Lukoil Posts Record Annual Profit, Aims for Output Growth

OAO Lukoil, Russia’s second-largest oil producer, plans to use cash from record profits last year to boost output 18 percent by the end of 2015.

Lukoil will invest more than $16 billion this year, billionaire Chief Executive Officer Vagit Alekperov told investors in London today. Oil and gas output will rise to 2.56 million barrels a day in 2015 from 2.17 million barrels a day last year, it said.

After reporting record net income of $11 billion last year, the Moscow-based company is counting on deposits in Siberia, the Caspian Sea, Iraq and Uzbekistan to drive output growth after stabilizing declines.

Management will examine raising dividend payout ratios from next year when investment demands ease, Alekperov said. The company will distribute 23 percent of net income in 2012 and will look to raise payments to shareholders to 30 percent in the medium term, according to Alekperov.

Urals crude prices averaged $110.19 a barrel in 2012, up from $109.10 in 2011, Lukoil said. It recorded an impairment charge of $955 million in the fourth quarter of 2011 after a venture with ConocoPhillips (COP) found less oil than expected.

“The last two years Urals oil prices were at their highest levels ever,” Stanislav Kondratyev, an oil and gas analyst at UralSib Capital, said by telephone from Moscow explaining the record profits. “During 2011 there was a huge impairment loss on a deposit in Timan Pechora where last year there wasn’t.”

Gas Output

Oil output fell 1.3 percent in 2012 to 1.85 million barrels a day, as Lukoil sold part of a Kazakh asset and declines at Timan Pechora continued. Natural gas output grew 10 percent to 320,000 barrels a day, driven by Siberian and Uzbek fields, Lukoil said. Uzbek gas output will rise 80 percent from 2012 to 2015, Alekperov said.

Crude production should be little changed this year at about 1.83 million barrels a day, Lukoil Vice President Azat Shamsuarov said in London. Oil output will grow to 2.05 million barrels a day next year and 2.15 million barrels a day in 2015.

The company plans 400,000 barrels a day of output in Iraq next year, according to a presentation. Talks have begun with Middle East partners on supplies to Lukoil’s Italian Isab refinery, Alekperov said. The company also plans to bid with Total SA (FP) for blocks off the coast of Lebanon.

Lukoil rose 0.9 percent to 2,010.20 rubles in Moscow.

Net income in the fourth quarter rose to $2.69 billion, double the same period the previous year. That was in line with the $2.73 billion average estimate from 10 analysts surveyed by Bloomberg.

To contact the reporter on this story: Stephen Bierman in Moscow at sbierman1@bloomberg.net

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

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