Putin’s Tax Break Plan Lifts Surgut: Russia Overnight

OAO Surgutneftegas and OAO Lukoil rallied in New York on speculation Russia will expand extraction tax breaks for oil companies.

Surgutneftegas, Russia’s third-largest producer, climbed 1.7 percent to $7.16 yesterday, and Lukoil gained the most since Oct. 8. OAO Novatek, the nation’s second-biggest natural-gas producer, jumped to the highest level in a month in London. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. advanced 0.6 percent to 97.39, while RTS Index futures expiring in December added 0.1 percent to 140,980 in U.S. hours.

Russia’s Finance Ministry backed the Energy Ministry’s plan to expand extraction tax breaks for hard-to-recover oil, state-run Prime news service reported yesterday. Deputy Finance Minister Sergei Shatalov said the measure would benefit Surgutneftegas and Lukoil, according to Prime. Lukoil, Russia’s second-largest producer, said last month that third-quarter profit fell after the company didn’t repeat gains on lower tax.

“It seems the government is moving toward widening tax breaks so that more oil fields will qualify for the breaks,” Dmitry Loukashov, an oil and gas analyst at VTB Capital, said by phone from Moscow yesterday. “Investors appreciate that as tax rules define profitability of Russian oil companies.”

Loukashov has a buy rating on Surgutneftegas’ Moscow-listed ordinary stock and is the most accurate among 17 analysts tracking the shares, data compiled by Bloomberg show. He also recommends buying Lukoil.

President Vladimir Putin is promoting tax relief for offshore and low-permeability resources to keep production at more than 10 million barrels a day as Soviet-era Siberian deposits decline. The oil and natural gas industry contributes half of the nation’s revenue.

Biggest Advance

Surgutneftegas rallied to the highest level since Nov. 26 in New York yesterday, trading at a 0.7 percent discount to the company’s preferred stock in Moscow. Lukoil advanced 1.6 percent to $61.15 as trading volume was almost double the average of the last 90 days. The ADR erased its discount to the Moscow-listed stock, to trade 0.3 percent above it.

Moscow-based Lukoil plans to begin commercial production from the Iraqi West Qurna-2 field as early as March, and will reach the daily output necessary to trigger Iraqi investment reimbursements next year, Vice President Andrei Gaidamaka said on a conference call with investors and analysts in New York Nov. 26.

The company is expected to pump 150,000 barrels a day from West Qurna-2 next quarter and increase its output to 400,000 barrel a day by the end of 2014, Iraq’s Deputy Prime Minister for Energy Affairs Hussain al-Shahristani said in a statement yesterday after meeting Chairman Vagit Alekperov in Baghdad.

Crude Oil

West Texas Intermediate crude for January delivery slipped 0.3 percent to $97.34 a barrel on the New York Mercantile Exchange. Brent crude for January settlement decreased 2 percent to $109.39 a barrel on the London-based ICE Futures Europe exchange.

The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, rose 0.8 percent to $28.25. The RTS Volatility Index, which measures expected swings in the stock futures, decreased 2.9 percent to 23.54.

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