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. Last Updated: 07/27/2016

Conoco Bids for LUKoil Stake

bloombergLUKoil plans to raise production 4 percent next year, down from 7 percent this year.
U.S. oil major ConocoPhilips was one of three companies to submit bids for Wednesday's auction of the government's remaining 7.59 percent stake in LUKoil, a source close to the sale told Interfax as bids closed for participating in the tender late Monday.

The Interfax source identified Dabir, an investment vehicle owned by David Guggenheim, as one of the other two companies, but declined to name the third.

The Federal Property Fund, which is running the tender, will not reveal the name of any of the participants until Wednesday's auction, fund spokesman Vladimir Zelentsov said.

Officials at ConocoPhilips in Houston could not be reached Monday evening to confirm the U.S. oil giant's participation. LUKoil president Vagit Alekperov, however, said he hoped the Texas-based company would win the auction.

"If the shares are bought by our strategic partner it will be easier for us to build relations," he said in St. Petersburg, adding that LUKoil had many joint projects with ConocoPhillips, Itar-Tass reported.

Interfax said officials expect the sale to raise well over the $1.93 billion starting price. At least two bidders must take part for the auction to be considered valid.

LUKoil shares rose Monday on anticipation of Conoco's bid, despite posting financial results below analyst's expectations.

The company said its second-quarter earnings fell 43 percent because of a year-ago gain related to the sale of its stake in an Azeri development.

Net income dropped to $877 million, or a diluted $1.06 per share, from $1.54 billion, or $1.85 per share, in the same period last year, using U.S. generally accepted accounting principles, the Moscow-based company said in a Regulatory News Service statement.

LUKoil had a pretax gain of $1.1 billion a year earlier from its sale of the Azeri-Chirag-Gunashli field.

The company, which produces almost a fifth of Russia's oil, has struggled to contain costs as it ramps up extraction and exports to preserve its rank as the nation's largest producer, ahead of Yukos.

"The net income figure was quite weak, but the stock has not reacted negatively," said Jacob Grapengiesser, who co-manages $600 million in Eastern European funds for East Capital Asset Management in Stockholm. "I think people are perhaps looking at the possibility of ConocoPhillips taking a stake as a positive rather than the financials as a negative."

LUKoil shares closed up 1.1 percent to $31.80 on the RTS, after earlier rising more than 2 percent.

"People got too optimistic about LUKoil," said Stephen Dashevsky, an analyst at Aton brokerage in Moscow.

LUKoil said the boost in revenues and profit was due to favorable oil prices, rising oil output and cost control.

"However, increased tax burden, appreciation of the ruble against the dollar and an increase in transportation costs have restrained growth in our profits," LUKoil said in a statement.

LUKoil deputy accounting chief Igor Kozyrev told a conference call that LUKoil had paid $1.3 billion more in taxes in the first half year-on-year due to changes in tax law.

LUKoil said total revenues in the period surged 57 percent to $7.97 billion as production and world oil prices rose. Oil output in the first half was 1.72 million barrels per day, up 8.7 percent from the year-earlier period.

The company plans to raise oil production 4 percent to 1.81 million barrels per day in 2005, slowing from the 7 percent growth expected this year.

(MT, Bloomberg, Reuters)