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. Last Updated: 07/27/2016

LUKoil Sell-Off Facing a Delay

bloombergConocoPhillips is reportedly reluctant to pay more than $1.26 billion for the stake.
The sale of the state's remaining stake in LUKoil could be postponed beyond September as a result of disagreements over the price, Vedomosti reported Tuesday, citing unnamed government sources.

U.S. oil major ConocoPhillips, which has been viewed as the favorite bidder, appears reluctant to pay more than $1.26 billion for the stake, the paper reported.

Last month Prime Minister Mikhail Fradkov signed an order for the sale to be completed by the end of September. The Federal Property Agency has said the state wants at least $1.26 billion for its 7.59 percent stake in LUKoil.

The base starting price is calculated using a low $19.50 share price. While LUKoil shares currently trade at about $28 per share, Vedomosti reported that the government is now eyeing a sale price based on $32 per share, resulting in a total of more than $2 billion for the stake.

"The state simply does not want to get less than what it can," said Vladimir Zelentsov, spokesman for the Federal Property Agency.

"If we understand there's no bidder at a price that would satisfy us, we may postpone the auction," Kirill Tomashchuk, acting chairman of the Federal Property Agency, told the paper.

ConocoPhillips representatives in Moscow were not available Tuesday. LUKoil declined to comment.

If the auction is to take place before the end of September, there are only a few weeks left for the government to set a final starting price. By law, privatization auctions must be announced 30 days in advance.

"In effect the auction has been delayed day by day, ever since the government officially announced that it wants to sell the stake," Zelentsov said.

Analysts agreed that the base price does not reflect the value of LUKoil's shares on offer.

"The minimum $19.50 per share is not a fair price. We think that the fair value would be $36.60 per share based on a $25 per barrel long-term average price for oil," said Zarko Stefanovski, senior oil and gas analyst with Aton brokerage. "We expect the stake to be sold at much higher than the base limit price. The government is certainly not desperate for money due to high oil prices. We hope that the sale takes place before the end of the year."

At $2 billion, the stake would be the most expensive asset to be privatized to date, barring an auction of Yukos' multibillion-dollar Yuganskneftegaz beforehand. Yukos is being hit with back taxes and penalties worth billions of dollars.