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2008 May 12   15:13

Lukoil looks to double capitalization by 2017

Russia's Lukoil (RTS: LKOH) is planning to double  its  capitalization by 2017, Lukoil President Vagit Alekperov said in an interview with SmartMoney magazine according to Interfax.

The company plans to achieve this goal "by increasing production in addition  to  the  enormous investment it is making right now, including outside Russia," he said.

Alekperov said the company would reach this level of capitalization if no macroeconomic  tremors  occur  like the ones seen in late 2007 and early 2008.  Lukoil stock fell 17% to $70 per share by mid-February from $84.5 at  the start of the year. "They have bounced back [and were up to $91.1 last  week], but the drop was significant. There were difficulties in attracting investment  resources.  It's tough to say when smooth and stable work  will  begin  -  the kind seen at the start of last year. It won't be this year in any case," he said.

Lukoil is also "developing in an evolutionary manner, while Rosneft (RTS: ROSN)  is  using  such  acquisitions  as Yukos (RTS: YUKO) assets. Therefore,  we  haven't  set  the  goal of  leading the race [in terms of capitalization].  We're  not  at  such  a  young  age  to  be constantly

comparing  everything  anymore.  We  are  developing in our own way as a transnational   Russian  company. We are confident that this evolutionary development  will continue for the next decade. Our reserves allow us to look confidently towards the future. Oil and gas production volumes will grow," he said.

As  of May 7, the leaders in terms of market value on the RTS Stock Exchange  were   Gazprom  (RTS:  GAZP)  at $329.062 billion, Rosneft with $103.65 billion and Lukoil with $79.953 billion.

Alekperov  also  predicted  in the interview that global oil prices would stabilize around $100 per barrel.

There  is no shortage of oil on the market for now, he said. "Crude oil is present  on  the market. At the same time, speculators are making major purchases.   Many  investors  have  switched  from  investment  in securities  to  investment  in  real  valuables:  oil,  gold and metals. Therefore,  I  think  that prices will stabilize. To what degree [prices stabilize]  will  depend on the dollar's exchange rate with which global trading  in  oil  and  petroleum  products  is  carried  out  as well as macroeconomic conditions. I reckon prices will stabilize around $100 – a little higher or a little lower," he said.

In  compiling  its  annual  budget, Lukoil as a rule focuses on the Russian  government's  forecast  for oil prices and the ruble's exchange rate, he  said.  "The forecast for the ruble usually coincides [with the actual exchange  rate],  while  for  oil  [forecasts]  we  come  up with

optimistic,  pessimistic and base scenarios. Our optimistic scenario for oil is about  $105 [per barrel]. The current price has surpassed it," he said.

"Unfortunately,  today  another  problem is confronting not only us but our  colleagues  from  countries  with  unique  resources:  a  sharp increase in the cost of services and equipment. We just received another document  from  our  pipe producers. They have proposed raising costs by

15%-20%  starting  from  May 1. We signed annual contracts and six-month contracts  with  price formulas and they have proposed raising prices in just three  to  four  months!  We  feel  this  is  unfair  and that some producers  in  Russia are dictating [prices to us]. Favorable conditions have been created for them - pipe imports have been cut off from Ukraine

and China - and they are dictating their rules," he said.

These  restrictions  need to be eliminated or export duties need to be introduced for them "so that the Russia market becomes a priority for them like  it  is  for  us.  Oil prices are dependent on the expenses we incur. Expenses  have grown right up to the price we planned - a minimum

of $85 per  barrel.  Prices won't go lower. Indeed, this is the spending component - both ours and that of exporting countries," he said.

Oil  prices  grew  8%  last  week  to  more than $126 per barrel on Friday.

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