Gazprom Reduces Budget After Investors Criticized High Spending

OAO Gazprom (OGZD), the world’s biggest natural-gas producer, reduced its investment program for next year by 28 percent after investor criticism of excessive spending erased market value.

The board today approved investments of 705 billion rubles ($23 billion) for 2013, according to an e-mailed statement from the Moscow-based company. That compares with a 975 billion-ruble program for 2012.

“It is positive news because the main thing investors criticized Gazprom for was high spending,” Sergey Vakhrameev, an analyst at IFC Metropol in Moscow, said by telephone. “Gazprom has now met investors halfway and cut investments.”

Gazprom has been punished for investing in costly projects such as remote gas fields and undersea pipelines to Europe, where demand has stagnated. A decline in exports this year has coincided with a 17 percent slump in its market value. While shipments to Europe are forecast to rise next year, prices will drop after discounts were offered, the company said Dec. 18.

The shares rallied 1.6 percent to 142.38 rubles today, the highest close in four weeks.

Capital expenditure will amount to 658 billion rubles next year, including 655 billion rubles for construction and 3.3 billion rubles for acquisitions, the company said. Long-term financial investments, in projects such as the South Stream pipeline under the Black Sea, will total 47 billion rubles.

Gazprom, which typically revises its annual investment program after evaluating first-half performance, originally intended to spend 777 billion rubles in 2012. It then approved a revised budget in October.

Most of the spending on projects such as the Arctic Bovanenkovo gas field and the Nord Stream pipe under the Baltic Sea has been completed, meaning capital expenditure has already peaked, IFC Metropol’s Vakhrameev said. Construction of South Stream’s underwater section will start in 2014 after all environmental approvals have been received, giving Gazprom a “short timeout,” he said.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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