A kink in the fuel line for two oil giants

Poland's largest fuel company, PKN Orlen, saw a net profit of zł.2.4 billion in 2006, 12 percent lower than in the previous year. Orlen's earnings were particularly hurt in Q4, when events conspired to halve its profit. This quarter saw a zł.230 million one-off loss on the sale of its Czech company Kaucuk and unfavorable market conditions which occurred when refining margins fell and the Brent/Ural price differential narrowed.

But the company's financial director, Paweł Szymański, announced that net profit could turn out to be even lower. He said that Orlen would research the loss of value of the Mazeikiu refinery.

"The group's net result could be as much as zł.425 million lower," Szymański said. The current value of the refinery, which Orlen acquired last year, is zł.7.6 billion, while the Polish company paid over zł.8 billion.

The last quarter of the year was not good for Lotos, the other major Polish fuel company, either. It posted zł.85.7 million in net profit in Q4, a 33-percent y-o-y drop, also largely due to the narrowing price differential. The refiner's full-year net profit reached zł.666 million, in comparison with zł.915 million in 2005. However, the figures still exceeded the company's prediction of zł.657 million. Lotos' full-year revenue amounted to zł.12.8 billion, a 32.8-percent increase on its 2005 figure.

"The results are below consensus, but it's not that bad," said Maciej Wewiorski, an analyst at Pekao. "A negative market reaction is possible," he warned, but added, "Positive factors [for the company] included processing cheap crude from the Baltic and production capacity utilisation." (Reuters)