2nd UPDATE: Lukoil 2Q Net Profit Slides 44% On lower Prices
August 28 2009 - 11:49AM
Dow Jones News
Russian oil major OAO Lukoil Holdings (LKOH.RS) Friday said
second-quarter net profit dropped 44% on the year as oil prices
fell, but beat expectations due to higher downstream sales and
lower taxes. Earnings, which more than doubled from the January to
March period, are expected to continue rising this year, but
declining output rates in Western Siberia could hurt future
profitability, analysts say.
Lukoil, 20% owned by ConocoPhillips (COP), reported a
second-quarter net profit from April to June under U.S. Generally
Accepted Accounting Principles of $2.32 billion, down from $4.13
billion a year earlier.
"The results are definitely very strong," said analyst Oswald
Clint at Bernstein brokerage in London. The numbers came in higher
than expected due to greater sales in the downstream segment, in
particular at the company's refining capacity in Italy, he said.
Lukoil strongly increased its presence in the European downstream
segment, when it took a 49% stake in ERG SpA's Isab refinery in
Priolo, Sicily, in November, and agreed to buy a 45% stake in Dutch
refinery Total Raffinaderij Nederland, or TRN, in June.
"I'm not sure if this trend (higher downstream sales) is
sustainable, as European downstream netbacks are likely to decrease
into the next quarter," Clint added.
Revenue during the period was down 37% to $20.12 billion, as oil
prices fell but despite a 4.8% rise in crude production in the
quarter.
The increase in output came on the back of new production at the
Yuzhnoye Khylchuyu oil field, located in the Timan-Pechora region.
The field produced 1.7 million tons of crude oil - or almost
140,000 barrels a day - in the quarter.
Lower tax payments - in particular in the Timan-Pechora region -
surprised analysts and supported second-quarter earnings before
interests, taxes, depreciation and amortization, or Ebitda, which
came in at $4.12 billion, down from $6.23 billion.
On Friday, the positive results boosted the company's valuation,
which has gained more than 70% this year, since bottoming in
mid-February.
At 1508 GMT, Lukoil's ADRs in London were trading up 3.9% at
$50.6 each, valuing the company at almost $43 billion.
"We expect Lukoil's financials and profitability to continue
growing in the third quarter given the favorable pricing conditions
and anticipated production growth at South Khylchuya field," said
Viktor Mishnyakov, analyst at UralSib brokerage.
Others remain concerned that production declines at mature
fields in Western Siberia - Lukoil's traditional production area -
despite increased capital spending.
"We expect a continued increase in unit lifting costs, which -
combined with the tough tax environment - will continue to erode
cashflow generation," said Bernstein's Clint.
Company Web site: www.lukoil.com
-By Jacob Gronholt-Pedersen, Dow Jones Newswires; +7 495 937
8445; jacob.pedersen@dowjones.com