Polski Koncern Naftowy Orlen SA
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Polski Koncern Naftowy Orlen SA
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Good morning, ladies and gentlemen. Welcome to the conference call regarding second quarter 2023 consolidated financial results of the ORLEN Group. My name is Konrad Wlodarczyk. I'm Head of IR Department, and I will moderate this call. This presentation will be delivered by me, Michal Perlik, Executive Director for Finance Management and Martin [ Teodor ] Deputy IR Director. After the presentation, we will open a Q&A session. The whole meeting as usual, will be recorded, and the recording will be available on the web page. During the presentation, as you see, your microphones are switched off.
So let's start from the key facts of last quarter. Slide #3, PLN 75 billion of revenues, PLN 8.7 billion EBITDA LIFO, PLN 6.4 billion of record high dividend, PLN 12.6 billion net cash, CapEx, PLN 7.3 billion, covenant net debt to EBITDA minus 0.25x, so this is in a natural financial strength of ORLEN growth. I just [ peek at ] future from this slide, and I think it's worth to on the line, first of all, conditional investment decision regarding 1.2 gigawatt offshore wind farm on the Baltic Sea and 5 new locations for further growth projects that will give us potential up to 5 points to gigawatts. Then conditional agreements for the [ purchase ] of the wind and PV farms with a capacity of over 200 megawatts. Climate policy published, so this is very important from ESG point of view. Expansion of olefin capacities in Plock so we have a larger scope of investment and new upstream licenses in Norway and higher reserves in the Ost Frigg field, retail expansion to new markets or conditional agreement to purchase 266 fuel stations in Austria, rebranding of 90% of fuel stations in Czechia to ORLEN brands till the end of the year and a new contract with BP for crude oil deliveries from North Sea of 6 million tons per year.
So now let's move to Slide #5, macro environment. So that second quarter characterized by high volatility of macro. So compared to the first quarter of this year, the macro environment was worse in refining, petchem and upstream segments. Model refining margin dropped by nearly minus 25% quarter-on-quarter due to negative impact of lower diesel crack partially limited by higher crack on HSFO as well as lower natural gas prices. Gasoline cracks were flat quarter-on-quarter. Diesel cracks dropped by 45% quarter-on-quarter as a result of French refineries being brought back onstream of the strikes, oversupply of pressure on diesel on the Mediterranean market, lower demand for middle distillates due to fears of a global recession, higher exports from China, higher inventories in ARA and planned increase in diesel production by almost 50% in the British refinery [ paywall ]. So this is the investment decision. In terms of gasoline, cracks increased just shy of 0. So due to lower exports from North West Europe, lower demand for gasoline in the U.S., resumption of the production after the strike at French refineries and the large inventories in ARA retail.
In terms of differential we observed decrease quarter-on-quarter due to a change in the structure of processed crude oil resulting from reduction of share of REBCO so currently, in Northern Group, we are processing around 10% of Russian crude oil, which is directed only to our Czech refineries under the long-term contract with Grazyna. In case of Petchem, macro environment remains tough with low demand for petrochemical products as a result of economic slowdown. Quotations of all hydrocarbons dropped in the second quarter, quarter-on-quarter and year-on-year, so negatively impacting Upstream segment. However, a decrease in the nat gas prices on the Polish Power Exchange by over 60%, had a positive impact on the Gas Trading segment. Nat gas prices in the second quarter were decreasing more rapidly than electricity prices, resulting in higher spread electricity versus natgas and the higher utilization of CCGT comparing year-on-year. Relatively strong [ losses ]. So this is a factor of limiting operating results.
Now let's move to Slide #6, data regarding consumption of fuels and GDP. So in the second quarter, we see further signs of economic slowdown, GDP dynamics in all markets apart from Lithuania show a drop compared to the previous year. Total volume of diesel consumption in the second quarter in all markets was lower at the end of the year at higher gasoline consumption. And we are expecting that in the second half of this year, there will be an economic recovery in Poland and increasing fuel consumption.
So now let's move to Slide #8, Orlen Group financial results. PLN 75 billion revenues. This is due to higher sales volumes resulting from consolidation of acquired Lotos group and PGNiG Group at lower quotations of refining products, petchem products and hydrocarbons. In terms of EBITDA, PLN 8.7 billion. So the result was higher by PLN 0.5 billion compared to the previous year. And this is mainly due to consolidation of Lotos and PGNiG Group summing up to PLN 6.3 billion. Additionally, the result was supported by positive impact of hedging and lower provisions for CO2 emissions. Those above-mentioned effects were partially limited by negative impact of lower sales volumes, lower refining margins, petchem and fuel margins in retail, lower differential, stronger zloty versus U.S. dollar and lower margins in Upstream. Additionally, result was impacted by usage of historical inventory layers, write-offs on inventories so net realizable value, CO2 contract valuation as well as higher overhead and labor costs. Negative impact of changes in crude oil prices on the inventory valuation. So LIFO effect in the second quarter amounted to minus PLN 0.4 billion and caused the drop of reported EBITDA to the level of PLN 8.3 billion. Financials below EBIT line amounted to PLN 1 billion in the second quarter. So this is a result of the surplus of positive FX differences and interest with a negative impact of settlement and valuation of derivative financial instruments. All in all, net profit in the second quarter amounted to PLN 4.5 billion.
Slide #9, EBITA LIFO segment. Refining PLN 2.5 billion decreased by PLN 2.1 billion year-on-year. This is mainly due to weaker macro and usage of historical inventory layers, net realizable value and higher overhead and labor costs. And those effects were partially limited by positive impact of a lot of group consolidation at the level of PLN 0.5 billion. Petchem, negative result minus PLN 0.1 billion, so decrease by PLN 1.8 billion year-on-year due to worse macro, lower sales volumes, lower trading margins as well as higher overhead and labor cost. Energy, PLN 0.6 billion decrease by PLN 0.6 billion as a result of lower sales volumes at higher overhead and labor costs. So those effects were partially limited by positive impact of consolidation of PGNiG Group at the level of PLN 0.3 million. Retail 0.7 billion. So we may say comparable results year-on-year. So this is mainly due to the fact that we had a negative impact of lower fuel margins and higher cost of running fuel stations at positive impact of higher sales volumes. Then we have an upstream minus PLN 0.1 billion so lower results by PLN 0.5 billion due to negative macro impact, lower sales volumes, higher overhead and labor costs as well as negative impact of Lotos and PGNiG Group results' consolidation in the amount of minus PLN 0.2 billion. Gas segment, PLN 5.6 billion, so higher by PLN 5.6 as a result of positive impact of PGNiG Group consolidation. And the corporate functions, PLN 0.4 million negative, so higher cost by PLN 0.1 billion due to increase in the scale of Orlen Group operation.
Now let's move to the details of each segment. So we will start from Slide #10, refining segment results. Refining, as I mentioned, generated EBITDA LIFO at the level of PLN 2.5 billion. And this result was lower by PLN 2.1 billion, mainly due to the negative impact of the macro environment in the amount of PLN 0.6 billion, resulting from lower margins on light and middle distillates, changes in the structure of processed crude oils due to decrease in REBCO throughput, as well as a result of strengthening of Polish zloty versus U.S. dollar. These factors were mitigated by higher margins on heavy fuel oil, positive impact of hedging and changes in the provision for CO2 emissions with lower cost of internal usage, as a result of crude oil prices decrease. We recorded increase in sales volumes by 36% year-on-year resulted from higher sales of gasoline, almost 70%, LPG by 50% (sic) [ 51% ] jet fuel of over 40%, diesel 20% and HSFO by 10%. It's worth to underline 48% increase in volumes sold in Poland. Higher volumes, however, did not compensate the effect of changing the structure of processed crude oil. Positive impact of the consolidation of Lotos growth in the quarter, as I've mentioned previously, amounted to PLN 0.5 billion, and it was limited among others by negative impact of the usage of historical inventory layers, inventory write-downs and higher fixed and labor costs.
Next slide, Slide #11, refining segment operational results. Similar to the first quarter we maintained crude oil throughput at the level of 9.5 million tons. So it means 90% utilization. Comparing year-on-year, the throughput was higher by 2.3 million tons -- in ORLEN, throughput increased by 1 million tons year-on-year as a result of including Gdansk refinery throughput in the amount of 2 million tons with lower utilization of refinery input by minus 1 million tons year-on-year due to shutdown of installation like CDU, FCC, Hydrocracking, Hydrogen Unit (sic) [ Unit II ], Metathesis and H-Oil, and as a result, we recorded also a lower fuel yield by minus 3 percentage points. In the Unipetrol, the increase in crude oil by 0.2 million tons results from the lack of negative impact of cyclical maintenance shutdown of Kralupy refinery that we had last year. So year-on-year fuel yield remained at comparable level. In Lietuva, throughput higher by 1.1 million tons year-on-year, also as a result of a lack of negative impact of the last year cyclical maintenance shutdown of the refinery. Fuel yield in the second quarter, we may say it was on the normal level. The negative yield dynamics of minus 14 percentage points year-on-year, it's a consequence of high base, so inflated level of second quarter 2022 in the shutdown period. So we used inventories of fuel semi-products. In Q2, volumes of refining products increased by 36%, so 8 million tons mainly resulting from the consolidation of Gdansk refinery volumes. Sales in Poland increased significantly by 48% year-on-year. On the other hand, in Lietuva and Czechia, it was lower by minus 10% and minus 2%, respectively.
Next slide, Slide #12, petrochemical segment results. So petchem recorded loss at the EBITDA level in the second quarter minus PLN 120 million. This is the result of lower year-on-year margins on all petrochemical products. So just to remind you, the petchem margin behaves cyclically and is strongly correlated with GDP, which is [ kind of ] under the pressure of the economic slowdown. The economic slowdown has also negative impact on the demand for petchem products in the second quarter. We recorded an overall decrease in sales volumes by 16% year-on-year, mainly PVC minus 47% and PTA minus 37% and olefins by minus 23%. Volumes in Poland decreased by 17%, minus 16% in Czechia. On the other hand, we recorded a 20% increase in sales in Lithuania. Other factors that had a negative impact on second quarter results include lower trade margins and fixed and labor costs.
Slide #13, Petchem segment operational results. So compared to the previous year, we see that in the second quarter, there is a decrease in utilization of main petrochemical units of ORLEN Group due to tough market shutdowns and the decreasing demand for petrochemical products. Higher utilization was recorded only on PPF splitter installation in Lithuania, which is a result of low base. Sales in the second quarter amounted to 1.1 million tons and was lower by 16% among all of petrochemical products. So -- now that's all from my side, I will let Martin [ cover beside ] other segments. Please go ahead.
Thank you. In the second quarter, the Energy segment generated $4.6 billion EBITDA, mainly thanks to results of the Energa Group and PGNiG Termica, due to, among others, changes of heat production tariff, positive impact of the macro environment year-on-year, hedging, lower provisions for CO2 emissions, and higher distribution results in particular was limited by lower margins from the production and sales of electricity. In addition, the results were affected by the negative impact year-on-year on the relation between the contract price of network losses and the price from the balancing market (sic) [ market balancing ] and distribution business line. The negative volume effect results from lower production and distribution of electricity in the Energa Group. Additionally, an increase in electricity production and sales year-on-year in CCGT Wloclawek and Plock correlated with negative impact of higher consumption of natural gas. The negative effect of higher fixed costs and labor costs, as well as payments to the Price Difference Fund, were only partially offset by the positive impact of the consolidation of PGNiG Group's results and the use of the provision created in the Energa Group in December 2022 for onerous contracts.
On the next slide, #15, we have operational data. In Q2, the ORLEN Group produced 3.4 terawatt hours of electricity, of which over 60% came from renewables and gas-fired units. Electricity production, including the activities of former PGNiG and Lotos groups, year-on-year decreased by 8%, in line with the trend of reducing energy consumption in the country. Similarly, electricity distribution decreased by 4% year-on-year due to incentives to reduce electricity consumption and higher margin production by prosumers. In the second quarter, we recorded an increase in electricity sales by 12% year-on-year, which is, among others, as a result of increased activity on the Polish Power Exchange by new trading company, ORLEN Energia. Sales of heat from generation amounted to 16.5 (sic) [ 17.5 ] petajoules, higher by 4% year-on-year due to lower temperatures by 0.8 degrees Celsius in the quarter. On the next slide, retail in Q2 2023 achieved EBITDA of PLN 662 million and was lower by minus PLN 35 million compared to Q2 2022. This results from lower fuel margins year-on-year and higher operating costs of fuel stations due to increase in number of new locations by 272 year-on-year, as well as higher fixed and variable costs. The above effects were limited by positive impact of higher sales volumes.
On Slide 17 we have sales volumes, which in Q2 2023 were higher by 5% year-on-year, including higher by 2/3 year-on-year sales in Czechia, was slightly lower by minus 1% year-on-year sales in Poland and Germany. The number of fuel stations at the end of Q2 2023 was 3,157 million. New locations were added in Poland, Hungary and Slovakia as a result of the merger with Lotos Group and implementation of remedies. In Slovakia, the growth resulted from launching and rebranding self-service fuel stations acquired from the local network, while in Germany from the launching self-service stations acquired from OMV. Currently, the purchase of 266 fuel stations in Austria is being finalized. As a result, Orlen Group will be among the 3 largest fuel chains in this country, with a 10% share in the retail market. Market share increased in Poland, Hungary, Czechia and Slovakia with stable share on German and Lithuanian markets year-on-year. Number of nonfuel locations increased by 261 year-on-year to 2,570. During the year, the number of alternative fuel points increased by 105 and amounted to 672 at the end of June. Currently, we are owner of 621 electric car charging stations, 47 CNG and 4 hydrogen stations. The number of all Paczka locations amounted to 8,255.
Moving to upstream. Upstream segment posted EBITDA of minus PLN 114 million, which is lower by over PLN 400 million compared to Q2 2022. This is mainly an effect of significant decrease of hydrocarbon prices. Gas price was lower by over 60% year-on-year, crude oil by over 30% year-on-year. Moreover, the segment's results were negatively affected by a write-down on the Price Difference Payment Fund in the amount of minus PLN 3.1 billion. Write-down for the entire 2023 can amount to approximately PLN 14 billion, of which Orlen Group has already transferred PLN 6.6 billion in the first half of 2023. Thanks to the acquisition of PGNiG Group and Lotos Group, the average production of petrochemicals in ORLEN Group has increased in Q2 by almost 140 kboe per day. Gas production was higher by 100 boes per day with NGL by 38 kboe per day year-on-year.
On the other hand, comparing to Q1 2023, production of hydrocarbons dropped by 30.6 kboe per day. The most significant decrease was observed in Norway. Production was lower by 23.4 kboes per day, mainly due to maintenance shutdowns. The higher production by 1 kboes per day was achieved in Canada, which resulted from faster than planned connection of wells. Average gas and oil production in Q2 2023 amounted to 156 kboes per day. In Poland, it was 74, in Norway 70 -- 64 kboes per day. In Canada 13, in Pakistan 5 and in Lithuania 0.4 kboe per day. Natural gas accounts for 74%, while oil and NGL for 26% of Q2 production structure. Total 2P hydrocarbon reserves amounted to $1,278 million (sic) [ 1.278 kboe ] [ this is ] the level of the end of 2022.
In Q2 2023, Gas segment generated EBITDA of PLN 5.6 billion, out of which PLN 5.1 million was generated by trade and storage and PLN 0.5 by distribution. Retail tariff remains unchanged at the level of PLN 5,007 (sic) [ 0.0000097 ] per megawatt hour [ due from ] prices, all-in group gas prices for SMEs. As a result, in June 2023, the average price of 1 megawatt hour of gas was around PLN 293, which is 17% lower than in March. Significant impact on segment results and the lower cost of gas due to falling prices on the spot market and in [ multi contracts ]. Compared to Q2 2022, [ TTF monthly head ] price declined by minus 66% year-on-year. Average price of all transactions on the Polish Power Exchange, including spots and contracts, was PLN 331 per megawatt hour. Meanwhile, average price of natural gas transferred from upstream division to gas segment amounted to PLN 176 per megawatt hour. In Q2, PGNiG Retail received compensations from the Price Difference Payment Fund in the amount of PLN 3.1 billion. Orlen Group generated EBITDA of PLN 0.5 billion from distribution activities, higher by PLN 500 million year-on-year as a result, of change of network challenges, which also allows to obtain compensations.
Moving to Slide 21, gas imports to Poland in Q2 2023 amounted to over 35 terawatt hours, of which 47% was LNG. Total gas sales outside the Orlen Group in Q2 23 decreased by 27% year-on-year due to persistently low demand for gas. Relatively high level of execution prices of sales contracts with falling prices on the current market were still favorable factors from the segment's results perspective. The loss of decrease in gas sales year-on-year was recorded among large industrial customers that amounted to around 17 terawatt hours. However, it is worth noting that the decrease is caused largely due to merger. Significant part of volumes is currently sold internally within the group. Gas distribution volumes in Q2 remained at a similar level year-on-year. The volume of gas stored in Poland at the end of [ 2 ] amounted to around 26 terawatt hours, which means 70% of the total gas storage capacity in the country. Now cash flow and indebtedness will be described by Michal Perlik, Michal, the floor is yours.
Thank you. So good morning, everyone. We're serving another quarter in a row with a positive free cash flow, although not that strong in the previous few quarters, but still positive. Over the last 3 months, we have generated PLN 7 billion loss, close to PLN 7 billion of net input from operations. It was driven partially by positive EBITDA by over PLN 8 billion, but also very stronger much by a decrease of working capital of over PLN 8 billion. On the other hand, we had almost PLN 10 billion spending for income tax paid in second quarter, mainly from Poland and our upstream operation companies. On the investment side, we have PLN 7.3 billion of CapEx and total net outflow from investments was PLN 4.9 billion. Over the last 6 months, we have generated almost PLN 26 billion of EBITDA. Additionally, we generated PLN 14.4 billion of cash from decrease of working capital due to a sharp decrease of prices of crude oil and gas and [ other ] products. We spent PLN 12.6 billion for CapEx and another EUR 6 billion for purchase of CO2 allowances and property rights. And around PLN 14 billion for income taxes.
Altogether, since the beginning of the year, we have decreased our net debt by over PLN 10 million. Over the last quarter, we have decreased again by more than PLN 1 billion. So our net debt-to-EBITDA covenant is still negative of 0.25 because we have a net cash of PLN 12.6 billion. At the end of the quarter, we have signed an agreement with the consortium of the bank for financing CCGT Australian kind of project finance for MoU PLN 2.6 billion. And at the beginning of July, we have issued 7-year bond benchmark 500 issue on the Euro market which well balances our funding structure. These are the main information about liquidity and the debt position. I hand over to Konrad. Thank you.
Thank you. So now let's move to CapEx. So Slide 25. I may say that we maintain our forecast for the CapEx for the year of PLN 36 billion, which is almost twice as much as last year. We will allocate over 70% of this amount to the growth projects aimed at increasing [ olefin ] energy security and raw material independent. The detailed list of the major growth projects is shown on the slide. In the first half of this year, CapEx amounted to PLN 12.6 billion. So we may say that more or less equally, we spent in the segment of refining petchem Energy Upstream and gas. And in the second half of the year, as usual, you should expect investment spending to accelerate.
Next slide, Slide #27. So current macro environment. In Q3, we observed a drop in crude oil prices by almost 20% year-on-year. So this is a result of high base in the previous year and increase in crude oil supply. Reduction of production by OPEC+ also does not translate into an increase in oil prices, mainly due to oversupply on the market. So price forecasts have been lower due to OPEC's increases spare capacity and reduced risk premiums. Refining margin is higher by circa 40% quarter-on-quarter due to positive impact of higher diesel, gasoline and HSFO crack [ fix ], lower gas prices. Diesel cracks increased by 50% quarter-on-quarter, gasoline cracks increased by 8% quarter-on-quarter, and this is a result of, first of all, higher demand in Europe, so due to holiday season, which is also reflected in the increase in demand for aviation fuel, lower inventories, both in ARA and U.S. regions, transport constraints caused by a low water level Rhine River as well as lower supply resulting from maintenance shutdowns of refineries globally.
In terms of diesel, there is also expected lower imports to Europe in August versus July by roughly speaking [ 60 ]%. HSFO cracks increased by 20% quarter-on-quarter mainly due to higher demand from Saudi Arabia for HSFO, which is used to generate energy for air conditioning, but also, let's say, persistently low supply of high-sulfur fuel oil in Europe related to the limited availability of high sulfur [ content crude ] oil coming from embargo on Russian oil and gasoline [ off ] production. Gas prices decreased by circa 10% quarter-on-quarter on TDF and PPX market as a result of healthy inventories and steady NG flows.
Next slide, last one, Slide 28 market outlook for this year. So in terms of macro, we slightly changed our assumptions for this year. In terms of crude oil, we expect the level of USD 80 per barrel refining margin should move around USD 15 per barrel differential, significantly weaker than we expected at the beginning. So this is both impact of lower throughput of Russian crude oil in Orlen Group, but also at lower BU differential in itself. So we are not talking about minus PLN 30 but currently USD 15 per barrel. In the case of petrochemical margins, lower level compared to the previous year due to a tough market environment. In terms of [ contact ] prices, we expect PLN 200 per megawatt hour and [ verse ] electricity prices circa 500-megawatt hours. And as I mentioned earlier, in the second quarter of the year, we expect a direct economic recovery in Poland. However, in annual terms, compared to the previous year, we expect a decrease in consumption for both fuels and petchem products, lower gas consumption as a result of energy crisis [ set comp level ] electricity consumption. In terms of regulatory environment, there were no significant changes that could affect our business comparing to the previous quarter. So that's all from my side. Thank you very much for your attention, and please feel free to ask the questions.
[Operator Instructions] [Foreign Language]
Two questions. One related to the PDH project. So along with the purchase of Lotos, you have acquired the stake in the PGNiG project. And if I understand correctly, the deal with [ Baltic ] implies that you may need to pay contract fines. And well, can you confirm this? And if you confirm this, then could you explain how the fines work and could you please tell us what do you intend to do with your stake in the PDH project, that's the first question.
We do not comment this issue.
Okay. Okay. Okay. The second question is on free cash flows. On your presentation on Page 23, you showed the free cash flow waterfall chart, yes. And we end up with the 10.3 net debt decrease, which, as I understand, is a kind of benchmark for free cash flows, which you present. And if -- it's like a follow-up question. Do I understand correctly that when I see this figure and if I were to assume that the free cash flows in the next quarters would be 0, I should expect 40% of this free cash flow to be paid out in dividends next year.
Not sure I understand correctly, this is Michal speaking. If the net cash flow will be 0 in third quarter. What is your question that...
I mean, if we were to assume that the free cash flow in the first and fourth quarter will be 0 for simplicity, the whole year would end with a free cash flow of PLN 10 billion [ each year ].
Yes. Yes.
Yes, what you -- I mean, based on your dividend policy, should we expect the payout of 40% of this figure?
Well, yes, there will be no adjustment in the second half of the year. Yes.
So based purely on the results from the first and second quarter, we can already expect a PLN 4 billion dividend unless the free cash flow [ vanishes ] next quarter. Yes?
I wouldn't go so far because we don't know what will be the free cash flow in the third and fourth quarter, and we can see that we still have very ambitious investment plan over the second half of the year. On the other hand, we can see deterioration of free cash flow, the cash operation cash flow, at least in some of our [ statements ]. So I wouldn't give such a statement I would be very careful such statements.
Okay.
What I can confirm, I can confirm we stick to the dividend policy that we have presented.
Piotr Dzieciolowski from Citibank, can I ask first my questions.
Yes, yes, go ahead.
I wanted to ask you how much more versus the Russian pipe is crude oil delivery setup that you have at the moment. So sustainably as opposed to previous route, how much you have to pay more to get crude oil specifically to ports refinery because that's what I think the biggest change is. And second question, can you please explain the strategic logic about buying stations in Austria? You have quite a lot on your plate and all of a sudden, you go into a new market where you don't have a refinery. Is it -- why do you allocate capital in such directions? And then thirdly, I wanted to ask you about your CapEx on offshore. There's a couple of announcements that people see huge CapEx increases in offshore space, and also you yourself have seen in the petchem. So how much CapEx do you plan to spend on offshore until the 2030? And how that corresponds to your PLN 70 billion, if I remember correctly, renewable CapEx assumption in your overall CapEx program of long-term strategy?
Taking the first question, that was, let's say, replacing Escobar by other grades. So as I've mentioned at the beginning, we are processing just 10% of Russian crude oil in the whole ORLEN Group. So currently, as you probably see, we are updating our invest page on a regular basis, on a monthly basis, and we showed that in July due to the fact that BU differential decreased significantly down to, let's say, minus USD 15 per barrel, and we replaced in majority Russian crude oil with crude oils like Arabian light, but also WTI, you [ can ser ] from Norway et cetera. We are paying premiums. So all in all, instead of having differential in July, there is USD 0.6 per barrel premium for replacing REPCO in all of our refineries where we had to.
I'm asking more about this than I can see, right? I can see kind of a quotation on the market. I'm asking you how much is actually [ it gens ] a barrel of oil offloading in [ Ghent ], ship it to ports as opposed to a previous route. Because that's on top of a price differential compared to [ Ural ], better logistics advantage cost which you will have in the port which you didn't have before.
U.S. dollars per barrel.
So regarding your second question on post [ GR ] takeover. We have [ scheduled ] all strategies. Yes, our strategy assumes that we will expand our retail network outside Poland and our aim is to have about 3.5 per 1,000 [ alternative ] stations by 2030. And at the same time, we say that the investments in like the legacy business [ that's the gas ] business will be done in the first half of this year to after the case to make them more compatible. So the investment [ obviously ] the takeover of [ alt ] care network of fuel oil is filling the strategy by building an [ EK ] network of [ ovan ] stations within the [ sitorivo ] so we are expanding our network or we have expanded our network by takeover of stations in Hungary and Slovakia while making the deal with MOL, we expanded [ the continuous ] network in Slovakia organically. We have the stations in [ Handeke ]. And Austria is closing the gap in [ Sant Agio ] between Czech Republic, Germany, Hungary, and it's adding new points of sales on our network. So we, as [ Suni Petrol ] have significant flows of fuel [ in which we held there ] . Now we have in Austria our own retail network and our own sales that work. Of course, we are aware of the challenges that are in front of us, taking into account the energy transition currently in mobility, especially in Western markets like in Germany or in Austria, but we have experience from Germany, we know the challenges, we are working on the confirmation of the stations. And I think that the benefits of building a solid network in [ sotari ] group that may serve customers for many years are worth dealing with the [ chas ].
And I can take the second question about the offshore, the energy department. So we just recently published the CapEx for [ Baltica ] project, it's PLN 4 billion for the whole project. I mean the CapEx because we also publish and the total budget, which includes some additional positions, additional to CapEx. And right now, we do not reveal yet the CapEx for other offshore projects we just recently ran 5 more locations in the Polish [ space ]. But we are, of course, still waiting for the licenses to be the finally awarded. We know that we want the competition, but the licenses still need to be issued. And we are working on the schedules for this new project. And we are sure that the accounts part of CapEx for these projects will be spent after [ 2023 ] so it's much different to provide [ taxes ] for the CapEx for this to the period 2030.
Okay. And do you still -- what kind of returns do you still see? Because your EUR 4 billion CapEx on the 1.2 gigawatt project seems to be at the top end of the industry. And so I understand you have a remuneration framework, there is inflation, indexation and so on. But do you still see value creation or we have a similar situation concerning petchem?
Now of course, we see the value creation we just recently made a [ critical ] decision for the FID of the project. And we are certain that the project will create value. We -- the project is based not only on our spending, but in a huge part on project finance. And to -- of course, we've got 51% of [ that FO ] so not the whole CapEx will be spent by Erlen but also part by our partner. And the calculations show that the project will present a very substantial return. So we are quite happy with the project at the moment. And the company that we publish is based on the finally signed contracts. So the risk that the CapEx will increase is very minimal. So yes, we are sure that the projects will present positive results.
Tomasz Krukowski from Santander, can I go ahead?
Yes, please.
So 3 questions from me. The first 1 is on working capital. You released quite a lot of cash from working capital in the first half so do you think that your working capital level right as it is now? Or you expect further release in the second half of the year? Will be the first one. The second is on your upstream production. There was quite a considerable decline in the second quarter, quarter-on-quarter. You mentioned maintenance activity in Norway. So -- the question is whether these activities already completed or whether it was completed in the second quarter? Or what we should expect as a production in the third quarter? And the third question is on the profitability in the gas trading business. It was again really outstanding. So how should we think about profitability in this business line in the second half of the year?
So regarding the first question about working capital engagement, honestly, I would not expect a further substantial improvement of this position, having in mind that we have already observed a sharp growth in price of crude oil and gas over the last couple of months, and that's not necessarily what we can observe over the second half of the year. And additionally, on top of that, we had some seasonality, mainly in the gas storage activity. So we'll have to engage more working capital on this side. So my expectation would be rather that we will engage some additional working capital than released in the second quarter, but it's difficult to say to what extent. It will be very much driven by the price of crude oil and gas.
Regarding the gas business, of course, this first half results are quite strong, and we already have seen that this positive spread between the cost of gas purchases and the average selling price of gas is a bit deteriorating. And with third quarter coming, with lower volumes due to cyclicality of the cycle of the gas business, probably the third quarter will be similar it's a bit lower than what we have shown in the second quarter. However, we have to keep in mind that in fourth quarter, we will be entering a new winter season and taking into account that the prices in 2022, for example in Q3, the mean prices of spot gas transactions was around EU -- PLN 954 per megawatt and in fourth quarter of 2022, it was EU -- PLN 474 per megawatt hour while nowadays, we have -- we are in the range of around PLN 200 per megawatt hour. Still, we should see that the gas business will be strong in the second half of this year, should be the assumption.
In terms of Upstream production, yes indeed in the second quarter, we had a prolonged maintenance shutdown on our biggest field, gas field currently, which is [ on the omatry ]. However, we see that nowadays, the short term is over. We have -- we see the volumes up and running on our installation in the field. So we should see a revamp on the output of our especially Norwegian production, while in Poland, we should expect a natural decline of production. In terms of crude oil and gas we should see some improvements at stable level and the domestic production with probably -- so probably, overall, we should be somewhere in the range of the production that we've shown in the first quarter.
Can you hear me?
Yes, we can hear you. Go ahead.
So my first question. Do you expect an extension of the upstream gas write-downs to next year? This year, it amounts to PLN 14 billion.
Well, it's hard to say right now whether this mechanism will be prolonged, so we cannot comment on this because there is no new [ slot ] regarding this issue.
Okay. So the last question, how much would be the CapEx to [ marti ] if we update and mentioned PLN 140 billion from your recent strategy for current inflation. Could you give us updated amount including, of course, olefins [ in this ].
We are internally working on updating of the CapEx plan and long-term investment plan, and we will give further update [ communicated ].
Can you hear me?
Yes.
Anna Kishmariya from UBS. I have 2 questions remaining. One on the energy side. In terms of Energa performance, we have seen some one-off in first quarter and this quarter. Can you just remind me what would be your estimate for the second half of the year? And also on the energy side, I want to check regarding the deal on the coal-fired plant. When do you -- with the government, when do you expect this to be completed? And also, if you can comment on the petchem side, what is your outlook for second half? And should we expect further negative EBITDA on that segment?
Okay. So taking the question about, let's say, the petchem, we said we are expecting a rebound of the economy, especially in Poland, in the second half of the year. So it doesn't mean that it will be right now visible in the first quarter. So you may say that the third quarter still will be under the pressure what we observe right now. Margins are still under the pressure. There is a slight rebound in the demand for petrochemical products. But quarter-on-quarter, you should expect that, let's say, we should end up at a similar level that we had in the second quarter. So the EBITDA LIFO will be in red. However, in the fourth quarter, we are much more optimistic about it. The second question, if I remember correctly, was about CCGTs, yes?
Yes. And just Energa performance as well. Yes.
Yes. So in terms of CCGTs, we have 3 CCGT blocks in the pipeline: CCGT Astroenka that should be up and running by the end of 2025. CCGT Gdansk up and running by the beginning of '27 and the [ Grujontimagito ] Astra by the end of 2025. And in terms of Energa indeed, in the second quarter we had one-off. So there was a change in the method of grid loss calculation. So you might expect that if you look from, let's say, first half of the year perspective, an average result in the Energy segment was roughly speaking, slightly below PLN 2 billion. So similar level you should expect in the second half of the year. So you may expect that between PLN 1 billion, PLN 1.5 billion, this result should be visible in Energy segment in the third quarter. Any other questions guys?
It's Tamas Pletser from [ Prague ]. Can you hear me?
Yes. Hi, Tamas.
I have a question regarding the petrochemical margins. Do you -- when do you expect to release your indicator margin? And how do you see generally the market -- that would be my first question. My second question would be regarding this payment to the Price Difference Fund. I saw that you paid roughly the same money, like PLN 3.1 billion, what you received. Can we expect this to happen in the next quarters as well, like a similar payment to the fund and similar received by you?
So in terms of petrochemicals margins, we are working on the update of the formula, so it should be released soon. So the timing of the previous 1 was a little bit out of the market. It covers only polyolefins. However, we are producing for, let's say, a wider range of petrochemical products. So please be patient. And in terms of, let's say, petchem segment in itself. So the situation is quite hard to [ think ], and we are observing this from the end of last year. So both volumes are lower. There is a huge pressure. Additionally, there is a flow of quite cheaper products from China and Middle East to Europe. However, that demand is economic slowdown where the petchem is fully correlated with GDP is also not healthy.
And answering your question regarding the payments to the Price Compensation Fund. These payments are resulting from the volumes of gas produced domestically. And while the volumes of domestic production are rather stable quarter-on-quarter. This overall impact on the results in Upstream will be negative throughout the end of the year by around PLN 14 billion divided into 4 quarters, right? So around PLN 3.5 billion of payments per quarter. While on the other hand, we will be compensated for the volumes that will be sold throughout this -- throughout the second half of the year, for example, like we were paid for the first half -- in the first half. And as a reminder, there was a PLN 10.5 billion of compensation that were paid out to our retail business, gas business. So depending on the volumes in third quarter, which we should not expect any extraordinary higher payments, probably even lower payments from the compensation front, while we'll still pay to the funds this amount of over PLN 3 billion. While in the fourth quarter, it will all depend on the volumes that we'll sell in this -- at the start of the winter season. So this may vary. And so it's too early to say how big will be the compensation that we will get.
Okay. So if I understand clearly, in the third quarter, you will probably pay more to the fund than what you receive?
It will all depend from volumes take -- assuming that the volumes of sold gas will be lower than in Q2, which is rather normal in terms of household consumption. The assumption may be correct will also depend on the quotes.
Okay. That's clear.
Piotr Dzieciolowski from Citi. Can I please have a follow-up.
Please go.
Yes. Can you comment anyhow on the -- this press articles regarding Group [ are group in ] as a new involvement there and [ PoaposkaSof ] Polish cost. Can you -- is there anything you can add on this, whether you are involved, not involved, how could you see this result? And then if you can't answer on any of these 2, then can you say what will you do with Grupa Azoty, which is your main customer for the oil [ speaking ] part, were they to get into financial troubles, how will you secure the interest of Orlen?
Okay. In case of the Azoty part of your question, I think that it's clear that we are working on due diligence of the [ Zoawa ] site, and we declared an interest in merging our fertilizers activity, let's say it that way. So we are -- we look at the [ Zoawa ] site as a site where we can see significant synergies from merging our fertilizer business with [ under ]. Regarding [ Postapoaka ], we do not work currently on [ a public ] so we cannot comment it. And regarding your question on -- the part of the question on like a difficult scenario or catastrophic scenarios for Grupa Azoty. I think that our common interest is to make our businesses sustainable and to make both our corporate partners and customer viable economic players. So I won't be specific here. But yes, we always are trying to find for the best solution, that is best for our company and for our key partner.
And just why are you interested only in Grupa Azoty? I understand this is the best of the 4 facilities the company operates. But why wouldn't you want to take over the whole company? I mean can you explain this a little bit more? Because I understand you also already involved where they hold a lot of part into this polymer project or polypropylene project in politer right? So you already have a lot of ties. So why wouldn't you want to deal with the whole company, not just Azoty?
Okay the interest in [ Goave ] may be if -- has a long history because like 10 years ago or over 10 years ago, there was a project of selling [ anheres ] to Grupa Azoty and then business [ happens ]. So our path -- that the project was [ killed ] at one moment. But we see like the largest synergies potential of merging those activities. And yes, we -- from our point of view, they're a little [ a shy ] of merging with Grupa Azoty. Any other questions?
Ladies and gentlemen, if you want to ask a question, please unmute yourself. Go ahead.
Tomasz Krukowski from Santander again. Could you please elaborate on the nature of the tax payment which you made in the second quarter? Was it something -- well, first of all, whether was it in Poland or in Norway? Or was it something that was earlier accrued and right now paid, and how we should look at that line in the upcoming quarters.
Okay. So yes, in the second quarter, there was a settlement of the taxes out of which around over PLN 4 billion was PKN's, owers, tax for 2022 while the remaining [ 4 ] was contributed to Norwegian upstream business and 1 coming from Unipetrol.
And why there was such a shift between the timing of the -- in which you accrued the tax and timing of in which you settled the tax? Is it the usual thing? And how should we think about this going forward?
Yes. The settlement of the taxes that we are due to pay is normally second quarter.
Okay. So if there are no more questions, so this concludes our con call. Thank you very much for being with us and have a nice day. Bye.