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. Last Updated: 07/27/2016

LUKoil's $507M Q3 Profit Disappoints

LUKoil posted third-quarter results Friday that disappointed observers, who chided the country's biggest oil company for having done little to reduce its production costs, which have long been the highest in the industry.

The company's net income for July-September totaled $507 million, calculated to U.S. generally accepted accounting principles. This was better than the $473 million it generated over the same period in 2001, yet far short of earlier forecasts that it would reach $684 million.

LUKoil shares fell 2.62 percent on the news to close Friday at $14.14.

Total costs grew to $1.4 billion in the third quarter, outstripping the $1.1 billion it incurred during the first half of the year.

"The company disappointed investors who had high expectations for LUKoil to succeed in cutting costs. ... The company seems to have stumbled on the follow-through," said Timerbulat Karimov, analyst at Aton brokerage.

LUKoil spent three times more than its rival Yukos on purchases of crude oil and refined products from January to September, or $2.1 billion.

Analysts criticized LUKoil for slow growth and mediocre earnings relative to its oil major peers. Due to its high production costs, LUKoil's fortunes have always been closely tied to price fluctuations on world markets. Roughly 80 percent of LUKoil's sales come through exports. To address these problems, the company has undertaken a campaign to restructure its finances. So far, however, little progress seems to have been made on this front, analysts said.

After successfully attracting investment through bond offers during a promising second quarter, LUKoil faltered in its attempts to cut costs.

If LUKoil is to have earnings of $2 billion for the year, it will need a net profit of $650 million in the last quarter, Aton's Karimov said -- 28 percent greater than its third quarter results.

LUKoil management was optimistic Friday, saying it would not revise down its previous forecast for full-year earnings of around $2 billion.

"Our 2002 annual net income results are expected to be at the levels of 2001," Igor Kozyrev, deputy head of LUKoil's international accounts department, said in a conference call Friday evening.