Polski Koncern Naftowy Orlen SA
WSE:PKN
Earnings Call Analysis
Q4-2023 Analysis
Polski Koncern Naftowy Orlen SA
The Orlen Group, a significant player in the oil refining and petrochemical industry, recently conducted their Q4 earnings call, where they introduced their strategic focus and vision. Under the acting CEO, the Group is looking to capitalize on its existing mergers to build value and focus on financial discipline, with plans to invest heavily in renewables and energy transition projects, aiming to attain nearly 1 gigawatt of renewables capacity. Significant capital investment, over PLN 38 billion with nearly PLN 28 billion allocated to growth projects, is directed towards ensuring effective project execution and high returns for shareholders.
Orlen achieved over PLN 98 billion in revenues, with an EBITDA LIFO of PLN 11.2 billion. They emphasized their dedication to long-term value creation through multiple transformational projects, including the Baltic Power offshore wind farm, acquisitions of additional wind farms, and advancements in biofuels and hydrogen fuel technology. Notably, Orlen has begun testing its first hydrogen fuel station and launched a locomotive running on hydrogen fuel, reiterating its commitment to sustainable energy.
The company continues to expand its reach and capabilities through strategic alliances and acquisitions, such as an agreement with Horisont Energi for advanced CO2 storage projects and entering into a cooperation with Yokogawa Europe for synthetic fuel production aimed at emissions neutrality in aviation. This demonstrates Orlen’s active role in environmental sustainability and innovation as they diversify their energy and fuel offerings and reinforce their retail presence in Europe by rebranding and acquiring fuel stations.
What remains a challenge for Orlen is the fluctuating market environment. The Q4 saw volatile macroeconomic conditions, such as decreased refining margins, drops in diesel and gasoline cracks, and increased gas prices, affecting Orlen's operational results. Despite these market headwinds, the company has shown resilience through strategic decision-making and by relying on the strength and diversity of its integrated operations.
Signs of an economic recovery, alongside higher fuel consumption in Poland and Hungary, hint at positive regional growth. This optimism is underpinned by Orlen's record revenues of PLN 373 billion in the preceding year. Despite a decrease in EBITDA, their financial fortitude allowed them to generate robust operational cash flow and maintain a strong balance sheet. The company's performance in various segments, including retail, gas, and upstream, reflects a mix of successes and industry-driven challenges.
Orlen's financial stability is evidenced by a robust cash flow from operations, totaling PLN 6.1 billion in Q4. Despite challenges such as increased working capital, the company managed to end the year with a minor net debt of PLN 1.8 billion, demonstrating financial prudence and a strong net debt covenant standing. They also highlighted a strategic cap on maximum leveragable revenue preserving a robust liquidity position without any significant changes in financing structure or credit ratings, further securing Orlen’s financial health.
With 2023's CapEx undershooting the budget by PLN 3 billion due to various savings and postponements, Orlen's strategic expenditures stand at PLN 32.4 billion, of which 80% was allocated to development projects. Furthermore, the synergies achieved from recent mergers have contributed significantly to the company’s financial strength with a PLN 1.5 billion synergy impact, reinforcing Orlen's decision-making strategy and future outlook.
Looking ahead, Orlen plans to ramp up their CapEx to PLN 38.6 billion, with a focus on growth projects. Investments will mostly target upstream activities, petrochemical projects, and energy expansions primarily in Poland and Norway. The outlook for 2024 includes stable Brent crude oil prices and an expected average refining margin reduction, with incremental growth in fuel sales in Poland and assumptions for an increase in gas consumption and stable domestic electricity consumption. Despite regulatory impositions, such as contributions to the Price Difference Payment Fund, Orlen is strategizing to counterbalance with cost-efficiency measures and alternative energy initiatives.
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Good morning, ladies and gentlemen. Welcome to the conference call regarding Q4 consolidated financial results of Orlen Group. My name is Konrad Wlodarczyk, I'm Head of the Investor Relations department, and I will moderate this call. The presentation will be delivered by me, Michal Perlik, Executive Director for Finance Management and Martin [indiscernible] Deputy IR Director. After the presentation, we will open a Q&A session. The whole meeting will be recorded, and the recording as usual will be available on the web page. During the presentation, your microphones will be switched off.
Before we start the presentation, I would like to give floor to our CEO, Mr. Witold Literacki, for a short introduction. Please go ahead.
All right. Let's start. Good morning, ladies and gentlemen. Before we move on the discussion performance of ORLEN Group in Q4, I would like to introduce myself and give you an overview of ORLEN Group's strategic directions in a broader context. As you know, we are in the process of selecting a new management board throughout a competitive equipment procedure. The Supervisory Board has appointed me to act as the CEO and President of ORLEN's Management Board until the completion of recruitment procedure. I came back to ORLEN after a few years absence from 2008 to 2020. I was working in ORLEN as a Head of Tax Office. So I had the possibility to finalize with the company, which, of course, has significantly grown and changed. The experience in gathered in previous years, let me identify challenges that currently ORLEN is facing. One of these challenges is to build the value of the ORLEN Group and our primary focus will be on achieving this goal operating strictly as a business entity. I would like to share a few observations that we as a new management and Supervisory Board held after our initial weeks -- firstly, we want ORLEN group to focus more on its key business projects. My ambition for ORLEN Group is its current shape, it is to fully realize the potential that has been created throughout the mergers. Very important to me, successful implementation of energy transitions projects. We already have nearly 1 gigabyte renewables capacity. In this area, the group will grow throughout both investment and new acquisitions. In Europe, the game is not only about leading the energy transitions, but most importantly, ensuring the cost effectiveness and security of energy supply. Renewables will be crucial to the future of our economics.
Secondly, we will focus on ORLEN Group financial discipline. Planned CapEx for this year is more than PLN 38 billion of which nearly PLN 28 billion will be allocated to growth projects. The largest portion of CapEx will be spent for projects in upstream, petrochemical and energy segment. Our task is to execute these plans in the most efficient way and according to the highest standards. We must ensure that every zloty spent in the best possible way. Hence, it will be vital to choose projects that have the highest return and offer the most promising products for our shareholders. I would like to underline to our shareholders. First, thirdly, we want ORLEN Group to be seen as a safe investment in the tough times, which is very important. We know how important is predictably to our shareholders, and we are fully aware of energy transition projects, importance for building the group's value in the long term, our objective is, therefore, to establish conditions for the uninterrupted implementation of growth projects. At the same time, given the unstable geopolitical situation, we will be enhancing our own security by such means as developing our own hydrocarbon productions in politically stable regions of the world. As the Management Board, we believe that building an attractive portfolio of strategic projects and allocating capital initiatives that generate greater value in the most effective approach to building the value of ORLEN Group. Thank you very much. I give floor to Konrad.
Thank you. So let's kick off the key facts and figures of Slide #3. So in Q4, we achieved over PLN 98 billion of revenues, EBITDA LIFO amounted to PLN 11.2 billion. We generated PLN 6.1 billion cash flow from operations, and we spent PLN 32.4 billion CapEx in the full year. In Q4, ORLEN consistently implemented strategic transformation projects that, of course, build company's value in the long term. The final investment decision regarding the Baltic Power offshore wind farm that was made after obtaining financing in the formula of project finance was the major milestone in this project. The investment is also accompanied by construction of the Baltic Power service base in Leba at the seaside. As a part of the development of renewable onshore energy ORLEN concluded a conditional agreement for the purchase of additional wind farms with the total capacity of 60 megawatts located in Greater Poland and Western Pomerania.
As a part of construction of new transformation businesses, ORLEN signed an agreement with Horisont Energi on the potential cooperation on one of the most advanced CO2 storage projects from the Norwegian shelf. A cooperation agreement with Yokogawa Europe was also signed regarding the development of an integrated system for the production of synthetic fuels, which are an opportunity definitely to achieve emissions neutrality by the aviation sector in Poland. As part of the development of biofuels, so UCO FAME installation was the large in Trzebinia for the production of second-generation bio component from used cooking oil. The growth ecological investment is a part of ORLEN Group's strategy in the area of biofuel, enabling the replacement of fossil fuels with fuel made from waste raw materials.
Assets producing this installation have 83% lower emission compared to the traditional diesel. ORLEN also started testing the company's first publicly available hydrogen station in Poland in Poznan and the first hydrogen locomotive joint ORLEN railway fleet. In retail segment, the most important was a constant of European Commission enabling to acquire 267 fuel stations in Austria. So as a part of the unification of European brands ORLEN rebranding was also completed in 90 stations in Slovakia, and the next stage of rebranding was also initiated on the German markets under which by the end of 2023, there were 100 fuel stations already operating. As a part of development of processing and upstream business, the construction of a strategic investment in the first nitrogen fertilizers production line was finalized and PGNiG Upstream Norway started production from Tommeliten Alpha field. This will provide ORLEN with an additional 0.5 bcm of natural gas annually which will be delivered to Poland via the Baltic pipe.
All in all, we started the process of taking control of the Transitgas Pipeline System, increasing the country's energy security. So the largest investment in domestic gas storage facilities was also launched through the expansion of underground gas storage facility in Wierzchowice as well as regasification capacities in the floating gas terminal plant for 2028 in the bay of the Gdansk. Two modern LNG carriers have already joined ORLEN fleet. ORLEN signed a contract for a construction of a modern oil compressor station in Ketrzyn, which will process 500,000 tons of [ repressed ] and produce 200,000 tons of oil annually for the production of low emission biofuel. Additional agreement was also signed for the purchase of shares in ENERGOP, a pipeline manufacturer among others, for the refining and petrochemical sector. The transaction will increase the potential of ORLEN Group and the implementation of industrial investments in which technologically developed pipelines are a very important element.
I will now move on to the section regarding market environment. So Slide #5. Macro in Q4 was still very volatile, I may say so. So model refining margin decreased quarter-on-quarter due to negative impact of lower diesel, gasoline and HSFO cracks as well as higher gas prices. Diesel cracks decreased by 11% quarter-on-quarter, mainly due to higher supply as a result of completion of maintenance shutdowns in Europe and higher operating capacity of refineries in the Med region decline in demand in Europe and India as well as inventories higher in Ara and U.S. Gasoline trucks decreased by almost 40% quarter-on-quarter mainly due to lower seasonal demand. So that was the end of the driving season and lower exports from Europe to the U.S. and Africa. Differential decreased to minus USD 1 decreased by circa USD 1 per barrel quarter-on-quarter to the level of minus USD 2 per barrel. So this is the premium versus brands due to their reduction of [ euro ] throughput in ORLEN Group below 10% and of course, replacing this with more expensive rates as well as there was a lower differential by 13% quarter-on-quarter.
In Petchem, macro still remains tough. Means low demand for petrochemical products from Europe due to economic slowdown and lack of competitiveness. However, in Q4, we observed an improvement in margins quarter-on-quarter, resulting mainly from cheaper feedstock both NAFTA and [indiscernible] due to lower crude oil price. Brent crude oil price decreased in Q4 by 3% quarter-on-quarter, while natural gas prices increased by 15% quarter-on-quarter on the Polish power exchange as well as TTF prices were higher by more than 25% quarter-on-quarter, mainly due to seasonality and one-off limiting gas supply on the market like, for example, strikes at LNG terminals in Australia or the closure of the largest gas field in Europe, Groningen field in Netherlands. PLN quarter-on-quarter did not have a major impact on operational results.
Now let's move to Slide #6, data regarding GDP and fuel consumption in Q4 comparing to the previous year there were signs of economic recovery in Poland, Slovakia and Hungary. GDP increased in Poland and Hungary translated into higher fuel consumption in this countries by 7% and 8%, respectively, a slight decrease in consumption on other markets. In the coming quarters, we expect economic recovery in Poland and increasing fuel consumption.
Let's move to Slide #8, ORLEN Group financial results. In Q4, as I mentioned at the beginning, we recorded over PLN 98 billion of revenues due to lower sales volumes and lower refining petchem and hydrocarbon quotations. Yearly revenues amounted to PLN 373 billion. So this is the highest historical level. EBITDA LIFO amounted to PLN 11.2 billion and was lower by PLN 5 billion compared to the previous year. That was mainly due to negative impact of lower refining margins and lower differential, lower petrochemical margins, lower margins in upstream, lower volumes effect, lower trade margins and strengthening of polish zloty but also valuation of CO2 contracts, higher variable costs in retail, higher labor costs and lower results in LOTOS Group and Baltic power.
Those negative effects were limited by positive impact of PGNiG Group results, higher fuel and non-fuel margins in retail, hedging, usage of historical inventory layers, lower provision for CO2 emissions and provision reversal on inventories, so as we sold net realizable value. Negative impact of changes in crude oil prices on inventory valuation in Q4 amounted PLN 0.6 billion so the decreased reported EBITDA to the level of PLN 10.5 billion. Financial below EBITDA in Q4 amounted to PLN 1 billion, mainly as a result of positive impact of net FX differences. Net profit in Q4 amounted to PLN 7.3 billion and cumulatively for 12 months of last year, PLN 27.6 billion. Slide #9, EBITDA LIFO split by segment. So here, we see that results were mainly generated by the Gas segment truly paying in terms of refining PLN 0.6 billion decreased by almost PLN 10 billion year-on-year, mainly due to negative macro impact, lower sales volumes, lower result of LOTOS Group, lowest trade margins, higher fixed and labor cost and positive impact of historical inventory layers and provision reversal on inventories to net realizable value. Petchem loss PLN 0.3 billion, decreased by PLN 0.9 billion year-on-year due to negative macro impact, lower sales volumes, lower trade margins and higher fixed and labor costs. Energy loss minus PLN 4.8 billion, a decrease by minus PLN 0.9 billion due to negative impact of macro payments to the Price Difference Payment Funds and lower results of Baltic Power at positive impact of higher sales volumes, higher results of PGNiG due to full consolidation.
So please bear in mind that we have a discrepancy comparing reporting periods in Q4 2022 PGNiG group results were consolidated from November, so it was consolidated only for 2 months. In retail, PLN 600 million comparable results year-on-year. On one hand, we had a positive impact of higher fuel and nonfuel margins as well as higher sales volumes. On the other hand, we have negative impact of higher cost of running fuel stations. Upstream, PLN 0.6 billion, so decreased by PLN 5.7 billion year-on-year due to negative macro impact, lower sales volumes, payments to the Price Difference Payment Funds and higher labor costs. Gas, our shining star PLN 11 billion, higher by PLN 12.5 billion year-on-year as a result of positive impact of lower gas procurement costs, received compensations by PGNiG Obrot Detaliczny from the Price Difference Payment Funds and higher results of PGNiG growth due to full consolidation effect. Corporate functions minus PLN 0.5 billion of higher cost by PLN 0.1 billion due to increase in the scale of ORLEN Group operations.
So now let's move to the details of each segment. Slide #10, we start as usual from the Refining. In Q4, EBITDA LIFO in the Refining segment was PLN 0.6 billion. So a lower result, as I mentioned, by almost PLN 10 billion year-on-year. We see on the graph that there was a negative impact of macro factors at the level of PLN 2.4 billion effect of lower margins on light distillates, middle distillate. We had a lower differential result from the changes in the structure of processed crude oils. We had a strengthening of Polish zloty versus U.S. dollar, and we have a negative impact of CO2 emission valuation content. Those effects were limited by higher margins on heavy fuel oil, hedging effects, lower cost of internal usage as a result of lower crude oil prices and lower CO2 provisions.
A negative volume effect, the level at the range of PLN 2.5 billion, this results from lower sales volumes by 10% year-on-year. Sales of all refining products were lower, except jet fuel, which increased by 14% year-on-year. We see that sales declines were recorded in all of the markets. So in Poland, Czech and Lithuania. Additionally, the change in the structure of processed crude oil so reduction of REBCO that was replaced by more expensive grades had a negative impact on the volume effect. In terms of other factors, a big element, almost minus PLN 5 billion year-on-year. So here, we have a lower result of a lot of those. We have a lower trading margins year-on-year increasing overhead and labor costs partially offset by positive usage of historical inventory layers and inventory write-down.
Then Refining segment operational data. So throughput in Q4 amounted to 9.5 million tonnes. That was 88% utilization. So it means that the throughput was lower by 1.8 billion -- 1.8 million tonnes year-on-year, mainly as a result of consolidation of 70% of throughput of Gdansk refinery in Q4 versus consolidation of 100% throughput in Q4 2022. So this is very, very important when you're comparable results year-on-year. In terms of Plock throughput was lower by 0.3 million tonnes, resulting from shutdowns of Hydrocracking unit and olefins unit. Throughput in Gdansk lowered by 1 million tonnes, as I mentioned, due to different consolidation. So we consolidated in Q4 2023, just 70% of the production because just to remind you, from the beginning of this year, 30% of the Gdansk refinery was sold to Saudi Aramco.
Crude oil throughput in both ORLEN Lietuva and Unipetrol decreased by 0.2 million tonne per year. In terms of fuel yields, we have increased by 5% in domestic refineries and in Lithuania and Czech the fuel yield was at comparable level year-on-year. Sales of refining products decreased by 10% to the level of 8.7 million tonnes.
Let's move to the Petrochemical division. Petchem recorded loss at the level of PLN 0.3 billion, which was lower results by PLN 0.9 billion compared to the previous year. Macro effect lower by PLN 0.2 billion that was mainly the result of lower petrochemical margins and negative impact of valuation of CO2 contracts. On the other hand, we had a positive impact of stronger euro versus U.S. dollar. In terms of volumes negative effect, PLN 0.4 billion as a result of decrease in sales by 14% year-on-year. We recorded lower sales of olefins, PVC, PTA with higher sales of fertilizers and stable sales of polyolefins.
Sales decreased in Poland and the Czechia by 16% and 10%, respectively, with increase in Lithuania by 9%. Other factors visible on the graph, minus PLN 300 million. So this includes lower trading margins, higher overheads and labor costs and negative impact of settlements of CO2 allowances, which was slightly, let's say, offset by positive impact of usage of historical inventory layers. Slide #13, operational data of Petchem segment. So you see in the table that was the lower utilization of majority of petrochemical installations in Q4 comparing year-on-year. That was the result of maintenance shutdowns, but also the adjustment to the weak macro environment. Higher utilization was recorded only in [ Anwil ] fertilizers unit by 34 percentage points year-on-year and in olefin installation in Czechia by 4 pp. Sales volumes in Q4 decreased by 14% to 0.98 million tonnes. We record a lower sales of olefins by 41%, PVC by 55%, PTA minus -- [ 16% ] at higher sales of fertilizers by 30% and stable sales of polyolefins.
As for now, that's also from my side, now I will let Martin to describe other segments. Please go ahead.
Thank you. Moving to Energy. In Q4, we recorded a negative EBITDA of minus PLN 0.8 billion mainly due to worsening of macro environment, one-offs affecting results of Energa Group and some negative contribution of Baltic Power. The impact of the macro environment year-on-year was negative mainly as a result of transactions hedging electricity prices in Energa Group and ORLEN. Additionally, higher cost of network losses with a positive effect of the change in reserves year-on-year for onerous contract and sales branch were recorded. Positive volumes effect results from high production and sales of electricity generated in CCGT Plock and PGNiG Termika were partially limited by higher consumption of natural gas, lower sales of electricity in the Energa Group generated a favorable effect resulting from lower coal consumption.
PGNiG Group had a positive impact on segments results of PLN 0.9 billion year-on-year due to an increase in average heat sales price and higher volumes of generated electricity. Negative impact on segments results, among others, had higher fixed and labor costs, write-offs to the Price Difference Payment Fund, higher cost of transmission and transit fees and consolidation of Baltic Power's results of PLN 0.6 billion. In Q4, ORLEN Group produced 5.3 terawatt hours of electricity, out of which over 60% came from renewables and low emission gas-fired units. Electricity production increased by 36% year-on-year due to higher generation from renewables of Energa Group and cogeneration units of Termika Group as well as contribution of newly acquired wind farms by ORLEN Group. Sales of electricity maintained at similar levels because of higher volumes traded by Energa Group and ORLEN Energa while distribution of electricity increased by 2% year-on-year due to higher use in the majority of tariff groups. Heat sales increased 11% year-on-year despite higher temperatures by 0.5 degrees celsius due to consolidation of PGNiG Termika assets in the whole quarter versus 2 months of 2022.
Moving on to Retail. We generated in Q4 an EBITDA of PLN 633 million and maintained comparable levels year-on-year. Higher fuel and non-fuel margins as well as higher sales volumes year-on-year had a positive impact on results. Fuel margins increased in Germany and Czechia. However, we recorded lower margins on the Polish market. Non-fuel margins were higher in Poland and Germany -- were lower in Czechia. Overall sales volumes increased by 21% year-on-year with gains in all fuel types. Sales increased in all markets, except Lithuania.
The above-mentioned effects were limited by negative impact of higher operating costs of fuel stations due to inflation and 73 new locations year-on-year. The number of fuel stations at the end of Q4 2023 was 3,170. So increase mainly driven by German market due to launch of self-service fuel stations acquired from OMV and in Slovakia, resulting from acquisition of fuel stations from a MOL and the launch of rebranded self-service fuel stations acquired from the local network. Moreover, in Q1 '24, ORLEN finalized purchase of Doppler Energie, the company managing 267 fuel stations in Austria. As a result, ORLEN will be among the 3 largest fuels chains in this country with a 10% share in the retail market.
Market share increased in Czechia, Poland and Slovakia with stable year-on-year share in Germany, Lithuania and Hungary. Number of nonfuel locations increased by 146 year-on-year to 2,605. During the year, number of alternative fuel points increased by 97 and reached 734. Currently, we are the owner of 660 electric car charging stations, 71 CNG and 3 hydrogen stations. The number of ORLEN Paczka locations amounted to more than 10,500.
Moving on to Upstream. Upstream segment posted an EBITDA of PLN 578 million, which was lower by minus PLN 5.7 billion compared to Q4 2022. This is a follow-up of a significant decrease in hydrocarbon prices. TTF gas price was lower by 67% year-on-year, Polish Power Exchange by 58% year-on-year. Meanwhile, crude oil price also dropped by minus 6% year-on-year.
Moreover, the segment's results were negatively affected by write-down on the Price Difference Payment Fund in the amount of minus PLN 3.4 billion in Q4 2023. Right then for the entire 2023 reached PLN 13 billion. The average production of hydrocarbons in ORLEN Group decreased in Q4 by 6.9000 boe per day. Gas production was lower by 0.5000 boe per day. Oil and NGL was higher by 1.6000 boe per day. Lower prices of hydrocarbons had an impact on a weaker PGNiG Group's results. Compared to Q3 2023, production of hydrocarbons increased by 29.4000 boes per day. The strongest increase quarter-on-quarter were recorded in Norway and Poland. It was related mainly to restart of production after maintenance works. Moreover, in Q4 '23, in Norwegian continental shelf we started production from Tommeliten Alpha field.
Total 2P reserves amounted to almost 1.3 billion boes at the end of 2023 where natural gas accounts for 75% while oil and NGLs, 25%. Average gas and oil production amounted to 184.3000 boe per day. In Poland it was 80,000 per day and Norway 82.000 boe per day. In Canada, it was 16.000 boe a day. Natural gas accounts for 72% while oil and NGL to 28% of Q4 production structure. In Q4 2023 Gas segment generated EBITDA of PLN 11 billion, out of which PLN 10.2 billion was generated by trading and PLN 0.8 billion by distribution. Retail tariff was on the level of PLN 517 per megawatt hour until November 20. Following decision of the President of Energy Regulatory Office, retail tariff price was lower to the level of PLN 484 per megawatt hour until the end of 2023. And afterwards, since January 1, '24 to PLN 318 per megawatt hour. Average gas prices for SMEs within gas for business pricing scheme was around PLN 201 per megawatt hour until the end of November. In December as a result of growing prices in the global market, it increased to the level of PLN 263.
Significant impact on segment's results have lower cost of gas due to falling prices on the spot market and in monthly contracts compared to Q4 2022, TTF month-ahead price declined by 67% year-on-year. Average price of all transactions in the Polish Power Exchange including spots and contracts, was PLN 309 per megawatt hour, which is 21% lower year-on-year. Meanwhile, average price of natural gas transferred from upstream to the Gas division was PLN 195 per megawatt hour. In Q4, PGNiG Obrot Detaliczny received compensation from Price Difference Payment Fund in the amount of PLN 5.4 billion. In the entire 2023, compensation amounted to PLN 17.4 billion. ORLEN Group generated EBITDA of PLN 0.8 billion from distribution services, which is around 25% lower year-on-year, mainly as a result of lower results from system balancing.
Total gas sales outside ORLEN group increased by 3% year-on-year, mainly due to higher seasonal demand for power and heat generation as well as slow growth of gas demand within the biggest ORLEN Group's customers from other industries. Sales volumes of PGNiG Obrot Detaliczny dropped by minus 3% year-on-year, among others, due to higher temperaturs in the quarter and hence lower gas consumption for heating. Gas imports to Poland amounted to 42.1 terawatt hours, of which 47% was LNG. Execution prices of sales contracts have maintained a relatively high level comparing to spot market prices, which was a favorable factor for segment's results.
Gas distribution volume in Q4 amounted to 38.5 terawatt hours and was higher by 6% year-on-year despite average temperature in the quarter, higher by 0.5 degree celsius. At the end of December 2023, overall level of stored gas in Poland reached 98% -- 95%. Thank you, and now let's move to cash flow and indebtedness, which will be described by Michal Perlik. Michal?
Thank you, Martin, and good morning, everyone. Starting from cash flow slide, another solid year in terms of cash flow generation. We recorded PLN 6.1 billion of net inflow from operations in 4Q 2023. It would be very high, if not one of negative effects on the working capital increase related mainly to delay in payments of compensation from the compensation accounts to our gas distribution component in the amount of around PLN 4 billion. The payment has been already paid in the first quarter of this year. EBITDA was very positively contributing to net inflow from operations with PLN 11.2 billion negatively also by PLN 0.6 billion LIFO effect, slightly negative impact of combined settlement of deposits [indiscernible] . So we were almost able to cover the whole net outflow from investment by inflow from operations, outflow from investments was minus PLN 7.5 billion in fourth quarter.
Over the whole year 2023, we were able to slightly decrease the net debt by almost PLN 4 billion, mainly thanks to very solid EBITDA results. So PLN 44 billion and the decrease of working capital over the whole months by PLN 9 billion. Thanks to this, where we go to finance the whole CapEx and whole investment program of PLN 32.4 billion. We had a historically high dividend PLN 6.4 billion. Income tax was also a high of PLN 16.6 billion. And on the top of that, we purchased CO2 allowances and property rights of value almost PLN 10 billion.
So moving to the next slide, we can see that we finished last year with very minor debt, net debt PLN 1.8 billion with marginal figure to find the current scale of operation of ORLEN Group. So we are at the level of around zero with net debt covenant. I would just like to recall that our strategic maximum level is 2.5x and bank covenant facility agreement level is 3.5x. So we have -- so plenty of space and very solid, very comfortable liquidity position at the moment. No substantial changes in terms of structure of financing the funding structure, also no changes in terms of ratings. We still keep the highest [indiscernible] is accelerating both from Moody's and Fitch. That's all from my side, and I hand back over to Konrad. Thank you.
So now let's move to the CapEx in last year, so 2023. CapEx in 2023 amounted PLN 32.4 billion, of which almost 80% was spent on development projects. You've got a detailed list of project segment by segment presented on the slide. Compared to the plan, the CapEx was lower by almost PLN 3 billion this comes from some savings postponement of the deadlines and the partial postponement of ours in terms of maintenance shutdowns and the spare parts, we had also some delay from GE resulting on the lack of commissioning of plant section of the construction of CCGT Ostroleka. We also recorded, let's say, exchange rate differences on the investments in Norway, so the difference between what we were planning according to Norwegian krone versus Polish zloty.
So now let's move to Slide #6. So I think that, let's say, the end of the year, it's a good time to summarize synergies effects achieved so far from the merger of ORLEN with LOTOS Group and PGNiG Group. This is completely a new slide that was created for this purpose. We would like to show you that until the end of Q4, we have already with PLN 1.5 billion synergies, including a positive impact on the EBITDA at the level of PLN 500 million and PLN 1 billion at other financial effects. Additional EBITDA was generated in logistics, supply chain management and there was the cost optimization in terms of financial effects, which includes savings on our working capital, savings on financial costs and other financial effects. That was achieved in Upstream Abroad, Oil and Gas trade, IT and purchases. Implementation of the budget because maybe it's worth to mention how we calculate this effect, yes.
So let's say, the PMI post-merger integration is calculated as the sum of the impact on EBITDA and the impact on other financial effects adjusted by the implementation budget of the CapEx and the OpEx required to implement those projects and the implementation budget was already realized synergies was at the level of PLN 50 million. What's very important is our long-term perspective. So we estimate more than PLN 20 billion the net financial effect of synergies in the coming 10 years horizon, so the years 2023, 2032 of which more than half of the synergies will be realized in finance management, logistics, supply chain management and development.
So now let's move to Slide #28. Again, CapEx, but now for this year, so 2024, planned CapEx is at the level of PLN 38.6 billion. This is over PLN 6 billion more than the last year. We plan to spend over 70% of this amount on growth projects that are shown on this slide. We plan to invest the most money in Upstream PLN 7 billion, Petchem PLN 6.2 billion and in Energy segment PLN 5.7 billion. Main investments as you see on the map will be realized in Poland, so around 74% of spending. And in Norway, 40% of spending. So these are our directions. Increase in development spendings will be visible if we are talking about the companies in year-on-year, mainly in Upstream segment, so this reflects the production from fields in Norway, Tommeliten Alpha, Fenris, and Yggdrasi as well as in Petchem segment, which resulted from higher spending on olefin projects in Plock comparing to 2023.
Now let's move to Slide #29, current macro environment. Brent crude oil price lowered 4% quarter-on-quarter, mainly as a result of fears on the global economic recession and increased oil production in U.S. and Angola. Angola, I don't know if you are aware, just decided to leave the OPEC to increase the production. In terms of model refining margin, we record higher level 6% quarter-on-quarter mainly due to positive impact of higher draft on gasoline and HSFO and lower gas prices as negative impact of lower drag on diesel. However, recently, what we observed is a strong increase in track from both diesel and the gasoline. So this is the result of lower fuel imports to Europe as disruption in shipping in the Red Sea and higher transport cost as well as a result of refinery maintenance shutdowns in Europe and U.S. Differential increased by USD 0.8 per barrel quarter-on-quarter to the level of minus USD 1.2 per barrel. So this is the result of lower premium for Arabian light crude oil and higher yield differential comparing quarter-on-quarter. Our crack margins on petrochemical products are lower quarter-on-quarter. Natural gas price on TTF and PPX market drops in Q1 by 20% up to 30%, mainly due to higher flows from Norwegian continental shelf and also expected increase of LNG regasification capacity in Europe and in Greece and Germany. Gas storage facilities in the EU are field at almost 70% of capacity.
Let's move to Slide #30, the last slide in our presentation so market outlook for this year. In 2024, we expect average Brent crude oil price at the level of USD 82 per barrel. So this is a comparable level year-on-year. So growth in the production outside OpEx we'll continue to surplus increase in global demand for oil. Of course, OpEx has instruments to keep oil prices above USD 80 per barrel. So probably we may expect a reduce of oil production. In terms of refining margin, we are expecting USD 12 per barrel as the yearly average so lower margin year-on-year. This is the result, first of all, quite high base from 2023. Please bear in mind that the margins in 2023 achieved at a yearly level of USD 17 per barrel.
And secondly, this is the result of planned commissioning of new capacities, refining capacities worldwide. I'm talking about Nigeria and Mexico. In terms of differential, we are expecting a premium at the level of USD 0.6 per barrel. Petrochemical margins should improve slightly. However, the first improvement probably will be observed in the second half of the year. In terms of gas prices and electricity prices, we are expecting lower gas prices to approximately 170 megawatts per hour in terms of electricity prices, PLN 450. On a full year basis, comparing to year-on-year, we expect increase in fuel sales in Poland, as I mentioned at the beginning, as a result of forecasted improvement in the macro situation with lower fuel on other fuel sales on other markets. We assume increase in gas consumption year-on-year due to lower prices of commodity and increased demand from industry and we also forecast stabilization of domestic electricity consumption comparing year-on-year.
In the regulatory environment, what's important to underline definitely is got write-down to the Price Difference Payment Fund. So this is in the area of natural gas extraction in Poland minus PLN 16.5 billion. So this will be a negative impact on Upstream segment. It will be split equally in 6 installments, so it will be paid in the first half of 2024. On the other hand, we have a compensation in the area of gas sales and the distribution in Poland. So this results from setting the maximum price below the tariff, which will have a positive impact on gas segment results at the level of up to PLN 5 billion. Higher national index targets. So it means higher costs due to increase in the ratio. However, we still are under reduced ratio because we fulfill all the necessary requirements. So instead of 9.1%, reduced ratio for ORLEN is 6.6%. And from the beginning of this year, probably most of you recall, the change in the fuel station. So we implement gasoline with the high-end bioethanol content so gasoline E10 -- so this is available on the fewer stations in Poland from the beginning of the year. So that's all from my side. Thank you very much for the patience and attention, and please feel free to ask questions.
[Operator Instructions]. We have already a couple of people raising hands, so we'll move to [indiscernible].
[indiscernible]. I have a few questions, if I may. The first question is about working capital buildup into the fourth quarter. Could you please say again where did that come from? And is it going to be fully reversed in the first quarter? And how about the other parts of working capital as well in the first quarter? What would you expect the working capital change would be in the first quarter? And the second question is about your CapEx plans of those PLN 39 billion that you said on the presentation that you're going to spend this year, how much of that is already committed?
And are there any moving parts that the new board that is going to be appointed soon can change after revising those plants? And specifically on the Upstream CapEx, you said in the presentation that you're going to spend PLN 7 billion. Does that number include any M&A spending? Or is this purely organic? And third question, if I may, capacity utilization ratio in refineries in the first quarter '24 do you plan any maintenance and stoppages as well into the first quarter. And yes, maybe that's it for the moment being.
Konrad Wlodarczyk speaking. So maybe I will take the questions about the CapEx and capacity utilization ratio in the refining. So intent of CapEx plans for 2024. Yes, I confirmed almost PLN 39 billion. This is the CapEx that we have budgeted for this year. So I assume that this CapEx is already committed to be spent this year. Of course, we will have a new Management Board soon. So probably the new Management Board will carefully go through all the projects and take this decision if there is a business rationale to continue them or not. However, CapEx for this year I may say PLN 39 billion is fully committed. This CapEx does not include M&A. So this is our usual approach, we do not include kind of M&A in our CapEx forecast. You asked about the upstream CapEx. So Upstream CapEx PLN 7 billion is just reflecting that production from the fields in Norway so Tommeliten Alpha as I mentioned,Fenris and Yggdrasil area. In terms of capacity utilization. So if you look on 2024 generally, I would say that the throughput will be on the similar level as we had in 2023. So roughly speaking, 90% of utilization ratio, we will have a higher throughput inflow mainly due to the fact that we will have a lower scope of maintenance shutdowns comparing year-on-year. We will have a comparable throughput in Gdansk. There are no major shutdowns of units at lower throughputs in ORLEN Lietuva, so there is still quite low demand for fuel but there are no, let's say, significant maintenance shutdowns. So let's say, the throughput will be adjusted to the fuel demand, I may say so. And in terms of ORLEN Unipetrol that will be a cyclical maintenance shutdown of refineries in Lithuania. So some of those projects will start in Q1. So if we are talking about Q1 in itself, we are expecting to process 9.5 million tonnes of crude oil so 90% utilization ratio comparable quarter-on-quarter. In Plock, the utilization ratio will be slightly above 90%. So we will have maintenance shutdowns on the refining side I mean, [ Asia ] oil, which is still out of order after the maintenance shutdown HDS 2 or 3 weeks and CCGT Plock 1 week. We have also some maintenance shutdowns from the Petrochemical side. So PTA will be out of order for 1 week.
In terms of Gdansk, as I said, no major maintenance shutdown, so we were running full capacities, 1.8 million tonnes. In terms of Unipetrol and ORLEN Lietuva you may assume that capacity utilization will be at the level of 80%. In Unipetrol, we have a maintenance shutdown of hydrocracking 12 weeks, Visbreaking 3 weeks, CDU, [indiscernible] for 2 weeks. And in terms of ORLEN Group, our Vacuum Flasher and the Visbreaking will be out of order for 2 weeks. So just to summarize, in Q1, you should expect, let's say, comparable throughput quarter-on-quarter 9.5 million tonnes. So now I will give the floor to Michal to elaborate about the working capital view.
Thank you, Konrad, and thank you for the question about working capital. And yes, your understanding is correct. We have a discussion in working capital in 4Q the discussions related to payment -- actually lack of payments from the compensation fund which is, as you probably remember, aim to cover the fixed price for sales of electricity and gas in our cases, predominantly gas compensations that we are talking here about. This lack of payment is around PLN 4 billion. So what we should get last year and the payment was postponed until first quarter of this year. So it has negatively affected the receivables, which you can see we have a substantial increase over the last quarter, you can see it in the cash flow statement -- in the financial statement. And yes, we have already received the compensations, meaning that the position has been reversed, and it has now positive impact on the cash.
Next, we will move to Lukasz Prokopiuk.
I have a question on the revaluation of own use contracts at amount of PLN 2.5 billion. And could you explain why you treat this as a one-off? And can you confirm that it was booked as hedging? That's the first question.
Would you like me to start with answering this?
Yes, let's go one by one. We may.
So starting from the last part of your question, it's not a hedging activity. It's accounting, I would say activity or adjustments [indiscernible] staying. As you know, following the merger with LOTOS and then with PGNiG we were obliged to perform PPA exercise or just price allocation, meaning that we are obliged by the international standards to revaluate all the assets and with the vehicles to core values. PGNiG had a massive open position on their own used contracts mainly for the sales and purchase of gas on the purchase -- on the power purchase exchange. And you remember that when we were purchasing we're taking forward PGNiG where it was during the period of high volatility of the cost prices, meaning that contracts that I'm talking about, they were deeply in the money or out of the money for the moment of the merger, meaning that we we're obliged to adjust the book value of the contract to their value.
And it was influencing the results on the PPI recalculation which was reflected in the result of 2022. In the following quarters, we are recognizing this effect on the settlement of the specific contracts, either in the income or in the cost of goods sold, depending whether it's a positive or negative effect. For the whole year 2023, this was PLN 8.3 billion. And you correctly mentioned that for the last quarter, it was PLN 2.5 billion. So it's actually a reverse of the accounting movement of the settlement that we did in 2022 and it should be highlighted that this is pure accounting, let's say, exercise noncash activity -- noncash accounting adjustment, noncash interest.
Okay. So it's both gross margin, yes?
Gross margin yes, correct. It's booking gross margins.
Okay. So when I look at the Page 34 and the hedging in the gas segment of PLN 1.6 million more or less, it's not the same thing, yes?
No, no, no. It's related to real hedging activity on the [indiscernible] activity.
Okay. Second question, could you please tell us what is the share of Arabian crude in your throughput in the fourth quarter? And can you tell us is it possible to lower the consumption of Arabian crude or if it's not possible according to your contracts?
Okay. So if you look on the share of crude oil, so till 10% is REBCO. So just to remind you, REBCO is still processing our Czech refineries, 40% is Arabian Light. There is no aim to decrease, of course, depending on the prices. We have some, let's say, possibilities to decrease or increase the share of exact crude oils between 20% up to 30% is still [indiscernible] . So this is Norwegian crude oil that we are purchasing based on the contract that we signed with BP for 6 million tonnes of crude oil delivered in the mid of last year. And we have around 10% of WTI and 10% is CPC and Arabian Light together.
Because when I look at the prices of crude oil. I get the impression that the Arabian crudes is the most expensive. And the question is, can you based on markets, I don't know, [indiscernible], can you lower the consumption? Is it, I don't know, good for you? Or can you comment on it?
[indiscernible] here. Excluded the Arabian fuel is more expensive, but at the same time, the share of products that we get compared in this Group especially gasoline and diesel is by a few percentage points higher than the other case and this is one answer. And answering your previous question on decreasing like [indiscernible] share. As [indiscernible] we need like a base [ group ] for our refineries. We can make additional gains, but we need a base to keep stable processing of the crude. And in this case, we need a [indiscernible] which is available in other high amount and give our part of the water. So taking into consideration that we have no [indiscernible], we need to have other sources of crudes, which is reliable and able to set a huge amounts of base.
Also referring to, let's say, to the contract with Saudi Aramco, please bear in mind that, let's say, the quotations that you observe is not the real value that we have. Yes, we have a long-term contract with Saudi. This is a trustful partner. And also, please bear in mind that this is the long-term contract, and this gives us, let's say, flexibility to deliver crude oil to any refinery when there is a need, yes. So we had a possibility to decrease slightly, but I wouldn't say it will go down below 30%. And just to, let's say, responses to also the case of the price of the crude oil. What I see right now, the average rate like WTI are very light, are more expensive than Arabian Light and Arabian Light price for January is comparable to the Norwegian ones.
Okay. So summing up you don't think it will fall because you need a reliable crude, which replaces REBCO to generalize? Okay. Last question. Could you tell us what was the EBITDA of exLOTOS refining assets in the fourth quarter, please?
If you look generally of exLOTOS assets, they generated, let's say, positive EBITDA at the level of PLN 0.1 billion.
In the Refining segment, yes, or you're talking about?
This is the total. So this is Refining as well as Upstream.
Now we can move to Anna Kishmariya.
I have 2 questions. First, as you mentioned, the Board will be reviewing the projects and project pipeline. Is there any time line when we should expect some kind of updates for the strategy or revisited plans? And the second question would be the realized free cash flow, at least for my understanding, does not provide for the dividend above the base level. Is it the assumption right? Or given the strong balance sheet, there could be some surprises. Any color on that would be helpful.
Robert Sleszynski speaking. So what we are doing right now, we'll go to our Management Board and the Supervisory Board. We are providing information. And altogether, we are reviewing the portfolio of our assets. So that's first. Second, we have now the strategy last year actually, and our approach is that every 2 years, we will be thinking about updating it, given the surrounding. But as of today, I would say that the analysis are ongoing, but I wouldn't expect significant changes in the strategy going forward.
Again, so I'll try to talk with your question on the dividend. So generally, our calculation now bringing us to the similar conclusion that you have presented. Yes, it looks that we will most likely go towards the base dividend based of more than 2 year cash flow, we don't see free cash flow big enough to speak about extraordinary view on an operable dividend, especially coming in mind the CapEx plans for the next year. However, please bear in mind that full year results are still subject of the audit process. Something can change, but I would rather assume that we stay at base [indiscernible] based on the current results.
So just to remind you, the base level for this year recording to our, let's say, progressive dividend policy is PLN 4.15 per share.
Now we can move to Tamas Pletser.
Two questions on my side. First, on Page 10, you mentioned this almost PLN 5 billion decline in the refining EBITDA. And you basically said during the conference call that this is due to the lower trade margins, among other things. Am I correct with that assumption that this is mostly due to the lower inland premium. You would basically use when you price your fuel products and this practice that you basically lowered this premium before October. So this fact has it reversed. Do you plan to increase this inland premium, how much power do we have to do that? That's my first question.
And my second question would be also on your presentation. I think you mentioned the payment and the receive of money to the price difference one -- the difference, I think you mentioned is like almost PLN 10 billion. Am I -- do I understand this correctly that in 2024, you expect roughly PLN 10 billion more payment in to this fund than what you receive.
[indiscernible] speaking. I will take the first question. Yes, this is related partially to the inland premium. So in terms of year-on-year, you may say that out of this almost PLN 5 billion, PLN 2.6 billion is a lower trading margins year-on-year. However, I wouldn't say that the margins were very low in Q4. I would say that the base was extremely high. So Q4 2022 years. Please bear in mind that, let's say, when the war broke up, there was a lot of final products available on the market. So inland premium increased significantly from the period of second quarter 2022, reaching, let's say, maximum level in Q4 2022.
However, from the beginning of 2023 start from Q1 2023, the level of inland premium started to normalize and in Q4, we may say so that we are at the level in terms of inland premium comparing to the pre-war in Ukraine. I don't know if you are satisfied with my answer. However, let's say, the inland premiums are already at normalized level pre-war. So the drop year-on-year at the level of minus PLN 2.6 billion resulted mainly from the very high base that was not observed in the history previously.
And the terms of the payment to the Price Difference Payment Funds coming from our Upstream, Polish Gas Upstream. The current relation is that the company is large today PLN 15.5 billion fixed contribution to the payment fund. So it will be paid in 6 even tranches, divided into to show into the first half results as a cost of the segment. While on the other hand, we are targeting up to PLN 5 billion of possible compensation that may come from the Price Difference Payment Funds to our tariff business, right? So this includes gas household clients, distribution services, energy sales and so on. So basically, we have different situation that we had in 2023, when we contributed to the Price Difference Payment Funds with the amount of roughly PLN 12 billion for different Polish Upstream. And then we received more than we put into the fund in the forms of compensation. So this is a significant change in the way the mechanism works for 2024 compared to 2022.
And maybe just to add on the top of what [indiscernible] mentioned, to make sure that we have all the full understanding of the mechanism, the compensation that are granted to our companies are fully cover the loss on the sales of gas and electricity to the customer. They are just compensating the loss of sales. So the net effect, if you want to understand the net effect on our results for the whole year is actually what we are paying to the contribution funds. So the negative net effect will be PLN 15.4 billion.
Okay. So we have still Lukasz Prokopiuk. Lukasz, would you like to ask a question?
No, I think I asked all my questions for now. Thank you.
Okay. There are no raised hands in our queue. [Operator Instructions]. We'll now wait that there is someone wanted to join the queue. Okay. So with no further questions coming from the participants, we may now conclude the conference call.
Yes. So thank you very much for attending the conference call. Thank you very much for the questions. I hope that we review as much as we could, and you are satisfied with the answers and what I can say. Have a nice day. Take care. Bye.