Termination of the contract: Lukoil will sell its assets to a friendly trader
The buyer of Lukoil's foreign assets will be the international commodity trader Gunvor, a company founded in the late 1990s by Gennady Timchenko. The parties agreed on all the terms of the deal in advance and are now awaiting approval from the Office of Foreign Assets Control of the U.S. Treasury (OFAC). Industry experts believe that the discount will not be as large as in the case of alternative buyers "imposed" by Western governments. In general, Izvestia's interlocutors believe that the conclusion of such an agreement may be of a historical nature and demonstrate the possibilities of restructuring large Russian capital and monetizing assets that could be frozen or withdrawn. What impact the closing of the deal will have on the market is in the Izvestia article.
What has Lukoil agreed with Gunvor?
The international trader Gunvor intends to buy Lukoil's foreign assets, the oil company said. As noted, Gunvor Group Ltd. has made an offer to acquire 100% of LUKOIL International GmbH, a subsidiary that owns the foreign assets of the Lukoil group. The Russian organization accepted it and pledged not to negotiate with other potential buyers.
The key terms of the deal were previously agreed upon by the parties. Gunvor now needs to obtain permission from the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) to conclude a binding agreement. In addition, the company will require approval from government agencies in other countries.
"If necessary, the parties plan to apply for an extension of the current license issued by OFAC, as well as other permits in order to ensure uninterrupted operational activities of international assets and their banking services for the period until the completion of the transaction," Lukoil said in a statement.
In fact, the parties agreed that the transaction will become valid when the buyer receives OFAC approval, explained Vladislav Bedrosov, project manager at Vegas-Lex Law firm.
— This is a standard condition for such agreements. For example, when organizations left the Russian market, they prescribed similar conditions for obtaining permission from the Russian government commission," he told Izvestia.
The expert believes that such a recommendation was made by American lawyers from Gunvor. Permission is needed because there are more general sanctions in place, such as restrictions on investments in the capital of Russian legal entities and their subsidiaries.
— Similar restrictions apply, for example, in the EU, — Vladislav Bedrosov added.
Recall that on October 21, the United States imposed sanctions on Lukoil, and on October 27, the company announced its decision to sell its foreign assets located on almost all continents. Currently, it owns three refineries in Europe, a network of gas stations in 20 countries, oil production in Austria and Finland, participates in the development of fields in Azerbaijan, Kazakhstan and Uzbekistan, in projects in Egypt, Cameroon, Nigeria, Ghana and others, is present in the fields of Mexico, is one of the largest shareholders of the Caspian Pipeline the Consortium (CPC).
Izvestia sent inquiries to Lukoil and Gunvor.
Why Gunvor is the best option for Lukoil
According to Dmitry Kasatkin, Managing Partner of Kasatkin Consulting, although Gunvor does not focus on mining, refining and retail, it has significant competencies and resources in the international energy markets.
— The most important criterion for a buyer is the ability to ensure business continuity, prevent a drop in efficiency and have sufficient working capital for this. Of course, understanding Lukoil's business, working on transactions with Russian oil products, plays a special role," the expert noted.
The international trading company was founded in the late 1990s by Swedish entrepreneur Thorbjorn Tornqvist and Russian businessman Gennady Timchenko. The latter sold his share to Tornqvist in 2014 due to the sanctions risks. Nevertheless, the company has always been regarded as the main trader in Russian oil trading and has been close to the largest domestic oil and gas organizations, including state-owned ones. Currently, Gunvor promotes itself not only as an oil trader, but also as a diversified holding company that owns oil terminals, pipelines, shipping, refining and coal assets.
According to the Director General of the Independent Analytical Agency of the Oil and Gas Sector (NAANS-Media LLC) Tamara Safonova, Gunvor has been actively involved in Russian assets in the energy industry for 20 years, and was the largest importer of domestic oil cargo.
"Since the sanctions were imposed in 2014, the company was forced to sell its Russian assets, selling 74% in the Ust—Luga Oil oil terminal, 30% in the Kolmar coal terminal and 50% in the Novorossiysk fuel oil terminal," she recalled. — Today, it is especially valuable that the sanctions pressure did not affect Gunvor's comprehensive decision to acquire Lukoil assets, which is a positive signal for the market.
Dmitry Gusev, Deputy Chairman of the Supervisory Board of the Reliable Partner Association, added: in general, the system of international traders was built on working with sanctions regimes, "where it is impossible, but very desirable."
— Moreover, over the past decades, all international traders who started out as oil companies have accumulated quite a lot of money and expanded their interests far beyond oil, including into various producing assets. And, as practice has shown, they are able to manage these assets quite effectively. Lukoil has found an adequate counterparty," the source believes.
Despite the fact that, in fact, Lukoil sells 20% of its oil refining, slightly more than 10% of production and more than half of its retail network, in the current conditions, choosing a transaction partner is the best option of all possible, believes Ekaterina Kosareva, Managing partner of VMT Consult.
— I do not rule out that under the terms of the deal, the Russian company will have the opportunity to buy back assets after the lifting of sanctions, — the expert believes.
In addition, as an industry source told Izvestia, one of the main areas of Lukoil's investments from the funds received may be investments in petrochemicals in the Russian Federation, as well as the expansion of the refueling network. In particular, the capacities of Stavrolen LLC, a chemical industry enterprise located in the Stavropol Territory, may be expanded.
Due to the additional capacity of this facility, Lukoil can increase the volume of polymer supplies, as well as strengthen the company's presence in the Caspian basin. As for the gas station network, the organization is considering, among other things, expanding the number of gas stations in regions with a weak presence, for example, in the Far Eastern Federal District.
Lukoil, through its trading subsidiary Litasco (part of LUKOIL International GmbH), fully owns two refineries in Europe (Petrotel Lukoil in Romania and Lukoil Neftochim Burgas in Bulgaria), as well as a 45% stake in the Zeeland refinery in the Netherlands. Also, at the end of 2024, the company had an extensive network of 2,4 thousand. There are gas stations in 20 countries, including the USA and Europe. In addition, Lukoil participates in the development of the Shah Deniz fields in Azerbaijan (19.99% share), Karachaganak and Tengiz in Kazakhstan (13.5% and 5%, respectively), Kanlym–Khauzak-Shady and Gissar in Uzbekistan, it is also one of the largest shareholders of CPC. In the Middle East, the company is developing the West Qurna–2 and Eridu fields in Iraq, and owns 10% in the Ghasha oil and gas project in Abu Dhabi. In Africa, Lukoil participates in projects in Egypt (West Esh El-Mallaha, WEEM Extension and Meleya), Cameroon (Etinde site), Nigeria (OML-140 block), Ghana (Deepwater Tano Cape Three Points block), Republic of Congo (Marine XII project). In addition, the Russian company is present in the fields of Mexico: blocks 10, 12, 28 jointly with the Italian Eni, the Amatitlan block, as well as block No. 4 jointly with the Mexican PetroBal.
About the price of the transaction and its closing dates
After the sanctions were imposed on Lukoil, the US Treasury allowed operations with sanctioned organizations until November 21.
Individual procedures and approvals for large-scale transactions usually take much longer, said Vladislav Bedrosov from Vegas-Lex Law firm.
"However, closing the deal before November 21 is theoretically possible, especially considering the well—established corporate system of the Lukoil Group and the interest in its prompt completion," the lawyer believes.
In addition, according to him, "given the importance of this transaction for the international market, we can cautiously assume that such an appeal to the regulatory authority will be considered fairly promptly."
As for the price of the issue, experts agree that the parties are unlikely to disclose it.
—Global transactions require silence,— Tamara Safonova believes.
Previously, analysts estimated Lukoil's foreign assets at $10 billion. At the same time, they believed that the discount on the sale could be up to 70%.
— This is the best possible option in the current situation for Lukoil, the company will be able to obtain relatively good conditions. Of course, the sale will be below the maximum valuation level, but the discount will not be as large as in the case of alternative buyers "imposed" by Western governments, Dmitry Kasatkin believes.
According to Ekaterina Kosareva, the discount may not exceed 30%.
If the deal is implemented, it "may be of a historical nature and demonstrate the possibilities of restructuring large Russian capital and monetizing assets that could be frozen, withdrawn or devalued," Tamara Safonova believes.
According to Dmitry Scriabin, portfolio manager of Alfa Capital Management Company, the Russian market is unlikely to react to the deal unless something extraordinary happens for the company itself.
— If Lukoil stops paying dividends, it will be a negative signal. In the opposite scenario of the transaction, and if the company allocates the proceeds to dividends, this can be a positive factor and support the market," he said.
In any case, the deal will significantly change the financial profile of the organization and may affect its dividend policy, the analyst concluded.
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