LUKoil to Cut Costs By $900M Next Year

LUKoil said Thursday that it planned to cut investment by at least 10 percent next year, as the global economy and demand for crude is slowing down.

The company's board approved investment of $9 billion in its best-case scenario for world crude prices, LUKoil said in a statement.

That scenario is based on an average price of $80 per barrel, LUKoil vice president Leonid Fedun told an investment conference Wednesday.

Declining prices for metals and cement -- the two biggest expenditures for oil producers -- will help offset the drop in investment, said Pavel Sorokin, an analyst at UniCredit Aton. "A smaller amount of money will be able to do the same job," he said.

LUKoil, which is planning to spend $10 billion on investment this year, said it would work to cut costs by $900 million next year.

Investment next year could decline to $7.5 billion or $5.1 billion if prices for crude remain low, LUKoil said. The figures appeared to correspond to scenarios Fedun discussed Wednesday, which assume an average oil price of $65 and $45 per barrel, respectively.

Fedun said LUKoil, the country's second-largest oil producer, was still planning to increase output by up to 1.5 percent next year.

Gazprom Neft, the country's fifth-largest oil producer, will also cut its budget for capital expenditures next year. Investment could shrink by as much as 25 percent to 70 billion rubles ($2.6 billion), vice president for finance Vadim Yakovlev told the investment conference. The cuts will affect exploration, efforts to reduce gas flaring and plans to improve motor fuel quality, he said. The company's output will fall slightly next year, he said.

LUKoil released the reduced spending figures the same day that the Federal Anti-Monopoly Service accused it of setting unfairly high prices for gasoline, diesel and jet fuel last summer. Crude prices reached their highest level in July before falling more than 50 percent.

"The actions of [LUKoil] led to social tensions and creation of problems in the country's economy," the watchdog said in a statement on its web site, referring to protests over high prices for oil products this summer.

The anti-monopoly service accused Rosneft of the same violations in a separate statement.

Nonetheless, both companies posted strong gains on a rising market Thursday, with LUKoil closing up 16 percent on the MICEX and Rosneft finishing up almost 25 percent higher than the previous day's close.

LUKoil reduced the prices in question twice in August and cut them further throughout the fall. Spokesman Dmitry Dolgov said LUKoil would study the ruling before deciding whether to appeal.

Rosneft spokesman Nikolai Manvelov said the company had been complying with the law.

LUKoil also said Thursday that it might raise 100 billion rubles ($3.7 billion) with its first issue of commercial paper, Bloomberg reported. It may sell 10 issues of 5 billion rubles each maturing in six months and the same amount due in a year. Companies issue commercial paper for day-to-day funding.