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. Last Updated: 07/27/2016

Oil Barons To Meet As Merger Talk Flies

Merger was the buzzword in Moscow oil circles Thursday as news of a planned meeting between two of Russia's most powerful oil barons raised prospects of further consolidation in the lucrative sector.

Vagit Alekperov, president of Russia's largest oil producer LUKoil, intends to meet Vladimir Potanin, head of the influential Uneximbank industrial conglomerate, which includes the country's sixth largest oil group by output, Sidanko.

"A working group between the president of OAO LUKoil with the head of Uneximbank is planned for Monday," LUKoil said in a statement.

It provided no details of what would be discussed at the meeting and both sides have declined to comment on the rumors of a merger.

The statement was issued in response to a report from the Ekho Moskvy radio station Wednesday, saying LUKoil and Sidanko were planning to merge.

Whether the official agenda Monday will include a serious merger proposal is far from certain, analysts said.

Several oil and gas analysts argued that such a combination would be bad for LUKoil, which is widely considered to be the best among Russia's 10 or so vertically integrated oil companies.

"Sidanko loses hundreds of millions of dollars every year, and would serve only as a millstone around LUKoil's neck were the two to merge," said one Western analyst.

But mergers will most definitely be on the minds of Alekperov and Potanin after Monday's announcement that Yukos, Russia's second largest producer, and Sibneft, its seventh biggest, plan to merge into the new market leader, overtaking LUKoil.

Prime Minister Viktor Chernomyrdin said at the signing ceremony that such mergers would become the norm for Russia's oil sector, and that four to five mega-companies would emerge once consolidation was complete.

Judging by accepted criteria in the West, a LUKoil-Sidanko marriage would probably be an unhappy one, said analysts.

"I doubt they are going to merge, but some sort of cooperation between the two looks on the cards," said Ivan Mazalov, oil and gas analyst at the CentreInvest Group.

He said the obsession of Russian oil executives with the size of their companies could overrule normal economic considerations. The philosophy of biggest meaning best dates back to Soviet times.