I once knew someone who was trying to “save up for old age” by investing in the Russian stock market. And more than once I heard phrases from his mouth like “we need to buy a bow from our salary.” The use of such “professional slang” apparently turned him into a qualified investor in his own eyes, because anyone who has dealt with domestic stocks knows that LUKOIL securities are commonly referred to as “onions” or “onions” in the market. Yes, they are very popular with stock market players, they are considered quite profitable for shareholders’ pockets. But is it just for them?
Today, LUKOIL is the country’s second largest oil producer and the largest private producer. Therefore, it is especially interesting to see how beneficial his activities are not only to the direct shareholders, but also to the budget of our state. Fortunately, the company’s recent financial statements for 2024 provide excellent material for such an analysis.
So, the announced results cannot but please Lukoil shareholders. The company’s revenue increased by 8.8% to 8.622 trillion rubles. True, net profit under IFRS, which relates to shareholders, decreased by 27%, but still amounts to an impressive amount of 848.5 billion. However, to what extent do these seemingly beautiful figures reflect LUKOIL’s real contribution to the Russian economy, which has been under great external pressure for years? Let’s get this straight.
First of all, the volume of the company’s tax payments to the budget is striking – it, excluding income tax, amounted to 1,915 trillion rubles. However, Lukoil also received an excise tax refund. This amount is not reflected in LUKOIL’s financial statements, however, according to market experts, it may reach 1 trillion rubles. Thus, Lukoil’s net tax payments in 2024 may amount to even less than 1 trillion rubles.
With revenue of 8.6 trillion rubles, the contribution of the second largest oil producing company in the country to the Russian economy looks rather modest.
It is worth noting that the company traditionally enjoys significant tax benefits, thereby reducing budget revenues. Such allowances cover about 70% of the volume of its production. In particular, this category includes ultra-viscous oil, hard-to-recover reserves and deposits in the Caspian Sea.
That in itself is not a big deal. Perhaps the company uses the funds “saved” on taxes for its own development and creation of new capacities. Unfortunately, this is not the case.
LUKOIL uses its free funds not to implement new mining projects in Russia, but to buy shares from the market and pay dividends to its shareholders.
Since 2018, LUKOIL has been operating a share-sharing program for key employees, under which shares purchased with the company’s funds are distributed among approximately 1,000 employees. Thus, in 2024, 15.2 million shares (equivalent to 2.2% of the authorized capital) were acquired for about 100 billion rubles. At the same time, more than half of this number, 7.4 million shares, were distributed within the framework of the Program during the year.
Since LUKOIL records this package as expenses, it can be assumed that the distribution of shares is carried out free of charge among a select circle of people. Taking into account the approved volume of repurchase under the current stage of the Program (19 million shares), as well as about 40 million shares repurchased in 2018-2022, the total volume of securities distributed over eight years may amount to 59 million units, or 8.5% of the authorized capital. The current cost of this package is about 432 billion rubles, which is 432 million rubles for each of the above–mentioned thousand people.
Well, the company’s right is to spend its money to make the rich even richer. Does such management incentives lead to an adequate improvement in the quality of company management? This is a separate issue.
Another distinctive feature of LUKOIL is its generous dividends. Following the publication of the financial statements, the company’s board of directors recommended paying final dividends for 2024 in the amount of 541 rubles. per share, or a total of 374 billion rubles. At the same time, the company has already paid interim (for 9 months) dividends in the amount of 514 rubles. per share, or a total of 356 billion rubles. Thus, the total payments for 2024 may amount to more than 730 billion rubles. This amount is comparable to LUKOIL’s net profit under IFRS.
LUKOIL’s shareholders are all private individuals or companies, and the controlling stake belongs to Vagit Alekperov and Leonid Fedun, as well as their families through various offshore structures.
Currently, Lukoil has virtually no major projects aimed at developing production in the country. So, for the period 2015-2021. (for which public data is available in a breakdown) the average annual volume of LUKOIL’s capital investments in the production of hydrocarbons was about 300 billion rubles. At the same time, the figure for 2021 was only 256 billion rubles. And so far there is no reason to believe that the situation has changed – at least, we have not heard about any new large-scale mining projects of LUKOIL in recent years.
Therefore, money is simply accumulating in the “pot”, which has become the second largest in the country, after the “financial cushion” of Surgutneftegaz (6 trillion rubles). The amount of cash on LUKOIL’s balance sheet has reached 1.4 trillion rubles, or 28% of its market capitalization. The company earns over 120 billion rubles a year on interest in banks alone. Well, from the shareholders’ point of view, this is probably not a bad thing – the stock does not pull the pocket, but increases the stability of the company, thereby increasing the value of the “onion” (that is, shares). But from the standpoint of the state, sitting on a “bag of money” while the country is in dire need of investment is probably not the most responsible strategy.
One more piquant point is worth noting. On the sidelines of the Russian Union of Industrialists and Entrepreneurs congress, Deputy Prime Minister Alexander Novak told reporters that in 2025, oil production in Russia may be lower than in 2024, as the country compensates for the previously noted quota excess under the OPEC+ agreement. According to media reports, the compensation period will last until September this year, which will negatively affect the volume of oil and gas budget revenues, which are already under pressure due to low oil prices and the strengthening of the ruble (the current ruble oil price is about a quarter lower than budgeted). According to industry sources, the aforementioned overproduction was caused, among other things, by LUKOIL, whose management was unable to ensure compliance with the directives of the Ministry of Energy of the Russian Federation. Once again, shareholder profits turned out to be more important.
Well, we see a completely logical picture. A private oil company does indeed perform miracles of efficiency in some way and, without any irony, justifies the hopes of its shareholders. And you can hardly blame her for that –no sentiment, just business.
But we must finally admit that the interests of the state and a limited number of owners of an asset that is strategically important for the country do not always coincide. For some, “onion” is sweet, but for others it tastes like onion without quotation marks.…
