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. Last Updated: 07/27/2016

Surgut Profit Slumps Amid Oil Stagnation

Closely held oil firm Surgutneftegaz reported a 61 percent drop in its year-on-year profits Thursday, following a trend of lower earnings by the country's oil firms amid stagnation and high taxes.

The first-quarter results from Surgut, the country's fourth-biggest producer, followed lower figures from LUKoil on Wednesday, LUKoil's first-quarter profit by Russian accounting standards, or RAS, fell by 72 percent to $292 million compared to a year ago. Rosneft and TNK-BP have also reported significantly lower profits in their most recent quarterly figures.

Surgut said in a regulatory filing its RAS net profits were 8.09 billion rubles ($314.8 million), up 174 percent from 2.95 billion rubles in the fourth quarter but down from 20.84 billion rubles in the first quarter of 2006.

Many Russian oil firms have booked weak results in the fourth and first quarters citing a rise in oil export duties coupled with a decrease in global oil prices, but analysts said Surgut's results were weaker than the industry's average.

"On the surface, this appears to be a rather disastrous result, though we need to see the top line and EBIT to make a more accurate judgment," said Oleg Maximov from Troika Dialog brokerage.

He noted that crude pipeline netbacks remained weak in the first quarter, but added that the results suggested that Surgut was facing serious cost issues.

"We consider Surgut to be fundamentally one of the worst companies among the Russian majors, with no production growth, mushrooming operating expenditures and capital expenditures and low refining backup," he said.

Unlike other Russian oil firms, Surgut does not report results to international accounting standards, and the RAS results therefore serve as the only guidance on its financial performance.

Deutsche Bank said in a research note Thursday that LUKoil's recent RAS figures did not necessarily correspond to their consolidated position, according to international accounting standards, citing the difference between fourth-quarter RAS earnings of $1.04 billion, and U.S. GAAP figure earnings of $1.69 billion in the same period.

LUKoil's transfer of oil product exports to its refining units also reduced its first-quarter profit, Deutsche Bank noted, adding that it would "choose to ignore" the firm's RAS results.

Ratings agency Standard & Poor's did not appear to hold the RAS figures against LUKoil, saying Thursday it had raised its long-term credit and debt ratings on LUKoil to "BBB-" from "BB+" following a review of the company's 2006 results, financial policies and strategic planning.

Andrei Fedorov, oil and gas analyst at Alfa Bank, agreed that LUKoil's Russian accounting standards figures did not reflect its consolidated results, but said they were in line with the "significant stagnation" in the oil sector due to a high tax burden and rising capital expenditure costs at greenfield projects.

"Each new barrel of oil now costs more to produce," Fedorov said.

Reuters, MT