RUSSIA - LUKoil In Venezuela.

In 2005 LUKoil signed an agreement with the state-owned Petroleos de Venezuela (PDVSA) for joint evaluation of a 678 sq km block known as Junin-3 in the Orinoco belt of ultra-heavy crude oil. The block is estimated to contain about 2 bn barrels of such crude.

During a visit to Moscow in July 2006, Venezuelan President Hugo Chavez had a meeting with LUKoil's Azeri-born CEO Vagit Alekperov and the two reached agreement on joint development of Venezuelan oilfields. During a visit to Caracas last May, Alekperov said his company planned to sign by end-2006 petroleum E&P agreements which could also include gas-rich areas.

Alekperov, backed by the Kremlin, has been particularly keen on buying PDVSA's 50% equity in Germany's Ruhr Ol refining group, which the Venezuelan state company has been trying to sell since 2003. Ruhr Ol has stakes in oil refineries with a total capacity of about 500,000 b/d (see survey of Venezuela in omt21VenzTransNov21-05).

LUKoil European Holdings (LEH), based in London, was formed in January 2001 as the vehicle for the group's downstream acquisitions in Europe outside Russia. It has three refineries, one in each of Ukraine, Romania and Bulgaria, and 79.5% in Beopetrol which is Serbia's second largest fuel chain acquired in September 2003 for 117m. In mid-2002, LUKoil bought 16 gasoline stations in Cyprus from BP and ExxonMobil, which later carried the LUKoil brand.

With these and its Russian refineries, LUKoil still can only process about half of its crude oil production. Its aim is to raise this to 60% by acquiring additional refining capacity in East Europe. The group has about 5,000 petrol stations in Russia and abroad. In 2001, LEH was negotiating to take over Avanti, a petrol retailer based in Austria which then was on the brink of bankruptcy

The group has been radically restructured. It has brought its domestic and external refining and retail operations under a single division. The US and LEH operations are under this division. Units in this division now include LUKoil Eurasia, which is in charge of Central Asia, the Caucasus and Turkey, markets where the group intends to expand, now that high oil prices have raised its cash pile.

LUKoil Ukrayina has 51% in an oil refinery in Odessa which it got in 1999 for $49m and a pledge to spend over $850m on the plant, with $450m spent by end-2001. LU in 2002 spent $30m on modernising the plant, and another $100m on expanding its network of stations in Ukraine.

LUKoil's local unit has built an oil tank farm at Borispol, in the Kiev region, where a 12,000 t/y LPG terminal began operations in August 2002. From there LU's LPG sales have been extended to rival filling stations and to industrial enterprises under direct contracts.

LUKoil moved into Romania in 1998 and bought 87% in the old 70,000 b/d Petrotel refinery for $300m. Before it was closed in late 2001, the plant was losing money because the government there failed to fulfill its privatisation and market deregulation promises. LEH in June 2002 embarked on a large-scale upgrade of the plant so it can produce high-value fuels in line with EU requirements and Euro-3 standards. LUKoil Romania spent $30m to raise its service stations from 30 to 100 by end-2002. Its network in Romania have reach 250 outlets.

LUKoil moved into Bulgaria in 1999 when it bought 58% in the 125,000 b/d Neftochim refinery at Burgas for $509m. As a result the plant moved from a $200m 1999 loss to a $50m profit in 2000. LUKoil had to spend $268m on improving the refinery by 2005. It has 465 filling stations in Bulgaria.

In Poland, where it has 60 LUKoil-branded stations, LUKoil (49%) and Rotch Energy of the UK (51%) have jointly bid for 75% of the 90,000 b/d Gdansk refinery on the Baltic Sea. But the tender was cancelled.

On Aug. 28, 2006, LUKoil said it would launch a joint venture with Slovenia's oil company Petrol to sell gasoline across the Balkans. LUKoil would hold 49% of the venture, with Petrol owning the other 51%.