Lukoil Jumps as Alekperov Sees 2015 Output at Filanovsky

OAO Lukoil rose to a six-month high as Chief Executive Officer Vagit Alekperov’s visit to the Russian oil company’s Filanovsky project reassured investors that production will begin at the Caspian Sea field by year-end.

The American depositary receipts jumped 2 percent to $51.71 in New York. The Bloomberg Russia-US Equity Index added 0.2 percent to 63.57.

The stock rallied after Lukoil said in a statement that Alekperov met with contractors at the site and affirmed that production drilling is scheduled to begin at the end of this year. The $4.6 billion project is expected to produce a 22 percent internal rate of return on investment, Bank of America Corp. said in a Jan. 22 report. Output from the Filanovsky field should reach 160,000 barrels a day, about 7 percent of Lukoil’s production, by 2017, according to the bank.

“The Filanovsky field is extremely important to the company because it means not just an increase in production volumes, but also higher margins,” Dinnur Galikhanov, an analyst at brokerage firm Aton LLC in Moscow, said by phone Thursday. “Output from the field is exempt from export fees, and the overall taxes are substantially lower on oil pumped there.”

The Filanovsky field was the biggest in 20 years in Russia when discovered together with six other oil and gas fields in the North Caspian between 1999 and 2005, according to information posted on Lukoil’s website. The six fields were thought to contain 4.7 billion barrels of oil equivalent reserves.

Production Forecast

Russian oil output is expected to decline this year as international sanctions linked to the Ukraine crisis impede companies’ ability to finance new fields, the International Energy Agency said in a March 13 monthly report. Lukoil will probably increase its oil and gas production by as much as 1.5 percent in 2015, according to Galikhanov.

Lukoil’s Caspian production, including the Filanovsky field, will be the only beneficiary of tax breaks in Russia aimed at spurring offshore oil output, Bank of America wrote in its January report.

“The Filanovsky field will generate a lot of cash for Lukoil, helping it to pay dividends,” Farid Abasov, an analyst at SBG Securities in London, said by phone Thursday. “While there is a huge risk of a decline in oil production in Russia as a whole, Lukoil comes prepared and increases output from new fields like Filanovsky.”

Dividend Outlook

Lukoil’s divided yield is expected to increase to 5.5 percent in dollar terms over the next 12 months, compared with an average 4.2 percent for its international peers, data compiled by Bloomberg show.

Thursday’s advance in New York pushed the stock’s 14-day relative strength index to 67.6, the highest level since June. An RSI of 70 or higher is a signal to some technical analysts that a security is poised to fall.

On a scale from 1 to 5, Lukoil’s London-traded shares have a consensus recommendation of 4.4, the highest among 16 global oil producers. Fourteen of 20 analysts surveyed by Bloomberg advise clients to buy the stock, while the remainder rate it hold.

Crude is expected to recover to between $80 and $100 per barrel by end-2015, billionaire Leonid Fedun, who helped Alekperov build Lukoil from the wreckage of the Soviet oil industry, said in a March 3 interview. Fedun is the company’s vice president for strategic development.

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