Gazprom Discount Narrows on Spending Cut Plans: Russia Overnight

OAO Gazprom (OGZPY), Russia’s natural-gas export monopoly, gained in New York to trade at the smallest discount to peers in four months on prospects the company will cut spending after breaching last year’s expenditure target.

American depositary receipts of Gazprom added 1.6 percent yesterday and the stock’s 10-day volatility dropped to the lowest since Dec. 28. The shares’ gain reduced Gazprom’s discount versus the MSCI Emerging Markets Energy Index to 58 percent, the least since Sept. 27. The Bloomberg Russia-US Equity Index (RUS14BN) of U.S.-listed stock climbed to a four-month high, while futures on the RTS Index added 0.5 percent to 159,190.

Gazprom said yesterday that capital spending exceeded last year’s $40 billion target after the Moscow-based company reduced the cash flow by investing in undersea pipelines projects in Europe. The producer approved a plan on Dec. 20 to cut expenditures by almost half in 2013. Revenue will probably increase 3.6 percent this year, after falling an estimated 1.1 percent to $156.4 billion 2012, according to the mean estimate of 13 analysts surveyed by Bloomberg.

“Gazprom is at a turning point,” Ildar Davletshin, an analyst at Renaissance Capital Ltd. in Moscow, said by phone yesterday. “Third-quarter results have shown that their investment strategy has to change and this time, for real, and right now.”

Gazprom ADRs advanced to $9.75 in New York yesterday while the stock increased 0.8 percent to 147.51 rubles, or the equivalent of $4.88, in Moscow.

‘Very Attractive’

Gazprom’s 10-day volatility fell to 20.38 in New York yesterday, the lowest level since Dec. 28, data compiled by Bloomberg show.

The advance in the ADRs sent Gazprom’s valuations to 3.1 times estimated earnings, compared with an average multiple of 7.4 for companies on the MSCI Emerging Markets Energy gauge, which includes producers such as Petroleo Brasileiro SA (PETR4) and PetroChina Co., data compiled by Bloomberg show.

“They have to keep capex at lower levels,” Ivan Manaenko, the head of research at Veles Capital LLC in Moscow, said by phone yesterday. “Some of their investments make no sense and raise concerns.”

In 2011, Gazprom spent $53 billion on capital projects, more than PetroChina Co.’s $46 billion and $36.8 billion at Exxon Mobil Corp. Gazprom typically revises its annual investment program after evaluating first-half performance.

Undersea Pipelines

Gazprom’s ADRs lost 8.9 percent last year, dropping for a second consecutive year for the first time since its listing in 1999, on concerns the concern the company is spending on projects including an export terminal in the Far East and undersea pipelines to Europe, where demand is dwindling.

The producer and its partners Eni SpA (ENI), Wintershall AG and Electricite de France SA, started work last month on the South Stream pipeline, which will run from Russia under the Black Sea to eastern and southern Europe, even as Russia’s existing connections run at about 70 percent of their capacity.

European exports dropped about 8 percent in the full year to 138 billion cubic meters, Gazprom Chief Executive Officer Alexey Miller said Jan. 15. Europe accounts for about half of the company’s total sales of gas, oil, condensate and refined products.

Gazprom probably overshot its plan for capital spending by $4 billion in 2012, Chief Financial Officer Andrey Kruglov said on a conference call in Moscow yesterday.

Oil Rallies

The Market Vectors Russia ETF (RSX), the largest dedicated Russian exchange-traded fund, increased 0.8 percent to $30.12, gaining for the first time in three days. The RTS Volatility Index, which measures expected swings in the stock futures, declined 3 percent to 20.87.

The Bloomberg Russia-US Equity Index rose 1.1 percent to 102.87 yesterday, the highest level since Sept. 14.

Crude oil for February delivery advanced 1.3 percent to $95.49 a barrel on the New York Mercantile Exchange yesterday, a four-month high. Brent oil for February settlement also rose 1.3 percent to $111.10 a barrel on the London-based ICE Futures Europe exchange, while Urals crude, Russia’s chief export blend, added 0.9 percent to $110.17.

The ruble gained 0.4 percent to 30.1945 yesterday, the highest level since Jan. 10. Ruble futures showed the currency strengthening 0.3 percent to 30.484 per dollar.

United Co. Rusal, the world’s largest aluminum producer, dropped 1 percent to HK$4.90 in Hong Kong trading as of 11:03 a.m. local time. The MSCI Asia Pacific Index gained 0.8 percent.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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