Orlen to Review Strategy as Low Oil Pushes Refiner Into Loss

  • Biggest Polish refiner may need strategy review, new CEO says
  • Strategy won't be `a revolution,' CFO Jedrzejczyk says

PKN Orlen SA posted a fourth-quarter net loss, missing analyst estimates, as falling oil prices pushed Poland’s biggest refiner to again write down the value of its production assets. The company may need a strategy review, its new chief executive officer said.

The fourth-quarter loss narrowed to 81 million zloty ($20 million), compared with 1.22 billion zloty a year earlier, as a quarterly drop in oil prices was milder than in 2014, Orlen said in a regulatory statement on Thursday. That missed the 144 million-zloty average estimate of profit seen by seven analysts surveyed by Bloomberg.

PKN Orlen Net Income/Loss Compared With Oil Price
PKN Orlen Net Income/Loss Compared With Oil Price

Orlen, which has been buying oil and gas producing assets in North America for the last three years, had to write down 423 million zloty of their value as crude prices slumped to the lowest since 2003. An 18 percent decline in the oil price during the last quarter alone forced Orlen to cut the value of fuel in its tanks, which reduced the profit by 1.11 billion zloty.

The company doesn’t plan to buy more upstream assets this year, Chief Financial Officer Slawomir Jedrzejczyk said at a press conference in Warsaw on Thursday, adding Orlen will keep its policy of increasing dividend each year.

Orlen's dividend depends on previous year's market capitalization. Payout will grow this year as market cap was record high in 2015.
Orlen's dividend depends on previous year's market capitalization. Payout will grow this year as market cap was record high in 2015.

The stock was little changed by 3:34 p.m. in Warsaw, following a decline of 3.6 percent in the last two days after the government announced unexpected plans to tax gas stations with an additional retail levy, which analysts say could cost the company about 300 million zloty a year.

The tax could apply to a maximum of about 20 billion zloty of annual sales that Orlen gets from local gas stations and would cost the Plock-based company more than 200 million zloty, Jedrzejczyk said.

‘No revolution’

“The macroeconomic situation is slightly different today than when the company announced its strategy in mid-2014,” CEO Wojciech Jasinski said Thursday. “That’s why our financial goals may need a new approach. We don’t rule out a strategy review to be able to react flexibly to market changes.”

The update won’t be a “revolution,” according to Jedrzejczyk, who along with Jasinski declined to comment on the initial analysis that the Treasury Ministry is conducting to see if it could merge Orlen with its smaller refiner competitor Grupa Lotos SA and gas company PGNiG SA.

‘Lack of clarity’

The analysis, announced by Treasury Minister Dawid Jackiewicz earlier this month, was one of the reasons Erste Bank Group AG cut recommendations for all three companies, citing “lack of clarity” on the government’s plan.

Jasinski, a close ally of the ruling Law & Justice party chief Jaroslaw Kaczynski, took over the state-controlled company following October parliamentary elections. His political background acts in his favor, Jackiewicz told Puls Biznesu newspaper earlier this week.

Orlen, which buys more than 90 percent of its crude from Russia, “faces strong competition from expansive Russian companies and the CEO needs to understand it,” Jackiewicz said. “If Gazprom is carrying out Russia’s economic policy, Orlen can do it for Poland as well.”

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