Russia's No 2 oil producer Lukoil has reported a worse-than-expected 20 per cent fall in third-quarter net profit, hit by foreign exchange losses, higher taxes and lower production.

Lukoil has been the only Russian oil major with declining output, mainly due to moribund West Siberia assets, in contrast to top producer Rosneft which in October touted an increase in crude production to 2.4 million barrels per day.

LUKOIL, whose profit of $2.24 billion missed analysts' forecast of $3.07bn, said total hydrocarbon production in the third quarter fell 5.3pc while crude oil production fell 5.8pc.

'Long-term, production is declining, but there is no difference in that regard between LUKOIL, and say Chevron, Conoco Philips or Statoil,' said Ildar Davletshin, analyst at Renaissance Capital.

'Most Western companies are facing limited access to resources and cannot replace current production quickly enough and on attractive terms,' Davletshin said. 'The only difference between those companies (and LUKOIL), is that corporate governance is somewhat better.'

As an example, Davletshin noted that LUKOIL has set aside money to finance acquisitions but not disclosed where it wants to invest the money. According to LUKOIL's quarterly accounts in May, Lukoil had set aside $1.8bn to finance acquisitions.

This reduces visibility over the company's strategy and is one of the reasons why Lukoil trades at a discount to the majors, Davletshin said.

LUKOIL's results were 'negatively affected by losses in the amount near $570m due to depreciation of Russian rouble', the company said.

That included almost $340m of tax on the currency translation gain of its Russian subsidiaries.

'Lukoil was below consensus on earnings but (one of) the main reasons was a much higher tax rate in the third quarter ... primarily due to the impact of foreign exchange movements - that is a one-off,' Davletshin said.

'But on core revenue and cost items, the company was more or less in line with what we expected,' Davletshin said. 'Cashflow has substantially improved which the market is reading positively.'-Reuters