Lukoil Profit Rises 40% on Oil Prices, Hedging Gain

By Stephen Bierman

Dec. 11 (Bloomberg) -- OAO Lukoil said third-quarter profit advanced 40 percent as Russia’s largest non-state oil producer benefited from hedging after crude prices fell from a July record.

Net income rose to $3.47 billion, or $4.09 a share, from $2.48 billion, or $3 a share, in the same period last year, the Moscow-based company said today in a statement. That beat the $3.16 billion median estimate of six analysts surveyed by Bloomberg News.

“Results came in much stronger than expected, the main reason being the company posted a hedging gain of $623 million in the third quarter,” Igor Kurinnyy, an oil and gas analyst with ING Groep NV, said by telephone from London.

Lukoil had a $719 million loss through hedging practices in the first half of 2008, as Urals crude export prices grew, which contracted to $96 million in the first nine months of the year, the company said. Revenue in the quarter increased 52 percent to $32.6 billion.

Lukoil rose 30.28 rubles, or 3.2 percent, to 978.30 rubles on Moscow’s Micex Stock Exchange at 3:56 p.m. The 30-stock Micex index advanced 2.1 percent.

Operating expenses grew 25 percent on the previous quarter to $2.2 billion, driven by costs for labor, water pumping, fuel and electricity. Second-quarter net income was $4.13 billion.

“Some trends should not be ignored in 2009 where lower oil prices are expected,” Artyom Konchin, an energy analyst with UniCredit SpA in Moscow, said by telephone. “The ability to control costs will be the primary focus.”

Falling Oil Price

Urals crude, Russia’s export blend, climbed to a record $142.50 a barrel on July 3. It traded at $40.32 a barrel today after averaging $113.48 in the third quarter, according to data compiled by Bloomberg.

OAO Rosneft, Russia’s largest oil producer, cut operating expenses in the third quarter in comparison with the previous three months, Konchin said, adding that the company’s younger resource base requires less spending.

Lukoil exported 765,000 barrels of oil a day in the third quarter, 8 percent less than the previous year, as domestic refining increased. The company boosted processing 10 percent to 13.96 million tons of products.

Prime Minister Vladimir Putin’s government increased the oil export duty to $495.90 a metric ton on Aug. 1 from $398.10. It has since slashed the tax and may reduce it further to as little as $117 a ton from Jan. 1, the Finance Ministry said yesterday.

Arctic Production

The producer said the Aug. 28 start of production at the Arctic Yuzhno-Khylchuyu field will compensate for declines at units in western Siberia. Naryanmarneftegas, the joint venture with ConocoPhillips that operates the field, expects output to increase to 150,000 barrels a day next year, driving the company’s production growth plans.

Lukoil paid an installment of $250 million on Nov. 24 for Turkey’s Akpet, whose 693 filling stations account for about 5 percent of the Turkish retail market. The Russian company agreed in July to buy the retailer for $555 million to expand downstream plans overseas. It also paid 600 million euros ($778 million) Dec. 1 as the first of four parts for 49 percent of a refining venture in Italy with ERG SpA.

To contact the reporter on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net.