Good day and welcome to the PGNiG Group Financial Results for Q3 2021 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Marcin Piechota. Please go ahead. Ladies and gentlemen, welcome to the conference of the PGNiG Group's financial performance for the third quarter of 2021. The meeting is hosted by Mr. Przemysław Wacławski, Vice President for Finance. He is accompanied by Investor Relations and Performance teams with our Norwegian office on the line. Let us begin with presentation of the financial results, and then we'll proceed to our customary Q&A session. The highlight of the third quarter of 2021 was the satisfaction of all the conditions precedent and conditions for the acquisition of control over INEOS E&P Norge AS. As a result of the transaction, the total number of our licenses in the Norwegian Continental Shelf increased to 58, and the recoverable reserves of hydrocarbons attributable to PGNiG Upstream Norway rose to 331 million barrels of oil equivalent. In September 2021, PGNiG signed amending annexes to the LNG supply contracts with its U.S. trade partner, Venture Global LNG, to purchase additional 2 million tons of liquefied natural gas per year for 20 years. As a result, the total volume of LNG to be purchased from Venture Global LNG will increase to 5.5 million tons per year, equivalent to approximately 7.4 billion cubic meters after regasification. The first deliveries are scheduled for early 2023. In the third quarter of 2021, the US dollar appreciate by 7 grosz year-on-year to PLN 3.87, while the euro appreciate by 13 grosz year-on-year to PLN 4.57. The average quarterly oil price rose over 70% to around $72.9 per barrel. Translated into the Polish złoty, the quarterly oil price rose by approximately 74%. The weighted average price of gas under contract traded on the Polish Power Exchange rose to approximately PLN 118, up by over 50% relative to the third quarter of 2020. During the quarter, the average mean price on the day-ahead market rose by as much as 450% year-on-year to over PLN 233 per MWh. Price increases in foreign commodity markets were even sharper. The prices under monthly gas futures contracts on both TTF and Gaspool increased by more than 500% year-on-year. In the third quarter, the group posted EBITDA of PLN 2.2 billion, higher than in the third quarter of 2020 when the reported EBITDA came in at PLN 1.3 billion. The PGNiG Group's aggregate revenue was PLN 12.5 billion, up by about PLN 6.1 billion compared with the third quarter of 2020. Revenue from sales of gas, taking into account the effect of hedging transactions, increased 175% year-on-year to PLN 9.6 billion, with a 9% increase in sales volumes, which amounted to 5.9 billion cubic meters. Operating expenses, excluding depreciation and amortization, doubled year-on-year to an amount of PLN 10.3 billion. Let us now move to discussing the performance of each segment. The exploration and production segment EBITDA was approximately PLN 2.7 billion, much above the EBITDA of around PLN 500 million recorded the year before. Key drivers behind the improved results for the quarter included certainly the record high gas prices and high oil prices in the commodity markets. Due to a rebound in market prices of natural gas, the upstream segment reported an increase in revenue from sales of gas of more than 400% year-on-year, nearly PLN 1.9 billion more than in the previous year. Sales of crude oil rose by nearly PLN 321 million or 90% year-on-year on stable oil production volumes of 330,000 tons. The trade and storage segment posted an increase in total revenue to nearly PLN 10.5 billion or 125% year-on-year, with a 184% increase in operating expenses, excluding D&A. The revenue from gas sold in the third quarter, taking account the effect of hedging transactions, increased by PLN 5.62 billion year-on-year or 143% to over PLN 9.6 billion, with the volume of segment sales outside the group higher by 10% year-on-year. On the other hand, the segment's cost of gas rose to PLN 9.4 billion or approximately 230% year-on-year. It's worth noting that the retail tariff for household clients since August first was increased by 12.4%. The results are undoubtedly attributable to the higher hydrocarbon prices recorded in the third quarter of 2021, but also to the hedging policy. The result on settlement of hedging instruments designated to hedge accounting was negative at -PLN 79 million in the third quarter of 2021 and was lower than the results achieved in the third quarter of 2020. The results recognized in gas inventory as a reduction of procurement costs was +PLN 385 million compared with -PLN 80 million recorded in the third quarter of 2020. Moreover, the net loss on derivative instruments recognized in the net- Other income expenses in segment was -PLN 812 million, representing the balance sheet valuation of unsettled derivative transactions that at the end of the Q3 did not meet the criteria of hedge accounting. In the third quarter of 2021, the distribution segment's revenue went up 8% year-on-year to nearly PLN 1 billion. The segment's results benefited mainly from a 3.6% year-on-year increase in the distribution tariff, effective from February 1, 2021, and a 7% year-on-year increase in gas distribution volumes, with the average temperature in the quarter down -0.6 degrees Celsius. Operating expenses, excluding depreciation and amortization, fell over 20% year-on-year to approximately PLN 434 million. This was mainly attributable to a higher level of other income and expenses, up by PLN 201 million or 228% year-on-year in connection with the sale of real property by Polska Spółka Gazownictwa. As a combined effect of these factors, the segment's EBITDA for the quarter rose 50% year-on-year to PLN 544 million. The generation segment posted a 25% year-on-year increase in revenue from sales of heat in the third quarter of 2021. Revenue from sales of heat was mainly supported by higher tariffs, the heat generation transmission tariffs applied by PGNiG Termika. The volume of heat sales was 21% higher year-on-year. In the third quarter of 2021, revenue from sales of electricity from all sources rose by 13% year-on-year, mainly on higher electricity prices, which more than offset the 4% drop in sales volumes. In the third quarter of 2021, the segment depreciation and amortization expense increased by 7% year-on-year to almost PLN 93 million. Additionally, the provision for a deficit in CO2 emission allowances increased to PLN 91 million. Overall, the segment EBITDA came in at -PLN 21 million, down almost 160% year-on-year. Thank you for your attention. We'll be happy to ask your questions now. Thank you. If you wish to ask a question, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. A voice prompt on your telephone will, uh, tell you when your line is open. We will now take our first question. Caller, your line is open, please go ahead. Hello. It's Piotr Dzięciołowski from Citi. Can you hear me? Yes, we can hear you, Piotr. Okay. I have two questions, please. The first one, can you please tell us what level of the retail tariff increases are you expecting from the beginning of the year for 2022? That's the first one. Second, can you please tell us what is your understanding on the Nord Stream 2 situation? The, you know, the, certification of the pipe was, delayed or kind of suspended temporarily by the Bundesnetzagentur. What is happening there and when do you expect the pipeline to be, commissioned? This would be my first two questions. No, sorry. I have the third one, was on the gas prices versus Polish industry. Can you confirm how some of your largest customers are being contracted in the new gas? Is this gas indexed to the spot market or is it more medium-term for the calculations, and so, you know, the fertilizer producers or the chemical plants in Poland, how are they accounting for the cost side? Przemysław Wacławski, PGNiG CFO. With respect to the first question, regarding the retail tariffs increases starting from the next year, of course, we have an understanding that the prices of gas increased significantly. It is expected that the tariffs shall increase. However, this is a confidential process between PGNiG, and we shall not comment any feedback on that until the final decision is made by the regulator. Grzegorz Kołuś, Head of Strategy Department. With regards to the question concerning Nord Stream certification process before Bundesnetzagentur in Germany, the current status of the proceeding is on hold. There are two important elements that we should pay attention to. The first is that the BNetzA required Nord Stream 2 AG to move an entity that is submitting the motion for certification to the EU regime as required by the directive. The current submission was put forward by a Swiss company, and Switzerland did not transpose Third Energy Package accordingly. Hence, Swiss entities are not entitled to be host countries for certified entities under these proceedings. Due to this, let's say technical legal problem, the proceedings, as I said, were put on hold. This means that before next step is made by Bundesnetzagentur, it should take. Well, you could count that number of weeks or months to reorganize the whole enterprise accordingly on the Nord Stream 2 site. Then once Bundesnetzagentur issues its draft decision, it should seek opinion from the European Commission, which will require additional 2 months. That is in terms of the first issue. The second issue is the form of independent transmission or the model of the Independent Transmission Operator. This is the issue to which we have been emphasizing in our press releases so far. Nord Stream 2, as we know, is applying for the ITO model of unbundling. However, if you read carefully the directive, they put a cut-off date on September 3, 2009, for entities that are eligible for this type of model. This is another issue that could be problematic with regard to the certification process of the pipeline. We're looking closely at it, but we do not expect the pipeline to come online in the coming weeks. Okay. Thank you. We will now take our next question. Caller, your line is open. Please go ahead. Hi. Can you hear me? Yes. Hello. Yes. Michał Kowalczyk. Hi. I have a couple of questions, maybe the first one. What was the EBITDA effect in distribution of selling property of PSG? In financial statements, there is income from the sale that amount to over PLN 200 million but it seems a little bit high. Could you give us comment on this? The revenue coming from the sales of the property was over PLN 200 million. This is due to the fact that this asset was already depreciated. That's why we showed the revenues coming from this operation at this level. Okay. What was the EBITDA effect in the third quarter of the sale? It was this PLN 200, over 2,200 million zloty EBITDA. Mm-hmm. What was that property? It was an office building located in Gdańsk region. Okay. Thank you. The second question, what would be the impact of the PKN transaction with PGNiG on 48% shares that you have in EuRoPol GAZ? Is there a risk that the share will be lower after transaction? Well, in terms of this transaction, there will be no any negative effect on the amount of the shares that will be in the possession of the company that is taking over the stake that currently is owned by the PGNiG. There will be no any negative influence on this matter. There is no risk concerning EuRoPol GAZ? No, we don't see any risk in this, in this case. Thank you. My last question, would PGNiG be interested in a merger with Lotos in the case of failure of PKN and Lotos merger? You don't have exposure to refining business, so there will be no need to sell this business in Lotos to other companies. Well, I understand the question. However, at the current situation it is difficult to comment on that. For the moment, we are not considering this scenario. Still, PKN Orlen is in the process with Lotos. Thank you. We will now take our next question. Caller, your line is open. Please go ahead. Hi. This is Tomasz Grzechnik, Santander. A couple of questions, if I may. The first one refers to your tax, effective tax rate in first quarter, it was at 50%. Could you give some color on that? If you could give us some guidance what effective tax rate we should expect in the fourth quarter or maybe average for the full year? The second question refers, I think it was already asked, but I haven't caught the answer. It was about your trading contracts with your largest client. The question is whether in current environment, are you able to make any profit or be at around zero on the contracts for gas supply to your largest clients or like refineries or fertilizer producers? Thank you. Okay. Thank you for your questions. Regarding the gas prices, the gas contracts with our wholesale clients, we wanted to get back into this question. Thank you for this. Regarding our business with our major clients, this is a business that operates on basically benchmarked to different indices that the companies has charged based on what's happening on the current market prices. This depends on what the supply and demand is coming from the companies. They put their volumes for us to provide it with the gas depending on their needs. Basically this is current market prices but we cannot comment whether this is spot prices or this is forward prices. Varies from time to time regarding what are the needs coming from the clients. That's the first part of the answer. The second part is regarding margins. The margins of course varies depending on the time on our procurement costs and the time when we are booking the volumes for those clients. It varies from month to month from week to week depending on what's happening on the market. That's what we can say right now regarding the margins. In general, is this business profitable? Oh, it depends, of course, on the moment, right? There are part of the business that are profitable. There are parts of the business that may not be currently profitable, but of course it may change throughout the time. It varies from month to month regarding what's happening on the market. Thank you. We will take a Regarding- Oh, sorry. Regarding the questions regarding the rate, we'll get back into it just in a couple of minutes. Okay? Shall we move to the next question? Yes, please. Perfect. Your caller, your line is open. Please go ahead. Hello. Can you hear me? Yes, we can hear you. Hello. Łukasz Prokopiuk, DM BOŚ. I have two questions. One on your hedging in the third quarter. The hedging that entered equity capital, the unrealized hedging of PLN 940 million losses, will it enter the results, the PNL in the fourth quarter? That's my first question. The second question is, I would like to have a better understanding of the margins generated in the trading segment. Can you confirm that the biggest margins on the sale of gas were generated on small and medium industry clients, and the biggest losses, that they were generated on retail consumers? Okay, thank you for your question. Regarding the hedging, this amount that you mentioned, it may in part be shown in the fourth quarter results. Just to stress that this is a valuation at the end of the quarter, and therefore still there are some transactions that will be made, some transactions that will be settled. Therefore, we cannot say for sure that this will be if the prices will be the same, that the level of the valuation at the end of the quarter will be the same, let's say, for the next quarter. Part of this number may go to the hedge accounting. Part of this number may still stay in this other profit and costs regarding operations. This is due to the fact that, of course, the market is volatile. The nominal prices are high. That's why this number rose at the end of the quarter to this level that we showed in the financial statement. Great, thank you. The margins- Okay. Can you confirm the margins generated on small and medium industry clients and retail? Yes. We cannot comment on the levels of margins in different client groups. We'll have to pass on this. Oh. I mean, it's like a general statement. Is it more or less true that the biggest margins were generated on small and medium industry clients? I mean, I don't know. Can you confirm this or not? Well, because you want the general answer, that's why we cannot comment on the general assumptions behind that, because it varies from time to time. Regarding the small and medium enterprises, those are clients that are based on the tariff list. I'm sorry, on the pricing list that is rather more flexible than the tariff prices. They can adapt to the current situations more easily than the household clients that are regulated by the tariff set by the regulator. That's what we can say right now regarding the retail business. Because what I think I see in the trading segment in the third quarter is that you generated a very visible, significant premium in prices on gas sold versus the average real weight gas prices on the TGE. I don't know how it is possible because it's obviously not tied to retail because of the retail tariff. Is it generated in the biggest clients or is it the industry clients? Am I correct to see this premium? We cannot confirm on this matter right now, so sorry for that. Okay. Thank you. Just to recap on the effective tax rate, this tax rate that we showed is mainly influenced by the Norwegian tax regime. Maybe our colleagues in Norway can comment on that. Hi, here is Cyryl from Norway, CFO of Norwegian activities. Regarding Norway, I think it should be probably taken into account in valuation of our business, divided into separate segments. The marginal tax rate that upstream companies are paying in Norway accounts for 78%. At the P&L level, from more or less profit before tax, 78% is transferred into the tax line. However, important remark is that Norway is offering substantial incentives for companies investing in Norway. As a company, PGNiG in Norway is not paying currently 78% taxes due to utilization of these incentives like uplift, etc. I can mention that in 2021, it actually derived from our cash flow as well. For the time being, we haven't paid any taxes in Norway due to effective utilization of incentives. However, accounting-wise, we accounted for deferred taxes at the level of 78%. To sum up, in P&L, you will see for Norwegian activities 78% taxes, but this is not the same amount that is further recognized through the cash flow. Thank you. As a reminder, to ask a question, please press star one. We will now take our next question. Caller, your line is open. Please go ahead. Yes, good morning. Oleg Klipin is here from Raiffeisen. I hope you can hear me. Yes, we can hear you, Oleg. Yes. I have one follow-up question and plus another one. The follow-up is on gas trading business. I understand that you cannot talk about margins for different group of clients, but maybe you just can help us understand to which extent the loss in the third quarter was triggered by the retail-based sales versus wholesale contract. That would be my first one. The second one refers to your oil and gas production in the upstream segment, where we saw a very nice increase in the third quarter versus the second quarter. I was wondering if you could make some comments with respect to what. What to expect in the fourth quarter? Yeah, just one comment. I was referring to the Norwegian production. Thank you. Okay. Thank you, Oleg, for your questions. Regarding the oil and gas production, we will be probably issuing some forecasts that will in the forthcoming weeks show what will happen in terms of general volumes both in Poland, Pakistan, and Norway. Regarding what to expect in Norway, maybe we will ask our colleagues from the Norwegian office to comment what to expect on the Norwegian shelf, if they may. Again, here is Cyryl from Norwegian subsidiary. Regarding detailed production forecast, unfortunately at this point in time, we are not able to provide it. I think a very good approximation of our expected production can be derived from all press releases and information which was announced post our transaction at the end of March 2021. We then informed that thanks to this transaction, gas production in Norway should increase to a level of 2.5 billion cubic meters, and in the following years increase further. There was also a presentation with the production graph going forward, and what I can mention today is that this information is not far from our existing detailed plans. These plans will be announced soon, as our colleagues from IR announced. I think they can be, for the time being, used as a very good proxy of what you should expect from Norway, in terms of production volumes. Thank you, Sir, for your comment on that. Moving back to the gas trading business, we would like to pass on this right now because, as mentioned earlier, the level of tariff prices, the level of pricing list for the retail business, as well as the volatility and the wholesale markets, this is a part that we rather don't want to comment currently right now. Understood. Thank you. We will now take our next question. Calling your line is open. Please go ahead. Hello. Thank you for follow-up question. Just a quick one from me. Can you tell us when do you expect the Baltic Pipe to connect, and what are the expected volumes of gas shipments from this pipe? What's the timeline on this? Regarding the Baltic Pipe project, the project is on time, so we are expecting this connection to be operational starting from October 2022. In regards of the volumes, we do not comment right now on this matter. We are, of course, looking for partnerships on the Norwegian and North Sea just to fill this connection with not only our equity gas but also our gas purchase there. Everything seems to be on time in terms of this project. More information probably in forthcoming time. Okay. Thank you very much. As there are no further questions at this time, I'd like to turn the call back to your speakers for any additional closing remarks. Ladies and gentlemen, as our conference call is coming to an end, we would like to invite you to join our press conference, which will be held at 11:00 A.M. and streamed online on our website. Thank you very much for your participation in today's event. If you have any additional questions regarding Q3 results and other developments of PGNiG's operations, please contact our IR team. Thank you for your attention and have a nice day. You may now disconnect. Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.