Orlen S.A. (PKN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. A very warm welcome to all of you at the press conference, which will be devoted to begin ORLEN's financial results and performance after the third quarter of 2020. With me today are Mr. Zbigniew Leszczynski, Management Board Member for Development; and Mr Jan Szewczak, Management Board Member for Finance. Today's live transmission -- live coverage due to the situation around the world, the COVID-19 situation, is broadcast exclusively online. I'll give now the -- I'll give the floor over now to Mr. Jan Szewczak, Management Member for Finance.

Welcome to the conference, summarizing financial performance. On behalf of Mr. Daniel Obajtek, President of the Management Board; and all employees at PKN ORLEN, I would like to start by saying that we are in good mood, despite wearing face masks because the third quarter of the year has been extremely stable against the background of extremely unstable environment because of a stable and robust performance in a very challenging market situation and a very challenging market environment. Historically speaking, the most challenging macro environment for the entire refining and fuel business, not only in Poland, but also around the world. Our financial performance has been very strong. Our LIFO-based EBITDA stood at PLN 2 billion in the third quarter. Net profit came in at PLN 0.7 billion, mainly as a result of high operational -- good operational performance in energy and in retail, where we reported record-breaking -- historical record-breaking results, exceeding PLN 1 billion each -- in each sector. In total, this increased our LIFO-based EBITDA by PLN 0.6 billion year-on-year. In more detail, I'd like to mention also PLN 2 billion in LIFO-based EBITDA against record low refining margin. This is a very solid result, which shows that we are well integrated. But also well diversified in terms of both sources of our revenue and also our business pillars. The company is strong and is resilient through micro -- macroeconomic upheavals and problems. And let me stress again that the third quarter was a very difficult one. Petrochemicals. The Petrochemicals segment compensated for the losses that we reported in the refining segment and our energy and retail segment's performance has been, as I mentioned before, record high. More than PLN 1 billion each. Together with Mr. Zbigniew Leszczynski here, let me remind you that this confirms our strategies and the strategic decisions that we took. And it confirms and corroborates that good management is important in challenging conditions and not only in good environment or a favorable environment. And we are delivering PKN ORLEN strategies until -- strategy until 2030, that is for the next 10 years to come. We will present the strategy in several weeks to come shortly. Going back, however, to quarter 3, I must mention that our macro environment was very weak, and the model Downstream margin went down by 57% year-on-year, which was due mainly due to -- which was due mainly to lower consumption and also high pressures on refining margins. 8% drop in sales is still due to the economic shock caused by the corona crisis and the pandemic -- and the worldwide pandemic. What makes us happy, though, is that 20% increase in sales versus the previous quarter. This is a result that needs to be highlighted, and it translated into high crude throughput from PLN 6.2 million to PLN 8.2 million, which is up PLN 2 million in the third quarter, which, in turn translated into higher capital utility. Our financial foundations are still very strong and stable. And it's not only our impression. This was confirmed by the Moody's agency, increasing our rating from negative to positive in the third quarter of the year. As I mentioned, we generated PLN 2.2 billion in operational cash flows, cash flows from operations. This is a very good result, and it needs to be highlighted as well. And equally important is the fact that we delivered our investment program, CapEx program at PLN 2 billion. Given the scale of the problems that we need to face in terms of our investment activity. This is an exceptional performance in terms of our CapEx plan delivery, that's [ PLN 2.20 billion. ] (sic) [ PLN 2.0 billion ] Our net debt came in at PLN 11.9 billion, and the financial gearing stood at 28.4%. We need to remember, against this backdrop, that this debt also includes the debts of the [ acquirees ], including, for instance, ENERGA more than PLN 6 billion in debt. We merge with not only the gold that is offered, but also the problems that come along and the burdens and the liabilities that these acquisitions involve. And we need to take over these liabilities and repaid them timely -- on a timely basis. We signed -- we secured the financing by signing a revolving credit facility at nearly to 0 -- PLN 2 billion, more specifically, PLN 1.75 billion. We discussed before at the previous conference. What is worth pointing out also is that we did not use the entire credit facility at the end of the quarter -- by the end of the quarter. And most important for our shareholders and for our stakeholders in general is that we paid out a dividend to our shareholders. And we do believe, and we are certain that we are going to continue the payment of the dividends to all the investors that invested their money in PKN ORLEN. It is very difficult period. We continued the acquisitions that we started in previous quarters. We are continuing also with the negotiations with our potential partners in terms of the remedies, negotiated with the European Commission in relation to the acquisition of the LOTOS Group, and all these activities and all these measures that we're taking are very professional and very -- and at a very high level. We also acquired ENERGA. We continue with the acquisition of ENERGA. And at the same time, we are in the middle of the due diligence process for the PGNiG Group after the ruling on the arrangement process has become final, we are going to -- we can now announce that we will take over 65% of the shares at RUCH, and we do expect this to happen shortly. Despite those challenging conditions, we still wants to continue with our investments at PLN 7.7 billion this year. And if we include the ENERGA Group, this figure would shoots up to PLN 9 billion, around PLN 9 billion. We continued with certain installation, construction projects is this breaking hydrocracking and also the extension of the capacities for fertilizer production at Anwil or environmental reports concerning the wind farm on the Baltic Sea. As you can see, we are in full swing we are also very flexible. We take a close look. We continue to keep a close look at the situation in the market. And we do believe that all our investment projects are viable and necessary. This is one of the measures that we need to take and the paths that we need to take to overcome this very difficult economic situation. As we all know, we signed an intent -- a letter of intent with PGNiG for the construction of the CCGT unit at Ostroleka and also development of the biogas facility. And we also launched the process to select a general contractor for our [ EU ] project at Wloclawek. We also launched another drive-through station in Poland, and we plan to launch hydrogen stations in the -- construction of hydrogen stations in the Czech Republic still this year. Among our highlights, I need to also stress that we want to continue with our plan to reduce CO2 emissions by 2030. And in order to reach emission neutrality by 2015 -- 2050, as Mr. Daniel Obajtek, President of the Management Board, mentioned during the conference at [ Cartage ], the economic conference at [ Cartage ]. And we do believe that this was welcomed by our business environment and our rating -- ESG rating went up. We are now ranking 5th out of 86 oil and gas companies around the world, and this is an extremely important information for us. This confirms that our measures taken to restructure and reorganize the company in order to reach o-emission or zero-emission sources of our business has been achieved. We also -- we were also recognized for our reports and our reporting activities. And we -- our integrated report was named the best report this year. And I would like to thank everybody who were involved in those reports and spent so many time on developing them -- preparing them. On behalf of Mr. Daniel Obajtek, I'd like to thank my colleagues here, my fellow Management Board Members and also all the employees and managers across the PKN ORLEN Group for your amazing involvement for the fact that you did not yield to pressures and you survived under pressure. Because everybody looks at ORLEN. ORLEN is a showcase company of Poland, not only in Poland, but also around the world, and we are very proud and happy to see our performance in the third quarter, which is a result of all those activities and involvement of our staff. In the third quarter of this year, our model downstream margin went down by [ $0.37 million ] per barrel versus the previous year, $7.3 million. And this was due to lower consumption and lower demand due to COVID-19 and also certain psychological factors because we need to remember that our -- that the economy right now depends to a large extent, to psychological factors, to consumer behavior, to the demand in the market. And also, obviously, this was driven by lower brand crude differential -- brand euro differentials. And the prices of oil going down by USD 19 per barrel and also lower costs of our own consumption. In terms of diesel and gasoline margins, this will be discussed in more detail by Mr. Leszczynski. They went down in general by 70%. And -- but we -- and also gasoline going down by nearly 50%, this is a huge drop. On the other hand, we reported -- we had weak rates of PLN versus foreign currencies, especially U.S. dollar. And the situation on the currency market remains dynamic. In terms of fuel consumptions, presented on the next slide, in the third quarter, we saw and we do expect to see in the future that GDP will continue to drop across all our home markets, which obviously will translate into lower consumption of diesel oil. We reported higher increase -- we reported an increase in general in certain home markets. However, and -- in this third quarter, however, it is still on the negative side. We need to remember that this year is an exceptional year on the negative side. It is difficult to compare this exceptional year, for instance, to 2019. Diesel consumption -- retail diesel consumption is going up across all our markets, except for Germany compared to other countries, we saw that Lithuania, we had an exceptionally good situation with diesel going up by 1%, but with gasoline going up by a 2-digit number, 12%. This is -- This caught us a little bit by surprise, a positive surprise, obviously. The next slide presents our financial results. As I said, we reported a revenue going down by 18% year-on-year due to lower results in petrochemicals and refining due to lower margins and also lower sales. But we need to remember that we are still talking about the revenue at nearly PLN 24 billion, which is a solid figure still. In terms of LIFO-based EBITDA, it went down by PLN 1.2 billion year-on-year, mainly due to negative macro and also higher -- lower volumes of sales, higher costs and the using of historical store reserves. And also due to consolidation of ENERGA and revaluation of NRV. We need to remember that in terms of NRV, it stood at around PLN 66 million on the negative side. However, an increase in -- as a LIFO effect stood at PLN 300 million, which increased LIFO based EBITDA reported to in our -- for the third quarter to PLN 2.0 billion. We need to remember that we had an effect of also a surplus due to negative foreign exchange differences. In general, our net results stood at almost PLN 700 million, which still was very surprising for a lot of analysts concerning -- considering the very difficult situation in the market. The next slide shows LIFO-based EBITDA by segments, and starting with refining at going down by PLN 370 million due to worsening macro, lower sales volumes and also margins. In petrochemicals at PLN 500 million -- PLN 502 million going down year-on-year, mainly due to bad macro and energy. However, we are very proud to report that the performance, LIFO-based EBITDA performance at -- in the Energy segment stood at more than PLN 1 billion and mainly due to the positive effect of consolidation with the ENERGA Group. And this confirms once again that our decisions were right in terms of like the acquisition of ENERGA. And this gives us an optimistic outlook for the future because we see that the demand for electric energy is growing. In terms of retail, again, good news and a great surprise or maybe not really a surprise for us, but maybe for the analysts, we did expect a good result in retail going up by PLN 110 million and going up to PLN 1 billion. And all in all, mainly due to good margins and if we had better margins because they were affected by the difficult market situation, our position in retail would be even better. In terms of Upstream, Upstream went down year-on-year, mainly obviously to the macro environment. And corporate functions, It went up, mainly due to the grants that we received to combat COVID-19. And for the 9 months, we received a gigantic, a huge amount, PLN 137 million. We have already spent to -- on combating COVID-19. This shows that PKN ORLEN's involvement in social responsibility, health care of the inhabitants of Poland is amazing. We are still continuing our efforts in this area, and we can see that the national state treasury companies are very important in this context. For the nation, for the country and for the economy. Going -- Moving on to Slide #10. I would like to give the floor over, however, to Mr. Zbigniew Leszczynski, here. Who's sitting next to me.

Thank you very much for this introduction. Ladies and gentlemen, as we have heard from Mr. Szewczak, we can be proud showing you our solid performance that we achieved. However, -- despite a very difficult macroeconomic situation, thereby confirming our operational excellence. And at this point, and I'd like to take this opportunity. I'd like to thank all the management board members and also all the employees across the ORLEN Group for their hard work and great involvement. Moving on to details in terms of our performance by segment. Let me start with the refining segment, which has been subjected to this very difficult macroeconomic situation. This exposure was the highest, and we reported a loss at PLN 369 million in terms of LIFO-based EBITDA going down by PLN 1.5 billion year-on-year. However, as you can see in the lower part of the slide, this was mainly due to a very negative macro impact at one point indue to lower light and middle distillate cracks. It cracks and lower Brent Ural differential going down by USD 1.1 per barrel and also the strengthening of PLN against the U.S. dollar. Those negative effects were partially compensated by the positive effects of higher cracks on heavy refining fractions and also lower costs in terms of our in-house consumption due to the crude oil prices going down by USD 19 per barrel. The sales volumes decreased by PLN 0.2 billion. We also reported lower sales in the refining margin by -- going down by 12% year-on-year due to lower sales of gasoline, diesel, LPG and jet fuel oil, airline oil and also heavy sulfur fuel oil. Other factors included mainly inventory revaluation NRV, higher trade margins in wholesale and also higher operating costs and the negative effect of the usage of our historical inventories. The next slide, Number 11, presents our operational data in refining spector. In the third quarter, PKN ORLEN reported a low crude oil throughput at 8.2 million tonnes going down by 0.2 million tonnes year-on-year. However, it is higher quarter-on-quarter, which was mainly due to lower utilization in the refineries in the Czech Republic and in Lithuania, due to the macro situation. At Unipetrol, the decrease was at 9%, 9 percentage points, mainly due to lower demand for distillates and also a breakdown or a shutdown of certain facilities. At ORLEN Lietuva, we had lower utilization going down by 20 percentage points, mainly due to lower throughput caused by bad situation and macro. At [indiscernible], however, the performance was more or less flat. Let me go now through our performance in retail -- in refining, country by country -- in Poland, we had a drop year-on-year, especially in terms of diesel oil and in jets as well as LPG. Gasoline performance stayed flat and asphalt went up by 12% year-on-year. At ORLEN Lietuva, our volumes went down by 15% year-on-year. And as I have already mentioned, this was due to lower sales of gasoline, jets, airline, fuel and also diesel oil or as asphalt sales went up. In the Czech Republic, our sales went down by 10% year-on-year, mainly due to lower sales of LPG by 60 -- by 20 -- by 56%. and also by -- due to lower sales of diesel and jet airline fuel. Despite our excellence, operational excellence. The macro environment was so challenging that it affected heavily our refining segment performance. Let me now move on to petrochemicals, the petrochemicals segment. The performance stood at 5 -- more than PLN 500 million in terms of LIFO-based EBITDA, which is a drop by 30% year-on-year. However, this was mainly due to the macro effect at nearly PLN 230 million and the margins, the drop in margins, which was more than PLN 200 million, which shows you how macro affects our performance also in petrochemicals. The negative macro impact due to drop on margins in olefins and polypropylene, it was partially compensated by a positive impact of higher margins of polyethylene and PVC and also by the weakening of PLN against the Euro. In the third quarter, our sales volumes were on comparable level year-on-year with higher sales of fertilizers and PVC by respectively, 12% and 9%, also olefins by 3%, compensated by lower sales of polyolefins going down by 5% and PTA by 14%. By country, we saw different situations compared to Poland and Lithuania, when the situation was not bad, but we had drops in the Czech Republic. 1/3 of our performance figures was account -- was due to Anwil's performance and also due to PTA, sales in PTA. On the next slide presents further detailed operational data for our petrochemicals segment. In the third quarter, the impact of COVID-19 was not yet that visible. We improved the utilization ratio at Wloclawek for fertilizers and also PVC. And we also increased the production of polyolefins or olefins at [indiscernible] and at Unipetrol. In the Czech Republic our sales went down by 16%, mainly due to lower demand from the automotive sector and also the construction sector constructions. And also maintenance shutdowns that we had. At PKN ORLEN, all-in-all, we reported higher acquisition ratio year-on-year due to no major shutdowns, [indiscernible] and Anwil, which took place a year before. At Unipetrol, we had higher utilization ratio despite the shutdowns of PE3 and PVC. And ORLEN Lietuva, we had no major shutdowns on any facilities and units. The next very important segment that contributes heavily to our bottom line and our financial performance in general, which proves that all our previous decisions, strategic decisions were right by which I mean the acquisition of ENERGA. And the energy sector generated more than PLN 1 billion in operational profit. That is LIFO-based EBITDA, which is -- which represents a twofold increase year-on-year, mainly due to the positive contribution of the acquisition of Energa. We also had a positive macro effect due to lower prices of gas, partially offset by the prices of electricity, and we need to remember that we also had lower demand for electricity in the economy. Other factors included the results of consolidation with the ENERGA Group. We discussed these effects on slide number -- in Slide #37. Let me now, however, move on to selected operational data for the energy segment that is presented on Slide #15. This slide confirms that we bet on low and zero-emission sources of energy. In the third quarter, Grupa ORLEN produced 3% of energy year-on-year due to lower consumption -- and the lower demand in the economy, that is 2.8 terawatt hour. With more than 57% coming from renewable energy sources and gas-fired units. We had electricity distribution at 5.4 terawatt hour and our installed capacity is more than 3.2 gigawatts of electrical energy, of which more than 1.8 installed at PKN ORLEN and more than 1.4 gigawatts installed at the ENERGA Group. The consumption of gas in the energy segment at PKN ORLEN Group stood a 0.43 BCM and CO2 emissions in the energy segment reached 1.6 million tonnes. This is the data that does not include the ENERGA Group. The next segment we'd like to discuss is our reliable, most reliable retail segment, retail. Which -- the retail's performance in the third quarter stood at a record-breaking figure of more than PLN 1 billion going up year-on-year by 12%. And we can see clearly that retail breaks record by record, year by year. We reported higher fuel margins, especially in Poland and Germany, and we're compensated by a drop in the Czech Republic. Our volumes went down by 4% year-on-year. Due to the lower sales of especially diesel, oil and LPG, compensated by an increase in gasoline. Our half fuel margin in Germany was -- in Poland was lower and in Germany as well, whereas in other countries, the margins were comparable. We continue to increase the offering or extend the offering in terms of the alternative, refuel points. The number has been doubled year-on-year, and we still continue to support our economy, Polish economy, by cooperating with Polish producers and Polish manufacturers with the number of the percentage of products produced by Polish manufacturers going up that we sell on our service stations. And I do encourage you to buy Polish products at our stations. Slide #16 continues with the discussion of our operational data at the end of the third quarter, our retail network had 200 -- 2,181 convenience stores with a Stop Cafe corners, and the number of our stations went up by 33 year-on-year across all our markets. Due to lower [Audio Gap] demand for fuels, retail reported lower sales volumes going down by 4% year-on-year, especially in Germany and in Poland. However, our market share went up in Poland and the Czech Republic and Lithuania, remaining flat. And Germany and going down -- going down the Lithuania. Nonfuel offering was going up. And at the end of the quarter, we had 2,101 Stop Cafe corners going down -- going up year-on-year and 592 convenience stores. Electromobility is also on the bill, we had included or brought on stream 8 more stations with more to come. At the end of the third quarter of 2020, we already have -- had 138 points, of which PLN 110 million in Poland and the rest in the Czech Republic and Germany, going up by 87 points year-on-year. We also have 2 hydrogen stations in the Germany and also CNG stations in the Czech Republic. In total, we have 182 locations offering alternative fuels. The next segment I would like to discuss is Upstream. In the third quarter of the year, the Upstream segment generated PLN 44 million and LIFO-based EBITDA going down year-on-year by 48%, which is obviously due to the negative macro effect due to lower prices and higher prices of gas year-on-year and also FX transactions. Our cash flow hedging transactions, we also had negative impact of lower sales volumes going down in terms of average production as well. In Poland, going down by [ 0.1,000 ] barrel of oil equivalents per day and going down by [ 0.8,000-barrel ] oil equivalents per day in Canada. The next slide presents our Upstream in more detail -- our Upstream segment in more detail. As at the end of the quarter, we had average production in the third quarter at 16 barrel of oil equivalents per day in Canada. And the CapEx was -- the CapEx program was delivered in the 2/3 in Poland and then 1/3 in Canada. In terms of our operational activities in the third quarter, in Poland we continued the development of fields at MERITUM, Edge and Plotki projects, including the drilling and short-term production tests on the horizontal well at [indiscernible]. We also acquired [Audio Gap] seismic data at [indiscernible] 3D under the Edge project, and we also had seismic data developed for Edge and Karpaty. In Canada, the prices of hydrocarbons were low. And those -- the activities that we -- CapEx activities that we continued in Canada, we're mainly focusing on proecological equities -- proecological activities in order to reduce greenhouse gas emissions and [Audio Gap] and the cash flow of PKN ORLEN. I'd like to highlight the fact that our cash flows from operations stood at PLN 2.2 billion. With higher work -- with capital -- working capital increase going up. We spent PLN 2.3 billion on our CapEx activities in total. And our CapEx liabilities change in others includes mainly our -- the settlement of our derivatives. You can see our free cash flow over 9 months of the year on the lower part of the slide. So we generated 9.3% LIFO-based EBITDA in terms of billions of PLN, obviously, the LIFO effect stood at minus PLN 2.3 billion. Working capital decrease stood at PLN 3.1 billion. CapEx, the CapEx figure came in at PLN 5.5 billion. And we spent more than 2 million -- PLN 2 billion on the acquisition of ENERGA, with the debt of ENERGA at PLN 2.6 billion at the acquisition date. Other factors remains -- other factors included, income taxes paid and certain other liabilities. We are a certain and solid payer of tax in Poland, and this also had an impact on our debt figure at the end of the quarter. In terms of our financial strength, we can say that despite debts increasing and our leverage, financial leverage going up, especially due to the acquisition of ENERGA, still all our ratios, financial ratios remain on the safe side and are covenant at 0.92 with a maximum at 3 and the financial gearing at 28%, which is lower than 30%, a level adopted in the current strategy. And our net debt stood at PLN 11.9 billion. We have been very prudent in terms of our approach to debt and the net debt going up by PLN 1 billion versus the previous year, but it was mainly due to the spending on CapEx projects. At minus PLN 2.3 billion for the acquisition of ENERGA, also the payment of dividend leases and interest. But this has been compensated by positive cash flows from operations at PLN 2.2 billion, as I have mentioned before. Our financing sources are stable and diversified, with average maturity date at 2023 and the structure -- the currency structure of our debt reflects our operational exposures and creates a natural hedging instrument, and it is very important in those difficult times. In the third quarter, we signed a contract for revolving credit facility at EUR 1.75 million, this was already announced at the previous conference, in order to secure our day-to-day operations and also our investment projects and CapEx projects. What is important and might be new information to you, under the -- this year's issue of bonds, we plans to issue 5-year bonds with the total value of PLN 1 billion, we see a lot of opportunities in this market. There's a lot of cheap money on the market. And investors are looking for opportunities for stable and well-managed corporations. And the market expects such proposals. We will do our best to tap those opportunities, but we also -- but our controlling department is looking very closely and taking measures in order to rationalize costs in the budgets for the next year. And we can say that we also -- already see those effects.

Our CapEx figures will be discussed by Mr. Zbigniew Leszczynski.

Moving on to our investments. The planned CapEx for 2020 is still at PLN 9 billion, of which PLN 7.7 billion at PKN ORLEN and PLN 1.3 billion at the ENERGA Group. After the 3 quarters of the year, our CapEx stood at PLN 5.5 billion, of which PLN 0.7 billion at ENERGA. The highest share of CapEx is refining at PLN 2 billion and the petrochemicals segment at PLN 1.2 billion. In energy, our CapEx in the 9 months of the year stood at PLN 1 billion and in retail, PLN 0.8 billion. We spent PLN 0.3 billion on Upstream as well. The main projects in the third quarter included, in the refining segment, we constructed a -- this breaking unit at [indiscernible], and we also constructed a propylene glycol at Trzebinia. In the petrochemicals segment, we consistently and dynamically delivered our projects related to the petrochemical development program. And we also extended our fertilizer production capacities at Anwil. In energy, we had projects for the preparation, for the construction of offshore wind farm on the Baltic Sea, we also modernized our [ TG ONE ] turbine set at [indiscernible]. And we also had projects delivered at the ENERGA Group focused on production and distribution. In retail, we opened 14 new fuel stations. We closed 5 stations. We upgraded 2 stations, and we opened 19 new Stop Cafés, including convenience stores. And the last segment, and the last matter we [indiscernible] presented at slides #25 and 26. I'd like to discuss the current macro situation. Our downstream model margin in the third quarter went up by [ USD 0.5 ] [Audio Gap] per barrel quarter-on-quarter, going up to USD 5.9 per barrel due to rising margins. At the same time, the crude oil price went down quarter-on-quarter by USD 2 per barrel, standing on average at $41 per barrel mainly due to concerns regarding the continuing demand for crude oil due to, obviously, COVID-19 and limitations restrictions across Europe. Our [Audio Gap] and also higher production of crude oil by OPEC in September going up versus August. The dropping prices of crude oil were offset by the import figures in China and also lower reserves in the U.S.A. and lower production of crude oil in the Gulf of Mexico due to hurricanes, going down by representing around 15% of crude oil across all of America. The production from Norwegian fields also went down representing 8% of Norwegian production in general, mainly due to strikes. Our crack margin on diesel oil went down by 15% year -- quarter-on-quarter, standing at $28 per tonne, mainly due to high level of supply and also the expected imports from Asia. In terms of crack margins for gasoline, it stood at 19% year-on-year, standing on average at $93 per tonne mainly due to higher exports of European gasolines to Western America, Africa, lower reserves in the U.S. and also lower supply mainly due to the lower production from the Gulf of Mexico, as I've mentioned before, due to hurricanes. In terms of heavy sulfur fuel oils, it went up by 14% quarter-on-quarter, standing on average at minus $74, mainly due to higher demand from Africa, Saudi Arabia, [ Black Sea ] and the U.S.A. and also due to lower reserves at ARA. Our macro environment also includes -- is based on brand euro differentials, right now going up by $0.1 per barrel and is neutral, mainly due to higher competitiveness of alternative fuels versus euro crude oil, including Norwegian crude oils. And the euro -- brand euro differential is right now negative, and the petrochemical margin went up by $3 per tonne, standing at EUR 800 -- more than EUR 800. Mainly due to lower input of NAFTA and [ LSC ]. Slide #27 shows our market outlook until the end of 2020. In terms of Brent crude oil, we expect the crude oil price to remain at between USD 40 and USD 50 per barrel until the end of 2021. And the increase in crude price, as you know, of over USD 40 per barrel translates into an increase in the production of crude oil in the U.S.A. And [Audio Gap] prices. In terms of our refining margins, we need to -- the refining industry, in general, needs to adjust itself to much lower demand and the same applies to the oil market. On the refining market, there was a reduction in supply, but our production capacities stayed flat and refining margins made -- remain under pressures, until the global production capacity goes down by around 3 million barrels per day, which can still take several quarters to come. And we do believe that the permanent restructuring of the industry is unavoidable, and this should have a positive impact on petrochemicals and biofuels. In terms of the petrochemical margins and our expectations by the end of the next year, we expect that the petrochemical margins should remain at around EUR 800 per tonne. This will depend on the economic activity, which obviously is in decline. However, we need to remember that Europe, which is an importer of many petrochemicals, base petrochemicals. In Europe, there are a lot of new opportunities and -- for local production because of the slump in imports. In terms of the production, nothing changed versus the previous quarter. Thank you very much for this opportunity of presenting our performance for the first -- for the third quarter of the year. I'd like to now encourage you to ask questions.

Thank you very much for the presentation. During the presentation, we did receive a number of questions. I'd like to read them out one by one, and you are expected to answer them. There's news on the market that the wind farm project -- offshore wind farm project will be delivered with Northland Power. Can you confirm it? A question from Mr. Sawicki from Biznes Alert.

PKN ORLEN negotiates with potential industry partner for the Baltic power project. Before the final decision is made, we need to make sure that our partner is experienced and has adequate know how to support us throughout this investment project. We are talking here about a wide-ranging cooperation and the competencies of our partner needs to be in line with our long-term plans, the development of offshore wind power at PKN ORLEN. Therefore, I can say that we are still negotiating, and the process of our business partner should be completed by the end of this year.

Next question from Mr. Sawicki as well. What is the stage of your negotiations with the future partner for the refining -- refinery at Gdansk in terms of the discussions on remedies and the list of assets that can be replaced or exchanged at PKN ORLEN in accordance with the decisions in the European Commission. What is the stage of those discussions with the potential partners and the potential remedies?

We are in the middle of the discussion. We are in the process of negotiations with both Polish and global partners. We see a lot of interest from our potential partners, we have negotiation teams. So this process is in full swing, but we cannot give you all details due to certain confidentiality requirements in terms of our negotiation position as well as bargaining position as well. We do believe that this process will be to the benefit of both the Polish economy, both listed companies and also for the business environment at large and also for the society in the region, in the Pomeranian region in Poland. We have this process under full control but this process is difficult. It requires certain procedures to be followed and also under the supervision of the European Commission. Therefore, my answer is, we are in the middle of these arrangements.

The next question concerns the European Commission is [indiscernible] asks. When will the European Commission receive the motion concerning the acquisition of PGNiG.

We are planning to do that by the end of December. But we need to remember that the situation is dynamic, and there are certain factors that can come up, and this will affect our business decisions. The plan is to file this motion by the end of December this year.

Next question from [indiscernible]. Is there any impact do you expect from the potential next lockdown of the Polish economy? This -- will this affect your plans?

I do understand that our investment plans are very interesting to our shareholders and the market as well as business analysts because investments are a driving force, not only of the polish economy in general, but for PKN ORLEN specifically. We expect that our 2020 CapEx to be delivered at PLN 7.7 billion, of which we can spend PLN 3.9 billion for growth and PLN 3.8 billion for maintenance CapEx. In total [Audio Gap] PLN 2.3 billion on growth CapEx and for the purchase of catalysts and spare parts and also certain other repairs. We spent PLN 2.3 million, and we also spent CapEx -- planned CapEx at ENERGA. Considering the market situation due to COVID-19, we are looking closely at the delivery of our projects. We are keeping a watchful eye on the situation also at our contractors and subcontractors, and we are also monitoring the situation in factories that produce parts and spare parts for our own suppliers. And the macro situation made us decide that we should stop new drills in Canada, but our other investment projects, we have already contracted more than 90% of the contracted capacities for this year. And the rest could be postponed safely for the next year. In terms of 2021, our projections in terms of CapEx will be presented after the third -- after the fourth quarter, but I would like to point out that we would like to publish our new strategy, which will also include our CapEx plans for long -- in a longer-term perspective. And as we've mentioned before, we plan to publish business strategy still in this year. This difficult time that we're in and that we operate in, is used by us consistently to deliver our investment and CapEx policy and strategy but as I said, we are looking very closely at the situation also at our suppliers and sub-suppliers and subcontractors and also keep in contact -- keep contact with the factories that produce some materials for our contractors.

Mr. Daniel Obajtek visit at Romania -- today visit at Romania and the meeting with the Romanian President, Ludovic Orban, arouses great interest in the market. So we have a number of questions on this visit. [indiscernible] asks, whether PKN ORLEN plans any acquisitions in Romania. And where in which segment of your operations? The next question. [Audio Gap] developed on the commentary. Could you please give us more information on your operations in Romania or prospective operations in Romania? And [indiscernible] from Bloomberg asks a follow-on question, concerning the meeting of Daniel Obajtek with the President of Romania, what investments in Romania would be interested in?

These questions are too specific into detail at this stage of talks Mr. Daniel Obajtek holds Romania right now. Romania is a friendly country for us in terms of the business partnership. And we also have had good experience from the past. Historically speaking, we are present there for the past -- we have been present there for the past 7 years. This is a high-level meeting from the Romanian side. And this shows that these business contacts are very important for Romania and its leaders. And this is, again, another proof that we are very efficient in look -- in terms of looking for new business opportunities across the European market. But this is not the end of our potential, and this is not -- these are not the limits of our potential in terms of the limits in the borders of Europe. We are looking at other opportunities well. I do believe that this present meeting in Romania will bear fruit in the form of good business partnership and new business opportunities to the benefit of both parties of this meeting. This is, as I said, another proof that we are looking very actively for new opportunities in terms of new partnerships and new solutions with our partners abroad.

Another question from [indiscernible] presenting Bloomberg. In terms of your sales volumes of PKN ORLEN sales volumes, do you see lower sales volumes at your petrol stations in October? How can you compare it to the figures reported for the period of the lockdown, the first lockdown?

Yes, obviously, we do see the dynamics of our sales, and we obviously monitor those figures. And throughout the last couple of days, we saw a double-digit drops in terms of sales in retail and also in wholesale. We have also information that this applies to the Polish economy at large, in general. We do expect and we count that those drops will come to an end, and we will maintain high sales volumes and high sales levels in the days and weeks to come. I'd like to add to what Mr. Szewczak has said before PKN ORLEN is looking very closely at the neighboring markets and not only the neighboring markets. With the potential -- in view of the potential growth and the visit of Mr. Obajtek and the Minister of Economy in Romania is yet another confirmation that PKN ORLEN has a very strong position, not only in Poland, but also in Europe. And the respect that Mr. Daniel Obajtek has gained outside of Poland, so that he is -- he can negotiate abroad in terms of potential opportunities for PKN ORLEN's growth in Romania.

Thank you very much. Another question from Mr. [ Thomas ] [indiscernible] [ Argus Agency. ] Could you please tell us something more about your main maintenance shutdowns in the third and fourth quarter?

In a nutshell, maintenance work is progressing as planned. We plan to take advantage of this maintenance shutdown period. And if our expectations that the consumption will drop, and we'll need to potentially reduce the throughput of crude oil. We would like to take advantage of this fact the same as we did in the month of March in April to intensify and step up on our upgrade plans, so that when our production goes back in full swing at the highest capacity levels, so that those maintenance shutdowns have already been closed by then. At this point, our maintenance plans are progressing. On a regular basis, and we are also looking at the potential shifts of our certain maintenance work in order to use this difficult period to the best advantage.

[indiscernible], a shareholder asks about the acquisition of RUCH and how it fits within the strategy of ORLEN?

We see that the corona crisis has an impact on the behavior of poles of the customers who are more willing to go to smaller stores in order to do the shopping rather than to big shopping malls where a drop of demand is absolutely noticeable. They feel safer if they can have -- if they can do shopping at a smaller local store. And I do believe that this is the path to follow for us. In terms of the plans for the acquisition of RUCH, which is going to happen shortly. The RUCH that you know and the RUCH that you remember from your life from your childhood, for instance, this is going to be a different, different story. This is going to be based on the availability of the service and easier access and also a very different image of those stores, those locations. We do believe that this is a good decision and a viable decision. We are finalizing the acquisition of RUCH, and we believe that this is going to be a permanent part of our life, of our business and also in our life poles and people around the world would rather move to local lowers -- smaller stores than to big players and big shopping malls.

The tender -- the next question concerns the tender of the biogas of the Ostroleka projects of the gas unit at the Ostroleka project.

We will inform you of the progress of work when the situation is -- when the decisions are final.

Thank you very much. For all the questions that we received. Just 1 comment from Mr. Szewczak.

In a nutshell, I'd like to discuss -- I'd like to summarize the third quarter. We are making money. We invest, we continue investing. We continue to consolidate and acquire, and we are restructuring the acquirees that we have in order to move to low-emission or zero-emission sources by 2050. And our financials are under full control. And I'd like to see all Polish companies to be in the situation that we are at.

Thank you very much for this summary. I'd like to ensure you that all the questions that were not asked during conference will be answered by our press office and will be -- those answers will be forwarded to you in due time. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]