Lukoil PJSC was able to boost output in the first half of the year while reducing spending as a weaker ruble cut costs.
Russia’s second-largest oil producer cut capital expenditure by 31 percent to $5.32 billion “mostly due to ruble devaluation,” according to a regulatory filing Friday. Oil and gas production rose 4.8 percent from a year earlier to an average of 2.37 million barrels equivalent a day.
Brent crude prices have fallen by more than half in the past year, hitting revenue at Russian oil producers. That was partly offset by lower taxes and a weaker currency, which cut costs for companies that earn dollars and pay most of their expenses in rubles. The Russian exchange rate averaged about 53 to the dollar in the second quarter compared with 35 a year earlier.
In addition to the currency effect, Lukoil “also reduced drilling,” Alexander Kornilov, an oil analyst at Alfa Bank, said by phone from Moscow. The company’s largest drilling contractor said earlier this month that its order volumes had fallen.
Lukoil won’t increase drilling until a “price war” between the U.S. and OPEC is over, the company’s Vice President Leonid Fedun said on a conference call. The Organization of Petroleum Exporting Countries has diverged from its traditional policy of adjusting supply to manage prices, instead maintaining output to defend its position in the market.
Lukoil’s net income fell 58 percent to $1 billion as oil prices slumped, missing the $1.33 billion estimate of seven analysts surveyed by Bloomberg News. Revenue dropped 26 percent to $28.1 billion, the company said.
Spending cuts in response to lower oil prices would be focused on some parts of West Siberia, where wells produce lower returns, Fedun said. The company will continue to drill and potentially increase the number of higher-return wells, he said.
Oil output at Lukoil’s main West Siberian unit fell 4.5 percent to 926,000 barrels a day in the first half. Gains in Iraq, Russia’s Timan Pechora, Volga and Urals regions offset the decline, according to the statement.
The company said it took a $244 million expense in the second quarter for a well in Romania that didn’t find commercial volumes of oil or gas. Following the failure in Romania and others in Africa Lukoil has changed its exploration strategy to lower-risk targets, Fedun said.
Payments received for oil produced in Iraq constituted $1.07 billion of the company’s $6.38 billion of earnings before interest, taxation, depreciation and amortization, it said.