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Wednesday, October 22, 2008

Crisis may hit Gazprom refinancing plans

October 22 2008 - Financial Times - Gazprom on Wednesday warned that the credit crisis had weakened its ability to refinance debts as it reported a sharp rise in first-quarter profits on higher gas tariffs and larger export volumes. The state-controlled Russian gas group said in a statement that the ongoing global liquidity crisis could affect its ability to obtain new borrowings and re-finance its existing borrowings at terms and conditions similar to previous transactions. It also warned that the crisis might affect the ability of some units to repay their outstanding loans which would then have an impact on management’s cash flow forecasts. EDITOR’S CHOICE Lex: Russia, the banks and the rouble - Oct-22Gazprom threatens to quit TNK-BP gas deal - Oct-16Gazprom’s expansion hopes in doubt - Oct-16Editorial Comment: Russian rescue - Oct-15Moscow dictates rescue of oligarchs - Oct-14Show of unity by partners puts TNK-BP dispute to rest - Oct-03Gazprom shares fell 7.4 per cent to Rbs109.50 on Wednesday, having dropped about 70 per cent since May. Its net debt as of the end of March 2008 was 10 per cent less than what it had at the end of 2007 due to a significant increase in cash and cash equivalent assets, the company said. But Gazprom’s net debt balance of Rbs1,103bn ($41.7bn) was still very high — the result of borrowing a record amount last year to fuel an acquisition spree in Russia, including control of Royal Dutch Shell’s Sakahlin-2 project. Earlier this month, Gazprom’s chief executive Alexei Miller told reporters that Gazprom was under no risk from the financial crisis. A spokesman, Sergei Kupriyanov, also said last week Gazprom would not have problems raising money abroad during the crisis. If credit remains tight, Gazprom can borrow against its export revenues, as it has done in the past when Russia has been in financial turmoil. It also has the comfort of the government’s promise of support. The company has already asked for $1bn in state funds as part of a rescue package being disbursed by the government to fund investment projects. However, Gazprom is facing a massive demand for investment at a time when costs across the industry have been soaring. It also cannot delay its big projects because the gas is already committed to export customers, or is needed to replace declining fields for the domestic market, analysts say. Developing the Shtokman gas field off the north coast of Russia, a technically challenging project, has been estimated at $15bn-$20bn, but will be ”much more expensive than people might think,” according to Christophe de Margerie, the chief executive of Total, one of Gazprom’s likely partners in the development. Fields and pipelines in Russia’s far east for supplying China and Korea could cost about $100bn, Gazprom has suggested, while opening up the deserted Yamal peninsula in the north of Russia, the location of vast gas reserves, could cost $200bn, according to an estimate from Shell. Falling steel prices will help curb those costs, but the demand for capital spending is still huge. Gazprom has threatened to pull out of a deal to buy a controlling stake in Kovykta, the vast gas field in Siberia. While it is likely to be a negotiating tactic, at least in part, it is also evidence of its constrained ambitions. The company on Wednesday said its first-quarter net profit rose 32 per cent from a year ago to Rbs286bn ($10.8bn) and sales increased by 40 per cent to Rbs903bn, beating expectations. Analysts polled by Reuters were expecting profit of Rbs246bn on sales of Rbs839bn.

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