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.