Gazprom’s operating results show that gas demand starts recovering

Viktor Mishnyakov

Viktor Mishnyakov, Uralsib

Gazprom has reported positive operating results of the 3rd quarter of 2009. As we see, they are higher than those of the 2nd quarter, which means that the bottom line was hit in the 2nd quarter, while in the 3rd quarter the concern started to recover from demand-related problems. The most important thing is that there is a positive trend towards recovery despite a slow increase in gas sales. We may definitely state that Gazprom will show the growth of its financial indicators in the 4th quarter of 2009 and in 2010 as well.

It should be noted that in the 3rd quarter Gazprom managed to substantially reduce most of its costs. An increase in costs is only observed in the feedstock purchasing segment. Besides, these costs derive from Gazprom neft’s activities, which are consolidated in Gazprom’s statements. Deconsolidation of Gazprombank and Sibur also resulted in costs reduction.

Maria Radina

Maria Radina, Nomura

Gazprom’s operating results in the 3rd quarter of 2009 confirmed our expectations that gas sales volume would go up. Traditionally, the 3rd quarter is weaker than the 2nd quarter in terms of sales volume. However, in this case Gazprom’s sales in the 3rd quarter surpassed the results of the previous quarter. A somewhat slight increase is meaningful. It proves that the gas sales slowdown has stopped.

At the same time, Gazprom’s operating cash flow in the 3rd quarter made up USD 2 billion only. This is several times lower than the results of the 2nd quarter of 2009 and the 3rd quarter of 2008. The working capital has increased by USD 3.6 billion in the 3rd quarter if compared to the 2nd quarter of 2009. This looks strange against the background of the relatively low sales prices and volumes observed. This is probably related to the fact that the Federal Customs Service demanded 100 per cent advance payments instead of the 50 per cent ones.

Gazprom’s operating results are likely to be neutral for the market, since everybody is highly interested in the information on the concern’s current sales. We can see that Gazprom is restoring its production rates – they are only 1 per cent lower than the record level of the daily average production rate achieved in December 2007.

Lev Snykov, VTB Capital

Gazprom published good operating results. In the 3rd quarter of 2009 we witnessed a substantial growth in gas sales in Europe as compared to the same period of the previous year. Therefore, gas demand recovery is likely to be faster than it was expected.

At the same time, the Company’s cash flows failed to fully reflect the sales dynamics, which may be explained by higher capital expenditures.

It should be noted that in the 3rd quarter gas prices in Europe dropped down to their minimal level, which aggravated the situation. We expect that gas prices will be higher in the 4th quarter of 2009.

The opinions expressed in this section may not necessarily coincide with the official position of Gazprom