Gazprom increases investment program for the current year by 13%

The Gazprom Management Board decided to increase the company’s investment program for 2022 to RUB 1.97 trillion. or nearly 13%, the company said. In December 2021, amid high gas prices, the gas monopoly approved an investment program for 2022 in the amount of 1.757 trillion rubles, but now it can be revised upwards (it is traditionally adjusted at the end of the first half of the year).

“The adjustment is primarily due to an increase in the volume of investments in the development of gas production centers on the Yamal Peninsula and Eastern Russia, the development of the capacities of the Power of Siberia gas pipeline,” Gazprom said in a statement.

Capital expenditures in 2022 may increase by 319 billion rubles. and amount to almost 1.75 trillion rubles. The cost of acquiring ownership of non-current assets – to increase by 32.5 billion rubles, to 109.5 billion rubles, and the volume of long-term financial investments will decrease by 129.5 billion rubles, to 123.8 billion rubles.

The company also plans to increase the amount of financial borrowing in 2022 by 113.2 billion rubles, up to 386 billion rubles, and the adopted financial plan will ensure that the company’s obligations are covered without a deficit, in full.

The decisions of the board of “Gazprom” will be approved by the board of directors of the company, the date of its holding has not yet been set.

“Taking into account the strong results of PJSC “Gazprom“for the first 6 months of 2022, we, nevertheless, continue to adhere to the principles of strict cost limits and a balanced cash flow,” said Famil Sadigov, Deputy Chairman of the Management Board of Gazprom, whose words are quoted in the release.

The company’s net profit under IFRS for 6 months of 2022 increased by 2.5 times compared to the same period, to 2.5 trillion rubles, the company reported in August.

Sadigov also clarified that the company’s adjusted budget reflects a 34% increase in gas sales revenues, and the decline in exports “was completely offset” by an increase in the average selling price to non-CIS countries. Since the beginning of 2022, spot gas prices in Europe have not fallen below $700 per 1,000 cubic meters. m, and at the end of August a historical record was reached – $ 3,900 per 1,000 cubic meters. m. According to the ICE exchange, on September 22, at the TTF hub in the Netherlands, the price of the October futures was about $1,900 per 1,000 cubic meters. m. How have changed the average price of gas supplies to foreign countries, “Gazprom” does not report. But, as Vedomosti wrote, by the end of 2021, the average price of Gazprom’s pipeline gas had almost doubled by 2020, $274 per 1,000 cubic meters. m (“Vedomosti” wrote about this on February 13).

Sadygov noted that the growth of the company’s income “allows to compensate for the increase in operating expenses associated with the growth of tax payments on severance tax in the second half of the year.”

In addition, Sadygov confirmed the company’s plans to pay 1.208 trillion rubles. interim dividends for the first 6 months of 2022, RUB 51.03 each. per share (no payments were made for 2021). Sadigov first announced the company’s intention to pay interim dividends for 2022 in August. “Even taking into account the growth of capital expenditures, the free cash flow of the Gazprom Group will fully cover dividend payments, which is in line with our long-term principles of financial stability,” the top manager said.

Based on the positive news about recommendations for the payment of dividends on September 22, Gazprom’s shares, according to the Moscow Exchange, grew by 10% during the day by the close of the previous session, to 235.8 rubles. for a security.

According to Gazprom, for 8.5 months of 2022, about 84.8 billion cubic meters were exported to non-CIS countries. m of gas, which is 53.7 billion cubic meters. m (38.8%) less than in the same period in 2021. The decrease is primarily due to a decrease in exports to the European Union (EU), now pumping to the EU is carried out only along two routes: along the onshore line of the Turkish Stream and in transit through GTS of Ukraine. According to Vedomosti’s calculations based on data from the European Network of Gas Transportation System Operators (ENTSOG), in mid-September, about 78.5 million cubic meters of gas were exported to the EU from Russia on average per day. m of gas against 420-425 million in September last year.

Against the backdrop of a decline in export volumes at the end of June, Gazprom shareholders refused to pay dividends for 2021, which, as expected, should have totaled 1.24 trillion rubles. (50% of adjusted IFRS net profit) or 52.53 rubles. per share. But on August 30, the board of directors of the company recommended paying dividends in the amount of 51.03 rubles for the first half of 2022. per share.

At the same time, the Ministry of Finance at the end of June developed amendments to the Tax Code (TC), introducing a temporary surcharge on the mineral extraction tax (MET) on gas produced by Gazprom. Then it was assumed that the amount of additional withdrawals in 2022 could amount to 416 billion rubles. (Vedomosti wrote about this on June 22).

Senior analyst “BCS The world of investment” Ronald Smith notes that Gazprom’s budget adjustment, which is carried out every year in September, in 9 out of 10 cases leads to an increase in costs. “The fact is that the initial budget is purposefully drawn up on the basis of conservative assumptions about gas sales volumes and gas prices,” he explained.

According to the analyst, Gazprom has additional cash even after paying a one-time tax of 1.25 trillion rubles. (The State Duma approved the MET in this volume for Gazprom in early July).

According to Smith, the company’s plan to reorient gas supplies from the EU to the Asian market is partly included in the new investment program.

China, according to his estimates, now chooses all the gas supplied by Gazprom through the Power of Siberia, and in 2022 export volumes can reach 20 billion cubic meters. m, exceeding the contract volume by 5 bcm. m per year much earlier than 2025,” he suggested.

According to Finam analyst Sergei Kaufman, an increase in Gazprom’s investment program is “expected against the backdrop of a rapid decline in gas exports to the EU.” To redirect supplies to Asia, he said, “more work” is needed. In the short term, Gazprom is likely to focus on increasing production at the Chayandinskoye and Kovykta fields in order to maximize supplies to China through Power of Siberia, he suggested.

“In the longer term, Gazprom’s efforts will be directed to deliveries through the Far East route and, of course, the construction of Power of Siberia-2, which Deputy Prime Minister Alexander Novak has already called a replacement [так и не заработавшего] Nord Stream-2. Although it will take at least 7-8 years before the launch of a new export gas pipeline to China,” Kaufman concluded.