2nd UPDATE: Lukoil Return To Profit On Prices, Lower Taxes
June 03 2009 - 11:00AM
Dow Jones News
Russia's second-biggest oil producer OAO Lukoil Holdings
(LKOH.RS) Wednesday said it returned to profitability in the first
quarter, which analysts believe could mark a recovery for the
Russian oil industry.
The company said lower taxes, higher crude prices, a weaker
ruble and lower capital spending lifted earnings out of the net
loss seen in the last three months of last year - a quarter that
the company said was the worst in its history.
Lukoil, 20% owned by ConocoPhillips (COP), reported a net profit
under U.S. Generally Accepted Accounting Principles of $905
million. Although that was below the year-ago figure of $3.16
billion, due to lower oil prices, the figure beat a Dow Jones
Newswires poll of 10 analysts, who had forecast $595 million.
The company follows the trend set last week when Russia's
biggest oil producer OAO Rosneft (ROSN.RS) beat earnings
forecasts.
Last year, lobbying efforts by both companies led to a decision
to lower the so-called mineral extraction tax and impose tax
holidays for certain production regions. Lukoil said the cuts led
to a $300 million reduction in taxes for the first quarter.
"We should thank the government," said Leonid Fedun, Deputy
Chief Executive at Lukoil, adding that "the reality isn't as scary
as sometimes predicted."
The company said earnings before interest, taxes, depreciation
and amortization halved to $2.41 billion in the first quarter --
but, again, came in above consensus, due to significant cost
savings.
"This trend has been seen in Rosneft's (ROSN.RS) first quarter
results already -- still positive -- implying Lukoil is very
competitive and is on the way to higher efficiency amid a weaker
ruble and lower service prices," said Lev Snykov, an analyst at VTB
Capital in Moscow.
Lukoil cut capital spending by 39% on the year, to $1.47
billion.
"The decrease was in compliance with our plan to reduce capital
expenditures in 2009 because of the economic downturn," Lukoil said
in a statement.
Despite an improved operating environment, some analysts remain
skeptical and say the industry still faces challenges. Since the
beginning of the current quarter, taxes have gone up with the oil
price, while the ruble has appreciated - opposite developments to
those that helped the group's profitability in the first
quarter.
"The conditions for a sustainable improvement in Lukoil's
earnings and cash-flow are not yet apparent," said analyst Oswald
Clint from Bernstein. He also believes the company's output volumes
will weaken for the rest of the year, after rising 3.2% in the
first quarter.
Revenue fell 41% to $14.75 billion from $24.96 billion, mainly
due to lower oil prices.
After being hit by the slump on world markets last year,
Lukoil's stock has almost doubled in value since bottoming in
mid-February. Lukoil shares Wednesday closed down 5.0% at $53.2 in
Moscow.
Company Web site: www.lukoil.com
-By Jacob Gronholt-Pedersen, Dow Jones Newswires; +7 495 937
8445; jacob.pedersen@dowjones.com