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Russia's Gazprom beats expectations, boosts Europe sales

Headquarters of the Russian natural gas monopoly giant Gazprom, seen through a gate with its company emblem in Moscow on Jan. 7, 2009.

Yuri Kadobnov/AFP/Getty Images/Yuri Kadobnov/AFP/Getty Images

Russian gas export monopoly OAO Gazprom's quarterly profits beat analysts' expectations on Tuesday as European buyers rushed to secure contracts at prices 21 per cent higher than a year ago.

The country's largest company by market capitalization boosted gas sales to Europe, its key market, as customers bought the fuel in anticipation of a price increase following a jump in oil prices .

Gazprom's gas prices in long-term contracts are pegged to those of oil and oil products with a time lag of six to nine months. Analysts say the rest of the year may prove to be weaker for the company due to already high volumes of purchased gas in Europe.

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"Results are fantastic, but these are peak results for the company this year. We expect sales to Europe to fall in the second half of the year," said Chirvani Abdoullaev, equity analyst at WOOD & Company Financial Services.

"Besides, there are reports that a pipeline from Libya will start deliveries soon and the European economy is clearly slowing down," he added.

Analysts also noted a 33 per cent rise in operational costs to 818-billion rubles, which wiped out the cash flow in the quarter.

The company posted a 42 per cent increase in first-quarter earnings to 478.5-billion rubles ($16.6-billion U.S.), exceeding market expectations of a 29 per cent gain.

On Tuesday morning, Gazprom's Moscow-traded shares edged down 0.1 per cent, outperforming a 0.7 per cent decline in the broader market .

State-controlled Gazprom said revenues rose by 38 per cent to 1.317-trillion rubles, beating an average forecast by analysts in a Reuters poll of 1.259-trillion rubles.

Gazprom said in a statement that its results were driven by strong core natural gas sales and an average pricing improvement of 21 per cent, year-on-year, while its diversification into power also boosted the bottom line.

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Total gas sales for the period rose by 10 per cent to 178.3 billion cubic metres (bcm). While sales in Russia were flat at 102.5 bcm, exports to Europe gained by 8.4 per cent to 46.6 bcm and to the former Soviet Union by 70.5 per cent to 29 bcm.

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