Bloomberg News

Lukoil Takes $1 Billion Impairment on Conoco Oil Venture

March 01, 2012

OAO Lukoil (LKOH), Russia’s second-largest oil producer, recorded a $955 million impairment charge after a venture with ConocoPhillips (COP) found less oil than expected.

Lukoil had the charge in the fourth quarter at its OOO Narianmarneftegaz venture with ConocoPhillips, it said in a statement. Lower production at the northern Yuzhnoye Khylchuyu deposit due to “unanticipated geological reasons” resulted in estimated field reserves falling to 142 million barrels at the end of 2011 from 505 million barrels in 2008.

“It’s a paper loss reflecting the problems with the asset, which were already in the market,” Artem Konchin, an oil and gas analyst at UniCredit SpA (UCG), said by phone from Moscow.

Net income of $1.35 billion compared with profit of $2.19 billion in the same period a year earlier, the Moscow-based company said in a filing today. That missed the average estimate of $2.69 billion in a Bloomberg survey of 15 analysts.

Full-year net income at Lukoil reached a record $10.4 billion. Russian oil producers have posted record earnings for 2011 after unrest in the Middle East pushed average prices for the country’s Urals export blend to more than $100 a barrel.

Caspian Reserves

Lukoil increased natural-gas reserves at the Sarmatskoye field in the Russian section of the Caspian Sea by 46 percent in 2011 to almost 1 billion barrels under Russian standards, Deputy Chief Executive Officer Leonid Fedun said at an investor presentation in London.

Proved, probable and possible oil reserves increased 4.6 percent to 23.6 billion barrels, according to the presentation.

The company will announce a new dividend policy at a March 14 presentation of its 10-year strategy in London, Fedun said. Revenue rose to $133.7 billion in 2011 from $105 billion in 2010, Lukoil said.

Lukoil has expanded in West Africa, Iraq, Venezuela and Vietnam after domestic taxes and laws limited access to Russian resources. That may mean additional expenses as international prospects lack the benefit of geological data inherited from the Soviet era.

The cost of failed wells almost doubled to $417 million last year, Lukoil said. Dry wells, as they are known, cost $181 million in Ghana, $149 million in the Ivory Coast and $27 million in Vietnam, Lukoil said.

Offshore drilling results from the Ivory Coast are expected in 2013, Fedun said.

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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