Conoco buys stake in Russia's Lukoil

U.S. oil giant ConocoPhillips on Wednesday paid nearly $2 billion for a 7.6 percent stake in Russia’s Lukoil — the world’s No. 2 oil company by reserves — in Russia’s biggest privatization.

The winning bid of $1.988 billion was only a fraction above $1.928 billion starting price. ConocoPhillips made purchase through Springtime Holdings Ltd. John Lowe and John Carig, ConocoPhillips’ vice presidents, acted as bidders in the auction.

“Of course, we are satisfied with the biggest price in Russia’s privatization,” said Lukoil Vice President Leonid Fedun. “We are expecting a significant increase in the capitalization of the company.”

Other applicants at Lukoil auction included Russia’s Promsvyazbank and Promregionholding, who represented unidentified clients.

Rival bidders were reported to be a company controlled by David Guggenheim — a member of the family behind modern art museums — and a company controlled by Lukoil management.

ConocoPhillips’ victory appeared predetermined since July, when Russian President Vladimir Putin gave his tacit approval to its bid at a meeting with the heads of both companies.

Putin’s blessing to ConocoPhillips has been widely interpreted as a signal that the Kremlin isn’t opposed to foreign investors tapping into Russia’s cheap and plentiful oil and gas reserves.

Coming on the heels of French company Total’s reported $1 billion acquisition of a 25 percent stake in gas producer Novatek, ConocoPhillips successful bid provided investors much sought after reassurance following the government’s crackdown on Yukos, Russia’s largest oil producer.

The price tag made the sale the single biggest cash-earner in the history of Russian privatization, beating the $1.88 billion sale of a 25 percent stake in the Svyazinvest telecom group in 1997.

Analysts said the U.S. company will likely leverage its shares to secure an interest in joint venture projects with Lukoil exploring and developing oil fields in the Timan Pechora region.

Before its merger with Phillips in 2002, Conoco had joined the Northern Territories project when it teamed up with a state-owned company later acquired by Lukoil. At the time, the two companies had agreed to explore and develop a group of oil fields in Timan Pechora with reserves estimated at about 1 billion barrels.

The project was hurt by Russia’s refusal to give it the status of a production-sharing agreement, but ConocoPhillips has agreed to work under the normal tax regime and has invested more than $200 million in the project, which is expected to require total investment of $3 billion.

ExxonMobil is the company with the largest oil reserves, followed by Lukoil, experts say.