Gazprom Third-Quarter Net Exceeds Estimates on Costs, Export

OAO Gazprom, the largest natural gas producer, reported third-quarter profit that exceeded estimates on lower than expected costs, while rising European exports tempered a drop in financial income.

Net income declined 11 percent to 276 billion rubles ($8.1 billion) from a revised 310 billion rubles a year earlier, Russia’s biggest company by market capitalization said today on its website. That was higher than the average estimate of 259 billion rubles from 12 analysts surveyed by Bloomberg.

Strengthening demand in Europe, which gets a quarter of its gas from Gazprom, drove shipments to a record last year. Output declines among competitors may benefit Gazprom this year, even as the Europe Union seeks to diversify supplies. An export deal with China, planned for January, has been delayed until at least May after more than 15 years of talks.

“Gazprom surprised with some lower-than-estimated operating expenses that are difficult to predict,” Timur Salikhov, an oil and gas analyst at BCS Financial Group in Moscow, said by phone. The company’s stock rose 1.1 percent to 147.75 rubles by 3:31 p.m. in Moscow.

Revenue increased 7.4 percent to 1.2 trillion rubles, the state-controlled company said. European sales jumped 27 percent to 514 billion rubles in the period, while the region’s share in total gas sales increased to 66 percent from 60 percent a year earlier. Gazprom reports quarterly earnings later than the country’s other major oil and gas companies.

Europe Risk

Total operational costs increased 2.4 percent to 878 billion rubles in the period, while expenses for purchased fuel, more than 20 percent of expenditures, decreased. Gazprom buys gas from producers in Russian, Turkmenistan, Uzbekistan, Kazakhstan and Azerbaijan without disclosing contract details.

“The results look good, although there’s not so much to be proud of,” Maxim Moshkov, a Moscow-based analyst at UBS, said by phone. “It’s risky to depend on Europe so much.”

Finance income fell 50 percent to 49.5 billion rubles, while finance expenses doubled to 47.4 billion, after the ruble weakened from the previous year.

Free cash flow remained positive at 21 billion rubles, according to Bloomberg calculations based on the financial results. Net debt increased to 1.16 trillion rubles from 906 billion rubles as of June 30.

Stonger Demand

“The fourth quarter will be stronger as European demand has continued to rise,” Salikhov said. Earnings before interest, taxes, depreciation and amortization for the full year 2013 could reach at least $60 billion from an earlier estimated $56 billion, he said.

Gazprom didn’t record retroactive payments in the period for European consumers that won discounts, as it had in the first three months of the year.

Continued reliance on Europe is a risk for Gazprom, according to Moshkov. Growth in volume this year as competitors’ production declines may be offset somewhat by weaker prices, he said. In addition, the European Union is pursuing an antitrust case against Gazprom for abuse of its dominant position, seeking to weaken its hold on the market.

Before it's here, it's on the Bloomberg Terminal.