LUKOIL's Fedun says to urge buyback, upbeat on Q3

By Tanya Mosolova

MOSCOW (Reuters) - LUKOIL (LKOH.MM: Quote, Profile, Research, Stock Buzz) Vice-president Leonid Fedun says he plans to urge Russia's No. 2 oil producer to approve a share buy-back.

"I will convince my colleagues that LUKOIL should conduct a buyback because, with the price at $59 per share, the P/E (price to earnings) ratio is below three," Fedun said in an interview at the Reuters Russia Investment Summit late on Wednesday.

His personal stake in LUKOIL of over 9 percent has halved in value to $3.5 billion since May due to a sharp drop in Russian stocks.

On Thursday he bought another 800,000 LUKOIL shares and said he was not worried that his personal wealth had plummeted.

"Someone clever once said that what you cannot spend in your lifetime is never really yours. I will not spend a percent of this sum during my life," he said at the summit, which was held at the Reuters office in Moscow.

Fedun said he would not increase his stake beyond 10 percent and believed a buyback would be one of the best investments for the company now.

Fedun and LUKOIL President Vagit Alekperov own around 30 percent of the company's shares, which gives them the right to block decisions. U.S. oil major ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz) owns another 20 percent in the firm.

Fedun said the main reason for the recent market drop was the global financial crisis, which he said may give the market new impetus after the destruction it has caused.

"Like any crisis, it also serves as a clean-up. Only the strongest, the most cautious and the best adapted will survive. New development will begin from new levels and with new optimism."

THIRD-QUARTER OPTIMISM

Fedun said hedging operations, which were the reason some of LUKOIL's financial results in the first and second quarters came in below market expectations, might conversely help the company earn more in the third quarter, which industry-wide is expected to be weaker than the second.

In the third quarter to date, oil prices have fallen from record levels of close to $140 per barrel.

At the same time, Russia has increased its oil export duty from August to reflect the surge in oil prices.

Fedun said hedging operations, which LUKOIL has practiced for over four years, would help the company ease the double pressure expected to eat into oil company profits in the quarter.

"We lost part of our profits in the first and second quarters, but in the third and fourth quarters we hope to compensate for some of the losses by this scheme," Fedun said.  Continued...