Russian oil company Lukoil has increased profits in its second quarter by 61% as a result of continued high crude prices, increased sales and the successful implementation of cost cutting measures.

Net income at the Russian producer increased to $1.41 billion, or $1.71 per share in Q2 2005. Profits were up 61% from $877 million, or $1.06 per share for the second quarter of 2004. Meanwhile, sales rose an impressive 70% to $13.6 billion as world crude demand continued to strengthen.

The strong increase in profits comes as a vindication of the company’s strategy to overcome the impact of an increased tax burden from the Russian government. Cost cutting measures in business practices partially offset higher taxes, while a strategic shift to refine more crude in-house before exporting to market also helped to minimize the tax impact.

Lukoil’s clear initiative to maintain profits growth appears to have also impressed shareholders, as this week ConocoPhillips increased its holding in the oil producer to 14.5%, the Moscow Times reported.

On announcing the results Lukoil’s management said that going forward the company plans to further develop its business outside of Russia in order to enhance the company’s ability to minimize its exposure to tax policies at home.