Gazprom Reports Record Third-Quarter Profit Amid Gas Surge

(Bloomberg) -- Gazprom PJSC’s net income surged to an all-time high in the third quarter, when natural gas prices soared to fresh records during Europe’s energy crisis.

Net income rose to 581.8 billion rubles ($7.8 billion) compared with a net loss a year ago and beat median estimates, the Russian gas producer reported Monday. Revenue rose 70% from a year ago to 2.37 trillion rubles, also a record-high. 

Gazprom shares gained as much as 5.51% in Moscow trading and were 3.8% higher at 339.71 rubles as of 19:18 local time.

The world’s largest gas producer is benefiting from a historic surge in prices amid a supply crunch in Europe, its largest export market. Russia’s gas deliveries to the continent have been capped as it has prioritized re-stocking domestic inventories. This has led to tougher competition with Asia for liquefied cargoes, with Europe’s storage facilities beginning winter at multiyear lows.

The situation in Gazprom’s key export markets has contributed to record earnings, according to Deputy Chief Executive Officer Famil Sadygov. “Given the current dynamics, we are expecting even more impressive results in the fourth quarter,” he said in a separate statement.

Supply Crunch

While gas prices in Europe more than doubled in the third quarter of this year, Gazprom’s revenues didn’t fully reflect that growth due to the pricing formulas in its long-term supply contracts, which account for the bulk of its export sales. The producer’s long-term contract prices factor in a range of spot and forward markets, including in some cases the cost of other fuels like crude. 

In the third quarter, Gazprom sold its gas to clients outside the former Soviet Union, including China, Turkey and most of Europe, at a price of $313.40 per 1,000 cubic meters. This compared to an average of 49 euros ($57.71) per megawatt-hour for benchmark Dutch front-month gas, or the equivalent of roughly $600 per 1,000 cubic meters. 

The producer’s most recent gas-price outlook for volumes outside the ex-USSR in the fourth quarter is $550 per 1,000 cubic meters due to higher prices for oil, products and spot gas in Europe. 

During the company’s third-quarter conference call on Monday, Gazprom executives declined to comment on the level of exports they expect for outside the ex-USSR region in 2021 and for next year. While the Russian gas giant is already seeing some gas-demand destruction amid the price rally, it expects supply requests from its long-term clients to remain high into the first quarter of 2022, given how low storage levels are on the continent.  

Generous Payout

Gazprom’s record earnings signal the producer is on track for the highest dividends in its history. The nine-month results imply payouts of 29.71 rubles per share, according to a company presentation for investors.  

The Russian gas giant expects its dividend for 2021 to reach at least 50 rubles per share, Sova Capital analyst Mitch Jennings said, citing remarks Gazprom management made to investors at a recent meeting. If the plan materializes, this year’s payout will be at least triple the current dividend record of 16.61 rubles per share set in 2018.

(Updates with price, export outlook comments from seventh paragraph.)

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