June 28, 2012 Gazprom s Financial and Economic Policy Andrey KRUGLOV Deputy Chairman of the Management Committee Head of the Department for Finance and Economics 0
Overview of Financial and Operating Results Hydrocarbons production and power generation by Gazprom Group 2009 2010 2011 2012H (3) Natural gas, billion m 3 461.5 508.6 513.2 529.3 Oil and gas condensate, million t (1) 61.5 64.9 65.9 68.1 Power energy, billion KWh (2) 164.6 (2) 174.7 172.8 177.7 Thermal energy, million Gcal (2) 99.1 (2) 105.5 98.7 102.9 Robust financial results 2010 2011 Total proceeds from gas sales, RUB billion 3,597 4,637 Proceeds from gas sales, RUB billion 2,489 3,197 Adjusted EBITDA, RUB billion 1,364 1,931 Adjusted EBITDA/total proceeds 38% 42% 2010 2011 Total debt, RUB billion 1,315 1,540 Net debt, RUB billion 871 1,035 Total debt/adjusted EBITDA 1.0x 0.8x Free cashflow, RUB billion 417 84 1. Including production of associated companies in the share of Gazprom Group 2. Including production of Mosenergo, TGC-1, WGC-2 and WGC-6 (before 2012 ) 3. Data is based on business plans and may be adjusted by the amount of consumption. 1
Economic Efficiency of Gazprom as Compared to Largest Oil and Gas Companies Relative five-year CAGR between 2006 and 2011 Relative net profit between 2006 and 2011 (4) Income EBITDA (2) Net profit (3) Gazprom s five-year CAGR 15% 13% 15% 3 2 1 0 0 8 1 0 1.2 2 2.. 1. 2 1. 1. 1. 6 1. 6 1. 7 2. 0 Five-year average CAGR of largest oil and gas companies (1) 11% 6% 5% USD billion 70 60 50 40 30 20 10 0 10% EBITDA margin in 2011 Net profit margin in 2011 USD billion 50 42% 50% 40 25% 20% 30 18% 16% 14% 25% 10% 12% 14% 20 7% 7% 7% 11% 7% 3% 5% 6% 8% 10 0% 0 40% 28% 20% 0% EBITDA EBITDA margin Net profit Net profit margin Source: Gazprom, Bloomberg 1. Includes companies with the largest market value as of early 2012 (net of Gazprom) 2. Gazprom s adjusted EBITDA is calculated as profit before amortization and provisions for impairment (provisions for impairment of accounts receivable, prepayment, work in progress, investments and other long-term assets, reserves) 4. Calculated as 2011 net profit divided by 2006 net profit 2
Gazprom s Sources of Additional Revenues I. Domestic gas prices: Average annual change of regulated wholesale gas prices (1) RUB/1,000 m 3 +8% +27% +16% +26% +17% +11% +27% +25% II. Gas transmission tariff growth: Gas transmission tariff change for independent producers RUB/1,000 m 3 per 100 km +18% +21% +22% +15.7% +22.9% +9.3% +3.5% +6.2% +5.2% Gazprom s average gas selling price for population Gazprom s average gas selling price for industrial sector Increasing share of domestic gas market in revenues from gas sales at Gazprom Group 26% 37% 21% 16% 53% 47% 2011 2015H Europe (incl. Baltic states) other CIS countries Russia Source: Gazprom 1. Net of prices on additional gas supplies (pursuant to the Russian Government Directive No.333 on Improvement of State Gas Price Regulation dated May 28, 2007) 3
Cost Management 80% 70% 60% 50% 40% 30% 20% 10% 0% Operating costs and profit Other Repair, operation and maintenance Amortization Transit of oil, gas and refined products Labor costs Taxes less profit tax Gas and oil purchase 68% (1) 63% (1) 14% 12% 5% 4% 7% 6% 8% 6% 10% 8% 8% 9% 17% 18% Operationg costs/profit 2010 Operating costs/profit 2011 (within Gazprom Group according to IFRS) Controllable operating costs Purchased oil and gas optimization of schemes, amounts and sales markets for purchasing and transmission of gas provided by independent producers Labor costs annually indexed according to inflation rates Transit of gas, oil and refined products optimization of transportation schemes and logistics costs Procurement; repair, operation and maintenance permissible upper allowable level of cost increase up to 80% of producers prices increase (as forecasted by Economic Development Ministry) Cost Optimization (Reduction) Program 2011 2012 Effect from measures taken in 2011: RUB 25.7 billion Forecasted effect from measures taken in 2011: RUB 19.60 billion Stagewise cost reduction in operating activities due to Energy Saving Program, adoption of common technical requirements to equipment, introduction of integrated management mechanisms in projects and other corporate programs as well as competition-based selection of procurement and contracting companies Effect from measures on pricing optimization for vital materials and equipment RUB 9.0 billion Enforcement of financial and economic discipline by Gazprom subsidiary companies 4 1. Final amount may differ due to rounding
Prime Cost of Gas Production and Transportation Prime cost of gas production (1) Prime cost of gas transmission (2) RUB/1,000 m 3 RUB/1,000 m 3 /100 km 15% 4% 6% 8% 22% 1% 11% 9% Prime cost of gas production Severance tax Producer price index for industrial products Prime cost of gas transmission Producer price index for industrial products 1. Prime cost of the Gas Production business means costs on 1,000 m 3 of commercial gas production by 7 major gas producing subsidiaries of Gazprom. Gazprom s costs are not included in the parameter 2. Prime cost of the Gas Transmission business means costs on 1,000 m 3 of gas transmission per 100 km by Gazprom s gas transmission subsidiaries. Gazprom s costs are not included in the parameter 5
Cost Optimization in Vital Materials and Equipment Pricing in 2011 Pipes and metallurgical products prices in 2008 2011 Machine-building products prices in 2008 2011 1.3 1.2 1.1 1.0 0.9 0.8 0.7 2008 2009 2010 2011 Metallurgical products (Russian Economic Development Ministry 2008 2011) Level of agreed prices for pipe products Marginal growth taking into account Order on Cost Optimization Measures 1.3 1.2 1.1 1.0 0.9 0.8 0.7 2008 2009 2010 2011 Machine-building products (Russian Economic Development Ministry 2008 2011) Level of agreed prices for machine-building products Marginal growth taking into account Order on Cost Optimization Measures 6 Cost optimization results in vital materials and equipment pricing in 2011 Price change parameters 2011/2010 Machine building Metallurgy - according to Russian Economic Development Ministry 9.3% 13.9% - according to Gazprom s Order on Cost Optimization Measures (k=0.8) 7.44% 11.12% - Agreed on by the Pricing and Economic Expert Analysis Department of Gazprom 5.0% 7.0% Cost reduction, RUB billion 4.1 4.9 1. Main provisions of the cost optimization activity are regulated by Gazprom s Order No.360 On Company s Cost Optimization Measures in 2011 dated December 24, 2010
Change in Natural Gas Severance Tax Proposal by Russian Ministry of Finance Effective rate (Russian Tax Code) 582 679 717 859 886 1,062 147 237 509 582 582 622 622 622 622 2010 2011 2012 1H 2013 2H 2013 1H 2014 2H 2014 1H 2015 2H 2015 Basic decisions on new tax regime in gas industry Stable tax regime is needed to sustain adequate performance of gas industry Fair severance tax rate on natural gas has to be introduced to boost gas industry development 7
Need for Severance Tax Rate Differentiation Due to Forecasted Changes in Gas Production Mix Differentiation of basic severance tax rate 1 Economic and geographic conditions / differentiation by regions (Yamal, northern seas, Eastern Siberia) 2 Phase of field development /level of field depletion 3 Depth of formation (under development) 2010 508 billion m 3 2020 608 billion m 3 2030 650 billion m 3 67.5 45.5 192.4 34.5 70.0 29.3 428.0 441.2 321.9 107.8 27.9 8
Investment Program Existing structure of capital costs ensures: Growth of hydrocarbons production, electric and thermal power generation depending on market conditions Flexibility of Company s strategy in future Possibility to allocate fund owing to thorough ranking of investment projects Capital costs are fully covered through operating cashflow RUB billion 2 500 2 000 1 500 1 000 500 0 Capital costs and self-financing 113% 810.9 140% 1,110.8 105% 1,628.1 2009 2010 2011 2012 Transmission Gas production Oil and gas condensate production Processing Electric and thermal power generation Gas supply Gas storage Other segments Self-financing (Operating cashflow/capital investments) Around 1,080.0. 9
Debt and Liquidity Management RUB billion Total and net debt 1.6 1.2 0.8 0.4 0.0 Relative debt coefficients 1.5 1.0 max. level 1.5 1.7 0.8 0.8 2009 2010 2011 2012P Total debt/adjusted EBITDA Diversification of financial instruments Export financing: Portovaya compressor station construction around USD 950 million Project for constructing two Yamal-400 communication satellites around EUR 202 million Project financing: Documents signing to arrange project financing for constructing Nord Stream Phase II totally worth EUR 2.5 billion. Two stages of financing (2010 and 2011) made up a total of EUR 6.4 billion Deal on financing (EUR 1.1 billion) the project for the Yuzhno- Russkoye field development has been completed Borrowing program: 24 th Eurobond issue worth USD 1,000 million, 5 years, 4.95 % 25 th Eurobond issue worth USD 600 million, 9 years, 5.999 % 3 rd EPC issue USD 500 million, 6 months, 3.5% Liquidity management System of inter-group liquidity centralized management (cash pooling): In Russia: System of virtual pools integrating cashflows in Russian Rubles, Euros, and US dollars from 85 subsidiary companies and separate subdivisions within Gazprom Group At international level: Multi-currency ZBA pool involving Gazprom Germania Group Multi-currency virtual pool involving the following group of companies: Gazprom E.P. International B.V., Gazprom Sakhalin Holdings B.V., Gazprom Finance B.V. The work is underway to increase the volume of soft lending as part of the Russian pool liquidity up to RUB 60 billion 10
Gazprom Informatization Strategy Gazprom Informatization Strategy IMPROVING BUSINESS EFFICIENCY Integration platform Automated system for development of management reports on basis of key performance indicators (KPI) KPI CORPORATE DATABANK Corporate portal Integration platform Sectoral data bank of referenced data (SDB RD) IMS MRB IMS T IMS HPM VERTICALLY INTEGRATED Information management systems (IMS) ABMS IMS I IMS ME ADCS UGSS PAMS APMS AS MRM AMS MR Typical information management systems of an enterprise (IMS E) by types of activity Production Transportati on UGS Processing Gas distribution and marketing Gazprom Group Types of business Investment projects Activities Business processes IMS MRB IMS for replenishment of mineral resource base and hydrocarbons production ACRS Automated consolidated reporting system IMS T IMS for transportation of gas and gas condensate ADCS UGSS Automated dispatch control system for UGSS IMS HPM IMS for hydrocarbons processing and marketing PAMS Property and other assets management system ABMS Automated budget management system APMS Automated personnel management system IMS I IMS for investments AMS MR AMS for maintenance and repair IMS ME IMS for materials and equipment Subsidiary companies Subsidiary companies Investment projects Investment projects 11
Record High Level of Dividends Board of Directors recommended that General Shareholders Meeting approve paying out dividends in amount of RUB 212 billion or 25% of net profit under RAS (1) based on 2011 results Dividend yield (2) RUB Dividends per share 6% 5% 4% 3% 2% 1% 0% 0. 8 % 0. 8 % 0. 3 % 1. 3 % 2. 0 % 5. 2 % 10 8 6 4 2 2. 54 2. 66 0. 36 2. 39 3. 85 8. 97 2006 2007 2008 2009 2010 2011 0 2006 2007 2008 2009 2010 2011 Since 2010 Gazprom has steadily paid out dividends in amount of 25% of net profit. Gazprom is determined to retain dividends at 25% level in 2012 and 2013. 1. Taking into account updates by amount of revaluation of financial investments and similar economic events by Gazprom. 2. Calculated by last day of reporting period. Высокая High дивидендная dividend доходность yield raises повышает investment инвестиционную attractiveness привлекательность of Gazprom s акций shares Газпрома 12
Factors of Financial Stability Internal factors Attaining stable financial results Efficient cost and debt management policy Emphasis on key gas production and transmission projects Boosting investment attractiveness External factors Formation of tax regime for Russian oil and gas industry Further liberalization of Russian gas market Мы продолжаем We повышать continue improving эффективность our business нашей деятельности 13