Lukoil attracts buyers for its foreign assets

The foreign assets of Russian oil giant Lukoil, which range from Egypt to Kazakhstan are attracting bidders. Time is running out for the deals to be completed before U.S. sanctions are enforced.

As part of their efforts to get the Kremlin into peace talks on Ukraine, the U.S. has imposed sanctions against Lukoil. They have already blocked Lukoil’s attempts to sell foreign assets before the deadline of November 21, 2015.

Sanctions have already affected Lukoil operations in Iraq and at pump stations in Finland, as well as a refinery located in Bulgaria.

As the empire crumbles, governments and other partners hope to grab its foreign assets at a bargain price. Lukoil did not respond to comments.

CIRCLE OF BIDDERS

KazMunayGas, the state-owned firm of Kazakhstan, is examining a bid to acquire Lukoil assets in the country. Two sources with knowledge of the matter confirmed this.

Lukoil, Eni, Shell, Chevron, and KazMunayGas all have a stake at Karachaganak - one of the largest gas and condensate field in the world.

Kazakhstan's Energy Ministry said that any new partnership would be decided by project participants taking into consideration the sanctions.

Two other sources have confirmed that Shell is interested Lukoil’s deepwater blocks located in Ghana and Nigeria. Shell has declined to comment.

A fifth source with knowledge of the situation reported that Lukoil had indicated to the Egyptian government its potential plans to sell. Lukoil has three concessions in Egypt. Egypt's Petroleum Ministry did not respond to a comment request.

Serdgiu Spoiala, director of the Chisinau Airport, said that the government of Moldova had begun talks to nationalise Lukoil’s infrastructure.

Bulgaria is getting ready to take over the Burgas refinery of Lukoil. Azerbaijani state company Socar and Cengiz Holding from Turkey bid jointly for the refinery prior to the sanctions.

Turkish media this week reported that Cengiz intends to move forward with the deal. Cengiz did not immediately respond to an inquiry for comment.

LUKOIL OPTIONS

Lukoil is faced with difficult decisions, according to Sergey Vakulenko. He was a former director of strategy for Russian oil company Gazprom and a senior fellow in the Carnegie Russia Eurasia Center.

The U.S. Treasury could freeze the proceeds if the company sold its assets.

Vakulenko and Igor Yushkov, from the Financial University of Russian Government, both said that delaying action could result in the state taking over some assets or freezing them.

Yushkov said, "There is no need for Lukoil's to hurry." If assets are frozen then they will remain frozen. Wait until the conflict in Ukraine is over, then perhaps sanctions will be lowered. "That's probably the lesser of two evils."

Lukoil could try to copy the strategy of Rosneft - a Russian oil company whose three refineries were placed under German trusteeship by 2022. Berlin controls the plants, but Rosneft owns them.

Vakulenko explained: "You can either sell the item and hope to get the proceeds or try to keep ownership." Reporting by Anna Hirtenstein in London and Enes Tunagur in Moscow. Mohamed Ezz is Cairo. Shariq Khan is New York. Isaac Anyaogu is Lagos. Alexander Tanas, Chisinau. Tamara Vaal, Astana. Dmitry Zhdannikov, Mark Potter and Dmitry Zhdannikov edited the article.

(source: Reuters)