Lukoil in Talks to Buy 40% of Brazil's OGX

RIO DE JANEIRO - Billionaire Brazilian businessman Eike Batista is in talks to sell a 40% stake in oil producer OGX Petroleo e Gas Participacoes SA to Russia's Lukoil, the Folha de S. Paulo newspaper reported Sunday. 

The deal would beef up finances at the entrepreneur's troubled flagship company ahead of an important auction of oil and natural-gas concessions next month. The Russian firm is conducting due diligence of the company, and the deal could be announced in early May, the newspaper reported. 

OGX is also in talks to sell a 40% stake in the company's Tubarao Martelo field to Malaysian state-run oil and gas firm Petroliam Nasional Bhd., or Petronas, the newspaper said. Tubarao Martelo is expected to start producing crude oil by the end of 2013. OGX could also operate fields for Brazilian state-run energy giant Petroleo Brasileiro, or Petrobras, the newspaper reported. 

OGX denied the report. "The information is not true," an OGX spokeswoman said Monday. 

Despite the denial, investors reacted positively to the report. OGX shares led broad gains for companies in Mr. Batista's EBX Group of companies, climbing 19% to 1.62 Brazilian reais ($0.80) in early Sao Paulo trading on Monday. Port operator LLX Logistica rose 3.6% to BRL2.02, shipbuilder OSX Brasil added 3.8% to BRL3.58 and miner MMX advanced 3.5% to BRL2.08. 

Shares in the companies have tumbled so far in 2013 amid questions about the ability of the firms to generate concrete results for investors. Many of Mr. Batista's interests are in the startup or pre-operational phase. 

OGX has fallen far short of its crude-oil production goals since the Tubarao Azul field first started output in early 2012. The field was expected to reach output of 40,000 barrels per day by end-2012, but those expectations were slashed by nearly half last year. 

In March, technical issues at Tubarao Azul caused production to plummet. The company is carrying out repairs on two of the field's three production wells, with full output not expected to return before June. The field produced 8,300 barrels of oil equivalent per day in March.

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Lukoil to Invest $1B in Samara-Nafta in Next 5 Years

MOSCOW - OAO Lukoil Holdings, Russia's No. 2 oil producer, will invest $1 billion in the oil firm Samara-Nafta to increase production, Russian news agencies reported Monday, citing a company presentation.

Lukoil acquired Samara-Nafta from Hess Corp. this month for $2 billion as part of a strategy to stabilize and increase oil production. Lukoil has for years fought declining output at its main, Soviet-era fields in Western Siberia.

The investment in Samara-Nafta will increase production by between 5% and 7% over the next five years from 2.5 million metric tons a year, Prime news agency cited the company as saying.

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Lukoil Executive: Russia Unlikely to Sell Large Rosneft Stake Soon

MOSCOW - The Russian government is unlikely to sell a large stake in state-controlled oil giant OAO Rosneft in the near future and won't give up its dominant position in the energy sector, the deputy chief executive of Russia's biggest non-state oil producer, OAO Lukoil Holdings, said Thursday.

"The state will continue to dominate in the sectors of the economy where it can," Leonid Fedun told the Sberbank Russia Forum 2013.

He added that the current situation in the oil sector reminds him of the mid-1990s, when there were only two sizeable oil companies in Russia: a state-owned one and Lukoil.

The past decade has witnessed the forced bankruptcy of what was once the largest oil producer, OAO Yukos; the takeover of OAO Sibneft by state-owned natural-gas firm OAO Gazprom; and, last month, the acquisition of TNK-BP by Rosneft.

Mr. Fedun said the state will dominate the market until 2018-2019, when it may be faced with falling oil output and will start seeking to improve the management of the companies.

Russian Economy Minister Andrei Belousov said in April the state may reduce its stake in Rosneft by roughly 19% from 69.5% now. Rosneft Chief Executive Igor Sechin opposes the plan.

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Lukoil Targets 150,000 Barrels per Day from West Qurna-2

OAO Lukoil Holdings, Russia's largest non-state oil producer, aims to produce 150,000 barrels of oil a day at Iraq's supergiant West Qurna-2 oilfield by the end of December 2013, a company executive said Tuesday. 

The 13-billion-barrel field is expected to raise output to 400,000 barrels a day by April 2014 and to hit 550,000 barrels a day in 2015, the executive told Dow Jones Newswires. 

Lukoil will invest $1 billion in 2013 to start first production from the green field, located in the Basra governorate near the Iranian border, he said. Last year the company invested a similar amount, putting total investment in the field by the end of this year at $2 billion. Lukoil had said that it would invest a total of $30 billion to upgrade the field. 

To date the company has drilled eight production wells and is planning to drill another 27 wells this year, he said, adding that four rigs are drilling in the field. 

In January, Lukoil signed a supplementary agreement with Baghdad to reduce the project's target production and prolong its duration. The agreement also put on record the transfer to Lukoil of Statoil ASA's participation interest of 18.75% in the project. 

The parties agreed to reduce the project's target production level to 1.2 million barrels a day from 1.8 million barrels a day, and to prolong the validity of the contract to 25 years from 20. 

The company has increased its stake in the West Qurna-2 project in Iraq to 75%, following last year's withdrawal of Statoil. Iraq's state-owned North Oil Company owns 25%. 

Operator Lukoil and Statoil were awarded the technical service contract at West Qurna-2 in December 2009.

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Fitch: Struggle with Oil Production Drives Lukoil M&A

Lukoil's acquisition of a small Russian oil producer is out of step with recent merger and acquisitions (M&A) activity, and indicates that it may be struggling to sustain domestic oil output, according to Fitch Ratings. The ratings agency said that Lukoil's ability to reverse declining output and stabilize crude production in Russia is a critical rating factor.

Lukoil spent nearly $7.3 billion on M&A between 2009 and 2012, and it acquired large stakes in a number of upstream and downstream assets abroad, but only $452 million of that was spent on Russian upstream acquisitions, Fitch pointed out.

"This week's deal clearly bucks the recent trend. Lukoil will pay $2.05 billion to acquire Samara-Nafta, an oil-producer based in the Volga-Urals region with 2.5 million tons of annual oil production," Fitch said.

Unlike Rosneft and TNK-BP, Lukoil has posted declines in Russian oil production every year since 2010. By 2012, its total oil production from Russian fields had fallen by 7.7 million tons, or 8 percent, from 2009.

"We therefore consider this latest acquisition as a sign that Lukoil is willing to engage in costly acquisitions to halt the fall in oil production," Fitch said.

The company has sufficient rating headroom to finance this all-cash transaction with borrowed funds only, if needed, Fitch highlighted, adding that an aggressive acquisition program or other spending could lead to negative rating action.

"On the other hand, stabilization of crude production in Russia, and the completion of key upstream projects while maintaining solid credit metrics, would be positive for the rating," Fitch said.

At the end of 2012, Lukoil had $2.9 billion in cash and cash equivalents; its gross total debt was $6.6 billion.

"Lukoil's falling production in Russia results mainly from the depletion of the company's brownfields in Western Siberia and lower than-expected production potential of the Yuzhno Khylchuyu field in Timan-Pechora. The company managed to slow the decline in crude production in Russia to one percent in 2012 from five percent in 2011 through enhanced recovery techniques in Western Siberia (mainly horizontal drilling and hydraulic fracturing) and the development of new upstream assets in the Ural and Volga regions," Fitch said.

Lukoil's exploration and production capex in Russia increased from $3.9 billion in 2010 to $7 billion in 2012, and Fitch estimates it may average $8 billion per annum over the next three years.

Fitch also highlighted that Lukoil is considering large-scale investments in unconventional oil production from the Bezhenov Shale, Russia's colossal shale deposit in Western Siberia, which is estimated to contain up to two trillion barrels of oil. Production costs for the shale deposit are estimated at several times that of conventional oil, so oil producers would need new tax breaks from the Russian government to make production economic.

"We estimate that the contribution from Samara-Nafta to Lukoil's total output will be fairly small – equivalent to around  three percent of the 83.8 million tons it produced in Russia in 2012, excluding its share in production of equity affiliates," Fitch said.

LUKOIL's total hydrocarbon output in 2012 reached 2.17 million barrels of oil equivalent per day (MMboepd), second only to Rosneft's 2.43 MMboepd.

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Fitch: Struggle with Oil Production Drives Lukoil M&A

Lukoil's acquisition of a small Russian oil producer is out of step with recent merger and acquisitions (M&A) activity, and indicates that it may be struggling to sustain domestic oil output, according to Fitch Ratings. The ratings agency said that Lukoil's ability to reverse declining output and stabilize crude production in Russia is a critical rating factor.

Lukoil spent nearly $7.3 billion on M&A between 2009 and 2012, and it acquired large stakes in a number of upstream and downstream assets abroad, but only $452 million of that was spent on Russian upstream acquisitions, Fitch pointed out.

"This week's deal clearly bucks the recent trend. Lukoil will pay $2.05 billion to acquire Samara-Nafta, an oil-producer based in the Volga-Urals region with 2.5 million tons of annual oil production," Fitch said.

Unlike Rosneft and TNK-BP, Lukoil has posted declines in Russian oil production every year since 2010. By 2012, its total oil production from Russian fields had fallen by 7.7 million tons, or 8 percent, from 2009.

"We therefore consider this latest acquisition as a sign that Lukoil is willing to engage in costly acquisitions to halt the fall in oil production," Fitch said.

The company has sufficient rating headroom to finance this all-cash transaction with borrowed funds only, if needed, Fitch highlighted, adding that an aggressive acquisition program or other spending could lead to negative rating action.

"On the other hand, stabilization of crude production in Russia, and the completion of key upstream projects while maintaining solid credit metrics, would be positive for the rating," Fitch said.

At the end of 2012, Lukoil had $2.9 billion in cash and cash equivalents; its gross total debt was $6.6 billion.

"Lukoil's falling production in Russia results mainly from the depletion of the company's brownfields in Western Siberia and lower than-expected production potential of the Yuzhno Khylchuyu field in Timan-Pechora. The company managed to slow the decline in crude production in Russia to one percent in 2012 from five percent in 2011 through enhanced recovery techniques in Western Siberia (mainly horizontal drilling and hydraulic fracturing) and the development of new upstream assets in the Ural and Volga regions," Fitch said.

Lukoil's exploration and production capex in Russia increased from $3.9 billion in 2010 to $7 billion in 2012, and Fitch estimates it may average $8 billion per annum over the next three years.

Fitch also highlighted that Lukoil is considering large-scale investments in unconventional oil production from the Bezhenov Shale, Russia's colossal shale deposit in Western Siberia, which is estimated to contain up to two trillion barrels of oil. Production costs for the shale deposit are estimated at several times that of conventional oil, so oil producers would need new tax breaks from the Russian government to make production economic.

"We estimate that the contribution from Samara-Nafta to Lukoil's total output will be fairly small – equivalent to around  three percent of the 83.8 million tons it produced in Russia in 2012, excluding its share in production of equity affiliates," Fitch said.

LUKOIL's total hydrocarbon output in 2012 reached 2.17 million barrels of oil equivalent per day (MMboepd), second only to Rosneft's 2.43 MMboepd.

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Lukoil 'Not Affected' By Cyprus Crisis

MOSCOW - OAO Lukoil Holdings, Russia's NO. 2 oil producer, hasn't been affected by the Cyprus crisis, Chief Executive Vagit Alekperov said Thursday.

Mr. Alekperov said Lukoil's gas stations on the embattled island were only taking cash as banks there weren't working.

Asked whether Lukoil has deposits in Cyprus or carries out financial transactions there, Mr. Alekperov said: "No. Cyprus has never been a center of oil sales."

Cyprus's financial-services sector is facing potential collapse after the country's parliament on Tuesday rejected a euro-zone bailout plan that would have involved a controversial bank-deposit tax.

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Lukoil 4Q 2012 Profit Almost Doubles

MOSCOW - OAO Lukoil Holdings, Russia's No. 2 crude oil producer, said Thursday its net profit for the final three months of 2012 nearly doubled compared with the same period the previous year, when it was hit by a nearly $1 billion write-off.

Lukoil said net profit for the period totaled $2.69 billion, compared with $1.35 billion in 2011. That was slightly below a forecast of $2.72 billion from a Dow Jones Newswires survey of five analysts.

The company didn't provide a breakdown of fourth-quarter results, but said revenue for the full year increased 4.1% to $139.2 billion from $133.7 billion, on the back of higher oil prices. Earnings before interest, taxation, depreciation and amortization, or Ebitda, rose 1.7% to $18.9 billion from $18.6 billion. Net profit for the year was up 6.2% on 2011 at $11.0 billion.

Lukoil will host a presentation later Thursday, where analysts say they are looking for information on the company's progress on stabilizing production and plans for international projects, such as West Qurna-2 in Iraq.

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Lukoil Proved Reserves Stand at 17.3B Barrels

Russia's Lukoil announced Wednesday that an audit has shown its proved hydrocarbon reserves at the end of 2012 stood at 17.3 billion barrels of oil equivalent (boe), which included 13.4 billion barrels of oil and 23.5 trillion cubic feet of gas.

Lukoil said that its replacement of production by proved reserves during the year exceeded 100 percent. Proved reserves were increased due to exploration, production drilling and acquisitions that totaled 703 million boe. Detailed field appraisal in the Northern Caspian and Komi regions were responsible for the greater part of the proved reserves increment, the firm said.

Lukoil added that its probable reserves at the end of 2012 amounted to 7.7 billion boe and possible reserves stood at 4.3 billion boe.

The audit was carried out by US firm Miller and Lents.

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Lukoil Proved Reserves Stand at 17.3B Barrels

Russia's Lukoil announced Wednesday that an audit has shown its proved hydrocarbon reserves at the end of 2012 stood at 17.3 billion barrels of oil equivalent (boe), which included 13.4 billion barrels of oil and 23.5 trillion cubic feet of gas.

Lukoil said that its replacement of production by proved reserves during the year exceeded 100 percent. Proved reserves were increased due to exploration, production drilling and acquisitions that totaled 703 million boe. Detailed field appraisal in the Northern Caspian and Komi regions were responsible for the greater part of the proved reserves increment, the firm said.

Lukoil added that its probable reserves at the end of 2012 amounted to 7.7 billion boe and possible reserves stood at 4.3 billion boe.

The audit was carried out by US firm Miller and Lents.

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Lukoil Proved Reserves Stand at 17.3B Barrels

Russia's Lukoil announced Wednesday that an audit has shown its proved hydrocarbon reserves at the end of 2012 stood at 17.3 billion barrels of oil equivalent (boe), which included 13.4 billion barrels of oil and 23.5 trillion cubic feet of gas.

Lukoil said that its replacement of production by proved reserves during the year exceeded 100 percent. Proved reserves were increased due to exploration, production drilling and acquisitions that totaled 703 million boe. Detailed field appraisal in the Northern Caspian and Komi regions were responsible for the greater part of the proved reserves increment, the firm said.

Lukoil added that its probable reserves at the end of 2012 amounted to 7.7 billion boe and possible reserves stood at 4.3 billion boe.

The audit was carried out by US firm Miller and Lents.

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