16.4. HEDGE ACCOUNTING
Hedgeaccounting
The ORLEN Group applies cash flow and fair value hedge accounting.
Cash flow hedge accounting concerns:
- forward sales and purchase of foreign currency operating activity hedging,
- hedging the change in margins on refinery products sold,
- hedging the periodic increase in operating inventories,
- hedging the timing mismatches due to sales of refinery products.
Fair value hedge accounting concerns:
- hedging the sales of bitumen and aviation fuel at a fixed price.
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 and refinery 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 partially debt obligations in foreign currency.
Information on hedging instruments– maturity structure
2020
Risk type / type of instrument |
Unit of measure |
up to 1 year |
above 1 |
above 3 |
above 5 years |
Cash flow hedge |
|||||
Foreign exchange risk |
|||||
Currency forwards -long position hedge (buy) |
|||||
Nominal value |
USD |
12,923,334 |
6,813,312 |
- |
- |
Average exchange rate USD/PLN |
|
3.95 |
3.73 |
- |
- |
Currency forwards - short position hedge (sell) |
|||||
Nominal value |
EUR |
430,000,000 |
945,000,000 |
353,000,000 |
- |
Average exchange rate EUR/CZK |
|
27.02 |
27.26 |
27.39 |
- |
Nominal value |
EUR |
481,300,000 |
1,067,012,228 |
756,330,807 |
25,000,000 |
Average exchange rate EUR/PLN |
|
4.58 |
4.66 |
4.74 |
4.88 |
Nominal value |
USD |
900,000 |
- |
- |
- |
Average exchange rate USD/PLN |
|
4.17 |
- |
- |
- |
Commodity risk |
|||||
Commodity swaps - future revenues hedge (sell) |
|||||
Petrol |
|||||
Volume |
MT |
50,000 |
- |
- |
- |
Average price |
|
437.63 |
- |
- |
- |
Diesel |
|||||
Volume |
MT |
91,250 |
- |
- |
- |
Average price |
|
368.00 |
- |
- |
- |
Crude oil |
|||||
Volume |
BBL |
553,000 |
- |
- |
- |
Average price |
|
38.06 |
- |
- |
- |
Heating oil |
|||||
Volume |
MT |
4,000 |
- |
- |
- |
Average price |
|
283.30 |
- |
- |
- |
Commodity swaps - inventories (buy) |
|||||
Petrol |
|||||
Volume |
MT |
24,000 |
- |
- |
- |
Average price |
|
429.75 |
- |
- |
- |
Commodity swaps - future manufacturing costs hedge (buy) |
|||||
Crude oil |
|||||
Volume |
BBL |
144,000 |
- |
- |
- |
Average price |
|
43.86 |
- |
- |
- |
Fair value hedge |
|||||
Commodity risk |
|||||
Commodity swaps - future revenues hedge (buy) |
|||||
Crude oil |
|||||
Volume |
BBL |
265,470 |
138,210 |
- |
- |
Average price |
|
45.29 |
49.30 |
- |
- |
2019
Risk type / type of instrument |
Unit of measure |
up to 1 year |
above 1 |
above 3 |
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 |
27.30 |
- |
Nominal value |
EUR |
47,000,000 |
10,000,000 |
28,081,676 |
1,532,625 |
Average exchange rate EUR/PLN |
|
4.40 |
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 |
4.60 |
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 |
|
599,00 |
- |
- |
- |
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 |
- |
- |
- |
Planned realization date of hedged cash flow and fair value which will be recognised in the profit or loss
|
31/12/2020 |
31/12/2019 |
Currency operating exposure |
2021-2026 |
2020-2025 |
Commodity risk exposure |
2021-2023 |
2020-2021 |
Hedge accounting effectson financial situation and results
2020
Link type / |
Buy (B) / |
Hedging strategies within the cash flow hedge |
Unit of measure |
Nominal value / volume |
Assets |
Liabilities |
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 |
2,329,643,035 |
10 |
102 |
(369) |
FX_EUR.CZK |
S |
EUR |
1,728,000,000 |
153 |
1 |
(27) |
|
FX_USD.PLN |
B |
deliveries for purchases denominated in foreign currency or indexed to exchange rate of foreign currency |
USD |
19,736,646 |
- |
3 |
(6) |
FX_USD.PLN |
S |
sales of goods denominated in foreign currencies/indexed to foreign currencies |
USD |
900,000 |
- |
- |
- |
|
|
|
|
|
163 |
106 |
(402) |
Commodity risk |
|||||||
Crude oil |
S |
time mismatch on crude oil purchases |
BBL |
553,000 |
- |
27 |
37 |
Crude oil |
B |
oversize inventories hedge |
BBL |
144,000 |
4 |
- |
4 |
Petrol |
S |
oversize inventories hedge |
MT |
50,000 |
- |
10 |
(10) |
Petrol |
B |
oversize inventories hedge |
MT |
24,000 |
2 |
- |
2 |
Diesel |
B |
oversize inventories hedge |
MT |
- |
- |
- |
(4) |
Diesel |
S |
oversize inventories hedge |
MT |
91,250 |
- |
21 |
(5) |
Heating oil |
S |
oversize inventories hedge |
MT |
4,000 |
- |
- |
- |
Aviation fuel |
S |
oversize inventories hedge |
MT |
- |
- |
- |
1 |
|
|
|
|
|
6 |
58 |
25 |
|
|
|
|
|
169 |
164 |
(377) |
Fair value hedge |
|||||||
Commodity risk |
|||||||
Crude oil |
B |
bitumen sale at fixed price |
BBL |
403,680 |
6 |
1 |
2 |
Heating oil |
B |
bitumen sale at fixed price |
MT |
- |
- |
- |
3 |
|
|
|
|
|
6 |
1 |
5 |
|
|
|
|
|
175 |
165 |
(372) |
Carrying amount was recognised in statement of financial position in Derivatives |
2019
Link type / |
Buy (B) / |
Hedging strategies within the cash flow hedge |
Unit of measure |
Nominal value / volume |
Assets |
Liabilities |
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 |
Cash flowhedge
2020
Risk type / position type |
Changes in fair value of the hedged item (as basis for determining an ineffective part in a given period - off-balance sheet item) |
Hedging reserve (gross value) for relationships remains in hedge accounting |
Cash flow hedge |
||
Foreign exchange risk (EUR) |
||
Future sales revenues |
613 |
(361) |
Foreign exchange risk (USD) |
||
Future manufacturing costs |
4 |
(2) |
|
617 |
(363) |
Commodity risk |
||
Inventories |
(1) |
1 |
Future sales revenues |
(25) |
(57) |
Future manufacturing costs |
1 |
4 |
|
(25) |
(52) |
|
592 |
(415) |
2019
Risk type / position type |
Changes in fair value of the hedged item (as basis for determining an ineffective part in a given period - off-balance sheet item) |
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 |
Fair valuehedge
2020
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 |
2 |
7 |
Derivatives and other assets and liabilities |
(5) |
5 |
- |
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 |
Impact of cash flow hedge accounting on the statement of profit or lossand other comprehensive income
2020
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 |
(396) |
- |
|
95 |
Sales revenues |
currency forwards |
- |
- |
|
2 |
Manufacturing costs (operational) |
Foreign exchange risk (USD/PLN) |
|||||
currency forwards |
- |
- |
|
(4) |
Sales revenues |
currency forwards |
(6) |
- |
|
(12) |
Manufacturing costs (operational) |
currency forwards |
|
- |
|
(167) |
Other operating income/expenses |
|
(402) |
- |
|
(86) |
|
Commodity risk |
|||||
commodity swaps |
|
- |
Other operating income and costs |
202 |
Inventories |
commodity swaps |
25 |
1 |
Other operating income and costs |
(363) |
Sales revenues |
|
25 |
1 |
|
(161) |
|
|
(377) |
1 |
|
(247) |
|
In other comprehensive income related to gross hedging reserve in the amount of PLN (420) million, the Group recognises profit or loss in the amount of PLN (377) million recognised in the 12 month period of 2020 and settled derivatives awaiting hedged item in the amount of PLN (43) million, including PLN 3 million from 2020 and PLN (46) million settled from the previous year.
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 |
|
Reconciliation of equityfrom hedge accounting
2020
|
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 |
||||
01/01/2020 |
298 |
16 |
147 |
461 |
Cash flow hedge |
(661) |
(2) |
255 |
(408) |
Impact of valuation of hedging transactions (effective part) |
(740) |
- |
415 |
(325) |
Reclassification to profit or loss in connection with realization of hedged item, incl.: |
97 |
(16) |
(167) |
(86) |
reclassification of instruments from the previous year - no hedged item |
- |
(35) |
(11) |
(46) |
Instruments for settlement |
(18) |
14 |
7 |
3 |
31/12/2020 |
(363) |
14 |
402 |
53 |
Commodity risk |
||||
01/01/2020 |
(40) |
- |
- |
(40) |
Cash flow hedge |
(12) |
- |
- |
(12) |
Impact of valuation of hedging transactions (effective part) |
186 |
- |
n/d |
186 |
Reclassification to profit or loss in connection with realization of hedged item |
(161) |
- |
n/d |
(161) |
Settlement of ineffective part |
(37) |
- |
n/d |
(37) |
31/12/2020 |
(52) |
- |
- |
(52) |
Hedging reserve, gross 01/01/2020 |
258 |
16 |
147 |
421 |
Deferred tax from hedging instruments settlement and valuation |
(62) |
(3) |
(28) |
(93) |
Hedging reserve, net 01/01/2020 |
196 |
13 |
119 |
328 |
Hedging reserve, gross 31/12/2020 |
(415) |
14 |
402 |
1 |
Deferred tax from hedging instruments settlement and valuation |
60 |
1 |
(78) |
(17) |
Hedging reserve, net 31/12/2020 |
(355) |
15 |
324 |
(16) |
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 |