Bloomberg News

Lukoil to Spend $10 Billion This Year, Stemming Oil Output Drop

October 10, 2011

Oct. 10 (Bloomberg) -- OAO Lukoil, Russia’s second-largest oil producer, plans to increase spending to $10 billion this year and more in 2012 as it taps deposits abroad and works to stem declining output at home.

Lukoil will start projects in Iraq, Russia’s Caspian Sea and Uzbekistan in the “near future,” Chief Executive Officer Vagit Alekperov told news service Interfax in comments confirmed by his spokesman, Gleb Ovsyannikov. Capital spending amounted to $6.84 billion in 2010, Lukoil said in a website presentation.

In the first half of this year, Lukoil’s crude and natural- gas output fell for the first time in the company’s history as Russian taxes drove it to seek more projects abroad. The Moscow- based producer plans to return Russian output to growth in 2013.

While the proposed investment is “in line” with the company’s development program according to Alekperov, it’s negative for the stock, VTB Capital wrote in a note today. The number exceeds the bank’s estimate for Lukoil’s 2011 investments, VTB said.

Lukoil has dropped 18 percent in Moscow trading in the past six months as global economic growth slows, stoking concern that demand for crude and fuels will decline. The shares traded up 3.5 percent at 1,670.70 rubles at the 6:45 p.m. close today.

Lukoil may spend $4 billion to $5 billion a year over the next five years developing projects abroad, Andrei Kuzyaev, head of the overseas division, said this month. Its Uzbek gas output may quadruple to 20 billion cubic meters a year, or 360,000 barrels of oil equivalent a day, by 2017, he said. That’s equal to 17 percent of Lukoil’s 2.16 million-barrels-a-day output in the first half.

OAO Rosneft, Russia’s largest oil producer, said in February that it expected capital spending to increase 23 percent to about $11 billion this year. The company spent $8.93 billion last year.

--Editors: Amanda Jordan, Alastair Reed

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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