Lukoil, Russia’s No. 2 oil producer, posted worse-than-expected profit in 2013, hit by writeoffs at some major projects it once touted as the breakthrough finds to boost earnings.
As one of only a handful of private energy companies in Russia, where the sector is dominated by state-controlled firms such as Gazprom and Rosneft, Lukoil is struggling to access large new deposits at home and is being forced to expand abroad.
It will launch its West Qurna-2 field in Iraq this spring, which it expects to at least double its foreign oil output this year.
About 6 per cent of its total oil output of 1.8 million barrels per day (bpd) last year came from foreign operations, mainly from Kazakhstan. It hopes to raise its share of overseas hydrocarbon production to 17 per cent over the next six years.
Lukoil said on Wednesday that its 2013 profit was hit by a $2.4-billion writeoff of the value of some of its assets, including its Yuzhnoye Khylchuyu oil field in Russia’s Timan-Pechora and from projects in West Africa, once considered by the company as some of its most promising assets.
“Lukoil’s high exposure to international assets ... has always been a push-back for the Lukoil investment case,” said Alexander Kornilov, an analyst with Alfa Bank, adding the writeoffs cast doubt over the company’s plans to enter new countries like Mexico.
At Yuzhnoye Khylchuyu, a joint project with ConocoPhillips launched in 2008, oil output and reserves turned to be lower than expected, leading to losses. ConocoPhillips pulled out of the project in 2012.
In West Africa, where Lukoil vice-president Leonid Fedun once estimated the company might have “billions of barrels in (hydrocarbon) resources”, it took a charge of almost $300-million on last year’s accounts, after exploration wells in Ghana, Ivory Coast and Sierra Leone were dry.
“Unfortunately these ... wells which we drilled ... they showed hydrocarbons but not commercial ones,” Fedun told reporters on Wednesday. “But it would be wrong to say that our work in Africa is over now.”
Fedun and Lukoil CEO Vagit Alekperov are the largest shareholders in the company, which is operating in 13 countries outside Russia but is pulling out of Venezuela and Vietnam.
It is looking at Iran and Mexico, which are opening up their energy sectors, despite some suggestions from analysts that it should switch its focus from risky foreign projects to Russian production, where reserves of hard-to-extract oil could lead to an energy renaissance.
BETTING ON IRAQ
Lukoil plans to launch its West Qurna-2 field in Iraq by the end of March and expects an initial output of 120,000 bpd in April-May and 400,000 bpd this fall.
Output at West Qurna-2, where Lukoil holds a 75-per-cent stake, is expected to peak at 1.2 million bpd.
On Wednesday, Lukoil posted $7.8-billion in profit in 2013, down from $11-billion the previous year.
With no writeoffs, Lukoil’s 2013 profit would have reached $10.28-billion, the company said, still shy of the average forecast of $10.36-billion from a Reuters poll of analysts.
The company said its earnings before interest, taxes, depreciation and amortization (EBITDA) stood at $16.67-billion last year, also missing the poll forecast of $19.38-billion. Lukoil’s revenues stood at $141.5-billion in 2013, slightly up from $139.2-billion in 2012 and almost in line with the poll.
Lukoil saw its oil production rising by 1.1 per cent last year to 90.81 million tonnes (1.8 million bpd), aiming for a 1.5-per-cent increase this year partly boosted by West Qurna-2.