PGNiG to Lift Foreign Oil and Gas Output as Competition Toughens

Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s dominant gas company, plans a sixfold increase in gas and oil production abroad to counter strengthening competition on its domestic market.

The Warsaw-based utility wants to invest as much as 50 billion zloty ($14 billion), including in acquisition of exploration and production assets, as it seeks to boost foreign output to about 50 million barrels of oil equivalent by 2022, according to a new strategy for 2014-2022. Regulatory changes will “adversely affect revenues,” PGNiG said in the document published late yesterday.

The state-controlled company, which buys about 60 percent of natural gas from Russia’s Gazprom OAO through a fixed-tariff contract, is competing with cheaper imports from Germany as European prices fell 21 percent this year. PGNiG is also under pressure from regulators to sell more fuel through an exchange rather than in bilateral deals with buyers.

The company “needs huge acquisition effort to fill the domestic revenue gap,” Flawiusz Pawluk, head of equity analysts at UniCredit CAIB in Warsaw, said by phone. “If PGNiG gets producing assets quickly, it will boost earnings faster than expected and it will be a positive surprise.”

PGNiG gained 2 percent percent to 4.54 zloty in Warsaw at 11:18 a.m. compared with a 0.3 percent increase in the benchmark WIG20 index. The gain trimmed this year’s decline to 11.8 percent, while the index dropped 3.8 percent.

Output Increase

The company more than doubled its oil output in 2013 from a year earlier after starting production in Norway and opening a new well in Poland. In October, PGNiG agreed to buy stakes from Total SA in three fields already producing oil and in one that’s being developed, bringing a 60 percent production increase outside Poland.

PGNiG said it expects to maintain the current level of earnings before interest, taxes, depreciation and amortization until 2018. New upstream facilities will help boost annual Ebitda to about 7 billion zloty by 2022, from about 6 billion zloty now. The company wants to cut costs by as much as 800 million zloty through 2018, and plans to invest in new heating units.

PGNiG pledged to keep its ratio of net debt to Ebitda at less than 2, compared with the current rate of 0.6. It expects to pay half of consolidated net income as dividend from 2015.

The utility sees domestic output staying at the current level of about 33 million barrels of oil equivalent a year. PGNiG will continue searching for shale gas in Poland to test “economic viability” of possible production, it said.

Before it's here, it's on the Bloomberg Terminal.