Conoco to sell Lukoil stake

Houston-based oil major ConocoPhillips has told Russian oil producer Lukoil that it plans to sell as much as half its 20 percent stake in the company.  Conoco, the third-largest oil company in the US by market value behind Exxon Mobil and Chevron, said back in October it would sell about $10 billion of assets over the next two years in an effort to pay off some of its debts. At current market prices, a 10 percent stake in Lukoil, Russia's second biggest oil producer behind Rosneft, is worth about $4.7 billion. Conoco acquired a seven percent stake in Moscow-based Lukoil in 2004 and went on to increase its stake over the years. It had hoped the partnership would give it valuable access to oil and gas projects in Russia as well as in Iraq, where Lukoil had an exploration contract prior to the US invasion. The pairingÔÇÖs most successful project was Naryanmarneftegaz, a joint production unit in the Russian Arctic, which last year reached full capacity production of 7.5 million tonnes a year. However, aside from this, the alliance didn't lead to any new projects. Some analysts also questioned whether Conoco had any significant control over LukoilÔÇÖs operations. Despite these problems, the partnership between Conoco and Lukoil was widely viewed as the biggest and most successful partnership between a Russian and US energy major to date. However many firms, including Conoco, are now starting to refocus their efforts on more reliable prospects in North America after finding that new overseas resources can be few and far between. Western oil companies began to encounter difficulties in Russia after Vladimir Putin, formerly the countryÔÇÖs president and now its prime minister, began to renationalize the energy sector in the early 2000s. ConocoÔÇÖs apparent decision to sell its Lukoil stake could reflect the growth in dominance by companies such as Rosneft and Gazpromneft, the oil arm of Gazprom, RussiaÔÇÖs state-controlled gas giant. It is widely perceived now that foreign companies in RussiaÔÇÖs oil sector will struggle unless partnered with a state-backed company. Rosneft, Gazpromneft and Surgutneftegaz, which has links with the Kremlin, are seen as the front-runners for new licences to develop new prospects. This is a particular problem for Lukoil. Despite having the largest hydrocarbon reserves in Russia, production across its existing asset base is expected to decline annually by one percent a year over the next few years. Lukoil has a broad base of US institutional investors, such as Blackrock, Fidelity and Baring Asset Management.