By Thomas Grove and Andrey Ostroukh
MOSCOW--Russian gas giant OAO Gazprom on Wednesday said net
profit plunged by 86%, or nearly $20 billion, in 2014 due to the
weakness of the ruble and one-off charges, but analysts said
underlying profitability looked strong.
Largely shrugging off Western sanctions on Russia over the
crisis in Ukraine, Gazprom, which sells its gas in dollars and
reports its profit in rubles, was able to generate record cash flow
of $17.2 billion, helped by the ruble's nearly 50% fall against the
dollar last year.
"If you clean up the numbers from one-offs, impairments charges
in the fourth quarter and the foreign exchange loss, there is a
positive net income," said Ildar Davletshin at Renaissance Capital.
"Underlying profitability looks strong."
The company reported full year net profit at 159 billion rubles
($3.1 billion).
Gazprom, which is facing European Union sanctions on drilling
and has been restricted in U.S. financial markets, said its
operations were largely unaffected by the Western measures.
The gas giant said it had secured loans from Russian and
European lenders, including a EUR350 million loan from Intesa
Sanpaolo SpA due in 2016 and a $500 million loan due in 2018 from a
consortium of banks, among whom J.P. Morgan Europe Ltd. was the
appointed bank agent.
"The Group continues to assess and monitor the impact of the
ongoing sanctions but currently does not believe they have a
significant impact on the financial position and results of
operations," Gazprom said in its results.
One of the largest contributors to Russian gross domestic
product, Gazprom saw a fall in sales volumes across its markets,
including at home as Russian economic activity slows.
Gazprom shares closed 0.29% at 152.50 rubles.
It also reported a slowdown in volumes sold to Europe,
highlighting chronic problems the company faces in its biggest
market.
The company exported 159.4 billion cubic meters to Europe in
2014, compared with 174.3 billion a year earlier, although a
higher-than-expected price of $353 per thousand cubic meters offset
the fall, Mr. Davletshin said.
Gazprom's uphill battle in Europe, its biggest market, depends
largely on the fate of EU charges filed against the energy behemoth
for allegedly abusing its dominant market position and charging
unfair prices in central and Eastern Europe.
Interconnecting pipelines between EU countries and a rise in the
continent's use of liquefied natural gas has also eased the
stranglehold Russia has held on Europe for decades, forcing Gazprom
to change its longtime rigid business model.
Gazprom said gas prices for Europe would be $289 per 1,000 cubic
meters in the first quarter of this year and likely be $242 for the
same volume during the full year at an estimated Brent price of $55
per barrel.
Deputy Chairman Alexander Medvedev said European gas exports
were expected at 152 bcm-153 bcm. While Mr. Medvedev said shipments
this year are so far running above last year's rate, his full year
estimate would represent a decline from Gazprom's reported
exports.
Deputy Chief Accountant Mikhail Rosseev said the company would
invest 1.6 trillion rubles in 2015, slightly higher than the 1.4
trillion it spent last year.
Gazprom said ruble currency weakness pushed its net debt 48%
higher to 1.65 trillion rubles.
Russia's ruble plummeted last year, losing around half of its
value against the dollar, due to lower oil prices and a crisis of
confidence in the currency following Western sanctions on Russia
over the crisis in Ukraine.
The company said it suffered a 40 billion ruble write off for
debts from Ukraine and Moldova and faced a 124 billion ruble
impairment provision on its domestic assets.
Gazprom has been arguing with Naftogaz over energy prices to the
former Soviet republic following the ouster of pro-Russian
President Viktor Yanukovych.
Write to Andrey Ostroukh at andrey.ostroukh@wsj.com
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