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Gazprom behaving like a real business



March 25, 2011 – Comments (7) | RELATED TICKERS: OGZPY

Gazprom, with Vladimir Putin at the helm, is Russia's - ex-USSR's - nationally owned and operated natural gas company.  Along with the Russian national oil company, Gazprom makes Russia the number 1 energy exporter in the world - yes, more than Saudi.  Gazprom is one of the world's largest energy companies, but has suffered by their association with the Russian rouble - remember the early 90's when Russian debt defaulted - and by their long history of Communist mismanagement, rife with corruption, back-room deals, and basically Politburo-level inefficiency.

On March 19th, Putin announced that 2 LNG tankers would be diverted from their destination in Europe to Japan, as a response to the earthquake and tsunami that took nuclear reactors off-line.  But he didn't stop there.  He also offered Japanese companies a stake in a 3.2 billion cu. m. Siberian gas field, and is preparing to send more pipeline gas to Europe, and fewer LNG tankers, so that Gazprom can divert more LNG tankers to Japan in the next few months going forward.

Gazprom is trying to position itself aggressively to market energy to Asia and is expected to conclude a deal with China to supply it with 80 billion cu ft of natural gas annually in 2011.  Gazprom's moves with respect to Japan are brilliant - in addition to mitigating a humanitarian catastrophe, it is also a really neat way to get some unexpected business ties formed with the Japanese energy market, which still serves the world's #2 economy.

Charity and capitalism hand in hand - sounds like something you'd hear about from GE, or IBM, or 3M - one of the great American corporations.  But this time it's Gazprom, in a move as nimble and as strategic as any I've seen in a while in the good old US of A.  Good business practices aren't limited to the USA - Gazprom just gave the world a clinic in how to grow a business the old-fashioned way!

Disclosure: long Gazprom.  And if they keep doing things like this, I'm going to go longer. 

7 Comments – Post Your Own

#1) On March 25, 2011 at 4:52 PM, ikkyu2 (98.25) wrote:

Er, 80 billion cubic meters per year, not cubic feet.  China is expected to ink the deal in 2011, but delivery will start in 2015 and increase gradually to the 80 billion cu.m. number.

 I wish there was a time window to edit CAPS posts so these sorts of errors could be corrected.

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#2) On March 25, 2011 at 6:13 PM, Valyooo (34.81) wrote:

I am with you, but I cant help but think "its still russian"

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#3) On March 25, 2011 at 7:45 PM, ikkyu2 (98.25) wrote:

I think that's my point; that this kind of quick reponsiveness in the name of capturing some good will and making a buck is not the typical Russian behavior that we've seen before.  It is a cultural shift.

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#4) On March 27, 2011 at 2:29 AM, russiangambit (28.67) wrote:

> I think that's my point; that this kind of quick reponsiveness in the name of capturing some good will and making a buck is not the typical Russian behavior that we've seen before.  It is a cultural shift.

You wound me, are you saying russians are not smart or charitable? We are terribly misunderstood. Russians have a PR problem. -)) In fact, where money and power are concerned russians can be as quick and cunning as asians. We learned a lot from chinese.

Gazprom is like Exxon, it is too big and beauracratic to ever be very profitable. I would only own it as a currency play or  short term nat gas commodity play . Plus, their oil division  which is far more profitable trades under a separate ADR (Gazprom Neft).

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#5) On March 27, 2011 at 1:40 PM, ikkyu2 (98.25) wrote:

I didn't meant to insult or offend, Russiangambit, and I apologize if I did.

All the individual Russian emigres I've known here in the states have been very smart, very charitable, very socially-minded people.  I view the era between Stalin and Gorbachev, inclusive, as sort of a situational, cultural aberration foisted on the good Russian people, and perhaps not entirely by their own choosing.

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#6) On March 27, 2011 at 1:43 PM, ikkyu2 (98.25) wrote:

As far as big, bureaucratic, and 'very profitable', I am giving a value investor's take on Gazprom, which when the ADR was at 22 lately, I believe had a considerable margin of safety.  Gazprom is unlikely to go out of business tomorrow and they are unlikely to quit paying their dividend; natural gas prices are likely to go up, they are unlikely to go down signficantly, and Gazprom owns a lot of gas.

You will never catch a ten bagger in Gazprom, I will freely admit that.  Buyers of Gazprom should be looking for value and margin of safety. 

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#7) On April 01, 2011 at 12:02 PM, ikkyu2 (98.25) wrote:

On the other hand, I have caught a 40% pop in this stock in 3 months - with real money; as Jim Cramer once said, "This is a gain that was had!"  That's better than a lot of my forays into 'very profitable' growth investing.

The stock is now trading closer to a P/E of 7, which is about historical average for a business like this.  Not sure we're living in historical average times, and I like the yield fine, and I dislike frictional costs, so I am not selling just yet.

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