3.1 Revenue

Revenue from contracts with customers

The Group’s revenue comes primarily from trade in high-methane and nitrogen-rich natural gas, generation and sale of electricity and heat, as well as sale of produced crude oil.

The Group’s business also includes services, such as distribution of gas fuels, storage of gas fuels, geophysical and geological services, gas service connection, drilling and oilfield services, construction and assembly services, and other services.

The Group recognises revenue in line the five-step model:

1. Identifying the contract;
2. Identifying the performance obligations in the contract;
3. Determining the transaction price (consideration);
4. Allocating the transaction price to each performance obligation;
5. Recognising revenue when (or as) a contractual performance obligation is satisfied.

In accordance with IFRS 15, when a third party is involved in providing goods or services to the customer, the nature of the relationship with the customer should be determined: whether that entity is a principal or an agent. The main criterion for identifying the performance obligations is the assessment of the role that a Group company plays in the performance. The role (whether a principal or an agent) is assessed based e.g. on an analysis of who controls the promised goods or services before their final transfer to the customer.

The Group companies assessed whether they were principals or agents with respect to particular goods or services by determining who controlled them before their transfer to the customer. The Group companies that have identified their role with respect to specific goods or services as that of an agent present revenue in the amount of net consideration to which they will be entitled in exchange for arranging the supply of goods or services by another party.

In respect of gas transmission and electricity distribution services, the Group has no control over the main features or price of such services, acting solely as an agent. When entering into comprehensive service agreements with their customers, the Group companies do not bear the main responsibility for the performance of transmission and distribution services, have no control over the main features of such services, and cannot freely determine their prices, which means that they act as agents in their sale. The obligation to perform transmission and distribution services is satisfied upon delivery of gas or electricity.

The Group recognises revenue when it satisfies the performance obligation by transferring to the customer the goods or services promised (i.e. when the customer takes control of the goods or services).

The Group recognises revenue in the amount of the transaction price (excluding estimated elements of variable consideration which are subject to limitations) which was allocated to the given performance obligation.

The transaction price is the contractually agreed amount of consideration that the entity expects to obtain in exchange for the transfer of the goods and services promised in the contract. The transaction price is adjusted for the time value of money if the contract includes a significant financing arrangement, and in the case of any consideration payable to the client. If the consideration is variable, the Group estimates the amount of consideration to which it will be entitled in exchange for the promised goods or services. The estimated amount of variable consideration will be included in the transaction price only if, and to the extent that, it is highly probable that its inclusion will not result in a significant revenue reversal in the future when the uncertainty relating to variable consideration has been subsequently resolved.

In accordance with IFRS 15, refunds due to customers are presented as contractual liabilities.

Estimating natural gas sales

In order to correctly allocate gas sales revenue to the appropriate reporting period, at the end of the reporting period sales are re-estimated with respect to the volume and value of gas delivered but not invoiced to retail customers (in small off-take tariff groups: 1-4).

The value of gas supplied and but invoiced to customers in tariff groups 1-4 is estimated based on the “Procedure for determining the sale of gas fuel at PGNiG Obrót Detaliczny Sp. z o.o.”. There is a risk that the actual final volume of gas fuel sold (invoiced in accordance with actual metre readings) may differ from the estimate. Accordingly, profit or loss for a given period may account for a portion of the estimated sales volume which will never be realised.
As at the end of 2021, revenue from sales of gas was increased by an amount of PLN 605m, while as at the end of 2020, the revenue included an amount of PLN 37m of estimates as an adjustment increasing the amount of invoiced revenue.

Generally, goods are transferred at a specific point in time.

Revenue from sales of crude oil

With regard to sales of crude oil produced from the Norwegian Continental Shelf, where the Group holds interests in licences together with other entities, the revenue from sale of crude oil is recognised based on crude volumes produced and sold to customers. However, the volume of crude oil sold to customers may differ from the volume of crude which is attributable to the Group in a given period based on its interest in a given licence. If the production volume attributable to the Group is higher than the sales volume, an asset (underlift) is recognised in the consolidated financial statements. Conversely, if in a given reporting period the volume of crude oil sold exceeds the production volume the Group is entitled to, a liability (overlift) is recognised in the consolidated financial statements.

As at the end of 2021, the volume of crude oil sold was lower than the Group’s share of production. Therefore, an asset of PLN 54m was recognised under Other receivables in the consolidated statement of financial position for 2021. As at the end of 2020, the volume of crude oil sold was higher than the Group’s share in production, which in the consolidated statement of financial position for 2020 was recognised as a PLN 23m liability under Other liabilities (Other deferred income, current portion).

The change is recognised under Other income and expenses for the reporting period.

Revenue from sales of services provided over time

Revenue from rendering of services which are provided over time is recognised in proportion to the stage of contract completion as at the reporting date if the outcome of the transaction involving the provision of the service can be measured reliably.

To measure the stage of contract completion, the Group uses the method based on expenditure incurred. The stage of contract completion is determined based on contract costs incurred so far in relation to the estimated total costs of the contract (cumulatively).

Where such method of measurement fails to reflect the actual stage of completion of the service, the stage of completion is determined by measuring the work performed so far or by comparing the work actually performed with the scope of work specified in the contract.

When the outcome of a transaction involving the provision of service cannot be estimated reliably, revenue from the transaction is recognised only to the extent of costs incurred that are likely to be recovered.