On 5 December 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 six months ended 30 June 2007.  

Changes in the accounting treatment of NPF Gazfund significantly impacted the consolidated financial information of OAO Gazprom for the six months ended 30 June 2007.  In connection with the latest developments in the legislation regulating investment of pension reserves, the Group took a decision to terminate consolidation of NPF Gazfund as a subsidiary in the consolidated financial statements starting from the first quarter of 2007. As a result of the change in the accounting treatment, investment assets of the fund are recorded by the Group as pension plan assets in accordance with IAS 19 ‘Employee Benefits’. Primarily the change has impacted the following items: short-term financial assets, other non-current assets, provisions for liabilities and charges, minority interest and treasury shares.  Subsidiaries of OAO Gazprom where NPF Gazfund holds an interest (such as AB Gazprombank (ZAO), OAO Sibur Holding and their subsidiaries) continue to be consolidated by the Group.  

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 six months ended 30 June 2007 and 2006. All amounts are presented in millions of Russian Roubles, unless otherwise stated.

Sales (net of excise tax, VAT and customs duties) increased by RR 52,470 million, or 5%, to RR 1,143,894 million in the six months ended 30 June 2007 compared to the six months ended 30 June 2006. More detailed information on our sales for the six months ended 30 June 2007 and 2006 is presented in the table below.

Net sales of natural gas increased by RR 36,408 million, or 5%, to RR 758,293 million in the six months ended 30 June 2007 compared to the six months ended 30 June 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 18,056 million, or 4%, to RR 410,206 million in the six months ended 30 June 2007 compared to the six months ended 30 June 2006.  This is explained primarily by the fact that the volume of sold gas decreased by 6% or 5.5 bcm and net average prices (net of excise tax, VAT and customs duties) increased by 2%.

Net sales of natural gas to FSU countries increased by RR 31,228 million, or 30%, to RR 133,787 million in the six months ended 30 June 2007 compared to the six months ended 30 June 2006. The increase of sales in this area is explained by higher average prices.

Net sales of natural gas in the domestic market increased by RR 23,236 million, or 12%, to RR 214,300 million in the six months ended 30 June 2007 compared to the six months ended 30 June 2006.  This is explained primarily by the increased average domestic price for gas established by the Federal Tariffs Service, which was partially offset by a 3% reduction in the volume of sold gas. 

In the six months ended 30 June 2007 net sales of crude oil and gas condensate decreased by RR 20,476 million, or 21%.  This decrease in the sales of crude oil and gas condensate is due to Gazprom Neft’s activities: in the six months ended 30 June 2007 net sales of crude oil decreased by RR 20,628 million, or 24%, to RR 64,804 million compared to the six months ended 30 June 2006. The decrease was caused by the fact, that more oil was used to produce refined products.   

Operating expenses increased by RR 105,790 million, or 15%, to RR 792,215 million in the six months ended 30 June 2007 compared to the six months ended 30 June 2006. 

The component which accounted for the major part (or 54%) of the increase in operating expenses was purchased oil and gas. The increase primarily related to the increase in prices of gas purchased in Middle Asia for further reselling.

In the six months ended 30 June 2007 the profit for the period attributable to equity holders of OAO Gazprom totaled RR 313,180 million which is RR 8,311 million, or 3%, less compared to the six months ended 30 June 2006.

In the six months ended 30 June 2007, the Group acquired a 50% plus one share of Sakhalin Energy Investment Company Ltd. for RR 192,330 (USD 7,450 million). In addition, the Group obtained a controlling interest in OAO Mosenergo. These transactions did not have a material impact on the results of operations for the six month period ended 30 June 2007.

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 229,576 million, or 28%, from RR 807,814 million as of 31 December 2006 to RR 578,238 million as of 30 June 2007. This decrease can be explained by a significant increase of our cash and cash equivalents in bank accounts 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 six months ended 30 June 2007 can be found here.