Good morning, ladies and gentlemen. I hope you hear me clearly. We changed the teams because you've got a lot of requested that Skype was not working properly, so I hope this time will be better. Welcome to the conference call regarding Q3 consolidated financial results of ORLEN Group. My name is Konrad Włodarczyk. I am Head of IR, and I will moderate this call. The presentation will be delivered by me, Michał Perlik, Executive Director for Finance Management, and Marcin Piechota, Deputy IR Director. After the presentation, as usual, we will open the Q&A session.
The whole meeting, as you heard, will be recorded as usual, so the recording will be available on the webpage, and during the presentation, please switch off your microphones. Let's start from key facts of last quarter, slide number three. PLN 25 billion revenues, PLN 8.2 billion EBITDA LIFO, PLN 7.2 billion cash flow from operations, PLN 7.9 billion CapEx spending, net cash position PLN 1.3 billion. This is in a big picture financial in Q3. We've got a lot of things that we did recently in Q4, but, as usual, I picked a few cherries from you from this slide.
So I think that it's worth to underline financial investment decision for the first offshore wind farm on the Baltic Sea, conditional agreement to purchase wind farms in Poland with capacity over 60 MW. Partnership with Horisont Energi for potential cooperation on one of the most advanced CCS initiatives on the Norwegian Continental Shelf. Cooperation agreement with Yokogawa to develop cutting-edge integrated production system in synthetic fuel, launching UCO FAME installation to produce second-generation biocomponents from cooking oil. We got European Commission approval to purchase 266 fuel stations in Austria, so it will be a new retail market for ORLEN probably. The transaction will be at the end of this year.
Kickoff of production from Tommeliten Alpha gas field in Norway, so additional 0.5 BCM gas production per year that will be delivered to Poland via Baltic Pipe, and expansion of underground storage facilities in Wierzchowice. So the capacity of storage will increase by 25%. So I mean, 0.8 BCM up to 4 BCM in total. So now let's move to next slide, slide number five. Macro environment in Q3. So first quarter was characterized really by very high volatility of macro.
Model refining margin, as you see, achieved almost $22 per barrel, so increased by 60% quarter-on-quarter, mainly due to positive impact of higher cracks on diesel, gasoline, heavy heating oil, as well as lower natural gas prices. Diesel cracks increased by circa 80% quarter-on-quarter, mainly due to lower supply as a result of planned maintenance shutdowns of refineries in Europe and on the west coast of India, but also due to the lower supply in the Mediterranean Sea region, as tropical heat reduced refineries' capacity by 10%.
We observed higher demand for diesel in Europe at lower import and transport constraints caused by low water level on the Rhine River, and also temporary ban on fuel export introduced by Russia in September. Gasoline cracks increased by 7% quarter-on-quarter, mainly due to lower supply as a result of plant maintenance, shutdowns of refineries and transport constraints, so similarly as in case of diesel. Additionally, we observed gasoline supply shortages due to closure of third largest refinery in the U.S., I mean, Marathon Petroleum in Louisiana. So, there was a fire in this refinery and the production of this refinery was off.
As a result of changing the structure of processed crude oil related mainly to the reduction of Russian REBCO processing, and of course, the replacement REBCO with more expensive grades of crude oil, differential in Q3 achieved negative value, - $1 per barrel, which means that we are paying a premium compared to Brent quotation. In case of petchem, macro environment remains tough. We still observe low demand for petchem products as a result of economic slowdown and competitive import. In terms of crude oil, Brent quotations increased in Q3 by 11% quarter-on-quarter. However, natural gas prices decreased quarter-on-quarter on Polish Power Exchange, which had a negative impact on upstream segment.
Relatively slow, strong Polish zloty versus the U.S. dollar and Euro impacted negatively on operational results. Now let's move to slide number six. Data regarding consumption of fuels and GDP. In Q3, we observed further signs of economic slowdown. GDP dynamics in all markets, apart from Slovakia and Lithuania, show a drop compared to the previous year. Fuel consumption in the third quarter was higher in the majority of whole markets. Significant increase by 10% was recorded in Poland and Czechia. In the coming quarters, we expect economic recovery in Poland and higher fuel consumption. Next slide, slide number eight. ORLEN Group financial results. In Q3, we achieved, as I've mentioned at the beginning, PLN 75 billion of revenues.
This is mainly due to higher sales volumes and higher quotations of refining products, and lower quotations of petchem products, and lower quotations of hydrocarbons, I mean, lower crude oil and natural gas prices. EBITDA LIFO amounted to PLN 8.2 billion and was lower by -PLN 2.7 billion year-on-year, mainly due to negative impact of lower volume effect, lower differential, lower trade margins, lower petchem margins, hedging, strengthening of Polish zloty versus the U.S. dollar, lower fuel margins in retail, lower margins in upstream, as well as higher overhead and labor costs. Of course, those effects were partially limited by positive impact of consolidation of PGNiG group results, higher refining margins, higher non-fuel margins in retail, lower provision for CO2 emissions, as well as usage of historical inventory layers.
Positive impact of changes in crude oil price on inventory valuation in Q3, so as we call it, LIFO effect, amounted to PLN 1.3 billion and increased reported EBITDA to the level of PLN 9.5 billion. Financials below EBIT line in Q3 amounted to PLN -0.6 billion as a result of negative impact of net FX differences and positive impact of net interest. Net profit in Q3 amounted 3.5 billion, and cumulatively for nine months of this year, over PLN 17 billion. So now let's move to slide number nine, EBITDA LIFO split by segment.
Refining, PLN 1.9 billion, so lower results by PLN 5.5 billion year-on-year, mainly due to negative macro impact, lower sales volumes, lower result of LOTOS Group, lower trade margins, as well as higher overheads and labor costs, and positive impact of usage of historical inventory layers. Petchem, -PLN 4.1 billion, decreased by -PLN 4.8 billion year-on-year, mainly due to negative macro impact, lower sales volumes, and lower trade margin. Energy, PLN 1.3 billion, decreased by PLN 4.3 billion year-on-year as a result of negative impact of macro, negative impact of payments to the Price Difference Payment Fund, and also provision created in Energa Group due to one-off reduction in electricity bills for households, and positive impact of consolidation of PGNiG Group results.
Retail, PLN 4.6 billion, decreased by PLN 4.3 billion year-on-year as a result of negative impact of lower fuel margins and higher costs of running fuel stations, and positive impact of higher sales volumes and higher non-fuel margins. Upstream, -PLN 4.2 billion, decreased by -PLN 1 billion due to negative macro impact, lower sales volumes, write-off for the Price Difference Payment Fund, and higher labor cost, and positive impact of consolidation of PGNiG Group result. Gas segment, the best one, PLN 5.2 billion, higher, of course, by PLN 5.2 billion as a result of positive impact of consolidation of PGNiG Group results.
Corporate functions, -0.4, so higher cost by 4.1 comparing year-on-year due to increase in the scale of ORLEN Group operations. So now let's move to the details of each of the segments, and I will start from slide number 10, refining. So, in Q3, EBITDA LIFO of the refining segment amounted to PLN 1.9 billion, and it was lower by PLN 5.5 billion year-on-year, as a result of negative macro impact at the amount of PLN 1.5 billion year-on-year-on-year. Resulting from lower margins on middle distillates, lower differential, significant decrease by -$8.4 per barrel year-on-year, due to changes in the structure of processed crude oils, negative impact of hedging and strengthening of Polish zloty versus U.S. dollar.
These factors were mitigated by higher margins on light distillates and heavy fuel oils. We had lower cost of internal usage resulting from decrease in crude oil price and also lower cost of provision for CO2 emissions, as well as we had a positive impact of CO2 forwards contract valuation. Negative year-on-year volume effect at the level of - PLN 2.2 billion. This is caused by the decrease in sales and the change in the structure of processed growth due to limitation of REBCO use within the group and replacing it with more expensive grades.
Additionally, in Poland, we had planned and unplanned maintenance shutdowns of major units like hydrocracking, FCC, H-Oil, hydrogen plant that caused a higher share of heavy fractions in the sales structure, which was negative. Sales volumes decreased by 2% year-on-year. Sales of diesel was lower by 5%, LPG by 1%, heavy fuel oil -11% year-on-year. On the other hand, we sold 10% more gasoline and 19% more jet fuel. Other factors include negative impact of lower results of ORLEN Group by -PLN 0.8 billion, lower trade margins, and higher overheads and labor costs, and positive impact of usage of historical inventory layers. Next slide, slide 11, so refining segment operational results. Here everything went smoothly, I may say so.
So crude oil throughput in Q3 was high and reached 10 million tons, which is 94% of utilization. However, comparing to the last year, throughput was lower by 0.4 million tons due to truly saying incomparable reporting period. So just to remind you, in Q3 last year, we consolidated 100% of LOTOS throughput, while in this quarter, since or truly since the beginning of this year, we are consolidating just 70%. In Płock, throughput decreased by 0.5 million tons year-on-year, mainly as a result of maintenance shutdown. While Gdańsk Refinery was working full speed, which resulted in throughput increase by 0.1 million tons.
Throughput and utilization in ORLEN Lietuva and Unipetrol maintains at comparable levels year-on-year. Fuel yields in all of our refineries also maintained at comparable level year-on-year. In Q3, sales volumes of refining products reached 8.8 million tons. We have noticed lower by 7% year-on-year sales in Poland, while in Czechia and Lithuania by -18% and -37% respectively. Slide 12. So we are moving to Petchem, petrochemical segment results. Petchem recorded a loss at the level of -PLN 136 million in the first quarter. So this is the result of weak macro environment coming from lower year-on-year margins on majority of petrochemical products.
It was partially offset by strengthening of Euro versus U.S. dollar, higher margins on fertilizers, and positive impact of CO2 contract valuation. Increase in sales by 2% comes mainly from higher sales of fertilizers. Negative volume effect comes from increase in natural gas consumption due to higher fertilizers production in Q3 this year and lower sales of Olefinss by -8%, PVC by -25%, and PTA by -8%. Volumes increased by 7% in Poland, while in Czechia and Lithuania, dropped by -4% and -50%, respectively. Other factors that had a negative impact on the quarter's results include lower trade margins. Slide number 13, so Petrochemical segment operational results.
In Q3, compared to the last year, we recorded high utilization of fertilizer unit in Włocławek by 13 percentage points, as well as higher utilization of Olefins unit in Czechia by 9 percentage points. Lower production levels were noted in Olefins installation in Płock and PVC in Włocławek. Sales in the quarter reached 1.14 million tons and was higher by 2% year-over-year, and this is mainly due to increase in fertilizer sales by almost 30% year-over-year, while sales of aromatics also increased. Now I will let Marcin Piechota to describe other segments. Please, Marcin, go ahead.
On slide 13, Energa Q3 reached a EBITDA level of PLN 1.3 billion, mainly due to results of Energa Group and ORLEN's units.
We saw a negative impact of the macro environment year-on-year, hedging of energy prices in the Energa Group and ORLEN in particular, with lower margins on energy production in Energa Group and higher margins in distribution. The impact of spread between electricity and gas prices, with lower cost of CO₂ emission provisions, was positive. The result includes a provision established in Energa Obrót for a one-off reduction of electricity bills for households in the amount of PLN 240 million, which is 75% of the total estimated sum for 2023. The negative volume effect year-on-year results from lower production, sales, and distribution of electricity in the Energa Group, and lower production and sales of CCGT Płock and CHP Płock, with higher gas consumption.
Additionally, the segment's result was supported by the consolidation of the PGNiG Group's result and the profit on the dilution of Baltic Power shares in the total amount of PLN 0.3 billion. These effects were partially offset by contributions to the Price Difference Payment Fund at ORLEN S.A. and higher year-on-year cost of transmission and transit fees. Moving to Slide 15, in the third quarter, the ORLEN Group produced 2.8 TWh of electricity, out of which 60% came from renewable energy sources and gas-powered units. Electricity production, including the operations of the former PGNiG and LOTOS Groups, decreased by 13%, which was related to the planned shutdown of CCGT Płock and lower production of the Ostrołęka Power Plant.
Electricity distribution decreased by -2% year-on-year, which is mainly due to lower energy consumption in most tariff groups, which in turn is the result of the introduction of saving incentives. A visible increase in electricity sales by 3% year-on-year results from an increased activity on the wholesale market of the new trading company, ORLEN Energia. Sales of heat from generation amounted to 12.9 petajoules, lowered by 4% year-on-year, due to temperatures higher by 1.2 degrees Celsius in the quarter. Moving to retail. In Q3, segment reached an EBITDA level of PLN 601 million, and was lower by -PLN 255 million compared to Q3 2022.
This results from lower fuel margins year-on-year in all markets and higher operating costs of fuel station, due to both inflation and increase in the number of new locations by 255. The above-mentioned effects were limited by the positive impact of higher sales volumes and non-fuel margins in all markets. Sales volumes in Q3 were higher by 10%, including higher sales in Czechia, Poland and Lithuania by 61%, 9%, and 6% respectively. However, in Germany, sales volumes decreased by -4% year-on-year. The number of fuel stations at the end of Q3, 2023, was 3,153. Year-on-year increase resulted from new locations added in all markets where ORLEN Group operates. In Poland, Hungary and Slovakia, the growth resulted from a merger with LOTOS Group and implementation of remedies.
The number of fuel stations in Slovakia increased also due to launch and rebranding of self-service fuel stations acquired from a local network, while in Germany, the launch of self-service service stations acquired from OMV. Moreover, European Commission has approved the purchase of 266 fuel stations in Austria. As a result, ORLEN Group will be among the three largest fuel chains in this country, with a 10% share in the retail market. Market share increased in Poland, Hungary, Czechia and Slovakia, with a stable share on German and Lithuanian markets. Number of non-fuel locations increased by 273 year-on-year to 2,596. During the year, number of alternative fuel points increased by 101, and reached 701 at the end of September.
Currently, we are the owner of 651 electric car charging stations, 47 CNG, and three hydrogen stations. The number of ORLEN Paczka locations amounted to 9,600. Moving to upstream. The segment posted an EBITDA of PLN -212 million, which was lower byPLN 993 million compared to Q3 2022. This is mainly an effect of significant decrease of hydrocarbon prices. Gas price was lower by over 18% year-on-year, crude oil by 14% year-on-year. Moreover, the segment's results were negatively affected by write-down on the Polish Price Difference Payment Fund in the amount of PLN -3 billion in Q3 2023. Right, therefore, the entire 2023 can reach almost PLN 14 billion , of which ORLEN Group already transferred PLN 9.6 billion by the end of September.
Thanks to the acquisition of the PGNiG Group and the LOTOS Group, the average production of hydrocarbons in ORLEN Group has increased in Q3 by almost 125,000 BOEs per day year-over-year. Gas production was higher by over 100,000 BOEs a day, oil with NGL by 24,000 BOEs a day. On the other hand, compared to the second quarter, production of hydrocarbons dropped by -9,000 BOEs per day, quarter-over-quarter, and with the most significant decline by 6,000 BOEs per day, was recorded in Poland. The main reason for lower production, primarily of crude oil, were maintenance shutdowns. Moving to slide 19, the total 2P hydrocarbon reserves amounted to 1,278 million BOEs. This is the level at the end of 2022.
Average gas and oil production in Q3 2023 amounted to nearly 155,000 BOEs a day. In Poland, it was 69, in Norway, 67, in Canada, 14, in Pakistan, 5, and in Lithuania, 0.3 thousand BOEs a day. Natural gas accounts for 74%, oil and gas and NGL for 26% of total Q3 production structure. On slide number 20, we have a gas segment, which generated an EBITDA of PLN 5.2 billion, out of which PLN 4.8 billion was generated by trade and storage, and PLN 0.5 billion by distribution. Retail tariff remains unchanged on the level of PLN 517 per MWh . Due to falling gas prices, ORLEN Group cut prices for small and medium enterprises.
As a result, in September, the average price for one MWh of gas was around PLN 200, which is -30% lower than in June 2023. Significant impact on segment's results year-on-year, had lower cost of gas due to falling prices on the spot market and in monthly contracts. Compared to Q3 2022, the TTF month-ahead price declined by 84% year-on-year. Average price of all transactions on Polish Power Exchange, including spots and contracts, was PLN 276 per MWh, which is 26% lower year-on-year. Meanwhile, average price of natural gas transferred from upstream division to gas segment amounted to PLN 169 per MWh. In Q3, PGNiG Retail received compensations from the Price Difference Payment Fund, amount of PLN 1.5 billion.
ORLEN Group generated an EBITDA of PLN 0.4 billion from distribution activities, which is stable level compared to Q3 2022. PGNiG Group's EBITDA before consolidation. Gas imports to Poland in Q3 2023 amounted to 43.8 TWh, of which 41% was LNG. Total gas sales outside the ORLEN Group in Q3 decreased by 11% year-on-year, mainly due to merger of companies and high intragroup sales volumes in 2023. Sales of PGNiG Retail also dropped. The decline was caused, among others, by higher temperatures and, hence, lower gas consumptions for heating. Relatively high level of execution prices of sales contracts with falling prices on the current market were still favorable factors from segment's results perspective. Gas distribution volumes in Q3 remained at similar level year-on-year. At the end of September 2023, overall level of stored gas in Poland reached 99%.
At the same time, year-on-year, this level was comparable and amounted to 98%. Now, cash flow and indebtedness will be described by Michał Perlik. Michał, the floor is yours.
Thank you very much. Good morning, everyone. So we recorded another strong quarter in terms of net operating cash flow. The cash flow for the last quarter was PLN 7.2 billion, which was mainly generated by EBITDA of PLN 9.5 billion. There's a very minor change in the net working capital, and only partially deteriorated by increase of deposits on derivatives of PLN 1.2 billion and PLN 1 billion of income tax paid. In terms of cash flow from investment, we see PLN 10.5 billion, mainly generated by PLN 7.5 billion spend on CapEx in the last quarter, and PLN 2.2 billion for purchase of CO2 allowance. Over the n ine months of this year, we have generated in total almost PLN 34 billion of EBITD,
And this amount was distributed first of- On the top of that, we generated PLN 14.4 billion of additional positive cash flow from decreasing need for working capital. The amount was dedicated for CapEx over PLN 20 billion, so that's investment over the last nine months. At the end of September, we distributed dividend to our shareholders of PLN 6.4 billion , which is the highest dividend in the history of Polish capital market. PLN 8.2 billion have been dedicated to purchase CO2 allowance rights and PLN 15 billion for income tax payments.
Over the last nine months, we have improved our net cash position. We have deteriorated our net cash position by PLN 1 billion. Coming to the next slide, even though the last quarter we spent more cash than generated, as I said, mainly for the dividend and investment, we are still on the net cash position of PLN 1.2 billion. Which means that the main bank covenant, which is net debt to EBITDA, is still negative and far below the maximum thresholds established both in our bank facilities agreement and strategy.
We also still have massive banking facilities to be used of almost PLN 30 billion as of the end of last quarter. So these are the main, I would say, highlights related to the cash flows and debt position. And now I hand over to Konrad.
Okay. Hi again. So slide number 25, CapEx, very shortly. So after nine months, CapEx spendings amount to PLN 20.4 billion. We may say that we spent equally, in petchem, refining, energy, and upstream, so roughly speaking, PLN 4 billion in each of those segments. Of course, we maintain CapEx forecast for this year at the level of PLN 36 billion, which means that you should expect a speed up in spendings in Q4 as usual, yeah? Slide number 27. So current macro environment in Q4, Brent crude oil price is higher quarter-on-quarter by 6%.
This is mainly as a result of escalation of Israeli-Palestinian conflict and fears, of course, of the wider destabilization of the situation in the Middle East, as well as, low crude oil inventories in U.S. Model refining margin is lower by 40%, quarter on quarter, due to negative impact of lower diesel, gasoline, and HSFO cracks and higher gas prices. Differential is lower by, circa $0.6 per barrel, so we may pay premium to Brent at the level of $1.6 per barrel as a result of reduction of Urals throughput in ORLEN Group, down to 10%, and replacing it with more expensive grades from Saudi Arabia, Norway, and U.S., mainly. Just to remind you, Russian crude oil is processed only in our Czech refineries.
This is based on the long-term contract. There is also lower quotation of BFO differential that impacted negatively, so 20% quarter-on-quarter lower BFO diff. We're still processing 10% of Russian crude oil. In terms of crack margins on petrochemicals, we observe quarter-on-quarter some rebound, so there could be some first signs of some recovery. In terms of natural gas price on TTF and PPX rises in Q4 as a result of a seasonal increase in gas consumption. So winter season has started, strikes and LNG terminals in Australia, closure of Groningen field, so the largest gas field in Europe, and Balticc onnector failure between Finland and Estonia. Last slide, slide number 28, market outlook for this year.
In 2023, we expect average Brent crude oil price at the level of $80. However, due to conflict in the Middle East, oil prices in the short term may exceed $90 per barrel. Refining margin at the level of circa $15 per barrel, differential at the level of $1.5 per barrel. Petchem margin lower by 20% year-over-year, and gas prices at the level of PLN 200 per MW, and electricity prices at PLN 500 per MW. On a full-year basis, we expect the consumption of fuels and petrochemical to decline compared to the prior year. Lower gas demand as a result of energy crisis, high commodity prices, and decrease in gas consumption, while comparable level of electricity prices.
In the regulatory environment compared to the previous quarter, nothing has changed. So I think that, that's all from my side. Thank you very much for the attention, and, please, feel free to ask the questions.
Ladies and gentlemen, to ask a question, please unmute yourself on MS Teams or press star and six on your telephone keypad.
Hi, Michał Kozak, Trigon. Can you hear me?
Yes, we hear you. Thank you.
Okay, so I have the first question. What was the adjusted EBITDA LIFO in September in refining? Should we expect extending loss in October due to inland discount in Poland? Thank you.
To be safe, let's say EBITDA. We do not provide EBITDA split on particular amounts. What I may say that, generally, in the third quarter, all of our refineries recorded positive results.
Okay, so the second one, would ORLEN be interested in taking up a potential share issue from Azoty? Would the agreement with Basell allow it? How is the due diligence process for Puławy going?
The process for the due diligence process for Puławy is taking place. We, it's still ongoing and hasn't finished. Yeah, we do not change our approach so far. This project.
Okay. So maybe the last one, could you give us some guidance on the CapEx next year?
Well, for the next year, this is everything in line with the strategy. So in our strategy, we said that the CapEx spendings will be on the increasing trend till the end of 2025. So we should expect that according to our prior communication, the CapEx will increase even up to PLN 50 billion, because just to remind you, in our strategy, the CapEx over eight years was at the level of PLN 320 billion. So roughly speaking, PLN 40 billion on the yearly basis. However, we speed up with big flagship projects like first project of the wind farm on the Baltic Sea.
So this is quite CapEx-consuming project, as well as we speed up with Olefins projects, as well. In terms of CCGTs, CCGTs, both Ostrołęka and Grudziądz also are in the kickoff phase. So you should expect that up to PLN 50 billion probably will be achievable. However, of course, as usual, we will be providing, let's say, the exact guidance in Q4 results or the beginning of next year.
Maybe it's also worth mentioning that we have already secured financing for the majority of the investments. Konrad mentioned offshore wind farms, which has been already concluded from the project finance perspectives, non-recourse project finance perspective. So, this financing for 80% of the investment will be not take into consideration when calculating our net debt for the covenants. The same story with financing for CC, CCGT, Ostrołęka. Here, almost 60% is covered by a limited recourse project finance. This is also, this one is also excluded from the covenants, and we are also very advanced in terms of finalizing funding, project finance, in project finance formula for the Olefinss. So all three major investments will be in the finance, in the whole financial structure.
Thank you.
Ladies and gentlemen, we have a question from Anna Kishmariya. Anna, please.
Hi. Hi, thank you very much for taking my questions. Hope you can hear me. I have several questions. First, on the upstream production, what levels would you expect in fourth quarter after the maintenance completed? And if you can give a rough guidance for 2024?
Okay, so, based on the recent news flow and starting up of the Tommeliten Alpha field, we expect a slight increase in production in Norway. So basically, we are targeting somewhere around over 3 billion cubic meters of gas production by the end of this year. And with the continuous works on these fields, we also should expect the increased volumes compared to this year's volumes coming from Norwegian operations.
So basically, Tommeliten Alpha will add roughly half a billion cubic meters of gas production, which in fact will replace some natural decline occurring on the remaining fields in Norway. But what's also important to note is that with the gas produced on this field—from this field, also NGLs and crude oil production will increase in Norway. On the other hand, we have a Polish upstream that should remain rather flat compared. So no significant discoveries, no significant increase in production. This third quarter was exceptional in the way that the crude oil volumes decreased due to shutdowns on major Polish fields, while in the fourth quarter, we should not expect that the volumes will stay at the level that we saw in the third quarter.
So basically, we are targeting higher volumes than in Q3, and probably, compared to, for example, first quarter of this year, a bit lower.
Thank you very much. Another question is, you have realized loss for share in equity investments, if you can comment, where, where did it come from?
Once again. You are referring probably to the write-down on assets that occurred in the gas segments, right?
It's like in your income statement, you have share in profit from investments accounted for using the equity method, and it's PLN 0.9 billion loss for this quarter.
Yeah. So this is, in fact, a write-down that is an effect of changes of the valuation of the investment in the Europol Gaz entity. So basically, due to a decision of the ministry, the ORLEN will be moving towards acquisition of the remaining shares of Europol Gaz, up to 100% of the total shares in this company. So that's why at the end of the reporting period, we have re-evaluated the valuation of the company. That was shown in the EBIT line of the gas segment.
Understood. Very clear. Final one from me, if I may. Is there any updates on government plans to purchase these coal assets from energy companies, including the coal assets from Energa?
Well, the National Agency of Energy Security plan is right now put on hold for forward, we can say, based on the news flow. So we have to wait for the situation to go forward. Currently, we don't have any comments on this.
Understood. Thank you very much.
Thank you. We have another question coming from Łukasz Prokopiuk. Łukasz, please go ahead.
Hello, everyone. Thank you. I have a few questions. Could you please tell us about your strategy on fuels in the quarter in Poland? Did you import fuels or did you consume obligatory reserves? Could you please tell us something about this?
Okay. So generally, according to the pricing policy, so, as you perfectly know, we are quite flexible. So, what we said last time, so we are currently focusing more on volumes, not on margins, so in order to maintain the market share. So truly saying, what our goal was to stabilize prices, stabilize prices as much as possible. If you look on the trade margins, because it's visible on the slide with the refining. So in Poland, in Q3, indeed, there was a huge drop in the trade margins. We may say that it was over 50%, year-on-year lower, both on the diesel and the gasoline. However, I checked the, let's say, historical data, and this was not record low levels.
So we have similar levels of trade margins in the previous year, except, of course, the last year. So I mean, the, from the second quarter 2022, so the period after the outbreak of war in Ukraine, where there was a shortage of products on the market. So then trade margins soared and remained at high levels, we think, till the end of 2022. And since Q1 2022, trade margins in Poland have gradually normalized falling quarter on quarter. So you see that the negative impact of trade margins on all markets in Q3, because trade margins were not only lower on Polish market but also on other market as well, it was -PLN 1.7 billion year-on-year.
However, as I said at the beginning, even despite the fact that we had, let's say, lower trade margins, all of our refineries in ORLEN Group generated positive results. Currently, trade margins are on the increasing trend in Poland. Answering your questions, if we imported, yes, we imported a lot of gasoline and the diesel to Poland in Q3. We do not provide exact numbers. Generally, you may speaking that import of fuels generally increased year-on-year by 700,000 tons. But not only ORLEN, but also other importers as well.
Okay. So the... Well, the poor performance of fuel trade margins in Poland, which we observed in the quarter, how exactly did you book it in the financial statement? Because I would generally expect this effect to be in revenues, but instead, I see it in higher costs. Could you please comment on this?
I never, let's say, clean it up. Let's say, the EBITDA is part of the EBITDA line, for me. So from my point of view, lower trading margins, we treat it as a cost.
Lower trade margin should be booked as costs?
I think so.
Okay. Could we please see page 33 in the presentation? I was looking at the results of different companies and. The previous one, the previous slide, if you may. Yes. Because if I calculate correctly, the refining segment, the total refining segment in 3Q, generated adjusted EBITDA of PLN 1.3 billion. And now, I see ORLEN Lietuva, which generated PLN 815 million, which is the majority of this number. I see ORLEN Unipetrol, which generated PLN 188 million, and it also includes losses in petrochemicals. And I see on, I think it was on page 10, that you mentioned that LOTOS itself generated PLN 200 million in the refining segment.
If I calculate correctly, Poland, despite having 60% utilization in refining assets, generated like, PLN 300 million or something, PLN 300 million-PLN 400 million maybe, million of EBITDA, whereas your different assets, which are said to be less competitive and less efficient, generated the majority of EBITDA. Could you please comment on this?
Yes, I agree. I agree with you.
Okay. Could we see page 10 in the presentation, please? You typically show this waterfall in the effects. And the... I mean, my question, because if I calculate correctly, the inland premium effect, negative one, was around PLN 3 billion-PLN 4 billion negative in the quarter, and, well, it's these figures you present in the waterfall are completely different. And my question: did you change your methodology in calculating these waterfalls?
No, we did not, but please also bear in mind that waterfall shows dynamics year-on-year, yeah?
I know, I know. Exactly.
So you've got lower trading margins included in this box, -PLN 1.7 26 million. Yes, but it's not only, let's say, lower trading margins, but we have also lower results of ORLEN Group, PLN -0.8 billion. We have, let's say, higher costs, at the level of PLN 0.2 billion, offset by, let's say, positive dynamics on usage of historical layers at the level of PLN 0.8 billion. So the remaining part, at the level of -PLN 1.7 milion, is trading margin. So we always presented this like this.
Okay, but you didn't change your, well, the way you count it, yes?
No. No, we didn't.
Okay. Okay, why did you. Another question: Why did you stop showing your Model Refining Margin? It was presented for like—I don't know, 15 years, and I don't know, there is really no reason to change it. Even if you wanted to change it, you could have still shown it until you've changed it. So, could you please comment on it?
Okay, so that was internal decision. We are not showing both refining and petrochemical margins. We follow, let's say, all other majors, and throughout, we haven't seen that they are presenting such data on the frequent basis, like on the monthly basis, that as we did previously. So usually we are presenting those data on the quarterly basis, and in majority cases, it's included in trading statement or in the financial statement, as we did right now, so also in the presentation.
Mm-hmm.
So just to clarify your first question about decrease of margins, whether it's affecting income or cost, it is affecting income. Just, just to clarify.
Revenues.
The revenues, yes.
Okay.
The lower margin are decreasing revenues, not increasing the cost.
Because that's exactly what my question comes from, because I usually expected it to be in revenues, but I don't see it in revenues, I see it in costs.
To comment how you see it in cost, because the costs are also changing with the change of the mix of crude oils, for example, the price of crude oils or the price of energy that we are consuming on the production process, so difficult to comment.
Okay.
Okay.
Okay, one last question. Sorry. Why did you pick your new auditor?
Well, as you probably heard, there was a decision of the Audit Supervisory Office to penalize Deloitte, meaning that there was a decision released that Deloitte will be forbidden to provide audit services for the period of three years. Following the decision, our Supervisory Board decided to terminate the agreement with Deloitte, which actually is a trigger to select the new auditor.
Yes, but I know you had to choose a new one, but why did you choose this one, if I may ask?
This is the decision of the Supervisory Board, which has actually collected offers from the market and selected the auditor based on the experience mainly in terms of auditing big international companies and of course, the price of the services. These were the main criteria.
Okay, thank you. Thank you very much.
Thank you, Łukasz. We have another person in queue. Please, Tomasz Krukowski, please. Go ahead, Tomasz.
Hi, Tomasz Krukowski, Santander. Just two questions. The first one, once again, on this price stabilization. Would you provide some estimate of the total cost that you incurred in the third quarter, which associated with all those activities? I'm talking about lower trading margins, but also the probably loss on import and probably some higher logistic costs.
Unfortunately, we do not provide such a figure, so sensitive information, so we do not provide. We just provide you only the effect, year-on-year.
Okay. So the other question is on gas trading, because this business continues to deliver really pretty earnings. And so, the question is, what is the outlook for the fourth quarter, and how we should think about this business in 2024, given the fact that this year, the margins are tremendous, but in the past, the margins were thin?
Well, indeed, gas trading is generating great results. This is due to the fact that we have this rather high selling prices of gas that were anchored in the third quarter of last year. So as a reminder, it was the period in which the gas prices in Europe skyrocketed to historically all-time highs. And with current portfolio of gas imports and our own upstream activities that are rather priced at spot prices of- or maybe monthly pricing of gas, we have this spread between rather stable selling prices for majority for the wholesale clients, with relatively low compared to the last year's levels of prices costs of procurement costs of in gas segment.
So moving ahead, to the fourth quarter and for the first quarter, we have to keep in mind that the volumes that will be traded will increase due to the seasonality of this business. However, the spread should decline. The spread between the stable costs of stables, sorry, price of gas anchored from based on the yearly contracts or season contracts, will remain, will be lower with all forthcoming quarters, while we can see that the cost of gas is going up in this winter period with some easing in the summer period.
So what we should expect is that the volume effect in the fourth quarter and the first quarter will be significant in terms of the gas business, while the spread will be eventually getting lower. So with this situation in mind, we should see that the gas business eventually, starting from probably next year, will go to the new normality, which will probably transfer the EBITDA part towards the upstream division, rather than stay at this levels that we shown in this in the first three quarters throughout this year.
When it comes to philosophy, hedging philosophy, are you going to hedge the exposure in this business line? I mean, when you sell this in fourth quarter on the forward for next year, let's say at the price of $50, are you going to hedge it in any way? Or if it appears that next year the price is spot price is $100, you're gonna incur huge losses, or if the price is $20, you will be again hugely profitable?
In terms of hedging, we are still keeping the policy of hedging of the open position that we have, that's resulting from the difference between the formulas behind the costs of imports or costs of gas coming from upstream, versus the portfolio of gas that we are selling. The formulas of the contracts at which we are selling the gas. So this remains the same as it was from a couple of years ago, established in PGNiG Group, so there was no changes in this approach.
Thank you.
Thank you very much. We have, Jonathan Lamb in the queue. Please, Jonathan, go ahead.
Good morning. Thank you. A further question about the gas trading business. Given where gas prices are at the moment, wouldn't it be fairly easy to get rid of the fixed price for domestic customers and, and get rid of the need for the compensation fund mechanism? Do you think there's a chance of that happening going forward, if we don't see very high prices in winter?
Well, just to be clear, the compensation scheme is devoted only for the tariff customers, so the retail clients.
Yeah. Mm-hmm.
What we, what we can see from this business, and especially from the results of the gas trading business, is that the spread that I was talking about, it's a spread that's occurring on the contracts in majority with the wholesale clients, industrials mainly.
Mm-hmm.
Because, as you run the company, and you would like to have a gas that will cover your production, that's why many of the clients were interested last year to have the, well, to have the volumes based on the longer contracts, like, for example, year-long contracts, half-year long contracts, seasonal contracts.
Mm-hmm.
That's why this, let's say, I put it in the quotation marks, "stable price," is what we can see throughout this year. This is a price that was anchored last year, and with a steep decline in current prices of gas, that's why we are showing this spread that's positively affecting the results in gas business. In terms of wholesale clients, this is the case. In terms of households, we have a tariff that is based on the portfolio of gas contracts that the PGNiG Retail showed to the energy-
Yeah, exactly. Mm-hmm.
And this is basically a weighted average portfolio of all the contracts and all of the procurement costs that they expect in next year. So that's why this tariff level is way higher than the frozen price for the household clients, and that's why the compensation scheme is introduced.
Yeah, I'm just thinking your costs are going down.
Sorry. So-
So-
Can you hear us?
The compensation scheme becomes less important, perhaps, in a few months or next year sometime.
That's why we wanted to highlight that the household gas prices compensation scheme has been actually implemented only for 2023, and at the moment it is not clear whether it will be extended, and in what form-
Mm-hmm.
It will be extended for the next year. We don't have any details in this respect.
Okay. Mm-hmm. Another. I've got a couple more follow-up questions. Any news on the Venture Global contracts? Any chance that they'll come in, in this quarter or next year?
Well, nowadays, we, we do not comment on, on these contracts. We have to take time and see how the things will go.
Okay. And then there was some shutdowns in the third quarter in refining. Is anything still shut down? Anything, any of these carried on into the fourth quarter?
If we are talking about the fourth quarter, please bear in mind that we have some maintenance, planned maintenance shutdowns in the pipeline. So you should expect that the throughput will be slightly lower comparing quarter-on-quarter. So we are targeting 9.5 million tons of processed crude oil, so 90% of utilization. Truly saying we have maintenance shutdowns in all of our refineries. So in Q4, Płock refinery, 3.7 million tons of crude oil, so 90% utilization ratio. So here we will have hydrocracking five weeks, FCC two weeks, hydrogen recovery five weeks, and H-Oil the whole quarter. In terms of petrochemical part, Olefins will be out of order for the whole month.
In terms of Gdańsk refinery, there will be a closure of CDU unit as well as Claus unit. In terms of Unipetrol, hydrocracking three weeks, visbreaking three weeks, and in ORLEN Lietuva, four weeks. So 38.7 million tons in Płock, 1.8 million tons in Gdańsk, 1.8 million tons in Unipetrol, and 2.1 million tons in ORLEN Lietuva.
Okay, thank you. That's it from me.
Thank you, Jonathan. We have, Krzysztof Kozieł, and Krzysztof, please go ahead.
Can you hear me well? Hello?
Yes, we can hear you.
Hi, I have a few questions. The first one, could you please clarify the question about CapEx? I mean, after three quarters, you have realized, like, PLN 20 billion of CapEx, whereas the target for this year is PLN 36 billion. Could you clarify, is this like cash target or I mean, is it going to be fully expensed in the- Are we going to see PLN 14 billion or PLN 16 billion, actually PLN 16.6 billion in the fourth quarter to be expensed in cash flow? Is it like the target of PLN 36 billion cash target, or is it like, you know, like accounting, something like more accounting CapEx?
Well, you may expect that whole CapEx will be spent in Q4, so spendings at the level of, let's say, PLN 15 billion.
Okay.
Something like that.
The other question I have is about that new fertilizers line. Could you please clarify when is it going to be scheduled for the commissioning? And how do you want to place those additional volumes given, you know, like, in the context of what's going on right now on the fertilizers market? We've seen today that, I think, Achema is shutting down one of the lines. So are you going to be selling that in Poland, or are you going to sell that, I mean, to export that?
Okay. So in terms of expansion of fertilizers, this project was finally, let's say, projected to be completed at the end of this year. Probably it will be a little bit postponed also due to the fact that you've mentioned, so unfavorable macro environment, but probably you should expect that first half of next year is still achievable. So just to remind you, this project, the aim is to increase the number of fertilizers by almost 500 kilotons. So the final level will be almost 1.5 million tons. Additional EBITDA from this project was previously calculated at the level of PLN 150 million-PLN 200 million.
But, we will see, of course, if the macro environment will be unfavorable, we will adjust, let's say, utilization of this new line gradually, not working full speed. Of course, the aim was to sell this domestically, but of course, we have a possibility to sell also, let's say, petrochemical products to the neighboring countries as well.
Okay, thanks a lot.
Thank you. We have a follow-up question from Łukasz Prokopiuk. Łukasz, please go ahead.
Yes, thank you. I was just curious, the source of fuel imports to Poland in 3Q, was it in partly and to some extent from Saudi Arabia? Could you please tell us what was the destination of imports, fuel imports to Poland?
If you look, generally, because we never disclose, let's say, from what directions we are taking, let's say, the volumes. So if you look, on this year, in terms of, gasoline imports to Poland, the majority comes, from Germany then Czech Republic, slightly from Lithuania and Slovakia. And in terms of, diesel, majority of, volumes comes as well from Germany, then from Sweden, Denmark, USA, and that's all, truly saying.
Zero.
Negligible.
Okay, okay. I have another question on, on CapEx, a follow-up on CapEx. Could you please tell us what, b ecause you've got your CapEx plans for the next two years, but could you tell us what is, what are your commitments to CapEx? I mean, the CapEx which, you will have to spend based on your, current contracts.
Well, the easiest way is to go project by project, yes, and the one that I described in the presentation are in majority already committed to starting with the biggest project, ORLEN Wind 3. It's offshore wind farm projects. Two CCGTs mentioned by Konrad are also committed from the contract.
Hydrocracking in Lithuania as well.
Hydrocracking in Lithuania. So all the major projects that are listed in the presentation are committed from this perspective.
The majority of the CapEx plans are, like, committed, yes?
The majority for the next few-
Next two years.
Next two years are committed.
Yes, yes.
Okay. Last question from my side, if I may.
Of course, of course, there can be some shifts related to the schedule of the project, but the majority of the CapEx is committed.
Okay, thank you. Could we come back to the waterfall on page 10 on the presentation? Could you please disclose, I mean, what's in the figures, in the volumes and in the others? Because the macro is well described, it's clear, but could you please tell us or, I don't know, you could comment on what is in this particular number, volumes, -PLN 2 billion, and in the others, -PLN 1.7 billion?
So, in -PLN 2.2 billion is mainly negative volume effect coming from the fact that, we have changed the structure of processed crude oil. So, based on, let's say, more expensive crude oils, the let's say this effect is negative. Additionally, we had also a lot of maintenance shutdowns in Poland that impacted negatively also, let's say, the production yield, if I may say so. So due to the fact that, hydrocracking, FCC, H-Oil, hydrogen plant was out of order, so there was significantly higher share of heavy fractions, which are with a negative quotation. And in terms of others, as I said at the beginning, you have mainly four factors.
So a lot of group results, -PLN 0.8 billion, a lot was generated this year, slightly above PLN 200 million, comparing to more than PLN 1 billion last year. We had lower trade margins. Yearly effect is -PLN 1.7 billion. We have higher overheads and labor costs, -PLN 0.2 billion, and +PLN 0.8 billion. This is the usage of historical inventory layers coming from the fact that this quarter on the refining side, we have a positive impact of historical usage at the level of PLN 500 million. Last year, it was -PLN 200 million, so all in all, +PLN 0.7 billion, PLN 0.8 billion as a result. So this is in a nutshell, what is included.
Nothing was changed in terms of, let's say, booking or, let's say, sticking to all of these figures.
So, to just, if I have it correctly, the negative inland premium effect calculated is PLN 1.7 billion, yes, minus? More or less.
Yes. Yes, so this is the effect year-on-year. Yes, year-on-year, we have a negative from lower trading margins at the level of -PLN 1.7 billion. Yes.
Okay, thank you.
Welcome.
Thank you, and we have Piotr Dzięciołowski. Piotr, please. You have to unmute yourself. Piotr, we cannot hear you.
Okay, I hope you can hear me now. Sorry, it was a bit of a technical missteps. It's Piotr Dzięciołowski.
We can hear you now.
So I have two questions, really. So what is your working assumption going into the next year with regards to the payment to the price differential fund on the gas side? And what is your working assumption on the inland premium for the next year? So how much of the, kind of, your stabilization measure are you planning to extrapolate into the future year? And then beyond that, I want to have a third question, which is around your, kind of acquisition strategy. I mean, do you think the company may need a bit more strategic logic into what to buy and what prices to pay? So I see no kind of a synergy between the Austrian retail stations versus the onshore in Poland acquired at the fairly high multiples.
So I thought the strategy of the company is more to invest in the Polish economy and grow investments organically. So why would you not prefer organic investment creating more value as opposed to acquisitions, which are a little bit of a may look as a random investment? Thank you very much.
Okay, thank you for all the questions. I will start maybe with the assumption for the Price Difference Payment Fund. Nowadays, we are in a situation in which we don't know what the regulation will be for the forthcoming year. So based on the current market environment, we see that, of course, the gas prices are lower than they were, for example, in 2022. That's why the current prices that we observe on Polish Power Exchange are below the tariff price that we are compensated for.
So, the value of the compensations, if it would be prolonged for 2024, should be relatively lower than the assumptions behind the scheme that was introduced, in fact, at the end of 2022 and beginning of 2023. So, hard to say about how this compensation scheme may be funded, and even though we still have to keep in mind that the tariff price is the major factor that compensations are based on. Without the current tariff process to be solved, we cannot target how big the compensation scheme fund should be. So we have to wait for the two things.
First of all, we have to wait for the government to set up the regulations for next year, and then we have to wait for the tariff process to end with the Energy Regulatory Office. So that would be a comment for the gas. But the second question about?
Inland premiums. Yes, about the assumptions of inland premiums. Of course, the answer is not straightforward, truly saying, because this depends on the market conditions, so availability of the final product markets, et cetera. But having a quick look on this year, so we may say that margins, trading margins, especially on the diesel, were on the very high end, truly saying, this year. So I would expect that next year it will deteriorate comparing year on year. Yes. What we observe right now, trading margins in Poland are slowing down. Please also bear in mind that last year there may be more products available globally.
So in the next few months, there could be a pressure on margins, mainly due to new refining capacities coming on stream globally. So I mean, Kuwait, Nigeria, Oman, and Mexico. So in my opinion, year-on-year, there will be a negative impact on the full year basis. However, it may vary quarter-on-quarter.
Okay. Regarding your first question on M&A strategy and M&A targets, I cannot agree that they are random. They are fully aligned with the strategy. And as we presented the strategy in the beginning of this year, in detail, we stated that we want to have, like, 3,500 fuel stations in Central Europe by the end of the decade. And we acquired in Austria to cover the full coverage of the market. So now we have retail ORLEN stations from Poland to Germany, Austria, Czech Republic, Slovakia, and Hungary, in a block of countries that gives you, like, the comprehensive network and allows to win this customer.
Of course, the stations have the fuel, the fuel business has its challenges but we are aware of them, and we, we are aware that we need to transform the business, but we, we treat this, that as, an opportunity, with such a wide network station in Central Europe. Regarding the onshore investments, we declared in our strategy that we want to have 9 GW of renewable energy by the end of this decade. And, we achieved that, or we want to achieve that by a mix of organic and inorganic growth, both in offshore and onshore. As we already today declared, we, we realized that the, the offshore, Baltic Power project, but in onshore, we want to, to get additional capacities, power generation capacities. And, we invest in the capacities inorganically.
So we have organic projects that are going on, and in Energa Group, Energa Green Development company is developing several PV, mostly PV projects right now. But in terms of wind, we invest inorganically in the onshore projects, and we spend that way CapEx on that project. In terms of expansion outside Poland, currently, about 75% of total CapEx is spent in Poland, and we treat Poland as our core market for developing our business. However, we see opportunities in our in other markets, and we see growth opportunities outside Poland, and if we see such opportunities, we want to utilize them.
Okay, thank you very much.
Thank you very much, Piotr. Ladies and gentlemen, we do not have raised hands on the. Oh, we have. Łukasz , do you, do you want to ask a question?
Yes. Yes, thank you. Last question, sorry. One last question about LOTOS, because, I'm looking at the results in 3Q, and LOTOS generated, like, the 200 EBITDA LIFO, which is, like, close to zero, yes? Even though the macro environment was extremely good, yes? Last year, it was PLN 1.7 billion. If I look at these figures, it seems as if the inland premium effect was much higher than PLN 1.7 billion, because, looking at these figures and taking into consideration that LOTOS had 100% utilization, yes, if I understand correctly, there was no maintenance shutdowns in LOTOS. So the only factor in LOTOS, which would downgrade the results, was, I don't know, the inland premium effect, apart from remedies. Could you please try to explain why was the results of LOTOS in the refinery segment so poor?
Well, truly saying, I don't have a split of such a data. I may come back to you offline with this, truly saying, because we are not splitting. Yes, we are showing and seeing only the final results. Yes, we are not thinking what's going on, let's say, in LOTOS refinery, as well as we are not thinking and splitting, for example, Unipetrol refineries on Kralupy and Litvinov, yes?
Mm-hmm.
So, but generally, yes, you are right. There were no maintenance shutdowns, both in the first quarter last year and this year. There could be, let's say, negative effect also about. There could be lower margins, because please bear in mind that, as you said, 100% was consolidated last year. This year is consolidated 70%, but we are also selling partially, let's say, the final product from LOTOS to Saudi Aramco, yes? So this is, without, let's say, any margin, truly saying. So that was not a case last year. And, in terms of, let's say, crude oils, probably there is nothing changed, except the fact that, for example, in LOTOS, we are also paying more for crude oil than it was last year.
Yes? Even, even taking into consideration that last year we were not processing Russian crude oil in LOTOS, and right now we are not processing also Russian crude oil in LOTOS, but alternative grades are more expensive. So this, this is additional cost. So it's not only, let's say, inland, premium pressure, but definitely other, other factors that impacted negatively the LOTOS results. But truly saying, I do not have a split of LOTOS separately on the results, so I cannot precisely tell you, what was in the figures.
But can I have a follow-up on this? How much products from LOTOS are sold based on market values? Is it 70% or 50%?
70%.
70%?
Yeah.
Okay. Okay, that's all from my side. Thank you. Thank you very much.
Okay, thank you very much, Łukasz . We have no, no, people in the queue, so if anyone of you would like to ask a question, it may be this time. Please, unmute yourself, and ask a question. If you are dialing in via phone, please press star six, and then you will be unmuted. Okay, so it seems that we have no further questions. So, please, Konrad, floor is yours for your final remarks.
Yeah, so if there are no more questions, thank you, thank you very much for being with us. I hope that we clarified, let's say, majority of your questions. I know that it was a tough quarter, especially on the refining, and there were a lot of question marks, but I hope that majority of them were solved, and we revealed some of the information. So thank you very much again, and take care. Have a nice day, guys.