Translated material
Gazprom Neft miscalculated
NIS's loss was more than $500 million
Gazprom Neft's overseas expansion does not seem to be going very well. Its first foreign asset, the Serbian NIS, reported a loss of almost $537 million under IFRS for 2009. Previously, the management of Gazprom Neft promised that the subsidiary would end the year without losses. At the same time, in 2008, the company's loss amounted to about $116 million. NIS explains such results as an unfavorable market situation, the need to revaluate the property complex, as well as exposed debt obligations.Gazprom Neft acquired NIS at the end of 2008 for $400 million. This deal was stipulated in an intergovernmental agreement concluded by Russia and Serbia at the end of 2007. At the same time, Serbia valued the asset at more than a billion dollars. Gazprom Neft has assumed a number of investment obligations, in particular to modernize oil refining capacities to the Euro-5 standard, and the total investment amount is estimated at $548 million.
According to the report, the company managed to increase average daily production for the first time in 17 years; in 2009, its volume amounted to 990 thousand tons of oil, and its refining volume amounted to 2.6 million tons of oil. In 2008, the new CEO of NIS, Kirill Kravchenko, who is also the deputy chairman of the board of Gazprom Neft, stated that the company should finish 2009 without losses. However, his forecast was not confirmed. NIS itself estimates its loss at only $64 million, citing adjustments “caused by IFRS requirements.”
In 2009, NIS conducted another audit, after which new financial details were revealed, the company says. For example, it turned out that NIS holds 113 thousand tons of technical oil in the Janaf pipeline, which was nationalized by the Croatian government during the war in Yugoslavia. In addition, its balance sheet includes property, the rights to which have long been transferred to third parties. The annual report included provisions for bad debts of approximately $147 million. The company was never able to resolve chronic litigation, although it was expected that some claims against NIS would be withdrawn.
It can be assumed that all this was the result of an incorrect assessment of the company’s financial position even at the time of its purchase by Gazprom Neft, which NIS partly agrees with. “The causes of most of the losses arose in 2005-2008, but many of them were recorded only during a detailed analysis of the company in 2009,” Mr. Kravchenko explained yesterday.
However, according to him, the board of directors and management of the company are more optimistic about the situation than the official auditor, believing that in the future the size of the accounting loss may be reduced if the company manages to resolve legal disputes in its favor and eliminate a number of mandatory financial reserves. Despite large losses, NIS continues to fulfill its investment obligations to the Serbian government. So, this year about 160 million euros were invested, the company clarified.
According to experts, negative financial results from NIS are unlikely to disappoint Gazprom Neft. Given the not very favorable conditions on the petroleum products market, last year was not easy for any company, says Troika Dialog analyst Valery Nesterov. True, according to Bank of Moscow analyst Denis Borisov, Gazprom Neft should have taken the NIS audit more seriously in order to obtain real information about the condition of the asset, especially since the international market is strategically important for it.