The truth about Gazprom - "the world's most profitable energy company"

“The joke in my office is that they’re going to build a pipeline to the moon. There’s no telling when Gazprom will get over the hump on big ticket projects because they never end."
Michael O’Flynn, managing director, UFG Asset Management.

Bloomberg reports on Gazprom:

The world’s most profitable energy company is being punished by investors who are concerned it’s also the biggest spendthrift.

OAO Gazprom (OGZD), Russia’s natural-gas export monopoly, will beat Exxon Mobil Corp. (XOM) to earn $37.9 billion in 2012, according to estimates compiled by Bloomberg. Yet its shares have fallen 14 percent this year as the state-run company uses its cash to finance the industry’s largest capital expenditure program, including an export terminal in the Far East and undersea pipelines to Europe, where demand is forecast to drop.

The forecasts haven’t reassured investors: Gazprom’s price- to-earnings ratio is the lowest among the world’s 300 biggest oil and gas producers by market value, according to Bloomberg data. The company paid just 7 percent of profit as dividends last year, based on international accounting standards. That compares with 23 percent at Exxon and 45 percent at PetroChina.

The fact that western investors stay away from dictator Putin's pipe laying gas company Gazprom is, of course, nothing new. But what is amazing, is that renowned business media - Bloomberg among them - continue to describe Gazprom as "the world's most profitable energy company". They should know better:

Curiously, in 2011 Gazprom was formally the most profitable company in the world with purported net profits of $46bn, but these profits were hardly real. Investment analysts opined that no less than $40bn disappeared through inefficiency or corruption. Gazprom’s cash flow was barely positive.

In their 2010 booklet Putin and Gazprom , Boris Nemtsov and Vladimir Milov, the opposition politicians, detailed how assets were being stripped from Gazprom through large kickbacks on pipeline construction and cheap sales of financial and media subsidiaries to Putin cronies. Since shareholders have realised that only their dividend yield is material, Gazprom’s market value has plummeted by two-thirds from $365bn in May 2008 to $120bn today.

Yes, there it is - the secret behind Gazprom's pipe laying "strategy".