The ORLEN Group applies cash flow and fair value hedge accounting.
Cash flow hedge accounting concerns:
Fair value hedge accounting concerns:
Currently, the sources of ineffectiveness in case of hedge accounting for currency risk is the difference between the maturity date for hedging instrument, falling on the last business days of the M-1 month and maturity of the hedged item, where the revenues from sale of petrochemical products are realized in the first consecutive days of the given M month .
However, in case of commodity risk, sources of ineffectiveness result from the risk components designated for the hedged item, which are a part of the probable planned future purchase of oil and hedging instruments based solely on commodity indices of refinery products sold.
There is partially natural hedging for USD/PLN exchange rate, as revenues from sales of products depending on USD exchange rate are offset by the cost of buying crude oil in the same currency. Due to the fact that PKN ORLEN has a long position in EUR and the relatively low interest rates for EUR (as compared to PLN rates), it was considered reasonable to strive for a situation in which the Group has debt obligations in foreign currency (currency conversion debt from PLN to debt in EUR through the execution of currency interest rate swaps transactions).
Information on hedging instruments – maturity structure
2019
| Risk type / type of instrument | Unit of measure | up to 1 year | above 1 to 3 years |
above 3 to 5 years |
above 5 years |
|---|---|---|---|---|---|
| Cash flow hedge | |||||
| Foreign exchange risk | |||||
| Currency forwards -long position hedge (buy) | |||||
| Nominal value | EUR | 460,000,000 | 910,000,000 | 395,000,000 | – |
| Average exchange rate EUR/CZK | 26.68 | 27.15 | 27.3 | – | |
| Nominal value | EUR | 47,000,000 | 10,000,000 | 28,081,676 | 1,532,625 |
| Average exchange rate EUR/PLN | 4.4 | 4.61 | 4.73 | 4.76 | |
| Nominal value | USD | 15,979,876 | 2,026,170 | – | – |
| Average exchange rate USD/PLN | 3.61 | 3.93 | – | – | |
| Currency forwards – short position hedge (sell) | |||||
| Nominal value | EUR | 409,000,000 | 816,000,000 | 384,000,000 | – |
| Average exchange rate EUR/PLN | 4.52 | 4.6 | 4.69 | – | |
| Commodity risk | |||||
| Commodity swaps – future revenues hedge (sell) | |||||
| Petrol | |||||
| Volume | MT | 41,000 | – | – | – |
| Average price | 603.67 | – | – | – | |
| Diesel | |||||
| Volume | MT | 101,901 | – | – | – |
| Average price | 565.13 | – | – | – | |
| Crude oil | |||||
| Volume | BBL | 2,065,000 | – | – | – |
| Average price | 57.05 | – | – | – | |
| Aviation fuel | |||||
| Volume | MT | 4,000 | – | – | – |
| Average price | 616.39 | – | |||
| Commodity swaps – inventories (buy) | |||||
| Petrol | |||||
| Volume | MT | 8,000 | – | – | – |
| Average price | 599 | – | – | – | |
| Commodity swaps – future manufacturing costs hedge (buy) | |||||
| Diesel | |||||
| Volume | MT | 24,000 | – | – | – |
| Average price | 569.52 | – | – | – | |
| Fair value hedge | |||||
| Commodity risk | |||||
| Commodity swaps – future revenues hedge (buy) | |||||
| Heating oil | |||||
| Volume | MT | 43,793 | – | – | – |
| Average price | 260.85 | – | – | – | |
| Crude oil | |||||
| Volume | BBL | 141,750 | 36,130 | – | – |
| Average price | 57.02 | 56.08 | – | – | |
| Commodity swaps – future revenues hedge (sell) | |||||
| Heating oil | |||||
| Volume | MT | 4,379 | – | – | – |
| Average price | 580.92 | – | – | – | |
2018
| Risk type / type of instrument | Unit of measure | up to 1 year | above 1 to 3 years |
above 3 to 5 years |
|---|---|---|---|---|
| Cash flow hedge | ||||
| Foreign exchange risk | ||||
| Currency forwards -long position hedge (buy) | ||||
| Nominal value | EUR | 600,000,000 | 830,000,000 | 455,000,000 |
| Average exchange rate EUR/CZK | 26.57 | 26.83 | 27.28 | |
| Nominal value | USD | 21,237,178 | 12,992,248 | – |
| Average exchange rate USD/PLN | 3.57 | 3.56 | – | |
| Currency forwards – short position hedge (sell) | ||||
| Nominal value | USD | 1,205,565 | – | – |
| Average exchange rate USD/CZK | 22.68 | – | – | |
| Nominal value | EUR | 495,000,000 | 600,000,000 | – |
| Average exchange rate EUR/PLN | 4.64 | 4.57 | – | |
| Commodity risk | ||||
| Commodity swaps – future revenues hedge (sell) | ||||
| Petrol | ||||
| Volume | MT | 15,000 | – | – |
| Average price | 725.76 | – | – | |
| Diesel | ||||
| Volume | MT | 27,100 | – | – |
| Average price | 661.7 | – | – | |
| Crude oil | ||||
| Volume | BBL | 8,148,400 | – | – |
| Average price | 61.4 | – | – | |
| Commodity swaps – inventories (buy) | ||||
| Crude oil | ||||
| Volume | 3,813,200 | – | – | |
| Average price | 59.98 | – | – | |
| Commodity swaps – future manufacturing costs hedge (buy) | ||||
| Crude oil | ||||
| Volume | BBL | 996,000 | – | – |
| Average price | 54.89 | – | – | |
| Fair value hedge | ||||
| Commodity risk | ||||
| Commodity swaps – future revenues hedge (buy) | ||||
| Heating oil | ||||
| Volume | MT | 47,812 | 43,793 | – |
| Average price | 300.47 | 260.85 | – | |
| Diesel | ||||
| Volume | MT | 411 | – | – |
| Average price | 625.54 | – | – | |
| Crude oil | ||||
| Volume | BBL | 181,250 | 72,040 | – |
| Average price | 59.76 | 57.09 | – | |
| Jet | ||||
| Volume | MT | 46,000 | – | – |
| Average price | 656.31 | – | – | |
| Commodity swaps – future revenues hedge (sell) | ||||
| Diesel | ||||
| Volume | MT | 4,371 | 4,379 | – |
| Average price | 571.57 | 580.91 | – | |
Planned realization date of hedged cash flow and fair value which will be recognised in the profit or loss
| 31/12/2019 | 31/12/2018 | |
| Currency operating exposure | 2020-2025 | 2019-2022 |
| Commodity risk exposure | 2020-2021 | 2018-2020 |
Hedge accounting effects on financial situation and results
2019
| Link type / risk type / type of instrument |
Buy (B) / Sell (S) |
Hedging strategies within the cash flow hedge | Unit of measure | Nominal value / volume 31/12/2019 |
Assets 31/12/2019 |
Liabilities 31/12/2019 |
Changes in fair value (as basis for determining an ineffective part in a given period) |
|---|---|---|---|---|---|---|---|
| Cash flow hedge | |||||||
| Foreign exchange risk | |||||||
| FX_EUR.PLN | S | sales of goods denominated in foreign currencies/indexed to foreign currencies | EUR | 1,695,614,301 | 277 | – | 74 |
| FX_EUR.CZK | S | EUR | 1,765,000,000 | 180 | 1 | 35 | |
| FX_USD.PLN | B | deliveries for purchases denominated in foreign currency or indexed to exchange rate of foreign currency | USD | 18,006,046 | 3 | – | (2) |
| 460 | 1 | 107 | |||||
| Commodity risk | |||||||
| Crude oil | S | time mismatch on crude oil purchases | BBL | 2,065,000 | – | 64 | (308) |
| Crude oil | B | BBL | – | – | – | 103 | |
| Petrol | S | oversize inventories hedge | MT | 41,000 | 1 | 1 | (12) |
| Petrol | B | oversize inventories hedge | MT | 8,000 | – | – | – |
| Diesel | B | oversize inventories hedge | MT | 24,000 | 4 | – | 4 |
| Diesel | S | crack margin hedge, oversize inventories hedge | MT | 101,901 | – | 16 | (32) |
| Aviation fuel | S | oversize inventories hedge | MT | 4,000 | – | 1 | (1) |
| 5 | 82 | (246) | |||||
| 465 | 83 | (139) | |||||
| Fair value hedge | |||||||
| Commodity risk | |||||||
| Crude oil | B | bitumen sale at fixed price | BBL | 177,880 | 3 | – | 7 |
| Heating oil | S | bitumen sale at fixed price | MT | 4,379 | – | – | (2) |
| Heating oil | B | bitumen sale at fixed price | MT | 43,793 | 1 | 4 | 4 |
| Jet | B | JET fuel sale at fixed price | MT | – | – | – | 13 |
| 4 | 4 | 22 | |||||
| 469 | 87 | (117) | |||||
Carrying amount was recognised in statement of financial position in Derivatives and other assets and liabilities
2018
| Link type / risk type / type of instrument |
Buy (B) / Sell (S) |
Hedging strategies within the cash flow hedge | Unit of measure | Nominal value / volume 31/12/2018 |
Assets 31/12/2018 |
Liabilities 31/12/2018 |
Changes in fair value (as basis for determining an ineffective part in a given period) |
|---|---|---|---|---|---|---|---|
| Cash flow hedge | |||||||
| Foreign exchange risk | |||||||
| FX_EUR.PLN | S | sales of goods denominated in foreign currencies/indexed to foreign currencies | EUR | 1,095,000,000 | 203 | – | (112) |
| FX_EUR.CZK | S | EUR | 1,885,000,000 | 144 | – | (70) | |
| FX_USD.PLN | B | USD | 34,229,425 | 5 | – | 13 | |
| FX_USD/CZK | B | USD | 1,205,565 | – | – | – | |
| 352 | – | (169) | |||||
| Commodity risk | |||||||
| Crude oil | S | time mismatch on crude oil purchases | BBL | 8,148,400 | 243 | – | 299 |
| Crude oil | B | BBL | 4,809,200 | 3 | 105 | (141) | |
| Petrol | S | oversize inventories hedge | MT | 15,000 | 12 | – | 17 |
| Petrol | B | oversize inventories hedge | MT | – | – | – | (5) |
| Diesel | B | oversize inventories hedge | MT | – | – | – | (3) |
| Diesel | S | crack margin hedge, oversize inventories hedge | MT | 27,100 | 16 | – | 50 |
| 274 | 105 | 217 | |||||
| 626 | 105 | 48 | |||||
| Fair value hedge | |||||||
| Commodity risk | |||||||
| Crude oil | B | bitumen sale at fixed price | BBL | 253,290 | – | 4 | (4) |
| Heating oil | B | bitumen sale at fixed price | MT | 91,605 | 2 | 8 | (6) |
| Diesel | S | bitumen sale at fixed price | MT | 9,161 | 2 | – | 2 |
| Jet | B | JET fuel sale at fixed price | MT | 46,000 | – | 14 | (14) |
| 4 | 26 | (22) | |||||
| 630 | 131 | 26 | |||||
Carrying amount was recognised in statement of financial position in Derivatives and other assets and liabilities
Cash flow hedge
2019
| Risk type / position type | Changes in fair value of the hedged item (as basis for determining an ineffective part in a given period) | Hedging reserve (gross value) for relationships remains in hedge accounting |
|---|---|---|
| Cash flow hedge | ||
| Foreign exchange risk (EUR) | ||
| Future sales revenues | (87) | 55 |
| Foreign exchange risk (USD) | ||
| Future manufacturing costs | 2 | 4 |
| Foreign exchange risk (CZK) | ||
| Future sales revenues | – | 239 |
| (85) | 298 | |
| Commodity risk | ||
| Inventories | (93) | – |
| Future sales revenues | 212 | (40) |
| Future manufacturing costs | (5) | – |
| 114 | (40) | |
| 29 | 258 |
2018
| Risk type / position type | Changes in fair value of the hedged item (as basis for determining an ineffective part in a given period) | Hedging reserve (gross value) for relationships remains in hedge accounting |
|---|---|---|
| Foreign exchange risk (EUR) | ||
| Future sales revenues | 172 | 316 |
| Foreign exchange risk (USD) | ||
| Future manufacturing costs | (4) | 5 |
| 168 | 321 | |
| Commodity risk | ||
| Inventories | 102 | (98) |
| Future sales revenues | (265) | 257 |
| (163) | 159 | |
| 5 | 480 |
Fair value hedge
2019
| Risk type / position type | Accumulated balance sheet adjustment due to fair value | Item in statement of financial position in which carrying amount was recognised | Change in value of hedged item adjustment in a given period | Changes in fair value (as basis for determining an ineffective part in a given period) | Difference between profit or loss due to hedge on hedging instrument and hedged item | |
|---|---|---|---|---|---|---|
| Assets | Liabilities | |||||
| Commodity risk | ||||||
| Future sales revenues | 4 | 4 | Derivatives and other assets and liabilities | (21) | 22 | 1 |
2018
| Risk type / position type | Accumulated balance sheet adjustment due to fair value | Item in statement of financial position in which carrying amount was recognised | Change in value of hedged item adjustment in a given period | Changes in fair value (as basis for determining an ineffective part in a given period) | Difference between profit or loss due to hedge on hedging instrument and hedged item | |
|---|---|---|---|---|---|---|
| Assets | Liabilities | |||||
| Commodity risk | ||||||
| Future sales revenues | 25 | 4 | Derivatives and other assets and liabilities | 21 | (22) | (1) |
Impact of cash flow hedge accounting on the statement of profit or loss and other comprehensive income
2019
| Risk type / position type | Profits or losses from hedge for the reporting period recognised in other comprehensive income | Ineffectiveness of hedge recognized in profit or loss in the period | Item in the statement, where ineffectiveness of hedge was recognised | Amount reclassified from other comprehensive income to profit or loss as adjustment due to reclassification, because: | |
|---|---|---|---|---|---|
| Implementation of hedged item in the period (continued relationships) | Item in profit or loss, that includes reclassification adjustment | ||||
| Foreign exchange risk (EUR/PLN) | |||||
| currency forwards | (4) | – | 84 | Sales revenues | |
| currency forwards | – | – | – | Manufacturing costs (operational) | |
| currency forwards | 115 | – | 167 | Other operating income/expenses | |
| Foreign exchange risk (USD/PLN) | |||||
| currency forwards | (1) | – | – | Manufacturing costs (operational) | |
| currency forwards | (1) | – | – | Other operating income/expenses | |
| 109 | – | 251 | |||
| Commodity risk | |||||
| commodity swaps | 102 | 2 | Other operating income and costs | 130 | Inventories |
| commodity swaps | – | – | 36 | Manufacturing costs (operational) | |
| commodity swaps | (260) | (10) | Other operating income and costs | (77) | Sales revenues |
| (158) | (8) | 89 | |||
| (49) | (8) | 340 | |||
In other comprehensive income related to gross hedging reserve in the amount of PLN (33) million, the Group recognises profir or loss in the amount of PLN (49) million recognised in the 12 month period of 2019 and settled derivatives awaiting hedged item in the amount of PLN 16 million, including PLN 32 million from 2019 and PLN (16) million settled from the previous year.
2018
| Risk type / position type | Profits or losses from hedge for the reporting period recognised in other comprehensive income | Ineffectiveness of hedge recognized in profit or loss in the period | Item in the statement, where ineffectiveness of hedge was recognised | Amount reclassified from other comprehensive income to profit or loss as adjustment due to reclassification, because: | |
|---|---|---|---|---|---|
| Implementation of hedged item in the period (continued relationships) | Item in profit or loss, that includes reclassification adjustment | ||||
| Foreign exchange risk (EUR/PLN) | |||||
| currency forwards | (281) | – | (179) | Sales revenues | |
| currency forwards | 98 | – | (15) | Other operating income/expenses | |
| Foreign exchange risk (USD/PLN) | |||||
| currency forwards | 12 | – | 1 | Manufacturing costs (operational) | |
| (171) | – | (193) | |||
| Commodity risk | |||||
| commodity swaps | 108 | 2 | Other operating income and costs | (67) | Inventories |
| commodity swaps | (20) | (8) | Other operating income and costs | (22) | Manufacturing costs (operational) |
| commodity swaps | 133 | 4 | Other operating income and costs | 269 | Sales revenues |
| 221 | (2) | 180 | |||
| 50 | (2) | (13) | |||
Reconciliation of equity from hedge accounting
2019
| Hedging reserve by | ||||
| Effective part of change in fair value | Effective part due to settlement of instruments | Cost of hedging related to occurrence of transaction | Total | |
| Foreign exchange risk | ||||
| 01/01/2019 | 298 | 6 | 32 | 336 |
| Cash flow hedge | – | 10 | 115 | 125 |
| Impact of valuation of hedging transactions (effective part) | 84 | – | 260 | 344 |
| Reclassification to profit or loss in connection with realization of hedged item, incl: | (84) | (6) | (161) | (251) |
| reclassification of instruments from the previous year – no hedged item | – | (6) | (10) | (16) |
| Instruments for settlement | – | 16 | 16 | 32 |
| 31/12/2019 | 298 | 16 | 147 | 461 |
| Commodity risk | ||||
| 01/01/2019 | 118 | – | – | 118 |
| Cash flow hedge | (158) | – | – | (158) |
| Impact of valuation of hedging transactions (effective part) | (33) | – | n/a | (33) |
| Reclassification to profit or loss in connection with realization of hedged item | (89) | – | n/a | (89) |
| Settlement of ineffective part | (36) | – | n/a | (36) |
| 31/12/2019 | (40) | – | – | (40) |
| Hedging reserve, gross 01/01/2019 | 416 | 6 | 32 | 454 |
| Deferred tax from hedging instruments settlement and valuation | (86) | (1) | (6) | (93) |
| Hedging reserve, net 01/01/2019 | 330 | 5 | 26 | 361 |
| Hedging reserve, gross 31/12/2019 | 258 | 16 | 147 | 421 |
| Deferred tax from hedging instruments settlement and valuation | (62) | (3) | (28) | (93) |
| Hedging reserve, net 31/12/2019 | 196 | 13 | 119 | 328 |
2018
| Hedging reserve by | ||||
|---|---|---|---|---|
| Effective part of change in fair value | Effective part due to settlement of instruments | Cost of hedging related to occurrence of transaction | Total | |
| Foreign exchange risk | ||||
| 01/01/2018 | 519 | – | – | 519 |
| Cash flow hedge | (198) | 6 | 32 | (160) |
| Impact of valuation of hedging transactions (effective part) | (5) | – | 34 | 29 |
| Reclassification to profit or loss in connection with realization of hedged item | (193) | – | – | (193) |
| Instruments for settlement | – | 6 | (2) | 4 |
| 31/12/2018 | 321 | 6 | 32 | 359 |
| Commodity risk | ||||
| 01/01/2018 | (51) | – | (51) | |
| Cash flow hedge | 210 | – | 210 | |
| Impact of valuation of hedging transactions (effective part) | 50 | – | n/a | 50 |
| Reclassification to profit or loss in connection with realization of hedged item | 180 | – | n/a | 180 |
| Settlement of ineffective part | (20) | – | – | (20) |
| 31/12/2018 | 159 | – | – | 159 |
| Hedging reserve, gross 01/01/2018 | 468 | – | – | 468 |
| Deferred tax from hedging instruments settlement and valuation | (90) | – | – | (90) |
| Settlement of ineffective part | (47) | – | – | (47) |
| Hedging reserve, net 01/01/2018 | 331 | – | – | 331 |
| Hedging reserve, gross 31/12/2018 | 480 | 6 | 32 | 518 |
| Deferred tax from hedging instruments settlement and valuation | (86) | (1) | (6) | (93) |
| Settlement of ineffective part | (64) | – | – | (64) |
| Hedging reserve, net 31/12/2018 | 330 | 5 | 26 | 361 |