June 28 (Bloomberg) -- OAO Gazprom, Russia's natural-gas export monopoly, said 2006 profit doubled to a record $22.6 billion, beating estimates, as it sold more fuel at higher prices.

Net income surged 97 percent to 613.3 billion rubles from 311.1 billion rubles a year earlier, the state-run company said in an e-mailed statement today. The profit equals $22.6 billion at the average ruble rate for the period and is 8.2 percent higher than the median estimate of six analysts in a Bloomberg survey.

Rising prices in Europe, where Gazprom has a quarter of the market, and increased shipments to former Soviet nations drove the gain in earnings, the highest ever reported by a Russian company. Gazprom, based in Moscow, relies entirely on exports for profit because it loses money on sales in Russia, where prices are capped.

``This was Gazprom's best year ever,'' said James Beadle, portfolio manager at Pilgrim Asset Management, which manages $120 million, including Gazprom shares. ``The deeper question is whether the company is really improving'' or simply benefiting from higher commodity prices, Beadle said.

Revenue advanced 56 percent to 2.15 trillion rubles, beating the 2.13 trillion rubles expected by analysts.

Net sales of gas to Russia's former Soviet neighbors increased 93 percent to 209.7 billion rubles in 2006 compared with the year earlier, reflecting higher volumes and a push by Gazprom to extract higher prices from former Soviet countries.

Domestic Gains

Domestic gas sales increased by 15 percent to 356 billion rubles in 2006 after an increase in the average price, which is set by the Federal Tariff Service, Gazprom said. Russian officials have said domestic prices will rise until sales in Russia are as profitable as sales to Europe once transport costs are factored in.

Sales and profit growth will probably slow this year, though both measures will continue to rise, said Steven Dashevsky, head of research at Moscow-based Aton Capital.

``It looks like 2007 will be another record year, driven in part by higher domestic prices,'' Dashevsky said. ``Yet Gazprom will have to deal with an environment of moderate revenue growth against a backdrop of significant cost inflation, like other Russian oil companies. The question is whether Gazprom will be able to withstand these pressures.''

European Sales

Deputy Chief Executive Officer Alexander Medvedev said two days ago the company earned $37.2 billion selling 151 billion cubic meters of gas to Europe last year, a gain of almost 43 percent. European customers paid an average price of $260.70 for 1,000 cubic meters, he said.

Gazprom expects a record $38.1 billion from gas sales to Europe in 2007, Medvedev said June 26. He said the company expects European customers to pay an average $250 to $260 per 1,000 cubic meters.

Consolidating the oil unit Gazprom Neft, starting in October 2005, was the primary reason for a 47 percent gain in operating costs to 1.36 trillion rubles, Gazprom said. The cost of buying and shipping oil, taxes, depreciation and the need to pay more people all added to expenses.

Capital spending on oil and gas condensate production jumped from 17.3 billion rubles to 56.3 billion rubles, against a total capital spending increase from 352.6 billion rubles to 485.6 billion rubles.

Gazprom bought a controlling stake in Gazprom Neft, then known as Sibneft, from the country's richest man, Roman Abramovich, for $13.1 billion at the end of 2005.

Consolidating Gazprom Neft added 119.1 billion rubles in revenue from sales of crude oil and gas condensate in 2006.

To contact the reporter on this story: Greg Walters in Moscow gwalters1@bloomberg.net

Last Updated: June 28, 2007 12:59 EDT