Ukrnafta Net Profits Plummet In 1Q07

Ukrnafta (UNAF: SELL) reported net profits of USD 32.7 mln in 1Q07, nearly 5.7 times less than the figure the company recorded in 1Q06. Vladimir Nesterenko: We expect a decrease in UNAF’s net income of about 20% in 2007, but the extent of the 1Q07 decrease is quite misleading, as UNAF’s quarterly net income is usually very volatile during the year. Compared to average quarterly earnings in 2006 of USD 91.2 mln, 1Q07 net income is 2.8x lower. In our view the most powerful factors affecting the company’s bottom line were the increase in royalties that came into effect on January 1, and the price caps, which oblige the company to sell gas at regulated tariffs. Unwilling to sell gas below the market, in 1Q07 Ukrnafta stored gas.