PGNiG Reports Third Quarter Profits of over $413MM

During the first three quarters of 2008, the PGNiG Capital Group generated a net profit of PLN 1.24 billion, with the consolidated net profit of the PGNiG Capital Group for Q3 2008 amounting to PLN 180 million. The financial results achieved by PGNiG in Q3 2008 are close to the financial market’s expectations and confirm the stable position of the company.

The natural gas import costs had the largest impact on the company's results for Q3 2008. The natural gas import prices are settled mainly in USD, with the price formula based on a nine-month moving average of oil and oil-related products, the prices of which are almost 100 percent correlated with oil prices on the global markets.

Therefore, the price for which PGNiG purchased natural gas in Q3 2008 was based on the oil product prices in Q4 2007, Q1 2008 and Q2 2008. The nine-month average of oil prices for Q3 2008 increased by nearly 19 percent, compared to the average for Q2 2008, i.e. to the level of 102 USD/bbl, which means as much as a 65 percent increase compared to the natural gas purchase price from Q3 2007. This translated to a 60 percent increase in the natural gas import cost compared to the similar period of the previous year.

The financial results were also impacted by the decrease in domestic production, related to, among others, a lengthy refurbishment of Debno oil and gas production facility and a breakdown at one of the Group's business partners, resulting in decreased production.

It should be noted that sales revenues increased by 17 percent. Sales revenues for Q3 2008 amounted to PLN 3,654 million, compared to PLN 3,135 million during the similar period of 2007. This mainly resulted from the larger natural gas sales revenues, but also from higher proceeds from geophysical, geological and exploration services.

PGNiG has been steadily increasing the scope of its operations beyond natural gas trading. In the first three quarters of 2008, the revenues from exploration services increased by 40 percent, compared to the similar period of 2007, while the revenues from geophysical and geological services increased by 25 percent.

The company has been active in the field of oil and gas exploration, both in Poland and abroad. On November 7, 2008, PGNiG Norway applied to the Norwegian Ministry of Oil and Energy for exploration licenses, as a part of the 20th licensing round. This round covers only new areas of the Norwegian Continental Shelf which previously had not been granted for exploration.

In Poland, PGNiG has been conducting intensive exploration efforts in the Lesser Poland/Carpathia and Greater Poland oil provinces, where prospective natural gas deposits have been discovered in a red sandstone layer.

Investments of strategic importance to the company have been steadily implemented. In Q3 2008, the implementation of Lubiatow – Miedzychod – Grotow project was started. This investment project is one of the elements in the strategy of increasing the market value of PGNiG SA, while being also important in increasing the national energy security.

In Q3 2008, during the turmoil on global financial markets, PGNiG SA share price increased by 3 percent, while WIG20, the index of WSE's 20 blue chips, fell by nearly 7 percent.