Gazprom vs Lukoil: Which Energy Stocks Should Investors Choose
1. Market Capitalization and Liquidity
1.1 Size and Dynamics of Capitalization
As of the end of 2024, the market capitalization of PJSC Gazprom exceeded $5.2 trillion, while PJSC Lukoil stood at around $80 billion. Over the past five years, Gazprom's capitalization grew by an average of 3% annually, driven by stable dividends and large-scale infrastructure projects, whereas Lukoil's stock value increased by 5% due to the expansion of oil production in the Arctic and foreign assets.
1.2 Free Float and Liquidity
Gazprom's free float is 49.8% of the total number of shares, ensuring average daily trading volumes of $1.5–2 billion. Lukoil has a higher free float at 60%, but daily trading volumes of $300–400 million reflect less interest from institutional investors.
1.3 Liquidity Consequences
For large funds, the high liquidity of Gazprom allows them to enter positions without significant slippage, whereas Lukoil is better suited for long-term investors willing to tolerate a slower transaction pace.
2. Dividend Yield and Policy
2.1 Historical Yield
Between 2015 and 2024, Gazprom's dividend yield ranged from 5% to 12%. Major payouts included: 6.5% in 2015, 8.2% in 2018, 10.5% in 2022, and 10% in 2024. Over the same period, Lukoil demonstrated yields of 6% to 9%, with 6.7% in 2015, 7.8% in 2019, and 8% in 2024.
2.2 Payout Ratio and Stability
In 2024, Gazprom allocated 44% of its net income to dividends, while Lukoil allocated 45%. However, Gazprom's payments fluctuated during the significant drop in gas prices in 2020, but rebounded in 2022 due to redirection towards Asia, while Lukoil exhibited a more stable trend owing to project diversification.
2.3 Tax Aspects and Individual Investment Accounts
For Russian residents, dividends are taxed at 13% personal income tax. Deduction of up to 52,000 ₽ is possible on Individual Investment Accounts (IIAs) with an investment of 400,000 ₽ per year, increasing effective dividend yield by 13%.
3. Fundamental Multipliers
3.1 P/E and Comparison
By the end of 2024, Gazprom's P/E ratio stood at 6.5× while Lukoil's was at 8×. Gazprom's lower P/E indicates greater undervaluation from a fundamental perspective, but this accounts for higher CAPEX and gas price risks.
3.2 EV/EBITDA and Debt Load
Gazprom's EV/EBITDA is at 3×, whereas Lukoil's sits at 4.5×. The Debt/EBITDA ratio for Gazprom is around 0.6× and for Lukoil it is 0.4×, reflecting Lukoil's conservative financial policy.
3.3 FCF and Margin
In 2024, Gazprom's free cash flow was 1.8 trillion ₽, with an FCF margin of approximately 25%; Lukoil's FCF was 450 billion ₽, with an FCF margin of approximately 20%. Gazprom's higher margin is attributed to its low production costs in Russia.
4. CAPEX and Development Projects
4.1 Gazprom’s Investments
Gazprom's CAPEX for 2025 is projected to be 1.5 trillion ₽ (15% of revenue). Key projects include the "Power of Siberia-2," "Arctic LNG-2," and the expansion of the gas distribution network.
4.2 Lukoil’s Investments
Lukoil's CAPEX is set at 400 billion ₽ (8% of revenue), focusing on the expansion of the oil refinery in Kirishi, development of the Prirazlomnoye field, and overseas projects in Iraqi Kurdistan.
4.3 ROI and Prospects
The expected return on Gazprom’s projects is 12–14%, while Lukoil’s is 15–18%. Lukoil's higher ROI compensates for its smaller scale; however, Gazprom's projects have strategic significance for the budget.
5. Macroeconomic and Political Risks
5.1 Sanctions and Exports
The EU has restricted Gazprom’s access to key markets, while Lukoil is shifting its focus to West Africa and Asia. This affects revenues: Gazprom has lost 20% of exports, while Lukoil increased exports to Africa by 15%.
5.2 Energy Prices
Sensitivity model: a $100/1,000 m³ change in gas price affects Gazprom's revenues by 400 billion ₽ annually, while for oil, a $1/barrel change for Lukoil translates to 130 billion ₽.
5.3 Currency Risks
If the ruble strengthens to 70 ₽/$, Gazprom could lose up to 10% of net profit, while Lukoil could lose 5%, due to its more diversified revenue correlation across currencies.
6. ESG Indicators and Corporate Governance
6.1 Environmental Initiatives
Gazprom aims to reduce methane emissions by 30% by 2030 and has launched the "Clean Shore" project. Lukoil's initiatives include CO₂ capture projects and biodegradable oil products.
6.2 Governance and Transparency
Both issuers have boards of directors with independent members, although Lukoil receives higher ratings for separating the roles of CEO and board chairman.
6.3 Social Programs
Gazprom invests in gasification for 30 regions, while Lukoil supports educational and cultural projects, both reflecting a stable S&P ESG rating (~65/100 for both).
7. Technical Analysis and Market Trends
7.1 Gazprom’s Trend
The 50/200-day moving averages crossed upward in Q1 2025, signaling the beginning of a long-term growth phase. Trading volumes are increasing by 15% quarter-over-quarter.
7.2 Lukoil’s Trend
The stock is consolidating within a sideways range of 6000–7000 ₽, with RSI in the 60–70 zone, indicating accumulation before a potential breakout.
7.3 Buy/Sell Indicators
Gazprom's MACD shows a bullish crossover, while Lukoil exhibits RSI divergence, signaling a potential turnaround.
8. Practical Recommendations and Portfolio Strategy
8.1 Diversified Portfolio Model
Recommended structure: 10% Gazprom, 7% Lukoil, 5% corporate bonds in the energy sector, 8% global energy ETFs, and 10% liquid government securities.
8.2 Holding Horizon
For Gazprom, an optimal holding period is 1–3 years with fixed dividends, while for Lukoil, it is 3–5 years to capitalize on project ROI growth.
8.3 Dollar-Cost Averaging
The Dollar-Cost Averaging (DCA) strategy for monthly purchases mitigates the impact of price volatility on entry levels.
9. Historical Cases and Lessons for Investors
9.1 Case Study 2014–2015
During the oil price decline, Lukoil maintained its payouts, while Gazprom cut dividends by 30%, underscoring the importance of diversifying export routes.
9.2 Case Study 2019–2020
The COVID-19 pandemic led to reduced demand, causing Gazprom's stock to drop by 25% and Lukoil's by 20%. Investors averaging positions boosted their returns by 2022.
9.3 Investor Takeaways
A key lesson learned is the combination of fundamental and technical analysis: Gazprom for dividends, Lukoil for capital growth.
10. Conclusion
Gazprom and Lukoil represent two distinct approaches in the energy sector: the former as a dividend leader with scale and high yield, and the latter as a company with efficient projects and higher ROIs. Investors should consider their goals and investment horizons. A diversified portfolio including both issuers, global ETFs, and bonds will help achieve a balance between yield and risk.
