4 August 2009

Global perspectives: Russia oil firm picks up stake in Europe

By Cris Whetton

Russia’s LUKoil gained a foothold in the Netherlands, snatching a stake in Total’s 153,000 bpd Vlissingen refinery from under the nose of Valero, the largest U.S. refiner.

The deal coincided with a state visit to the Netherlands by Russian President Dmitry Medvedev. The Putin regime encourages Russian companies to invest abroad as a way of increasing its foreign influence. The move was a major setback to Valero’s efforts to win a stake in Europe, where it has said it wished to buy refineries and take advantage of cross-Atlantic trading opportunities. Total, which has won positions in some of the most prized oil projects on former Soviet territory, hailed a new era in its relationship with LUKoil, 20% owned by U.S.-based ConocoPhillips. Total will retains a 55% stake in the refinery. Total said it had exercised pre-emptive rights to buy Dow’s stake in the refinery, Total Raffinaderij Nederland and sold it on to LUKoil. A Total spokesman declined to say why the company had engaged in the transaction. Most analysts see the deal as a way to secure cheaper crude for the refinery, with LUKoil in a position to guarantee crude supplies, even though these tend to be heavier, high sulphur crude grades.

Valero said a month before it had agreed to buy the 45% stake in Vlissingen from Dow Chemical Co., although it warned shareholders it was subject to right of first refusal by Total. Valero Chief Executive Bill Klesse had described the minority stake as an “exceptional entry point” into Europe. Following the announcement, Klesse said, “Although we are disappointed with the result, we will continue to seek opportunities to acquire high-quality assets at attractive prices.”

Dow Chemical, which has been raising cash through asset sales to help reduce debt accumulated from its purchase of Rohm & Haas, said Total’s move would not affect the amount or the timing of the transaction. LUKoil said it expected to pay around $725 million, matching the price Valero was expected to pay Dow.

The Dutch purchase was LUKoil’s first success after years of failed attempts to acquire downstream assets in northwest Europe, a key market for the crude from its fields in the Timan-Pechora province in Russia’s north.

Cris Whetton is InTech’s European correspondent.