Russian natural-gas monopoly OAO Gazprom said Monday its second-quarter net profit tumbled 36% because of reduced demand for natural gas in Europe and lower prices.
State-controlled Gazprom said earnings for the three months ended June 30 came in at 192.56 billion rubles ($6.63 billion), down from 300.32 billion rubles a year earlier.
Based on the average exchange rate for the corresponding periods, second-quarter net profit fell 52% to $6.1 billion from $12.7 billion a year earlier. Analysts surveyed by Dow Jones Newswires had on average expected earnings of $5.15 billion.
Gazprom's costs increased 14% to 558.95 billion rubles, although in dollar terms they fell because the Russian ruble lost 36% of its value against the dollar over the period.
Citigroup analysts Alexander Korneev and Ildar Khaziev said they were "disappointed by the company's inability to control [operational expenses] in the current environment."
"We feel that rising competition from low-cost producers, both in Europe and Russia, will put further pressure on the company's profitability going forward," they said in a client note.
"The cost line was an unpleasant surprise," UniCredit analyst Pavel Sorokin said in a note, adding that he was also surprised by the unexpected revaluation of losses on items other than loans and borrowings of almost $1.1 billion, which partly mitigated rising costs and falling revenue.
Revenue for the second quarter dropped 16% to 708.30 billion rubles from 843.36 billion rubles a year earlier.
Gazprom exported 1.369 trillion cubic feet of natural gas to Europe in the quarter, down 15% from 1.617 trillion cubic feet a year earlier, as weaker industrial production resulted in lower demand for gas. Volumes of sales to the former Soviet republics more than halved to 399 billion cubic feet, notably because of the economic crisis in Ukraine. A 28% drop in European gas-export prices and a 19% fall in gas prices in Russia also contributed to the decline in revenue.
Gazprom's sales of gas fell 13% to 523.58 billion rubles from 601.88 billion rubles. The drop was 38% in dollar terms. Sales to Europe, the main source of income for Gazprom, fell 17% to 352.05 billion rubles.
Gazprom, said its long-term liabilities, amounted to 1.2 trillion rubles as of June 30, up 30% from Dec. 31.