* Deal gives Russian firm a foothold in northwest Europe
* Expects to pay $725 mln for stake in Dutch complex
* Largest U.S. refiner was front-runner for stake
(Adds Valero, Dow comments)
By Melissa Akin and Tom Bergin
MOSCOW/LONDON, June 19 Russia's LUKOIL
(LKOH.MM) will buy a stake in a Dutch refinery from France's
Total (TOTF.PA), gaining a foothold in northwest Europe and
blocking a bid by the largest U.S refiner, Valero (VLO.N), to
enter the region.
Friday's deal, which expanded the No. 2 Russian oil
company's refining presence in western Europe, coincided with a
state visit to the Netherlands by Russian President Dmitry
The Kremlin tacitly encourages Russian companies to invest
abroad as a way of increasing its foreign influence.
The move was blow 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 with its U.S.
fleet of plants.
Total, which has staked out positions in some of the most
prized oil projects on former Soviet territory, hailed a new
era in its relationship with LUKOIL, which is 20 percent owned
by ConocoPhillips (COP.N).
"Russian crude oil, for which LUKOIL is one of the major
suppliers, represents one of the main sources of the Vlissingen
refinery," Europe's largest refiner, which retains a 55 percent
stake in the plant, said in a statement.
"More broadly, this type of crude oil represents a
significant portion for the supply of Total's European
In Russia, Total holds a coveted stake in state gas export
monopoly Gazprom's (GAZP.MM) huge Shtokman gas project in the
Barents Sea. It is a LUKOIL partner in the northern Russian
Kharyaga field and in Azerbaijan's Shah Deniz Caspian Sea gas
Irene Himona, oil analyst at Exane BNP Paribas, said the
deal was intended to secure cheaper crude for the refinery.
"LUKOIL is in a position to more or less guarantee crude
supplies from Russia, which tend to be cheaper, heavier
crudes," she said. "It's supply optimisation (by Total)."
European refiners invest heavily to process more Russian
crude and benefit from its discount to lighter, sweeter North
Sea oil. Russia's Urals crude was trading at around $70.35 per
barrel on Friday, compared with $71 for benchmark Brent
BLOW TO VALERO
Valero said in May it had agreed to buy the 45 percent
stake in the 153,000 barrels-per-day Vlissingen refinery from
Dow Chemical Co (DOW.N), 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.
Valero, a powerhouse on the heavily import-dependent U.S.
market for refined fuels, said it would complement trading in
the Atlantic basin.
"Although we are disappointed with the result, we will
continue to seek opportunities to acquire high-quality assets
at attractive prices," Klesse said in a statement on Friday.
Total said in a statement on Friday that it had exercised
pre-emptive rights to buy Dow's stake in the refinery, Total
Raffinaderij Nederland (TRN), and sold it on to LUKOIL.
A Total spokesman declined to say why the company had
engaged in the transaction.
Dow Chemical, which has been raising cash through asset
sales to help pay down debt accumulated from its purchase of
Rohm & Haas, said Total's move would not affect the amount it
was paid 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 extracted from its fields in
the Timan-Pechora province in Russia's north.
It was seen as a potential buyer for Germany's
Wilhelmshaven refinery, eventually bought by ConocoPhillips;
BP's (BP.L) Coryton, ultimately sold to Petroplus PPHN.VX;
and several plants in the Amsterdam-Rotterdam-Antwerp oil hub.
LUKOIL has invested heavily in a new Arctic terminal at the
Barents Sea port of Varandei and even built a special fleet of
ice-class tankers to carry its crude oil to northern Europe.
LUKOIL officials have long said they were seeking
downstream assets in strategic locations with strong
Last year, LUKOIL bought 49 percent of Italian refiner
ERG's (ERG.MI) Isab di Priolo refinery, paying 1.35 billion
euro in a deal allowing it to break into the western European
refining business and expanding its portfolio in the
(Reporting by Melissa Akin and Dmitry Zhdannikov in Moscow,
Tom Bergin in London and Matt Daily in New York; editing by
John Stonestreet and Lisa Von Ahn)