Operations in 2020

The exploration and production activities in Poland are carried out by PGNiG, with the involvement of its subsidiaries Exalo Drilling and Geofizyka Toruń. The Geology and Hydrocarbon Production Branch serves as the competence centre for geological exploration, geological work, investments in well mining facilities, and hydrocarbon production. It oversees the production of crude oil and natural gas, underground storage of waste, and underground non-reservoir storage of gas for production purposes. The PGNiG structure includes three leading domestic branches, located in Sanok, Zielona Góra and Odolanów, and two foreign branches: Operator Branch in Pakistan and the branch in the United Arab Emirates.

As at 1 January 2020 PGNiG held 48 licences: 13 licences for exploration for and appraisal of oil and gas deposits and 35 combined licences (for exploration, appraisal and production). As at December 31st 2020, PGNiG held 47 licences: 11 licences for exploration for and appraisal of oil and gas deposits and 36 combined licences (for exploration, appraisal and production). In the reporting period, one exploration and appraisal licence expired.

In 2020, the Group had 28 proceedings at the Ministry of Climate and Environment for obtaining, amending or converting licences (of which 15 are still pending). Another 30 proceedings involved geological work plans (seven proceedings are still pending).

As at December 31st 2020, PGNiG held 201 licences, including 189 production licences, three underground waste storage licences and nine underground gas storage licences. In the first half of 2020, PGNiG was granted four new production licences (Potok Górny, Połęcko, Czarna Wieś, Wielichowo W), 4 licences were amended, 5 licences were terminated, and proceedings were pending in respect of 7 licences.

In 2020, PGNiG continued crude oil and natural gas exploration and appraisal projects in the Carpathian Mountains, Carpathian Foothills, Sudetian Monocline, and Polish Lowlands, both on its own and jointly with partners. Out of the 25 boreholes drilled in 2020, the target depth was reached by 24, including: 4 research, 3 exploration, 13 appraisal and 4 production wells.

As at the end of 2020, formation test results were obtained from 17 wells (1 test, 2 exploration, 10 appraisal and 4 production wells). The 17 wells with known formation test results included 13 positive wells (including 1 test well, 1 exploration, 7 appraisal and 4 production wells) and 4 dry wells (including 1 exploration well and 3 appraisal wells) that did not yield an industrial flow of hydrocarbons. In addition, 1 test well (due to their test nature, such wells are not subject to reservoir classification) and 2 appraisal wells were abandoned for technical reasons.

In 2020, workovers, formation tests and decommissioning operations were also performed on wells drilled in previous years, including on: four test wells (Jaworze Górne-1 – decommissioned, Kramarzówka-1K, Gilowice-1, Gilowice-3K), one of which is in trial production (Kramarzówka-1K), five appraisal wells (including one decommissioned well, three wells with field tests completed, pending further work, and one in trial production), and three production wells (including one decommissioned well, and two wells with completed development, pending production start).

In 2020, a total of 14 wells were tied-in the Sanok Branch, including: 12 wells on producing fields and two wells on the new Królewska Góra field, operated as part of the long-term test (Królewska Góra-1K, Królewska Góra-2K).

New wells brought on stream in the already producing fields by the Sanok Branch include: two wells in the Palikówka field (Palikówka-10K, Palikówka-13K), four wells in the Przeworsk field (Przeworsk-26, Przeworsk-27K, Przeworsk-28 and Przeworsk-29), operated as part of the long-term test, five wells in the Mirocin field (Mirocin-65, Mirocin-66K, Mirocin-67K, Mirocin-68K, and Mirocin-69K), operated as part of the long-term test, and one well in the Husów-Albigowa-Krasne field (Kraczkowa-3), also operated as part of the long-term test.

In the area of operations of the Zielona Góra Branch, one well (Dzieduszyce-11K) was tied-in in the Dzieduszyce field.

In 2020, in its licence areas PGNiG cooperated with other entities, including: LOTOS Petrobaltic S.A., ORLEN Upstream Sp. z o.o. and FX Energy Poland Sp. z o.o. (with effect from January 1st 2020, FX Energy Poland Sp. z o.o.’s interest was acquired by ORLEN Upstream Sp. z o.o.).

Under licences held by PGNiG, work was continued in the following areas:

As at December 31st 2020, the total recoverable reserves (including reserves covered by geological prospecting documentation as well as clearance documentation submitted to the Ministry of Climate and Environment, pending approval by the Minister) were 14,667 thousand tonnes of crude oil and 87,923 mcm of natural gas (high-methane gas equivalent).

The main products sold by the Exploration and Production segment are high-methane gas, nitrogen-rich gas and crude oil. Some of the produced nitrogen-rich gas is further treated into high-methane gas at the Odolanów and Grodzisk Wielkopolski nitrogen rejection units. Other products, derived from crude purification, include sulfur, and propane-butane.

Part of the natural gas extracted in Poland is sold directly from gas fields to non-PGNiG Group customers, and also within the PGNiG Group.

As regards trading in crude oil extracted in Poland, in 2020 PGNiG continued its trading partnerships with major Polish and foreign players in the fuel sector. Crude oil is delivered by rail to the Grupa LOTOS S.A. refinery in Gdańsk and to ORLEN Południe S.A.’s Trzebinia Production Plant (the ORLEN Group). Supplies to the ORLEN Południe S.A.’s Jedlicze Production Plant are delivered by road. Crude oil is also supplied, via the PERN pipeline, to TOTSA Total Oil Trading S.A.. PGNiG sells crude oil at market prices.

Source: In-house analysis based on PGNiG UN data.

PGNiG UN holds interests in production, and exploration and production licences on the Norwegian Continental Shelf in the Norwegian Sea and in the North Sea. Together with its partners the company produces hydrocarbons from the Skarv, Morvin, Vilje, Vale, Gina Krog, Skogul, Kvitebjorn and Valemon fields and works on the development of the Ærfugl, Duva and Snadd Outer fields. Development of the Tommeliten Alpha, Shrek, Alve Nord and King Lear fields is at the concept phase. In the other licence areas, the PGNiG UN is engaged in exploration projects and also works towards ensuring stable, predictable and long-term gas supplies to Poland. These efforts include involvement in the construction of infrastructure between Norway and Poland (the Baltic Pipe project), and also potential acquisitions of gas fields in Norway. For more information on the Baltic Pipe project, see Section 3.1.

In 2020, the company produced a total of 615 thousand tonnes of crude oil with condensate and NGL (measured as tonnes of crude oil equivalent), and 0.47 bcm of natural gas from the Skarv, Morvin, Vilje, Vale, Skogul, Ærfugl (phase 1) and Gina Krog fields. The production volume increased year on year as a result of the start of production from the Skogul and Ærfugl fields (phase 1).

In 2020, the company continued the development of the Ærfugl, Duva and Snadd Outer fields, in which PGNiG UN is a partner. The work in 2020 included assembly of production equipment and drilling of production wells. Aker BP is the operator of the Ærfugl and Snadd Outer fileds, while the Duva project is operated by Neptune. The first wells in the Ærfugl development began to produce hydrocarbons in 2020, while production from the Snadd Outer and Duva fields is scheduled to begin in 2021.

In January 2020, PGNiG UN completed the acquisition of 10% interests in licences PL636 and PL636C covering the Duva field. Neptune, with 30% interests, is the operator of licences PL636 and PL636C.

In February 2020, PGNiG UN purchased from Aker BP a 20% interest in the PL29B licence, representing 3.3% of the Gina Krog field, and an 11.9175% interest in the PL127C licence which covers the Alve Nord discovery. In the same transaction, PGNiG UN sold 5% of shares in the Shrek field (PL838 licence), thus reducing its interest in the asset from 40% to 35% and transferring the operator licence to Aker BP for the duration of the development work. The operators on the Gina Krog and Alve Nord fields are Equinor and Aker BP, respectively. The transaction was finalised in April 2020.

In September 2020, PGNiG UN purchased from Shell a 6.45% interest in the PL193, PL193B, PL193C and PL193D licence areas, including a 6.45% interest in the Kvitebjorn field and a 3.225% interest in the Valemon field. Equinor is the operator of both fields. The acquisition significantly contributed to PGNiG UN’s strategic objective of increasing gas production from its own assets. The transaction was finalised at the end of December 2020.

As a result of the transactions, in 2020 PGNiG UN also achieved a significant increase in proven reserves, from 169.4 mboe at the beginning of the year to 214.1 mboe at the end of 2020. The increase in reserves, in addition to the acquisitions described above, was also driven by the recognition of the reserves of the Shrek field discovered by PGNiG in 2019 and the revaluation of reserves at the other fields held by PGNiG UN.

In January 2020, another APA 2019 (Awards in Pre-defined Areas) round was concluded, as a result of which PGNiG UN obtained interests in three exploration licences:

The new licences have significant gas production potential. All three licence areas are located close to the existing production and pipeline infrastructure, so if a decision to proceed with their development is made, the process will be much simpler and faster. The PL1009B and PL1064 licence areas are located near the Skarv field, the largest field in the PGNiG UN’s asset portfolio, and near the Åsgard field, allowing the company to leverage its extensive experience in oil and gas exploration in this region.

In January 2021, another APA 2020 (Awards in Pre-defined Areas) round was concluded, as a result of which PGNiG UN obtained interests in four exploration licences:

All four licence areas are located close to the existing production and pipeline infrastructure, so if a decision to proceed with their development is made, the process will be simpler and faster. All four licences are also located in the immediate vicinity of the fields where PGNiG UN is already present (Skarv and King Lear). In case of commercial discoveries, potential connection of the licence areas to Skarv and King Lear would offer additional synergies in the form of incremental revenue derived from the provision of access to the existing infrastructure of the Skarv and/or King Lear fields.

Jointly with its partners, PGNiG UN also continued work in other exploration licence areas. In the second half of 2020, PGNiG UN participated in drilling two successful wells. Under the PL1009/PL1009B licence, in which PGNiG UN holds a 35% interest, the company drilled an exploration well and discovered the Warka field. Preliminary estimates show reserves of between 50-189 mboe. Located in the Norwegian Sea, the PL1009/PL1009B licence area is directly adjacent to the Skarv and Ærfugl fields, in which PGNiG UN holds 12% interests as a partner. Currently, drilling of appraisal wells is planned as part of the discovery. The second well was drilled on the PL127C licence, in which the company holds 11.9175% interest; also in this case the presence of hydrocarbons was documented.

As at December 31st 2020, PGNiG UN held interests in 32 exploration and production licences on the Norwegian Continental Shelf, in two of them as the operator. At the beginning of 2021, the number of licences grew to 36, following resolution of the most recent licensing round (four licences).

Crude oil is sold directly from the fields to Shell International Trading and Shipping Company Ltd. (crude from the Skarv Unit, Vilje, Vale, Skogul, Kvitebjorn, Valemon and Gina Krog fields) and to TOTSA Total Oil Trading S.A. (from the Morvin field). All fields, except for Vilje, also produce associated gas, which is transferred via gas pipelines mainly to Germany, where it is received by PST, a PGNiG Group company.

Through its Operator Branch, PGNiG is engaged in exploration work in Pakistan under an agreement for hydrocarbon exploration and production in the Kirthar licence area. The work is conducted jointly with Pakistan Petroleum Ltd. (PPL), with production and expenses shared pro rata to the parties’ interests in the licence: PGNiG (operator) – 70%, PPL – 30%. In addition, PGNiG acquired a 25% interest in the Musakhel exploration licence. The other shareholders are Pakistan Petroleum Limited (PPL) as the operator, with a 37.2% interest, as well as Oil and Gas Development Company Limited (OGDCL) and Government Holding Private Limited (GHPL), with 35.3% and 2.5% interests, respectively.

Reserves as at the end of 2020 (nitrogen-rich gas converted to high-methane gas, attributable to PGNiG): approximately 6.64 bcm (42.8 mboe), including the Rehman field 4.88 bcm (31.4 mboe) and the Rizq field 1.76 bcm (11.4 mboe)

Gas from the Rehman and Rizq fields is produced via facilities located in the Rehman field. PGNiG’s share in the production from the Rehman and Rizq fields, carried out from ten wells in 2020, was approximately 295 mcm of gas (measured as high-methane gas equivalent). The Rizq-3 production well yielded reservoir test results (work started in July 2019) and the Rehman-7 well is in the reservoir testing phase. In total, more than 2.96 km were drilled in the Rehman-7 well.

As part of the continued exploration work, in 2020 the Pakistan Branch completed basic processing and reprocessing of 3D seismic imaging of the W1 prospect and 2D seismic imaging of the W2 prospect.

In December 2018, PGNiG’s bid for the acquisition of hydrocarbon exploration, appraisal and production rights in onshore block 5 in the Emirate of Ras Al Khaimah was selected. Following the selection of its bid, the Company acquired a 90% interest in the block, with an area of 619 km². Agreements between PGNiG and the Ras Al Khaimah Petroleum Authority and RAK GAS LLC were signed in January 2019. The PGNiG Branch was registered in the Emirate of Ras Al Khaimah, obtained a relevant licence to conduct operations, and commenced seismic surveys.

Acquisition of seismic data started in late 2019 and the process continued until May 2020. Since then, PGNiG has been processing and interpreting data to identify locations for drilling of the first exploration well. Work is also under way to acquire rights to subsequent blocks in the Ras Al Khaimah emirate.

In 2020, work continued to acquire an exploration licence in western Ukraine, near the Polish-Ukraine border. In October 2020, a non-binding agreement was signed with ERU (Energy Resources of Ukraine) setting out the terms and conditions for the acquisition of shares in a company holding rights to the licence. On December 31st 2020, PGNiG and ERU Management Services LLC submitted an application to the Office of Competition and Consumer Protection to establish a joint venture.

Due to mounting safety issues in Libya in early second half of 2014, PGNiG UNA gave notice of a force majeure to the National Oil Corporation (NOC). The political situation changed during 2020 and a peace agreement was signed between the parties to the conflict in October 2020. The Company continuously monitors political developments in Libya, particularly the security of its operations in the country.

Geofizyka Toruń provides geophysical, geological and drilling services in many foreign markets. In 2020, Geofizyka Toruń engaged in the following activities:

• seismic data acquisition in: Poland, Bulgaria, Croatia, Mozambique, Germany and the United Arab Emirates;
• seismic data processing and interpretation in: Poland, the Netherlands, Colombia, Mexico, Pakistan and the United Arab Emirates;
• well logging and well measurement services were rendered in Poland, Bulgaria, Germany and Norway.

As part of its core business, Geofizyka Toruń also conducts R&D&I work through various innovative projects, including development of a method for seismic data acquisition, processing and interpretation for large-volume seismic images using nodal systems.

In 2020, on the domestic market, surveys were mainly performed for the Geology and Hydrocarbon Production Branch of PGNiG and for ORLEN Upstream Sp. z o.o. In 2020, the company completed 22 km of 2D seismic and 872 km2 of 3D seismic acquisitions in Poland for the Geology and Hydrocarbon Production Branch. In total, the company completed 555 km of 2D seismic and 2157 km2 of 3D seismic during the year.

In 2020, the Geology and Hydrocarbon Production Branch carried out drilling operations on 25 wells with a total depth of 55.6 km.

EXALO, a subsidiary of PGNiG, offers well and drilling services both for the PGNiG Group and for third parties. It is one of the leading European onshore drilling companies. EXALO’s most important contracts in 2020 included:

• for PGNiG: operation of the 2000 KM drilling rig and provision of oilfield services, including drilling; drilling services in Pakistan;
• for third-party customers: well drilling for customers in Pakistan, Chad, Kazakhstan, and provision of oilfield services in Ukraine under a drilling contract.

The segment’s operations are supported by two nitrogen-rich gas storage facilities (Daszewo UGSF and Bonikowo UGSF), whose main role is to regulate the operation of the nitrogen-rich gas system and store gas from nitrogen-rich gas production facilities.

The classification of these storage facilities is different from the high-methane gas storage facilities (which are part of the Trade and Storage segment) because of the different type of gas stored and their different function.