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. Last Updated: 07/27/2016

Gazprom '06 Profit Doubles to $24.6Bln

Gazprom said Thursday that its profit more than doubled last year to 636.5 billion rubles ($24.6 billion) on the back of higher oil and gas prices and the acquisition of its oil arm, Gazprom Neft.

The state-controlled gas giant said its revenue, calculated to international accounting standards, rose to 2.15 trillion rubles in 2006 from 1.38 trillion rubles in 2005.

Domestic sales rose 15 percent, while sales in the rest of the former Soviet Union jumped 93 percent on steep price hikes. European net sales jumped 37 percent, also as prices sharply rose.

Sales to domestic industry will begin to turn a modest profit -- at the rate of 4.5 percent -- next year, Gazprom deputy CEO Andrei Kruglov said at a news conference earlier Thursday. The profit rate will increase to 13 percent in 2009 and 25 percent in 2010, he said.

Kruglov reiterated that the firm intends to buy 20 percent of its oil subsidiary, Gazprom Neft, from Eni, just days after the Italian energy group expressed hopes of holding on to the stake.

Eni bought the interest in Gazprom Neft at an April auction of Yukos assets under an agreement that gives Gazprom an option to acquire these shares within two years.

"We are undoubtedly going to exercise this option," Kruglov said. "The question is just in the timing."

Under the same option, Gazprom can buy control of two gas production units that Eni also bought at the auction, ArcticGaz and Urengoil. Together, the stake and the gas units could cost Gazprom at least $4.8 billion.

Having paid $7.45 billion this year for control of Sakhalin-2, state-controlled Gazprom said it would not buy anything from Eni before year's end.

The option values the Gazprom Neft stake at $3.7 billion. Eni's winning bid at the auction was $5.83 billion, which makes 51 percent of the gas units worth at least another $1.1 billion.

Earlier this month, Eni CEO Paolo Scaroni said the company might be able to hold on to the Gazprom Neft stake, The Wall Street Journal reported. Eni's engineering talent and technology could convince Gazprom to keep the Italian company as a partner, he said.

An Eni spokeswoman in Milan declined to comment on the Gazprom Neft option when contacted Thursday.

Gazprom's aim is to de-list Gazprom Neft, hand it new production licenses and conduct a share offering, said Vladimir Vedeneyev, an analyst at Bank of Moscow. The company could change its plans if Eni offers Gazprom a greater share of the Italian market for retail sales, he said.

Gazprom will not seek new bank loans to pay for its $700 million to $900 million acquisition of TNK-BP's stake in Kovykta, Kruglov told Thursday's news conference. It will rely on its existing finance and cash flow as Gazprom sees a trend toward rising gas prices, he said.

Gazprom will have outstanding debt of $35 billion to $36 billion at the end of this year, Kruglov said.

Gazprom on Thursday had a market capitalization of $238.8 billion.

Vedeneyev said his bank estimated that Gazprom was trading at a discount of 30 percent.