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. Last Updated: 07/27/2016

LUKoil Looking to Shed Tanker Fleet

LUKoil is negotiating to sell off its fleet of tankers for about $300 million, said a former manager at the oil major's subsidiary LUKoil Arctic Tanker.

The manager, who requested anonymity, said the company is in talks with three interested parties: Sovkomflot, Novoship and the Far Eastern Shipping Co.

The fleet includes 10 icebreakers with a load capacity of 15,000 to 20,000 tons that were built in Germany and St. Petersburg in the last five years. LUKoil also owns five river-sea tankers, two of which are being completed in Volgograd.

All 15 are owned by LUKoil Arctic Tanker, or LAT, a fully owned subsidiary of the oil major that has debts of $527 million as of Aug. 1. The fleet brings in revenues of about $40 million per year.

The former manager said LUKoil was selling not LAT, but the tankers themselves and that the ships would be sold in more than one lot. He said the present market value of the vessels was about $20 million each.

He said LAT would be liquidated and the company's debts would be transferred to LUKoil.

The manager said demand for the tankers is high in Europe, especially in light of the environmental disaster unfolding along the Spanish coastline in the wake of last month's breakup of the 26-year-old, single-hulled Prestige tanker carrying thousands of tons of Russian fuel oil.

Officially, LUKoil would not comment on the sale, but a source close to the company confirmed negotiations were under way.

Sovkomflot general director Dmitry Skarga said his shipping company had already taken four LAT ice-breaking vessels under technical management and the transfer could be permanent.

"We are looking them over. LUKoil offered us its fleet, but we are thinking about it. These are very specific technical vessels and we need to find a suitable application for them. If we purchase them, we would need a guarantee that a suitable terminal would be provided," Skarga said.

He said LUKoil would likely sell the tankers individually and a certain number could be of interest to Sovkomflot.

"I heard LUKoil was selling their arctic tankers, but so far, no official offer has been made," a source at Novoship said. "Lots of outstanding questions hang over LAT -- its problems with the Murmansk Shipping Co. [which manages six tankers] and the ships' Russian flags, which mean the vessels' owners must pay VAT and then struggle to get it back."

Far Eastern Shipping Co. general director Yevgeny Ambrosov had said earlier that his company was looking to acquire its own tanker fleet.

Rosneft and the Primorye Shipping Co. are also considered likely buyers according to industry insiders; however, neither company would confirm this.

Analysts praised LUKoil for shedding its fleet. "This is super news from LUKoil," said Stephen Dashevsky of Aton. "The company has clearly demonstrated it is capable of not just talking about restructuring, but actually doing it -- and much faster than anticipated," he said.

"We understood the tanker program, because LUKoil really did need transport for its oil from Timan-Pechora, but it has been delayed by several years, so the sale of the fleet is clearly justified," said Valery Nesterov of Troika Dialog. Nesterov suggested that LUKoil's own fleet had become obsolete when plans appeared for a deep-water port and oil pipeline in Murmansk.

LUKoil originally acquired the fleet to ship export crude from Timan-Pechora. However, exploitation of Timan-Pechora has been slow to get off the ground and the icebreaking tankers have made only a few trial runs from the Bay of Varandei to northwest Europe. In the summer, the ships have been used for shipping food and supplies to the Far North and in the winter, to deliver oil products from Baltic ports to Western Europe.