Address to shareholders

Chairman of the Gazprom Board of Directors Viktor Zubkov

 

Chairman of Gazprom's Management Committee Alexey Miller


Dear Shareholders!

In 2011, Gazprom reached an impressive operational and financial success, which is in line with its clear and coherent long-term strategy that consistently brings Gazprom closer to its ultimate objective – to become the strongest company in the world’s energy sector. This strategy is the only appropriate one in the current economic environment as only robust, vertically-integrated global companies are able to win the competition in the global energy market.

In its operations, Gazprom is driven by the market. We are consumer-oriented, i.e. are guided by the current and long-term fuel consumption plans of our clients. The company works to ensure production and reliable delivery of various types of energy as required by the consumer.

This is why Gazprom’s strategy is based on the principle of diversification, which is applied in three key areas: products, transportation routes and sales markets. Gazprom continued to actively develop along these three tracks in 2011.

Our core product is natural gas. This is the main component of the fuel balance both in Russia and in Europe. 2011 marked the record-high increase in gas reserves due to geological exploration – 719.8 bcm, which is 40.3 % higher than the production volume. In the reporting year the production amounted to 513.2 bcm of gas, and for the first time ever Gazprom produced stranded Turonian gas at the Yuzhno-Russkoe Field and fed it to the Unified Gas Supply System of Russia.

Building on the principle of product diversification, Gazprom is actively developing the production of both pipeline and liquefied natural gas. This type of fuel was the main driver of the Company’s expanded presence in the international markets. Today Gazprom is the only LNG producer in Russia; its LNG plant under the Sakhalin-2 project has been exporting about 10 mln tons of LNG per annum for two years now. Gazprom has also introduced the gas-to-liquids fuel technology.

We were successful in oil business too. In 2011, necessary prerequisites were put in place to launch a new stage in the development of the Russian fuel and energy complex, i.e. the exploitation of the Arctic shelf. An offshore production platform was deployed at the Prirazlomnoye oil field in the Pechora Sea.

Gazprom set another record in the domestic power sector. In 2011, the company built in Russia 1.9 GW of combined heat and power generation units – more than installed by RAO UES of Russia through its history.

As regards gas transportation, our permanent objective is to enhance reliability of exports. To attain that, in 2011 we took a number of fundamental steps to diversify the transportation routs. First of all, Nord Stream was commissioned – the first gas route to directly connect the Russian and the European gas transportation systems. To ensure uninterrupted exports, it is planned to commence another strategic construction, the South Stream, in 2012. Also, in 2011, Gazprom became the sole owner of Beltransgaz, thus gaining full control over gas transportation to the Western borders of Belarus. Therefore, we steadily reduce the zones of transit risks between Russia and Europe.

Gazprom’s efforts to diversify its markets are aimed at safeguarding sustainable long-term sales.

The Russian gas market is now becoming the main rival to the exports and the number one market for Gazprom – both in terms of sales and profit. The company provides gasification of the Russian regions, thus building a new gas-consumer base and significantly improving the quality of life, primarily of the rural residents. In 2011, the investments made to gasification reached the record high of over RR 29 bln. However, there is a new record envisaged in 2012 – RR 37.66 bln.

In the new regions of Gazprom’s presence, in the Eastern Russia, we are laying down stable grounds for gas supplies – the company has started to build the gas transportation infrastructure practically from scratch. In 2011, Gazprom commissioned the first gas trunk pipeline in the East of Russia, Sakhalin – Khabarovsk – Vladivostok, which will bring by a large-scale gasification of the region.

In 2011, Gazprom finalized the construction of the first offshore gas pipeline for domestic supplies, Dzhubga – Lazarevskoye – Sochi. This pipeline will be the main means of energy supply for the 2014 Winter Olympic Games.

Gazprom projects are unparalleled in their scale, as well as in efforts and investments required. But the company is able to consistently implement them while meeting strict deadlines. This confidence rests on a high level of financial stability. In 2011, Gazprom showed record-high financial performance: sales revenues, currency earnings, EBITDA and net profit hit the company’s historical high. That’s why the Board of Directors recommended to the Shareholders Meeting to approve the highest dividend payout in the history of Gazprom.