UPDATE 1-Spain's gas companies see reform hitting revenue

Mon Jul 7, 2014 4:48am EDT

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(Adds Gas Natural, details)

By Jose Elías Rodríguez

MADRID, July 7 (Reuters) - Spanish gas grid operator Enagas and utility Gas Natural said on Monday gas sector reform announced by the government would initially hit revenues but have a limited effect on profits in the medium term.

The regulations were announced on Friday and aim to address a tariff deficit in the gas sector created by years of mismatched regulated costs and revenues which has pushed up energy bills for consumers.

Enagas said it expected the reform to lower its revenue by an average of around 120 million euros ($163.7 million) per year through until 2020.

Enagas is working on a cost-cutting, efficiency plan for the next six years, to be announced in the fourth quarter, to offset the impact of the reform, Enagas said in a statement to the market regulator.

The revenue hit would be offset at the profit level by spending cuts, lower redemptions and income from outside of Spain, it said.

Gas Natural said the reform would have a 45-million-euro hit on revenues this year, though said the changes would not have a significant impact on expansion plans announced in its 2013-2015 strategy plan.

Bank Espirito Santo said the reform was positive for investors in Enagas and Gas Natural.

"The cuts come broadly in line with our expectations and the average of the market but is below what has been suggested in the press in the last few weeks," Espirito Santo said in an investor note on Monday.

The regulation will help reduce a gas tariff deficit that was otherwise expected to reach about 800 million euros this year.

"The new regulatory framework gives stability and predictability to the system," Enagas said.

At 0847 GMT, Enagas shares were up 3.6 percent while Gas Natural was up 0.9 percent, both outperforming the blue-chip IBEX market. ($1 = 0.7331 Euros) (Additional reporting by Paul Day; editing by Sarah Morris and Jason Neely)

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