* Bashneft, Gazprom Neft grow Q2 profits in rouble terms
* Weak rouble offsets low oil prices
* Lukoil's dollar profits down, will switch reporting toroubles
* Goldman, Alfa upgrade Russian oil firms (Refiles to add graphic on oil and gas sector valuation)
By Katya Golubkova
MOSCOW, Aug 28 (Reuters) - Russian oil firms are increasingtheir rouble profits and raising production as a weak currencyprotects their business, which has turned into one of theworld's most profitable.
Russia has kept its production, which includes gascondensate, near post-Soviet highs as its producers benefit from getting the bulk of their export revenues in dollars while mostof their expenditure is in the domestic currency.
On Friday, Bashneft, a medium-sized Russian oilproducer, posted a 13 percent increase in second quarter netprofit to 17.9 billion roubles ($272.7 million), followingstrong results by Gazprom Neft earlier this month.
Bashneft, Russia's fastest growing oil firm by output, sawits average oil production at 387,500 barrels per day (bpd) inthe second quarter, up from 350,900 bpd the same period a yearago.
Gazprom Neft, the oil arm of state gas producer Gazprom, had earlier reported a 47 percent increase in thesecond quarter net profit, also on the weak rouble, and itsoutput jumped 25 percent.
Net profit at Surgut was flat in the first half ofthe year at 135 billion roubles.
"In our global energy universe, the Russian oils screen(rank) strongly versus global peers on most metrics: highestfree cash flow yields, dividend yields, lowest leverage, andlowest sensitivity to changes in oil prices," Goldman Sachs saidin a report earlier this month.
Goldman added that current valuations offer an attractiveentry point into the sector, upgrading Bashneft, Gazprom Neftand Rosneft to 'buy' and forecasting Russian oiloutput to grow by 1.1 percent this year.
Rosneft, Russia's top oil producer, is expected to reportsecond quarter results next week.
Global oil prices have fallen below $50 per barrelfrom over $100 last August, while the rouble dropped to anaverage of 52.6 per dollar in the second quarter from 34.99 ayear ago, according to the central bank.
"Hedged from falling oil prices thanks to the weakeningrouble and reduced tax burden, Russian oil firms are now in abetter position compared to their global peers," Alfa Bank saidthis week, upgrading recommendations on oil firms it covers.
DRILLING AND COSTS
In rouble terms, the state-controlled Bashneft's productioncosts were 281 roubles per barrel in the second quarter,slightly up from 264 roubles a year ago, the firm said in apresentation on its website. In dollar terms, costs were down to$5.3 from $7.5.
"The weaker rouble has helped bring down the Russian majors'cash flow breakevens to less than US$50/bbl out to 2017 in ourbase case," Valentina Kretzschmar, a research director in WoodMackenzie, said in e-mailed comments.
Russian drilling volumes were up 10 percent in the first sixmonths of the year, year-on-year, said Renaissance Capitalanalyst Ildar Davletshin.
Lukoil, Russia's No.2 oil producer, was the only one hit bylow oil prices among Russian oil producers so far as it reportsin the U.S. dollars.
On Friday, it said its net profit more than halved,year-on-year, to $1 billion. Still, its oil production was up2.7 percent in the second quarter, year-on-year.
Lukoil Vice-President Leonid Fedun told a conference call onFriday the firm would switch to reporting in roubles from 2016. ($1 = 65.6300 roubles) (Reporting by Katya Golubkova and Olesya Astakhova; additionalreporting by Vladimir Soldatkin; Editing by Keith Weir, JanLopatka and David Evans)
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