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. Last Updated: 07/27/2016

KomiTEK Approval For LUKoil Share Swap




A LUKoil takeover offer of one LUKoil share for 4.2 KomiTEK shares was approved at an extraordinary meeting of KomiTEK shareholders Wednesday.


"We intend to consolidate our holdings in Timan-Pechora, which is bound to become Russia's largest oil province," Leonid Fedun, deputy president of LUKoil, said in an interview after the meeting.


Fedun said KomiTEK, a Timan-Pechora oil producer, was at the same point of development as Tyumen had been 20 years ago when crude extraction was on the rise in Western Siberia.


KomiTEK's oil reserves in Timan-Pechora stand at 400 million metric tons (3 billion barrels).


LUKoil now straddles Russia's North from Arkhangelsk to Western Siberia, with Perm and the Komi Republic in between.


LUKoil will set up extracting company LUKoil-North and intends to build a refining unit on the basis of the Ukhta refinery.


Full conversion of KomiTEK shares in LUKoil stock will be conducted in November after a 9 percent government stake in LUKoil is sold off at the end of October.


The government objected to direct issuance of additional shares by LUKoil because its own stake would be diluted.


LUKoil therefore intends to issue convertible shares that will be swapped for ordinary shares after the government stake is auctioned off.


LUKoil plans to issue 6.6 million ordinary shares to take over KomiTEK.


Acquisition of KomiTEK will increase LUKoil's crude extraction by 8.6 million tons. Even more significantly, oil reserves will grow by 26 percent and gas reserves will be up 78 percent.


LUKoil will pay a total price of $500 million for KomiTEK, $300 million of which will be the market value of LUKoil shares. It will also assume responsibility for $200 million of KomiTEK's debts.


Fedun refused to disclose how much LUKoil was prepared to pay for minority stakes in KomiTEK's subsidiaries.


Until very recently KomiTEK, which is privately owned, was a deadbeat company. By 1997 it was extracting only a fifth of the crude it had produced in 1989 and debts to the budget topped annual revenues.


Fifty-seven percent of KomiTEK's wells lay idle.


The Komi Republic has infrastructure that allows it to process up to 20 million tons of crude.


To benefit from economies of scale, LUKoil will have to more than double production from the current 8.6 million tons.


But industry insiders believe that LUKoil is well positioned to explore opening opportunities.


The company has started building 10 oil tankers that are able to move in ice up to one meter thick in order to transport crude directly from the north of Russia to Rotterdam in the Netherlands.


On Wednesday, LUKoil shares were up 0.13 percent to $7.45, while the rest of the market dropped 2.77 percent. KomiTeK shares fell 7 percent to $1.30, and Komineft plummeted 18 percent to 86 cents.