Energy Voice | Gazprom profit jump keeps markets guessing about dividend hike

Gazprom PJSC’s profit jumped to the highest in three years as natural gas sales to Europe surged.

Net income climbed to 372 billion rubles ($5.93 billion) in the first quarter from 333 billion a year ago, with revenue reaching a record 2.14 trillion rubles, according to a statement from the world’s largest gas producer on Wednesday. The average estimate of 6 analysts surveyed by Bloomberg Data was for a profit of 349 billion rubles.

Free cash flow, which analysts monitor as a source of money for dividends, rose to 26 billion rubles from a negative 216 billion rubles a year earlier. Management at Russia’s gas pipeline monopoly has fought government demands to raise its dividend for years.

“Gazprom may show really exceptional results this year, backed by exports to Europe, yet that wouldn’t necessarily mean an extra gain to its shareholders,” said Andrey Polischuk, an energy analyst at Raiffeisen Centrobank in Moscow. “Given its investment plan and a need to repay debts and cover interest payments, there won’t be enough cash to provide a long-awaited dividend increase, which people have been discussing from the year dot.”

As Gazprom aims to beat last year’s record shipments to Europe, it has said there’s no need for a major change in the dividend level until about 2020 when the company passes the peak in its investment program.

Gazprom’s shipments from Russia to Europe rose 8 percent in the first quarter amid an unexpectedly cold winter. Yet it may face a decline in consumption later this year as higher prices encourage customers to find alternative sources of supply, like liquefied natural gas.

Higher gas prices may damp demand in Europe “a bit,” according to Gazprom’s biggest export client, Uniper AG. Kommersant newspaper reported that Gazprom data shows EU power generators cut consumption in the first quarter when utilities enjoyed ample output from wind and hydro plants.

Gazprom will hold a conference call at 5 p.m. Moscow time on Wednesday to comment on the results and its outlook.

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