Gazprom Quarterly Net Income Doubles on Weak Ruble

OAO Gazprom, the biggest natural-gas producer, said profit doubled in the third quarter, beating analyst estimates, as a foreign-exchange gain helped compensate for soaring costs.

Net income climbed to 305 billion rubles ($10.1 billion) from 152 billion rubles a year earlier, Moscow-based Gazprom said today on its website. That compared with an average estimate of 291 billion rubles from 10 analysts surveyed by Bloomberg. Revenue rose 18 percent to 1.12 trillion rubles.

Gazprom, Russia’s monopoly gas exporter, battled weakening European markets last year that forced suppliers to compete to maintain sales. The company offered discounts to some customers and raised the weight of spot-market prices in setting rates, which are mainly linked to oil-price indexes. It raised investments even as demand faltered, to ensure future production and transport capacity.

Gazprom shares rose as much as 1.3 percent in Moscow, before closing up 0.8 percent at 147.51 rubles.

“There isn’t much to be positive about, despite the positive market reaction,” Ildar Davletshin, a gas analyst at Renaissance Capital in Moscow, said by phone today. “Costs increased for personnel, transit, oil and gas purchases.”

Gazprom probably overshot its plan for capital spending by $4 billion in 2012 after a “very intensive” fourth quarter pushed annual expenditure up to $44 billion, Chief Financial Officer Andrey Kruglov said on a conference call.

‘Expected Worse’

The majority of the revenue growth came from sales of oil and refined products rather than gas, Davletshin said. Operating costs soared 40 percent to 868 billion rubles in the third quarter.

Revenue may total $150 billion in 2012, and earnings before interest, taxes, depreciation and amortization are expected in a range of $54 billion to $55 billion, Kruglov said.

The gas exporter receives most of its revenue in foreign currency as Europe is its most profitable market, accounting for about half of its total sales of gas, oil, condensate and refined products. The ruble weakened 9 percent against the dollar in the quarter compared with a year earlier, increasing the ruble revenue earned on foreign currency-denominated gas sales.

Gazprom didn’t recognize retroactive discounts to European customers in the third quarter, according to a comparison of nine-month and first-half 2012 data in statements on its website. Profit was also boosted by a foreign-exchange gain of 78.4 billion rubles in the quarter, compared with a loss of almost 141.5 billion rubles a year earlier.

Price Reviews

The gas producer expects to be refunded $1 billion in tax it paid to the Russian government after the retroactive gas price reviews.

Gazprom this month received requests to renegotiate supply terms with a number of clients including Wingas and GDF Suez SA after the contracts became eligible for review in 2013, Sergei Chelpanov, deputy chief of Gazprom’s export unit, said on the call.

“It is normal customer behavior today in an unstable market,” Chelpanov said, adding that it’s difficult to predict the outcome of talks.

Gas volumes to Europe dropped 3 percent in the first nine months, while the average European price rose less than 1 percent to $379 per 1,000 cubic meters compared with the same period the previous year. Supplies to Russia and the former Soviet Union also fell.

European exports dropped about 8 percent in the full year to 138 billion cubic meters, Chief Executive Officer Alexey Miller said Jan. 15 in Siberia.

The gas producer had negative free cash flow of 41.2 billion rubles in the third quarter.

Net Debt

Net debt rose to 1.16 trillion rubles at the end of September from 1.03 trillion rubles at the end of 2011.

“On the European market, all the negativity has been priced in,” Stanislav Kondratiev, an oil and gas analyst at UralSib Capital in Moscow, said by phone.

Kruglov said in November the company may opt for a dividend amounting to 25 percent of earnings under International Financial Reporting Standards from 2014, instead of the current system using Russian standards. He reiterated the plan today.

Russia and Ukraine have valid contracts and there are no grounds to revise prices, a Gazprom official said on the conference call. Ukraine is ready to join a customs union with Russia in exchange for cheaper gas from Gazprom, the Kommersant-Ukraine newspaper said last month.

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