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MarketScreener Homepage  >  Equities  >  Moscow Micex - RTS  >  LUKOIL    LKOH   RU0009024277

LUKOIL

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Analysis: Tax hikes may help Russian oil majors stomach OPEC output curbs

10/26/2020 | 02:13am EST
FILE PHOTO: Full moon rises over the Gazprom Neft's oil refinery in Omsk

MOSCOW (Reuters) - Higher taxes imposed on Russia's energy sector could make prolonged output curbs by OPEC and allied producers easier to stomach for Moscow's energy majors.

The new system of taxes, approved by President Vladimir Putin earlier this month to help Russia weather the economic fallout from the COVID-19 pandemic, make it more expensive for energy companies to boost production from mature oil fields and produce more heavy crude.

That could make Russia's energy sector more willing to accept tighter policies from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, rather than engaging in a tussle with other oil-producing countries such as Saudi Arabia over oil market share, analysts say.

OPEC+, of which Russia is a member, has been reducing oil output to the tune of 7.7 million barrels per day, or over 8.5% of global consumption, in order to help the sluggish oil market.

"I think that the tax changes in oil industry were worked out while taking into account the OPEC+ deal and its influence on the output of the Russian companies," said Karen Kostanyan of Bank of America Merrill Lynch.

The tax reforms are complex and vary from region and the types of oil pumped. Crucially, they scrap some tax breaks given to output from older oil fields and on highly viscous oil, used for production of a wide range of oil products.

Renaissance Capital estimated that in total, the finance ministry plans to source 6 trillion roubles (60 billion pounds) in tax revenues from the oil and gas sector in 2021, or 32% of its total 2021 budget revenues under a Urals oil price assumption of $45.3 per barrel.

Russian Energy Minister Alexander Novak said last month that the taxation and the way Russia sticks to the OPEC+ deal are in "different areas".

But the financial incentive to pump less could make for smoother discussions with Russia's energy giants over continuing to keep a lid on production to support the market, analysts say.

OPEC+ was planning to start raising output in January but concerns a second wave of the COVID-19 pandemic will hobble demand could see that plan jettisoned.

Last week, Putin did not rule out extending oil cuts if market conditions warranted.

While Putin is the ultimate decision maker in the country, including in the oil industry, Novak has had to hold regular meetings with oil majors such as Rosneft and Lukoil to agree joint action before any significant deals can be done with OPEC.

Igor Sechin, the head of Rosneft, has long opposed output cuts in tandem with OPEC but has been overruled by the president.

Rosneft and Lukoil did not respond to a request for comment.

Russia's finance ministry told Reuters that the tax changes "should not result in oil output cuts long-term, provided that the companies continue investments".

Russia has also worked out a plan to build unfinished wells to make them operational and restore production quickly once the OPEC+ deal expires after April 2022.

Mid-sized oil producer Tatneft said last week that it doesn't plan to start output at new highly viscous oil fields due to the new tax regime.

The changes affect companies such as Tatneft, Lukoil and Gazprom Neft the most because they produce such heavy crude oil.

Rosneft, on the other hand, managed to secure some tax breaks by promising the state more revenues in exchange for less taxes.

Artem Frolov, vice-president at Moody's, believes the changes will ultimately mean only a moderate earnings hit for the oil majors.

"These changes are unlikely to impact the position of energy ministry, which represents Russia at the (OPEC) talks," he said.

(Reporting by Vladimir Soldatkin and Olesya Astakhova; additional reporting by Darya Korsunskaya; editing by Carmel Crimmins)

By Vladimir Soldatkin and Olesya Astakhova


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
BANK OF AMERICA CORPORATION -2.88% 33.01 Delayed Quote.12.14%
GAZPROM -0.91% 226 End-of-day quote.6.26%
GAZPROM NEFT -0.22% 341.35 End-of-day quote.7.70%
INTER RAO UES -0.23% 5.4065 End-of-day quote.1.77%
LONDON BRENT OIL -2.91% 54.8 Delayed Quote.9.17%
LUKOIL -0.13% 5900 End-of-day quote.14.16%
ROSNEFT OIL COMPANY 2.04% 514.3 End-of-day quote.18.18%
SURGUTNEFTEGAS -2.20% 36.68 End-of-day quote.1.52%
TATNEFT -2.57% 534.6 End-of-day quote.4.37%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) 0.20% 73.39 Delayed Quote.-0.66%
WTI -3.09% 52.11 Delayed Quote.11.60%
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Financials (USD)
Sales 2020 75 058 M - -
Net income 2020 1 318 M - -
Net Debt 2020 3 225 M - -
P/E ratio 2020 66,8x
Yield 2020 5,27%
Capitalization 52 514 M 52 337 M -
EV / Sales 2020 0,74x
EV / Sales 2021 0,62x
Nbr of Employees 101 374
Free-Float 55,0%
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Number of Analysts 9
Average target price 79,86 $
Last Close Price 80,48 $
Spread / Highest target 17,8%
Spread / Average Target -0,77%
Spread / Lowest Target -39,1%
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Managers and Directors
NameTitle
Vagit Yusufovich Alekperov President, Chief Executive Officer & Director
Ravil Ulfatovich Maganov Chairman
Pavel Lukoil Zhdanov Vice President-Finance
Lyubov Nikolayevna Khoba Director, Chief Accountant & Vice President
Victor Vladimirovich Blazheev Vice Chairman
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