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. Last Updated: 07/27/2016

LUKoil: Q1 Profits Will Plummet 75%

No. 1 oil producer LUKoil said Thursday it expected first-quarter net profits to plunge 75 percent, but the news did no damage to the company's share price.

LUKoil first vice president for finance Sergei Kukura told reporters that preliminary results based on U.S. GAAP standards showed net profits fell to $170 million for the three months to end-March from $690 million in the same period last year.

Kukura gave no explanation for the poor first-quarter results, but the company on Wednesday blamed a weaker oil price, high inflation and increased costs for a 36 percent drop in net profits for 2001.

Revenues for the quarter were shown falling to around $3 billion from $3.6 billion, while operational profit would be around $300 million and pre-tax profit around $200 million, he said.

LUKoil shares closed up 5.1 percent to $16.36 on the benchmark Russian Trading System on Thursday.

Roland Nash, chief strategist at Renaissance Capital, said enthusiasm for a forthcoming sale of 6 percent of LUKoil could be supporting the stock.

The Property Ministry said in April a long-delayed sale of the stake would take place in June or July.

"The results have been disappointing, but also confusing because the share price should be lower," Nash said.

LUKoil said Wednesday that net profits for 2001 shrank by 36 percent to $2.11 billion as sales edged up to $13.562 billion from $13.440 billion. Earnings per share in 2001 fell to $2.68 from $4.83.

"The situation on world oil and oil product markets in 2001 was less favorable than in 2000," LUKoil said in a statement.

"Market prices for oil and oil products fell by an average of 7 to 12 percent. Domestic oil and oil product prices fell by 12 to 16 percent compared with their peaks in 2000," the statement said.

Analysts said that the results were lower than they had expected and showed the company was not increasing production fast enough, unlike its peers.

Kaha Kiknavelidze at Troika Dialog said the market had been expecting bad results from LUKoil and could look to its restructuring plan in the long-term.

"But we have to see if the market will trust LUKoil or wait for results," he said.

LUKoil drills most of its oil from fields in western Siberia and has said its low production growth will change as soon as its long-term investments in the north and the Caspian Sea pay off.

It has pledged to almost double oil and natural gas output by 2010.

LUKoil president Vagit Alekperov revealed his stake in the company in an interview published Thursday.

"My stake is 3 percent. This is what I own directly. My deputies have slightly less. This is a big sum," he told Vedomosti.

Alekperov's disclosure follows an unprecedented multi-billion dollar disclosure last week by the main shareholders of rival oil company Yukos, the country's second-biggest oil company.

Yukos chief Mikhail Khodorkovsky said he controls 36 percent of the company, worth some $7 billion. LUKoil is worth some $13 billion, which puts Alekperov's declared fortune at around $400 million.

Some analysts were disappointed by LUKoil's announcement as they believe Alekperov's stake is much larger.

"The direct holding figure seems realistic," said Konstantin Reznikov from Alfa Bank.

"On the other hand, some 28 percent of LUKoil belongs to nominal holders. That is a real indication of how much the management could hold in the company."

But Steven Dashevski from Aton said LUKoil had always been very expensive in market capitalization terms compared to Yukos.

"I believe 3 percent is close to reality," he said.

Alekperov also confirmed that LUKoil would merge oil-trading and refining operations at its Geneva-based Litasco department in order to get rid of a plethora of expensive intermediaries which have exported the firm's barrels for years.

"We are aiming to exclude oil sales to intermediaries and directly reach the refineries of international majors. We are currently discussing and clinching a long-term agreement with Agip, another agreement will be with Shell," Alekperov said.