Russian gas giant Gazprom turned 303.7 billion roubles in net profits calculated to International Financial Reporting Standards (IFRS) in the second quarter of this year, 80% up from 169.7 billion roubles in Q2 2010, the company reported.

Eighteen analysts had predicted the company would have made 283.3 billion roubles in net profits, on average. Sanford Bernstein had the most accurate forecast: 306.12 billion roubles.

Gazprom’s Q2 sales revenues weighed in at 1 trillion roubles, up from 762 billion roubles a year prior. Operating expenditures rose 29.3% to 680.4 billion roubles.

Q2 EBITDA (earnings before interest, taxes, depreciation, and amortization) amounted to 416.9 billion roubles (289.6 billion roubles in Q2 2010). The average market EBITDA forecast was 379.6 billion roubles.

The company had positive free cash flow as the market expected it would, which had been negative 7 billion roubles in Q1 because the company began this year with large investments. Q2 free cash flow was 34 billion roubles (27.4 billion roubles for the first half).

H1 net profits were up 56% at 771.7 billion roubles, sales revenues 36.7% at 2.35 trillion roubles, and operating expenses 31% at 1.5 trillion roubles.

A major item in total operating expenses was “Purchased gas and oil” which increased by 178 403 million roubles. “The increase in cost of purchased gas relates to the increase in volumes and increase in prices of gas purchased from third parties within the Russian Federation and abroad,” the company said.

H1 net debt contracted 7% to 811.6 billion roubles. The company said that mainly reflected a decrease in the dollar exchange rate against the rouble.

Syndicated credit

The Gazprom group secured a long-term unsecured syndicated credit facility of $600 million repayable in 2016 in September, under an agreement made in April, the company’s IFRS report says. The agent for the deal is CJSC Mizuho Corporate Bank (Moscow). The interest rate is LIBOR plus 1.5%.

The group also clinched in September a long-term credit agreement with Gazprombank for 10 billion roubles at 9% repayable in 2018. “Under this agreement, eight billion roubles were raised in October 2011, and the remaining part will be raised in November 2011,” the company said.

Bonds

Demand for bonds in the 15-billion-rouble third bond series being issued by Gazprom Capital LLC, a Gazprom special purpose vehicle (SPV), amounted to 20 billion roubles during the placement by book building, the head of investment company Renaissance Capital’s debt-financing department for Russia and the rest of the C.I.S. Eduard Dzhabarov said.

Bids for the Gazprom bonds were being collected until November 8. During book building, the issuer received some sixty bids, of which more than forty were accepted.

Dzhabarov said that the Gazprom bond placement on the market involved no state banks. There was significant demand among foreign investors, including European banks.

“Despite the market volatility and persistent state debt problems among countries in the Eurozone, we think that we placed this instrument quite successfully,” he said. “After a two-year hiatus, Gazprom has proved that it is issuer number one in Russia,” he said.

As reported, the series-3 first-coupon rate was set at 7.5% per annum, a rate that corresponds to a yield of one-year put of 7.64% p.a. The bonds are due to mature after five years in circulation.

Rate guidance was initially 7.25%-7.75% p.a., but was later lowered to 7%-7.5%.

Technical placement on the MICEX Stock Exchange is slated for November 10.

Russia’s Federal Financial Markets Service (FFMS) registered three Gazprom bond issues totaling 30 billion roubles last December.

The first five-year bond issue is of 5 billion roubles, the second, four-year issue – 10 billion roubles, and this three-year issue – 15 billion roubles. All the bonds have face value of 1 000 roubles.

Gazprom is guaranteeing the bonds.

This is the first time in the company’s history that it is issuing bonds through an SPV, having previously done so through the parent company OJSC Gazprom. In this case, the issuer had to provide detailed information on its entire corporate structure, which took a lot of time and resources.

Gazprom has series-9, -11, and -13 bonds totaling 20 billion roubles already in circulation.

EBITDA

Gazprom expects earnings before taxes, depreciation, and amortization (EBITDA) to rise more than 30% and that net profit will also increase in 2011, the gas giant said in a presentation.

Andrei Kruglov, the gas giant’s deputy CEO and head of finance and economics, said during a conference call that robust growth in net profit and profit at the parent company would be sustained in 2011.

“EBITDA will grow more than 30%,” he said, adding that the debt burden would be comfortable.

EBITDA in Q2 was 416.9 billion roubles, up from 289.6 billion roubles a year previously. Net profit attributable to shareholders was 303.7 billion roubles, up from 169.7 billion roubles a year previously. Gazprom boosted net profit 56% year-on-year in H1 2011 to 771.7 billion roubles.

Dividends

Gazprom has written 25% of net profit to Russian Accounting Standards (RAS) into its 2012 budget for dividends, Kruglov said.

He said dividend this year came to 25% of net profit. “The draft budget for next year also contains a figure of 25%,” he said.

In 2010, Gazprom paid shareholders 3.85 roubles per share. Overall, dividend payouts totaled 91 billion

roubles – the highest payout in the company’s history.

Gazprom boosted net profit to Russian Accounting Standards (RAS) 84% year-on-year in H1 2011 to 487.806 billion roubles. The company thereby formally exceeded in the first half the net profit figure for all of 2010 – 364.6 billion roubles. However, last year’s profits were reduced by ‘paper’ losses on the drop in subsidiary Gazprom Neft share value; in reality, the gas giant earned 517 billion roubles, the figure from which the government directed that dividends for 2010 be calculated from. The natural monopoly pledges to earn 750 billion roubles this year, and that, again, would be prior to the calculation of paper adjustments.

Supplies

Gazprom expects to increase gas supplies to the E.U. to 151-152 billion cubic meters in 2011, the deputy head of Gazprom export, Sergei Chelpanov, said during a conference call.

Gas consumption is waning somewhat in Europe, but this does not apply to Russian gas, Chelpanov said. “Our [own] exports in the nine months were significantly higher than in 2010,” he said.

Russian gas supplies to the E.U. could rise to 164 bcm in 2012. “We are taking several factors into consideration in 2012, but we expect to export 164 bcm. Contract variants cater for approximately 10-12 bcm growth,” Chelpanov said.

Nord Stream

Ukraine’s gas transport system would be used after the launch of the Nord Stream gas pipeline only if gas demand increases in Europe, he said.

“Everything depends on gas demand in Western Europe. There now will be a decrease in gas supply through the Ukrainian system. But if demand increases both the Ukrainian system and South Stream will be filled,” he said.

Gazprom has signed contracts to transport 22 billion cubic meters of gas through the second strand of the Nord Stream pipeline, Chelpanov said.

“These contracts are long-term and primarily linked with a basket of petroleum products,” he said.

Contracts were signed with E.ON, GdF, DONG, and other companies, he said.

Libya

Meanwhile, the restart of Libyan gas supply to Italy will have no impact on Gazprom’s total deliveries, Chelpanov said.

“The stoppage in Libyan gas supplies might have caused an increase in collections but it was insignificant,” he said.

Chelpanov said that “the restart of collections of Libyan gas has not influenced quotas for Russian gas collection.”

Shtokman

Elsewhere, Gazprom is still planning to make a final investment decision on the Shtokman project by the end of the year, head of the Gazprom Export LLC department for business development on new markets Marina Surzhenko said.

“We, like our partners, are continuing to work on the target date for making a decision by the end of the year,” she said.

The investment decision will include integrated proposals both on pipeline gas and on liquefied natural gas (LNG), Surzhenko said.

“We are not considering these projects separately,” she said.

Answering a question on whether Gazprom will expand LNG capacity at Sakhalin-2 or build new plants – for example, in Vladivostok – Surzhenko said: “The [Eastern Gas] program is currently being updated. No final decision has been made yet.”