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. Last Updated: 07/27/2016

Transneft Told Not To Carry LUKoil

A Ryazan court has ordered the national pipeline monopoly to stop transporting crude produced by LUKoil, Russia's largest oil company.

LUKoil officials, however, declined to comment on the situation, and analysts said it was unlikely that such a halt would affect the company's financial performance or export revenues.

Last Thursday, a judge ruled in favor of a Ryazan resident, and Transneft received the court order Monday, said Transneft vice president Sergei Grigoryev. Since then, Transneft has refused to take any LUKoil crude through its 50,000-kilometer network.

"We are just as upset as they are," Grigoryev said. "The only solution I see is a quick appeal to a higher court."

LUKoil exports about 600,000 barrels per day from its fields in western Siberia on production of 1.5 million barrels per day. Because of the court order, LUKoil's crude is being rerouted to Transneft's storage tanks, Grigoryev said. It is unclear how much room Transneft has left in those tanks.

"We will need to solve this problem at most within a week," he said. "We know LUKoil can't shut down operations, but we can only keep holding their oil for so long."

Well shutdowns can be lethal for any oil company. Closed wells are expensive to reopen, and at least half of the once-recoverable oil is lost.

Grigoryev said the order was hurting Transneft financially, but an exact figure has yet to be calculated. He noted that the federal and regional governments usually levy taxes before oil goes in the pipeline, so the effect on budgets is minimal.

"We get these orders quite often," Grigoryev said. "But with LUKoil, it is especially difficult because of their large volumes."

Leonid Mirzoyan, an oil analyst with Deutsche Bank, said that this latest example of court intervention is nothing extraordinary.

"This won't hurt LUKoil's stock and won't hurt them financially," Mirzoyan said. "I even doubt that it's really happening."

It's likely that LUKoil could be manipulating documentation, while using Transneft to export, though this would be a violation of the court order, he said.