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UPDATE 2-Polish refiner PKN eyes upstream deals to boost profit
April 24, 2014 / 6:46 AM / 4 years ago

UPDATE 2-Polish refiner PKN eyes upstream deals to boost profit

* Net profit hit by low refining margins, but tops forecast

* PKN wants to expand in upstream

* Eyes more takeovers in North America (Adds comments, releads)

By Adrian Krajewski and Marcin Goclowski

WARSAW, April 24 (Reuters) - Poland’s largest oil refiner PKN Orlen may buy more oil producing assets in an attempt to increase profitability squeezed by low refining margins in Europe, it said on Thursday.

PKN said its first-quarter net profit fell 57 percent year-on-year to 64 million zlotys ($21 million). That beat analysts’ forecast for earnings to be wiped out, thanks largely to higher profits at its retail and chemicals businesses.

For the first time, PKN booked a profit from its own oil producing - or upstream - operations, while its Canadian unit TriOil Resources, which it bought last year, made core earnings of 37 million zlotys.

While that was just 5 percent of the group’s total first-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) of 776 million zlotys, PKN said more upstream purchases were on the cards.

“We treat Canada as a platform for further growth,” finance chief Slawomir Jedrzejczyk told a news conference. “We analyse projects concerning further non-organic growth, but we will communicate that once we are ready.”

TriOil produced 330,000 barrels of oil equivalent in the first quarter.

Some analysts have expressed doubts about PKN’s strategy of building an integrated oil company, which runs counter to the prevailing trends in the United States.

PKN has been trying to build its upstream potential in shale gas in Poland, for example, but its efforts - despite being costly - have so far not resulted in commercial gas production.

PKN’s shares have fallen 8 percent over the last 12 months as it struggles with refining overcapacity in Europe and weak margins, compared with a 20 percent rise in Warsaw’s main stock index. At 1410 GMT, PKN shares were up 0.8 percent.

The firm, which imports most of the oil it refines from Russia, said the Ukrainian crisis has not impacted its business as it does not rely on exports either to Russia or Ukraine.

PKN said it could buy the remaining 32.4-percent minority stake in its Czech unit Ceska Rafinerska from Italy’s Eni , but that talks were not at an advanced stage.

Rafinerska, with a market capitalisation of $1.25 billion, booked a profit in the first quarter after five consecutive quarters of losses, though mainly thanks to a one-off item.

PKN said it was assessing the future of its loss-making Lithuanian unit Orlen Lietuva, which owns the Mazeikiai refinery.

“We do not exclude any steps, including the most drastic ones,” chief executive Jacek Krawiec said, when asked about the possible sale of the Lithuanian unit.

PKN’s Jedrzejczyk was quoted by state news agency PAP on Thursday as saying the firm might revise its long-term strategy in the second half of the year as it was “too ambitious”.

The current strategy envisages an average annual EBITDA of 6.7 billion zlotys over 2013-2017. PKN’s normalised EBITDA last year stood at 3.2 billion zlotys.

($1 = 3.0307 Polish Zlotys)

$1 = 0.7231 Euros Writing by Marcin Goclowski and Marcin Goettig; Editing by Mark Potter

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