Industry Backdrop Looks Positive for Gazprom, Lukoil

Buy-recommendations Gazprom (OGZPY.PK) and Lukoil (LUKOY.PK) have long-run appreciation potential from a gradual relaxation of natural gas price controls in the case of Gazprom and the oil export tax in the case of Lukoil. Many of the same issues of energy economics and politics being debated in Russia today parallel the arguments we recall vividly that came to a boil in the U.S. during the 1970s.

Having visited the two leading Russian companies in their Moscow headquarters on September 21, we will have more to say on each. McDep Ratios below a half for the two companies point to the opportunity subject to the usual risks. Market multiples, Enterprise Value to Ebitda, convey a similar message. Last, the industry backdrop looks positive with an upward oil price trend.

Latest settlement prices for the average of futures for the next six years at $79 a barrel are above the 40-week average of $72. The current quote of $6.65 for six-year natural gas practically tracks the 40-week average of $6.73, perhaps poised for an imminent break to the upside.

Originally published on September 22, 2009.