November 25, 2011 / 10:12 AM / 9 years ago

UPDATE 2-Russia's LUKOIL Q3 net profit slumps on FX loss

* Q3 net profit down to $2.24 bln vs expected $3.07 bln

* Foreign exchange losses at $570 million

* Jan-Sept cash flow up to $7.7 bln (Adds details on production, comparisons with rivals, analyst comment)

By Vladimir Soldatkin and Megan Davies

MOSCOW, Nov 25 (Reuters) - Russia’s No.2 oil producer LUKOIL on Friday reported a worse-than-expected 20 percent fall in third-quarter net profit, hit by foreign exchange losses, higher taxes and lower production.

LUKOIL has been the only Russian oil major with declining output, mainly due to moribund West Siberia assets, in contrast to top producer Rosneft which in October touted an increase in crude production to 2.4 million barrels per day.

LUKOIL, whose profit of $2.24 billion missed analysts’ forecast of $3.07 billion, said total hydrocarbon production in the third quarter fell 5.3 percent while crude oil production fell 5.8 percent.

“Long term, production is declining, but there is no difference in that regards between LUKOIL, and say Chevron , Conoco Philips or Statoil,” said Ildar Davletshin, analyst at Renaissance Capital.

“Most Western companies are facing limited access to resources and cannot replace current production quickly enough and on attractive terms,” Davletshin said. “The only difference between those companies (and LUKOIL), is that corporate governance is somewhat better.”

As an example, Davletshin noted that LUKOIL has set aside money to finance acquisitions but not disclosed where it wants to invest the money. According to LUKOIL’s quarterly accounts in May, Lukoil had set aside $1.8 billion to finance acquisitions.

This reduces visibility over the company’s strategy and is one of the reason why Lukoil trades at a discount to the majors, Davletshin said.

LUKOIL’s results were “negatively affected by losses in the amount near $570 million due to depreciation of Russian rouble”, the company said.

That included almost $340 million of tax on the currency translation gain of its Russian subsidiaries.

“Lukoil was below consensus on earnings but (one of) the main reasons was a much higher tax rate in the third quarter... primarily due to the impact of foreign exchange movements - that is a one-off,” Davletshin said.

“But on core revenue and cost items, the company was more or less in line with what we expected,” Davletshin said. “Cashflow has substantially improved which the market is reading positively.”

As of 1430 GMT LUKOIL’s London-traded shares were down 0.4 percent, outperforming a 2.0 percent fall in broader Russia’s ADR index.

Analysts said that the stock was underpinned by a rise in free cash flow to $7.7 billion in January-September from $6.96 billion in the year-earlier period.

The company said its third-quarter sales grew to $34.56 billion from $26.52 billion in the year-ago period, while analysts expected sales to rise to $34.37 billion.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased to $4.63 billion from $4.55 billion in the third quarter of 2010, below an average forecast of $4.99 billion in a Reuters poll. (Reporting by Vladimir Soldatkin and Megan Davies, Editing by Maria Kiselyova and David Cowell)

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