Gazprom Gas Sales Decline (Russia)

Gazprom’s net sales of gas decreased by RUB 157,930 million, or 6%, to RUB 2,656,918 million in the year ended December 31, 2012 compared to the year ended December 31, 2011.

For the year ended December 31, 2012 net sales of gas to Europe and other countries increased by RUB 30,386 million, or 2%, to RUB 1,469,455 million compared to the year ended December 31, 2011. This change was primarily due to increase in average realized prices in RUB terms (including customs duties) by 6%, which was partially compensated by decrease in volumes of gas sold by 4%, or 5.6 bcm.

Net sales of gas to FSU countries decreased by RUB 107,662 million, or 17%, to RUB 529,516 million in the year ended December 31, 2012 compared to the year ended December 31, 2011. The decrease of sales in this segment is explained by the decrease of volume of gas sold by 19%, or 15.6 bcm, which was partially compensated by the increase of the average realized prices in RUB terms (including customs duties) by 12%.

Net sales of gas in the domestic market increased by RUB 22,095 million, or 3%, to RUB 760,696 million in the year ended December 31, 2012 compared to the year ended December 31, 2011. This is explained primarily by the increase in the average domestic price for gas by 9%, which was partially compensated by the decrease of volume of gas sold by 6%, or 15.8 bcm.

Net sales of refined products increased by RUB 235,127 million, or 24%, to RUB 1,208,153 million in the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was due to the increase of prices for refined products and increase of volumes sold by the companies of Gazprom neft Group to customers, located in the Russian Federation, as well as due to inclusion of OAO Gazprom neftekhim Salavat sales due to the fact that the Group obtained control over operating and financial activities of the company in 2012.

Net sales of crude oil and gas condensate increased by RUB 39,875 million, or 17%, to RUB 275,307 million in the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase in net sales of crude oil and gas condensate primarily resulted from Gazprom neft Group activities: net sales of crude oil increased by RUB 44,272 million, or 23%, to RUB 234,217 million in the year ended December 31, 2012 compared to the year ended December 31, 2011, mainly due to the increase in oil prices and volumes of oil sold.

Net sales of electric and heat energy decreased by RUB 1,042 million, or 0,3%, to RUB 343,509 million in the year ended December 31, 2012 compared to the year ended December 31, 2011. The decrease is mainly related to decrease of revenues from electric and heat energy sales of energy sector companies due to reduction of electricity prices at the day-ahead market and decrease in sales volumes of electric and heat energy.

Net gas transportation sales increased by RUB 12,391 million, or 11%, to RUB 125,386 million in the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase in net gas transportation sales was primarily due to the increase in volumes of gas transportation services rendered to independent gas suppliers as well as increase of tariffs for gas transportation services for independent gas suppliers.

Operating expenses increased by RUB 539,083 million, or 18%, to RUB 3,481,264 million in the year ended December 31, 2012 compared to the year ended December 31, 2011.

Major item in the total amount of operating expenses is “Purchased gas and oil” which increased by RUB 82,009 million, or 10%. Cost of purchased gas decreased by RUB 21,824 million, or 4%. This decrease mainly relates to the decrease in volumes of gas purchased from third parties outside the Russian Federation. The cost of purchased oil included in the cost of purchased gas and oil increased by RUB 103,833 million, or 41%, and amounted to RUB 354,378 million in the year ended December 31, 2012 in comparison with RUB 250,545 million in the year ended December 31, 2011 due to increase in both, volumes and prices of oil purchased.

The increase in operating expenses was mostly influenced by the following items: “Taxes other than on income” (increase by RUB 160,483 million), “Materials” (increase by RUB 79,443 million), “Staff costs” (increase by RUB 73,223 million), “Depreciation” (increase by RUB 58,978 million), “Transit of gas, oil and refined products” (increase by RUB 39,193 million).

In the year ended December 31, 2012 profit for the year attributable to owners of OAO Gazprom totaled RUB 1,182,625 million, which is RUB 124,393 million, or 10%, lower compared to the year ended December 31, 2011.

Net debt balance (defined as the sum of short-term borrowings and current portion of long-term borrowings, short-term promissory notes payable, long-term borrowings, long-term promissory notes payable 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) increased by RUB 46,606 million, or 5%, from RUB 1,034,941 million as of December 31, 2011 to RUB 1,081,547 million as of December 31, 2012. This can be explained by the decrease in cash and cash equivalents.