LUKoil Pays $2Bln for Stake in Italian Refiner

LUKoil finally got a break into the West European refining business on Tuesday, buying 49 percent of Italian refiner ERG's Mediterranean plant for 1.35 billion euros ($2.1 billion).

LUKoil, Russia's No. 2 oil producer, and ERG, Italy's second-biggest refiner by market share, agreed to a joint venture valued at 2.75 billion euros to control ERG's Isab di Priolo refinery on Sicily, the companies said.

The deal comes after a number of failures by LUKoil to buy plants in the European Union, including the Netherlands. ERG will have 51 percent of the new company.

It is also a sign of the growing energy ties between Russia and Italy, which has become one of Russia's closest partners in the energy sector.

"Isab will become a base for our future acquisitions in the Mediterranean and Balkan markets. LUKoil will supply Isab with 8.5 million tons of oil from 2009," Lukoil vice president Leonid Fedun told a news conference.

ERG CEO Alessandro Garrone told a teleconference that LUKoil was ready to sign a long-term supply deal for crude.

Besides the 320,000-barrels-a-day refinery, the accord includes a 99-megawatt power plant and a minimum inventory of 745,000 tons of crude oil and refined products.

Fedun said LUKoil expects net profit to rise by more than 1 percent because of the deal from 2009.

"Oil profits from the refinery will be used in arbitrage operations, mainly in gasoline supplies to the U.S. markets as well as to our filling stations in the Balkans," he said. "Together with our refinery in Romania we can in fact dominate the Balkan market."

ERG will have an option to sell its 51 percent stake to LUKoil over a period of five years after the first year following the deal's closing date.

Garrone said ERG did not plan to use the put option, as its objective was a long-term partnership. "The put option is a protection in case of disagreement between the two shareholders. There is no intention of selling."

Also Tuesday, oil field services company Saipem, controlled by Italy's Eni, said it had won a contract to lay the Nord Stream gas pipeline from Russia to Germany across the Baltic Sea.