value chain.
PGNiG Norway AS was established in particular to perform the agreement executed on February 28th 2007 between PGNiG SA, Mobil Development Norway AS and ExxonMobil Produktion Norway Inc. concerning the acquisition by the Company of licence interests in the Norwegian Continental Shelf covering the Skarv, Snadd and Idun fields (licences PL 212, PL 212B and PL 262). In line with the joint venture agreement, PGNiG Norway AS holds the rights to 12% of the production (other interest holders are British Petroleum – 24% (operator), Statoil – 36% and E.ON Ruhrgas – 28%) from the Skarv/Snadd/Idun field and has the obligation to participate in the investment expenditure in the same proportion. British Petroleum is the field operator.
Furthermore, in February 2010 PGNiG Norway AS obtained from the Norwegian Ministry of Petroleum and Energy the authorisation to act as an operator on the Norwegian Continental Shelf.

Following the conclusion of a licensing round, in 2012 PGNiG Norway AS acquired the following interests in the Norwegian Continental Shelf:

In 2012, PGNiG Norway AS took part in two licensing rounds, the results of which will be announced in H1 2013.
The Skarv field, discovered in 1998, was its main asset. In 2007, the Skarv licence was extended to include the Idun field.

PGNiG Norway AS finances its exploration activities using the following sources:

On December 31st 2012, production of crude oil and gas from the Skarv field on the Norwegian Continental Shelf commenced. PGNiG Norway AS holds an 11.92% interest in the field operated by BP. PGNiG Norway AS’s target production volume in Norway in 2013 is approx. 370 thousand tonnes of crude oil and other fractions and approx. 0.3bn cubic metres of gas. In 2014, the volume of gas produced is expected to grow as the first quarter of 2013 will be the time of launching the production and successively bringing wells on stream. On September 11th 2012, PGNiG Norway AS and PGNiG Sales&Trading GmbH signed an agreement whereby PGNiG Norway AS will be selling to PGNiG Sales&Trading GmbH its share of the natural gas produced from the Skarv field. The agreement was concluded for a period of ten years, and its value is estimated at EUR 1.3bn.
In 2012, PGNiG Norway AS was also engaged in exploration work. In late 2011 and early 2012, an exploration well was drilled in the PL350 licence area. Results from the well were not satisfactory, and the company decided to discontinue work in this licence area. Licence PL350 and its PL350B extension were relinquished to the Norwegian authorities. In 2012, the Company also carried out exploration work in the PL212E and PL558 licences. The work in the PL212E licence area resulted in the discovery of the Snadd Outer field. PGNiG Norway AS's interest in the newly discovered field is 15%.
As at the end of 2012, the value of PGNiG SA's ownership interest in PGNiG Norway AS was NOK 1,092m, that is PLN 606.3m (translated at the exchange rate quoted by the NBP for December 31st 2012). As at December 31st 2012, the value of the shares disclosed in the accounting books of the Parent amounted to PLN 537.5m.

The Netherlands – Libya

In January 2008, the PGNiG Management Board consented to use PGNiG Finance B.V. (established on September 14th 2001 to service the issue of eurobonds issued by PGNiG SA) for the purpose of exploration and production activities in Libya. On the same date, the PGNiG Management Board adopted a resolution concerning the amendment to the Articles of Association and change of the Management Board of PGNiG Finance B.V., and setting up of the company’s branch in Libya.
The amendments to the Articles of Association were registered in the Netherlands on February 4th 2008. In the new Articles of Association, the company’s name was changed to Polish Oil and Gas Company – Libya B.V. (POGC – Libya B.V.). The company’s sole shareholder is PGNiG SA. Its share capital is USD 26.7 thousand (equivalent of PLN 82.8 thousand, translated at the exchange rate quoted by the NBP for December 31st 2012).
The Management Board of POGC-Libya B.V took steps which led to the execution – in February 2008 – of an Exploration and Production Sharing Agreement (EPSA) with Libya’s National Oil Corporation. The Agreement, setting out the terms and conditions of an exploration and production project in Libya, was executed in connection with the award (following a licensing round) of Block 113, covering an area of 5,494 square kilometres between the Murzuq and Gadamesh basins, near the Algerian border. The bid submitted by the company contained a commitment to carry out exploration work worth a total of USD 108m, including acquisition of 3,000 sq km 2D seismic and 1,500 sq km 3D seismic, as well as drilling of eight wells.
Pursuant to the EPSA, if a commercial discovery of hydrocarbons is made within the licence area, the expenditures which the Agreement allocates to the licence as the basis for “cost recovery”, incurred by the Parent through POGC Libya B.V., may be recovered from the production revenues (cost oil).
By February 2011, the Company had acquired 3,000 km of 2D seismic lines and 1,087 sq km of 3D seismic profiles, and performed a series of geological surveys.
Because of the events which had been taking place in Libya since mid-February 2011, the Management Board of POGC Libya B.V. made a decision to evacuate all international personnel from the country and to set up a temporary office in Warsaw. The international personnel of most of the subcontractors was also evacuated. As required under the Exploration and Production Sharing Agreement (EPSA), the company notified National Oil Corporation in Libya of the occurrence of a force majeure, which provides the basis for an extension of the term to perform obligations under the agreement. In February 2012, the Management Board of POCG-Libya B.V. contacted the management of NOC to commence discussions concerning resumption of the operations. On November 21st 2012, POGC Libya B.V. signed an agreement with National Oil Corporation confirming the cessation of the force majeure event. The parties also agreed that if after-effects of the force majeure affect timely performance of licence obligations, they will allow for the extension of the exploration period. Considering that the situation in the region remains unstable, POGC Libya B.V. did not resume the performance of its licence obligations.
In February 2012, POGC-Libya B.V. and PGNiG SA entered into an agreement whereunder PGNiG SA undertook to make an additional contribution to the company's equity of up to PLN 20m equivalent. Contributions to the company's equity are effected in tranches, without issuance of new shares. On July 1st 2012, an amending annex was signed to the contribution agreement whereby the maximum contribution amount was raised to USD 25m, or PLN 77.5m (translated at the exchange rate quoted by the NBP for December 31st 2012). In December 2012, the Company drew the full amount available under the contribution agreement to finance the drilling of the first exploration wells, which was scheduled to begin at the start of 2013.
As at December 31st 2012, the Parent's equity interest in POGC Libya B.V. amounted to EUR 65.5m and USD 27.4m (PLN 267.8m and PLN 85.0m, respectively, translated at the exchange rates quoted by the NBP for December 31st 2012). As at December 31st 2012, the gross value of the shares disclosed in the accounting books of the Company amounted to PLN 291.9m, while additional payments for the shares were PLN 86.2m. As at December 31st 2012, an impairment loss on shares in POGC Libya B.V. recognised in the accounting books was PLN 13.4m.

Sweden

On April 29th 2011, PGNiG SA acquired shares in Goldcup 5839 AB of Stockholm. On June 20th 2011, a change of the company’s name to PGNiG Finance ABwas registered.
The Company’s objective is to raise financing, including through the issue of eurobonds on the international markets, as well as to borrow funds and advance loans to private investors, other than as part of any activities which in Sweden require a licence.
In February 2012, the company (in cooperation with PGNiG SA) issued the first tranche of eurobonds for EUR 500m, i.e. PLN 2,044.1m (translated at the exchange rate quoted by the NBP for December 31st 2012). The notes are listed on the Luxembourg Stock Exchange. All proceeds from the issue, net of consideration for the institutions involved in the execution of the issue, were transferred to PGNiG SA as an on-loan.
As at December 31st 2012, the value of shares in PGNiG Finance AB disclosed in the Parent's books was PLN 0.5m.

The Parent's direct operations abroad – interests in exploration licences

The Parent conducts exploration work in Pakistan under an agreement on hydrocarbon exploration and production in the Kirthar licence area executed between PGNiG SA and the government of Pakistan on May 18th 2005. Work in the Kirthar block is conducted jointly with Pakistan Petroleum Ltd., with production and expenses shared proportionately to the parties’ interests in the licence: PGNiG SA (operator) – 70%, PPL – 30%. In 2012, the Hallel-1 well was worked over and a horizontal well, Hallel-X1, was drilled off. The Hallel-X1 well produced a gas flow. Subsequently, the construction of facilities, which will enable the performance of a double-well production test on the Rehman-1 and Hallel-X1 wells, commenced. Additional interpretation of 3D seismic data confirmed the presence of potential deposits in the northern part of the licence area. On July 6th 2012, the Directorate General of Petroleum Concessions (the Pakistani concession authority) classified the Rehman field as unconventional (tight gas). In consequence, the interest holders can raise gas prices by 50% relative to the price of gas produced form conventional reserves. Following valuation of the Kirthar licence performed by a Canadian firm DeGolyer&McNaughton, in 2012 the operator decided to move to the second exploration stage as part of which a new exploration well is to be drilled by July 2014.
In Denmark, the Parent continued exploration work in the 1/05 licence area. (interests held by PGNiG SA (operator) and Nordsofonden are 80% and 20%, respectively). Drilling of the Felsted-1 exploration well started in 2011. Following well logging performed at the beginning of 2012, no commercial hydrocarbon flow was identified. The well was abandoned. Given the negative results from the exploration well, PGNiG SA decided not to extend the 1/05 licence in Denmark.
In Egypt, the Parent conducted exploration work in the Bahariya licence area (Block 3) under an Exploration and Production Sharing Agreement (EPSA) executed with the government of Egypt of May 17th 2009. The Company holds a 100% interest in the licence. In 2012, having completed the field acquisition of 2D seismic data, the Company commenced the processing and interpretation of the 2D seismic image. 2,300 km of 2D seismic was acquired in the Bahariya licence area. The drilling of an exploration well is scheduled for 2013.

Foreign branches of the Group

PGNiG Group companies have a number of foreign branches, which operate or support the Group’s development outside of Poland.

PGNiG SA – the Parent:
Operating Branch in Pakistan – Islamabad,
Branch in Egypt – Cairo,
Branch in Denmark – Copenhagen, subject to liquidation proceedings.

Geofizyka Kraków S.A.
Branch in Pakistan – Islamabad,
Branch in Slovakia – Bratislava,
Branch in the Czech Republic – Ostrava,
Branch in Libya – Tripoli.

Geofizyka Toruń S.A.
Branch in Thailand – Bangkok,
Branch in Egypt – Suez,
Branch in Syria – Damascus.

Poszukiwania Nafty i Gazu Jasło S.A.
Branch in Libya – Tripoli,
Branch in the Czech Republic – Ostrava.

Poszukiwania Nafty i Gazu Kraków S.A.
Branch in Pakistan – Islamabad,
Branch in Kazakhstan – Almaty
Branch in the Republic of Uganda – Kampala.

Zakład Robót Górniczych Krosno Sp. z o.o.
Branch in the Czech Republic – Ostrava.

Polish Oil and Gas Company - Libya B.V.
Branch in Lybya – Benghazi.

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