PGNiG Adopts New Strategy, Poland

Polskie Górnictwo Naftowe i Gazownictwo SA has adopted the Short-Term Value Creation Strategy for the PGNiG Group until 2014. Its objective is to prepare the Company for operating in a liberalised gas market.

The PGNiG Group wants to maintain its lead in the exploration and production industry, while remaining the primary supplier of natural gas, whose offering also includes heat and electricity. Thanks to its Short-Term Value Creation Strategy, the PGNiG Group will be able to pursue an ambitious investment programme, while servicing its debt. As a result, by 2020 the Company intends to accumulate a net cash surplus of PLN 15bn.

“Our Short-Term Strategy is a comprehensive plan of coordinated activities designed to attain the overriding strategic objective of the PGNiG Group, which is to create value for shareholders. It adds detail to the tasks and goals defined in the Group’s strategy from 2011, while focusing on what are currently the most important aspects of the Group’s operations, i.e. market development, production increase and cost reduction. In two years’ time, we want to be a modern multi-utility, well-positioned to function proficiently in the new market reality,” said Grażyna Piotrowska-Oliwa, President of the PGNiG Management Board.

The Short-Term Strategy changes the Company’s management model from traditional to project-focused approach. It consists of 19 strategic initiatives, to be embarked on in three business areas.

Increase in gas and oil production

The first area is the exploration and production of hydrocarbons. PGNiG has maintained its strategic goals to increase the Group’s own production of natural gas to about 6.2 billion cubic metres and of crude oil to about 1.8 million tonnes a year by 2015. In the exploration and production area, the Company will continue its efforts focused on appraising and developing unconventional hydrocarbons within its licence areas, mainly in the Provinces of Gdańsk and Lublin.

Further, the Company will intensify the exploration for conventional hydrocarbons in Poland, within approximately 80 licence areas. With a view to optimising its exploration and production efforts abroad, PGNiG will set up a separate business segment.

As part of its exploration work PGNiG will also collaborate with external partners from the upstream industry, like in the case of the KTC project within the Wejherowo licence area, or the projects run jointly with the Lotos Group. A data room has been prepared covering 20 licences on which PGNiG expects to collaborate with partners.

Enhanced offering for customers

Another area in which the Short-Term Value Creation Strategy for the PGNiG Group focuses is the market. In this area, the Company intends to enhance sales and customer service, while implementing a new marketing policy and integrated product offering. The integrated product portfolio will include the dual fuel offering and provide for a new method of settlements with customers.

The Company also intends to develop its power segment by starting to construct new gas-fired generating units, for instance at the Stalowa Wola, Żerań and Łagisza CHP plants, as well as conversion of boilers at the Siekierki CHP plant from coal to biomass-fuelled units, and involvement in the construction of small CHP units all over the country.

PGNiG will also support and promote the gas market deregulation programme and continue its initiatives designed to change the pricing rules for import contracts. An annex to the Yamal Contract, executed in early November, has changed the pricing terms of gas supplies to Poland.

In response to changing market conditions, the PGNiG Group will also centralise its wholesale function. Initiatives will also be undertaken to change the structure of the gas imports portfolio, including utilisation of the LNG terminal’s idle capacity expected when the US starts to export gas in 2014.

Operating cost optimisation

The third area covered by the Short-Term Value Creation Strategy for the PGNiG Group is a business model for the Company and its Group. In this area, the Company aims to optimise the human resources management system in place at the PGNiG Group. A project/project portfolio management system will be implemented. From January 1st 2013, the Shared Services Centre will start to operate, and by 2014 the storage segment will have undergone a process of optimisation. The restructuring efforts will also encompass the Group’s core and non-core business segments, as well as the employment area.

The cost optimisation efforts envisaged by the Short-Term Strategy are already underway. In June 2012, the reorganisation of PGNiG SA commenced. To date, the process has been carried out at the Head Office and Branches. The changes consisted in simplifying the organisational structure by closing offices at individual departments, reducing a large number of managerial positions, merging divisions with similar competencies, and closing positions with similar responsibilities.

In the process, the number of employees in managerial positions was reduced by 298 (from 677 prior to the reduction). Furthermore, the Geology and Operation Branch was established to operate as a competence centre for PGNiG’s projects in the areas of geology, drilling and production of hydrocarbons.

In August 2012, PGNiG SA announced the Voluntary Retirement Scheme. During its effective term, from September 10th to October 31st 2012, around 1,000 employees, representing approximately 11% of PGNiG’s workforce, declared their intention to participate in the Scheme. Consent was given for around 900 persons to leave.

In June 2012, PGNiG Serwis was established. This marked the first step on the path to establishing the Shared Services Centre, which is to be responsible for finance and accounting functions, HR and payroll functions, as well as for IT services across the Group. On January 1st 2013, the Centre will commence to operate at full functionality, providing services to PGNiG Termika’s CHP plants in Warsaw. The process of merging PGNiG Energia into PGNiG SA has commenced, as has the process of full integration of the Group’s power competencies in PGNiG Termika.

Preparation for the public offerings of shares in PGNiG Poszukiwania and PGNiG Technologie, scheduled for 2013, has also commenced. The process to sell subsidiaries Geovita, ITG and Nysa Gaz is in progress. On completion of those processes in 2014, PGNiG intends to remain a shareholder in some 14 companies, instead of the existing 53 subsidiaries.

PGNiG will keep its holdings in PGNiG Norway, PGNiG Sales and Trading, PGNiG Termika, PGNiG Poszukiwania, PGNiG Technologie, and EuRoPol Gaz, as well as a distribution subsidiary and storage facilities operator.

The Short-Term Value Creation Strategy for the PGNiG Group until 2014 was approved by the Supervisory Board of PGNiG SA on December 18th 2012.

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LNG World News Staff, December 20, 2012