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Lukoil Plans to Boost Dividend Fourfold, Increase Spending

OAO Lukoil (LKOH), Russia’s second-largest oil producer, plans to raise dividend payments by 25 percent for 2011 and at least fourfold through 2021 at the same time as it boosts capital spending to benefit from record fuel prices.

“We see an opportunity to increase dividends by at least 300 percent,” billionaire Chief Executive Officer Vagit Alekperov said at a strategy presentation in London today.

It paid 59 rubles a share for 2010, implying a 73.75 ruble dividend for last year, less than an estimate by Bloomberg. The proposal was in line with company earnings before interest, taxation, depreciation and amortization in 2011, Artem Konchin, an oil and gas analyst at UniCredit SpA (UCG), said by e-mail.

Lukoil, which exports about half its crude, advanced 0.3 percent to 1,922.20 rubles by the close of Moscow trading.

The announcement on dividends “disappointed,” Elena Savchik, an oil and gas analyst at Aton Capital, said today by e-mail. “Spending also looks quite high.”

Lukoil, with the most overseas assets of any Russian oil company, seeks to expand output to benefit from higher prices. It plans to spend $150 billion through 2021 in Iraq, Uzbekistan, the Caspian Sea and Siberia to boost oil and gas production by 50 percent to 3.2 million barrels of oil equivalent a day.

The figure declined 4.4 percent last year to 2.14 million barrels of oil equivalent a day because of aging oil fields. The planned annual average spending of $15 billion is almost double last year’s $8.5 billion, according to Lukoil’s figures.

The 10-year expansion program doesn’t envision growth in borrowing ratios, Alekperov said. Iraq’s West Qurna-2 deposit, which will get $25 billion in development funds, will become self-financing in 2014, according to today’s presentation.

Crude oil will hold at record prices in the next decade as use grows and the Organization of Petroleum Exporting Countries seeks to maintain a level above $100 a barrel, said Leonid Fedun, Moscow-based Lukoil’s deputy chief executive officer.

To contact the reporters on this story: Stephen Bierman in Moscow at sbierman1@bloomberg.net; Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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