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In the coming periods, the financial standing of the PGNiG Group will be materially affected by changes in the prices of hydrocarbons on global commodity markets and fluctuations in foreign exchange rates. These factors will be of particular importance for the PGNiG Group’s performance in the Exploration and Production and Trade and Storage segments.

Any changes in hydrocarbon prices affect revenues of the Group entities engaged in production, and determine the demand for seismic and exploration services offered by the Group companies. Rising gas and crude oil prices have a positive effect on performance generated by the Exploration and Production segment. Long-term forecasts of hydrocarbon prices strongly influence projected cash flows from production assets, and as a consequence entail the necessity of revaluation of property, plant and equipment.

On the other hand, in view of the fact that the prices of gas purchased by PGNiG under the Yamal and Qatar contracts are linked to prices of crude oil, the effect of rising oil prices on the performance of the Trade and Storage segment is opposite to the effect that rising oil prices have on the performance of the Exploration and Production segment. Any increase of crude oil prices translates into higher cost of gas purchased by PGNiG. This correlation may change following a ruling by the Stockholm Arbitration Tribunal regarding the price formula used in the Yamal contract.

The PGNiG Group’s financial results will also be materially affected by situation on the domestic currency market. Any strengthening of the złoty against foreign currencies (primarily the US dollar) will have a positive effect on performance of the Trade and Storage segment by driving down PGNiG’s gas procurement costs, although it must be noted that the effect of exchange rate fluctuations is mitigated by the PGNiG Group’s hedging policy.

The PGNiG Group’s financial results will also be affected by the President of URE’s position regarding the level of gas fuel sale and distribution tariffs and heat sale tariffs. In addition, the progressing deregulation of the gas market in Poland will continue to put pressure on the performance of the PGNiG Group’s Trade and Storage companies engaged in the provision of gas sale services. Competition for customers has prompted the launch of a number of discount schemes dedicated to customers buying gas from the Group and the change in pricing terms to reflect market prices. These factors may have an adverse effect on the profitability of the Trade and Storage segment by eroding its margins.

However, the PGNiG Group companies have put in place a number of initiatives to improve efficiency. These initiatives focus, among other things, on optimisation of the cost base and are expected to have a positive effect on the PGNiG Group’s financial results.

In the Generation segment, financial results will also be considerably affected by the support programmes for electricity produced from high-efficiency cogeneration sources and renewable sources. Legislative changes in this area and fluctuations in market prices of certificates of origin (both red and green) will have a bearing on the segment’s financial position. Another key factor affecting the segment’s performance are prices of the fuels used to produce heat and electricity.

In the coming quarters, the Group intends to maintain a high level of capital expenditure. Spending will focus primarily on projects involving maintenance of hydrocarbon production rates, as well as projects in the exploration for and appraisal of crude oil and natural gas deposits, and development of the power generation segment.

Capital expenditure* on property, plant and equipment planned by the PGNiG Group in 2018

PLNm 2018**
I. Exploration and Production, including: 2,327
1. Norway 386
2. Pakistan 193
3. Libya 6
II. Trade and Storage 160
III. Distribution 2,159
IV. Generation 1,068
V. Other Segments 183
VI. Total capital expenditure (I-V) 5,897
including PGNiG 2,094
* Including capitalised borrowing costs.
** Planned expenditure does not include expenditure on potential acquisitions.

The above amounts do not include potential expenditure on acquisition of hydrocarbon deposits or acquisitions in the power sector.

When evaluating the feasibility of its investment plans for 2017 and beyond, the PGNiG Group took into account its financial standing, including the available sources of external financing and cash generated by the Group’s day-to-day operations. It can thus be concluded that the funds available to the PGNiG Group were found sufficient to finance its investment plans.