RusEnergy

08-03-2005 RBC News - Itera invests in the future The gas company's net profit plunges as it invests in new projects
Itera reported a net profit of RUR 11.209 million in the second quarter of this year, a figure 27.7 times lower than in the previous three months. Its asset value dropped from RUR 13.88 billion to RUR 10.758 billion from April through June 2005. The company's managers blame the disappointing results on seasonal factors and the need to support its subsidiary Sibneftegaz, developing the Beregovoye and Pureinoye fields in the Yamal-Nenetz autonomous region of Russia.
Itera is Russia's second largest private gas company after Novatek. Last year it produced 14 billion cubic meters of natural gas, making a net profit of RUR 1.25 billion. In December last year the company sold a controlling interest in TNG Energy to Novatek, concentrating on its most attractive deposit Sibneftegaz. Last month saw important changes in the system of Itera's ownership, which now looks like this: Cyprus-registered ITERA Holdings Ltd. controls 99.99 percent of Itera and Valery Otchertzov, chairman of the board of directors, holds 0.01 percent.
Experts rate the restructuring as a logical step, in line with the company's strategy to become an open joint-stock company and to hold an IPO in the future. But they believe these plans should be backed by sound financial and industrial performance, something Itera cannot boast now.
"Given problems faced by its most important asset, Itera might have built a financial reserve, which would have reduced its net profit," suggests Maxim Shein, chief analyst at BrokerCreditService. "But in any case, net profit is a volatile indicator and it's difficult to base judgments about the company's development solely on this. The more important factor is revenue, and Itera has stable revenue. Other factors that will be considered by investors ahead of Itera's IPO are the company's relations with Gazprom and its production growth rate," he told RBC Daily.
"It's difficult to assess Itera's financial results," agrees Konstantin Batunin, at CenterInvest. "Firstly, reporting under Russia's accounting standards is not very persuasive. Secondly, without an understanding of the company's strategy, they tell us little. Itera's strategy is not very clear, or else the company doesn't want to advertise it. In any event, it has to solve the problem with Gazprom, but it is clear that Itera's strategic development cannot be restricted to relations with the owner of pipelines," he said.
Indeed, Beregovoye, rated among the best gas fields in northern Russia, with an estimated 300 billion cubic meters of gas reserves, could have been working long ago. Itera announced the start of the project two years ago, but has not yet connected the field to a pipeline system. Gazprom points to a lack of transportation facilities in the region. But there's some improvement here.
"Problems with access to pipelines are being settled," Itera's Eugeny Ostapov said. "At any rate Gazprom confirmed technical conditions for the transportation of gas from this region and details are being discussed by the representatives of both companies. Certainly the problem is being solved slower than we would like it to be. Itera began to develop the Beregovoye field hoping that the pipeline problem would be solved quickly, and that we would be able to get profit. The license agreement stipulates that we have to continue to invest in the project. Though the field is ready for use," he said.
Itera is sparing no effort in implementing its ambitious project in the Yamal-Nenets autonomous region, and is investing heavily in it. "Under the circumstances Itera has to invest significantly in Sibneftegaz, its main production asset, developing the most attractive deposits," says Konstantin Gulyaev at Region Company. "Otherwise the company might ruin its strategic plans and default on its obligations to the Sverdlovsk region."