LUKoil Net Up 2% Amid Cost Controls

LUKoil, the country's No. 2 oil firm, reported a 2 percent rise in third-quarter net income Wednesday, just beating analysts' expectations but failing to keep pace with sales growth.

LUKoil, in which U.S. major ConocoPhillips owns 20 percent, said net income stood at $2.48 billion compared with $2.43 billion in the same period a year earlier. Analysts polled expected profit to stay flat.

"Our performance was influenced by the movements in the international crude oil and refined products prices, an increase in the operating expenses and in the transportation tariffs," the company said in a statement.

But it added that the negative effect was partly offset by higher output of crude and refined products.

LUKoil's total revenues, calculated under generally accepted accounting standards, rose to $21.42 billion in the third quarter versus $18.38 billion in the same period a year earlier and $21.40 billion forecast by analysts.

The firm's earnings before interest, taxation, depreciation and amortization rose to $4.02 billion, up from $3.71 billion in the third quarter of last year and slightly ahead of the average forecast of $3.96 billion.

Analysts said the results were in line with their expectations and would slightly support of the share price.

"We like the results, but they are only marginally better than consensus expectations, and there is very little in the numbers to either excite or disappoint investors," said Igor Kurinny from ING.

LUKoil's shares were up 2.38 percent by the time market closed, ahead of the broader market, which rose 0.95 percent on the day.

LUKoil said its operating expenses rose by 33.9 percent in January to September of 2007 year on year to $4.47 billion because of the real ruble appreciation against the dollar.

The firm said its capital expenses increased by 46 percent to $6.60 billion in the nine months, which it said was mostly because of the development of big new projects in Russia and abroad.

But analysts said they were still generally impressed by the cost control demonstrated by the company in the third quarter.

"[Selling, general and administrative expenses] declined by 1 percent, and extraction costs increased only by one percent, quarter on quarter. Other major cost items also showed below inflation increases," Kurinny said.

LUKoil said its net profit rose by 2.2 percent to $6.30 billion in the first nine months of the year, while revenues increased by 11 percent to $57.35 billion in the period.

Analysts predicted strong fourth-quarter results against the background of the continuing rally in oil prices and said the firm's financials in the first quarter would depend on whether the prices stay high.

"The price of oil in October and November continued to soar, setting new records. Although crude export duty in the fourth quarter is high ... we expect LUKoil's financials to be strong," said Yevgenia Dyshlyuk from UralSib.

"We believe the company's financials could deteriorate if the average oil price falls below $80 per barrel in the first quarter 2008."