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. Last Updated: 07/27/2016

LUKoil to Issue 35 Million New Shares

LUKoil on Thursday voted to issue 35 million new shares and reported widely anticipated results for 1999 at its annual shareholder meeting in Perm, central Russia.

"LUKoil's reliance on equity fund-raising is an adequate response in the high interest rate environment," said Steven Dashevsky, oil and gas analyst with Aton.

The nation's No. 1 oil firm voted to issue 35 million ordinary shares to acquire Arkhangelskgeoldobycha, a holder of licenses for exploration of 16 fields in the northern Timan-Pechora region and in the Kaliningrad region between Poland and Lithuania, and to complete acquisition of the Ukhta refinery and sales unit Kominefteprodukt.

The issuance represents 4.29 percent of LUKoil's current 815.6 million shares, including 738.4 million ordinaries and 77.2 million preferreds.

LUKoil will use 18.6 million of the 35 million shares to expand its production base, while the remaining 16.4 million shares "will be placed in the open market at a maximum price in a public offering," a company statement said Thursday.

Proceeds will be used for investment programs in the northern Komi republic, Arkhangelsk region and Nenets autonomous region as well as to buy new assets, including state oil firm privatizations, LUKoil said.

The government plans to sell a blocking stake in Rosneft, 85 percent in Onako, 19.86 percent in Slavneft and 4.7 percent in LUKoil for a total of $1.2 billion.

LUKoil officials earlier said they were considering bidding in all privatization deals scheduled for this year.

Given that the government is keen on selling a 4.5 percent stake in LUKoil before 2001, some 53 million shares worth $520 million at current market prices could be offered for sale this year.

LUKoil-affiliate VA Invest is a holder of a 58 percent stake in Arkhangelskgeoldobycha; a blocking stake rests in the hands of Rosneft and a 15.5 percent stake belongs to U.S. oil firm Conoco.

Estimates made by Fleming UCB show LUKoil will pay some $250 million for the remainder of Arkhangelskgeoldobycha, which posted a pretax loss of 60 million rubles ($2.5 million) last year, extracted a meager 124,000 tons and has hefty reserves of 250 million tons.

This translates into a valuation of $1 per ton of reserves compared with LUKoil's valuation of its reserves at $6 per ton.

"It is a bit expensive on a production basis and cheap on the basis of acquired reserves," said Vladimir Nosov, oil and gas analyst with Fleming UCB. "Overall, it looks like LUKoil will pay a premium to owners of the target company."

LUKoil extracted 75.59 million tons of crude last year, making up 24.9 percent of the nation's oil production, and is keen on raising its share by the year 2010 to 30 percent of local output and 2.5 percent of global production, company chairman Vagit Alekperov said Thursday.

LUKoil posted a profit of 30.8 billion rubles ($1.25 billion) on sales of 268.2 billion rubles.

LUKoil's sales profitability, which stood at 15 kopeks pretax on ruble sales, was lower than that of No. 2 oil producer Surgutneftegaz, which posted 53 kopeks of pretax profit on ruble sales last year, but higher than profitability of No. 7 oil firm Sibneft, which reported less than half a kopek of pretax profit on ruble sales.

LUKoil's shares rose 0.9 percent Thursday to $14.18, underperforming the RTS Index, which rose 2.95 percent to 199.64.