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Lukoil May List Shares Bought Back from Conoco in Asia `Soon,' Fedun Says

OAO Lukoil, Russia’s largest oil producer not controlled by the state, may sell shares it bought back from ConocoPhillips to Asian investors to broaden its shareholder base.

Lukoil may list existing shares in Hong Kong or Singapore as early as next year, Deputy Chief Executive Officer Leonid Fedun said today. Fedun doesn’t exclude that shares bought back from ConocoPhillips could be used for a listing, Interfax reported.

“The more markets, the more liquidity, the more money to shareholders,” Fedun told reporters at a conference in Moscow.

In August, Lukoil bought 7.6 percent of its stock from the Houston-based company for $3.44 billion. Lukoil and an investor group including UniCredit Bank AG and a company related to Lukoil CEO Vagit Alekperov bought 5 percent more for $2.4 billion.

“Shareholders would prefer those shares be canceled but nobody is holding their breath,” Pavel Sorokin, an oil and gas analyst at Alfa Bank, said by telephone today.

ConocoPhillips now holds as little as 4 percent of Lukoil, the Moscow-based company said. ConocoPhillips held 6.15 percent of Lukoil on Sept. 27, and intends to sell the entire stake to repay debts and buy back its own shares, Chief Executive Officer Jim Mulva said at the time.

$5 Billion Cash Flow

Lukoil has a strong credit position and is not in danger of suffering a rating downgrade as a result of the share buyback, Fedun said. He didn’t rule out the company buying more shares.

Standard & Poor’s Rating Service warned in July that it may cut Lukoil’s credit rating by one level should the Russian oil producer use short-term credit to buy back all of its shares from the Houston-based company.

The company plans to produce $5 billion in free cash flow by the end of this year and will stick to a strategy of increasing dividends, Fedun said.

Lukoil may look to Asia for growth in the next few years, Fedun said last month. The company’s application to bid for Russia’s largest undistributed fields, near a port controlled by Lukoil in the Arctic north, was rejected in September.

The company won’t dispute the Russian subsoil agency’s decision to exclude it from the competition for the Trebs and Titov fields, Fedun said. They will be offered in December at a starting price of 18.2 billion rubles ($610 million).

‘Not Pretty’

“If the government had decided whom it wanted to develop the field, it should have passed a directive to give them the asset,” Fedun said. “That’s within the law and the state’s right. Here we had a tender announced and the way it was conducted wasn’t pretty to say the least.”

Lukoil plans to produce up to 18 billion cubic meters of gas in Uzbekistan in 2016, Fedun said. Gas marketing will be the decision of the Uzbek government, he said.

China has turned to Central Asia for natural gas supplies as talks on pipelines and supplies have been deadlocked in a dispute over price. China opened a pipeline to Turkmenistan, running through Uzbekistan, late last year. Uzbekistan traditionally exported gas through the Russian network run by OAO Gazprom.

Lukoil and China National Petroleum Corp. signed an accord in September on possible natural-gas supplies to the Asian nation. Lukoil and CNPC are partners in the Aral venture in Uzbekistan, which found gas in June. Lukoil cannot independently sell gas produced in Russia to China because Gazprom holds a monopoly on exports.

To contact the reporter on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net; Stephen Bierman in Moscow sbierman1@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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