Lukoil May Purchase $6.3 Billion Stake in Repsol

By Stephen Bierman and Gianluca Baratti

Nov. 21 (Bloomberg) -- OAO Lukoil, Russia's biggest non- state oil company, may buy a stake of as much as $6.3 billion in Repsol YPF SA of Spain to extend its refining investments in the Mediterranean.

Repsol, the largest Spanish oil company, rose as much as 11 percent in Madrid trading to 15.14 euros after Criteria Caixacorp SA said it and Sacyr Vallehermoso SA may sell a combined holding of up to 30 percent. Based on Repsol's closing share price yesterday, that would amount to 5 billion euros ($6.3 billion). Lukoil declined to comment on any purchase.

Lukoil already owns refineries in Bulgaria and Romania and Chief Executive Officer Vagit Alekperov agreed in June to pay 1.35 billion euros to buy into a refining venture in Italy with ERG SpA. Analysts at JPMorgan Chase & Co. and ING Groep NV expressed skepticism that Lukoil could afford another purchase.

``The current conditions and the value of the stake make any deal highly unlikely in our view,'' JPMorgan analyst Alex Kantarovich said in a note to clients today.

Lukoil has $1.9 billion in debt and loans due at the end of 2008. Obligations will drop to $609 million in 2009 and then to $525 million the year after that. The company had $1.66 billion in cash at the end of June.

With its gas assets, Repsol would have been a ``much better match'' for OAO Gazprom, according to Igor Kurinnyy, an ING analyst in London.

Gazprom Ruled Out

Gazprom, Russia's natural-gas exporter, said last week it's not interested in the Repsol stake.

Repsol is looking to boost its stake in West Siberian Resources Ltd., a Stockholm-traded Russian oil producer, to 10 percent. It has also expressed interest in taking part in Russia's offshore Pacific Sakhalin-3 acreage.

The refineries in Romania, Ukraine and Italy aren't enough for Lukoil to be considered a ``global company,'' said Alexei Kokin, an analyst at Metropol in Moscow. A stake in Repsol would boost Lukoil's refining presence in Europe and ``catapult Lukoil into South America as well,'' Kokin said.

Repsol is aware of talks between one of its ``significant'' shareholders and interested third parties and isn't involved in any discussions, according to a statement. A Sacyr spokeswoman, who didn't want to be identified in line with official policy, said the company was open to talks about selling any of its subsidiaries.

Although Spain's Prime Minister Jose Luis Rodriguez Zapatero said yesterday that he would prefer for Repsol to remain under a ``Spanish flag,'' he also said the possible stake sale was a matter for ``private companies.''

Refining Operations

Repsol operates five refineries in Spain, three in Argentina and one in Peru. It has holdings in another refinery in Argentina and two in Brazil, giving the company a total refining capacity of 1.23 million barrels a day, according to the Madrid-based company's Web site.

El Economista said today that Lukoil has offered Criteria and other shareholders 28 euros a share for a stake of just under 30 percent in Repsol. An offer at this price would value the combined stake at about 10.2 billion euros.

``Lukoil would have trouble financing the deal,'' Evgenia Dyshlyuk, an oil analyst at Renaissance Capital, said. ``They don't have much cash because they need to spend it on capital spending.''

Sacyr jumped 11 percent to 8.15 euros as of 1:45 p.m. in Madrid. Repsol was 5.2 percent higher at 14.30 euros. Lukoil fell 3 percent to 792 rubles on the Micex stock exchange.

The nation's fifth-biggest builder said last week it's in talks on the possible sale of its 20 percent interest in Repsol.

Debt-Laden

Sacyr, which has a market value of 2.6 billion euros, ended September with debt of 16.5 billion euros. The construction company spent 6.5 billion euros buying the Repsol holding in 2006, paying an average of 26.71 euros a share.

Criteria has a 9.1 percent direct stake in Repsol as well as a smaller indirect interest through Repinves, taking its total stake to 12.7 percent, according to the company's third- quarter earnings report.

In June, the Russian producer agreed to set up a joint venture with ERG that will control the 320,000 barrel-a-day Isab refinery, storage tanks, and a 99-megawatt power plant in Priolo, Sicily.

To contact the reporter on this story: Gianluca Baratti in Madrid gbaratti@bloomberg.net.