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. Last Updated: 07/27/2016

LUKoil Plans Gas Stations in Turkey

APLUKoil chief Vagit Alekperov, left, and Marko Kryzanowski, head of Slovenia's Petrol, meeting Monday in Slovenia.
LUKoil is in negotiations with the Turkish government to build a network of gas stations across Turkey as well as a refinery, the oil giant said Tuesday.

Turkish daily Vatan reported Tuesday that LUKoil would spend $1 billion opening 300 gas stations this year and 700 more in 2007. LUKoil is also looking to build a refinery on the country's Black Sea coast.

A LUKoil spokesman said there was a "mutual interest" from the Turkish government and the company in building the gas stations.

"We have plans to expand our network in two or three years, but we haven't yet identified the number of gas stations," spokesman Vladimir Semakov said. "The project is under discussion; it is not finalized." By the end of September, LUKoil will have two gas stations in operation in Istanbul, he said.

"It's clearly consistent with [LUKoil's] strategy to become ever more vertically integrated and expand overseas," said Adam Landes, an oil and gas analyst at Renaissance Capital. "Operations in Turkey would make a lot of sense."

The once-closed Turkish energy sector recently has been courting foreign investment. LUKoil is negotiating for tax relief for the refinery and gas stations, but analysts said there was no guarantee it would get preferential tax treatment in the increasingly competitive energy sector there.

"We don't believe that Turkey will grant tax breaks," said Valery Nesterov, an oil and gas analyst at Troika Dialog. Turkey "won't welcome such a new competitor on the market," he said.

Opening a refinery and gasoline marketing operations in Turkey makes sense because LUKoil would have to transport less crude oil and gasoline through the congested Bosporus shipping route.

LUKoil has been working to expand its downstream business, hoping to benefit from highly profitable refining and gasoline sales. It recently failed in its attempts to buy Turkey's Tupras refinery and the Mazeikiu refinery in Lithuania.

Landes said that, given the current high price of oil refineries, LUKoil might prefer to build one from scratch.

"The company needs to expand its downstream business and expand it in other countries, not just in Russia," Nesterov said. "It's a promising business, I would say. You have to build a house brick by brick." LUKoil's market value would likely increase if fewer of its assets were concentrated in Russia, analysts have said.

LUKoil owns more than 2,000 gas stations in the United States and more than 5,000 worldwide.

On Monday, LUKoil said it would launch a joint venture with Slovenia's Petrol to sell gasoline across the Balkans. LUKoil would hold 49 percent of the venture, with Petrol owning the other 51 percent.