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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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This Russian Oil Major Is Ready To Open The Taps

Russia’s second biggest oil company, Lukoil, is ready to raise production by 23,000 bpd in two to three months if its gets the green light from Moscow which pushed for a production increase at the latest OPEC meeting.

Reuters quoted the company’s chief executive Vagit Alekperov as saying that Lukoil hoped for a go-ahead on the production increase as prices right now were in a good place. “I think that the price of oil will be between $70 and $75 per barrel until the end of the year. We are counting on that,” Alekperov said.

The Russian company cut 45,000 bpd of its production when OPEC and Russia first struck the deal to reduce global supply. With the cut, it pumped an average 1.8 million bpd in the first quarter of the year, which is equal to the total global cut OPEC+ agreed in November and December 2016.

Earlier this week, Alekperov said in an interview with Interfax that the global production cuts should be halved with Brent at US$75 a barrel. At the time he also said Lukoil could boost production to pre-deal levels within two to three months if such a decision was made. Now it seems that Lukoil will restore production more slowly, but in any case, if OPEC today agrees to the proposed 1-million-bpd production increase, Alekperov would have a reason to be happy.

The company has stated it will focus on its domestic business, but it is also growing internationally. The latest here was an announcement that Lukoil will put its plans for Iran field development on hold awaiting more clarity around the U.S. sanctions against Tehran. The Russian company had been in advanced talks for the development of at least three fields.

The company is also very active in neighboring Iraq. According to Alekperov, it will boost the production capacity of West Qurna-2 by 50,000 bpd by the end of next year, which will bring the total production from the field to 450,000 bpd, in line with Iraq’s plans to boost production capacity.

Related: Can Saudi Arabia Prevent The Next Oil Shock?

Lukoil is also growing in Mexico, where it won offshore exploration and production licenses at a March tender. The company is currently in discussions with Italy’s Eni for a license swap that will see Eni become the operator of their joint project with a 75-percent stake while Lukoil will keep 25 percent in the Cuenca Salina basin.

The company in March temporarily became Russia’s number-one oil company in terms of market value as it reported a 75-percent jump in profits for the first quarter on the back of higher oil prices. One analyst later called it “the Facebook of oil and gas,” estimating the company’s stock growth potential at 23 percent thanks to a combination of factors that have benefited all Russian oil and gas players: a cheap ruble that keeps production costs low and higher oil prices, which boost revenues and profits.

Now Lukoil is making use of the positive environment to start buying back stock to boost its market value further. With low debt and equally low operating expenses, Russia’s number-two in oil plans to spend US$3 billion on share buybacks over the next three years, with plans this year including the buyback of 100 million treasury shares. Its production costs average just US$13 a barrel and free cash flow is close to US$6 per barrel, which is a lot better than many international majors with operations in higher-cost regions. Lukoil may well be the Facebook of the oil and gas industry indeed, except for the data collection and sales, of course.

By Irina Slav for Oilprice.com

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  • Vishwas on June 23 2018 said:
    No country can be as foolish as Russia. Oil demand set to start falling. Have life of max 4-5 years. Russia should mint max by selling max oil during this period not bothering about Saudi. Lower prices will end American oil industry helping maintain a reasonable rate.
    Saudis always fooled Russia. They have huge reserves and low cost oil. They play the game of curtailing supply as it actually hurts Russia. America helped most as their limited oil reserves are assured better price meanwhile.

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