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    Lukoil Earnings Recover from Covid-19 Low


The company enjoyed a surge in free cash flow on the back of higher prices, despite production declines due to Opec+ cuts and a sharp drop in Uzbek gas sales.

by: Joe Murphy

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Natural Gas & LNG News, Corporate, Exploration & Production, Financials, News By Country, Russia

Lukoil Earnings Recover from Covid-19 Low

Core earnings (Ebitda) at Russia's second-biggest oil and gas company Lukoil came to rubles 202.2bn ($2.7bn) in the third quarter, down 38% year on year but up 40% quarter on quarter, and beating analyst expectations.

The q/q recovery came on the back of rising oil prices, which led to upstream earnings more than doubling to rubles 152bn from rubles 72.3bn in the previous three months, Lukoil reported on November 24. This more than offset production declines caused by Opec+ cuts and a sharp drop in sales of Uzbek gas to China.

Earnings from refining, marketing and distribution were stable q/q, at rubles 77.6bn. The company also enjoyed a surge in free cash flow to rubles 114.6bn, from rubles 25.5bn in Q2 2020.

Lukoil's liquids output averaged 1.55mn barrels/day in Q3 2020, down from 1.65mn b/d in Q2 2020. Opec+ quotas not only affected the company in Russia but also in Iraq, another member of the cartel, where Lukoil works at the giant West Qurna-2 oilfield.

Gas production fell to 6bn m3 from 6.4bn m3, as China scaled back gas purchases from Lukoil's Kandym and Southwest Gissar fields in Uzbekistan due to weaker-than-anticipated demand growth in the wake of the Covid-19 pandemic.

Lukoil's Ebitda came in 5% higher than BCS Global Markets predicted and 7% higher than Sova Capital's forecast. It was also 8% above the consensus of analysts polled by Interfax. Sova described the numbers as "solid", saying they boded well for Lukoil's second-half dividend.

"Things aren't completely back to normal in the Russian oil business, but Lukoil and its peers made substantial strides in that direction in Q3 2020," BCS wrote in a research note.