Estimated net present value [NPV] for buy-recommended Lukoil Oil Company
(OTCPK:LUKOY) increased to $121 a share from $110 on May 29 when we raised our long-term oil price assumption to $66 a barrel from $60. Meanwhile first quarter 2007 results reported on June 28 were better than for the fourth quarter 2006, but not as good as expected for the rest of 2007.
High oil export tax contrasts with increasing production and strong global refined product prices. The excise tax named for Russian Finance Minister Aleksey Kudrin disproportionately hurts profits temporarily when crude oil price declines, but the effect should be reversing as crude oil has been rising again.
More positively, volume growth is helping earnings as crude oil production in the first quarter
increased 3% over the fourth and 6% over the first of last year. Also, crude oil furnished to Lukoil’s domestic refineries is more lightly taxed and thus Lukoil reports strong refining earnings. While Lukoil stock price is below its 200-day average, we believe investors should be adding to holdings to keep a double weighting as in the illustrative McDep Energy Portfolio.
Originally published on June 29, 2007.