#16 - JRL 7189
Russia YUKOS high costs mar results
By Dmitry Zhdannikov

MOSCOW, May 19 (Reuters) - Russian oil firm YUKOS said on Monday its fourth quarter 2002 net profit jumped 134 percent but analysts said one of Russia's most cost conscious firms delivered a nasty surprise: skyrocketing expenses.

Full year profits fell slightly despite booming oil output and YUKOS blamed lower oil prices in the first quarter of 2002 for the full year decline.

Analysts said full year sales and profit figures were in line with their expectations but they were disappointed by a huge increase in operating costs.

"YUKOS really surprised on the cost side. The cost increase is mainly due to higher transportation costs and this situation can only deteriorate as pipeline capacities remain limited," said Dmitry Tsaregorodtsev from Prospect brokerage.

YUKOS's 2002 net profit fell three percent to $3.058 billion, in line with the consensus forecast of seven analysts, polled by Reuters. Revenues rose to $11.37 billion from $9.46 billion in 2001.

YUKOS's fourth quarter net profit rose to $988 million from $423 million in the same period in 2001. Revenues for the quarter increased to $3.42 billion from $1.93 billion previously.

However, earnings before interest, tax, depreciation and amortisation (EBITDA) for the year rose only to $3.994 billion from $3.864 billion in 2001, lower than analysts' expectations of $4.283 billion.

Full year total operational costs skyrocketed to $7.89 billion from $5.83 billion a year before, while fourth quarter costs almost doubled to $2.69 billion from $1.38 billion.

"We had a very substantial tax increase this year, due to a new tax code and introduction of a unified mineral extraction tax," YUKOS' CFO Bruce Misamore told a conference call saying the firm paid $1 billion more taxes in 2002 compared with 2001.

He also said transportation costs were likely to rise because YUKOS needed to export its increasing output but as pipeline capacities remained limited it would need to use much more expensive alternative shipments, including rail.

YUKOS's shares closed 1.65 percent up at $12.93 per share, slightly underperforming the market.

RESERVES BOOST

Oil output rose 19 percent in 2002 to 1.4 million barrels per day and the firm plans to produce 1.6 million bpd in 2003. YUKOS plans to acquire its smaller rival Sibneft before the end of 2003 to form Russia's largest oil producer and fourth largest private oil company in the world.

The firm's cash and cash equivalents rose to $3.995 billion at the end of 2002 compared to $3.445 billion the year before.

Analysts have said they will look closely at cash and equivalents after YUKOS said it may distribute its spare cash on dividend and share buy-backs to make its assets to debt ratio proportional to more heavily indebted Sibneft before the merger.

Misamore said a modest boost to cash reserves was due to higher than expected investment, substantial acquisitions and healthy dividend of around $700 million. Investment are set to rise to $1.8 billion in 2003 from $1.263 billion in 2002.

Kaha Kiknavelidze from Troika Dialog brokerage said that despite the high level of costs, YUKOS delivered very positive news, disclosing its new oil reserves, which rose by 901 million barrels to 10.45 billion barrels due to more exploration and new acquisitions.

"This represents a healty 186-percent repletion ratio," he said.