Russ Oil-Gas

//Russian Firm Reacts as Demand Slumps in Europe; Putin Offers State Aid
APRIL 5, 2009 - Wall Street Journal by JACOB GRONHOLT-PEDERSEN and GUY CHAZAN - MOSCOW - Russia's OAO Gazprom said it is increasingly likely it will cut its multibillion-dollar investment program this year amid collapsing demand for natural gas. Meanwhile, Russian Prime Minister Vladimir Putin offered Gazprom state aid to get the company through the global recession. The economic slowdown has triggered a slump in natural-gas consumption by industry and power generators in Europe, Gazprom's main export market. Gas use in Europe's largest economies fell as much as 16% this winter despite unusually cold conditions, according to IHS Global Insight. Gazprom's revenue is expected to fall sharply this year amid a steep decline in the export price of gas, which normally lags behind oil's price by several months. The company has responded to the decline in demand by cutting output. Gazprom's board in December approved a 920.44 billion ruble ($27.64 billion) investment program for this year. The company indicated in February that the figure might be reduced, depending on the depth of Europe's recession and the outlook for gas demand. On Friday the company said a spending cut looked more likely. In a meeting Friday with Gazprom Chief Executive Alexei Miller, Mr. Putin offered state aid to the company. The government didn't elaborate on the offer. Mr. Miller said aid wouldn't be necessary, however. In another sign of how the financial crisis is squeezing Gazprom, Moody's on Friday downgraded the company's credit rating by one notch, bringing it in line with Russia's sovereign rating. Moody's said it was no longer appropriate to assign Gazprom a rating higher than Russia's because both were affected by the price of oil and gas and the health of the Russian economy. The gas giant is Russia's biggest borrower, with $47.6 billion in debt as of mid-2008. About a quarter of that is short-term and may need to be refinanced this year. But Moody's analyst Victoria Maisuradze said Gazprom's debt burden isn't excessive. She said its debt-to-book value ratio fell to 24% at the end of the third quarter from 31% at the end of 2007 and wasn't expected to rise materially this year. In an indication that the appetite for Gazprom debt hasn't waned, the company late Thursday placed bonds valued at 400 million Swiss francs, or about $350 million, the first such placement by a Russian borrower since the onset of the global financial crisis. Gazprom has experienced a sharp reversal in its fortunes since last summer as the price of crude oil has plunged. The company's market value is now a little less than $100 billion.