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Lukoil to spend $100 bln, invest in US, Turkey

OAO Lukoil, Russia's biggest oil producer, will spend $100 billion over 10 years to double output and invest in refineries abroad, as President Vladimir Putin tightens state control of the industry at home. The company, which produces 2.2% of the world's oil, will spend 35% of the money on refining and marketing, spokesman Dmitry Dolgov said today in Moscow. Lukoil's overseas expansion plans include buying and building refineries in the US, Turkey, Kazakhstan and the Netherlands, Valery Golovushkin, a Lukoil vice president, said earlier yesterday in Singapore. While the $10 billion-per-year spending plan pushes Lukoil into the league of the world's largest oil companies, it's still only half the $20 billion Exxon Mobil Corp. wants to invest annually through 2010. “It's a really ambitious investment program. Strategically, it's the right thing, but it's a hefty price tag and I'm not sure how they'll finance it,” said Jeffrey Woodruff, an energy analyst with Fitch Ratings in Moscow. “It's clear the money won't come from our profits,” said Dolgov. “Of course, we'll use mechanisms available on the financial markets.” The company says it will disclose details at a meeting for investors in New York on Oct. 18. Lukoil, which is 18% owned by ConocoPhillips, has a chain of filling stations in the US.

Lukoil denied media reports that it had agreed to buy a stake in Motor Oil Hellas SA, Greece's second-biggest refiner, backing up an earlier denial to Bloomberg News by Motor Oil CFO Petros Tzannetakis. Lukoil already has refineries in Bulgaria, Romania and Ukraine. It can tap into a total reserve base of 19.7 billion barrels of oil equivalent, close to Exxon's 21.6 billion barrels. “We have the reserves and the production” to help Russia boost supplies to Asia, Golovushkin said at the 22nd Asia-Pacific Petroleum Conference in Singapore. “The main problem we're facing is logistics.”

Pipeline and shipping bottlenecks are forcing Russian oil companies including Lukoil to ship more oil to Asia and Europe by rail and ship, which is costly and inefficient. A planned eastern pipeline, which may be completed in five to seven years, will take as much as 80 million tons of crude oil a year, or a third of current Russian exports, to the Far East, Golovushkin said. The company believes crude will fetch a higher price in Asia than in Europe, he said. In December, Lukoil agreed to buy Nelson Resources Ltd., which pumps oil in Kazakhstan, for $2 billion. It was the largest-ever overseas acquisition by a Russian company. The company has said it may consider buying the regional retail networks of OAO Yukos Oil Co. if the bankrupt company's assets are auctioned. Lukoil is also looking to restart its involvement at Iraq's vast West Qurna field. The company stock fell 2.5% to $83.70 at in Moscow. (Bloomberg)