Gazproms Financial and Economic Policy Press Conference 0 Moscow - - PowerPoint PPT Presentation

Moscow

Gazprom’s Financial and Economic Policy Press Conference

1 Limitation of Liability 1

This presentation is prepared by Gazprom (hereafter – the Company) and contains corporate information for investors. This presentation is not an offer for sale or an incentive of any offer for purchasing any shares or other securities, implying a shareholding interest in the Company, or a subscription for

• such. The presentation and information it contains as well as the fact of its display or publishing can’t be regarded with respect to any contract or

investment decision. For no purpose should the information contained in this presentation be relied on as well as any other materials provided in any other presentation in terms of their completeness, accuracy or impartiality. The information contained in this presentation should not be regarded as an investment

• consultation. The Company made every effort for making sure this presentation was reliable and opinions voiced in it were reasonable and impartial.

Therefore, no guarantees or assurances either self-evident or implied are provided in relation to accuracy, completeness or impartiality of information or

• pinions contained in this presentation on behalf of the Company, its shareholders, directors, officials or employees, or any other persons. Not one of

the Company’s directors, its shareholders, directors, officials or employees, or any other persons incur any responsibility for any losses which may

• ccur as a result of using this presentation or its contents in any form or in any other connection to this presentation.

This presentation may contain forward-looking statements. Such forward-looking statements include the data which are not accomplished facts, statements of the Company’s intentions, suggestions or current expectations in relation to, inter alia, the Company’s operational results, its financial state and liquidity, prospects, growth, strategy and development of the Company’s activity sector. For the reason of being related to future events and depending on circumstances that may occur in the future, forward-looking statements inherently involve risks and uncertainties. The Company notifies in advance that it provides no guarantees for forward-looking statements to be effectuated and that actual operational results, financial state and liquidity as well as the Company’s activity sector development may differ essentially from forecasts or suggestions contained or implied in the said forward- looking statements. In addition, in case the Company’s operational results, its financial state and liquidity as well as the Company’s activity sector development conform with forward-looking statements contained herein, such results and circumstances do not reflect the results and circumstances

• f future periods.

Data and statements contained in this presentation are relevant as of the time of its display and may be changed without prior notice. No party shall be under legal obligation for updating and renewing the data contained herein. Attendance at this presentation means that you agree to abide by the limitations mentioned above.

2

42.7 37.0 35.8 34.9 32.6 27.3 27.1 25.5 23.5 22.0

45% 22% 22% 42% 8% 13% 35% 38% 6% 43% 0% 10% 20% 30% 40% 50% 20 40 60 80 Net profit Profitability by net profit 63.2 57.8 57.5 55.8 48.9 48.7 48.6 48.4 41.4 39.5 38% 16% 15% 33% 38% 23% 40% 11% 20% 39% 0% 10% 20% 30% 40% 50% 20 40 60 80 EBITDA Profitability by EBITDA

Gazprom – Global Energy Company

Source: Gazprom’s data, Bloomberg

• 1. Gazprom’s adjusted EBITDA is calculated as operating profit before amortization and provisions for impairment (provisions for impairment of accounts receivable, prepayments, work in progress, investments and other long-term assets, reserves).
• 2. Net profit for shareholders.
• 3. Top 10 major oil and gas companies by capitalization as of December 31, 2013 (net of Gazprom): Exxon Mobil, Chevron, PetroChina, Shell, BP, Total, Petrobras, Sinopec, Eni and ConocoPhillips

Leader among global companies by EBITDA, 2013(1) 3rd among global by net profit, 2013(2)

USD billion

• 2.8%
• 0.4%

5.2% 5.7% 10.4% 9.7%

• 5%

0% 5% 10% 15% Net profit EBITDA Revenue Gazprom, 2007-2013 Major oil and gas companies , 2007-2013

(3)

Compound annual growth rate (CAGR) for 6 years

USD billion

(1)

3 Sustainable Generation of Free Cash Flow

351 183 47 45 31 100 200 300 400

Free cash flow of Gazprom and major Russian

• il and gas companies, 2013(1)

Source: Bloomberg as of June 20, 2014

• 1. Five major Russian oil and gas companies by capitalization as of June 20, 2014

13% 9% 5% 3% 3% 0% 5% 10% 15%

Gazprom’s free cash flow and capitalization versus major Russian oil and gas companies, 2013(1)

RUB billion

4

973 1209 1352 235 276 210 345 344 376 113 125 163 739 761 794 156 156 177 500 1000 1500 2000 2500 3000 2011 2012 2013 Oil and gas refining products Crude oil and gas condensate Electric and thermal power Gas transmission Gas sales in Russian Federation Other

Revenue Diversification: New Source of Growth

11 12 13 15 15 17 18

8 10 12 14 16 18 20 2010 2011 2012 2013 2014P 2015P 2016P

Gas condensate production(1)

+20%

• 1. Management’s estimates; excluding production by affiliated companies

Net revenue from sales

Astrakhan Novy Urengoy

4.7

Yamburg

5.5 3.7

0.3 Tomsk 0.1 Orenburg

million t

Gas condensate production regions

million t RUB billion

5 On Changing Gas Price Regulation

85% 85% 83% 80% 76% 71% 15% 15% 17% 20% 24% 29%

0% 20% 40% 60% 80% 100% 2008 2009 2010 2011 2012 2013

Gazprom Group's gas Independent suppliers' gas

Gas supply to Russian consumers

5% 53% 28% 14%

Gas supply profitability

High profitable Mid profitable Low profitable Unprofitable Gazprom Novatek 98% 1% 1% 60% 40% Rosneft

• Due to differentiation of regulated prices by price bands in Russia, supplier obtains different profits when selling gas to customers in various

regions

• Independent producers supply gas primarily to regions with high profitability,

while enjoying discounts to regulated prices.

• Gazprom is displaced to low-profitable and unprofitable regions.
• Government supported Gazprom’s initiative on transition to regulated prices by

establishing price range with discount of up to 15% without differentiation by regions

• Transition to a new price regulation will allow Gazprom establishing a flexible

policy in gas prices for industrial consumers in Russia

6

522 505 485 477 467 452 449 437 432 418 416 341 287 164 152

Henry Hub (US) NBP Japan (LNG)

100 200 300 400 500 600 700

Gas Prices in Russia, Europe, USA and Japan

Source: CERA, IEA, EIA, FTS, Mosoblgaz.

• 1. Data for 2013, Turkey and EU av. for 6 months of 2013.
• 2. With account of gas distribution organization tariffs, payment for distribution and logistical support services, VAT included
• Gazprom provides substantial support to national economy development by supplying gas at regulated prices. Russian gas prices are still

lowest compared to Europe and USA.

• Average gas prices for domestic and industrial consumers in USA and Europe are much higher than in major hubs. In Europe these prices also

surpass Gazprom’s gas selling prices significantly.

• In countries with advanced market economy gas prices for domestic consumers are much higher compared to prices for major industrial

consumers.

Average retail gas prices for domestic consumers in Russia, Europe and USA, 2013(1,2)

USD/1,000 m3

Average gas prices for industrial consumers in Russia, Europe and USA, 2013(1,2)

USD/1,000 m3

1,230 1,152 1,129 1,056 978 938 922 910 777 680 568 411 365 133

Henry Hub (US) NBP Japan (LNG)

200 400 600 800 1000 1200 1400

7 Fluctuation of Gas Transmission Rates

1.85 2.30 4.81 2.62 8.92 1.87 2.39 7.04 2.08 1.94 2.30 3.03 1.47

1 2 3 4 5 6 7 8 9 10

OpenGrid (Germany), 2014 HETPA (Germany), 2014 NETG (Germany) METG (Germany) DEDAN (Germany) TAG (Austria), 2013/2014 WAG (Austria), 2013/2014 PW (Austria), 2013/2014 Slovakia, 2014 Czech Republic, 2013 Midcontinent Express Pipeline (USA), 2014 Fayetteville Express Pipeline LLC (USA), 2014 Gazprom (Russia), 2013

0.85 0.99 0.95 1.28 1.38 1.46 1.47 1.33 1 2 3 4 5 6 7 8 9 10

2007 2008 2009 2010 2011 2012 2013 2014

(2)

Average regulated service rates for third-parties gas transmission

EUR/thousand m3 per 100 km

Rates for gas transmission via gas trunklines should be calculated using return on investment capital method

• At present Russian rates for gas transmission services are lower than

European and most American ones(3).

Average rates for gas transmission services in Russia, Europe and USA (1)

• Rates for gas transmission via gas trunklines do not make up for capital investments

into facilities for gas transmission to domestic market.

• In 2013 actual net margin for rendering gas transmission services to external

transmission operators totaled 1.2 %.

• In 2014 there will be no indexation of transmission rates or regulated wholesale gas

prices for industrial consumers.

• From July 1, 2015 maximum possible rate growth will total 6%, from July 1, 2016 – 5%.

EUR/thousand m3 per 100 km

Source: Company’s data

• 1. Provided the maximum capacity load factor (load factor = 1)
• 2. Considering EUR vs. RUB rate growth
• 3. USA rates slightly differ among companies and account for an average of USD 1.4 to 6.4 for thousand m3 per 100 km

8 Rates for UGS Services

• 1. Rate at 0°С

20 40 60 80 100 120

Astora Jemgum (Germany) VHG Bad Lauchstadt (Germany) VHG Bernburg (Germany) Eon Ger Kraac (Germany) VHG Kirchheilingen (Germany) OMV (Germany and Austria) Astora Haidach (Austria) Astora Rehden (Germany) VHG Buchholz (Germany) Kasimovskoye UGS facility (Russia) Punginskoye UGS facility (Russia) Severo-Stavropolskoye UGS facility (Russia)

(1) (1) (1)

Rate for UGS services, at 20°С

• Expansion of UGS capacities is Gazprom’s strategic
• bjective for maintaining production efficiency and

responding to peak loads in winter period.

• Rates for gas storage services in Russia are considerably

lower than similar rates in Europe, being 40% lower than economically feasible level.

• When adjusting gas storage rates for independent

producers, Gazprom strictly complies with gas price change rates approved by Russian Government – 2013 saw no increase in gas storage rates.

• UGS facilities are not naturally-monopolistic business

Under such conditions, decision for expanding the scope

• f UGS rates government regulation would be needless

and inconsistent with market economy development. EUR/1,000m3/year Self financing rate for UGS services amounts to EUR 28.48/1,000m3/year

9

42.5 48.7 53.2 57.4 10 20 30 40 50 60 2011 2012 2013 2014P

Prime costs of gas transmission(2)

427.0 536.1 631.0 681.2 237.0 509.0 602.0 700.0 200 400 600 800 1000 1200 1400 1600 2011 2012 2013 2014P

Prime costs of gas production(1)

Prime costs of gas production Severance tax

Cost Reduction Program for 2013–2014

Efficient Cost Management Policy

• Expected effect from Program execution in 2014 – RUB 17.5 billion:
• Operating activities:
• Current costs – RUB 6.5 billion
• Financial costs – RUB 0.2 billion
• Investment activities – 10.8 billion

RUB/1,000 m3 RUB/1,000 m3*100 km 1,045 1,233

• 1. Prime cost of the Gas Production business means costs on 1,000 m3 of commercial gas production by 7 major gas producing subsidiaries of Gazprom. Gazprom’s costs are not included in the parameter.
• 2. Prime costs of the Gas Production business means costs on 1,000 m3 of gas transmission per 100 km by Gazprom’s gas transmission subsidiaries (across Russia). Gazprom’s costs are not included in the parameter.
• Effect of Program execution in 2013: RUB 24.4 billion,
• Operating activities:
• Current costs – RUB 7.9 billion
• Financial costs – RUB 1.8 billion
• Investment activities – RUB 14.7 billion – due to bidding for goods, works/services,

materials and equipment.

• Financial activities – cost reduction in bonds placement through low-cost standard

procedures under EMTN programs. 664 1,381

10

107 49 20 20 4 6

20 40 60 80 100 120 140 Main process equipment Pipes GCU spare parts and motor repair services

Savings due to cutting suppliers’ bid for vital materials and equipment

Cutting of initial bid Scope of supply in agreed prices 56 000 57 000 58 000 59 000 60 000 61 000 62 000

Декабрь 2011 Февраль 2012 Апрель 2012 Июнь 2012 Август 2012 Октябрь 2012 Декабрь 2012 Февраль 2013 Апрель 2013 Июнь 2013 Август 2013 Октябрь 2013 Декабрь 2013 Февраль 2014 Апрель 2014 Июнь 2014

Начальная (максимальная) цена, рассчитанная на основе Соглашений Индикативная цена, рассчитываемая ежемесячно по формуле

• 5.5%
• 6.0%
• 6.9%
• 3.9%

* Без НДС

Cost Reduction Due to Vital Materials and Equipment Pricing in 2013

RUB, billion

Savings in vital materials and equipment procurement amounted to RUB 30 billion Pricing formula effect from December 2011 to June 2014

• While determining economically expedient price level for vital materials

and equipment Gazprom primarily seeks to meet its commercial interest through conformity of prices to quality and performances of products, as well as compliance with Company’s efficiency parameters.

• Application of pricing formula for pipes enabled to reduce prices during

mentioned period below those forecasted by Russian Ministry of Economic Development. RUB/ton*

11 Gazprom Group Tax Burden Fluctuation

147 237 509 602 693 717 556 590 674 718 200 400 600 800 1000 2010 2011 2012 2013 2014P 2015P

Severance tax rate calculation for Gazprom*

Gas severance tax, RUB/thousand m3 Gas condensate severance tax, RUB/t

RUB

* Before 2012 gas condensate severance tax amounted to 17.5 per cent of sales price

700 686 1H2014 2H2014

∙ Correlates tax rates with average gas sales prices; ∙ Provides for partial cushioning of effect from Government’s decisions on Russian gas rates freezing in 2014 and their limiting within inflation growth rates in mid-term; ∙ Grants tax benefits for new, mature and complex fields; ∙ Increases transparency and stability of gas producers taxation; ∙ Lays down transparent rules for gas condensate taxation. ∙ New fields in Yamal and Gydan Peninsulas (for 12 years from start

• f each field development), in Irkutsk Region, Krasnoyarsk Territory

and Far East; ∙ Fields with maturity degree over 70%; ∙ Complex gas fields in Astrakhan Region with high sulfur content; ∙ Fields with formation depth exceeding 1,700 m.

New procedure for gas severance tax calculation: Most important benefits for Gazprom concern:

3

12 Capital Investments by Gazprom and Russian Petroleum Majors

22.1 37.4 43.4 43.9 27.8 34.7 45.7 48.9 10 20 30 40 50 60 2006-2008 2009-2011 2012 2013 Gazprom Russian petroleum majors (sum)

Capital investments by Gazprom and Russian petroleum majors(1)

USD billion 6.2 11.6 13.2 13.3 9.6 11.3 14.5 15.0 2 4 6 8 10 12 14 16 2006-2008 2009-2011 2012 2013 Gazprom Russian petroleum majors USD/bbl of

• il equivalent

Specific capital investments per barrel produced by Gazprom and Russian petroleum majors(1)

Source: companies’ websites, Bloomberg

• 1. Russian petroleum majors: Rosneft, LUKOIL, Bashneft, Surgutneftegaz, Tatneft, TNK-BP and Transneft

13 Investment Program

• 1. Source: forecast provided by Company’s top management

Main investment targets, 2014

Gas processing

▲Construction and expansion of gas processing capacities

Gas transmission and storage

▲Bovanenkovo – Ukhta gas trunkline system ▲GTS expansion – Southern Corridor project ▲ Long-term investments in construction of South Stream gas pipeline

abroad

▲ Urengoy – Novopskov gas pipeline repair at Petropskov – Pisarevka

section

▲ Сonstruction and retrofitting of GTS

Gas production

▼ Bovanenkovskoye field ▼ Existing fields including Nadym-Pur-Taz region ▼ Development operations abroad

Oil business

▲Novoportovskoye field and Messoyakha group of fields

Power business

▲Investments in construction

109% 125% 0,0 20,0 40,0 60,0 80,0 100,0 120,0 140,0 400 800 1 200 1 600 2 000 2 400 2012 2013 2014P

All other sections Gas storage Gas supply Generation and sale of electricity and heat Processing Oil and gas condensate production Gas production Transmission Self financing (Operating cash flow/capital investments)

1,545 1,475 1,180(1)

Capital investments and self financing

RUB billion

14 Developing Gazprom Group’s Centralized Liquidity Management System

Russian cash pool

Gazprom

System of foreign cash pools GMT Group Gazprom Germania Group Gazprom Holdings Cooperatie U.A.

• Centralized management of Gazprom Group cash

flows

• Online control of cash flows on accounts of

Gazprom Group subsidiaries

• Streamlining management of temporary surplus

funds (profit yielded in 2013 more than 17-fold exceeds 2009 figures)

• Raising funds inside Gazprom Group
• Enhancing Gazprom’s ability to obtain short-term

borrowings (up to RUB 150 billion) on favorable conditions 92 subsidiaries

15

S&P, Fitch AAA- BBB+ BBB BBB- BB+ BB BB- B+

1,028 1,071 1,113 509 429 689 500 1000 1500 2000 2011 2012 2013 Net debt Cash and cash equivalents

Relative debt ratios

Debt and Liquidity Management

Total and net debt Cost of debt financing

%

Gazprom credit ratings

Moody’s A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1

1 3 5 7 9 2008 2009 2010 2011 2012 2013 Weighted average fixed interest rate Weighted average variable interest rate Weighted average interest rate

6.3% 3.0% 5.7%

1,537 1,501 1,802

• 1. Maximum level for Total debt/adj. EBITDA

RUB billion

Июнь 2002 Июнь 2003 Июнь 2004 Июнь 2005 Июнь 2006 Июнь 2007 Июнь 2008 Июнь 2009 Июнь 2010 Июнь 2011 Июнь 2012 Июнь 2013 Июнь 2014

SnP Moody's Fitch Инвестиционный уровень Investment level

0.8 0.9 0.9 0.5 0.7 0.6 0,0 0,4 0,8 1,2 1,6 2,0 2011 2012 2013 Total debt/adj. EBITDA Net debt/adj. EBITDA

• max. level(1) 1.6

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Value: EUR 900 mln GBP 500 mln CHF 500 mln Coupon: 3.700% 5.338% 2.850% Circulation period: 5 years 7 years 6 years Date of issue: July 25, 2013 September 25, 2013 October 25, 2013 Achievements:

• Placement of bonds with a premium of 10 b.p. – one of lowest results

among comparable corporate and government issuers in European and emerging markets

• First placement in pounds sterling since June 2011(1)
• Largest separate placement in pounds sterling since 2007(1)
• Lowest yield of bond placements in pounds sterling among non-

government issuers(1)

• Gazprom’s first Eurobond issue in Swiss francs since 2009
• High value of transaction confirming great investor interest in Gazprom
• Price in US dollars within existing curve

Successful Activity in Debt Capital Markets

EUR 750 mln 3.600% 7 years February 26, 2014

• Achieving profitability level of new issue within Gazprom’s interpolated

curve (+5 b.p.) – one of lowest results for Euro placement among comparable corporate and state-owned issuers in emerging markets RUB 30 bln 7.300%(2) 30 years November 28, 2013

• Debut placement of exchange-traded bonds
• Most long-term tool in local market for Gazprom
• Allowed to extend Company’s liability structure

Foreign currency borrowings Ruble borrowings

1. For Russia, CIS and Eastern Europe 2. Inflation-linked coupon

17

Gazprom’s GDRs listed on Singapore Exchange

• Listed on stock exchange on June 17, 2014
• Broadening investment base internationally
• Round-the-clock trading of securities on international

platforms

Gazprom’s shares included in top quotation list of Moscow Exchange

• Registered in First Level on June 9, 2014
• Expanding range of potential investors primarily through

companies managing pension savings and insurance reserves

Liquidity of Gazprom’s shares compared to global oil and gas companies

0.04% 0.21% 0.22% 0.24% 0.27% 0.29% 0.30% 0.31% 0.47% 0.58% 92 71 169 341 1,111 410 692 697 444 289 0,00% 0,50% 1,00% 1,50% 2,00%

• 2000
• 1500
• 1000
• 500

500 1000 1500

Source: Bloomberg на 19 июня 2014 г.

Average daily trading volume for last 12 months, USD million

Increasing Liquidity of Shares

Average daily trading volume for last 12 months as % of market capitalization

18

0.3% 1.3% 2.0% 5.2% 4.2% 5.2% 0% 1% 2% 3% 4% 5% 6% 2008 2009 2010 2011 2012 2013P 0.36 2.39 3.85 8.97 5.99 7.20 2 4 6 8 10 2008 2009 2010 2011 2012 2013P

Dividend payout per one share Dividend yield(1)

RUB

Dividend Policy

• 1. Calculated as relationship between announced dividends for a period and share value as of last day of the relevant period.

Gazprom’s dividend payment schedule

in compliance with changes to Federal Law On Joint Stock Companies effective since January 1, 2014

Dividend payout to nominee shareholders and their trustees listed in Register of Shareholders (before July 31, 2014)

June July Annual general Shareholders Meeting

(June 27, 2014)

Approval of record date

Dividend payout to other shareholders listed in Register of Shareholders (before August 21, 2014)

August

Record date

(July 17, 2014)

Approval of annual General Shareholders Meeting date

(May 15, 2014)

May

19 2014 Forecast

Shareholder Value Growth Factors:

• Strengthening Gazprom’s positions in European market
• Increasing Gazprom’s competitive ability in domestic gas market
• Diversification in Asia
• Pro-active development of gas condensate business
• Strengthening control over operational and capital costs within promising

projects

• Improving corporate governance system
• Intensive enhancement of financial results