Strong Lukoil earnings ignored as Russian stocks depreciate in secondary trading

Russian independent oil and gas producer Lukoil posted profit and revenue improvements in its 2021 consolidated financial report, but the results did nothing to prevent the company’s shares from being undervalued by Russia-averse investors on Thursday.

According to the company’s income statement, its consolidated annual revenue jumped 67% to more than 9.4 trillion rubles in 2021, or $126 billion based on exchange rates at the end of last year. .

Lukoil’s net profit attributable to shareholders soared to 773 billion rubles last year from a meager 15 billion rubles in 2019.

Trading suspended

But Lukoil is one of many Russian companies to have been barred from major international stock exchanges following the Kremlin’s decision to invade Ukraine.

In the latest decision, the London Stock Exchange suspended trading in the global certificates of deposit (GDRs) of several Russia-based companies, including gas export monopoly Gazprom and oil giant Rosneft, as well as Lukoil.

In the dollar-denominated secondary markets in London, where these companies can still be valued, Lukoil has fallen to between 50 and 70 US cents per share, down from a price of $90 before the Ukraine crisis.

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Lukoil also reported a slight increase in oil and gas production to around 2.2 million barrels of oil equivalent per day, with oil and condensate accounting for 76% of that production.

With the relaxation of Russian obligations under the Opec+ agreements, Lukoil was able to increase production from the old fields in Western Siberia by more than 5% to 704,000 barrels of oil.

Lukoil’s natural gas production in Russia fell overall, but output from its major upstream assets in Uzbekistan nearly doubled to 200,000 boepd, helped by increased exports to China.

Lukoil also increased its exploration spending by nearly 16% to 7 billion rubles last year, adding about 500 million boe of reserves to the company’s portfolio.

While Lukoil’s long-term debt also increased by 17%, cash reserves nearly doubled to 677 billion rubles.

Ukrainian shadow

But all of these fundamentals have been overshadowed by events in Ukraine and the global response to the Russian invasion.

Trading on the Russian stock market has been suspended until March 5 and Lukoil is one of many companies facing uncertainty over its ability to continue exporting oil and petroleum products now shunned by Western buyers .

Global certificates of deposit for all major Russian companies, including Lukoil, lost more than 99% of their previous value this week as investors sold Russian shares.

Moscow-based brokerage BKS said Lukoil stock could possibly see the strongest rally among its peers when sanctions eventually ease.

The economic clouds continue to gather for Russia, however.

In the week following Russia’s February 24 invasion of Ukraine, the ruble fell 38% to over 110 rubles to the US dollar due to the impact of international sanctions and the growing isolation of the country’s economy from the outside world.

There is growing speculation in global markets that the Russian government may be heading for a likely default due to sanctions and asset freezes, including central bank assets.

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