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. Last Updated: 07/27/2016

LUKoil Sees Bitech as Global Expansion Platform

LUKoil said Thursday its recent acquisition of Canada's Bitech Petroleum was another step in its drive to expand downstream global assets in areas ranging from Siberia to South America.

Andrei Kuzyayev, head of LUKoil-Overseas, the company's foreign arm, said the Toronto-listed Bitech, with production licenses in Siberia and Sakhalin, as well as Colombia, Egypt, Tunisia and Morocco, would add much value to his company.

"This is a highly advantageous deal for LUKoil," Kuzyayev said in an interview. While most of Bitech's 7,000-barrel-per-day output came from Russian projects, he said the deal gave LUKoil Bitech's licenses in North Africa and Colombia.

LUKoil-Overseas encompasses nine subsidiaries within Russia, as well as 13 projects abroad.

"Our strategy is to boost our asset base and also output. Within 10 years, LUKoil-Overseas aims to boost annual production to 15 million to 20 million tons from the current 10.1 million tons," Kuzyayev said. "LUKoil-Overseas production will be 15 to 20 percent of total LUKoil output."

Currently, LUKoil produces 78 million tons annually.

Kuzyayev said Bitech held the exploration license for Sakhalin's Jindan Block, with reserves between 6 million and 24 million tons.

"We paid a substantial premium over Bitech's market capitalization, but it was undervalued — taking into account its reserves, I estimate we paid just 70 cents per barrel," he said.

Bitech is the latest in a string of foreign assets that Russia's largest oil producer has bought as part of its efforts to grow its business globally, via upstream as well as downstream ventures.

LUKoil-Overseas last year produced 2.6 million tons abroad compared with 7.5 million tons on Russian territory, Kuzyayev said, but the figure is set to rise.

He said the company's reserves abroad already stand at about 190 million tons, while reserves on Russian territory total 207 million tons.

This includes the giant West Qurna field in Iraq, where LUKoil has pledged $4 billion in investments, but the project is frozen due to the United Nations' sanctions against Baghdad.

"We remain committed to West Qurna, and are waiting for sanctions to end. We also wish to participate in the program to rehabilitate existing oil fields in Iraq," Kuzyayev said.

Other high-profile LUKoil projects include the Karachaganak gas condensate field in Kazakhstan with BG and the BP-led Azeri-Chirag-Guneshli project in the Caspian Sea.

It is also part of a consortium developing the Kazakh Tengiz field and has a venture with Agip in Egypt.