Uzbekistan to Sell Gas to Gazprom for 5 Per Thousand Cu M

Gazprom's woes

By Megan McArdle

30 Dec 2008 11:58 am

The Russian oil giant joins the ranks of national oil companies in trouble:

Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company's shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world's largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom's big private sector competitors in the West is looking for one.

That Russia's largest state-run energy company needs a bailout so soon after oil hit record highs last summer is a telling postscript to a turbulent period. Once the emblem of the pride and the menace of a resurgent Russia, Gazprom has become a symbol of this oil state's rapid economic decline.

State oil companies are lovely cash cows when gas prices are rising.  But they tend, on the whole, to be very badly run as companies.  One often hears that government planning lets companies invest for the very long term, unlike the psychotic short-termism of the stock market.  But at least in the case of oil, this often seems to be reversed.  The government's priority is maximizing the size of the benefits available for its politicians to distribute now, not ten years ago when they'll be dead or out of office.  The private oil companies planned for the strong possibility that the price of oil would drop dramatically.  Meanwhile, other state-owned companies let the money run out as fast as it came in.  Venezuela and Iran notoriously diverted desperately needed investment funds into social spending, while Gazprom and Rosneft went on a buying binge, snapping up assets that now look overpriced even though the government leaned on the private sellers to offer them at steep discounts.  Now investors are fleeing the Russian firms, and I imagine that Hugo Chavez, whose chronic underinvestment caused Venezuela's output to fall in absolute terms, is wondering how to tell the Venezuelan people that there's no money for all their favorite programs.  At least he doesn't have nukes.

There are exceptions--I understand that Aramco, Saudi Arabia's secretive oil giant, is supposed to be very well run, and Norway is a model of how countries should handle the financial and business problem of using up a valuable resource.  Sadly, before Chavez, PDVSA was also known for being first class. But most national oil companies are both less efficient at extracting and finding oil, and less intelligent about handling the money it generates.  It's not just excessive spending on patronage programs when times are good, or the difficulty of building up sufficient reserves for down times.  As the Times article points out:

The company, meanwhile, says it will go ahead with capital spending to develop new fields in the Arctic, and continues to pour money into subsidiaries in often losing sectors like agriculture and media. It is also assuming, through its banking arm, a new role in the financial crisis of bailing out struggling Russian banks and brokerages.

Investors say an unwillingness to cut costs in a downturn is a common problem for nationalized industries, and another reason they have fled the stock. When oil sold for less than $50 a barrel in 2004, Gazprom's capital outlay thatyear was $6.6 billion; for 2009, the company has budgeted more than $32 billion.

Gazprom executives say they are reviewing spending but will not cut major developments, including two undersea pipelines intended to reduce the company's reliance on Ukraine as a transit country for about 80 percent of exports to Europe. Gazprom and Ukraine are again locked in a dispute over pricing that Gazprom officials say could prompt them to cut supplies to Ukraine by Thursday.

Gazprom Revels In The Good Times

http://www.forbes.com/markets/2008/12/30/gazprom-earnings-debt-markets-equity-cx_je_1230markets04.html
Javier Espinoza, 12.30.08, 09:15 AM EST

The gas goliath's second quarter profits soar, but the numbers are from June.

The credit crunch and lower oil prices has been gnawing away at energy companies' earnings reports this year, but Gazprom has the luxury of putting off their harsh effects for a while yet. Russia's state-run energy giant said Tuesday that its second-quarter net profit almost tripled to 323.30 billion rubles ($11.02 billion) from 112.91 billion rubles ($3.84 billion) last year, while sales increased by 58.0% to 840.25 billion rubles ($28.63 billion).

Fortunately, Gazprom's second quarter fell in the three months to June 2008, when oil prices were climbing towards their record high of $147 a barrel. Next year's profit reports are unlikely to be quite as spectacular as they reflect the subsequent drop in gas prices and the higher cost of corporate financing.

Shares of Gazprom (other-otc: OGZPY - news - people ) fell 1.5% to $3.55 on the dollar-denominated RTS Index, which also fell by 2.2% on Tuesday.

The firm said its rise in profit was mainly due to an increase in oil prices and consumer demand. Last October, Gazprom said the ongoing crisis could affect its ability to obtain credit. (See "Gazprom Caught In The Crunch.") On Tuesday it said it had refinanced part of its foreign debt and increased its overall borrowing with a further loan, adding it could not gauge any further impact of the liquidity crisis on its operations.

The supplier of a quarter of Europe's gas needs said the global liquidity crisis had affected companies' ability to attract loans and made borrowing more expensive. "At the moment the management can not certainly assess the impact of further decrease in financial markets' liquidity and the growing instability of forex and stock markets on the group's financial state," Gazprom said.

But even if the company is able to guarantee new loans for its operations, analysts are already warning that the Russian state-own company will suffer from a slump in demand in the first three months or first half of next year. "Gas prices are calculated based on a six-month lag from oil prices so the whole of 2008 will be great for Gazprom. But a slump in consumer demand in Europe and Russia will have a negative impact on the company in 2009," said Viatcheslav Bun, an analyst with Aton in Moscow.

Gazprom also said in its unaudited report that net profit rose by 85.0% to 609.35 billion rubles ($20.84 billion) in the first six months of 2008, up from 330.05 billion rubles in the same period last year. Sales increased by 52.0% to 1.74 trillion rubles ($59.3 billion).

Separately, British engines and power systems maker Rolls Royce has won a contract from Gazprom to supply gas compression equipment for the new Nord Stream gas pipeline from Russia to Europe. Rolls-Royce said it would supply eight industrial aeroderivative gas turbines driving centrifugal compressors for the new 1,200-kilometer pipeline.

Reuters contributed to this article.

Russian oil giant Gazprom searches for bailout money

http://www.bloggingstocks.com/2008/12/30/russian-oil-giant-gazprom-searches-for-bailout-money/

Posted Dec 30th 2008 11:15AM by Michael Fowlkes

Filed under: Russia, Politics, Commodities, Oil

What a difference a year makes. Indeed, Russian oil giant Gazprom has seen its fortunes free fall in 2008. The company, which was once on the verge of becoming the largest company in the world, is now looking for the Russian government to step in and offer up some bailout money to keep the company afloat.

The Russian natural gas monopoly has seen its market cap shrink by a remarkable 76% since the start of 2008, dropping it to 35th place in overall market cap. Now that the company has hit such hard times, it is looking towards Moscow for a little help, asking for a reported $5.5 billion.

The recent sharp drop in oil prices is largely responsible for the company's hard times, but that is not the whole story. Gazprom, while still enjoying high oil prices, displayed poor judgment in how it used its new found power and money. Instead of taking the profits from the past five years of record prices for natural gas and investing them in new exploration and drilling, they were used by, at the time Russian President, Vladimir Putin to regain public control over the oil fields, and other forms of private industry.

The result ... a company that now finds itself in debt to the tune of $49.5 billion. While this is nothing compared to the debt America runs, it is pretty massive compared to other emerging markets like India, China and Brazil, which have a combined total public and private sector debt of $56 billion coming due in 2009.

Despite clear signs that the company is suffering from inefficiency due to renationalisation, the company defends itself and blames its recent downturn in fortune to the Russian stock exchange.

According to Aleksandr I. Medvedev, a deputy chief executive of Gazprom, the recent steep decline in Gazprom's stock price is due to the lack of long term money that investors have to place in the highly volatile Russian stock exchange. He went on to say that the company's share price does not equal the company's real value, blaming the current crisis that started on Wall Street for being the catalyst to the company's drop in share price.

Earlier this year, Russia announced that it was going to be setting up a total corporate bailout fund of $50 billion, and that around $9 billion of that will be designated for oil and gas companies.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

Gazprom: Feeling the Pain

http://seekingalpha.com/article/112703-gazprom-feeling-the-pain
by: Eddy Elfenbein December 31, 2008 | about stocks: OGZPY.PK    

Gazprom (OGZPY.PK), the Russian energy giant, has fallen on hard times. The plunge in commodity prices has caused the company's stock price to fall by 76%. At one time, Gazprom wanted to become the largest and most powerful company in the world. Today, it might need a government bailout.

As ugly as American capitalism can often appear in practice, nothing really comes close to Gazprom. The company is merely a collaboration of the Kremlin and business. There's barely any recognizable difference. Like Lola, whatever Gazprom want, Gazprom gets.

The worst thing that can happen to an enterprise like Gazprom is to see initial success in its operations. As gas prices rose, they thought they really had a sound business and used their cash flow to renationalize Russia's oil industry. Once prices turned south, then the whole house of cards began to fall.

For a time, Gazprom, a company that evolved from the former Soviet ministry of gas, had been embraced by investors as the model for energy investing at a time of resource nationalism, when governments in oil-rich regions were shutting out the Western majors. In theory, minority shareholders in government-run companies would not face the risk their assets would be nationalized.

The New York Times reports:

But with 436,000 employees, extensive subsidiaries in everything from farming to hotels, higher-than-average salaries and company-sponsored housing and resorts on the Black Sea, critics say Gazprom perpetuated the Soviet paternalistic economy well into the capitalist era.

“I can describe the Russian economy as water in a sieve,” Yulia L. Latynina, a commentator on Echo of Moscow radio, said of the chronic waste in Russian industry.“Everybody was thinking Russia had succeeded, and they were wondering, how do you keep water in a sieve?” Ms. Latynina said. “When the input of water is greater than the output, the sieve is full. Everybody was thinking it was a miracle. The sieve is full! But when there is a drop in the water supply, the sieve is again empty very quickly.”

Perhaps Russia should do what America would do: appoint a Czar. No wait, bad idea.

Directory: gifiles -> attach
attach -> British Forces – Akrioti, Greece Griffin Fighter Squadron (84 Squadron raf) MoD announced possible Typhoon and Tornado arrivals to the base France
attach -> Russia 110204 Basic Political Developments
attach -> Unclassified//for official use only
attach -> Adaptability Sustainment
attach -> Pop-up 1 ("C" Chechnya) Header Text: Emir of the Caucasus Emirate Doku Umarov Image
attach -> Russia and Islam are not Separate
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attach -> The devolution

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