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Polskie Gornictwo shares gain on Norway gas, oil plan, earnings

Polskie Gornictwo Naftowe i Gazownictwo SA shares rose the most in a month after the Polish gas monopoly said Q4 profit jumped by a third and announced plans to drill for gas and oil in Norway.

The company will pay $360 million for 15% stakes in drilling licenses in the Nordic country, Polskie Gornictwo said in a statement today. The Warsaw-based company plans to invest $600 million to develop the two fields, starting extraction in 2011. „It's the company's first big international expansion, and it looks like this is just the beginning,” said Flawiusz Pawluk, analyst at Bank Zachodni WBK in Warsaw. The shares were up 2.9% to 3.94 zloty at 12:23 p.m. in Warsaw, the biggest gain since January 30. The benchmark WIG20 index was up 0.9%. Polskie Gornictwo wants to diversify away from the former Soviet Union, which provides about two-thirds of the gas Poles consume, to secure supplies after Russia froze some energy shipments to neighboring countries during the past two years. The Norwegian fields have estimated natural gas reserves equal to about three times Polskie Gornictwo's 2006 total sales. Net income at the company rose 30% to 365.6 million zloty ($124 million) for the three months ended December 31 from 282.3 million zloty a year earlier. The share of higher-margin domestic gas in sales increased and the company booked a net tax return. The median estimate of seven analysts polled by Bloomberg News put profit at 237 million zloty.

A higher proportion of domestically produced gas, which is cheaper than imports, helped cushion the effect of Poland's warmest winter in 200 years, according to analysts. Because prices are fixed, sales of this gas are more profitable. The company booked a net gain on tax of 68.4 million zloty, compared with a net payment of 24.6 million zloty a year earlier. That helped bolster net income even as earnings before interest and tax dropped 42% to 218.1 million zloty. Sales advanced 5% to 4.24 billion zloty after Poland's regulator allowed the company to raise prices twice in 2006. The median estimate called for sales of 4.45 billion zloty. Polskie Gornictwo expects the margin on gas sales to widen in the Q1, because it will sell stored fuel, which is cheaper than imported gas, the company said in a statement. The price at which the company sells gas is currently 11% less than what it pays for imported fuel, it added. Polskie Gornictwo sold 13.6 billion cubic meters of gas last year to domestic customers. The Norwegian fields have an estimated total of 35.8 billion cubic meters of gas, 18.3 million cubic meters of oil and 5.8 million tons of natural gas liquids. (Bloomberg)