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Oil Company "LUKOIL"

September 14, 1998

LUKOIL reports operating and financial results in first half of 1998

September 14, 1998. - The financial performance of LUKOIL in the first half of 1998 was worse than predicted as a result of deepening financial turmoil in Russia combined with continuing high taxation.

Income before taxation amounted to 1,208 million rubles, 50% down from the same period in 1997, and net revenues totaled 32,655 million.

Meanwhile, production indicators reflecting the true LUKOIL potential remained stable. During six months the company extracted 31.702 million tons of crude, 4% up from the same period last year, and 1,855 million cubic meters of gas or 19% more, 1,410 million cubic meters of associated gas and 445 million cubic meters of natural gas.

Oil sales amounted to 32.3 million tons. Export deliveries jumped 45% to 12.2 million from 8.4 million. The rise resulted from a significant decline in deliveries for government needs and the redistribution of volumes for the benefit of the company.

The rise in oil extraction was largely attributable to the use of enhanced recovery techniques which proved their production and economic efficiency in practice. About 3.9 million tons were extracted as a result of implementation of enhanced recovery techniques. Overseas production, mainly in Kazakhstan and Azerbaijan, soared 140%. Gas extraction increased as a result of acquiring a 15% stake in the Karachaganak gas condensate field in Kazakhstan and thanks to increasing the degree of recovery of oil gas from 73% to 77%.

The two LUKOIL refineries processed 8.406 million tons of crude (86% of the same period in 1997). The depth of refining reached 76.5% and utilization of refining capacities equaled 72%. Gasoline production increased 7%. Processing at third parties refineries went up 16%. In the first half of the year 8.6 million tons of oil products were sold.

Under a cost reduction program 4,400 of low-profitable or unprofitable wells were shut-in.

Investment in property, plant and equipment by producing, refining and marketing subsidiaries went down to 2.7 billion rubles from 3.3 billion in 1997 primarily due to cuts in drilling and oilfield development. Investment by the parent company amounted to 636 million rubles and was channeled to new projects, in Russia and abroad.

In low oil prices environment LUKOIL's main task in the second half of 1998 is to maintain production costs at a level which ensures profitable production and refining of oil and marketing of oil products. Key ways to fulfill the task are likely to include reduction of administrative costs, shut-in of unprofitable well sites, revision of well maintenance and drilling programs, cuts in contract services and reduction of expenditures on social infrastructure which are financed from profit. These steps should reduce oil production costs to 250-270 rubles per ton and refining to 100-110 rubles per ton in the near future. LUKOIL will also continue optimizing its sales policy and funding priority investment projects in Russia and abroad which will form the foundation for the company's steady development.

In the second half of 1998 LUKOIL plans to extract about 30 million tons of crude oil and 1.8 billion cubic meters of gas. 11 million tons of oil are expected to be refined. 12 million tons are expected to be exported.

The expected moderate growth in oil prices, tax reform and more realistic ruble exchange rate give LUKOIL confidence in the future improvement of its operating and financial performance.



Press Centre  OAO "LUKOIL"
phone.: (095)927-1677,  fax: (095)927-1653,




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