Poland’s oil refiners beat forecasts, supply worries

Leading Polish oil group PKN Orlen and its smaller peer Lotos reported yesterday better than expected second-quarter results thanks to higher refining margins and favourable crude pricing. State-controlled PKN said its April-June net profit more than doubled from the previous quarter to 881mn Polish zlotys ($293mn), topping predictions of 753mn in a Reuters poll of 10 analysts. Lotos’s second-quarter net profit jumped to 276mn zlotys from 103mn in the first quarter and 85mn in April-June last year. It beat forecasts of 223mn. Shares in Lotos were up 0.8% by 1315 GMT, but PKN fell 1.9% as investors’ concerns over the security of Russian crude oil supplies to PKN’s new Lithuanian unit, Mazeikiu, outweighed its strong earnings. The blue-chip WIG 20 index was down 1.4%. "Despite good results, shares in PKN are falling, partly due to concerns about the fate of the Mazeikiu purchase," said Wojciech Wosko, dealer at BZ WBK brokerage. PKN Deputy Chief Executive Pawel Szymański said third-quarter profit should be similar to 980mn zlotys in the same period last year if economic conditions remained unchanged. Lotos’s chief executive Paweł Olechnowicz also painted a bright picture for future earnings. "Looking at macroeconomic indicators, we think that the third quarter will be as good as the second," he told reporters. Mazeikiu, the Baltic regions only refinery and a major distribution outlet to European markets, had its supply pipe to Russia cut recently, after a reported oil leak. But the cut prompted concerns it was Moscow’s punishment for the rejection of Russian bidders in the tender for Mazeikiu. PKN chief executive Igor Chalupec said the company hoped Russian supplies would resume soon, but believed Mazeikiu could be profitable even if it bought crude from other sources. He also said that a purchase agreement gave PKN the right to walk away from the deal if the value of Mazeikiu fell sharply this year. PKN is expected to seal the takeover early in 2007. "According to the agreement, we have the right to give up the purchase by December 31 if Mazeikiu’s value falls significantly," Chalupec told reporters. "We hope the cut is the effect of a pipeline leak only and not a result of other non-business factors. It would mean a loss of trust in (Russian pipeline monopoly) Transneft." PKN’s second-quarter net profit fell from the 2.56bn zlotys reported a year earlier, but analysts have said the results are not comparable mainly because of a nearly 2bn zloty goodwill write-off, which boosted earnings a year ago after the acquisition of its Czech peer Unipetrol. Analysts said both PKN and Lotos benefited from rising oil prices and higher margins as well as a positive price differential between the Ural crude they refine and Brent, used as a benchmark for product prices. "Margins, differential and strong retail sales helped both companies," said Maciej Wiewiorski, analyst at Bank Pekao brokerage in Warsaw. Shares in PKN were down 2% at 52.50 zlotys, valuing the company at 22.5bn zlotys. The stock has lost around 15% this year, partly because of worries the new government might reshuffle PKN’s management. The Polish refiner’s shares are rated slightly cheaper than its competitors, which analysts attribute to state control of the firm and its lack of upstream business. According to Reuters Estimates, PKN is valued at around nine times its estimated 2006 net profit and Lotos at about 10. Hungary’s MOL trades on a multiple of about nine and Finnish refiner Neste Oil at almost 15 times. - Reuters

Source:www.gulf-times.com