RIA Novosti economic commentator Oleg Mityayev
Russia's largest private oil producer, LUKoil, has become the first Russian company to buy a refining asset in Western Europe.
On June 24, it announced the signing of an agreement with ERG S.p.A, Italy's main independent energy and petroleum group, to set up a joint venture to operate the ISAB oil refinery in Priolo, Sicily.
LUKoil will own 49% in the venture and ERG will retain the rest. The value of the deal is 1.347 billion euros ($2.1 billion) without the cost of feedstock. Under the agreement, ERG can sell another 25%, or even the entire 51% package, in the joint venture to LUKoil within five years at the price of the initial transaction based on the price of $85 per barrel.
This will give it a foothold for developing its business in southern Europe and points to growing energy ties between Russia and Italy.
According to ERG, it currently accounts for about 19% of Italy's total refining capacity and about 9% of its petroleum products market.
The ISAB refining facility in Sicily is one of the largest in the Mediterranean and "is well positioned to meet the growing middle distillate demand in Europe (mainly kerosene and diesel fuel)," LUKoil said.
It comprises two assets united by a pipeline system and integrated into a single technological unit with an annual capacity of 16 million metric tons (117.6 million bbl) of oil, three piers, storage tanks of 3,700 cubic meters, a 99 MW power generation plant and other infrastructure.
ERG and LUKoil will supply raw materials to the refinery and market its output in proportionate shares. The ISAB refinery can process Urals crude, which allows LUKoil to fully integrate it into its supply chain. It will annually deliver 8.3 million metric tons (61 million bbl) of oil to the refinery from Novorossiysk on the Black Sea.
LUKoil has long been trying to buy assets in Europe to balance its output (1.9 million bpd) with its refining and marketing operations. Until recently, it only had two refineries in Eastern Europe, in Ploesti (Romania) and Burgas (Bulgaria). The latest of these acquisitions was made nearly 10 years ago. Since then the company has several times tried to buy refineries in Greece, Poland, Lithuania and the Netherlands.
LUKoil's deal with ERG pushes it far ahead of the other Russian oil companies, none of which have assets in Europe. In winter 2007, Gazprom Neft, the oil arm of Russian energy giant Gazprom, agreed the acquisition of a controlling stake in Serbian oil refinery Naftna industrija Srbije, or NIS, as part of a broader agreement on building the South Stream natural gas pipeline from Russia to Italy. But the deal has not yet been closed.
The acquisition of a 49% stake in ISAB will increase LUKoil's overall refining capacity by 13% and overseas refining capacity by 60%. It has over 2,000 filling stations in Europe working under the company's brand name, including over 150 in the Balkans. Now that it has bought the Italian refinery, the company plans to increase its network of filling stations in southern Europe by three or four times within the next few years.
LUKoil owns approximately 2,000 filling stations in the United States, which it bought from Getty and Mobil and which receive gasoline from American refineries.
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