Photographer: John Guillemin/Bloomberg

Gazprom Loss Lower Than Forecast on Higher Sales, Cost Cuts

  • Quarterly loss was 2 billion rubles vs estimated 17.6 billion
  • Gazprom returns to positive free cash flow in 3rd quarter

Gazprom PJSC’s third-quarter loss was lower than expected as rising export sales and lower costs offset foreign-currency losses.

The world’s biggest natural gas producer reported a net loss of 2 billion rubles ($26.1 million), compared with a profit of 105.7 billion rubles a year earlier. That was better than the average estimate of a loss of 17.6 billion rubles from 10 analysts surveyed by Bloomberg News. Earnings before interest, taxes, depreciation and amortization rose 3 percent year-on-year to 491 billion rubles, beating the estimate by 7 percent.

“Gazprom pleased the street with better than expected results,” said Maxim Moshkov, an energy analyst at UBS Group AG in Moscow, also highlighting a 10 percent cut in operational costs in rubles, “which saved the company’s bottom line.”

Russia’s falling currency supported Gazprom’s ruble-denominated revenue, helping to offset export prices that fell to near the lowest in a decade. Most of the company’s costs are in rubles while most of the profit is from abroad, with a majority of its gas-export contracts linked to oil. Brent slumped 35 percent last year.

Gazprom shares fell 0.7 percent to 129.98 rubles in Moscow at 1:05 p.m. after rising as much as 1.2 percent earlier.

Currency Loss

The quarterly loss was the first since the fourth quarter of 2014 as it revalued its dollar and euro-denominated loans and borrowings. Gazprom reported a foreign currency loss of 400 billion rubles as the Russian currency fell 16 percent against the dollar in the third quarter.

While revenue from gas supplies to its key European market dropped more than 25 percent last year to about $38 billion, full-year sales may hit a record in ruble terms. The third-quarter revenue increased 14 percent to 1.29 trillion rubles, according to the report. Gazprom’s export gains were higher than expected, Moshkov said.

Brent has extended declines to 20 percent this year and is trading at $29.76 a barrel, which means Gazprom’s gas prices in Europe will fall further. The company’s third-quarter results reflect oil price that was $55 to $60 a barrel, so the “key question is what happens with Gazprom’s profitability at $30,” said Renaissance Capital analyst Ildar Davletshin.

‘Tougher’ 2016

There’s still not much certainty with commodities prices in 2016 although it’s clear that this year would be “tougher” for Gazprom than the previous, Moshkov said.

The state-controlled company had positive free cash flow of 29.4 billion rubles in the third quarter, after a negative result in the previous three-month period. It may be between of $4 billion to $5 billion for the full year, according to Moshkov’s estimate.

Gazprom still plans to keep dividends at no less than 7.2 rubles per share, the payout in 2014 and 2015, despite the market situation, deputy head Andrey Kruglov said last month.

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