Gazprom Quarterly Net Rises 5.3% After Reversing Price Cuts

OAO Gazprom, the world’s biggest natural gas producer, said net income rose 5.3 percent in the first quarter after exporting more fuel and paying less to clients for retroactive discounts than planned.

Profit rose to 381 billion rubles ($11.4 billion) from 361 billion rubles in the same period a year earlier, the Moscow-based company said today on its website. That was less than the average estimate of 386 billion rubles from 12 analysts surveyed by Bloomberg.

Gazprom, which provides a quarter of Europe’s gas, renegotiated some agreements with utilities that lost billions of euros after the 2008 crisis cut demand and made spot gas cheaper than under the Russian company’s long-term contracts. In June, RWE AG won a price revision that was “far” from its original demands, Gazprom said at the time. Exports rebounded this year on colder weather after a slump last year.

“The second quarter will also be strong,” Timur Salikhov, an oil and gas analyst at BCS Financial Group in Moscow, said by phone. “Even if seasonally it’s a weak quarter, export volumes were more impressive than last year.”

Gazprom shares rose 0.8 percent to 132.51 rubles at 12:23 p.m. in Moscow.

RWE Arbitration

Revenue jumped 19 percent to 1.46 trillion rubles. Gazprom added 73.4 billion rubles to revenue after cutting previously recognized obligations on retroactive payments to European clients following adjustments of gas prices in its long-term supply contracts. Gazprom cut revenue by 78.5 billion rubles for retroactive payments in the first quarter of 2012.

RWE’s arbitration ruling added 1 billion euros ($1.3 billion) to first-half operating profit, Bernhard Guenther, Chief Financial Officer of Germany’s second-biggest utility, said on Aug. 14.

“The reversal is a one-off non-recurring event that we won’t see in the second quarter,” Salikhov said.

Gazprom, which reports quarterly earnings later than other Russian oil and gas companies, benefited from colder than usual weather across Europe. Exports jumped as much as 60 percent on some days in March, compared with the same period a year earlier, Chief Executive Officer Alexey Miller said in April.

Playing Catch-Up

Russian gas shipments to Europe and Turkey in the first eight months of this year rose 14 percent to 105.2 billion cubic meters, the highest level since at least 2010, according to data from Gazprom Export. Gazprom is benefiting from utilities replenishing stores as liquefied natural gas producers shift supply to Asia where prices are higher than Europe.

“European gas is the key cash-flow driver for Gazprom and makes the investment case for Gazprom a ‘now-or-never,’” Oswald Clint, an analyst at Sanford C. Bernstein & Co., said today in an e-mailed report. The second half of the year “is the inflection point for Gazprom as European inventories play catch-up into winter in a tight gas market.”

Free cash flow amounted to 114 billion rubles in the period, compared with 221 billion rubles a year earlier, according to Gazprom’s financial statement.

Net revenue from sales to the former Soviet republics, of which Ukraine is the biggest buyer, declined 16 percent, according to today’s report. Supplies to Ukraine, its biggest market outside western Europe and Turkey, slumped 19 percent, according to information posted earlier on Gazprom’s website. Ukraine, seeking lower gas prices, is shifting purchases from Gazprom to Hungary and Poland, using pipelines in reverse.

Ukraine Margin

“There has been a decline for the former Soviet Union, which is sensitive because Ukraine always gives quite a good margin,” Alexei Kokin, senior oil and gas analyst at UralSib Capital, said by phone.

Gazprom’s management may comment at a conference call later today on the debate on whether the gas exporter should decouple its contracts from the oil price and switch to spot prices, as well as provide guidance on European exports this year, Sberbank CIB said in a note yesterday.

“For the market, it’s important what’s happening now with exports, to Europe and Ukraine,” UralSib’s Kokin said. “It will also be important to hear about retroactive payments.”

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