November 30, 2015, 23:20 / Business

Lukoil saved up for a record

The company has almost $4 billion in its accounts, collected, among other things, due to a reduction in investments in oil production Galina Starinskaya Lukoil owes the record amount in its accounts to a reduction in investments in oil production / Ilya Pitalev / RIA Novosti

At the end of September 2015, Lukoil's cash and cash equivalents increased by 28% to $3.96 billion compared to the same period last year, the company reported in a US GAAP report. This is a record amount for the company (see chart). About 70% of funds are in dollars, 20% are in rubles.

In the third quarter, Lukoil managed to generate $1.5 billion in free cash flow. This is the highest figure in at least the last nine quarters, Gazprombank analyst Alexander Nazarov explains the reason for the company’s cash growth. In addition, in August Lukoil sold a 50% stake in Caspian Investments Resources Ltd. Chinese Sinopec for $1.087 billion. Finally, Lukoil received $2.3 billion from Iraq in the form of reimbursement of costs for West Qurna 2.

Another reason for the increase in cash is a decrease in investments. In the last quarter, capital expenditures amounted to $2.1 billion instead of the expected $2.9 billion, JPMorgan analysts note. Investments in Russian exploration and production decreased the most - by 2.2 times to $0.9 billion in three months (abroad, the decrease was by 8% to $0.8 billion). In Russia, capex fell mainly due to the depreciation of the ruble, according to company documents. The group increased oil production by 4.6% to 75.3 million tons in nine months, but at Russian fields it fell by 0.5% to 63.8 million tons (in Western Siberia the decrease was 4.9%).

Lukoil management is not concerned about the reduction in capital investments and oil production in Western Siberia, as it intends to maximize profits, VTB Capital analysts write. In 2016, the company will reduce its investment program by 12–14% compared to 2015 due to tax changes, since it will have to pay an additional 40 billion rubles. taxes, said its president Vagit Alekperov. First of all, the company will reduce drilling, experts indicate. Nevertheless, due to the commissioning of the Pyakyakhinskoye field and them. Filanovsky, the company’s oil production will stabilize in 2016 at the level of 86–87 million tons, Alekperov recently said. And in 2017, growth will begin by 1.5–2 million tons per year.

The company can use part of the accumulated funds for dividends, says Nazarov: “This is very positive news. Dividend yield promises to be high.” At the end of 2014, shareholders received 154 rubles. per share (dividend yield – 7.56%, 49.15% of net profit). For nine months of this year they can receive 65 rubles. per share (voting at the extraordinary meeting will take place on December 14). Lukoil Vice President Leonid Fedun said on Monday that dividends for 2015 could be higher than 2014.

“We are not afraid that, taking into account write-offs, [dividend] payments could amount to up to 50% of our profit,” Fedun said in March. Lukoil pays at least 15% of net profit according to US GAAP. Over nine months, net profit decreased by 2.5 times to $2.32 billion due to low prices and asset write-offs. Dividends will increase only in rubles, and will decrease in dollars, says Vasily Tanurkov, deputy head of the Veles Capital stock market department. In world practice, the fact that a company does not reduce dividends or even increases them is a sign of good management: “This is a signal to shareholders that the company is confident in the future.”

The largest co-owners of the company are Alekperov (22.94%) and Fedun (9.78%). In general, management controls more than 50% this year. Of these, about 16% is a quasi-treasury package. Lukoil does not rule out paying off part of this stake, Fedun said yesterday. But so far the Central Bank has not developed instructions on how to carry out repayments and how to take such transactions into account, he complained.