Lukoil buys 49 percent of ERG's main refinery in Sicily

By Ian Simpson and Katya Golubkova

MILAN/MOSCOW (Reuters) - Russian oil major Lukoil (LKOH.MM) bought a 49 percent stake in Italian refiner ERG SpA's Mediterranean plant for 1.35 billion euros ($2.1 billion), in a sign of the growing energy ties between Russia and Italy.

Lukoil and ERG (ERG.MI), Italy's second-biggest refiner by market share, agreed a joint venture valued at 2.75 billion euros to control ERG's Isab di Priolo refinery on Sicily, ERG said in a statement on Tuesday.

ERG will have 51 percent of the new company.

Besides the 320,000-barrels-a-day refinery, the accord includes a 99 megawatt power plant and a minimum inventory of 745,000 tonnes of crude oil and refined products.

Shares in ERG, controlled by the Garrone family, jumped to a nine-month high in early trading. They pared gains to be up 2 percent at 15.63 euros by 0854 GMT, as the DJ Stoxx European oil and gas index .SXEP was 0.5 percent firmer.

Lukoil, Russia's second-biggest oil company, gave up early gains to be off 0.3 percent at 2,345.99 rubles in Moscow.

Lukoil expects net profit to rise by more than 1 percent because of the deal, Vice President Leonid Fedun said in Moscow.

"Oil profits from the refinery will be used in arbitrage operations, mainly in gasoline supplies to the U.S. markets as well as to our petrol stations in the Balkans," he told a news conference. "Together with our refinery in Romania we can in fact dominate the Balkan market."

STRATEGIC POSITION

ERG will have an option to sell its 51 percent stake to Lukoil over a period of five years after the first year following the deal's closing date.

The Isab site is strategically located in the centre of the Mediterranean Sea and produces mostly diesel fuel. Russia's Ural crude is a big part of its input.

Lukoil vowed in 2006 to boost its refining capacity by more than 70 percent in 10 years. It has long said it wanted to expand into refining in Europe and the United States.

The accord is part of Italy and Russia's growing energy ties. Italy imports about 85 percent of its natural gas, about a third of it from Russia.

Italian oil company Eni SpA (ENI.MI) formed a strategic partnership in 2006 with Russian natural gas company Gazprom OAO (GAZP.MM), while power company Enel SpA (ENEI.MI) bought Russian utility OGK-5 OAO (OGKE.MM) for $4 billion this year.

Oilfield services company Saipem SpA (SPMI.MI) also said on Tuesday it had won a contract to lay the Nord Stream gas pipeline from Russia to Germany across the Baltic Sea.