PL

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  
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 

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  
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  

 27.30  

 -  

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 / 
risk type / 
type of instrument 

Buy (B) / 
Sell (S) 

Hedging strategies within the cash flow hedge 

Unit of measure 

Nominal value / volume 
 
31/12/2020 

Assets 
 
 
31/12/2020 

Liabilities 
 
 
31/12/2020 

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 
oversize inventories hedge 

 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 / 
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 

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

Fair value measurement
Risk identification

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