Lukoil Joins East Siberia Oil Hunt as Russia Boosts Asian Supply

OAO Lukoil (LKOH) will step up its search for crude in Russia’s Far East as the world’s largest oil-producing nation develops reserves nearer to Asian markets.

Lukoil plans to add assets through exploration rather than acquisition, billionaire Chief Executive Officer Vagit Alekperov said today in Moscow. “We are looking at a number of big blocks in East Siberia.”

The focus on exploration represents a change in tactics at Lukoil, which has spent billions of dollars on buying businesses as recently as April to bolster domestic output. The shift will give the company more scope for growth since the remaining acquisition options are too small and not “economically effective,” according to the CEO.

President Vladimir Putin, seeking to supply Asian demand, opened a pipeline linking Russia’s Far East with China in 2012. That’s allowed oil producers OAO Rosneft (ROSN) and OAO Surgutneftegas to tap fields and strike supply deals that may eventually make Asia’s most populous nation Russia’s largest single market.

“Other Russian companies’ experience probably convinced Lukoil that East Siberian projects can be attractive,” Alexei Kokin, an oil and gas analyst at UralSib Financial Corp., said by e-mail today. “As a late entrant, Lukoil will be able to learn from the pioneers’ mistakes and be more efficient.”

Lukoil, Russia’s largest oil producer after Rosneft, is looking in the Yakutia, Irkutsk and Krasnoyarsk regions for exploration opportunities, Alekperov told reporters. The Moscow-based company is preparing bids for three blocks, he said, without specifying their location.

Regardless of exploration prospects, Lukoil will begin sending supplies east across Siberia at the start of the third quarter, according to the CEO. It plans to send its first crude shipment, 100,000 metric tons, through the new pipeline in July and may increase volumes in the future, he said.

Lukoil completed its $2.05 billion purchase of Hess Corp. (HES)’s Russian subsidiary, Samara-Nafta, on April 26.

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

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

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