LUKoil Beats Profit Forecasts

LUKoil beat forecasts Thursday with strong first half earnings and said output would balloon over the next 10 years with an eye to increasing exports to the United States.

LUKoil, Russia's leading oil producer, posted a net profit of $840 million for the first half of 2002, down from $1.43 billion in the first half of 2001, reflecting lower oil prices, but ahead of market expectations.

"Our sales decreased mainly due to the reduction of export and domestic prices of crude oil and refined products," LUKoil said in a statement.

The company said oil prices had only recovered to last year's average levels by the end of the second quarter. The first half result beat a consensus forecast of $774 million.

Revenues were off slightly to $6.68 billion from $6.88 billion in the first half of 2001. Four analysts polled by Reuters had expected revenues of $6.26 billion.

"LUKoil's results were better than we forecast," said Unified Financial Group analyst Pavel Kushnir, who had forecast $800 million in net profit and $6.36 billion in revenues.

"The discrepancy between our forecasts and reported numbers is due to the fact that the company increased its crude and products exports," he said.

LUKoil produced 37.4 million metric tons in the first half, up from 31.4 million in the same period of 2001. It exported 13.32 million tons, compared to 11.50 million tons.

LUKoil CEO Vagit Alekperov made ambitious forecasts for Russian oil producers' share of U.S. oil markets and for LUKoil's output over the next 10 years in Houston.

Alekperov said Russia could be producing 9 million to 10 million barrels per day within eight years and eventually supply one tenth of America's crude needs.

"It is expected that Russian oil output will reach 9 to 10 million barrels per day by 2010," Alekperov said in a speech in Houston on Wednesday.

Alekperov said LUKoil wanted to produce 30 percent of Russian oil output and become the nation's biggest natural gas producer after state monopoly Gazprom.

"LUKoil plans to increase output of oil and gas to 3 million barrels of oil equivalent per day, which exceeds 2001 levels by 90 percent," Alekperov told reporters.

He said LUKoil wanted to produce 3 percent of the world's total output of hydrocarbons.

The company's Moscow listed share price closed up 1.8 percent in dollar trade to $16.13.

Rising oil prices in the second quarter helped the company increase its net profit 146 percent quarter on quarter in the second quarter, Alfa Bank oil industry analyst Konstantin Reznikov said.

Net profit in Q2 was $597 million on $3.81 billion in total revenues, compared with $753 million net profit on $3.52 billion in revenues in the second quarter of last year.

The company showed signs it was trying to make the substantial cost cuts it has promised as part of an effort to shed its reputation among investors as a high cost producer.

In notes to the financial report, LUKoil said its production costs declined slightly to $2.98 per barrel from $3.20 per barrel.

"This is the result of a policy of decreasing costs, which includes closing inefficient wells and increasing output by getting more oil from existing wells," LUKoil said.

On the whole cost growth slowed, rising only 4 percent year on year, Renaissance Capital analyst Vladislav Metnev said.

"This is already a sign of cost control," Metnyov said.

Selling, general and administrative expenses nevertheless rose by 21 percent, Reznikov said.

The company said this was because of a 30 percent increase in transport tariffs, increased sales and increased ruble costs due to real appreciation of the ruble as inflation outpaces the fall in the currency's value.

Analysts said they forecast net profit for LUKoil in the region of $2.2 billion to $2.8 billion.