E.ON reaches settlement with Gazprom on long-term gas supply contracts and raises Group outlook for 2012

  • Settlement includes retroactive adaptation of pricing conditions for price review period since Q4 2010
  • For the full year 2012 E.ON now expects an EBITDA between €10.4 and 11.0 bn in 2012 (until now: €9.6 to 10.2 bn) and an underlying net income between €4.1 and 4.5 bn (until now: €2.3 to 2.7 bn)

E.ON AG and OAO Gazprom have reached an agreement in the negotiations of their long-term gas supply contracts and signed today agreements to that effect. The settlement includes a retroactive adaptation of pricing conditions for the price review period since Q4/2010. E.ON expects the settlement to have a positive impact of about €1 bn on the Group's half-year results. This negotiation agreement will also end the ongoing arbitration proceedings. "We are pleased about the completion of our negotiations and the good result for both sides. Gazprom and E.ON have shown once more that, as long-term strategic partners, they are able to arrive jointly at viable solutions. By signing today's agreements we are strengthening our long-standing, success-ful partnership with Gazprom," said Johannes Teyssen, CEO of E.ON AG.

With the successful completion of the talks with Gazprom, E.ON has now successfully renegotiated the pricing conditions of all of its currently oil-indexed volumes under its long-term gas supply contracts. This marks a major milestone in restoring the competitiveness of E.ON’s long-term gas contracts. With the existing agreement the risk of the Group’s gas supply portfolio has been substantially decreased.

In connection with the settlement reached with Gazprom, E.ON has also raised its outlook for 2012. Apart from the positive effects of the renegotiated long-term gas supply contracts, the company, amongst other, is also taking account of contrary effects resulting from the divestment of its gas transmission company Open Grid Europe as well as lower production volumes in its E&P business due to the delayed commissioning or the outage of gas platforms.

For the full year 2012 E.ON now expects an EBITDA between €10.4 and 11.0 bn in 2012 (until now: €9.6 to 10.2 bn) and an underlying net income between €4.1 and 4.5 bn (until now: €2.3 to 2.7 bn). Apart from the higher EBITDA, one-off effects on taxes and net interest expenses as well as a generally lower tax rate have a positive impact on group earnings.

Background

Gazprom has been an important business partner for E.ON for almost 40 years. It has been supplying natural gas to the E.ON Group since 1973. The existing gas supply contracts run until 2036 and cover a total volume of up to 600 billion cubic metres (bcm). They are thus a major cornerstone of security of supply for Germany and Europe. Contributing to this goal is the Nord Stream pipeline across the Baltic, in which E.ON holds a stake. Nord Stream creates a direct link between the gas fields in Russia and the west European sales markets, providing transmission capacity for a significant part of the additional gas import requirements anticipated by the EU. Since 2011 a transport capacity of about 27.5 bcm of gas is available every year. Once the second parallel pipeline has been completed, it will double to 55 bcm per year. E.ON also has a 25 % stake in the Yuzhno Russkoye gas field in Siberia, which is located about 3,500 km north-east of Moscow and, with its reserves of over 600 bcm, is one of the world's largest gas fields.

Since the acquisition of the Russian power generator OGK-4 in 2007, E.ON has not only been one of the largest buyers of Russian gas but also the biggest foreign investor in the Russian energy market. With these long-term activities E.ON not only un-derscores Russia's importance for its own company but also makes a significant con-tribution to enhancing security of supply in Europe as its home market. In the future, Russia as a focus region will remain a strategically important market for E.ON.

This press release may contain forward-looking statements based on current assumptions and forecasts made by E.ON Group management and other information currently available to E.ON. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. E.ON AG does not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to conform them to future events or developments.