Gazprom First-Quarter Net Falls 5.2% Amid Gas-Price Decline

  • Net income dropped to 362 billion rubles, close to estimates
  • Revenue climbed 5.4%, while operating expenses rose 24%

Gazprom PJSC, the world’s biggest natural gas producer, said first-quarter profit decreased 5.2 percent as expenses climbed amid lower prices for the fuel.

Net income fell to 362 billion rubles ($5.6 billion) from 382 billion rubles in the first quarter of last year, the Moscow-based company said in a statement. That compares with an estimated 363 billion rubles, according to a Bloomberg survey of analysts. Revenue rose 5.4 percent to 1.74 trillion rubles.

Gazprom is struggling as oil’s slump weighs on export prices for its gas, which are linked to crude under some contracts. The company’s average June export price was the lowest since 2007, according to Bloomberg calculations based on Russian customs data. Gazprom may lower its production to a record this year as demand slows in Russia and Ukraine, according to Russian government estimates in July.

“The drop in export prices will continue,” Kirill Tachennikov, an oil and gas analyst at BCS Financial Group, said by e-mail. “Given that the contract price was close to spot, Gazprom’s market share remained almost the same and is unlikely to change significantly going forward.”

Average prices to Europe and Turkey fell 34 percent compared with the same period the previous year to $187.50 per thousand cubic meters, Gazprom said. The state-controlled company has responded by boosting exports to its most lucrative market. Volumes jumped 49 percent to 58.1 billion cubic meters, pushing gross sales to 815 billion rubles, according to the company.

‘Challenging’ Times

Even with the first-quarter increase in exports, dollar-denominated revenue from the region may drop this year to the lowest since 2005 as most contracts are linked to oil with a time lag of as much as nine months.

The Russian producer, which supplies about 30 percent of Europe’s gas, faces “challenging” times until at least 2018 amid weak export prices, slated spending on pipelines to China and the European Union and increased domestic competition, S&P Global Ratings said last month.

Operating expenses jumped 24 percent in the first quarter, driven by a change in gas-purchase costs relating to the completion of an asset swap with BASF SE’s Wintershall unit that gave the Russian gas producer control over European trading and storage units, the company said.

Earnings before interest, taxes, depreciation and amortization dropped to 444 billion rubles as prices declined, Kirill Tachennikov, an oil and gas analyst at BCS Financial Group, said by e-mail. That compares with 583 billion rubles a year earlier.

Cash Flow

Free cash flow in the first quarter amounted to 237 billion rubles compared to 252 billion rubles in January to March last year, according to calculations based on Gazprom’s financial reports. The positive free cash flow was mainly the result of an almost 240 billion-ruble reduction in working capital, according to Tachennikov.

The company sees its free cash flow positive this year, deputy head Andrey Kruglov said in June, declining to elaborate on the outlook.

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