Lukoil First-Quarter Profit Drops 59% as Crude Prices Slump

  • Second-biggest Russian producer beat analyst profit estimates
  • Free cash flow decline is weakest part of results: Aton

Lukoil PJSC, Russia’s second-largest oil producer, said first-quarter profit dropped 59 percent as crude prices declined to a 12-year low.

Net income fell to 42.8 billion rubles ($651 million) from 104 billion rubles a year earlier, the Moscow-based company said in a statement on Monday. That beat the 41.3 billion-ruble estimate of six analysts surveyed by Bloomberg. Free cash flow declined 43 percent to 36 billion rubles.

Free cash flow “is the weakest point in the entire first-quarter report,” said Alexander Kornilov, an oil and gas analyst at Aton. “Free cash flow is the key thing investors watch in Lukoil numbers, making judgments about the company’s capability to increase its dividend payments in ruble terms.”

Russian producers have been partially buffered against the rout in crude by a weaker ruble, which has reduced costs, and taxes that decline with lower prices. While higher output helped smaller rivals Bashneft PJSC and Gazprom Neft PJSC boost profit in the first quarter, Lukoil’s production in Russia has dropped.

Lukoil rose 1 percent to 2,613 rubles as of 11:31 a.m. in Moscow trading as Brent crude climbed to more than $50 a barrel. Rosneft OJSC, Russia’s largest producer, advanced 1.7 percent, while third-ranked OAO Surgutneftegas gained 1.8 percent.

Output Declines

Oil and gas output fell to 2.35 million barrels of oil and gas a day, Lukoil said. Production at the company’s largest Western Siberia unit dropped 8.4 percent to 865,000 barrels a day as the fields age and Lukoil invests in higher return projects, it said.

Output increased in Iraq, where Lukoil has so far received $5.6 billion of oil in compensation for project costs of $7.07 billion, according to the statement. The company was also paid a further $231 million in Iraq.

Lukoil spent 4.5 billion rubles on exploration and production in Nigeria, where the company could eventually pump 6 million to 7 million tons of oil a year, Chief Executive Officer Vagit Alekperov told Russian state television station Rossiya-24.

Earnings before interest, taxes, depreciation and amortization fell to 145 billion rubles, missing the 158 billion-ruble estimate of seven analysts. Revenue fell to 1.18 trillion rubles, Lukoil said.

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