Gazprom Third-Quarter Net Rises 16% on Record Prices

By Lucian Kim and Torrey Clark

March 3 (Bloomberg) -- OAO Gazprom said third-quarter profit rose 16 percent as Russia’s largest energy producer reaped higher natural-gas prices from its European customers.

Net income increased to 132 billion rubles ($3.65 billion) from 113 billion rubles in the same period of 2007, the Moscow- based company said today on its Web site. That missed a 149 billion-ruble estimate of 10 analysts surveyed by Bloomberg News.

State-run Gazprom expects to have posted a record year in 2008 as gas prices for European consumers rose in the wake of record oil prices that peaked in July. The subsequent drop in crude costs and the credit crisis mean even Russia’s largest company will have lower revenue and tighter access to funds for new projects.

“It’s been one of the best quarters in Gazprom’s history yet totally irrelevant given that today’s market is looking forward, not back,” said Ronald Smith, chief strategist at Moscow-based Alfa Bank.

Third-quarter sales rose 61 percent to 830 billion rubles from 516 billion rubles a year before. European gas prices lag behind crude oil with a six to nine month delay.

“The market is currently more concerned about the company’s operating performance through 2009,” VTB Group said in a note to clients before the results were published. “Nonetheless, Gazprom remains our top pick within the sector, particularly on a relative basis to peers.”

Ukraine Dispute

Gazprom, which makes most of its profit from sales to Europe, estimates it lost more than $2 billion during a price dispute with Ukraine. The company, which relies on its western neighbor to transit 80 percent of deliveries to Europe, cut exports via Ukraine for almost two weeks in January.

Ukraine has until March 7 to pay for Russian gas deliveries in February, according to an agreement reached by Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Timoshenko on Jan. 19.

The company opened new export markets to Asia and Europe in February when it inaugurated Russia’s first liquefied-natural gas plant on Sakhalin Island in the Pacific Ocean. By 2030, Gazprom plans to sell 90 million tons of LNG, gas compressed to a liquid for transport by tanker, or more than nine times the full capacity of its Sakhalin plant.

To contact the reporters on this story: Lucian Kim in Moscow at lkim3@bloomberg.net; Torrey Clark in Moscow at tclark8@bloomberg.net