Lukoil Considers Listing in Asian Markets, May Issue Yuan Debt

OAO Lukoil, Russia’s largest non- state controlled oil producer, is considering listing shares in Hong Kong or Singapore, said Vice President Leonid Fedun.

The “timing of the listing will depend on how long the legal process takes,” Fedun said in the interview in New York after the company’s 2010 earnings presentation. “I do believe in Hong Kong very much because China has been opening to it.”

Lukoil, Russia’s second-biggest oil producer after OAO Rosneft, may borrow in yuan and would consider selling ruble- denominated bonds “if the market offers interest rates that make economic sense,” Fedun said. The “importance of yuan will be increasing,” he said.

Moscow-based United Co. Rusal, the world’s biggest aluminum producer, raised $2.24 billion in January 2010 in the first initial public offering by a Russian company in China, selling shares at HK$10.80 each. The stock rose to HK$13.62, the highest level, on Feb. 14 and traded at HK$12.38 as of 1:51 p.m. in New York yesterday.

Fedun is the world’s 133th-richest man with a fortune of $7.1 billion, according to Forbes magazine.

Lukoil’s ruble-denominated shares rose 26 percent in the past year through March 10, compared with a 24 percent gain in Russia’s 30-stock Micex Index.

Photographer: Andrey Rudakov/Bloomberg

Lukoil, Russia’s second-biggest oil producer after OAO Rosneft, may borrow in yuan and would consider selling ruble-denominated bonds. Close

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Photographer: Andrey Rudakov/Bloomberg

Lukoil, Russia’s second-biggest oil producer after OAO Rosneft, may borrow in yuan and would consider selling ruble-denominated bonds.

Lukoil fell 2.8 percent to 1,981.6 rubles after it missed analysts’ estimates for net income. The company reported income of $2.19 billion, less than the $2.73 billion average estimate of eight analysts, based on Bloomberg calculations from full- year results released yesterday.

The company may pay an additional dividend next year because of higher-than-expected crude prices, Chief Executive Officer Vagit Alekperov told investors at the presentation in New York yesterday.

Production Levels

The company’s oil production may drop about 1 percent this year, Alekperov said in an interview today in New York. Natural gas output will hold at 2010 levels or increase, said Alekperov, Russia’s eighth-richest man and the world’s 50th-richest with a fortune of $13.9 billion, according to Forbes magazine. Lukoil’s gas output will depend on availability of transportation capacity, he said in the interview.

The Moscow-based company has no plans to change its investment strategy for 2011, which was based on an oil price estimate of $76 a barrel, he said.

“This may allow us at the end of 2011 to look at the possibilities of paying additional dividends,” Alekperov said.

Oil Gains

Oil futures are up 25 percent from a year ago. Crude for April delivery has been trading above $100 a barrel on the New York Mercantile Exchange since Feb. 23 as unrest in the Middle East and North Africa sparked supply concerns. Oil touched $100 a barrel in New York for the first time in two years on Feb. 23.

Urals crude, Russia’s main export blend, has been above $100 per barrel for three consecutive weeks. Ural closed above $100 per barrel on Feb. 26 for the first time since Sept. 26, 2008. Oil, along with natural gas, accounts for a quarter of Russia’s economic output.

Lukoil said on its website today that it produced record free cash flow of $6.9 billion last year as is follows a plan to scale back output growth and keep more money through 2019. It plans to boost dividend payout ratios by more than 30 percent in that period.

“Theoretically they could pay out part of it as dividends,” Pavel Sorokin, an oil and gas analyst at Alfa Bank in Moscow, said by telephone.

Sorokin said that plans to build the cash position further may be at risk. Lukoil needs to invest in international projects and manage declines in domestic output, he said.

Exploration Spending

The company plans to spend $8.5 billion next year mostly on exploration and production, according to the presentation to investors in New York yesterday. Lukoil is exploring deepwater blocks off the coast of West Africa.

Net income rose 27 percent in the fourth quarter from a year earlier to $2.19 billion, buoyed by rising crude, according to Bloomberg calculations based on full-year earnings released by the Moscow-based company today. The profit missed a mean estimate of $2.73 billion from a Bloomberg survey of eight analysts. Revenue increased 18.1 percent to $28.7 billion.

Standard & Poor’s removed the company from “creditwatch” in November after it sold $1 billion in Eurobonds. S&P had signaled the possibility of a rating cut after Lukoil agreed to buy back 7.6 percent of its own stock from ConocoPhillips for $3.4 billion last year.

Lukoil along with a company related to Alekperov and an investor group including UniCredit Bank AG bought an additional 5 percent of company shares from Conoco for $2.4 billion last year.

“These shares should not come back on the market,” Fedun told investors in New York. “We will keep them as reserves or we can use them for merger deals, which would be rather in a distant future and with the guarantee that the partner that accepts the shares is not to put them back on the market.”

To contact the reporters on this story: Halia Pavliva in New York at hpavliva@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net

To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; David Papadopoulos in New York at papadopoulous@bloomberg.net

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