Russ Oil-Gas

04-30-2009 - Reuters, Bloomberg, Moscow Times - Gazprom on Wednesday reported fourth-quarter profits down 84 percent year on year, citing over $1 billion in write-downs as it braced for a slowdown in its key domestic power generation market. "The negative macroeconomic background characterized by the slump in global oil prices in the second half of 2008 and an ongoing decrease in demand for fuel in export and domestic markets will have a significant impact on the group's financial results in 2009," Gazprom said in a statement. It reported profits attributable to shareholders of 742.9 billion rubles, equivalent to $29.9 billion at 2008's average ruble rate of 24.81 per dollar. The ruble has fallen sharply since the start of the fourth quarter. In ruble terms, profits rose 13 percent from the previous year. Analysts had forecast 815 billion rubles in profits attributable to shareholders. Analysts said the profit missed forecasts largely because of a heavy write-down on power generation assets. Gazprom has become one of the largest utility operators in the country, buying up generators after the breakup of the state utility monopoly. The company booked a charge of 48.4 billion rubles on its utility assets, mostly on accounts receivable. Utility industry executives say nonpayments are soaring as key consumers struggle to meet wage bills and keep their plants running. Forecast falls in consumption, combined with the high cost of investment, prompted a review of asset values, it said. "The impairments were primarily triggered by the increase in discount rates, projected reduction in electricity consumption and expected oil and electricity prices," Gazprom said. Weakening demand translated into weak revenue growth of 1.5 percent in dollar terms in the fourth quarter, Citi analysts said in a comment on the result. Net profit was $1.4 billion for the quarter after the write-downs, Citi said. "Even when adjusted for the impairment loss, EBITDA margin stood at 40.8 percent -- the worst quarter this year, despite top line still growing 1.5 percent quarter on quarter and staff costs staying flat quarter on quarter," Citi said. "Given the gas price is forecast to fall 44 percent next year, the company's profitability is likely to suffer significantly as the cost structure is unlikely to adjust quickly." Gas sales in Russia and abroad declined 8.7 percent in the three months through Dec. 31 compared with the previous year because of "a dramatic reduction of gas demand in foreign and domestic markets" amid the global financial turmoil, the company said in a statement. Deputy chief executive Alexander Medvedev said this year that gas production may fall by about 10 percent in 2009. Pyotr Bakayev, head of Gazprom's capital markets, declined to comment on media reports that production could drop to 490 billion cubic meters from 549.7 billion last year. Gazprom's oil and gas reserves increased 2.7 percent last year to 140.2 billion barrels of oil equivalent, under Petroleum Resources Management System methodology, the company said. The company will probably cut spending this year from the 920 billion rubles approved at the end of last year, Bakayev said. This year will be "more down to earth" after an "anomalous" 2008, he said. Gazprom, Russia's biggest borrower on external markets, cut its leverage from 1.38-times adjusted earnings before interest, taxes, depreciation and amortization to 0.7-times, largely by deconsolidating Gazprombank. The state company's share of Gazprombank's losses for the year amounted to 37 billion rubles, Gazprom said.