Despite difficult situation in the energy markets, as well as all difficulties which the oil and gas branch faces recently, in 2015 Gazprom showed good financial results on key indicators. Vice Chairman of the Board of the company Andrey Kruglov told about it at annual press conference «Financial and economic policy of PAO Gazprom».
Fundamental components of financial stability of PAO Gazprom are the best indicators among the public international companies on stocks and production of hydrocarbons (122.2 billion barrels of an oil equivalent of the proved stocks, 8 million barrels of oil equivalent of daily production), strong positions on the main sales markets (31% of the gas market of Europe) and the reasonable strategy aimed at value creation in the long term. The corporation adheres to conservative financial policy that provides margin of safety at the time of turbulence in the financial markets. The work on increase of the level of corporate management which is based on the best examples of the Russian and world practice is conducted. At the same time environmental conditions remain difficult that puts forward serious calls, demands responsible and weighed approach to planning of additional measures for optimization of expenses and increase in the income, as well as balanced approach from the regulator.
«Under conditions of instability and reduction of prices of oil and gas we see need to adhere to the course of conservative financial strategy which provides financial stability of the company and allows reacting to possible changes of the situation in due time. We pay the closest attention to control of expenses at all stages of formation and budget performance. We work on prioritization of the investment program; we seek to keep the principle of financing of the investment program at the expense of an operational cash flow. Effective debt management, decrease in currency risks and balanced dividend policy are also of great importance for us», Andrey Kruglov reported.

Key results

Last year the gain of Gazprom Group (minus excise, the VAT and the customs duties) reached 6.073 trillion rubles, having increased in comparison with previous year on 8.6%. On indicators of EBITDA and net profit the Gazprom Group was included into three leaders among the public oil and gas companies of the world. So, EBITDA corrected on changes in reserves under depreciation of assets remained rather stable, having decreased in relation to 2014 on 4.5% only and made 1.875 trillion rubles. Net profit (relating to shareholders of PAO Gazprom) grew almost five times and reached 787 billion rubles. Unlike many largest international corporations Gazprom during ten years in a row generates positive cash flow which indicator became one of the highest among the public oil and gas companies of the world — 390 billion rubles or 6.4 billion dollars. Thus the pure debt in dollar expression was lowered, debt loading is kept at the comfortable level — the relation of a pure debt to EBITDA in dollar expression made 0.9 that became one of the most comfortable coefficients among the global integrated oil and gas companies.
«Flexible ruble exchange rate considerably flattens negative effect from reduction of prices of oil and gas in the world markets. Two thirds of the gain of Gazprom nominated in foreign currency are US dollars and euro or have a binding to foreign currency. Thus the most part of operating expenses is ruble. And a share of expenses in capital expenditure anyway attached to a currency component reaches only about 20%. Thus, the floating rate of ruble gives serious support of profitability and generation of a cash flow of the company. A share of currency component in the total amount of the debt corresponds to prevalence of dollars and euro in the gain. The structure of money on balance corresponds to expenses and it reduces currency risks», Andrey Kruglov told.

Optimization, adaptation, centralization

Gazprom makes active efforts on control of growth of operating expenses and capital expenditure and also on adaptation of financial policy to the current market conditions. So, cumulative effect from implementation of the program of expenses reduction of PAO Gazprom made about 18 billion rubles in 2015. The predicted effect current year is estimated within 15.5 billion rubles. Thanks to this work cost of gas production of the company is one of the lowest in the world — last year, taking into account costs of transportation, it made 1549 rubles for 1 thousand cubic meters of commodity gas or less than 26 dollars, including extraction tax. This year the prime cost indicator allegedly will make 1676 rubles for 1 thousand cubic meters.
«A basis of long-term planning in Gazprom is strategic planning for the ten-year period today. In particular, by results of this work the investment program the forthcoming year and the three-year period is formed. The main volume of work on the horizon till three years in the field of reduction of expenses is carried out within preparation and adoption of the budget and optimization of the investment program. Within formation of the budget the program of reduction of expenses is approved, the stress scenario providing additional reduction of operating expenses and capital expenditure in case of considerable deterioration of external conditions is developed. The budget and investment program for the forthcoming year are approved by the Managing Board and Board of directors of PAO Gazprom, the next two years — are taken into consideration and then specified in the following planning cycles», Andrey Kruglov told.
According to him, Gazprom carries out thorough analysis of structure of the investment program and cost of the projects declared in it, carries out the work on prioritization of projects — within the investment program they are divided into some groups depending on priority level. The most rigid stage of selection of the declared projects is carried out during preparation of the budget of the investment program for forthcoming year. The management of Gazprom pays special attention to the analysis of structure, level and dynamics of expenses, exercises control at all stages of the budgetary process. The expenses exceeding approved budget demand the positive decision of the Chairman of the Board and in some cases — Board of Directors.
«Our priorities are carrying out tough financial policy providing high level of control over expenses and maintenance of financial stability when ensuring the necessary amount of financing for implementation of priority investment projects», Andrey Kruglov told. According to him, nearly half of the investment program of Gazprom Group makes investments into transportation, processing and realization of gas. About 25% is a share of oil and gas condensate production.
In the investment program of Gazprom the certain flexibility allowing adapting for changes of market conditions included. The company carries out strict prioritization of projects and subsequent monitoring of efficiency of their realization. Thanks to it since 2011 the steady trend of decrease in volumes of capital investments in dollar expression is observed. Thus capital investments of Gazprom are completely provided with an operational cash flow.
One of the main directions of the financial block of Gazprom is centralization of functions of the Group monetary funds management. The Uniform treasury was created for this purpose, among which tasks is centralization of management of cash flows of the Group (within system of monetary pools) and financial risks, ensuring liquidity and efficiency of treasury operations, as well as full control of settlement operations of the Group and absolute transparency of cash flow on accounts of subsidiaries. «At the moment the system of monetary pools created by us cover already 47 Russian, and also a number of foreign subsidiaries of Gazprom Group”, Andrey Kruglov said. “Already now it is possible to speak about overall performance though it is carried out taking into account restrictions which are set by financial sanctions of the EU and the USA against a number of the Russian companies, including Gazprombank and Gazprom Oil».

In the Russian market

The work in domestic market continues being difficult for Gazprom Group. Taking the provided advantage at determination of the prices, independent suppliers realize gas to generally large consumers in highly profitable regions that does not promote the balanced development of gas supply of the Russian consumers. Therefore normal development of gas industry and domestic market of gas requires creation of equal conditions, first of all regarding pricing, for all participants of the market. «The solution of this task, in our opinion, at the first stage has to be consolidated to gradual liberalization of price control. In this regard Gazprom continues work on transition from directive establishment of prices to establishment for the company of price range in which the extracted gas could be implemented at contractual prices», Andrey Kruglov told. According to him, opportunity and conditions of liberalization of the prices for industrial consumers in certain regions of Russia is studied. For study of these and other questions connected with development of the market of gas the joint working group with specialists of the Russian Federal Antimonopoly Service is created. Gazprom pays considerable attention to the work on development of the market relations to sector of exchange trade where the company as the dominating supplier of gas constantly expands the participation.
«Paying annually in the budget of Russia about 2 trillion rubles as tax and customs payments, Gazprom Group is one of the largest taxpayers. Despite importance of stability of tax regime for investment climate, parameters of the taxation of oil and gas branch continue to change annually. The tendency of growth of rates of extraction tax on gas and gas condensate, despite adverse dynamics of macroeconomic indicators remains», Andrey Kruglov told. So, according to him, for 2016 the withdrawal coefficient in extraction tax formula on gas for Gazprom Group is increased on 37%. Higher rates for the last three years grew extraction rates on gas condensate.

Solvency and dividends

Gazprom has free access to the international markets of the capital that is confirmed with a number of the large deals on attraction of loan financing made by the company in 2015-2016. So, in October, 2015 placement of euro bonds of 1 billion euros was successfully carried out. This release became last year the largest among the Russian issuers. Also last year Gazprom opened for itself a new source of the loan capital — the Chinese financial market. In August the company for the first time attracted 1.5 billion dollars from consortium of the Chinese banks. And in March of the current year Gazprom concluded with Bank of China the agreement on granting the credit of 2 billion euros. In the history of corporation it is the largest transaction on the amount of financing, attracted directly from one credit organization, and the first bilateral credit agreement with the Chinese bank. Meanwhile transactions that confirms high interest of investors in Gazprom Group some more were concluded into the specified period.
«In the structure of our debt portfolio loans with the fixed interest rate prevail that significantly reduces risk of increase in percentage payments for the company in case of growth of level of rates in the market», Andrey Kruglov told. According to him, in April of the current year the independent Chinese rating agency Dagong confirmed the highest credit rating for Gazprom which was for the first time given to the company last year. At the same time ratings from the American rating agencies Standard & Poor’s, Moody’s and Fitch Rating are at the level of sovereign credit ratings of Russia though indicators of solvency of Gazprom Group obviously exceed this level.
Dividends by results of the work of Gazprom in 2015 made 7.89 rubles on an action that exceeds 50% of the corrected net profit of the company under Russian accounting standards or 24% of the consolidated net profit on the international system of financial statements. The volume of dividends which will be paid this year for almost 10% will exceed the level of payments of last year. «Dividend payments of Gazprom will become the largest among the public Russian companies both on absolute value and on the volume of payments in the state budget”, Andrey Kruglov emphasized. “Dividend profitability on the stocks of PAO Gazprom will continue corresponding to the level of the leading energy companies of the world».