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. Last Updated: 07/27/2016

4 State Oil Majors Sign Their Way Toward Union

Four of Russia's state-controlled oil companies signed a memorandum on integration and cooperation Tuesday in a move that one of the participants described as a first step toward creating a unified state oil company.

Rosneft, Slavneft, Onako and Zarubezhneft were prompted to sign the agreement by the dire economic situation in the fuel and energy sector, Interfax quoted Slavneft spokesman Andrei Pershin as saying.

Rosneft spokesman Sergei Svistunov said the agreement meant that the government had chosen to keep its main oil enterprises together. Other options that had been up for discussion, such as some of the state oil companies' mergers with LUKoil or Yukos, were now excluded, Svistunov added.

"This is the first step to unity," Svistunov said. "Those other variants are now off the table."

LUKoil spokesman Dmitry Dolgov, however, said that his company was still vying for control of some of the state oil firms. He said a plan for swapping shares in the state companies for a piece of LUKoil was on the agenda of a Tuesday meeting between several Russian oil magnates and Deputy Prime Minister Vladimir Bulgak.

Dolgov said the announcement was short on detail about how exactly the integration would work, and nothing would be clear until the government had been heard from.

"Since these are all government companies, the government will be the one to decide this issue," he said.

Some agency reports Tuesday suggested that LUKoil was interested in acquiring Slavneft and Onako. Another Russian oil major, Yukos, has also been mentioned as trying to obtain shares in the state-owned companies. Yukos chief Mikhail Khodorkovsky took part in the meeting with Bulgak on Tuesday.

A Yukos spokesman confirmed the company would be interested in a stake in Rosneft or Slavneft, but denied it had made any concrete offers. The spokesman declined to comment on the state companies' cooperation deal.

It was not clear Tuesday whether Bulgak favored a merger of state oil companies into one conglomerate or their takeover by private oil majors. Agency reports from the meeting only quoted him as saying that he supported the idea of mergers in the oil industry.

"Thirteen oil-producing companies are too many for Russia under current economic conditions," Prime-Tass quoted Bulgak as saying. The deputy prime minister added that mergers would help oil companies drive down production costs.

An influential oil industry lobbyist said Tuesday he suspected Fuel and Energy Ministry officials had a personal interest in allowing state companies to merge rather than letting private oil conglomerates swallow up Rosneft, Slavneft and Onako. The large company that such a merger would create could provide the officials with jobs after they leave office, said Vladimir Medvedev, a State Duma deputy and head of the Union of Oil Industrialists.

"It seems to me that this is what [Fuel and Energy Minister Sergei] Generalov is thinking about," Medvedev said.

The unification could also have economic benefits for some of its participants, said Abzal Nurgaziev, an oil analyst for Troika Dialog. He said Zarubezhneft, for example, has plans to build a refinery in Vietnam and may find it much easier to finance the $1 billion project in combination with the other three companies.

United Financial Group's Stephen O'Sullivan said, however, that the companies may find it more difficult to merge than they had hoped.

"Cost savings are always very difficult to achieve and all the more so in Russia," O'Sullivan said, adding that it might be hard for the managers of the state companies to divide up power.