The Business: Conoco leads race to buy Russian oil: “Prime minister Mikhail Fradkov said on Thursday during a trip to the Netherlands that Royal Dutch/Shell might also join the Shtokman project.(ShellNews.net)
3rd/4th October 04
US OIL major ConocoPhillips won an auction last week in Russia's biggest privatisation, paying just under $2bn (£l.lbn, €1.6bn) for the state-owned 7.6% stake in Lukoil, the country's largest oil producer.
The deal brings to an end a period of instability and fears of a Kremlin-campaign to re-nationalise the country's blue- chip companies, which began with the arrest last October of Mikhail Khodorkovsky, the former chief executive of Ifukos and Russia's richest man.
ConocoPhillips's win is the latest and biggest in a string of investments by foreign energy companies in Russia's strategically-sensitive oil and gas sector.
The deal highlights the Kremlin's new business model. President Vladimir Putin took an iron grip on the sector last month, announcing the creation of a new mega-energy company with the merger between state-owned oil company Rosneft and the national gas giant Gazprom. But the government is also inviting in foreigners, to provide badly needed technological and managerial know-how.
Nominally an open auction, GonocoPhillips was seen as a shoo-in for the stake after the company's chief executive James Mulva met Putin in July. The way the deal came about suggests foreign investors are welcome in Russia, but they must clear their plans with the Kremlin first.
The purchase of the Lukoil stake is the first step towards the creation of a broad strategic alliance. ConocoPhillips plans to invest $5bn over the next four years. The company wants to boost its stake in Lukoil to 10% by the end of the year and to a maximum of 20% over the next four years.
The $2bn price tag looks cheap and values Lukoil at $1.30 per barrel of proven reserves, British oil company BP paid $1.80 per barrel for Tyumen Oil Company
last year and the multinational oil majors are currently valued at about $12.50 per barrel. The discount is attributed to Russia's high taxation on oil exports, the lack of export pipeline capacity and political uncertainty.
ConocoPhillips also announced the creation of a $370m joint venture to develop Lukoil's oil deposits in Russia's oil-rich Timan-Pechora region. The ConocoPhillips deal comes a week after France's Total announced it would buy a blocking stake (25% plus) in Novatek, Russia's largest independent gas producer for a reported $lbn.
Norway's Statoil also signed an agreement with Rosneft and Gazprom last month to exploit the Shtokman field, Russia's largest offshore gas field, in the Barents Sea. Prime minister Mikhail Frad-kov said on Thursday during a trip to the Netherlands that Royal Dutch/Shell might also join the Shtokman project.
The flurry of deals comes as the Kremlin lays out its position on foreign investment. After the Lukoil sale only two more companies are available for sale: Tatneft and Sibneft. Sibneft is expected to go back on the block once it has extracted itself from a failed merger with Yukos.
The embattled oil company's board undid the first part of the three-stage merger two weeks ago, signing an order to return a 57.5% stake in Sibneft to core shareholders, including Chelsea FC owner Roman Abramovich. The sale of Sibneft, Russia's fastest-growing and most efficient producer, would generate much interest among the international companies. Total is the most likely buyer; Sibneft was reportedly on the point of selling to Total when the Yukos merger was rushed through last summer.
BEN APIS in Moscow