RusEnergy

7 December 2006 RBC News - Forecasts for oil and gas companies have been raised
Several investment companies have raised their share price forecasts for Russian oil and gas producers. Analysts attribute this to the government’s decision to raise domestic gas prices in 2007. NOVATEK, Gazprom, LUKoil and Rosneft will be the biggest gainers. According to the government decision, wholesale gas prices for industrial consumers will be raised by 15 percent in 2007 and by 25 percent in 2008. In 2009, the prices will be raised by 26 percent (twice by 13 percent), and they will also be raised twice in 2010 (by 13 and 12 percent). By 2011, domestic gas prices will have more than doubled to about $100 per 1,000 cubic meters, closing the gap between domestic and export prices. By that time, gas prices for industrial consumers will have been liberalized completely, and by 2015 for individuals. The forecast revisions reflect changes in the medium term gas prices, Artyom Konchin, an analyst at the ATON investment company, told RBC Daily. According to the government plans, the price of gas for industrial consumers will be brought to $100 per 1,000 cubic meters, against the previously planned $80, ATON said in its review. The new forecasts are also based on the expected Brent crude price of $50 per barrel in the long term. NOVATEK, an independent gas producer, will benefit the most from the price rise, Konchin believes. ATON raised its forecast for NOVATEK shares to $77.68. This company is largely oriented towards the Russian market, domestic sales accounting for almost 60 percent of its total revenue. ATON recommends buying NOVATEK stock. “Many oil and gas companies will get additional revenues due to the price increases,” agrees Dmitry Mangilev, at Prospekt investment company. He says Gazprom and NOVATEK will benefit the most. LUKoil and Rosneft, the largest gas producers among Russia’s oil companies, will also gain from gas price rises. “Their combined proven and probable reserves of natural gas amount to 7.9 and 6.6 billion barrels of oil equivalent, which will allow them to benefit the most from domestic price rises,” ATON’s review said. “Higher gas prices will boost the profits of LUKoil, Rosneft and Surgutneftegaz,” agrees Mangilev. Konstantin Gulyayev, an analyst at REGION Group, says the planned gas price hikes are not the only reason behind the forecast upgrades. He thinks high oil prices play a role, too. “The forecast revisions could have been triggered by rumors of mergers and acquisitions in the oil sector. In connection with this, some oil and gas companies are expected to show positive share price dynamics,” Gulyayev said. The fair price of Gazprom and LUKoil’s stock was being reviewed, he added.