But when oil dropped below $70 a barrel, Lukoil began losing money. While changes in Russia's export tariffs allowed the company to make a small profit in January, with oil at $45, capital expenditures like new exploration and expanded production must be cut or delayed. Because the majority of its oil comes from aging fields in western Siberia, the company needs to spend more each year on expensive, enhanced oil-recovery methods just to keep production in those fields stable. Lower oil prices also dampen the company's ability to explore for Russia's undiscovered oil, most of which is located in inhospitable places like Yuzhno Khylchuyu. "But if Lukoil doesn't invest enough at home," says Jonathan Perlman, an analyst at IHS Herold, a Houston-based energy-consulting firm, "when global oil prices rebound, they might not be able to capitalize on higher prices."
While there are rumors that Lukoil has delayed paying some of its contractors - something the company denies - Alekperov says he doesn't plan to lay off any employees. He also seems to be continuing an international spending spree. Lukoil recently acquired a $1.8 billion stake in Italian refiner ERG and is reportedly interested in buying a $13.5 billion share of Spanish refiner Repsol. But Alexander Burgansky, an analyst at Moscow's Renaissance Capital, worries that the company's bond rating could go into junk territory if the company keeps buying assets. In early December, Standard & Poor's lowered the company's credit rating from positive to stable. "They will have to forget about their global ambitions for a while," Burgansky says. "They don't have the skills or the funding at the moment to do it. Priority No. 1 should be managing their operations in Russia."