OGZPY: Is Gazprom PAO - GDR a Good Investment?
Gazprom (OGZPY) is the largest natural gas company in the world and is actually one of the largest companies in the world. However, despite its mammoth size, it's not a company found in most portfolios. That's entirely due to the fact that it's a Russian company and not traded on any of the major U.S. exchanges. That makes it much tougher for the average investor to invest in Gazprom, which isn't necessarily a bad thing.
Why invest in Gazprom?Last year the company produced 443.0 cubic meters of natural gas while the company has another 36.1 trillion cubic meters of gas reserves. To put the company into the perspective of global supply, it produces more than 15% of the world's natural gas and controls over 15% of global gas reserves. In other words, calling Gazprom a gas giant is a relative understatement. In fact, its name is derived from a contraction of two Russian words meaning gas industry, which certainly fits.
Not only is Gazprom the largest natural gas producer in the world, it also owns and operates the largest natural gas transportation system in the world as it controls over 98,000 miles of natural gas trunk lines. Again, for perspective, that's enough pipe to circle the earth four times. Those pipelines have made it a critical natural gas supplier to Europe. It also intends to be an important future supplier of gas in Asia having signed an enormous $400 billion 30-year export deal with China earlier this year.
Why to avoid itHaving said all that, Gazprom's size has made it quite a force to be reckoned with especially when it comes to shipping gas to Europe. As such, it has turned off gas supplies to put pressure on its customers, both political and economic. For example, earlier this year it shut off gas supplies to the Ukraine after the two countries couldn't agree on a new supply deal. It has also been blamed with using natural gas as a political weapon at the behest of the Kremlin.
It's the company's close ties to the Russian government that are also worth noting. It was originally created in 1989 when the Soviet Ministry of Gas Industry converted into a corporation. While that company was later privatized, the Russian government still holds a majority stake in Gazprom. Because of that control, Russia has been accused of using its power for political gains. That has made the company more vulnerable to market forces, according to analysts, as the company is seen in the marketplace as being used as a political tool at the expense of shareholder profits.
Add to this the fact that its stock trades over the counter in the U.S., instead of at a major exchange, and it makes it a much riskier investment for retail investors. By not being listed on a major exchange it isn't beholden to the strict listing guidelines that are designed to protect investors in the states. That's not to say Gazprom doesn't have tight internal controls, but investors don't have the additional layers of protectionthat they would have by investing in a listed company.
Investor takeawayDespite the fact that it is the largest natural gas company in the world, investors are better off passing on Gazprom. The fact that it is still majority owned by Russia leaves the door open that the company could be used for politicalgain over shareholder profits. Meanwhile, by not listing on a major U.S. exchange it's not only hard to invest in the company, it's a bit riskier as well. There are simply better options for the average investor than Gazprom.
The article OGZPY: Is Gazprom PAO - GDR a Good Investment? originally appeared on Fool.com.
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