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LUKOIL will buy back 7.6% of its shares from ConocoPhilips for $3.44 billion

The largest private Russian oil company LUKOIL announced yesterday that it would buy 7.6% of its shares from the American ConocoPhilips. for $3.44 billion. This step did not come as a surprise to the market: ConocoPhilips had long ago announced its intention to get rid of LUKOIL securities and had been looking for a buyer for about six months. The deal with LUKOIL helped it solve a number of problems. The Russian company also has an option to purchase the remaining 11.6% of its shares from ConocoPhilips, but a decision on this will be made within two months.

ConocoPhilips became a shareholder of LUKOIL in 2004, purchasing a 7.6% stake from the Russian government for almost $2 billion. Then ConocoPhilips began purchasing LUKOIL securities on the market and increased its share to 20.6%. However, it was not possible to obtain a blocking stake, and the Americans were content with only the status of a strategic investor. Last fall, ConocoPhilips began to have financial difficulties; it stated that it intended to sell some of its assets, including LUKOIL shares, within two years, thus gaining $10 billion. “This is not surprising, because ConocoPhilips does not have a blocking stake, and accordingly there is no opportunity participate in the operational management of LUKOIL,” Bank of Moscow analyst Denis Borisov told Vremya Novostey. As LUKOIL President Vagit Alekperov reported in March of this year, ConocoPhilips sent a notice that it was going to sell a 10% stake. Moreover, at first she was going to sell LUKOIL securities within three years, then she decided that this should be done before the end of 2011.

LUKOIL is purchasing its shares at market value - for 64.6 million shares the company will pay $3.44 billion ($53.25 per share). Yesterday, LUKOIL shares rose on the MICEX by 2.9%, to 1,740 rubles. per piece (mid-April level), and on the classic RTS market - by 3.1%, to $57.2. The transaction is planned to be completed on August 16. The agreement concluded by the companies provides for the possibility of an option for LUKOIL on the remaining shares of ConocoPhilips - 11.61% (98.7 million shares). “Over the past five years, ConocoPhillips and LUKOIL have worked hard together to realize opportunities in Russia and beyond. Our experience with LUKOIL and the Russian authorities has been positive, and we look forward to productive relations in the future,” Jim Mulva, president of the American company, said yesterday.

Although ConocoPhilips's financial position has improved somewhat this year, the company will still not be able to refuse to sell LUKOIL shares. As reported in the financial report published yesterday, ConocoPhilips' net profit in the second quarter increased 4.8 times compared to the first, to $4.16 billion. This was facilitated by the sale of assets. Valery Nesterov from Troika Dialog recalls that ConocoPhilips acquired a 7.6% stake for $2 billion and is selling it for $3.44 billion. “Thus, we managed to earn more than $1.4 billion. The American company showed the world how It’s profitable to invest in the Russian oil industry,” the expert believes. Meanwhile, this deal can be considered profitable for LUKOIL. According to Mr. Nesterov, if ConocoPhilips had decided to simply throw shares onto the market, the capitalization of the Russian company would have noticeably weakened. By purchasing its securities, LUKOIL retained its value and did a good deed for ConocoPhilips, which hardly expected to find an investor so quickly. At the same time, LUKOIL’s financial condition makes it possible to carry out such transactions. Mr. Borisov recalls that in the first quarter the company’s accounts had about $3 billion, and last year’s net profit exceeded $7 billion. In addition, according to the analyst, Lukoil’s EBITDA this year will be at $14 billion As LUKOIL told Vremya Novostei yesterday, it was decided to raise borrowed funds to finance the deal - the company took out an unsecured loan, the terms of which were not disclosed. “LUKOIL has no problems with money. The company even has the funds to purchase the remaining stake,” Mr. Borisov believes. Mr. Nesterov even believes that LUKOIL will completely buy back its shares by mid-September. True, Mr. Borisov warns that the terms of the deal will depend on the market situation, and recalls that August is a difficult month for the Russian economy.

Kirill MELNIKOV