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NIS's 2011 Net Soars to $496 Million on Higher Output, Currency

Kirill KravchenkoInterview with NIS General Director Kirill Kravchenko

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Naftna Industrija Srbije AD, the Serbian oil company controlled by Russia’s OAO Gazprom Neft, said 2011 net income almost tripled as it boosted output and the dinar rate helped keep raw-material prices in check.

Profit jumped to 40.6 billion dinars ($496 million) from 16.5 billion dinars in 2010 as oil and gas output rose 24 percent to 1.5 million tons of oil equivalent, Chief Executive Officer Kirill Kravchenko said. Earnings before tax, depreciation and amortization soared 62 percent to 52.4 billion dinars. The company expected 2011 net of 36.9 billion dinars.

“Most indicators of the company’s business plan were exceeded,” Kravchenko said in embargoed e-mailed comments before today’s official release. “For us, the stability of the national currency is one of the key elements.”

NIS, the Balkan country’s largest oil company, imports more than half or the crude processed at refineries, mostly for the domestic market, relying on a stable dinar to keep revenue from slipping. Wood & Co. recommended the stock last week as it initiated its coverage of NIS, with a 12-month price estimate of 972 dinars, lifting the share price as high as 16 percent.

Production will grow further on planned investments of 1.5 billion euros ($2 billion) over the next three years, Kravchenko said. Exploration in neighboring Romania, Bulgaria and Bosnia- Herzegovina may add new fields already in 2012.

Romanian Exploration

In Romania, cooperation with Canada’s East West Petroleum Corp. includes drilling at least two exploration wells to begin production at the end of this year, he said. NIS is financing the work with the rights to 85 percent of any commercial finds.

“We are currently engaged in the registration of license agreements,” he said. “I hope that the recent resignation of the Romanian government will not alter our plans in this country.”

With a subsidiary of Falcon Oil & Gas Ltd, a Denver, Colorado-based oil and gas company, NIS wants to form another partnership in Hungary for a gas field where Falcon holds the license. The first volumes of gas would be produced by the end of the year, he said.

More fields may open in 2013, following test drills near Kiskunhallas in Hungary with a unit of Austria’s Rohoel Aufsuchungs AG, and in Bosnia-Herzegovina. where NIS is searching for hydrocarbons with Neftegazinkor, a subsidiary of the Russia’s Zarubezhneft.

Broadening the Scope

Branching out into power generation would mean a “transformation of NIS from an oil company into a full energy holding company,” Kravchenko said.

“We are interested in almost everything, from hydropower to biofuels, wind energy and thermal waters projects” with about 35 million euros earmarked for diversification this year.

NIS invested 34.4 billion dinars last year, mainly to overhaul its two refineries. The larger one, in Pancevo east of Belgrade, will start production of Euro-5 grade fuels in the fourth quarter, while the other, in Novi Sad, will focus on lubricants and base oils “which will be in demand on the European market,” the CEO said.

NIS will also expand retail in the region, along with its 13 billion-dinar renovation of about 250 gas stations in Serbia by 2015.

"Priority areas for us are Romania, Bulgaria, Bosnia and Herzegovina,“Kravchenko said. “By the end of 2012 we need to establish an effective network of several dozen stations outside of Serbia” for placing products from the renewed refineries.