S A ADVISORY November 1998
New Buy Recommendation



LUKOIL is Russia's largest oil producer and considered to have the 4th largest oil reserve in the world. The 52-week range of the listed ADR is $123 - $8.25. We hear listing on NYSE is being considered for early 99.

The major shareholders of LUKOIL at present are the Russian Government (26.6% of the issued shares), Bank of New York - as a nominee for ADR and GDR holders (28.2%), companies of the Russian NIKOIL Group (17.7%), LUKOIL-Garant pension fund (5.3%). As at June 30, 1998 the officers of LUKOIL comprised 65.5 thousand holders of ordinary shares and 52.6 thousand holders or preference shares.

On October 29, 1998, LUKOIL announced that output of oil and gas condensate was 39.67 million tons.

  1. FACTS
  2. Most domestic oil is located within Siberia.
  3. We see little chance of nationalization.
  4. LUKOY has downstream operations (refineries, gas stations).
  5. LUKOY reserves are larger than Exxon and BP.
  6. Price to sales around .2 while most oil companies have a price to sales of over 1.
  7. Have a gas station in Virginia, USA.
  8. The company is currently considering a buy back of its shares (cannot verify).
  9. LUKOIL has and continues to implement restructuring and cost-cutting measures based upon the assumption that world crude oil pries aren't likely to rise in the near term. Alekperov, the President of LUKOIL has been settling debts and paying salaries in a timely manner.
  10. LUKOIL can be purchased for a fraction of its recent 52-week high and its initial IPO price.
  11. One time sales for LUKOY is near $100/sh.
  12. LUKOY's book value is around $60.00.
  13. The Russian market is totally out-of-favor, the oil stocks have also been slaughtered. Everyone hates foreign investments. We think all of this is SUPER BULLISH.
  14. Oil and gas have intrinsic value. It is only a matter of time before prices firm and head higher.
  15. Most world market trade around GNP Russian stocks are currently trading at single digit of GNP.

Everything about Russia indicates risk to the average investor type, but for us at S.A. Advisory we smell opportunity. If everything was wonderful, LUKOIL and the like would be 10x the current price. In our opinion, the real risk is not owning this issue.

Russia has stumbled, but we believe that it cannot turn back.

We believe that LUKOIL may be the cheapest non-domestic investment opportunity that we have ever seen.

We continue to buy LUKOY at current levels. We believe that it will remain volatile, but offer a double play on Russia, that is, high oil prices and greater stability in Russia. The current price indicates the worst!

Broker contact: Greg Nelson at 1-800-269-9460;

LUKOIL Investor Relations: phone (+7) 095-927-4885. e-mail: skazak@lukoil.com

LUKOIL internet address: http://www.lukoil.com

Press service: phone (+7) 095-927-1677, e-mail: pr@lukoil.com

We intend to monitor LUKOIL within our international portfolio and also our model portfolio for percentage gain performance.

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