June 19, 2009 / 8:37 AM / 9 years ago

UPDATE 3-LUKOIL trumps Valero for stake in Total refinery

* 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 (Reuters) - 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 Medvedev.

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 refineries.”

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 field.

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 <CRUDE/EURO1>.


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 distribution networks.

    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 Mediterranean market.

    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

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