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Gazprom Neft reports 1Q 2009 US GAAP financials


	Gazprom Neft

Capitalization: 18 036 899 499,68 $

Common shares
Price	3,80 $

Price changing
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19.06.09 10:33

The 1Q 2009 financial results of Gazprom Neft have slightly exceeded expectations on both the EBITDA and net income indicators. The results show the company’s ability to keep its expenses in check and also reveal hefty Forex losses, as was the case in the previous quarter.

On June 18, Gazprom Neft published unaudited consolidated US GAAP financials for 1Q 2009, which show revenue contraction of 48% y-o-y, largely attributed to a 52% drop in the average Urals oil price and a 7.3% contraction of oil production. In the interim, oil refining expanded 4.1%, as the company continued to step up in-house oil refining by reinforcing the vertical integration of its production chain. In so doing the oil major has managed to keep its profit margins above the industry average in defiance of the crisis.

Table. Gazprom Neft: basic financial indices for 1Q 2008 and 1Q 2009

Indicator	1Q 2008	1Q 2009	1Q 2009/1Q 2008
Sales revenue, mn USD	8 045	4 185	-48.0%
Taxes and duties other than income tax, mn USD	2 826	1 237	-56.2%
The cost of purchased oil, gas and oil products, mn USD	2 095	846	-59.6%
Other operating expenses, mn	1 460	1 549	+6.1%
EBITDA, mn USD	2 195	945	-56.9%
Net income, mn USD	1 411	335	-76.3%
EBITDA margin, %	27.3%	22.6%	-4.7 pp
Net income, %	17.5%	8.0%	-9.5 pp

EBITDA slumped 57% to USD 945 million. The company saw its oil-price-dependent expenses, namely, payments of mineral extraction tax and duties, as well as its costs of purchased oil, gas and oil products, decrease faster than global oil prices, revealing its ability to efficiently control its shipments, including oil export supplies. In this regard, Gazprom Neft has outperformed Lukoil, while slightly yielding to Rosneft. Controls over administrative expenses, which soared 54%, were the company’s weakest point, although this indicator was strongly affected by the acquisition of a 51% stake in Serbian company NIS at the start of 2009. The company saw its EBITDA margin shrink by 5 pp to 23%, as a result, but still remained the industry leader on this indicator.

Net income plunged 76% to USD 335 million, mainly due to a heavy Forex loss of USD 166 million. Numerous oil majors incurred heavy Forex losses in 4Q 2008 and the ruble devaluation continued in 1Q 2009. Despite this, some oil companies, including LUKOIL, managed to avoid Forex losses, having hedged their currency risks in time. By contrast, Gazprom Neft has showed lax controls over Forex risks.

In general, Gazprom Neft posted reasonable production results and showed efficient control over costs. In our view, the results published may have a positive impact on its stock valuations in fundamental terms.

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