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

Good afternoon, ladies and gentlemen. Welcome to the conference call/press conference, which we devoted to the summary and discussion of the consolidated financial results for the second quarter of 2021 of PKN ORLEN. I'm joined with members of the Management Board: Mr. Jan Szewczak, Management Board member for Finance; and Mr. Zbigniew Leszczynski, Management Board member for Development. Welcome to all of you who are watching and listening to us live online. And I give the floor over to Mr. Jan Szewczak.

Good afternoon. It's with great satisfaction that I welcome you here today at a conference summarizing our performance after the second quarter of the year. As you can see, we are in a very good mood today, me and my colleague. And this comes from high -- record-high results in terms of our performance. And we do believe that it makes our investors satisfied. These are record-high results of our company, all-time high, excluding one-off events. Let me emphasize that, that is a great achievement. Our LIFO-based EBITDA in the second quarter of the year was at record-high level of PLN 3.2 billion as well as operating cash flows at PLN 5.1 billion. That means that we have a lot of cash at hand, especially considering that all in all, in the first half of the year, the company generated more than PLN 9 billion in cash, operating cash flows. This is great performance. And these are the figures that go against all the assumptions and word of mouth, so to speak, in the market, trying to discredit our performance and our decisions. These figures prove that our decisions and our performance as well as our strategy in order to take -- in order to create a multi-utility powerhouse, we're right. You will see later on during the presentation that especially the power generation segment is a great contributor to our figures. Coming back to LIFO-based EBITDA at PLN 3.2 billion, this was up by PLN 1.2 billion year-on-year. Obviously, last year, we had a COVID-stricken year. 2021 is not normal as well by all means. But this shows the scale of the commitment and involvement of both the management and the employees across the group. These figures go to prove that we are able to deliver record-breaking results even versus the booming years in the petrochemical market compared to pandemic-stricken years. This is a proof that the diversification of our business and our efforts to build a multi-utility powerhouse based on the very new philosophy has given a great spur and great incentive to deliver even better results by PKN ORLEN. It has also proved that our direction taken to achieve 0 emission business is a good one, and we are doing it professionally. The contributions -- contributors to our business were both good macro environment as well as high volumes of sales. Downstream margin went up by 33% year-on-year by nearly $10 per barrel. And the consumption of fuels were also -- was also a contributor due to loosening of COVID-related restrictions. This obviously translated into higher sales and the sales volumes went up by 10%. The crude oil throughput at 6.8 million tonnes went up by 10% year-on-year, and our utilization ratio were at nearly 80%, precisely 78%. Our financial situation and our financial footing is -- it's not a good -- is very good. We'll prove it later on when we discuss -- when we'll discuss our financial performance with Mr. Leszczynski. We're not talking only about cash flow from operations at PLN 5.1 billion. But I would like to also emphasize that it happened in combination with CapEx at PLN 2.4 billion in the second quarter only. So despite the fact that we are investing heavily, we'll still deliver both profits and cash flows from operations. And again, contrary to populist opinions that our debt went up, I'd like to mention that our debt actually went down in the second quarter by a significant amount of PLN 2 billion. This is a fantastic thing. This is a fantastic achievement for us and I'd like to thank all my financial team who contributed to this financial achievement greatly. So despite the fact that we have invested PLN 2.4 billion in CapEx, we were able to drive down our debt by PLN 2 billion and as well as we achieved net debt-to-EBITDA covenant at a very low level of 0.86 -- 0.87 versus the allowable level of over 2. In May, as the very first company in Poland, we issued 7-year bonds of PLN 0.5 billion with a coupon of 1.21%. The issue of green bonds were welcomed by investors and the subscriptions were placed at more than EUR 3 billion. So these were oversubscribed by sixfold. And obviously, those proceeds will be used to invest our 0 emission, low-emission over renewable energy sources projects. And that's, obviously, of both offshore and onshore farms, wind farms, and all the infrastructure for EV vehicle fueling stations and hydrogen fueling stations and recycling units. In May, the extraordinary shareholders' meeting approved the dividend at PLN 3.5 per share. This is what we have promised. We have delivered on that promise, and we will pay that dividend to our investors. Now we will continue to have this very stable investment. Divestment has very stable policy. Also, both State Treasury with PKN ORLEN, PGNiG and Grupa LOTOS confirmed the noncash merger structure of those companies. This was welcomed not only by investors but also by the rating agency, Fitch Ratings agency, that has increased our outlook from stable to positive. And we see that other rating agencies have welcomed those strategies at PKN ORLEN as well. The European Commission extended the deadline for us to select the partner for remedies for the acquisition of LOTOS Group. At our initiative, we'll discuss it later on, we do not want those decisions to be taken by somebody else. We want to -- those decisions to be as favorable for the Polish economy and for the investors of both companies, shareholders of both companies. And we also apply to Antimonopoly Office for the acquisition of PGNiG. We have opened a new R&D center. This is -- Mr. Leszczynski, is the owner of that project. We also launched the expansion of the olefin complex. This is one of the largest petrochemical investments not only in Poland but also in Europe. And we must say that those investments for the first half of the year are record high again because we are talking about more than PLN 5.2 billion in CapEx. This is also worth mentioning and emphasizing. The ORLEN brand became the most valuable Polish brand. And rightly so, I would say, because the valuation of the brand is at PLN 10 billion. The ORLEN Lietuva, we took over the only railway terminal at the Polish-Lithuanian border, which is used for the unloading of petroleum products produced at Mazeikiu. And we believe that this will facilitate the transport and the transmission of those products to both Poland and Ukraine. We have opened the first store and gastro point, ORLEN w ruchu. We opened the first one in Warsaw, but we want to roll out this strategy and to open 40 such outlets in other cities. All in all, we want to have around 900 of such outlets around the country. We are also actively supporting development of any innovation in Poland. We have opened the first corporate accelerator program for technological start-ups. This has a global reach, and it's usually addressed to -- mainly addressed to new, young, promising start-ups around the world offering ready-made products and services. As part of our ESG efforts, we have launched the HYDROGEN EAGLE program, assuming construction of international network of hydrogen hubs powered by renewable energy sources and the construction of over 100 hydrogen refueling stations. ORLEN Poludnie is finalizing the investments in ecological green glycol. And together with PGNiG, they are developing -- we are developing biomethane production area. This is very important for us as well. Obviously, we are the largest sponsor of Polish sports and culture. We have published a very extensive, exhaustive sponsorship report. We have been questioned thoroughly at the State Treasury Commission meeting. We have -- about this, we have received the Polityka's CSR Golden Leaf for the fourth -- or seventh time running. This all is a proof that we are very much devoted and very much involved in all ESG efforts. ORLEN Foundation, which is very important in terms of the contacts with the communities and the community outreach, we have donated through the ORLEN Foundation and the PLN 2 million to support local communities under the My Place on Earth program. All in all, we have donated PLN 7 million -- close to PLN 7 million to 900 units in Poland, across Poland. This shows our involvement in this program. This will be all in terms of key facts and figures. And moving on to a more detailed discussion. Traditionally, I would like to take this opportunity again on the behalf of both Daniel Obajtek, the President of the Management Board, and the entire Management Board, to all the employees across the ORLEN Group for your involvement and for those record-high, all-time high results and figures that we have achieved. And there were a lot of people who'd doubted us, a lot of people who doubted our competence, our possibilities, opportunities, our strength. You will see that we have tangible proof that we can do it. We have a lot of cash at hand. We have our debt under control. We have delivered all-time high results and the low cost of CO2 is also a contributor. And we are able to pay out high dividend and stable dividend, which is also very important to all of you. Slide #5, we're presenting the macro environment. You will see that the model downstream margin in the second quarter went up by USD 2.5 per barrel year-on-year to nearly $10 a barrel, mainly due to an increase in the petrochemical margin going up by 74% year-on-year. So this is a huge change as well as higher Brent/Ural differential, going up by nearly $2. Obviously, refining margin was still under pressure due to lower diesel margins. We all know the rep that these oil engines have around the world, and we are doing our best to stay ahead of the competition in that respect. A positive contributor to those figures, this performance was the PLN exchange rate versus U.S. dollar and Europe. In terms of consumption of fuel. It is presented on the next slide, Slide #6. On Slide #6, you will see more detail in terms of the second quarter of the year. We will see that fuels consumption -- fuel consumption went up across the board, obviously, due to the loosening of the COVID-related restriction. This obviously translates into higher fuel consumption. And the European Commission predicts higher GDP and not only obviously in Europe, but specifically in Poland because this is most interesting for us because this is the largest market for us. In the third quarter, we will see flattening curves in terms of fuel consumption. But obviously, we will see what's coming up in the next quarter. Moving on to the financial and operating results of Grupa ORLEN. I'd like to mention that in order to achieve a full comparability of those results both for the second quarter and also year-to-date, we have eliminated one-off events related especially to the acquisition of Energa at PLN 4 billion. So those results, those figures that you are seeing here, they cannot be discussed anymore. I mean they are beyond any doubt, these do not include any one-off events. We have reported a revenue increase by as much as 73%, both due to higher quotations of refining and petrochemical products as well as higher prices of quotations of crude oil by USD 39 per barrel. But not only that, we also had higher sales volumes going up by 9%. I have already said that this outstanding performance, all-time high performance across a lot of decades, and that is 2.2 -- PLN 3.2 billion of LIFO-based EBITDA going up by PLN 1.2 billion year-on-year. It is our highlight. This is obviously due to a positive macro impact, higher sales volumes, higher margins. And in terms of the changes of crude oil prices that has LIFO effect, it came in at PLN 1 billion, which obviously translated into higher LIFO-based EBITDA year-to-date at PLN 4.2 billion, as I said before. The financial results came in at PLN 0.1 billion as a result of the surplus of positive foreign exchange differences, negative interest cost and net impact of settlement and valuation of derivative financial instruments. Net results, we reported the net result increasing by PLN 1.9 billion, as I said before. On Slide #9, you will see our LIFO-based EBITDA by segment, nearly PLN 300 million for the refining segment going down year-on-year. However, our Petrochem segment went up by nearly PLN 800 million, and the Energy segment went up by nearly PLN 0.5 billion as well as Retail, which makes us very happy. The LIFO-based EBITDA for Retail went up by nearly PLN 100 million year-on-year to PLN 828 million and Upstream actually went up as well to PLN 50 million. Corporate Functions went down, that means that we had lower costs, especially donations and COVID-related efforts. I'll now give the floor over to Mr. Zbigniew Leszczynski, Management Board member for Development, who will discuss the Refining business.

Good afternoon again. Ladies and gentlemen, before we move on to the discussion of our performance by segment, I would like to emphasize that -- what my colleague has just said, we are very satisfied to be here today to present all-time high record high results of PKN ORLEN. These are obviously due to this very favorable macro environment in which we function. But also to a large extent, this is due to our relentlessly -- our relentless focus on operational excellence because it shows that we are able to do business, to do our job, and we want to continue to function this way because operational excellence and operational efficiency is our point of focus and it will translate also in the future into record-high results, historically high results. But also our vision, the vision that Mr. Daniel Obajtek, our President of the Management Board, has presented a vision of a strong multi-utility powerhouse, multi-utility group. It's still consistent and it proves that these decisions were right. And our work goes to prove that we are efficient, we are consistent enough to deliver that vision and turn it into reality. Let me now move on to the next slide of our presentation, Slide #10, which shows the refining business. Our Refining segment in the second quarter of the year reported LIFO-based EBITDA at nearly PLN 300 million. This is a result lower year-on-year at PLN 316 million. However, we do know that the refining business is under a lot of pressure and the macro factors are drawing it or dragging it down. However, due to our determination, hard work and good organizational skills as well as our efficiency, we have managed to report a very solid figure. This is shown in the lower part of the slide. LIFO-based EBITDA in the Refining segment was determined by the negative macro factors but also lower margins on diesel oil and heavy refining fractions as well as PLN versus USD as well as higher costs of own consumption and higher prices of crude oil. These factors were partially compensated by our operational excellence, but also higher Brent/Ural differential, higher margins on gasolines and JET as well as the valuation and settlement of CO2 contracts at PLN 260 million year-on-year. Sales volumes increase was compensate -- was offset by the negative macro effects. However, still, our sales volumes went up by 11% year-on-year, which is good news to 5.8 million tonnes. We have also reported higher sales of gasoline by 15%, of diesel by 12% and of JET by 119%, compensated by lower sales of LPG, down by 6% and heavy fuel oil by -- down by 5%. Others, the others position on the slide includes mainly lack of positive impact of inventories, revaluation NRV, of PLN 1.2 billion year-on-year as well as the usage of historical layers of inventories, higher trade margins at higher costs of CO2 emission at PLN 0.8 billion. The next slide continues the presentation of our refining operational data. We are presenting higher crude oil throughput, which in the second quarter was in line with the fuel demand and also was due to downtime in the petrochemical segment. The throughput was at 6.5 million tonnes, down year-on-year, mainly due to -- or up year-on-year, mainly due to higher throughput at Unipetrol, going up to low baseline level. We had cyclical shutdowns of refining and petrochem units in Litvinov and Kralupy. Still, the increase is considerable and it also comes down to -- this is due to higher demand for fuels. We have a shutdown -- we had a shutdown of steam cracker, PE2 and PE3 because of the lack of feedstocks and planned shutdowns. The situation affected the Czech market at Unipetrol. And we have also reported a shutdown of the RDP and metathesis units. Our efforts and our figures were not only due to market demand, but also the shutdowns of polyolefins. And we all need to remember that the demand for gasolines were -- was limited due to the pandemic. At ORLEN Lietuva, the crude oil throughput was comparable year-on-year with higher utilization ratio by 1%. First, sales volumes in the Refining segment, it amounted to 5.8 million tonnes, increasing by 11% year-on-year, of which in Poland, by 11%; in Czech Republic by 34%; in Lithuania by 1%. Higher sales across all markets, it is obviously due to the higher demand for gasolines due to the loosening of fuels in general and due to the loosening of COVID-19 restrictions. The next slide, Slide #12 presents all-time high results of the petrochemical segment. More than PLN 1 billion in LIFO-based EBITDA, this is a fourfold increase versus last year. So the second quarter of the year was a very good period for the petrochemical muscle, it was record high, and we do count that on the continuing great performance of the Petrochemical segment. And this goes to prove that our investment in the olefin complex, which cost us PLN 13.5 million, was a good decision because this is the olefins unit that we want to invest in. And we do believe that this is a great decision. This investment will give us more than PLN 1 billion in EBITDA, and this is a good direction to take. And this is great second quarter and, obviously, the earlier quarters as well have shown that this decision was a good one, and this investment was a great one. And it will bring us even better results in the future. Coming back to the second quarter of the year, as I said before, it is a very solid result as an effect of a record-high margins in the Petrochemical segment but also the settlement of CO2 futures as part of transaction portfolio at PLN 287 million as well as weakening of PLN against euro. In terms of the margins in the second quarter for the Petrochemical segment went up across the board. Despite those record-high figures and margins, we still were not able to tap those market opportunities because of the planned shutdown of the olefin plants at land, at port. And as a result, sales volumes went down in Poland by 23% in Poland, going up in the Czech Republic and going up in Lithuania. All in all, sales in the second quarter came in at 1 million tonnes, going down by 4 percentage points year-on-year, including lower olefin sales by 69% and PVC by 22%, combined with higher sales of polyolefins by 23%, fertilizers by 12% and PTA by 3%. PTA results went up by 30% year-on-year. The next slide presents other operational data for the Petrochemical segment. We can see that the utilization ratio of petrochemical installations went down in Poland and in Lithuania due to those planned shutdowns, which we have discussed before, at Plock and Wloclawek due to the shutdown of the olefin segment, and at ORLEN Lietuva due to result of wider scope of works due to spring maintenance shutdowns. In the Czech Republic, however, utilization ratio went down -- went up by as much as 69% year-on-year. And at ORLEN Lietuva and at Unipetrol, we reported good results. However, let me remind you that last year, we had cyclical planned maintenance shutdowns there. The next segment we would like to discuss is the Energy segment and Power Generation segment. And let me emphasize here that those results were very solid, record-high again. And we are keeping our fingers crossed that we will continue to deliver such great results in the future as well. As you can see in the second quarter of the year, the life of EBITDA of the Energy segment came in at PLN 1.2 billion, which is up by 2/3 year-on-year, especially due to the contribution of Energa at PLN 0.5 billion year-on-year as well as the valuation settlement of CO2 contracts as part of the transaction portfolio in the amount of PLN 217 million year-on-year. However, this was offset by the negative margins of electricity margin due to an increase in gas and CO2 prices year-on-year as well as lower sales volumes by PLN 113 million. Electricity sales volumes went down by 6% due to a shutdown of the CCGT unit at Plock for 2 months, which took 2 months, which we have already discussed. Moving on to selected facts and figures for the Energy segment, which are presented on Slide #15. This slide confirms that we bet on low and 0 emission energy sources. The production of electricity went down by 7%, however, mainly due to CCGT Plock shutdown. However, we recorded an increase in production, mainly in Ostroleka and due to higher demand from PSE. All in all, production came in at 2.6 terawatt hour, of which a lot coming from renewable energy sources and CCGT units. The installed capacity at ORLEN across the group is at 3.4 gigawatt electricity, broken down into Energa Group and ORLEN. Compared to the previous quarter, we have new renewable energy sources and capacities at 0.1 gigawatts, including 20 megawatts at Kanin and 89.3 megawatts at Nowotna. Electricity sales went down year-on-year by 6% to 6.6 terawatt hour, mainly due to lower sales in wholesale as part of portfolio optimization as well as lower consumption of business customers, combined with higher consumption of households due to the pandemic year. Electricity distribution, which is fully realized and handled by Energa Operator, increased by 16% year-on-year as a result -- to 5.8 terawatt hour, as a result of economic recovery or rebound as well as higher number of electricity connection points. CO2 emission in the Energy segment amounted to 1.9 million tonnes, which is equal to 52% across the group. The next slide, #16, shows another major segment of our business that is retail. In this slide, we are discussing very good, very solid, again, results of that Retail segment with LIFO-based EBITDA at PLN 828 million, going up by 14% year-on-year. We have reported lower fuel margins, especially in Poland, Czech Republic and Germany, with comparable margins in Lithuania. Retail sales volumes went up by 13% year-on-year, including by 19% for gasoline, by 11% in -- for diesel and by 13% for LPG. Nonfuel margins went up across all markets year-on-year, especially on hot snacks and beverages. This proves that our offering portfolio for nonfuel products is very good and is used more and more by our customers at the fuel stations. I would like to also emphasize that we are expanding our network by alternative fuel points. Currently, we have 278 alternative fuel points, going up by 104 year-on-year. On the next slide, we present more operational data for our retail muscle. And at the end of the second quarter in our retail network, we have 200 -- 2,854 outlets, of which 2,239 with the stock Stop Cafe or Star Connect outlets. The number of stations increased by 22 year-on-year across all markets, except for Germany. Due to the loosening of the restrictions related to COVID-19, our retail market reported an increase in sales volumes by 13% across all markets across the board, which is obviously good news. Market share increased at the very same time in Czech Republic and in Slovakia while decreasing on other markets. We are consistently developing our nonfuel sales network. We have added 10 more outlets. Then we had 2,239 Stop Cafe outlets, going up year-on-year by 77. As my colleague has said, we have opened the first ORLEN Group outlet in Warsaw, but this is by no means the end. We will continue to open those outlets in other states and cities starting mainly obviously from the largest cities in Poland. We're also investing in alternative fuel points. We had 278 such fuel stations at the end of the second quarter, going up year-on-year, obviously, including 89 in Poland, 15 in the Czech Republic and a number of such stations in Germany remained flat. All in all, we had 232 electric vehicle charging points. We also have, as we said, and as you are well aware of, we have also hydrogen refueling points and CNG stations as well. Moving on to the next segment, upstream muscle. In the second quarter, the Upstream segment generated PLN 60 million in LIFO-based EBITDA, going up by PLN 50 million year-on-year, mainly due to higher prices of all hydrocarbons across the board with a negative -- with a higher effect of margins year-on-year, offset by the negative effect of hedging transactions of PLN 40 million. The slide also presents that our sales went down by 9% year-on-year as a result of lower average production going down by 0.9000 barrel of oil equivalents per day, of which by 1,000 in Canada. And this was combined by higher production in Poland going up by 0.1000 barrels of oil equivalents per day. For more operational data, you will see the operational data of the Upstream segment on Slide #19. At the end of the second quarter, we have around 173 million of reserves of -- total reserves of crude oil and gas 2P, and this was equal to the end of the previous year. The average production came in at 1.2000 per day, and the CapEx was at PLN 34 million in Poland and PLN 105 million in Canada. As far as development of existing assets in Poland, we continued work at Miocen, Edge projects and also the projects realized with PGNiG. Drilling works were performed at Miocen, construction of drilling sites, and also we had design and proprietary works for drilling future wells at Plotki. We also had seismic work. We completed the processing of seismic data at Koczala Miastko 3D at the Edge project and we also started interpretation work. And the same applies to the Karpaty project, seismic 2D profiles. In Canada, we continued the development of existing assets at Kakwa and Ferrier. We have fractured wells and we also brought 2 wells onstream. Work is currently -- pre-drilling work is currently ongoing for further development. We have also completed working also in order to have new licenses, neighboring our license areas, current unlicensed areas. Thank you very much for your attention. And I will now give the floor over back to Mr. Jan Szewczak, Management Board member for Finance.

Thank you very much. We'll hear from Mr. Leszczynski again at the end of the presentation. But now let me move on to Slide #29, presenting our cash flows. As I said before, we had record-breaking cash flows from operations at PLN 5.1 million, and if we consider the settlement of derivatives and also lower working capital appetite for changes, you'll see free cash flow for the 6 months of the year presented on the slide. This lower part of the slide, this lower chart, it shows free cash flows for, as I said, the first 6 months of the year, so the first half of the year. And you will see again a record-high result, nearly PLN 5.6 billion EBITDA -- LIFO-based EBITDA. The LIFO effect came in at PLN 2.1 million. And working capital decreased by PLN 0.1 billion, CapEx came in at PLN 4.2 billion. Including the purchase of CO2 emission rights and property rights, we spent PLN 1.4 billion on that, and I'd like to emphasize that our rapid reaction and response to market trends. And we have secured contracts and our contracts are secured until 2023 at EUR 23 and EUR 24 per tonne, whereas current prices are at around EUR 50-or-more per tonne. So had we not reacted properly before and had we not reacted proactively, we would have a lot more cost to show. As far as the settlement of derivatives is concerned, we are talking about PLN 1 billion here in terms of deposits securing hedging instruments. Slide #22 presents our financial strength, strength on debt. We're very happy to tell you that in spite of this very intensive CapEx effort, our net debt went down by as much as PLN 2 billion quarter-on-quarter, and it is currently at PLN 11.5 billion. As a result, as we have said before, we also have positive cash flows from operations at PLN 5.1 billion, we have cash flow from investments at PLN 2.9 billion, payments of lease abilities at PLN 0.2 billion, paid interest of PLN 0.2 billion as well as foreign exchange rate differences. In terms of mandatory reserves, we are talking about PLN 5 billion. This is very important for us. And I've already mentioned net debt-to-EBITDA covenants. These are at the very safe level of 0.7 while the permitted level is at 2 or even 2.5. So we can see that our financing sources are well diversified. You can see it on this pie chart. And average maturity date is 2023. We are very happy to have investment grade, both from Fitch and Moody's. And we are also the spearheading company, the first company in Poland to issue green euro bonds at a substantial level of EUR 500 million, and it attracted a lot of interest among the investors. So this all proves that our financial strength is there. We are on a very solid financial footing and we have a well-diversified portfolio of our sources of financing. We are also talking about foreign source of financing, for instance, from Japan. Japan is looking at Poland closely as a partner in Poland. So we are not talking about only European Union but also other markets such as Asian markets. The next slide is devoted to our CapEx efforts. So our capital expenditure. You can see that our CapEx for the entire year of 2021 is up to PLN 9.5 billion, of which lion's share for ORLEN and the rest for Energa. And 50% of CapEx is to be spent on growth projects, but also maintenance CapEx is very important to us at PLN 4.5 billion. In the 6 months of the year, we have already spent to PLN 4.2 billion in CapEx, of which in Petrochemical segment at nearly PLN 1.5 billion and PLN 1.2 billion in Refining segment. And in other segments as well, Retail at PLN 5 million and in Upstream at PLN 100 million. All those CapEx figures are in keeping with our schedule and our plans so we see no effects to the delivery of our annual CapEx goal of PLN 9.5 billion. In terms of our major growth projects realized in the second quarter of the year and which will be continued. Obviously, in the Refining segment, we have a construction of a Visbreaking unit at Plock. And we are also building a polypropylene glycol at ORLEN Poludnie. Actually, we are continuing a very advanced work in terms of fertilizer production in Anwil. And obviously, in terms of energy, we are looking at construction of both offshore and onshore wind power plants or modernization of our current assets and connection of new clients in Energa Group as well as extension of our EV network, refueling network, we are also progressing in terms of hydrogen business. A couple of words on macro environment in the period. Mr. Zbigniew Leszczynski again.

Thank you very much. As you have said before, we have very solid financial footing, a very healthy financial position, which is obviously great news for our future performance and outlook for the future and dynamic growth in the future as well. The information that we have presented related to quarter 2, we are already in the third quarter of the year. So we are doing our best to continue this solid performance. So we would like to share a couple of information and a couple of observations with you and our outlook for the third quarter of the year. Model downstream margin in the third quarter of the year went down by USD 1.2 per barrel quarter-to-quarter at USD 8.6 per barrel. This is due to lower petchem and refining margins combined with higher Brent/Ural differential. The price of crude oil went up, on the other hand, by USD 6 per barrel quarter-on-quarter and at the average of $75 per barrel. This is due to the expectation -- expected higher demand for crude oil, especially for jet fuel and as well as the recovery of the U.S. economy as well as the European Union, and also reduction of reserves in the U.S.A., down to [ $437 ]. And we need to remember that OPEC+ reported lower expectations and decrease of production going down by -- to 400 barrels per day since August. Diesel cracks went down by 16% quarter-on-quarter, an average at $31 per barrel despite a rebound in cracks and obviously due to higher mobility. We need to remember that the supply chain was disrupted in Europe, for instance, by flooding, by torrential rains and also shortages of personnel, for instance, in the U.S.A. as well as lower reserves in the U.S.A. and in the ARA segment -- in the ARA area. In terms of cracks and fuel cracks, they went up to around [ $160 ] per tonne. And this is mainly due to disruptions in the supply chains in Europe for diesel oil and also for gasoline. We also are looking at the possible ban on imports of gas from Russia and also lower reserves, as I said, for diesel oil in the U.S.A. and in ARA area. In terms of heavy fuel oil, the crack went down by 15% quarter-on-quarter, and the average today is minus $175 per barrel. This is mainly due to higher prices of crude oil and also lower demand for bunker oils. And we can see that the Brent/Ural differential went up by USD 0.5 per barrel quarter-on-quarter, standing at around $2.5 per barrel, mainly due to lower demand for that fuel in European ports. We need to remember also about the margins, which went down by in terms of petchemicals, which went -- which was due to lower sales and prices of polymers. But I need to point out here that petrochemical margins are still strong and high, very high because you need to remember that the supply is very low, which is due to shutdowns, move from 2020 and also lower imports, low imports to Europe. So we do believe that those petrochemical margins will still continue to be solid. In terms of our market outlook. As far as Brent crude oil, the price of crude oil increased strongly, mainly due to the result of Saudi Arabia's resistance to increasing production. These are not -- they were not able to catch up with the dynamic growth in demand. In mid-July, OPEC+ reached an agreement, agreed to increase production, which sparked concerns that crude oil -- of crude oil surpluses because we need to remember about the next wave of the pandemic, COVID-19 pandemic. In the coming weeks, however, we expect crude oil prices to fall and remain below USD 70 per barrel until the end of the year. In terms of refining margins, we expect that this will strongly increase -- the demand for crude oil and fuel will increase strongly. It started at the beginning of the second quarter of this year and this will be combined with the seasonal effect. All in all, this resulted in margins improvement. And at the same time, it was offset by a dynamic increase in crude oil prices to nearly $80 per barrel, the current perspective of a decline in crude oil prices. This might temporarily improve refining margins. But in the long-term perspective, they will be still under the pressure due to global surplus of supplies, especially when considering that in the longer term, the global refining capacity surplus will continue to weigh heavily. The petrochemical margin is the margin where we had an increase in demand and these margins were pushed to record-high levels in the second quarter of the year. But we expect that in the following quarters, these margins will be corrected slightly. However, as we said before, we expect that this correction adjustment will not be very high, and those margins will remain very high, and we'll, therefore, expect good performance in that particular segment. However, you need to remember that the petrochemical business is closely related to -- correlated to GDP, which is rebounding strongly after a high drop -- major drop last year. In terms of gas, the price of natural gas in the spot market in Europe are the highest since at least 2008 compared to corresponding periods in the summer of previous years. This is mainly due to limited gas supply especially considering a higher demand for gas fuel around the world and also the positive impact of lower stocks on the price. This will probably continue until the beginning of the heating season. In terms of electrical energy, we do believe that the fundamental drivers for the price of electricity were upwards. And since the beginning of the year, they went up from around PLN 250, up to PLN 360, which translates into a growth of around 30%. However, we need to remember that the digital structure of Polish energy market had a strong correlation with CO2 emission allowances, which, as my colleagues have mentioned, we are trying to manage efficiently in order to make sure that these emission allowances do not cost us more than expected. So we are doing our best to make sure that electricity price is as low as possible. Strong demand, for instance, in Asia, combined with limited supply from Indonesia have an impact on, obviously, coal prices in Europe and indirectly also in the Polish market. The support provided by high prices of gas and high demand in general for electricity is obviously important, too, which results from high temperatures in the summer and low wind generation. Electricity prices should also be supported in the coming months by the situation in the gas market and the relatively low levels of stocks in Europe as well as uncertain price perspective for the coming months with limited supply and high LNG prices combined with a weaker constraint for the rising gas prices and support -- will support energy prices. This is good news, obviously, for us. But we also see that in our market, due to the loosening of COVID-related restrictions and the pandemic in general, we are looking at a rebound in the economy and also rising demand for fuels. This should obviously persist in the months to come. And in terms of regulation, nothing has changed versus the previous quarter. So that would be all from me. Thank you very much for your attention. And, obviously, we are awaiting your questions. Thank you very much.

Thank you for the presentation, and now we're ready to move on to the Q&A session, the questions that we have received from our webcast viewers and from journalists. I'll start with question posed by Mr. Bartlomiej Sawicki, the Editor-in-Chief of Biznes Alert. The question concerns investor platforms which appear all around the Internet. So there is an investment proposal and on the website at PKN ORLEN, which will guarantee high profits. Do you know anything of it? And is it true? And also retail investors are also asking about. So I'd like you to refer to that question, please.

Thank you for that question because we have an opportunity to clear up today. So before I move on to that question, I'd like to have a word of caution to you because fake offerings on the Internet can take different forms in the future as well. So please be cautious, approach such information with a lot of caution and prudence. Obviously, this information did not come from PKN ORLEN at all. We do not send any mailing to our potential clients encouraging them to invest in financial instruments, offering high profits and returns. So please be cautious. I would like to emphasize, too, that we are taking legal steps on an ongoing basis in order to block and eliminate, remove from the worldwide web any such fake offers from -- which would encourage you to invest. And we are doing our best to warn you from fraud and fraudulent businessmen, so to speak. So as I said before, we have nothing to do with it. We are reporting any such incidents to the competent authorities. And as I said, please be cautious, especially that such form of fraud can take different forms in the future as well, which obviously does not mean that you do not invest in PKN ORLEN at the Warsaw Stock Exchange, especially after the solid results we have reported -- we have just reported.

The next question concerns the acquisition of LOTOS. This is asked by [ Daniel Czajkowski ], representing [ Energetica 24 ], and also by a retail investor. So the question is as follows. Does the delay at the European Commission come from the fact that ORLEN has not found any buyer interested in buying LOTOS assets? And when can we expect a decision on the merger with LOTOS? Mr. Jan Szewczak will answer that question.

You can approach this situation from an optimistic point of view. We have applied for it, and we are very happy that this deadline has been extended. We want to approach this merger, this proposal on the bid, all the bids that we are receiving in as much detail as possible. This is a very complicated transaction. And we're doing our best to make sure that this is successfully completed. And there will be a lot of players involved. We are continuously involved in all the negotiations. And we will take the opportunity of an extended deadline in order to pick the best offer. And we believe that it should not be taken too hastily. It must be taken cautiously and based on the thorough analysis in order to be beneficial for the Polish economy as well. This is a natural approach for such mergers, M&A acquisition and M&A projects, and we want to take this time to go through all the offerings and bids.

Mr. [ Mihao Gurski ] representing [indiscernible], asks what the major challenge or the most important challenge for PKN ORLEN is at this time, at this point? And what are your long-term goals?

This is a kind of ebb/flow, a fickle question. We all want to be young, beautiful, wealthy and healthy, obviously. But we want -- we are aware that we have a lot of challenges ahead. And we need to remember that the green deal, the European green deal is a revolutionary approach and the transformation forced and introduced by the European Union is revolutionary. And we see that environmentally friendly approaches are becoming more and more important. These are all these challenges that we need to face. And -- but as we can see, considering our performance we have just presented, we have become a real spearheading player in Poland. And we also have -- we have a great team, a close-knit team. We have a very brave leader at the helm of this company. So we do not see any threats really ahead of us, which we could not overcome. And despite a very challenging period for the petrochemical market, we have for instance reported such solid figures for our Petrochem business.

I will continue questions concerning challenges because we have another question regarding this area. Mr. [ Daniel Czajkowski ] Again and Bartlomiej Sawicki, representing Biznes Alert as well. What is your approach to the tightening 54, 55 Environmental Policy, which will not only put pressure on coal, but also other fuels. What will be the effect of that policy on your business? And what is your approach to the new emission reduction mechanisms presented by the European Commission, especially in terms of emissions from transport and a ban on the registration on fuel engines starting from 2023?

Obviously, those are very ambitious goals and major challenges, however, we will see what's coming up in the future. Obviously, everybody wants to have cheap, clean energy and the demand for such energy is growing. But the question is how to fit that within the existing portfolios and the capacities that we have equally, and I need to stress that equally does not always mean justly for all players. And Poland is doing its best to catch up, and we have obviously taken a lot of steps to -- and step on our activities in order to achieve those goals. And this will be a major pressure, a major challenge not only for Poland but also for some other European countries, and we see that those pressures are seen and signaled across Europe. And we are analyzing it. We are looking at the situation closely, and we are considering the impact of the package on Poland and on our business. And obviously, we are very much aware of those challenges, as I said before. Those threats need to be overtaken, so to speak. But this also is a proof that our strategy is a good one. It's a good one as we focused on building on a multi-utility group and not only a fuel-focused group. We have obviously expanded our pillars, our segments, our muscles, which have strengthened our market position, for instance, and obviously contributed to our performance. Obviously, we're talking here about power generation, which has tangible contribution on our financial performance, and I do believe that the acquisition of LOTOS and also the PGNiG Group will also contribute to our results. In the context of the challenges of the European green deal and revolutionary, very revolutionary fundamental changes of the energy structure, so energy will be a valuable currency, so to speak, for every business, for every country. We see that certain engines are obviously not very welcome across Europe. But I'm also sure that the secondary market will continue to exist and it will not be eliminated on the spot, so to speak. We still have some time and our investments are focused on low or 0-emission sources. So our green strategy until 2023 is based on those assumptions. So we have resources. As you can see, we have money in our pockets to finance such projects and even considering that such drastic changes, we will be able to manage it and cope with it.

One more question addressed to Mr. Leszczynski, this time our growth CapEx. This question was asked by a retail investor. We -- you launched the olefin complex construction. What is the schedule of this project when will it be completed? And does everything progress as planned.

Yes, I will confirm that the petrochemical development program is a project that has been and will be progressing very dynamically. And our schedules are very ambitious. However, everything is progressing as we have planned. We are preparing sites for the investment. We have signed agreements with the contractors to construct that unit. And we have -- we are securing all the necessary permits and authorizations for that project, and I can tell you right now that this program, this project is, as I said, progressing as scheduled, and we are expecting that the completion date for that project will be at the turn of 2023, 2024. And in 2024, we are planning to start up that unit and produce first products as we have assumed in our schedule and as we have communicated to you before.

Thank you very much. This will be all. We will answer obviously your questions because we have more questions coming up. We will answer the questions through our press office. Thank you very much for your attention, and we'll see you in the next quarter and we hope to see you in as good moods as we are today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]