Gazprom: Natural Gas Price Marching Up

Stock price of buy-recommended Gazprom (OGZPY.PK) retains upward momentum toward estimated net present value [NPV] of $62 a share, that gives scant recognition to higher future natural gas prices. Second quarter 2007 results reported on December 5 portrayed a modest gain in revenue and a modest decline in unlevered cash flow (Ebitda).

Looking ahead, European natural gas price is likely to jump as much as a third in 2008. Also reported by Bloomberg, Russia’s Federal Tariff Service approved on December 4 a 25% increase in Gazprom’s price to Russian consumers in 2008. The trends should continue thereafter as the company’s price for clean fuel is a fourth or less of the oil equivalent.

Estimated NPV recognizes cash flow only from today’s low prices and gives little credit for bountiful resource potential. Government ownership of half of the top global energy producer mutes investor risk to a level that may be lower than in Canada, Alaska and the U.S. Congress. We diversify risk by keeping the weighting of Gazprom stock to about 9.6% unlevered in the illustrative McDep Energy Portfolio.

Originally published on December 6, 2007.