Bloomberg News

Lukoil Value to Quadruple on $150 Billion Spending, CEO Says

March 15, 2012

OAO Lukoil (LKOH)’s market value will quadruple in the next decade as Russia’s second-largest oil producer invests $150 billion to expand worldwide, said billionaire Chief Executive Officer Vagit Alekperov.

Oil and gas production is forecast to grow an annual 3.5 percent to as much as 3.2 million barrels a day in 2021 as Lukoil focuses on projects in Iraq, West Africa, Siberia and the Caspian Sea. The Moscow-based company, which had its first production decline in two decades to 2.14 million barrels a day last year, has a market value of about $56 billion today, the highest for a Russian company that isn’t state controlled.

“Our investment program, which we are planning now for the next 10 years, worth $150 billion, plus today’s capitalization, is the realistic value,” Alekperov, who owns more than 20 percent of Lukoil, said in an interview in London. “The company fair value should be derived by the market, but it should be a lot higher than today.”

Lukoil is also expanding projects in Latin America and Asia as Alekperov develops Russia’s first private oil company into an international venture. If successful, its production next decade will approach Royal Dutch Shell Plc (RDSA), which pumped 3.2 million barrels of oil equivalent last year, and has a value of $226 billion.

‘Gigantically Ambitious’

Dividend payouts will increase to 40 percent of net income by the end of the period, Alekperov said. That means a 300 percent increase from last year’s level, according to a Lukoil presentation yesterday.

Lukoil’s plans require highly optimistic assumptions in oil and gas prices, costs and taxes, Troika Dialog said in a research note today. “While the long-term targets are gigantically ambitious, we think that the prize 10 years from now is equally illusive.”

Lukoil currently holds 10 percent of its own shares, worth over $5 billion, in treasury after re-purchasing them from Houston-based ConocoPhillips (COP), Alekperov said. The company has no plans to sell the shares, which will act as a financial “cushion” supporting the development plan, he said.

Alekperov said he supported Russian Prime Minister Vladimir Putin victory in the March 4 presidential election because the leader understands Lukoil’s request to ease laws limiting private companies’ access to natural resources and can move quickly to make a decision. Putin is returning to the Kremlin after holding office from 2000 to 2008.

Lukoil shares rose 0.1 percent to 1,924.90 rubles at the 6:45 p.m. close in Moscow. The stock has gained 13 percent so far this year. OAO Rosneft, Russia’s largest oil producer, is seeking to add $100 billion to its market value via international expansion, Chief Executive Eduard Khudainatov said in June. The company has a value of $81 billion now.

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; 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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