The RTS Oil & Gas Index in Russia has fallen 16 percent this year, while the Morgan Stanley Capital International World Energy Index has climbed 15 percent.

Condition of after investor punishs two Russia oil companies, Rosneft and Lukoil. Case happened after government Rusian menaikan tax for the price of commodity exchange incorporated and oil company boosts up expense of production shopping.

Statement from Société Générale Asset Management :

“One of the safest bets now is the energy sector, and a very, very good place to be is Russian oil,” said Nerea Heras-Mendaza, a portfolio manager at Société Générale Asset Management in London. “I have already started increasing my position in Rosneft and Lukoil.”

At the same time, Russian oil shares are inexpensive, given earnings prospects. The average 2007 earnings estimate for Rosneft from 17 analysts is 52 cents a share, up 21 percent from three months ago, data compiled by Bloomberg show.

Lukoil shares, now trading at $75.55, will advance 36 percent in the next 12 months, according a consensus of 12 analysts, and eight analysts say Rosneft shares would rise 18 percent to $9.77. Shares of Exxon Mobil, now at $87.80, will climb 7.2 percent, according to an average of 13 analysts.

Russian oil stocks are less than a quarter as expensive as their global peers based on reserves, according to Al Breach, chief Russia strategist at UBS in Moscow. He compared companies’ reserves with their enterprise value, a proxy for takeover prices that is equal to the sum of debt, market capitalization and preferred stock.

Lukoil is valued at $3.30 for every barrel of proved oil reserves, while Exxon Mobil and Total are valued at more than $13, Breach said.

Credit Suisse Group estimates that Russian oil shares are 10 percent to 20 percent less expensive than oil industry stocks worldwide based on their price compared with estimated 2008 earnings.

“We’re able to buy into assets like Lukoil at significantly cheaper levels per barrel than almost any other oil company in the world,” said Daniel Broby, chief investment officer of Renaissance Investment Management in London. Broby said that Lukoil was among Renaissance’s top five holdings and that he was buying more shares.

Alex Fak and Maria Radina, UBS analysts in Moscow, have raised their 2007 earnings estimate for Rosneft by 13 percent to $5.4 billion, citing higher oil prices. Margins at Russian oil producers will be “the best ever” in the second quarter, they said.

“The immediate outlook for the sector is pretty bullish,” said Ian Hague, a portfolio manager at Firebird Management in New York. Deutsche Bank said it expected Rosneft shares to surge 75 percent from current levels in the next year. Last month, Morgan Stanley named Lukoil as one of its 20 recommended stocks in emerging markets.

Not everyone agrees that now is the time to jump back into Russian oil shares. Dmitry Loukashov, an analyst at Alfa Bank in Moscow, has a “hold” recommendation on Rosneft and a price estimate 16 percent below the current level.

Alfa has a “sell” recommendation on the oil producer Surgutneftegaz, even after it reported record second-quarter profit of 31.2 billion rubles, or $1.2 billion, last month. The stock has climbed 9 percent since the preliminary report.

The expected second-quarter earnings gains for Russian oil companies resulted almost entirely from increases in the oil price that occurred before the government raised taxes commensurately, according to Loukashov.

Profit is also being squeezed as Russian oil companies spend more on developing new fields to maintain production, said Zina Psiola, a portfolio manager at Clariden Leu in Zurich.

Total capital spending at Russia’s top producers more than quadrupled in the past five years, reaching $22 billion in 2007, according to estimates from Alfa.

“Cost control was never really Russian oil’s strong point, and it’s still not there,” Psiola said.

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