Gazprom Drops 4% on 'Shocking' Spending Plan

Gazprom fell in Moscow trading on Friday after analysts said they were "shocked" by the company's plans to raise its investment budget to more than $40 billion this year.

Gazprom shares fell 9.9 rubles, or 4 percent, to 240.43 rubles, the worst performer on the MICEX on Friday.

The state-run monopoly may raise its investment budget for 2008 by about 25 percent, Interfax reported Thursday, citing deputy chief executive Valery Golubev.

Gazprom last month already increased the budget for 2008 by 16 percent to a record 822 billion rubles ($33.8 billion). A spokeswoman for Gazprom, who asked not to be identified, said Friday that the company had no comment on the matter.

"We're shocked by the magnitude of the numbers, especially given that the company revised its investment plans only a month ago,'' Troika Dialog analysts Oleg Maximov, Valery Nesterov and Alex Fak wrote in a note to investors Friday. "This raises questions about whether the management actually intends to generate any meaningful free cash flow."

JPMorgan's analysts said in a note Friday that they "doubt" the ability of Gazprom to invest that amount of money efficiently. The spending signals "potential value destruction" for the stock, the bank said.

Gazprom in July said it increased spending in part to accelerate the development of new projects in the Arctic, eastern Siberia and Sakhalin. The company said it would speed up development of the Bovanenkovskoye field, its first production site on the Arctic Yamal peninsula.

The spending increase "limits the likelihood of the company returning value to the shareholders in the short term," Yevgenia Dyshlyuk, oil and gas analyst at Renaissance Capital, said in an e-mail to investors Friday.

Gazprom, which supplies one-quarter of Europe's gas, faces declining output as fields in west Siberia age. The company is being forced to develop fields far from existing infrastructure in the Arctic, eastern Siberia and off Russia's coasts.

Gazprom plans to spend as much as 10 trillion rubles ($411 billion) bringing new gas to market, Sergei Pankratov, Gazprom's deputy head of strategic development, said June 16.