Gazprom Consolidated Financial Results for the Year End 2008

Source: www.gulfoilandgas.com 4/29/2009, Location: Asia

Gazprom issued its audited consolidated financial statements prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2008.

- favorable situation in all geographical distribution areas, that caused significant increase of gas sales;

- financial crisis influence to financial market and Russian Ruble exchange rate that made to recognize loss from changes of fair value of ENI S. P. A (ENI) 20% of Gazprom shares purchase option and increase of financing expenses.

The table below presents the audited consolidated income statement for the years ended 31 December 2008 and 2007. All amounts are presented in million Russian Roubles, unless otherwise stated.

Sales (net of excise, VAT and customs duties) increased by RR 1,095,715 million, or 45%, to RR 3,518,960 million in the year ended 31 December 2008 compared to the year ended 31 December 2007.

Net sales of natural gas increased by RR 738,698 million, or 48%, to RR 2,266,401 million in the year ended 31 December 2008 compared to the year ended 31 December 2007. This increase was primarily due to the increase of the volume of gas sold to Europe and other countries and higher gas prices in all geographical segments.

For the year ended 31 December 2008 net sales of natural gas to Europe and other countries increased by RR 557,090 million, or 64%, to RR 1,430,500 million compared to the year ended 31 December 2007. This mainly results from the increase of average realized prices in rubles (including excise and customs duties) by 47% and the increase of the volume of sold gas by 9%, or 15.9 bcm.

Net sales of natural gas to FSU countries increased by RR 101,673 million, or 40%, to RR 356,514 million in the year ended 31 December 2008 compared to the year ended 31 December 2007. The increase of sales in this segment is explained by higher average realized prices.

Net sales of natural gas in the domestic market increased by RR 79,935 million, or 20%, to RR 479,387 million in the year ended 31 December 2008 compared to the year ended 31 December 2007. This is explained primarily by increased average domestic price for gas set up by the Federal Tariff Service.

Net sales of oil and gas products increased by RR 127,740, or 24%, in the year ended 31 December 2008. The increase was mainly due to the increase of oil and gas products prices.

Net sales of crude oil and gas condensate increased by RR 47,197 million, or 28%, in the year ended 31 December 2008. The increase of net sales of crude oil and gas condensate primarily resulted from the Gazprom Neft activities: net sales of crude oil increased by RR 43,911 million, or 30%, to RR 191,330 million in the year ended 31 December 2008 compared to the year ended 31 December 2007.

Net sales of electricity and heat increased by RR 147,674 million, or 298%, in the year ended 31 December 2008. The increase in sales of electricity and heat mainly results from operations of Gazprom Germania Group and consolidation of OAO Mosenergo (from II quarter of 2007), Wholesale Power Generating Company No.2 ( WGC-2) and OAO Wholesale Power Generating Company No.6 (WGC-6) (from III quarter 2008) as subsidiaries.

Other sales increased by RR 5,461 million, or 5%, to RR 116,731 million in the year ended 31 December 2008 compared to year ended 31 December 2007. Other sales are very different in composition. This is explained by the fact that the Group includes a lot of companies involved in different types of activities: from science and telecommunication services to machine building and construction.

Operating expenses increased by RR 445,931 million, or 26%, to RR 2,159,690 million in the year ended 31 December 2008 compared to the year ended 31 December 2007.

Major items whose growth resulted in the increase of the total amount of operating expenses are: Purchased oil and gas (RR 314,220 million), Goods for resale, including oil and gas products (RR 76,158 million), Repairs and maintenance expenses (RR 34,176 million), Transit of gas, oil, oil and gas products (RR 33,176 million), Taxes other than profit tax (RR 29,200 million), Depreciation (RR 11,439 million). The increase in Purchased oil and gas was mainly caused by the increase in the world oil prices and increase in gas trading on the European market and respective increase of gas purchases in Europe. This gas is purchased by the Group at market prices. The increase in Goods for resale, including oil and gas products mainly results from operations of Gazprom Germania Group (purchase and sale of electricity) which accounts for 64% of the total amount. Also, as of 31 December 2008 the Group tested for potential impairment the carrying value of assets used to produce gas, oil and gas condensate, for transportation and sale of gas as well as for production of electric power and heat. Following the test result the Group recognized an impairment provision and a corresponding loss of RR 48,424 million for assets used to produce electric power and heat energy. The allowances include the provision for impairment of accounts receivable of RR 42,057 million and RR 1,348 million for the years ended 31 December 2008 and 2007 as well as the impairment provision for long-term financial assets available for sale and other investments of RR 2,726 million and RR 1,422 million for the years ended 31 December 2008 and 2007, respectively.

In the year ended 31 December 2008 the profit attributable to equity holders of OAO Gazprom for the period totaled RR 742,928 million which is RR 84,890 million, or 13%, higher compared to the year ended 31 December 2007.

Net debt balance (defined as the sum of short-term borrowings, current portion of long-term borrowings, short-term promissory notes payable, long-term borrowings, long-term promissory notes payable and restructured tax liabilities, net of cash and cash equivalents and balances of cash and cash equivalents restricted as to withdrawal under the terms of certain borrowings and other contractual obligations) decreased by RR 210,237 million, or 17%, from RR 1,228,583 million as of 31 December 2007 to RR 1,018,346 million as of 31 December 2008. This decrease can be primarily explained by the deconsolidation of Gazprombank Group starting from June 2008.


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