Lukoil & ital ERG Sicilian

OAO Lukoil, Russia's largest independent oil producer, will pay 1.35 billion euros (US$2.1 billion) to form a venture with ERG SpA's Sicilian refinery and expand sales in Europe.

Lukoil will gain 49 percent of the new company, which will control ERG's 320,000-barrel-a-day Isab refinery, storage tanks and a 99-megawatt power plant in Priolo, south Italy, the Moscow-based company told Bloomberg News yesterday. The venture will boost Lukoil's refining capacity by 13 percent.

The producer, which already has refineries in Bulgaria, Romania and Ukraine, is seeking more capacity in Europe and will supply its own oil to the plant. It's looking to sell more refined products into European markets and is expanding its chain of filling stations.

"This helps bring Lukoil's crude production and refining into balance and allows them to further develop along the periphery of Europe," Ronald Smith, chief strategist at Alfa Bank in Moscow, said.

Lukoil will probably increase net income by at least 1 percent next year after forming the Sicilian venture, Deputy Chief Executive Officer Leonid Fedun said at a press conference yesterday.

It plans to sell more than 8 million tons of crude to the plant next year, the equivalent of about 160,000 barrels a day, Fedun said.

Lukoil said in April it may spend as much as 10 billion euros buying refining and retail assets, while pledging to invest US$6.3 billion over four years to upgrade and add 200,000 barrels a day of capacity at Russian refineries.