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. Last Updated: 07/27/2016

LUKoil Nets Less, Blames Taxes

Russia's largest oil company, LUKoil, announced Monday that its operating profits for the first nine months of 1997 had registered a 4.5 percent increase over the same period last year, but net profits were down 8 percent because of taxation.

LUKoil posted operating profits of 3.8 trillion rubles ($647 million) on the back of a 6 percent increase in output but managed to retain only 2.4 trillion rubles after paying a myriad of taxes, company officials said.

"This has been a difficult year, but one that gives us cause for optimism," LUKoil Vice President Leonid Fedun said at a news conference. "LUKoil as well as the entire Russian oil complex showed improved performance in 1997."

Fedun said one positive development in recent months had been the government's decision in October to end the oil export program. Under this program oil companies had to sell a percentage of their output at lower domestic prices to traders who would sell it overseas at higher prices. Now the government has allotted the quotas to the oil companies themselves.

Fedun pointed to increasing exports as a priority for the company as this provides a steady cash flow that Russian clients are unable to ensure.

The company's net profits for the whole of 1997, however, are expected to remain at 1996 levels -- 4 trillion rubles, the direct consequence of the continued tax burden on producers. Fedun said LUKoil will have paid as much as 24 trillion rubles in taxes by the end of the year, 30 percent to 35 percent more than last year.

On the positive side, he said, the company put crude output for the first three quarters of the year at almost 47 million tons, a 6 percent increase over last year.

Fedun also cited further progress in the company's restructuring into a vertically-integrated company and touted the company's work on projects in the Caspian sea region. LUKoil has stakes in the two biggest international oil consortia in the Caspian -- the Azerbaijan International Operating Co. and the Tengiz project in Kazakhstan.

It has also widened its network of retail service stations to cash in on growing car sales in Russia, he said.

"LUKoil is possibly the best company in Russia," said Olga Spiranskaya, an energy analyst with Rye, Man & Gor Securities. "They have a bright future ahead, with a wide geographic spectrum of operations, and good chances of winning the Rosneft tender."

She said the company's aggressive diversification strategy would be one of its pluses in future.

Fedun said LUKoil will concentrate it future investments in the northern Arkhangelsk and Nenets regions because of their relatively greater potential as compared to Western Siberian deposits.

To raise money for its projects, LUKoil will sell two parcels of shares (5 percent and 9 percent respectively) at separate tenders during 1998, Fedun said. The company also hopes the government will privatize its 29 percent stake in LUKoil.

Commenting on LUKoil's prospects for 1998, Fedun said the biggest upcoming event is the privatization of state-owned oil major Rosneft, for which LUKoil intends to bid. To this end, LUKoil this month formed a strategic consortium with natural gas monopoly Gazprom and Dutch Shell.

"Rosneft will be an ideal complement to our company and in turn we can operate it to optimize its potential," he said.

He also said Iraq's possible integration into the world community in 1998 would give LUKoil a chance to start work on oil development projects in that country.

LUKoil shares doubled in value over the first nine months of 1997. They closed at $22.15 Monday, up 5.68 percent over Friday's close.