Gazprom Under Pressure to Cap Spending After 2011 Costs Overrun
February 10, 2012, 2:58 AM ESTBy Anna Shiryaevskaya
Feb. 9 (Bloomberg) -- OAO Gazprom, the world’s biggest natural-gas producer, will face pressure to keep a lid on spending at investor meetings starting tomorrow after 2011 investments overshot its forecast by 56 percent.
The Moscow-based company, whose spending plan spiraled to 1.28 trillion rubles ($43 billion) last year, said in December it was studying a 39 percent cut in investments proposed for 2012. Investors have expressed concern the company may back- track on that plan after a mid-year review.
“Capital expenditure is very important,” Lev Snykov, a partner at Greenwich Capital in Moscow, said by telephone. Investors want to see “whether they will stick to their promises made in December,” he said. Gazprom typically reviews its budget after first-half results.
The state-controlled gas producer in December budgeted 777 billion rubles of investments for 2012 under a “conservative” scenario, and may revise the plan later in the year, Chief Financial Officer Andrey Kruglov said Feb 1. Gazprom will start its annual meetings in Moscow tomorrow, then London and New York next week, and will update investors on the outlook for production, exports and prices.
The company is investing in remote gas finds to counter dwindling output at aging fields in western Siberia, and is building pipelines across Russia. The producer, which regularly reports on performance to Prime Minister Vladimir Putin, plans to expand its liquefied natural gas, oil and power units, while seeking to maintain its 25 percent share of Europe’s gas supply, its biggest revenue earner.
Production, Exports
Gas output rose 0.9 percent to 513.2 billion cubic meters last year, the company said this month. Gazprom shipped 150 billion cubic meters to customers in Europe and Turkey, an increase of about 8 percent.
Production plans are “important” because they’ll indicate Gazprom’s ability to meet export obligations, Snykov said.
Production capacity will probably be little changed from last year, and the company may delay a plan to return exports to pre-recession levels until 2013, analysts at Renaissance Capital said in a research note last month.
“Gazprom has been criticized by investors for capital inefficiency, lack of transparency and a bureaucratic corporate culture,” RenCap said Jan. 31. “While the current domestic political environment appears to be more conducive to a serious turnaround effort, we believe the share price is unlikely to react until the company provides solid evidence of success and change -- an upbeat presentation alone will not suffice.”
Gazprom declined 11 percent last year in Moscow trading, and has gained 10 percent this year, valuing the company at 4.47 trillion rubles. The company’s press service declined to comment on the investor meetings.
--Editors: Amanda Jordan, Randall Hackley
To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
