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. Last Updated: 07/27/2016

LUKoil Acquires 4 Targeted Producers

Industry giant LUKoil has acquired four targeted oil producers in a move that will increase the company's annual output capacity by about one-fourth.


The widely expected development, coming in a resolution signed by Prime Minister Viktor Chernomyrdin on Tuesday, adds state-controlled producers Permneft, Kaliningradmorneftegaz, Astrakhanneft and Nizhnevolzhskneft, as well as four distribution and service companies, to LUKoil, a company official told Reuters.


The resolution is the latest step in the ongoing restructuring of Russia's oil industry. Last week, Chernomyrdin signed into existence the Tyumen Oil Company. The government reportedly will make final decisions on oil company restructuring in September.


Permneft has had a close relationship with the LUKoil-owned Perm refinery, supplying one-third of the crude processed by the refinery in 1993.


"By acquiring control of Permneft, LUKoil acquires control of one of their major suppliers to their most important refinery," said Stephen O'Sullivan of MC Securities. "They've now become a slightly more integrated company. Permneft is a good upstream company to have if you're LUKoil with a refinery in Perm."


The acquisitions boost LUKoil's annual production capacity to about 56.5 millon tons, according to figures from the Fuel and Energy Ministry.


Links to the Russian enclave of Kaliningrad are also strategically advantageous for LUKoil, observers said. Known to be looking at the Baltic coast for possible terminal sites, LUKoil might favor Kaliningrad over Latvia or Lithuania, said one industry analyst who asked not to be identified.


LUKoil has also stated the importance of the Caspian Sea region to the company, and now has the Astrakhan marketing firm and production association to boost its presence there.


The resolution signed by Chernomyrdin also gives the company four marketing/distribution and repair companies: Astrakhanneftefprodukt, Kaliningradtorgmorneftegaz, Rosneftekhimproekt and Urai Construction and Repair. LUKoil will receive government stakes of 38 percent in each of the eight companies, boosting its 17.86 billion ruble ($4.06 million) paid-up capital by 27.7 percent, according to Interfax.


Slow stock market trading and prior expectations of the acquisitions made for no significant stock market reaction to the news, traders said.


"I think investors have already factored this into their analyses," said Michael Calvey, vice president of investments at the U.S. trade financing company Sovlink, noting that the new companies, with the exception of Permneft, are small operators.