UPDATE 3-Russia's LUKOIL beats Q2 view on trading, taxes

* Q2 profit beats f’casts on increased trading, lower taxes

* Net profit falls 44 percent due to decline in oil prices

* Co says “disappointed” in a major oil field’s reserves

* Analysts say Q2 168 pct rise in purchasing paid off (Adds co’s vice president’s comments, details)

By Vladimir Soldatkin and Melissa Akin

MOSCOW, 28 Aug (Reuters) - Russia's No.2 oil producer LUKOIL LKOH.MM, 20 percent owned by ConocoPhillips COP.N, beat profit forecasts in its second quarter as it took advantage of tax breaks and played a winning hand in the oil market.

LUKOIL, one of the few Russian oil companies to boost output in the second quarter, said its April-June net profit fell 44 percent to $2.32 billion from $4.13 billion in the previous year due to plummeting oil prices.

A Reuters poll of 10 analysts gave an average forecast of $1.8 billion. [ID:nLQ28356]

The bottom line was still 2-1/2 times higher than $905 billion in the first quarter, when the energy sector suffered an even harsher blow from the fall in oil prices.

LUKOIL's top rival, state-run major Rosneft ROSN.MM, which produces 20 percent more crude than LUKOIL, is expected to show worse profitability than LUKOIL when it reports results next week.

Analysts expect the state major to post a net profit of over $1.7 billion in the second quarter [ID:nLS711372], less than LUKOIL in absolute terms even though Rosneft produces about 20 percent more crude.

The company said an increase in crude oil production and trading had raised its first-half sales by 36.0 percent in terms of volumes. It attributed the increase in crude oil extraction to the start of production at the Yuzhnoye Khylchuyu oil field last August.


LUKOIL Vice President Leonid Fedun during a news conference said the company “disappointed” with the reserves of South Khylchuyu, which is located some 2,000 km (1,000 miles) northwest of Moscow. It is owned 30 percent by Conoco and 70 percent by LUKOIL.

“The initial studies (for valuation of the reserves) were bigger than we had in the end, but this difference is not material,” he said. LUKOIL has said the field has reserves of 500 million barrels of oil.

Fedun also complained that the state is not active enough in auctioning off new fields, which he said may lead to an oil output decline in the country in future.

Instead, he said LUKOIL -- which owns 49 percent of Italian refiner ERG's ERG.MI Isab di Priolo refinery and in June acquired a stake in a Dutch refinery from France's Total TOTF.PA --is set to increase its foreign operations.

The LUKOL vice president said the company might increase investments into its foreign projects in the fourth quarter. He did not elaborate.

Analysts said LUKOIL also increased its purchase and resale operations. In the second quarter it bought 43.24 million barrels of crude oil, up from 16.14 million barrels in the previous year.

Svetlana Grizan from VTB Capital said the company managed to save $300 million from tax breaks in the Timan-Pechora region, where it was exempt from paying mineral extraction tax.

Denis Borisov, an analyst at Solid brokerage, said LUKOIL also benefited from a lower income tax. “For the first quarter the rate was 26 percent, but for the second quarter it fell to 22 percent,” he told Reuters.

LUKOIL shares were trading 4.5 percent higher on the MICEX exchange at 14.00 GMT, outperforming the broader index .MCX, which rose 3.3 percent.

LUKOIL said its earnings before interest, taxation, depreciation and amortisation (EBITDA) shrank 34 percent in the second quarter to $4.12 billion, while analysts projected a deeper fall to $3.53 billion.

The company said its oil output for the first six months of the year rose around 4.0 percent to 358.4 million barrels, or 48.6 million tonnes. (Editing by Karen Foster and Rupert Winchester)