The results achieved by Gazprom in the first quarter may be considered as quite remarkable

Financial performance of Gazprom came up to our expectations on the main parameters – revenue, EBITDA and net profit.

Gazprom generated a substantial cash flow in the first quarter, which became a pleasant surprise for us. Cash flow from operations totaled some USD 16 billion, while net cash flow – nearly USD 9 billion. We see the reason for it in the compensations the Company got in the first quarter from a number of customers under take-or-pay contracts. Besides, Gazprom had overpaid the gas export tax before and it was offset in the first quarter as well.

We expect the second quarter to show strong cash flow as well, since the compensations under take-or-pay contracts will go on. Growing expenses may be regarded as a negative aspect and, in particular, it concerns labor payment expenses.

The consumption level slightly lower than the average one became of no surprise to us. Gazprom is currently selling gas in Europe at the prices higher than those of the spot market, which impacts the consumption level.

The results achieved by Gazprom in the first quarter may be considered as quite remarkable. They have exceeded our expectations in terms of EBITDA and net profit.

Very high net cash flow is a positive aspect. It totaled USD 8.9 billion. Significant net debt reduction may be pointed out as well. The debt reduction reached almost 30 per cent and now it is equal to USD 977 billion. We haven’t seen such a level since late 2007.

The average gas sale prices in the former USSR were rather high reaching USD 233 for 1,000 cubic meters – 81 per cent of the average prices for the gas sold beyond the former Soviet Union (FSU).

The average gas prices in the FSU were a bit lower than we had forecasted and reached USD 287 for 1,000 cubic meters. Meanwhile, we were expecting some USD 300 for 1,000 cubic meters.

Gas sales were generally within the forecasted limits. Gazprom sold 42.7 billion cubic meters of gas in Europe. But due to seasonal factors the gas sales volume in the second quarter will be lower. We forecast it within 32–34 billion cubic meters.

Gazprom showed good results in the first quarter outperforming market expectations.

The proceeds increased following a robust gas demand provoked by weather factors and due to domestic gas prices growth. However, growing gas demand was partially offset by low gas prices in Europe and former Soviet Union while in the meantime regulated domestic gas prices showed a considerable increase.

Business diversification keeps exerting a positive effect on Gazprom’s financial performance. Thus, proceeds from oil and refined products sales increased 69 per cent up to USD 6.6 billion. Such a considerable increase was produced by the Moscow Refinery consolidation in parallel with higher international and domestic prices for oil and refined products. Proceeds from heat and power sales increased as well due to TGC-1 consolidation in December 2009 along with increasing proceeds from heat and power sales by Mosenergo, OGK-2 and OGK-6.

Sakhalin II LNG production eventually makes a significant positive impact.

EBITDA was backed by decreasing expenses for oil and gas purchase. The main reason for that was in lower expenses for Central Asian gas bought in Kazakhstan and Uzbekistan at lower prices and volumes versus the previous contract with Turkmenistan. At the same time, growing regulated expenses put bounds to the EBITDA margin growth. Thus, labor payment expenses featured a significant increase induced by growing salaries, TGC-1 consolidation and new assets acquisition by Gazprom neft.

One should notice a considerable net debt decline owing to monetary funds increase and Gazenergoprombank deconsolidation. Following the 2010 results we expect Gazprom’s gross debt to EBITDA ratio to be at level 1 which is rather comfortable.

We expect Gazprom to show lower results in the second quarter due to declining gas demand in Europe in springtime.