Lukoil, ERG form refinery joint venture

Uchenna Izundu
International Editor

LONDON, June 27 -- OAO Lukoil reported it will pay €1.3 billion to acquire a 49% stake in a new joint venture with Italian refiner ERG SPA. The JV will jointly operate ERG's Isab refining complex at Priolo, Sicily.

ERG will have a 51% share in the JV and Lukoil may be able to increase its stake in the future under the agreement. Both parties require approval from the European Commission and other antitrust bodies.

The complex 320,000 b/d Isab refinery is on the coast and will meet growing middle distillate demand in Europe, mainly kerosine and diesel fuel.

According to their equity stake, ERG and Lukoil will source its own share of oil to refine and market the products. "The Isab refinery has the flexibility to process crudes such as Urals, and Lukoil intends to fully integrate its share of the refinery into its supply chain," Lukoil said.

Lukoil Pres. Vagit Alekperov said the company's refining capacity would increase by 13% and its overseas refining capacity by 60%. "The refinery's advantegeous location and an opportunity to process Russian crude make this project very attractive. In ERG, Lukoil acquires an experienced and reliable partner in one of the world's energy centers."

ERG Chief Executive Officer Alessandro Garrone said ERG would use the money from this deal to "strengthen its capital structure and increase its financial flexibility to exploit potential growth opportunities in its areas of activity, both in Italy and abroad."

The deal is expected to be completed in the fourth quarter.

Contact Uchenna Izundu at uchennai@pennwell.com.

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