MOSCOW Gazprom (GAZP.MM), Russia's top gas producer, said quarterly profit fell 4 percent due to one-time foreign exchange losses as it took on debt to finance expanding capital investments.
The state-controlled export monopoly said on Wednesday its third-quarter net profit attributable to shareholders fell to 152.0 billion roubles ($5 billion), compared with a forecast for 149.6 billion.
Gazprom has been ramping up investments to bring onstream its huge Bovanenkovo field in the Arctic Yamal Peninsula and lay a new pipeline to export the field's gas to Europe.
Meanwhile, it has failed to wrap up talks on exporting gas to China and is widely viewed as underestimating the competitive threat posed by the shale gas boom that has made the United States self-sufficient in gas.
"The debt has risen substantially, but the burden is sustainable," UniCredit Securities analyst Artyom Konchin said.
"They missed the opportunity to enter Chinese market, and central Asian producers are now two steps ahead there. To me it is a clear negative. But they ... control the largest and most prolific gas deposits today, and they should be able to extract and deliver them to key markets reasonably efficiently."
Gazprom said the foreign-exchange losses were linked to the rouble weakening and stood at 145.7 billion roubles in the third quarter, compared to a loss of 38.3 billion in the 2010 period.
The losses were incurred as Gazprom, Russia's largest by value with a market capitalization of $142 billion, increased its net debt to 1.04 trillion roubles as of September 30, up 20 percent from the level at the end of 2010.
Gazprom shares rose 0.6 percent, underperforming a 1.1 percent gain in the broader Moscow market .
"The results look bad. Gazprom had negative cash flow of $1.5 billion in the third quarter due to an increase in capex to $14.5 billion," UBS analyst Maxim Mashkov said.
"I would expect negative cash flow for the whole year. This would be bad for shares and dividends."
Gazprom expects to increase capex in 2013 to 1.75 trillion roubles from a planned 709 billion in 2012 as it starts development work on new fields in East Siberia.
The company, which covers around a quarter of Europe's gas needs, is facing competition from alternative and cheaper sources of fuel supply such as liquefied natural gas.
At the same time, clients in debt-stricken Europe are increasingly demanding price cuts in long-term supply contracts whose terms are largely indexed to oil prices.
EXPORTS TO EUROPE
Gazprom exported 150 billion cubic metres (bcm) of gas to Europe last year and plans to increase that to 164 bcm this year, although it was forced to restrict export flows on Tuesday due to severe cold weather in Russia.
The company reported third-quarter revenue of 949.6 billion roubles, up from 779.3 billion roubles in the same period a year ago, in line with forecasts.
It said that it increased shipment volumes to Europe and other export markets outside the former Soviet Union in January-September by 8 percent to 114.8 bcm.
Nine-month net revenues on gas sales to Europe jumped 34 percent to 1.03 trillion roubles -- over half of Gazprom's total net proceeds from gas sales -- on the back of a 28 percent price rise to $376 per 1,000 cubic meters.
Gazprom has been historically slow to report its financials to international standards, and analysts have urged prompter updates from the company, which starts a series of meetings with investors on February 10.
The company reiterated its guidance for the full-year 2011 net profit of $40 billion, with earnings before interest, taxation depreciation and amortization seen at $60 billion.
($1 = 30.2662 roubles)
(Reporting by Vladimir Soldatkin, Editing by Douglas Busvine)