Lukoil is first Russian company to resume work in Iran

By bne IntelliNews January 25, 2016

Lukoil is Russia's first company to resume business with Iran after the lifting of sanctions, signing two exploration contracts for oilfields in the north of the Persian Gulf, Vedomosti daily reported on January 25, citing Iranian PressTV.

Hormoz Qalavand, director of exploration at the National Iranian Oil Company, was quoted as saying the contract was worth some $6mn, adding that privately-owned Lukoil, Russia's second largest oil company, already started work on the projects.

This is reportedly the first agreement on exploration of new oil fields after the removal of the sanctions, which were imposed by the US after the Iranian Revolution of 1979 and then bolstered by the UN in 2006 after Iran refused to suspend its uranium enrichment programme.

Lukoil entered the Iranian oil market in 2003 with a 25% share in the Anaran project, a joint venture with Norway's Statoil. The company also explored the Azar field. However, in 2010 the Russian company had to quit Iran due to the sanctions, and reported a $63mn loss on its investment in the country.

While Iran is offering 52 oil and gas projects worth of up to $30bn to foreign hydrocarbon majors, in December 2015 Lukoil head Vagit Alekperov said conditions of servicing contracts in Iran are "slightly discouraging", Vedomosti reports.

Lukoil has strong overseas assets with foreign extraction projects accounting for its output growth in 2015.

The company's oil output (including overseas extraction) rose by 3.5% in 2015 to over 100mn tonnes, while domestic output declined by 1.1% y/y to 85.7mn tonnes in 2015. However, Lukoil does not plan to maintain this level of production, its vice-president Leonid Fedun told TASS on January 25.

Fedun attributed the decision to high uncertainty which made it "at least unreasonable to chase records and increase supply on an oversupplied market".

"Today [companies] should supply the volume of oil that will not disrupt the country's budget and will not put additional pressure on the market on the other hand," Fedun told TASS, adding that "it's better to sell one barrel of oil at 50 dollars than two [barrels of oil] but already at 30 [dollars]."

The uncertain prospects on the market are also undermining foreign projects of Russian companies, Fedun added, where huge investments cannot be supported by ruble devaluation, which is helpful domestically.

Lukoil participates in major projects in Africa and the Middle East, the most notable being West Qurna in Iraq.

Domestically, it is still battling for access to vast untapped offshore hydrocarbon fields, for which state-controlled Rosneft and Gazprom hold the monopoly.


  2014 2015E 2016E 2017E
Financials, $ mln        
Revenues 144,167 97,423 102,620 103,575    
EBITDA 15,942 13,095 14,401 14,601
EBITDA margin 11% 13% 14% 14%
Net income 4,746 5,698 6,536 3,970 4,904 5,671
EPS (adj), $ 6.29 5.33 6.88 7.96
Div/share, $ 2.67 2.87 2.95 3.04
Valuation, Gearing and Yield        
EV/EBITDA 2.6 3.4 3.2 3.1
P/E 5.8 7.2 5.5 4.8
P/CF 1.8 2.4 2.2 2.2
Net debt/EBITDA 0.7 0.9 0.9 0.9
Dividend yield 7.30% 7.50% 7.70% 8.00%
Revenues 2% -32% 5% 1%
EBITDA 0% -18% 10% 1%
EPS (adj) -39% -15% 29% 16%
Sector Valuation      
EV/EBITDA 2.3 3.3 3.8 3.5
P/E 3.9 4.9 5.4 4.8
P/CF 1.5 2.9 3.2 3
Sector Growth      
Revenues -7% -34% -5% 4%
EBITDA -17% -30% -11% 9%
EPS -28% -27% -17%  

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