OAO Novatek, Russia’s second-biggest natural-gas producer, fell the most in seven weeks after state-run OAO Gazprom said it was suspending purchases of the fuel from independent producers.
Novatek had the largest decline on the Micex Index, falling 2.5 percent to 360.58 rubles by the close in Moscow, the biggest drop since July 23. Gazprom added 0.6 percent to 164.16 rubles.
Gazprom notified independent producers it was halting purchases for an indefinite period, given unstable domestic demand, the natural-gas export monopoly said today by e-mail. Gazprom has struggled to maintain output as demand in Europe declined, while Novatek has signed a foreign supply deal and added contracts with customers in Russia in the past two months.
“The market reacted negatively because if Gazprom halts gas purchases for a quarter, this could cut Novatek’s quarterly earnings before interest, taxes, depreciation and amortization by $100 million,” Sergey Vakhrameev, an analyst at IFC Metropol in Moscow, said by phone. “Gazprom is using odd methods in trying to deal with its issues. This was very sudden.”
Novatek has received notification from Gazprom, Mikhail Lozovoy, a company spokesman, said by phone, declining to comment further until talks are completed.
Gazprom didn’t elaborate on the volumes it would reject. The halt may affect 42 million cubic meters a day from Novatek, or 28 percent of the company’s output, according to the Vedomosti newspaper. OAO Lukoil sells 27 million cubic meters a day to Gazprom, while Sibneftegas, a Novatek venture with Itera, sells 8.6 million cubic meters a day, Vedomosti said.
Gazprom, the world’s biggest gas supplier, aims to close a gap between actual and forecast output in the last six months of the year, Chief Executive Officer Alexey Miller said in June. First-half output lagged 10 billion cubic meters behind the plan, while the full-year target was to produce 529 billion cubic meters of gas.
The move doesn’t affect gas supplies that Gazprom transports for producers to their direct customers or that other units in the Gazprom group buy, the company said today.
“The market reaction is a bit overblown,” Mariya Yegikyan, an analyst at Alfa Bank in Moscow, said by phone. “The company valuation will be cut only if Novatek fails to find a substitute for Gazprom.”
The drop is “a great opportunity to buy Novatek,” Vladimir Alexandrov, a trader at Rye, Man & Gor Securities in Moscow, said by phone.
Gazprom’s first-quarter profit slumped 24 percent, missing analyst estimates, on lower export sales and refunds to European customers, according to results published Sept. 6. VTB Capital cut the stock to hold from buy and reduced the 12-month price estimate to $5.60 following the “miserable” results, according to a note today from analysts led by Dmitry Loukashov.
Customers in Europe, Gazprom’s biggest market by revenue, have sought changes to their purchasing deals after the 2008-2009 recession cut demand, dragging spot prices below long-term contract levels. Gazprom ties its contracts to prices for crude and refined-oil products with a time lag of as much as nine months.
After receiving notice of a halt, Lukoil reached an agreement with Gazprom to overturn the decision and will continue supplying natural gas to Gazprom at the same level, a Lukoil press official said, declining to be identified because of company policy. Gazprom declined to comment.
Lukoil rose 0.3 percent to 1,929.60 rubles, the highest close since April 25, after losses of as much as 0.4 percent earlier today.
“We think it unlikely that Gazprom will follow through with any meaningful reductions,” Citigroup Inc. analysts led by Ronald Smith said in an e-mailed note. “Following through with reduction could actually lead to a more rapid loss of domestic market share for Gazprom rather than slower.”