In spite of the difficulties and uncertainties on the market, the Russian oil company remains optimistic about new Caspian oilfields.
Lukoil, the largest private oil company in Russia reported a profit of 2.324 billion in the second quarter of 2009. The earnings are 44 percent below the results of the second quarter of last year. In the first two quarters of the current year, production increased 2 percent with the launching of the Timan-Pechora oilfield. At the same time, Lukoil also reported that it may face a penalty imposed by the Federal Antimonopoly Service in the amount of USD 175 million for its activities on the petroleum products market.
The number of Lukoil’s gas stations in Russia increased by 13 percent as a result of the company’s purchase of Grand Association and Mega Oil-M at the end of 2008. Continued growth in this area persisted through the second quarter. Lukoil also pursued the expansion of its service station operations in Turkey.
Revenue
Lukoil experienced a significant decrease in its second quarter revenues compared to the results for the previous year, netting only USD 2.324 billion.
Despite the low numbers, Lukoil managed to surpass the forecasts of several prominent investment companies. Interfax estimated that the company would end up with a profit of USD 1.8 billion, while Alfa-Bank forecasted USD 1.99 billion.
The revenue from Lukoil’s sales stood at USD 20.116 billion, higher than the original estimate of USD 18.85 billion. The EBITDA indicator was USD 4.12 billion, above its forecasted level of USD 3.5 billion.
For the two quarters of the current year, net profits amounted to USD 3.229 billion, EBITDA stood at USD 6.534 billion, and revenue from sales was 33.595 billion.
Lukoil paid USD 9 billion in taxes in the first six months of 2009, a number that includes USD 1 billion in taxes on profits. Production expenses decreased by 20 percent compared to the previous half-year period from USD 4.09 per barrel to USD 3.25 per barrel.
Consistent with its anti-crisis program, the company lowered its capital outlays by more than 40 percent to USD 3 billion.
Production
Lukoil’s overall production was 2.22 million barrels of oil equivalent per day in the first six months. Crude oil production stood at 1.981 million barrels per day, 4 percent higher than the corresponding figure for 2008.
In the first half of the year, Lukoil produced 48.63 million tons of oil. Production at the Timan-Pechora field was 3.2 million metric tons.
Lukoil’s production of gas was 7.36 billion cubic meters, of which nearly 2.35 billion cubic meters was produced outside of Russia. Quite remarkably, while the company’s gas production in Russia declined by 23.4 percent, its gas production abroad increased by 26.5 percent. The decrease in domestic gas production has been caused by lowered orders from Gazprom.
Lukoil’s refineries processed 29.97 tons of oil, a figure that rose by 10.4 percent compared to the results for the first two quarters of the previous year. Altogether, the company’s refining activities at Russian refineries increased only slightly, whereas the increase in refining operations at foreign refineries was 51.2 percent.
The company’s exports of oil to foreign markets increased by nearly 14 percent, reaching 21.8 million tons. Exports of petroleum products were 14.1 million tons, evidencing a 9.2 percent increase. The sales of oil and petroleum products combined went up to 74.8 million tons. This number showed an increase of 14.5 percent compared to the previous year.
Fines
According to Lukoil representatives, the company could receive a fine in the amount of USD 117 to USD 175 million. The penalty may be imposed for alleged violations of antitrust laws in 2008 and 2009.
At the same time, Lukoil’s executives believe that the company adhered to all laws and expect that the Antimonopoly Service will be compelled not to impose any fines once the disputes are settled. The managers of the company think that the fines will not have a substantial negative effect on Lukoil’s bottom line.
Russia’s Antimonopoly Service made a determination that Lukoil and several other oil producers violated antitrust laws during the summer months of 2008. The allegations state that Lukoil abused its position on the wholesale petroleum products market – gasoline, diesel fuel, and jet fuel.
The Arbitrazh Court of Moscow did not grant Lukoil a favorable ruling in its suit to invalidate the decision of the Antimonopoly Service in July. Lukoil filed appeals, but the dates for appellate review have not been set yet.
The Federal Antimonopoly Service brought these charges against the oil producer again this February. The complaint stated that additional violations of antitrust laws took place in the last two quarters of 2008 and the first quarter of the current year. The Antimonopoly Service imposed fines on TNK-BP in the amount of USD 133 million and Gazprom Neft in the amount of USD 148 million.
The new round of court cases is unlikely to result in different rulings. In the final months of 2008, the Federal Antimonopoly Services imposed a fine of USD 46 million on Lukoil.
Gas stations
As of the end of June 2009, Lukoil owned 6 685 gas stations, a number that is 15.7 percent higher compared to the statistics for 2008. Lukoil was in possession of 1 974 gas station in Russia itself. One year before, Lukoil had only 1 749 stations. The number of Lukoil’s gas stations in other countries rose from 4 078 one year ago to 4 711 today.
The increase in the number of Russian gas stations can largely be explained by Lukoil’s purchase of two companies Grand Association and Mega Oil-M in the final months of 2008. The rise in the numbers abroad can be attributed to Lukoil’s acquisition of gas stations from the Turkish company Akpet.
The sale of petroleum products through the retail network of Lukoil in foreign countries went down by 35 percent to USD 2.146 billion in the first six months of 2009. The drop of these indicators can be attributed to the sharp reduction of oil prices in the first quarter of the year.
Caspian oil
Lukoil intends to begin supplying oil from its Yury Korchagin field in the Caspian Sea region by March of 2010.
The drilling of the first well at that field was completed last December. By spring of 2010, there will be 30 wells at the field.
While Lukoil’s executives believe that Russia’s oil production in general will soon level off and enter a period of decline, they are enthusiastic about the future of their own company, especially in view of the Caspian projects.
Activities abroad
Lukoil makes plans to intensify investment activity abroad in the last three months of 2009. The company’s managers are excited about the prospects that can be realized overseas. For one, Lukoil has completed the acquisition of the TRN oil refinery in the Netherlands. In June, the company made a deal with Total for the purchase of a 45-percent stake in the enterprise. Lukoil also decided to purchase the refinery’s oil and petroleum products reserves. The value of the transaction has been estimated at around USD 725 million.
Services
Lukoil has allocated USD 652 million to be used for service contracts for the remaining part of the year. BK Evrazia will do USD 347 million worth of drilling work for Lukoil during the last two quarters of the year as a part of a five-year contract.
Globalstroi Engineering will be engaged to do Lukoil’s construction work under a contract lasting four years. In the last two quarters of 2009, Globalstroi Engineering will receive USD 305 million.
TGK-8
Lukoil’s investment program at the Territorial Generating Company No. 8 resulted in a net liability of USD 1.1 billion to the company as of the end of the second quarter.
In accordance with the investment program’s schedule, Lukoil is under an obligation to construct an electric power station with a capacity of 890 megawatts by 2012.
In the first half of the current year, Lukoil enlarged its ownership in the generating company to 100 percent. It invested USD 127 million in acquiring a 4.5-percent share of the company’s charter capital.
Territorial Generating Company No. 8, also known as the Southern Generating Company, came into existence in 2005. The company operates 2 state district power plants, 13 power plants, 4 hydroelectric power plants, and 6 boilers in the Krasnodar and the Stavropol territories, in the Astrakhan, the Volgograd, and the Rostov oblast, as well as in the republic of Dagestan. The capacity of the generating company’s power stations is 3 601 megawatts and 13 333 Gcal/hour.