Lukoil Second-Quarter Net Advances 64% on Oil Prices

By Greg Walters

Aug. 29 (Bloomberg) -- OAO Lukoil, Russia's biggest independent oil producer, said second-quarter profit increased 64 percent, missing estimates, as prices for crude rose and the company refined more oil.

Net income advanced to $4.13 billion from $2.52 billion a year earlier, the Moscow-based company said in a statement today. That was 9.2 percent less than the $4.55 billion median estimate of eight analysts surveyed by Bloomberg.

``If operating expenses were responsible for most of this miss, that will be negative for the entire industry and would underline the urgent need for tax reform,'' Ronald Smith, chief strategist with Moscow-based Alfa-based said by phone.

Lukoil is targeting profits from retail sales of oil products in Russia as demand grows for gasoline and diesel, and as it fights to halt a decline in oil output. Selling, general and administrative expenses increased 22 percent in the first half of the year as the ruble appreciated and expansion continued both in Russia and abroad, the company said.

Sales rose 59 percent to $31.9 billion in the second quarter, while refining volumes rose 7 percent to 1.22 million barrels a day.

Lukoil fell 38.63 rubles, or 2.1 percent, on Moscow's Micex Stock Exchange to 1,842 rubles.

Domestic Market

Refining volumes and sales via the retail network have risen as domestic car sales accelerate, Andrei Gaidamaka, Lukoil's strategic development director, said in an interview before the results were released.

``We are making way more money in the domestic market,'' Gaidamaka said. ``We make close to half of our income now domestically versus exports.''

Lukoil has struggled to halt a production decline at older fields in western Siberia. Total crude output fell 3 percent in the quarter, and in western Siberia, where the company pumped 62 percent of its oil, it dropped 5.8 percent in the first half. In the first quarter, overall output fell 4.5 percent to 1.92 million barrels a day.

Urals crude averaged $117.64 a barrel in the second quarter, up 80 percent from a year earlier, according to data compiled by Bloomberg. Russia revises export taxes on crude and oil products every two months based on average prices for its benchmark export blend. The duty was raised by 1.9 percent on April 1 to $340.10 a ton, or $46.40 a barrel.

Russians bought 1.65 million foreign cars last year, according to the Association of European Business in the Russian Federation. PricewaterhouseCoopers LLP said in February that spending on cars in the country rose 67 percent to a record $53.4 billion in 2007.

Renault Chief Executive Officer Carlos Ghosn said in January that Russia, which has a population of 142 million, will surpass Germany as Europe's biggest car market within two years.

To contact the reporter on this story: Greg Walters in Moscow gwalters1@bloomberg.net