Analysis of PAO Gazprom's RAS Report for the First Half of 2025

Summary of Financial Results for H1 2025

PAO Gazprom significantly reduced its net loss under RAS for the first half of 2025. According to the published financial reports, the net loss amounted to approximately 10.8 billion rubles, compared to a loss of 481 billion rubles during the same period in 2024. This indicates a sharp improvement in financial results, nearing breakeven. Revenue grew moderately—approximately 4–5% year-on-year—reaching 3.05 trillion rubles in H1 2025. Significant changes were observed in the profit and loss structure: the company's other income surged to 982 billion rubles, while other expenses climbed to 1.27 trillion rubles. Nonetheless, despite maintaining high volatility in revenues and expenditures, Gazprom managed to nearly fully offset losses through operational improvements and tax factors. Below is a detailed analysis of key items in the report and the factors influencing the results.

Macroeconomic Context and the Gas Market

External macroeconomic factors and the gas market situation significantly impacted Gazprom's performance in the first half of 2025. Following the price volatility of gas in 2022–2023, a relative stabilization was observed in 2024–2025, although prices remained below peak levels. The dynamics of gas prices in Europe at the beginning of 2025 were characterized by a relatively mild winter and high storage inventories, which kept export prices at moderate levels. However, Gazprom's direct exposure to the European spot market diminished due to the decline in physical export volumes to Europe.

Geopolitical factors and gas exports also set the tone for operational results. Sanctions and the political environment after 2022 led to conventional sales markets (Europe) being effectively closed: gas exports to the EU via pipelines fell to historical lows. For example, transit through Ukraine, which had been contracted until the end of 2024, virtually ceased in 2025. The main external market has become China—supplies via the Power of Siberia pipeline continued to increase, although their volumes are still incomparable to previous European export figures. Supplies to Turkey and some Southern European countries through the Turkish Stream were maintained, even showing growth due to new agreements, but Gazprom's overall export profile is now much more Asian-oriented.

The domestic market for Gazprom remains stable but regulated: domestic gas prices are indexed roughly to the level of inflation, and in 2025 there was also a scheduled tariff increase (about 5–7% in mid-year). This supports revenue in the domestic market, although margins within Russia are traditionally lower than export ones. At the same time, the ruble's exchange rate played a dual role. In the first half of 2025, the ruble weakened on average compared to the beginning of 2024, which on one hand boosts ruble revenue from export contracts (denominated in foreign currency or tied to it), but on the other, leads to currency revaluation of debt obligations and other paper losses. Therefore, the external environment in H1 2025 was complex: the macroeconomic landscape was characterized by a decline in export volumes and moderately low prices; however, ruble depreciation and market restructuring played in the company's favor regarding ruble revenues.

Revenue: Moderate Growth and Structural Shift

Gazprom's revenue under RAS in H1 2025 increased by approximately 4–5% year-on-year, reaching 3.05 trillion rubles compared to ~2.93 trillion rubles a year earlier. Despite the relatively small overall growth, there were structural shifts within the revenue segments:

• Gas sales—the key item—grew almost by 10% in ruble terms (around 1.94 trillion rubles in H1 2025 compared to 1.77 trillion rubles a year earlier). This was due to several reasons: the rise in domestic tariffs, the redirection of some volumes to China and friendly countries, and the effect of a weaker ruble on export revenues. Physical gas sales volumes for the half-year are estimated to have decreased compared to previous years (especially in Europe), but cash revenues have only slightly increased due to price factors.

• Oil and gas condensate sales contributed relatively little. Revenue from oil sales rose to ~173 billion rubles (+6% year-on-year), reflecting high oil prices in rubles and stabilization of oil production by subsidiary structures. Concurrently, gas condensate sales declined (~104 billion rubles compared to 125 billion rubles a year earlier), likely due to reduced condensate production or redirection to domestic processing needs.

• Gas processing products. Revenue from gas processing products (e.g., helium, motor fuel, chemical products) remained virtually at last year's level (~168 billion rubles), reflecting stable domestic demand.

• Transportation service revenues. A noticeable decline occurred in the transportation services provided to third-party organizations—approximately 104 billion rubles in revenue compared to 143 billion rubles a year ago (-27%). This is linked to a drop in transit volumes: for example, revenues from transit through Russia for Central Asian gas or supplies from independent producers decreased, alongside the cessation of several export routes (loss of volumes previously transiting through Ukraine, reduction of services for European partners).

• Other activities. Income from property rentals (gas transport and extraction infrastructure) remains at around ~557 billion rubles. Similarly negligible (less than 1% of revenue) are other goods, works, and services, where revenue dropped to ~9 billion rubles.

Thus, Gazprom's revenue structure is increasingly shifting towards the core gas business in the domestic market and Asia. The growth in ruble revenue is primarily driven by the gas segment, compensating for declines in some other areas. This reflects the company's adaptation to new realities: gas exports to distant regions have quantitatively decreased, but the currency revenues converted into rubles are supported by the exchange rate, and domestic sales remain a solid revenue base.

Expenditure and Profitability: Tax Change Effects

In the first half of 2025, Gazprom's expenditures decreased, significantly improving profitability metrics. The cost of sales fell by about 10%—to 2.11 trillion rubles (down from 2.35 trillion rubles a year ago). The decline in the cost of sales alongside a modest revenue increase led to a sharp improvement in gross profitability:

• Gross profit (profit from sales before commercial and administrative expenses) was around 941 billion rubles, 65% higher than the H1 2024 level (approximately 572 billion rubles). The gross margin rose from ~19.5% a year ago to ~31% in the current period, indicative of a recovery in the basic profitability of the gas business.

• The main factor for the reduction in cost of sales was the decrease in expenditures in the gas sector. Direct costs for gas extraction and delivery dropped by ~20% year-on-year. This was influenced by several factors: firstly, the abolition of the increased mineral extraction tax (MET) for Gazprom starting in 2025. In 2023–2024, a temporary surcharge on the MET rate was in effect (in the equivalent of 50 billion rubles monthly), raising costs by 600 billion rubles annually. As of early 2025, the government removed this burden, freeing up approximately 300 billion rubles for the company just for the first half of the year. This directly affected the reduction in extraction costs and improved financial results (the tax exemption was granted to support Gazprom's investment program). Secondly, some cost savings may be linked to the optimization of operational expenses and the reduction of less profitable extraction projects in response to excess extraction capacities.

• Expenditures in other segments generally did not increase. Costs associated with rentals, processing, and other services remained close to last year's levels. Notably, some of Gazprom's business areas are still operationally unprofitable at the gross profit level: for example, transportation services for gas within the country (tariffs for independent producers) and deep gas processing operate in the red (their costs exceed revenues). Nonetheless, these areas are strategic and are subsidized by profits from core gas operations.

• Commercial and administrative expenses totaled around 763 billion rubles in H1 2025, showing little change from the previous year (~769 billion rubles in H1 2024). Commercial expenses (~682 billion rubles) include costs for gas transportation through the system (including export duties and tariffs), sales expenses, and other implementation costs. Administrative expenses (~81 billion rubles) reflect overhead and administrative expenditures. The stability of these items indicates that the company has maintained operational discipline and has not allowed fixed expenses to grow even amid inflation.

Thanks to a combination of reduced tax burdens and cost control, Gazprom's operating profit sharply improved. Profit from sales (after deducting commercial and administrative expenses) for the first half of 2025 was about 177.5 billion rubles, whereas a year earlier there was a recorded loss of around 196.7 billion rubles at this level. In other words, core operational activities became profitable again, bringing the company's performance closer to the level necessary for a return to net profit. This is a significant achievement amid an ongoing challenging market situation.

Other Income and Expenses: Volatility and Currency Effects

Despite the improved operational results, volatile other income and expenses continued to impact Gazprom's net profit. In the H1 2025 report, these items remained substantial in absolute terms, reflecting the influence of exchange rate fluctuations, interest, and one-off operations:

• Other income more than doubled year-on-year, rising to 982 billion rubles (from ~417 billion rubles in H1 2024). Other income under RAS includes elements such as exchange profits, income from participation in other organizations, and interest receivable. In the first half of 2025, the significant influx of other income might have been due to currency revaluation of monetary items: for example, the ruble's depreciation led to an increase in the ruble valuation of currency revenues in accounts and other assets, generating paper profits. Additionally, dividends from subsidiaries and affiliated companies brought substantial sums: Gazprom typically receives payments from profitable subsidiaries (primarily PAO Gazprom Neft and others) in the second quarter, after annual meetings. In 2024, despite the overall consolidated loss of the group under IFRS, some subsidiaries were profitable and directed dividends to the parent company. These participation earnings amounted to ~157 billion rubles in H1 2025 (slightly less than 185 billion rubles a year earlier). Interest income (from provided loans and fund placements) also increased (~179 billion rubles compared to 168 billion rubles in H1 2024) due to higher interest rates in the economy. All the listed components cumulatively account for the spike in other income.

• Conversely, other expenses also increased—rising to 1.27 trillion rubles (up from ~1.04 trillion rubles a year ago). Other expenses include exchange losses, interest payable on debt, reserves, and write-offs. The main negative factor was interest expenses on loans and bonds: in H1 2025, Gazprom paid interest amounting to about 261 billion rubles, which is ~17% higher than a year earlier (the rise in borrowing costs and increased debt load is partly attributed to the hike in the key interest rate and the currency debt revaluation). Additionally, exchange differences formed a significant portion of other expenses. The company likely maintains an excess of currency liabilities over assets in foreign currency; thus, the ruble's depreciation leads to losses from currency debt revaluations. For instance, eurobonds, loans in yuan, and other foreign currency borrowings have "weighed heavier" when converted to rubles, creating hundreds of billions of rubles in exchange losses. In 2024, a similar mechanism resulted in extremely large negative balances in other operations. In 2025, although the ruble also weakened, the overall net loss from these operations decreased. Likely, some of last year's one-off write-offs (e.g., impairment of specific assets, reserves for problematic accounts) did not recur at the same scale, so the increase in other expenses is nearly exclusively attributed to currency and interest.

In sum, the balance of other income and expenses remained negative but showed significant improvement: around –283 billion rubles in H1 2025 compared to –623 billion rubles a year earlier. This indicates that the influence of non-core factors on financial results is still negative, but with less intensity by half. The volatility of this category remains high—changes in exchange rates or interest rates can noticeably affect Gazprom's financial results under RAS regardless of operating profit. For investors from the CIS, it is crucial to understand that such exchange rate and one-off items are largely paper-based: they reflect current revaluation and accounting rules rather than the movement of real money. Nevertheless, they impact reported net loss or profit and the amount of retained earnings, which depend on potential dividends.

Profit Tax and Deferred Taxes: Impact on Net Result

A significant role in Gazprom's final result was played by the profit tax—more precisely, its absence. For January–June 2025, the company reflected a positive balance of profit tax of +21 billion rubles. This means that instead of paying tax to the budget, the company received a tax benefit in its reporting, which reduced the loss. This situation became possible due to the accounting of deferred taxes and taxes from previous periods (an element of so-called tax optimization reporting):

• The current profit tax for H1 2025 was charged at a negligible amount (around 6.9 billion rubles in expenses)—expectedly low, as taxable profit is minimal. In 2024, the current tax was practically zero due to substantial losses.

• The main contribution came from deferred profit tax, which added 24 billion rubles to the result (tax income). Deferred tax liabilities and assets reflect the differences between profit accounting under RAS and tax accounting. In simpler terms, last year, Gazprom incurred substantial losses under accounting standards, which may be carried forward to reduce taxes in the future. The company recognizes a deferred tax asset, anticipating that in subsequent years, it will return to profitability and can account for these losses when paying taxes. The recognition of this asset leads to the reporting of tax income (tax benefit). In H1 2024, deferred taxes resulted in a colossal positive effect of ~185 billion rubles (partly due to carrying forward losses from 2022–2023), which mitigated the then-massive loss. In 2025, the amount of new deferred benefit is significantly smaller—24 billion rubles—but still substantially reduces the final loss. This indicates that the lion's share of tax assets has already been accounted for earlier, and the current effect of deferred taxes has diminished.

• Additionally, the recalculation of taxes from past years brought around +3.9 billion rubles in reported income. It is likely that excessively charged taxes from previous periods were adjusted or tax policy clarifications were considered, leading to a small positive effect.

As a result of all these maneuvers, Gazprom's final net loss decreased to 10.8 billion rubles. Without the tax savings, it would have been approximately 31 billion rubles, but almost two-thirds of the loss were "compensated" due to tax assets. Such tax optimization is standard practice in corporate reporting: the company legally minimizes tax contributions in loss periods and reflects expected savings in its reports. However, investors need to consider that deferred tax assets will only materialize into real benefits if Gazprom generates taxable profit in the future. In other words, carried-forward losses will help save on taxes when the business returns to sustainable profitability. If losses persist, deferred assets may be reassessed. Thus far, the tax maneuver allowed Gazprom to remain almost at a zero net profit in 2025, despite all challenges.

Outlook for the Second Half of 2025

Given the results from the first six months, Gazprom's prospects for the second half of 2025 appear cautiously optimistic, although they remain dependent on external factors:

• Operational resilience. The core gas business in the current conditions demonstrates the ability to generate operating profit. The abolition of the increased MET and the maintenance of a relatively weak ruble will continue to support the gross margin in the second half of the year. If the company maintains the achieved level of sales profitability, it may realize even a small operating profit for the entire 2025 year (before accounting for other factors).

• Market conditions in H2 2025. The start of the autumn-winter season is traditionally accompanied by increased gas demand and potential price hikes. The European gas market, although not currently a primary market for Gazprom, influences global energy prices. If the winter of 2025/26 is cold, the price situation may improve and Gazprom could benefit from rising export prices to China (contracts with the PRC may be linked to global fuel prices, albeit with a lag). Additionally, gas exports to Asia will continue to grow: Gazprom plans to further increase supplies to China via the existing pipeline, approaching design capacity. The second half of the year will see the commissioning of additional compressors and the expansion of the capacity of the Power of Siberia, which will enhance export volumes. Simultaneously, the company is developing the LNG direction: while the major contribution in 2025 remains modest for now, LNG sales in the global market could somewhat compensate for lost pipeline sales.

• Financial factors. Volatile items will still impact financial results. The ruble exchange rate remains a key risk: continued depreciation may, on one hand, increase ruble revenues (a plus for operating profit), but on the other, could again incite substantial exchange losses on loans (a minus for other expenses). The balance of these effects in H1 2025 has tipped in favor of the company (as operational savings and tax benefits offset currency losses), but there is no guarantee that this will repeat in H2 2025. Much depends on currency policy and oil prices (the key driver for currency revenues in Russia). Interest expenses are likely to remain high, given the tight monetary policy of the Central Bank of Russia; however, new sharp spikes are not expected unless the company increases its debt.

• Tax policy and regulatory risks. In the second half of the year, it is unlikely that the government will revert the exemptions akin to the increased MET (which Gazprom benefited from). Rather, attention will likely focus on maintaining stability in the domestic gas market: for example, further tax incentives to stimulate gasification or processing projects could indirectly help Gazprom. On the contrary, fiscal needs may lead to one-off decisions—for instance, there is discussion about mechanisms to extract windfall profits from oil and gas companies through one-off levies. Investors should keep an eye on such initiatives as they affect net profit and dividend potential. Thus far, Gazprom's management has approached profit distribution cautiously: after record dividends in 2021, payouts were suspended due to losses. If Gazprom reports at least a slight net profit under RAS by the end of 2025 and liquidity allows, a return to nominal dividend payouts in 2026 cannot be ruled out. However, achieving this requires solidifying the trend of financial improvement.

Overall, the second half of 2025 will be a test of the durability of the financial stabilization achieved. Gazprom entered 2025 with a historic loss but swiftly reduced it through tax relief and adaptation to the new market geography. If external conditions do not worsen dramatically—for instance, a new collapse in export prices or a strengthening of the ruble—it is expected that by the end of the year, the company will either break even or achieve a small profit. Conversely, even retaining a moderate loss will not jeopardize Gazprom's stability, given state support and its strategic significance.

The financial results of H1 2025 under RAS demonstrate that Gazprom has managed to adapt to the unprecedented challenges of recent years. The sharp reduction in net loss—nearly 45 times year-on-year—has been made possible by a combination of improved operational efficiency (revenue growth and reduced cost of sales), tax changes (the abolition of the increased MET and use of deferred tax assets), and the diminished negative impact of non-operating factors. The company still faces volatility in other income and expenses, reflecting exchange rate fluctuations and debt burden; however, during the reporting period, it successfully kept these factors under control compared to the previous year.

For investors from the CIS countries, it is important that Gazprom shows signs of financial stabilization. Despite geopolitical constraints and the redistribution of export flows, the gas giant has managed to maintain high revenues in rubles and optimize costs. The macroeconomics and gas export landscape remain uncertain, but current trends—gradual reorientation to the East, state support, adaptation to new market prices—suggest that the company is likely to approach breakeven or even profitability for the second consecutive quarter.

Nevertheless, numerous risks lie ahead: from fluctuations in energy prices to deferred currency taxes from future periods. Investors should keep in mind that reported profit is largely influenced by one-off measures (currency revaluation and tax assets), and a sustainable recovery of Gazprom's finances will require further revenue growth and strict cost control. The company's financial reporting for the second half of the year and the entirety of 2025 will be the next indicator of whether Gazprom can secure positive momentum and begin generating stable net profits in the new realities.