Polski Koncern Naftowy Orlen SA
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Polski Koncern Naftowy Orlen SA
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Ladies and gentlemen, welcome to the PKN ORLEN Q3 2019 Consolidated Financial Results Conference Call. At our customer's request, this conference will be recorded. [Operator Instructions]
I will now hand you over to Mr. Konrad Wlodarczyk, IR Director. Please go ahead.
Thank you, operator. Good morning, ladies and gentlemen, and welcome to the conference call presenting PKN ORLEN's consolidated financial results for the third quarter 2019. The presentation that was e-mailed to you today and is also available on our web page will be delivered here by myself and by [ Mario Garyenski ], IR expert. And after the presentation, as usual, we will kick off Q&A session during which several directors will be available to answer your questions.
With no further delays, I'll go smoothly to Slide #3, key facts and figures. So third quarter was one of the best ever, we may say. We achieved PLN 3.2 billion EBITDA LIFO out of which 30% was delivered by Retail segment. And such high results were achieved due to positive impact of both macro and sales volumes. We processed record-high amount of crude oil, about 9 million tonnes, and high production and very sound demand enabled us to turn more than 11.4 million tonnes of product, which is a 3% increase year-on-year.
I would like also to underline a few things that we did in the third quarter. First of all, we are further diversifying crude oil supplies. So we now have 2 cargoes, 130,000 tonnes each, from Angola were delivered to Plock. We moved with the process of Grupa LOTOS takeover. At the beginning of July, we submitted in the European Commission a formal application for the approval to take over Grupa LOTOS. At the beginning of August, the European Commission decided that it needs more time in this analysis. Therefore, we move to the second, final phase, and the deadline for the final decision was set at the 22nd of January 2020. And currently, European Commission applied the stop the clock procedure. So this is the standard procedure in the second phase of negotiations. And thanks to this procedure, we gained more time to gather additional information, and European Commission will have more time to analyze submitted documentation before taking the final decision.
We have announced that we're going to build a propylene glycol unit and the process of license and the base project for the bioethanol second-generation unit in ORLEN Poludnie, our biorefinery. And we are strengthening our position in Retail, starting a network of fuel stations in Slovakia. We received anti-monopoly approval to take over another 7 stations. Later this year, we are planning that ORLEN brand will appear at the Czech, German and Slovak stations, so this is a part of implemented co-branding strategy, assuming there's a coexistence of local brands like Benzina and Star with ORLEN Group logo.
In the third quarter, we maintained a strong financial position. We generated PLN 3.4 billion cash flow from operations. We realized investments at the level of PLN 1.3 billion. We paid record-high dividends, PLN 1.5 billion, which is PLN 3.50 per share. And as a result, we reduced net debt at the end of the third quarter by PLN 0.4 billion to PLN 2 billion, which is a 5.2% financial gearing.
Moving to Slide #5, macro environment. As I mentioned at the beginning, we recorded in the third quarter positive macro effect year-on-year. But I think it's more beneficial for you, as you're always asking us, to describe what has happened quarter-to-quarter.
So in third quarter, Downstream margin increased by USD 1.60 per barrel quarter-on-quarter mainly due to higher margin and BU differential. Refining margin, including BU differential, increased by USD 1.70 per barrel and was supported by very strong diesel crack, mainly as a result of lower crude oil price. Crude oil price dropped from USD 69 per barrel down to USD 62 per barrel mainly due to high tension between the U.S. and China; expected lower increase in oil demand by International Energy Agency, and the reduction is from 1.2 million barrels per day down to 1.1 million; and record-high level of U.S. production, reaching even 12.5 million barrels per day, as well as increasing the U.S. crude oil inventory; and additional information of faster-than-expected recovery of oil production in Saudi Arabia after attacks.
Diesel cracks increased 25% quarter-on-quarter with an average in the third quarter circa USD 115 per tonne, also due to planned maintenance shutdowns of refineries in Europe, logistic concerns due to low water level on the Rhine River and low availability of the diesel from Middle East. High-sulfur fuel oil cracks decreased by 2% quarter-on-quarter with an average in the third quarter of minus USD 140 per tonne. On one hand, we offset high demand in Asia, where heavy heating oil is used for energy production and air conditioning, low inventories in U.S. and ARA and reduced supply of heavy-sulfur fuel oil due to lower production of fuels with high sulfur content as well as expected lower supply of high-sulfur fuel oil in Europe as a result of largely new delays concerning LOTOS. Cracks on HSFO are changing dynamically before coming in for IMO 2020 regulation. And at the end of the quarter, we offset a sharp decrease in high-sulfur fuel oil crack down to minus USD 200 per tonne. This is the lowest level from 5 years due to lower demand for bunker fuel in Rotterdam, where sales fell by 25% in September comparing to August, as well as very high stock in Singapore.
Gasoline crack decreased by 6% quarter-on-quarter with an average in the third quarter of USD 155. At the beginning of the quarter, we offset a very high demand in the U.S. at lower supply as a result of a past refinery shutdown in Philadelphia and cutting oil production in Gulf of Mexico due to tropical storms. At the beginning of September, we observed a sharp decrease to circa USD 130 per tonne due to lower demand in U.S. as a result of the end of driving season. However, at the end of September, gasoline cracks increased significantly up to $170 mainly due to higher demand from Saudi Arabia after attacks, higher demand from West Africa as well as maintenance shutdowns of European refineries.
BU differential increased by USD 0.6 per barrel quarter-on-quarter, but it was moving up and down. In June, it recovered to more than USD 2 per barrel as a result of higher Ural supply due to restart of crude oil deliveries by Druzhba Pipeline after [ 43 ] days of suspension. In July, it dropped to minus USD 4.7 due to strong demand for Ural oil with reduced availability of Russian cargoes in the Baltic ports and in August and September again recovered about USD 3 per barrel due to weak demand for Ural as a result of switching to low-sulfur oil grades related to IMO 2020 and high availability of Ural in Baltic ports.
[ SK ] margin decreased in the third quarter by nearly EUR 50 per tonne quarter-on-quarter mainly due to higher supply of monomers after back-on-stream European crackers after maintenance shutdown, high stock and lower polymer prices as well as higher feedstock costs like naphtha and LS VGO. In the third quarter, we also recorded sharp decline in gas prices, which are under the pressure mainly due to high level of gas storage, seasonal decrease in demand, increasing electricity production from renewables and global economic slowdown. Gas prices dropped by circa 50% year-on-year and 20% quarter-on-quarter, while energy prices remained flat year-on-year and increased 5% quarter-on-quarter. Therefore, our energy assets generated decent results.
Moving to Slide #6, as of market-oriented data, in the third quarter, we recorded GDP growth on all domestic markets. Following -- the growth in gas was reflected in higher consumption of diesel by 4% year-on-year and higher consumption of gasoline by 5% year-on-year. And the dynamics in fuel consumption of other markets are also satisfactory.
Now I will present the financial and operating data for the third quarter, so I go to Slide #8. And in the third quarter, we recorded revenues decreased by 4% year-on-year mainly due to lower quotations of refining and petrochemical products as a result of crude oil price decrease. We generated PLN 3.2 billion EBITDA LIFO, which is PLN 0.8 billion higher year-on-year. On one hand, we noted PLN 0.5 billion positive macro impact, PLN 0.3 billion positive effect of sales volume increase and PLN 0.4 billion positive effect of higher trade margins in wholesale and retail. On the other hand, we had minus PLN 0.2 billion negative impact of inventory revaluations, minus PLN 0.1 billion negative impact of higher overhead and labor costs and minus PLN 0.1 billion negative impact of other operational activity mainly due to settlement and valuation of financial instruments.
Just to remind you, from the beginning of 2019, we applied IFRS 16 regarding leasing, so this is a pure accounting standard, however reduced EBITDA LIFO by circa PLN 150 million quarterly due to higher depreciation.
As a result of a crude oil price decrease in the third quarter, we recognized a negative LIFO impact in the amount of minus PLN 0.4 billion, which caused a decrease in reported EBITDA to PLN 2.8 billion.
The result of financial activity in the third quarter was minus PLN 0.2 billion mainly due to negative impacts of FX differences and interest costs and positive impact of net settlement of derivative financial instruments. As a result, in the third quarter, we achieved net profit at the level of PLN 1.3 billion.
Slide #9. On this slide, we present split of EBITDA LIFO by segment. Downstream, PLN 2.4 billion, which has increased by PLN 0.6 billion year-on-year as a result of a positive macro impact, sales volumes increase and higher trade margins in wholesale, limited by negative inventory revaluation and balance on other operational activity mainly due to settlement and valuation of financial instruments.
Retail, PLN 0.9 billion. This has increased by PLN 0.2 billion year-on-year as a result of positive impacts of higher sales volumes and higher fuel and non-fuel margins.
Upstream generated PLN 85 million. This is comparable with results year-on-year mainly due to positive effects of sales volume and balance on other operational activities, including settlement and valuation of derivative financial instruments, limited by negative macro effects.
Corporate functions costs are higher due to higher sponsorship and advertisement costs year-on-year.
Now I will hand over to [ Mario Garyenski ] to dive into the details.
Thank you, Konrad.
[indiscernible].
As Konrad said before, Downstream, our biggest segment, delivered PLN 2.4 billion EBITDA LIFO in the third quarter, that's PLN 640 million increase year-on-year. It's the result of higher macro effects by circa PLN 600 million and mainly due to refining margins improvement on middle distillates, heavy fractions, fertilizers and lower costs of internal [ consumption ] for our own energy needs due to lower crude oil price by minus $13 per barrel. Low natural gas prices in the second quarter positively impacted our CCGT profitability. Same goes for the weakening of Polish zloty against foreign currencies. Above mentioned positive effects were partially limited by lower Brent/Ural differential by minus USD 0.30 per barrel and worsening of margins on light distillates, olefins, polyolefins, PTA and PVCs. As a result, our sales volume increased in Downstream segment by 2% year-on-year. We recognized more than PLN 270 million positive volume effect. Sales of diesel, LPG, olefins, polyolefins and PTA increased year-on-year with a drop in sales of gasoline, fertilizers and PVC. Others include mainly minus PLN 0.1 billion due to inventory revaluation as well as similar amount of PLN 0.1 billion due to negative balance of the remaining operating activities mainly due to the settlement and valuation of financial instruments.
Now let's move to Slide #11, which shows operating data for Downstream segment. In the third quarter, PKN ORLEN processed record-high 9 million tonnes of crude oil, which is 102% of total utilization ratio. It was possible due to a smaller scope of maintenance shutdowns. If we look at the fuel yields, you can see they were at comparable level year-on-year in all countries. In Plock, fuel yields decreased by roughly 1 percentage point year-on-year due to the maintenance shutdown of hydrocracking installation and lower share of sulphur crude oil in feedstock structure.
In Unipetrol, fuel yields stayed at comparable level year-on-year. Higher utilization ratio was possible due to the lack of cyclical shutdown of petrochemical installations in the Litvinov from 2018.
And in ORLEN Lietuva, fuel yields decreased by 1 percentage point year-on-year as a result of lower yields from Visbreaking and Visbreaker Vacuum Flasher installations.
Going into diesel split market by market. In Poland, we recorded a minus 1% sales decrease due to the lower volumes of heavy refining fractions at high fuels, olefins and PTA sales. In Czech Republic, we recorded 5% sales increase due to higher refining and petrochemical volumes. And in ORLEN Lietuva, we recorded 5% sales increase due to higher heavy fraction volumes and the launch of PPF Splitter units, so propylene production.
Slide #12, which is Retail, Retail again delivered awesome results. We had PLN 925 million EBITDA LIFO, which is 28% higher year-on-year. Such a great result was achieved due to positive impact of both higher sales volumes and higher retail margins year-on-year, what you can see on the bottom graph. We recorded sales increase by 5% year-on-year, achieved on all markets. In terms of margins, higher fuel margins and non-fuel margins were achieved mainly in Polish and Czech Republic markets. And it's also worth to mention that implementation of IFRS 16 boosted fiscal results by more than PLN 70 million year-on-year in the third quarter.
Slide #13 shows operating data of Retail segment. At the end of the third quarter, we were running more than 2,800 fuel stations. That's 1,784 in Poland, 584 in Germany and 413 in Czech Republic, 25 in Lithuania and 1 in Slovakia. We also received antimonopoly approval to take over another 7 stations in Slovakia. Of course, increasing number of fuel stations by 20 year-on-year and very healthy demand for fuel were reflected in high sales volumes by 5% year-on-year achieved on all markets. Majority of the new stations were opened in Poland and Czech Republic. We also recorded a market share increase in Czech Republic, Germany and Lithuania comparable on market share in Poland year-on-year. Please also have a look on further dynamic growth of non-fuel offer. 30 new -- 39 new locations were opened in Q3. And at the end of the quarter, we were running 2,108 food and beverage corners, including convenience stores under our own brand, O!SHOP.
Now let's move to Slide #14, which is Upstream. In the third quarter, Upstream delivered PLN 85 million EBITDA LIFO, which is a comparable result year-on-year. Negative macro impact was offset by higher sales volume and positive effect of the settlement and valuation of derivative financial instruments. We recorded increase in average production by 5% year-on-year mainly due to higher production in Canada by 800 BOE per day.
Slide #15 shows more diverse operational details regarding Upstream. We have 211 million BOE 2P reserves based on the calculations from the end of last year, so like previous quarter. Average production in the third quarter was at 17,700 BOE per day. And we spent circa PLN 135 million on Upstream activities.
Please let me mention some key operational facts. In Poland, we finished drilling a well in the Bieszczady project. In the Miocen project, we finished the drilling of a second well, where gas deposits were discovered, and launched the drilling of the third well there. We also carried out a contractor's selection process for the implementation of the Bystrowice deposits as well as finished processing and interpretation of seismic data for Bystrowice II SWATCH 3D in the Miocen project and Chelmno 3D in the Edge project.
In Canada, we started drilling of 8 wells, plus 3 wells were fracked and 5 wells were added into production. In addition, there have been further expansion of the transmission pipeline network in Ferrier and Kakwa areas.
And that will be all for me. Now I will hand over to Konrad to discuss financials.
Thank you, [ Mario ].
So coming back to financials and cash flow data, so Slide #17. In the third quarter, cash flow from operations amounted to PLN 3.4 billion mainly due to lower working capital by PLN 0.7 billion as a result of decrease in receivables, which influenced positively on the cash flow as natural impact of inventories and liabilities.
Cash flow from investments, here the CapEx in the amount of PLN 0.3 billion includes PLN 0.3 billion impact of the right to use according to IFRS #16. And if we're to look at the bottom graph, which summarize cash flow management for 9 months of 2019, you can see that we generated almost PLN 8 billion EBITDA LIFO. Negative cumulative LIFO effect amounted to minus PLN 0.4 billion and working capital decreased by PLN 1.4 billion. We spent PLN 3.1 billion CapEx. We paid PLN 1.5 billion dividends and PLN 0.7 billion is taxes and interest. And as a result, our debt fell by PLN 3.6 billion comparing to the end of last year.
Slide #18, financial strength, so our pillars. I can confirm that all indicators remain at safe levels. Covenant below 0.3, at maximum level of 3.5. Financial gearing, 5.2%, significantly below 13%, our maximum level in the presentation of strategy update. Net debt at the end of the third quarter amounted to PLN 2 billion. And it was to underline that net debt decreased by PLN 0.4 billion quarter-to-quarter as a result of positive cash flow from operations at the level of PLN 3.4 billion, limited by net investments of minus PLN 1.3 billion and paid dividends at the level of PLN 1.5 billion.
Our sources of finances are diversified with an average maturity 2021. What you can see on the bottom graph, the currency structure of gross debt has not changed. Most of the debt, circa 90%, is in euro, which reflects our operating exposure and creates a kind of natural hedge.
And next, Slide #19, is dedicated to CapEx. Planned CapEx for 2019 is at the level of PLN 5 billion, out of which during 9 months of 2019 we spent PLN 3.1 billion. The largest investment projects realized in the first quarter concerned expansion of a fertilizer capacity in Wloclawek, purchase of the license and the base project for bioethanol second-generation unit in ORLEN Poludnie, construction of a polyethylene unit in the Czech Republic and construction of glycol unit in ORLEN Poludnie.
In Retail, we spent more than PLN 300 million for new locations and development of nonfuel concepts. And we also spent PLN 130 million in Upstream segment of which more than 80% in Canada.
The last section shows market outlook for 2019. As for macro assumptions, we are expecting a lower level of crude oil price compared to average from 2018. There are more factors making a pressure on crude oil price like global economic slowdown, U.S.-China trade war, higher production of crude oil in U.S. But on the other hand, those factors are partially offset by OPEC+ agreement regarding limitation of crude oil production sanctions in both Iran and Venezuela by United States and geopolitical risks.
Also, Downstream margin should also be lower comparing to the average from 2018. Decrease in BU differential partially limited by increase in margins on middle distillates and heavy fuel oil as well as high petrochemical margin despite launching of a new gas-based petrochemical unit. Consumption growth of fuels and petchem products on domestic markets due to GDP increase has a positive impact on Downstream margin.
In terms of regulations, nothing has changed.
So I think that's all from my side. Thank you very much, and we are ready to take the questions.
[Operator Instructions] The first question is from Tamas Pletser, Erste Bank.
I've got 3 questions. First of all, kind of a technical one. You mentioned several times in the presentation the IFRS 16 impact. Are these charts on your presentations, are they comparable? I mean if I see, for example, the EBITDA of the third quarter 2018, are they reflecting the older standards? Or can we compare them with the like-on-like basis? So would they reflect the IFRS 16 impact already or -- that's the first question.
My question is -- the second question is about the Retail. We saw very strong performance by you. And I remember the last time we talked in the fourth quarter on these very strong Retail figures, you mentioned the German market and some one-offs. But am I correct with the assumption that this result is very much without any one-off market impacts? So this is a pure market performance and market growth of the margins and your margin increase which caused this very strong result?
Also, linked to this question, I'm very much curious whether the 7 Slovakian stations you bought, do you supply these stations with fuels or not? Or are they standing on their -- a stand-alone basis and do the job without any supply?
And finally, my third question regarding your CCGT performances. Can you tell us how much these 2 CCGTs, how much profit they made in the third quarter? I assume this is quite high because there was a very low gas price. And where can we see them, which line of your results?
Okay. So starting from IFRS #16. So IFRS was implemented from the beginning of 2019. So 2018 data does not include this impact, of course. So as I said, on the quarterly basis, it's up to PLN 150 million, out of which, roughly speaking, PLN 70 million, PLN 80 million goes to Retail segment and the remaining is contributed to Downstream segment. So if you compare year-on-year, you should glean this positive impact of IFRS 16.
The second question was very strong Retail performance. Indeed, what we've mentioned, in the third quarter we generated record-high result, PLN 925 million. But coming back to the first question, this PLN 925 million includes this IFRS 16. So if you deduct, roughly speaking, PLN 80 million, we will be slightly below PLN 900 million. However, if you look on the impact of the factors in Retail, you'll clearly see that all factors impacted positively. So fuel margins increased almost PLN 150 million year-on-year out of which majority was generated on the Polish as well as Czech markets. In terms of nonfuel sales, majority was generated on the Polish market. So this is the strength of -- in the Retail. So I would not say that this is a one-off situation. So the demand was very high, and also the market enabled us to generate high margins.
In terms of CCGT, due to low gas prices, you may say that both CCGTs generated slightly above PLN 200 million EBITDA LIFO out of which PLN 100 million was rather then slightly above PLN 100 million plus CCGT.
In terms of Slovakian fuel stations, you may say that we will be, let's say, selling -- this is the idea, to sell, let's say, local products on these fuel stations. It's -- this is the approach that we've got here internally in Poland. So we support Polish producers, so in Slovakia, we implemented the same brand that was well-known on the Czech market, Benzina. So I think this answer your questions.
Just one follow-up. So you said that the German stations, it's very high margin what you have experienced in the fourth quarter last year. That has been normalized and now the growth comes from the -- in the Polish side and the Czech side primarily. Do I understand this correctly?
Yes. You understand that correctly. So Q4 was really a very high margin in German. And now the margins on the German market normalized. They're on a healthy level but significantly lower than in Q4 last year.
Hello, operator?
Mr. Patricot from UBS.
A few questions, please. The first one on the Downstream business. You mentioned that you benefit from higher trade margins in wholesale. I'm [indiscernible] you could expand on the drivers of this increase and whether that trade margin remains high in the fourth quarter. And secondly, I wanted to ask you about the CapEx because in the 9-month '19, it had increased in the third quarter. You're running below your guidance for the full year on the run rate. So what are your latest expectations around cash CapEx for 2019? And also for 2020, should we still expect a very material increase in spending next year?
Okay. So answering your first question, so inland premiums. In this -- in the third quarter, trading margins were significantly higher year-on-year. You might say that roughly speaking, depending of course on the product -- on the gasoline, even up to 15% on the diesel roughly speaking, between 15% up to 20%. This was mainly due to very strong demand. And there were no, we may say, one-offs, yes, in the third quarter. However, in the fourth quarter, we observed a deterioration quarter-on-quarter, which is seasonally a normal situation. However, last year, please bear in mind that we recorded a very high inland premium, but there were a lot of one-off factors like logistic complaints in Germany, et cetera.
Okay. With regards CapEx, we are slightly below our original time schedules. So we are a bit delayed. But seasonally the fourth quarter is usually the best one. So we would like to make up in fourth quarter as much as possible with a favorable weather condition. So we have lots of projects ongoing. So we have, as I said, to make up in Poland, in Czech Republic and in Lithuania our CapEx spending this year.
With regards next year, we are in the process of finalizing the plan for 2020. However, it is not finished yet. And what we may say, we have, as I said, a lot of continuous projects, which may generate a much bigger CapEx in next year than in '19 because we will enter into realization phase on a couple of projects -- on a couple of big projects.
Now this process -- planning process is not finished yet. So we'd like to complete it in the middle of November or till the end of November.
As our best practice, we will provide a CapEx level for 2020 in Q4 presentation, which will be presented in January as usual.
The next question is from Ekaterina Smyk, Bank of America.
Hello?
Hello?
Sorry, do you hear me?
We can hear you.
Yes, we can hear you.
Okay. So sorry, I didn't understand it was my line that was open. Congratulations on obviously very strong results. And I have 2 follow-up questions on the trade margins in wholesale and Retail and then one on the utilization.
So on trade margins, you compared them on a year-over-year basis. But if you were to compare them on a quarter-over-quarter basis, have they actually improved? Because as far as I remember, in Q2, inland premiums were particularly strong because of the halt of the Druzhba Pipeline. So how they compare on a quarter-over-quarter basis.
Then on Retail margin, I was just wondering whether growth in the Polish market is solely driven by strong demand or there are other factors. Like has it something to do with the upcoming LOTOS acquisition, for example, in a sense that competition is not that strong already?
And on the utilization, you obviously -- you reached a record-high utilization rate this quarter. And how should we think about it going forward? For example, if the market environment looks very strong, would it be reasonable to assume that you can reach the same level of utilization?
And then can you please share your plans for maintenance shutdowns in 2020? And if possible, indicate the target utilization rate that you currently have in mind.
So starting for your first question, Retail margins in the third quarter comparing quarter-on-quarter. So with the second quarter 2019, you may say that they were flat.
In the trade margins, sorry.
Trade margins. But you have Retail margins and you got the wholesale margins. So when you -- and coming back to the wholesale margins, as mentioned before, in the first quarter, quarter-on-quarter on the diesel, you may say that they were flat. However, we saw some pickup in gasoline. And on the Retail, as I said, margins on all the markets were comparable quarter-on-quarter.
In terms of utilization in the third quarter, we were utilizing fully our capacity, reaching PLN 9 billion. However, in the fourth quarter, we are expecting to process 8.5 million to 8.6 million tonnes of crude oil. So roughly speaking, 98% utilization in PKN ORLEN, 95% in ORLEN Lietuva and slightly above 90% in Unipetrol. In PKN, we will have a maintenance of HROS units, [ Petrogen ] recovery and isomerization units. In ORLEN Lietuva, we have vacuum flasher and Visbreaking maintenance shutdowns. And in Unipetrol, we have a Visbreaking unit. For the next year, we do not provide plant maintenance shutdown schedule. However, 2020, definitely we will conduct a technical maintenance of refinery in Litvinov. So both refined and petrochemical parts will be out of order for the date. So this is from the big maintenance shutdowns. The next one, we will communicate it quarter-on-quarter basis.
And then also, the question on the Retail margin strength in Poland, yes.
The strength of the Retail margins in Poland, yes? So you may say that the market enabled us to generate such a decent margin. So also, the crude oil drop, the final product became less expensive. So usually then you have a possibility to generate higher margins, yes. And demand was very sound. So all the factors worked together.
Okay. So if we look at the year-over-year basis, we are saying that the margins were mostly driven by -- like by lower price of the underlying product rather than final end customer prices, right?
Yes.
And in terms of demand, I mean, what's the -- what's your outlook for the next year? Should we assume the same like double-digit growth in fuel margins? Or the high single digit would be more fair?
I think it's hard to answer your question. GDP definitely should deteriorate, and it will be here. So then, we will not -- it's a GDP increase, however, it will not be as good as for this year. So you may expect that, let's say, the consumption for fuel, so both gasoline and diesel, will remain, let's say, flat year-on-year. And this will be also reflected in margins.
The next question is from Michal Kozak, Trigon.
I have only one question. Do you assess that potential investment by LOTOS in [indiscernible] project is going to have an impact on the European Commission decision regarding [indiscernible]?
We do not comment this, unfortunately.
The next question is from Oleg Galbur, Raiffeisen.
I have 4 questions, please. The first one is regarding your gasoline sales volume. Could you explain the development of gasoline sales volume in the third quarter, which have declined year-over-year while the gasoline consumption, according to your data, went up in the key markets, Poland and Czech Republic, which would imply that you have lost some market share there?
My second question, regarding the diesel crack and brand [indiscernible] spread development in the fourth quarter. How would you comment widening of both indicators? Is it due mainly to the pre-IMO 2020 restocking? Or it's rather the supply/demand, temporary constraints on the supply in the market, et cetera? So how do you see this development?
And then on dividend. I know it's too early to discuss about potential dividends per share for next year decision, but it would be still interesting to hear your way of thinking about dividends, taking into consideration the potential takeover of LOTOS. In other words, would the acquisition have an impact on your payout?
And the last one is a follow-up on the previous question regarding the CCGT contribution. You mentioned the EBITDA in the third quarter. But just to have a better understanding, could you also mention the EBITDA generation in second quarter of this year and third quarter last year?
Okay. A lot of questions. I will try to answer all of them. So first of all, gasoline sales. You indeed offset the drop. The drop is visible on the Downstream side, yes? So this reflects minus 9%. However, please bear in mind that this is a crack that we generated significantly better margins in the Retail. We forwarned that majority of the volume from, let's say, Downstream to the Retail will generate better results. This was our approach that -- in the third quarter.
In terms of dividend, next year please bear in mind that we are expecting that we should be definitely beneficial from implementation of IMO 2020, which should both [ be ] a differential crack margins on middle distillates, and all in all, we should generate a better -- a significantly better Downstream margin, which should also be reflected in higher EBITDA. So also having in mind that we will have, let's say, a little bit higher CapEx spending, we would like, according to our approach, maintain a dividend-paying company. But I cannot guarantee you that we will, let's say, pay more or less what we paid this year.
In terms of CCGTs. In the first quarter indeed, they generated PLN 300 million -- PLN 200 million. Last quarter, if I remember, it was a similar amount. However, in the third quarter last year, it was the first quarter when CCGT Wloclawek was out of order. So you may say that we generated, roughly speaking, PLN 60 million or PLN 70 million, if I remember correctly. I may double-check this amount.
In terms of macro in Q4. In HSFO, so cracks lowered by 40% quarter-on-quarter. And here we observed a sharp decrease to minus $250. So this is the lowest level again from 5 years due to low demand for bunker fuel as well as reduced export opportunities related to increased freight rates. In terms of BU differential, BU differential increased by USD 0.9 per barrel quarter-on-quarter. So in Q3, differential reached USD 1.10 per barrel. But recently, in the mid of October, it was circa USD 1.90 per barrel. And please bear in mind that in [indiscernible] it recovered about USD 3 per barrel due to weak demand for Ural, higher availability of Ural in Baltic ports. And now what we observe is the reduced export capacity of Ural oil from the Baltic ports due to high rates for feed transport.
In terms of gasoline, gasoline cracks are lower quarter-on-quarter by 5%. At the beginning of the quarter, we observed decline in gasoline cracks due to reduction in gasoline exports from Europe to Middle East related to a significant increase in tanker freight rates, which reduces maritime rates. And as a result, gasoline cracks are down to minus -- to USD 140 per tonne recently. So you may assume that we are starting to offset first signs of IMO 2020 implementation. So cracks on heavy fuel oil, significant negative number, minus $260. On the other hand, still quite sound BU differentials. So this is the approach, that definitely there should be lower demand for high-sulfur crude oil which should be reflected in higher BU differential.
The next question is from Igor Kuzmin from Morgan Stanley.
This is Igor Kuzmin from Morgan Stanley. I have a couple of questions, please. First of all, I would like to check your expectations for the petrochemical -- performance of the petrochemical segment margin-wise or [ data-wise ], whatever is comfortable for you, in the fourth quarter versus third quarter. I can see that the trend in the first couple of weeks is down probably by 4%, something like that, in terms of the margins that you reported from the slide. But gas price is still low, so I just wanted to understand a little bit sort of what your expectations are. I mean yes, obviously, you mentioned there was a bit of maintenance. So that's a third factor which will be interesting to see how that fits into the overall picture maybe quarter-on-quarter.
And the second question is very quick. Just what I'm trying to understand is how the structure of the -- now where do you source the crude from? I mean how does -- how much is coming from Russia and from the other places?
So starting from the petrochemical margins. In the fourth quarter, which is on the Slide #31 in the presentation, we observed definitely that there is a decrease quarter-on-quarter by, roughly speaking, EUR 35 per tonne, and this is mainly due to higher feedstock costs. And our expectation is that rather those levels will be maintainable. So the level between EUR 800, EUR 850 from our point of view, I think, is to be maintained in the fourth quarter.
In terms of crude oil structure, roughly speaking 60% comes from Russia and 40% outside of Russia.
The next question is from Jonathan Lamb, Wood & Company.
You mentioned the cargoes from Angola that you purchased. Is this part of just normal ongoing diversification, or is this connected to IMO as well? Are you looking to change crude mix for IMO?
Both.
Was it -- yes.
Go ahead.
Angolan crude oil, some of them are a substitution for our current structure of crude oil portfolio. And also, we’re looking forward in Q4 to meet IMO regulations which we picture. So we test every potential trade and new sourcing. Can you [indiscernible]
So it's simpler -- the simplest answer is both, yes.
There are no further questions. [Operator Instructions] And we have a follow-up question from Ekaterina Smyk, Bank of America.
It's actually a follow-up on your crude sourcing. You mentioned 60% from Russia and 40% outside Russia. Can you please clarify the grade of crude, the sort of average grade of crude that you're sourcing outside of Russia? Is it similar in terms of API, sour, sulfur content to Urals? Or is lighter, heavier? Any color here would be very much appreciated.
Okay. Majority of grades out of the 40%, roughly speaking, are lighter grades. But certainly, our grades to the [indiscernible], of course, are of light from Saudi Arabia. The remaining ones are lighter, as we mentioned before, to cope with IMO regulations, supply for middle distillates, et cetera, et cetera. So that will be the answer. The majority of this 40% are lighter than sour.
There are no further questions via the telephone lines, so I would like to hand back to you, gentlemen.
Okay. So thank you, operator. If there are no more questions, I would like to thank you for -- all of you who participated in the conference call, and we may say that this concludes our presentation. Thank you and have a nice day. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.