The state sells Lukoil stake for $2 billion in 2 minutes

The American company ConocoPhillips did not have any competitors at the auction

The auction to sell the state-owned 7.59-percent-stake of the oil giant Lukoil took place yesterday. One may say that the auction was successful, although it is hard to say that it ended satisfactorily. The auction did not produce a sensation – the stake was purchased by the US company ConocoPhillips, according to expectations. It is noteworthy, that President Putin approved the extension of the company's participation in the Russian oil industry.

The character of the auction reminded the tender of the 1990s, when everyone knew everything beforehand, and all undertakings were considered simple formalities. In addition, the price, for which the stake of Lukoil was sold, cannot be considered acceptable either. Conoco did not have any competitors and paid $1.988 billion for the stake, or $30.755 per share, which was less than the current market quotations. It was $60 million more expensive than the starting price. This figure looks ridiculous against the background of Lukoil's crude extraction volumes and reserves. The company possesses 1.5 percent of the global crude reserves and provides two percent of the global extraction. Lukoil's extraction doubled ConocoPhillips's accomplishments as of the end of 2003: 81.5 million tons against 46 million tons. The difference is even larger as far as the volume of reserves is concerned – 4.67 billion barrels of Conoco as compared to 16 billion barrels of Lukoil (as of the end of 2003). The capitalization of the American company made up $45 billion as of the end of 2003, whereas Lukoil cost about 20 billion. One may only guess, to which extent Lukoil has been underestimated and how much the state has lost because of it. Dmitry Lukashev, an analyst from the company Aton, said that the relatively low capitalization of the company had been formed due to a relatively non-transparent structure of property and several other business factors.

Analysts believe that Russian companies are underestimated because of large political risks in the country. This factor became highly important in connection with the case of the oil giant Yukos, which led to the outflow of capital. Russian authorities are virtually destroying home companies' market values. Therefore, it became normal among Russian companies to sell parts of their stakes to Western corporations to avoid a situation similar to Yukos's.

Hardly had ConocoPhillips and Lukoil united, when the two companies announced an intention to set up a joint venture to develop an export-oriented oil and gas province in Russia. Lukoil will own 70 percent in the joint venture, whereas ConocoPhillips will take 30 percent. The American company will pay $370 million for the projects in the northern Timano-Pechorsky province. Furthermore, Lukoil is ready to share the Iraqi oil with Conoco too. It was announced yesterday that the two companies intended to strive for the right to develop Western Qurna deposit in Iraq. Several years ago, Saddam Hussein's government withdrew license for the development of the deposit from a group of companies, in which Lukoil owned 68.5 percent of shares. The companies could not start working on the deposit due to UN sanctions. When US forces occupied Iraq, Lukoil set forth its rights for the deposit again, although it was not possible to achieve any progress yet.

When ConocoPhillips joins the project, Lukoil will probably vest 17.5 percent of shares in the consortium and keep the control 51 percent of stocks. Negotiations will most likely be resumed in this case.

Analysts predict a further reduction of prices on Lukoil stocks, although forecasts may not come true. ConocoPhillips announced that it would offer Lukoil shareholders to sell 2.4 percent of shares for the same price – $30.76 per share. In this case Conoco's stake in Lukoil will grow to 10 percent, which will let the company have its representatives in Lukoil's board of directors. The joint stock agreement between the two companies stipulates that the share of the American company in the Russian enterprise should not exceed 20 percent of the authorized capital. It would be logical to surmise that Conoco will be increasing its participation in Lukoil until it reaches this level, acquiring shares on the stock market. Lukoil's quotations may grow in this case.

Anna Skornyakova