Jun
23
LUKOIL: Saving and optimizing - June 23, 2009
Filed Under Bullet-moments |
Evaluating LUKOIL’s results of 1Q 2009 by US GAAP we should outline the company’s profitability recovery versus the losing 4Q 2008. That was thanks to the effort of the company’s management on optimizing business processes and saving on behalf of the principal production operations. So, the expenses of extraction returned to the level of 2006. (3.1 USD per extracted barrel), expenses of processing at the company’s own refineries formed 2.03 USD per barrel. That was also supported by the devaluation of ruble that occurred and work with the contractors on reducing the price of the services being provided.
Along with that in 1Q 2009 the company has built up the oil extraction (+3.2% versus 1Q 2008), which we assume will reflect positively of the company’s finance. Also LUKOIL conducted diversification of supplies of its products (oil export upped by 17%, oil products export – by 3.9%), which we believe is due to the raise of export margin and the launch of supplying oil to the refinery, purchased in Italy.
We included all the changes on the product distribution markets in our model an also we have insignificantly corrected up the forecast of oil extraction within the current and the following years. Decrease of gas extraction by 11.2% in 2009 will occur mainly on behalf of the Russian segment and due to limitation of gas intake by Gazprom, which in its turn has been caused by the demand lowering for the given energy carrier. Also we have corrected down the selling price of the “blue fuel” due to the same reasons. We assume the recovery of gas direction in LUKOIL and other independent producers might be expected no sooner than mid next year.
In our model of LUKOIL we detailed the distribution prices of the company’s products at both: domestic and foreign markets. At the same time we did not change the long-term forecast of the oil prices. For the current year we suppose the average price of Urals will form 50-56 USD per barrel.
In our model of LUKOIL we considered the current extension of the company’s retail network and also the plans of further expansion to the retail market of the oil products.
As a result of corrections of the model, the new fair value of LUKOIL’s shares formed 77.06 USD versus 72.77 USD, forecasted earlier (5.9% higher). Due to the significant growth potential, which forms more than 40%, we confirm our recommendation BUY for the shares of the company.
LUKOIL: Saving and optimizing - June 23, 2009 (PDF)