Lukoil dashes Valero’s efforts to gain European foothold

June 20, 2009

OAO Lukoil, Russia’s second-biggest oil company, thwarted Valero Energy Corp.’s attempt to gain a foothold in Europe by acquiring a 45 percent stake in a Dutch refining venture from Total SA.

Lukoil bought the stake in the Vlissingen refinery, which can process about 190,000 barrels a day, for $725 million, the Moscow-based company said in a statement on Friday. The purchase came about after Total exercised pre-emption rights over shares previously offered for sale by Dow Chemical Co. to Valero.
Valero, the largest U.S. oil processor, said last month it had been seeking to enter the European market for “quite some time” to take advantage of an expected pick-up in fuel demand as the continent emerges from a recession. Lukoil said the acquisition fits in with the company’s strategy of boosting refining capacity to process its own crude.
“Lukoil may have offered them better optimization of oil supplies to that particular refinery,” Irene Himona, an analyst at Exane BNP Paribas in London, said in a phone interview. “Lukoil for years has been looking to expand downstream production in western Europe, a key market for Russian oil.”
Total’s pre-emption rights were known to both Dow and Valero, Dow Chemical spokesman Bob Plishka said in a statement. It will receive the same value from Total and the timing to close the transaction will not be affected, he added.
---------------‘Significant portion’
Russian crude oil is one of the “main sources” of the Vlissingen refinery, and feeds a “significant portion” of Total’s European refineries, the Paris-based company said on Friday. Total, the region’s largest refiner, will continue to own 55 percent of the refinery.
The purchase price includes inventory, Lukoil said. The transaction, part of a new strategic partnership with Total, is expected to be completed before the end of the year, it said.
Lukoil is interested in buying oil refining assets in Europe for a “fair price,” Deputy Chief Executive Officer Leonid Fedun told investors in New York in April. The Russian producer earlier bought a 49 percent stake in a venture to operate the ISAB refinery complex in Sicily with ERG SpA.
Dow, the largest U.S. chemicals maker, may sell a dozen units valued at about $25 billion to pay off a $9.2 billion loan that financed its takeover of Rohm & Haas Co.
Dow Chief Executive Officer Andrew Liveris told investors in March that the Dutch refining stake could be sold soon. “We’ve got banks appointed,” he said on a March 9 conference call. “There are bids coming in, and we’re working very hard on that to be realized in a very quick timeframe.”
(Source: Bloomberg)