On 08 October 2007 OAO Gazprom issued its unaudited consolidated interim condensed financial information prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) for the three months ended 31 March 2007.  

The revised accounting treatment of the non governmental pension fund, NPF Gazfund, has a significant impact on the Group’s financial information for the three months ended 31 March 2007. In connection with the latest developments in the legislation regulating pension funds activity, NPF Gazfund was deconsolidated from the consolidated financial information of OAO Gazprom in the first quarter 2007. As a result of this deconsolidation, the Gazfund investment assets are now accounted for as plan assets on the OAO Gazprom consolidated interim condensed balance sheet under IAS 19 “Employee Benefits”. The principal balance sheet line items affected are short term financial assets, other non-current assets, provisions for liabilities and charges, minority interest and equity including treasury shares. In addition, where NPF Gazfund continues to hold ownership interests in OAO Gazprom subsidiaries (for example, AB Gazprombank (ZAO), OAO Sibur-Holding), those interests are reflected as minority interest in the accompanying financial information.

The aggregate effect of NPF Gazfund deconsolidation results in recognition of income of RR 44,692 million in the line “Deconsolidation of NPF Gazfund” in the Consolidated interim condensed statement of income and the increase in equity of RR 111,015 million in the line “Deconsolidation of NPF Gazfund”.

The table below presents the unaudited consolidated interim condensed statement of income for the three months ended 31 March 2007 and 2006. All amounts are presented in million Russian Roubles, unless otherwise stated.

Sales (net of excise tax, VAT and customs duties) increased by RR 25,751 million, or 4%, to RR 611,528 million in the three months ended 31 March 2007 compared to the three months ended 31 March 2006. More detailed information on our sales for the three months ended 31 March 2007 and 2006 is presented in the table below.

Net sales of natural gas increased by RR 14,793 million, or 4%, to RR 428,433 million in the three months ended 31 March 2007 compared to the three months ended 31 March 2006.  This increase was primarily due to higher FSU and domestic prices for gas. 

Net sales of natural gas to the Far Abroad decreased by RR 9,900 million, or 4%, to RR 218,440 million in the three months ended 31 March 2007 compared to the three months ended 31 March 2006. This is explained primarily by the fact that the volume of sold gas decreased by 13% or 5.7 bcm which was partially offset by increased average prices.

Net sales of natural gas to FSU countries increased by RR 12,842 million, or 21%, to RR 74,078 million in the three months ended 31 March 2007 compared to the three months ended 31 March 2006. The increase of sales in this segment is explained by higher average prices.

Net sales of natural gas in the domestic market increased by RR 11,851 million, or 10%, to RR 135,915 million in the three months ended 31 March 2007 compared to the three months ended 31 March 2006.  This is explained primarily by the increased average domestic price for gas established by the Federal Tariff Service, which was partially offset by a 5% reduction in the volume of sold gas.

In the three months ended 31 March 2007 net sales of crude oil and gas condensate decreased by RR 12,773 million, or 28%, compared to the three months ended 31 March 2006.  This decrease in the sales of crude oil and gas condensate is due to Gazprom Neft’s activities: in the three months ended 31 March 2007 net sales of crude oil decreased by RR 12,046 million, or 30%, to RR 28,558 million compared to the three months ended 31 March 2006.  

Operating expenses increased by RR 46,466 million, or 13%, to RR 401,733 million in the three months ended 31 March 2007 compared to the three months ended 31 March 2006. 

The component which accounted for the major part (or 96%) of the increase in operating expenses was higher expenses for purchased oil and gas. Expenses on purchased oil and gas increased by RR 44,377 million, or 74%. Expenses on purchased natural gas increased by RR 43,423 million and on purchased oil – by RR 954 million.

In the three months ended 31 March 2007 the profit for the period attributable to equity holders of OAO Gazprom totaled RR 210,312 million which is RR 25,155 million, or 14%, higher compared to the three months ended 31 March 2006.

Our net debt balance (defined as the sum of short-term borrowings, current portion of long-term borrowings, short-term promissory notes payable, long-term borrowings, long-term promissory notes payable and restructured tax liabilities, net of cash and cash equivalents and balances of cash and cash equivalents restricted as to withdrawal under the terms of certain borrowings and other contractual obligations) decreased by RR 340,009 million, or 42%, from RR 807,814 million as of 31 December 2006 to RR 467,805 million as of 31 March 2007. This decrease can be explained by a significant increase of cash and cash equivalent balances in bank accounts of the Group primarily due to temporary placement of funds in AB Gazprombank (ZAO) from third parties.

More detailed information on the IFRS consolidated interim condensed financial information for the three months ended 31 March 2007 can be found here.