Orlen SA
PSE:PKN
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Ladies and gentlemen, welcome to Consolidated Financial Result of PKN ORLEN First Quarter 2019 Conference Call. I'll now hand over to Konrad Wlodarczyk, IR Director. Sir, please go ahead.
Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us today. Welcome to conference call presenting PKN ORLEN consolidated financial result for the first quarter 2019. The presentation that I'm going to deliver to you today was e-mailed to you and is also available on our web page.
After the presentation, the floor for Q&A session will be open. During Q&A session, there will be directors from strategy, treasury and controlling department available to answer your questions.
With no further delay, I go smoothly to Slide #3. So key facts and figures for the first quarter 2019. In Q1, we achieved PLN 2 billion EBITDA LIFO, of which more than 30% was delivered by the retail segment. Good results were achieved despite challenging macro environment due to high utilization of our refining facilities. In Q1, we processed over 8.2 million tonnes of crude oil. High production and sound demand was reflected in record higher sales in the first quarter. In Q1, we sold over 10.2 million tonnes of product, which is 2% increase comparing year-on-year.
According to our strategy, we are consistently expanding retail segment, entering new markets. We have already launched first fuel station in Slovakia under the Benzina brand.
We further diversified oil supplies. In Q1, we signed a nonexclusive contract with Rosneft reducing volumes by circa 20%. We also bought additional 130,000 tonnes of crude oil from Angola, which will reach Naftoport in Gdansk in June.
We have also signed a contract with Saudi Aramco for the purchase of 800,000 tonnes of crude oil. And under a separate agreement, Saudi Aramco declared to purchase heavy fuel oil from ORLEN Lietuva. In this way, we secured physical sale of this product in the initial period of the market perturbation associated with IMO 2020 regulations.
At the beginning of April, we launched Investment Academy. Anyone who wants to expand their knowledge about the capital market and invest safely on the stock exchange can take part in it. The project is a part of the long -- first long-term program in Poland for individual investors which is called ORLEN PORFELU. And so far, we have over 1,400 people who have already decided to participate in.
In the first quarter, we also received, for the consecutive year, prestigious awards: The World's Most Ethical Company, 2019; and Self Employer for 2019, that prove our high standard.
In the first quarter, we maintained strong financial position. We generated PLN 1.2 billion cash flow from operations. We realized investments at the level of PLN 0.6 billion. We reduced net debt at the end of the first quarter by PLN 0.5 billion to the level PLN 5.1 billion, which gives financial gearing below 14%. And the Management Board recommended dividend payments for 2018 at the level of PLN 3.5 per share, which is 50 groszy more than the last year.
Next slide, Slide #5, macro environment. Macro in Q1 was really challenging. Downstream margin dropped USD 1.4 per barrel year-on-year mainly due to lower [ BU ] differential and worsening of margins on light distillates, olefins and polyolefin. On the other hand, this was partially offset by weakening of Polish zloty against foreign currencies and higher margins on the medium distillate, heavy refining fractions, PTA fertilizers and PVC.
Slide #6 show us of market-oriented data. In the first quarter, we recorded positive GDP growth in all domestic markets. And of course, the GDP growth is closely correlated with diesel consumption which is observed on the right-hand side graph. These are consumption increase of all domestic markets while gasoline consumption increased in Poland and the Czech Republic with comparable level in Lithuania and decrease in Germany.
Now I will present PKN ORLEN's financial and operating results for Q1. So moving to Slide #8. In the first quarter, we recorded revenues increased by 9% year-on-year, mainly due to higher sales volumes and higher quotation of middle distillates and heavy fractions in Polish zloty. We generated over PLN 2 billion EBITDA LIFO which is PLN 0.1 billion higher year-on-year. On one hand, we noted PLN 0.2 billion positive effect of higher margins in retail and PLN 0.2 billion positive impact of inventory reevaluation net realizable value. On the other hand, we had minus PLN 0.2 billion negative macro impact and minus PLN 0.1 billion negative impact of a lack of positive effect of compensation that we received in Q1 '18 for delays in completion of CCGT Plock and CCGT Wloclawek. However, cleaning the results from noncash impact that I have mentioned above from net realizable value, EBITDA LIFO decreased by PLN 0.1 billion year-on-year.
Despite the rising oil prices in Q1, we recognized a negative LIFO effect of PLN 0.2 billion which resulted in a reduction of reported EBITDA to the level of PLN 1.8 billion. Negative impact of changes in oil prices on the valuation of inventories is mainly an effect of January. So during this period, the downward trend in oil prices from November and December 2018 was reversed. And as a result, the valuation of oil by average weighted cost was significantly affected by relatively high quotations from Q4. And high level of operational and obligatory crude oil inventories caused that cost of crude oil, according to the weighted average valuation, react with a delay on changes in quotation. Financial result in the first quarter was marginal. So positive impact of settlement and valuation of derivative financial instruments was offset by negative impact of interest. And as the result, in Q1, we achieved net profit at the level of PLN 0.8 billion.
On Slide #9, you can see EBITDA LIFO split segment by segment. Starting from downstream, PLN 1.4 billion. So decrease, by minus PLN 0.1 billion year-on-year, negative impact of macro and sales volume as well as lack of received in Q1 compensation for delays in completion of CCGT both in Plock and Wloclawek was limited by positive effect of inventory revaluation.
Retail, PLN 0.7 billion, increased by PLN 0.2 billion year-on-year as the result of positive impact of higher sales volume and higher fuel and nonfuel margins year-on-year.
Upstream, PLN 94 million, increased by PLN 26 million year-on-year mainly due to positive impact of higher sales volumes macro and balance on other operational activities, including settlement and valuation of derivative financial instruments.
Corporate functions. We observe higher cost mainly due to charity and social donations as well as sponsorship costs.
Going deeper into the details, so moving to Slide #10. Downstream, our biggest segment, delivered over PLN 1.4 billion EBITDA LIFO in first quarter. Macro worsened by PLN 158 million year-on-year mainly due to lower by USD 1.4 per barrel Brent/Ural differential and worsening of margins on light distillates, olefins and polyolefins. At the same time, we recorded higher margins on medium distillates, heavy fractions, PTA fertilizers and PVC as well as positive impact of Polish zloty weakening against foreign currencies.
Despite the increase in total downstream sales volume by 1% year-on-year, we recognized minus PLN 44 million negative volume effect resulting from lower fuel sales from our own production in Poland and lower volumes of petrochemical sales in the Czech Republic due to technical issues on the installation. Others include mainly PLN 0.2 billion from inventory revaluation and minus PLN 0.1 billion from lack of received compensation in Q1 for delays in completion of CCGT Plock and Wloclawek.
Next slide, Slide #11, shows operating data of the downstream segment. So in Q1, despite maintenance shutdowns, PKN ORLEN processed 8.2 million tonnes of crude oil which is 95% utilization ratio. However, despite the high throughput, we reported lower utilization by minus 3 percentage points year-on-year, of which, in Plock, minus 2 percentage points due to shutdown of CDU hydrogen plant, hydrocracking and the PX/PTA unit. In ORLEN Lietuva, minus 10 percentage points due to spring shutdown of refinery and STC unit shutdown. And in Unipetrol, the utilization was at comparable level year-on-year.
Despite lower crude oil processed year-on-year, as I've already mentioned, we recorded sales volumes increased by 1% year-on-year. And going into detail split, market-by-market.
In Poland, we reported higher petrochemical sales volume, limited by decrease of refining sales volume due to shutdown of CD unit, hydrogen plant and hydrocracking.
In the Czech Republic, we recorded higher refining sales volumes, limited by lower petrochemical sales volume resulting from unplanned shutdown. And in ORLEN Lietuva, we recorded lower sales of light distillates and heavy fractions, partially offset by higher sales volume of middle distillates.
Next slide, Slide #12, retail. So our flagship delivered high results, PLN 676 million EBITDA LIFO which is 46% higher year-on-year. And of course, such result was achieved due to positive impact of both higher sales volumes and higher retail margins year-on-year which you can see on the bottom graph. We recorded as well as sales decrease by 3% year-on-year on all markets; similarly, market share. In terms of margins, higher fuel margin was achieved on Polish, German and Czech market; and nonfuel margin increased on Polish and Czech markets.
Slide #13 shows operating data of retail segment. At the end of Q1, we had more than 2,800 fuel stations of which over 2,000 were equipped with nonfuel concept, Stop Cafe. And of course, increasing number of fuel stations by 15 year-on-year. And very healthy demand was reflected in higher sales volumes by 3% achieved on all markets. Market share as well increased on all markets year-on-year, and the highest increase was recorded in the Czech Republic by 1.6 percentage point year-on-year due to including fuel stations acquired from OMV into Benzina network and in Poland by 0.5 percentage points year-on-year.
Please also have a look on further dynamic growth on nonfuel offers. So another 31 locations were opened in Q1. And at the end of first quarter, we were running 2,047 food and beverage corners, including convenience stores, under our own brand, O!SHOP.
Next slide, Slide #14, Upstream. Upstream delivered in Q1 PLN 94 million EBITDA LIFO which is higher by PLN 26 million year-on-year mainly due to positive impact of higher sales volumes, better macro related to increase of gas prices as decrease of crude oil and NGL prices in Canada year-on-year as well as settlement and valuation of derivative financial instruments.
In the first quarter, we recorded increase in average production by 10% year-on-year mainly due to our Canadian asset. In Canada, average production increased by 1,900 BOE per day year-on-year. This increase is mainly due to higher crude oil and NGL production.
Next slide, Slide #15, shows more operational details regarding Upstream. Currently, we have 211 million BOE 2P reserves based on the calculations from the end of last year. Average production in the first quarter achieved 18,800 BOE per day as we spent on Upstream almost PLN 115 million.
Please let me mention also some key operational facts. So in Poland, we continue drilling of the first well in Bystrowice project. We completed acquisition of seismic data on Plotki and Miocen project and completed preparatory work on Bystrowice project to start gas production. In Canada, we started drilling of 4 wells. 5 wells were fracked and 3 wells were included into production.
Next slide, Slide #17, cash flow. So coming back to the financials. In the first quarter, we generated PLN 2 billion EBITDA LIFO. Despite rising crude oil prices, LIFO effect amounted to minus PLN 0.2 billion. And the demand for working capital increased by PLN 0.5 billion as the result of increasing quantity and the value of inventories as a result of rising oil and product prices. In addition, we carried out investment at the level of PLN 0.6 billion and we paid PLN 0.2 billion in taxes and interests. And as a result, our debt decreased by PLN 0.5 billion comparing to the end of last year.
Next slide, Slide #18. As for our financial strength, I can confirm that all indicators remain at the safe level. So covenant, below 0.7; gearing, below 14%; and net debt at the end of the quarter amounted PLN 5.1 billion. Net debt decreased by PLN 0.5 billion quarter-on-quarter mainly due to positive cash flow from operation of PLN 1.2 billion and net investment of PLN 0.7 billion as I have mentioned in the previous slide.
Our sources of financing are still diversified with an average maturity in 2021 which can be seen in the bottom graph. The currency structure of the gross debt has not changed. Most of the debt is in euro, so this reflects our operating exposure and creates a kind of natural hedge.
Slide #19, planned CapEx for this year is at the level of PLN 5 billion. Out of this, in Q1, we spent roughly speaking PLN 600 million. The largest investment growth was realized in Q1 concerned building production facilities in downstream, mainly speaking, construction of polyethylene unit in the Czech Republic, Metathesis in Plock, propylene splitter in Lithuania and expansion of underground storage depots in Poland. In retail, we spent PLN 100 million for new locations, modernizations and development of nonfuel concepts, and we also spent almost PLN 150 million in the Upstream segment, of which 80% in Canada.
The last section shows market outlooks for 2019, so Slide #21. And for macro assumptions, we are expecting comparable level of crude oil prices that is average for 2018. So nothing gets changed, circa USD 70 per barrel, which is down from -- on one hand, pressure for crude oil price due to economic slowdown and higher crude oil production in the U.S.; on the other hand, we are expecting positive impact on crude oil prices resulting from OPEC agreement regarding limitation of crude oil production and sanctions imposed by U.S. on Iran and Venezuela.
In terms of downstream margin, modern downstream margin, we also assume a comparable level to the last year, so USD 12 per barrel. On one hand, increase in refining margins will build differential due to rising demand for middle distillates and dropping demand for Ural type of crude oil, reflecting approaching IMO 2020 regulation. On the other hand, we expect a drop in petchem margins as a result of launching new petchem capacity.
In 2019, we expect further growth in consumption of fuels and petchem product on markets we operate due to GDP increase, what will have positive impact on downstream margins.
In terms of regulations, nothing has changed from Q1. So Sunday by trading in Poland which does not apply to fuel station. Emission fee and National Index Target, where we have a possibility to reduce from 8% down to 5.6%.
So that's all from my side. Thank you very much. And we are ready to take the questions.
[Operator Instructions] And we have our first question. Our first question comes from Henri Patricot from UBS.
Three questions from my side, if I may, please. The first one on the retail business, a very strong performance in the quarter, very high margins which is unsurprising given the rising crude price environment. Is there any particular one-off positive developments in the quarter? Or is that some sort of performance that we should expect to see through the rest of the year and later?
And secondly, I wanted to ask you about the crude supply issues from Russia that you're experiencing. So seeing your press release last night, looks like there is no issue in terms of production at Plosk, but wondering if there are any implications for your refineries in the Czech Republic as well.
And finally, I wanted to ask about the dividend increase for 2018 to PLN 3.5 per share. And I want to get some sense of how to think about the dividend in the future. If that's some sort of new floor? Should we think about the payout ratio, net debt level, given yield? What should be the policy to guide our forecast there?
So starting from the retail margins. You may say that this is the effect of January when there were still some disruptions on the German market visible, which also enable us to keep a pretty high margins on all of the markets. But starting from February, retail margins started to normalize. So in my opinion, you should not expect that such a high margins will be visible in the second quarter.
In terms of crude oil disruptions. Yes, indeed, yesterday [ bang ] informed to stop crude oil delivery via the Družba pipeline. And from our point of view, for several days, we have observed a higher level of organic chloride in REBCO crude oil entering first system in Adamow. So this was the only parameter that differs from the previous one. So organic chlorides can lead to corrosion on faster utilization of devices, pipelines, et cetera. So on the parent side, the crude oil was mixed with crude oil with the normal content of chlorides from the stock. And the entrance to the refinery to Plock, we also observed higher content of organic chloride than the normal one.
Additionally, despite, let's say, careful monitoring, we increased processing of crudes other than the REBCO. So you may say that by the end of the month, we will blend 50-50 REBCO with other grades. And in points particularly exposed to the corrosion, we carried out, let's say, neutralizing activities. So we used higher amount of washing water, ammonia water are given. So you might say that the above-mentioned situation does not affect definitely volumes and the quality of products in any way.
And first of all, we have significant crude oil stock, both operational and obligatory stock for, let's say, a few months. We diversified crude oil supplies. So we signed annex with Saudi Aramco, we have a possibility to purchase on both cargoes from Baltic Sea and deliver this via Naftoport from Gdansk. And additionally in May, we are also planning to start maintenance shutdowns of one of the CDU units in Plock. This maintenance will last for 30 days. So also, there will be less demand for Russian crude oil. So from our point of view, this situation probably will not last longer than week, maybe 2 weeks. In Belarus, we have already got information that crude oil quality started to improve significantly.
In terms of dividend. Indeed, the Management Board recommended to pay PLN 3.5 per share for the last year, so this is the increase. And in our strategy, we clearly said that we would like to remain dividend-paying company, increased from PLN 3 up to PLN 3.5. It's not significant in the total amount because it increased from PLN 1.3 billion up to PLN 1.5 billion overall, but this is definitely depend on the AGM decision, yes? So AGM usually, according to the law, must be conducted till the end of June. So we will see what will be the decision of other shareholders.
Okay. And in terms of the thinking behind the increase in proposal to PLN 3.5 from PLN 3, and should we be expecting similar sort of increase over the next few years, either in absolute terms, percentage? Any guidance there?
I think it's very hard to answer this question. In our strategy, as I said, we do not have let's say pressure to increase DPS year-over-year as was in the previous strategy. But definitely, we would like to pay the dividend depending on the financial situation and the projects that we've got in the pipeline.
Our next question comes from Alexander Burgansky from Renaissance Capital.
I have 2 questions, if I may. First of all, on your agreement with Saudi Aramco on the purchase of fuel oil from Mažeikiai refinery. Can you please confirm the duration of this contract? And then secondly, related question also, if you could elaborate on the kind of status of your decision to build or plans to build for hydrocracker at Mažeikiai.
So indeed, we signed let's say separate agreement with Saudi Aramco to take over high-sulfur fuel oil from ORLEN Lietuva. This will be at the beginning of the next year. And the contract is -- current contract is up to 6 months. So 150,000 tonnes of heavy-sulfur fuel oils. So all the production that comes from ORLEN Lietuva and is exposed to the seaboard sales.
And talking about -- you've asked about the investment, yes, in hydrocracking?
Yes.
Yes. So in Lithuania, we consider building of hydrocracking called vacuum residue. Last year, we signed a contract for the purchase of license and preparation of the base project. We didn't take a final, final decision.
Do you expect to take the final decision? And also, can you confirm as the location of the hydrocracker? Will that be Mažeikiai?
Yes. We are searching, let's say, the base project. And if the outcome will be positive, we will definitely enter the market and announce via regulatory announcement.
And sorry, the location of the hydrocracker will be in Mažeikiai refinery?
Yes. Hydrocracking will be located in [ Manitoba ], it's in Mažeikiai refinery. And the second unit that could enable us to cope well with IMO 2020 is this breaking unit that we are contemplating to build in Plock. This is installation that will enable us to reduce heavy fractions by 2 percentage points. But similarly to hydrocracking installation, final decision was not taken yet.
Our next question comes from Tamas Pletser from Erste.
I got 2 questions. First of all as a kind of a follow-up on this contaminated oil flow from Russia. Do you have any facility to filter out this organic chlorine? Or the only way how you can tackle the situation is to mix the current flow with less poisonous or less contaminated stuff?
And also, do you expect any compensation from the seller on this worse than the -- worse first quality than agreed before? Or can you just settle this kind of a dispute in another way? That would be my first question. And my second question is do you see any development with the merger process with LOTOS? And when do you expect the EU to come out with the kind of review or opinion on your merger process with the smaller Polish rival?
Okay. So we'll start from crude oil disruptions. Yes, despite the blending with other grades, as I've mentioned, on the, let's say, point where there is a particular exposure to the corrosion, we are neutralizing this organic chlorides using washing water and ammonia water, yes? So this definitely improves, let's say, the quality. It doesn't harm, let's say, the installation so much it's because, as I said, the quality of high sulphur fuel oil and other parameters is comparable to the reproductive process, yes. But to avoid this negative impact on the installation, we are using alternatives.
And you asked about the compensation. I think it's not that easy to -- having to talk about any compensation in this case. If there will be any, definitely we will inform the market. And coming back to the questions, now what we are doing, so definitely we are in very close talks with European Commission, yes.
Simultaneously, we are conducting due diligence in LOTOS. And you may say that we are working to work out the final version of the application, yes, about the concentration. Because at the end of November, we submitted to the European Commission the draft of notification for concentration including remedies. This draft initiated the process of agreement of its final version with European Commission, and now we are in a very close talk with European Commission. And the European Commission is analyzing in detail of the remedies that we've provided on all the information and analysis we present.
So if there will be any delay in receiving, let's say, the final -- or submitting the final draft for -- to the European Commission, definitely the transaction will not be, let's say, postponed. And we still believe that this transaction should be completed by the end of 2019.
Our next question comes from Michal Kozak from Trigon.
I have 2 questions. The first one, what is the exact impact on EBITDA of changes in IFRS 16, and in which segment? And any influence on cash flow? And the second additional question on Saudi Aramco deal to sulphur fuel oil. Does this agreement fix price, volume? Or is it formula based on quotations?
[indiscernible] speaking. Yes, in January, we applied a new standard IFRS 16, in recognition valuation and presentation of these agreements. In the balance sheet, we recognized right-of-use asset as well as its liabilities amounted to PLN 3.3 billion.
In the P&L, we -- by implementing the standard, we decreased the lease cost presented income by sites as external services. Of course, this had positive impact on P&L, and we started to present the capital part of this payment as an amortization and depreciation, amounted to PLN 128 million. And the rest, part of this payment connected with interest, we presented in financial costs. Probably you can find it in our note, the 5.3 in our quarterly report.
So the total impact of IFRS 16 in Q1 '19 was positive and reached the level of more than PLN 150 million. More information related to IFRS 16 you can find in our quarterly reports, is the description of policies in note 2.2 and our -- in note 5.9 in our quarterly report. So we increase -- we included huge description of policy and impact of IFRS 16 with our quarterly report. And of course, impact on cash flow is the same, because as I mentioned before, roughly PLN 150 million.
Okay. And the second question this amount over PLN 100 million impact on EBITDA, yes?
Yes.
And in which segment? Or is it others?
Hard to say. We can divide into downstream and retail so -- but I cannot give you the -- or show you the traction, impact traction. You can find also the division of this IFRS standard in our segmental note reading the line topic and we presented the increase due to right-of-use in our -- an impact to our revenues -- in profit, sorry, impact for profit.
Coming back to your -- Konrad Wlodarczyk speaking. Coming back to your questions about the signing and trading agreement with Saudi Aramco for take off of 160,000 tonnes on the market basis of heavy fuel oils from ORLEN Lietuva, you may say that this contract guarantee definitely the volume and the price is based on the quotations, yes. But from our point of view, the volumes are more important due to the fact that if there won't be any demand for high sulphur fuel oil and nobody knows how the reality will look like, we will have a problem to produce, definitely, other fuels, yes?
[Operator Instructions] We have a follow-up question from Mr. Tamas Pletser from Erste.
Just 3 short questions. First of all, on margin development, what are your expectations for the second quarter and the second half of the year? I basically checked that April was somehow weaker than March. What do you think what was the reason? That would be my first question. And the second question would be about a new investment you announced and unveiled, this PLN 1.3 billion investment. Can you just say a little bit few words about this investment? That would be my interest. And finally, one thing which I didn't catch you fully. You mentioned one of the CDU shutdowns. Which of the refinery CDU will be shut down?
So starting from the last question, CDU, it will be Plock refining. It will be shut. It will last 30 days. So second quarter is more back with maintenance, so you should -- you still hear me?
Yes. Yes, I can. And the second, so...
Okay, okay. So the throughput that we estimate for the second quarter is at the level 8.5 million tonnes. Out of this utilization in PKN, slightly below 100%. In ORLEN Lietuva, 95% and in Unipetrol, 91%. So in April, 12 days out of order of 1 CDU unit hydrocracking shutdown; 40 days of each oil unit; and as I've mentioned, 1 month of CDU units in PKN ORLEN. In ORLEN Lietuva, there will be a disc braking shutdown, and in Unipetrol, it will be hydrocracking and disc braking.
In terms of macro environment, so you may say that in second quarter, downstream margin increased by USD 0.6 per barrel quarter-on-quarter mainly due to higher refining margins supported by very strong gasoline cracks. And gasoline cracks really recovered from, roughly speaking, USD 80 up to USD 160 per tonne mainly due to lower supply as a result of maintenance shutdowns of refinery here in Europe and U.S., striking shelves of the largest refinery in Europe as well as higher demand from U.S., West Africa and Asia.
On the other hand, increasing crude oil price in the second quarter 2019 negatively impacts diesel cracks, high sulphur fuel oil cracks and petchem margins. Crude oil increased by more than 10% quarter-on-quarter mainly due to cut in crude oil production by OpEx sanctions imposed by U.S. on Iran and Venezuela and the supply disruptions due to civic war in Libya.
Diesel cracks decreased by circa 20% quarter-on-quarter, also due to inventory increase in Europe. High sulphur fuel oil cracks decreased by more than 20% also due to weak demand in Asia and Europe. This differential dropped from USD 0.2 down to minus USD 0.2 per barrel quarter-to-quarter mainly due to higher demand for Ural crude oil from the Baltic Port, which may change under the current situation, yes. And of course, the recently -- we also, after review, differential increased it to high availability of Ural in the Baltic Port due to longer loading program for May.
In terms of petchem. Petchem margins still high, however decreased by EUR 20 per tonne quarter-on-quarter mainly due to higher NAFTA prices. So currently, we observe better macro environment, but I think that definitely 3 weeks after the beginning of the quarter is not enough to, let's say, to elaborate more about the macro environment. As I've mentioned at the beginning, we believe that more the downstream margins as an average for the whole year will give the level of USD 12 per barrel. Currently, we are at the level of $10, so you may assume that we are expecting macro environment to improve significantly in the second and the first quarter, which are seasonally the strongest ones.
In terms of Anwil projects, indeed we are not...
If I can say...
Okay.
Related to Anwil, investment, yesterday, we informed that we signed a contract agreement with thyssenkrupp Industrial Solutions for design, deliveries and building in a turnkey formula, a nitric acid and neutralization installation in Anwil in Wloclawek. Building of fertilizer is a key stage in realization of our investment strategy regarding extension of fertilizer production capacities in Anwil Wloclawek.
The project assumes increase of fertilizer production capacity by roughly 500,000 tonnes yearly. And finally, you can achieve level 1.3 million tonnes of fertilizer a year. Estimated costs related to this investment is PLN 1.3 billion. And EBITDA will be -- we can increase by this investment by EUR 57 million, roughly PLN 250 million.
Okay. That basically mean that your natural gas intake will increase, right, because you will produce fertilizers after this investment?
Yes, you can assume that we increase the consumption of natural gas.
We have a follow-up question from Mr. Henri Patricot from UBS.
Just a quick follow-up on my question around Russian crude supplies to the Czech Republic because I've seen some airlines saying that deliveries from the Druzhba pipeline have also been suspended in the country now as well. I wanted to check if the contingency measures that you mentioned also apply in Czech related here in storage to keep the refineries running.
In terms of Czech, the crude oil deliveries, there are no disruptions. The quality is good, of the crude oil. The problem was only to deliveries via the Belarus to Poland and to the Germany market.
Our next question comes from Robert Maj from IPOPEMA.
I have a few questions. Firstly, on the Russian crude help. If the help last for longer than depletes your reserves, can you possibly supply all of your needs via the Strzalkowskie Depot? And would it be feasible as well as lots of things to import it via Strzalkowskie Depot. This is Question #1. #2 is on the potential investment in RUCH, the retailer. Can you elaborate a little bit more on that? What kind of values these investments do you envisage, and what kind of synergies do you expect to happen?
Okay. So definitely in the opinion of parent, the situation which should not last longer than 1 week or 2 weeks. As I said, the situation in Belarus improved significantly. So the quality of crude oil improved and is comparable to the previous one. In terms of, let's say, our inventories, please bear in mind that as a country, we are obliged to keep 53 days in terms of obligatory reserves. And additionally, we have, operationally, reserves amounting to 50 days. So you may say that more than 2 months of crude oil we are fully secure. In terms of raw...
It's [indiscernible] speaking from the Strategy Department. Thank you for this question. As you know, we have submitted nonbinding conditional offer for financial support of RUCH, aiming at acquisition of 100% of the company on 11th of April. This is actually compliant with our strategy, which is assuming further development of our retail segment. As you know, this is a strategic assumption for us to level off our retail activity mainly in a nonfuel segment. We have announced during announcements of our strategy that we want to focus on further development of our nonfuel concept, O!SHOP and Stop Cafe, also potential in the standalone format. RUCH, having a very broad countrywide network with high-traffic locations, fits our strategic assumptions here.
And can you say what kind -- what value of the investment is that?
At this stage, unfortunate -- at this stage, we cannot disclose any financial details of the transaction.
Okay. As well as any synergies that you expect to happen, are you planning to tap your current suppliers off? Or what should we expect here?
Synergies are quite straightforward and related to our current retail activity, as I said, in O!SHOP concept and Stop Cafe concept, but at this stage, we are not disclosing any financial details related to this transaction.
Okay. If I may, additional question on the investment in Anwil and the gas purchases. Are you planning to buy it at spot prices? Or are you having any long-term agreements with PGNiG? What kind of price of gas should we assume here? And maybe if you can add a few words on the -- your offshore plans and what kind of development can we expect here, and what kind of time line and schedule should we assume?
So definitely the agreement with PGNiG are expiring soon, but you may assume that the PGNiG investment is going to be completed 2022. So you may say that till this time, we will sign a new agreement of -- if there will be a possibility on, let's say, we may buy from the market additional gas volumes. So definitely, this is not a problem.
So Mr. -- can you please repeat the question on the offshore?
Yes. What is your agenda in terms of offshore? When do you plan to accomplish your first win from over there? And what are the milestones that we should look after -- look for in years ahead?
Well, we are in still at the very initial phase of this investment process. At the moment, we are conducting wind analysis, environmental analysis. As we also announced, we are considering to engage some external partner as a JV format, double this investment together with a partner who is more experienced in this kind of investment. The construction process, we expect, can be started in 2023. So it's still very early stage of the process.
Our next question comes from Igor Kuzmin from Morgan Stanley.
Two questions from me, please. First question is in regards to your assumptions for the utilization rates into second quarter on average. Well, let's put aside the situation of the crude supply, assuming the events will unfold as you expect and is going to be just a short-lived blip. Aside from that, so just an average, maybe just to understand the dynamics between 1Q and 2Q just assuming taking into account all the maintenance works that you have flagged earlier on this call.
And the second question is in regards to the performance of the Metathesis and the new polyolefin unit at Unipetrol. Just wanted to check how these projects are performing and sort of what the contribution, so if you can actualize the contribution from these projects maybe on an annualized basis in 2019.
Igor, Konrad Wlodarczyk speaking. I confirm the utilization will be higher than in Q1. We are assuming to process 8.5 million tonnes of crude oil. Utilization is, in gross, roughly speaking 98% due to the fact that we have planned maintenance shutdowns of CDU unit. One we are finalizing that was initiated in March, and we are planning to have 30 days of another CDU unit in May.
We have hydrocracking H-Oil and HDS unit shutdown as well in Plock. From petrochemical point of view, there will be polyethylene out of order for 3 weeks. In terms of ORLEN Lietuva, you may assume 95%, 96% disc braking unit is under the maintenance. And in Unipetrol, in leasing of -- we have 1 month shutdown of hydrocracking and disc braking unit. So therefore, the utilization will be at the level slightly above 90%.
That's overall across the group? The second quarter utilization rates should be higher than Q1, right?
Yes. Definite yes. So as I said, 8.5 million tonnes of crude oil comparing to 8.2 million in Q1.
Yes. And on the project I mentioned earlier?
Sure, let me address your questions. It's [indiscernible] speaking. So in terms of Metathesis, we are very close to finalizing the whole investment process. We expect it will be completed mid of April. The installation is already working, producing high-quality propylene. We still have a guarantee as the head of -- but as I said, the whole process should be finished by mid of April. As we were announcing, it would give us additional 100 kilotons of propylene. We dedicate it fully for BOP and JV.
In terms of PE 3 installation, the process is still ongoing. We are very close to complete the construction phase. And we expect that the whole investment process will be ended up by the end of the year, in the second half of this year.
Our next question comes from [indiscernible] from [indiscernible].
So my first question is about the Brent/Ural differential. You have assumed in your strategy update, that this should amount to around $4. For the past 6 months, it had been hovering around $0 rather than that. So if you could comment on this and give your assumptions for the future change and how.
And the second question relates to your retail operations. You've been mentioning in the past that you consider setting up your own distribution operation, thus this RUCH acquisition impacted? And how -- what is the timing of the potential taking over of the distribution operations from your current supplier, and if it will be only purchasing or also the logistics function?
Okay, Konrad Wlodarczyk speaking. So question about B/U differential. In this, in our strategy for this year, we assumed, as an average, USD 2 per barrel. And from 2020, due to IMO, USD 4 per barrel. This is based on the assumption provided by IHS CERA Markit. So as I said, we believe that definitely there will be drop in demand for Ural type of crude oil, so sour type of crude oil, especially in the second half of the year. Currently, the B/U differential is under significant pressure due to the fact that there is limitation of crude oil supply via OPEC.
So there are no alternative grades as well as, so let's say, sanctions on both Iran and Venezuela. So there is a lack of sour crude oil available for purchases. So automatically, there is a higher demand for Ural type of crude oil. And this caused this B/U differential to, you might say, disappear, or sometimes there is even premium and not a discount. So this is the only way I can, let's say, I can discuss the topic of B/U differential.
So in our assumption, we believe that in the second quarter, it may rebound to the level that we announced in our strategy. So up to USD 2 per barrel as an average in 2019.
Regarding your second question, this is [indiscernible] speaking. Indeed, we are contemplating logic of our own logistics for this station, however, this is still analytical phase and definitely not a matter of a couple of months and it's not a matter of this year.
In terms of RUCH acquisition, this transaction we expect can be finalized by the end of this year. And for sure, it will bring us more room to think about our own logistics, but still it's too early to talk about the details.
[Operator Instructions] We have no further questions. Guest speaker, back to you for the conclusion.
Thank you, operator. If there are no more questions, I would like to thank you for participating in the conference call. So this concludes our presentation. Thank you, and have a good day. Bye.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.