OAO Gazprom posted a 30% rise in first-quarter profit, but the Russian natural-gas monopoly cautioned that the global credit crisis could hurt its cash flows and ability to borrow.
While analysts said that Gazprom would shrug off falling oil prices to boost profit throughout the rest of 2008, the state-controlled gas company isn't immune to the global financial turmoil, which has begun to take hold in Russia. "If lower energy prices hurt cash flow, Gazprom will have to cut spending, said Artyom Konchin, an analyst at UniCredit in Moscow. "That would also mean it can repay less debt, which would in turn worsen its credit condition."
For the quarter ended March 31, Gazprom said net profit was 273.44 billion rubles ($10.24 billion), compared with 210.3 billion rubles a year earlier, boosted by higher domestic prices and stronger demand abroad. Sales rose 48% to 902.94 billion rubles, helped by a 25% boost in domestic gas tariffs from January and a 34% increase in export volumes in the lucrative European markets, where prices aren't capped like they are in Russia.
In a statement, Gazprom said the financial crisis "could affect the ability of the group to obtain new borrowings and refinance its existing borrowings at terms and conditions similar to those applied to earlier transactions."
Gazprom, the world's largest producer of natural gas, previously had said it was able to rely on huge cash flows generated during the past year to steer clear of problems. As recently as Monday, Chief Executive Alexei Miller said that those cash flows would enable Gazprom to overcome the tough credit conditions.
Still, the company has asked the government to put in place an emergency loan facility that would give it access to additional funds to refinance debt should the need arise. It had 1.1 trillion rubles of net debt at the end of March.
"We expect Gazprom's earnings growth to accelerate over the remainder of 2008," thanks to high gas prices in Europe, said Alexander Burgansky, an analyst at investment bank Renaissance Capital.
European exports account for nearly 30% of Gazprom's total sales. Pricing in Europe is closely correlated with the region's Brent oil price, which has halved since peaking at nearly $150 a barrel in July. But the effect of that price drop will only show up in 2009, as Gazprom's gas-pricing model is calculated with a six-month lag. What's more, prices will peak with volumes as cold winter weather stokes demand for heating fuel.