UpstreamOnline: Gazprom budget favours equity deals

EXTRACT: Besides a stake in Gazpromneft, Gazprom will this year have to fund the purchase of a 50% stake in the Sakhalin 2 oil and gas venture from Anglo-Dutch supermajor Shell and its Japanese partners for $7.45 billion.

THE ARTICLE

By Upstream staff

Russian Gazprom’s state-controlled board has approved an 11% rise in the company’s capital expenditure in 2007, while financial investment will soar by a quarter, the gas monopoly said today.

The move comes as minority investors criticise Gazprom for not investing enough in gas production amid stagnant output from mature fields in Siberia and for spending too much on buying into rival companies to strengthen the state’s grip over the industry.

The International Energy Agency has said Gazprom, which supplies a quarter of Europe’s gas needs, may fail to capitalise on record high gas prices and Europe may soon start feeling gas shortages.

Gazprom says it can increase production any time the markets ask for more, Reuters reported.

In a statement Gazprom said its capital investments will rise by 11% in 2007 to 360.6 billion roubles ($13.6 billion) from 324.9 billion in 2006.

Long-term financial investment will rise by 26% to 168.8 billion roubles from 133.7 billion, it said.

Gazprom has previously said it needed the money to buy 20% of Gazpromneft, which it does not yet control, from the bankrupt oil company Yukos.

The stake is worth $4.4 billion based on Gazpromneft’s current market capitalisation of $22 billion.

Gazprom had tried to cap its long-term financial investments at 85.5 billion roubles in 2006 but was allowed to boost them by over 50% to 133.7 billion after it bought minority stakes in Russia’s second-largest gas producer, Novatek, and Moscow city’s utility Mosenergo .

The transactions also forced Gazprom to increase its borrowing by a third in 2006 to 118.9 billion roubles, it said today.

The company said it planned to stick to its long-term target to borrow no more than 90 billion roubles in 2007-2009 despite failing to deliver on the pledge in the past few years.

Besides a stake in Gazpromneft, Gazprom will this year have to fund the purchase of a 50% stake in the Sakhalin 2 oil and gas venture from Anglo-Dutch supermajor Shell and its Japanese partners for $7.45 billion.

The Gazprom statement also said it saw a big spike in capital investments in 2008 and 2009 to 513.8 billion and 580.2 billion roubles while financial investments would be cut to 109.9 billion and 122.75 billion roubles respectively.

Gazprom’s investment plans are regularly revised and approved by the state even after the financial year is over.

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