Lukoil Profit Up; To Stabilize West Siberia Output

MOSCOW (Dow Jones Newswires), March 10, 2011

Lukoil posted a 27% rise in fourth quarter net profit boosted by higher oil prices and said it plans to stabilize oil production at its mature fields in West Siberia.

Faced with limited access to new strategic reserves in Russia and one of the harshest tax oil regimes in the world, Lukoil has seen its output fall in recent years. As a consequence, the company presented a new strategy at the end of 2009 aimed at increasing free cash flow and scaling back output growth plans.

But Lukoil said Thursday it now hopes to reverse the declining output through increased spending on its upstream business and applying new technology.

"We hope to give new life to mature fields in West Siberia with the use of new technologies," Lukoil's Chief Executive Vagit Alekperov said at an investor meeting in New York.

Lukoil plans to stabilize output in West Siberia--the company's biggest production region developed in Soviet times--within the coming three years, Alekperov said. The company's daily production stood at 1.94 million barrels last year, over half of which came from West Siberia.

Alekperov also said Lukoil is interested in U.S. shale gas projects and hopes to partner with U.S. companies to explore North American shale gas fields and eventually bring that technology to use "in Russia and third countries."

Lukoil's net profit for the last three months of last year under U.S. Generally Accepted Accounting Principles totaled $2.19 billion, compared with $1.73 billion in the same period a year earlier, according to calculations made by Dow Jones Newswires based on full-year figures.

That was below a forecast of $2.45 billion from a Dow Jones Newswires survey of seven analysts.

Lukoil said the results were affected by $392 million in impairment charges relating to upstream properties in Russia and goodwill write-off related to its Turkish marketing subsidiary, Akpet.

The growth in global oil prices helped drive revenue higher by 18% in the period to $28.68 billion from $24.28 billion a year earlier, while earnings before interest, taxation, depreciation and amortization, or Ebitda, rose to $4.06 billion from $3.24 billion.

Lukoil's shares underperformed the overall Russian equity market last year, as investors remained skeptical of the company's ability to increase free cash flow and pay higher dividends. But the stock has gained close to 20% in the last three months, compared with a 14% gain for the Micex index.

Lukoil's shares closed 2.9% lower at 1983.5 rubles each in Moscow, in line with the overall market.

"Several factors--including accelerating crude oil production decline in Russia, political instability in the regions of core greenfields, and pressure on downstream margins domestically--may raise concerns regarding Lukoil's financial performance going forward," said TKB Capital analyst Evgenia Dyshlyuk.

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