VILNIUS - Executives of U.S.-based ConocoPhillips were in Lithuania last week reiterating their desire to take control of the Mazeikiu Nafta oil refinery despite the government's formal announcement that it would only open official talks with TNK-BP, a Russian-British joint venture.
James Mulva, chairman of ConocoPhillips, told Economy Minister Kestutis Dauksys that his company, in cooperation with Lukoil, Russia's largest oil company, could guarantee stable oil supplies for Mazeikiu Nafta, a crucial condition for the Lithuanian government.
"ConocoPhillips and Lukoil would acquire the stake in Mazeikiu Nafta in equal parts, as we believe that cooperation between ConocoPhillips and Lukoil is of utmost importance. Our know-how and cooperation expertise would guarantee the success of investments into Mazeikiu Nafta and the upgrade of facilities with respect to global standards," Mulva said.
Following their meeting, Dauksys said that ConocoPhillips enjoyed the support of both U.S. and Russian presidents. Mazeikiu Nafta's current controlling shareholder, Yukos, is being dismantled by the Kremlin after its CEO, Mikhail Khodorkovsky, became too involved in Russian politics.
Mulva therefore stressed the political significance of cooperation between ConocoPhillips and Lukoil. A joint purchase by two companies would secure the supply of feedstock, product-marketing in the Baltic region and exports, he said.
"We are ready to negotiate and hope to open talks in the coming weeks," he said.
ConocoPhillips holds 14.8 percent of Lukoil and is expected to raise this stake to 20 percent by the end of 2006.
According to unofficial sources, seven prospective bidders for the Lithuanian refinery will offer bids by Nov. 10 to Yukos. Other companies include PKN Orlen, Poland's largest oil concern and KazMunaiGaz, the Kazakh state-run oil concern.
The government is walking a tightrope as it tries to accommodate investors, Yukos, which has expressed willingness to sell but is conducting negotiations of its own, the Russian government, and even the European Union.
Last week, the local press reported that any sale agreement of the refinery, the only one in the Baltics, would have to be approved by European competition authorities. With ConocoPhillips/Lukoil, problems could arise given that the company already has a significant portion of the retail gasoline market.
Specifically, Lukoil holds some 40 percent of the market, while Mazeikiu Nafta controls 8 percent via its chain of filling stations.
"With the purchase of Mazeikiu Nafta, these concerns would take control of the sole producer of petroleum products and the significant share of petroleum products trade market. This would pose certain threats for competition," said Rimantas Stanikunas, chairman of Lithuania's Competition Council.
Ivan Paleichik, CEO of Lukoil Baltija, told the Lietuvos Rytas daily that Lukoil was aware of this hurdle and was to address it.
"Lukoil would not come alone. We would step in together with ConocoPhillips, and the stake in our hands would be 35 's 37 percent. Thus, we will not have any advantages. This changes the essence of the whole matter," he said.
James Mulva, chairman of ConocoPhillips, told Economy Minister Kestutis Dauksys that his company, in cooperation with Lukoil, Russia's largest oil company, could guarantee stable oil supplies for Mazeikiu Nafta, a crucial condition for the Lithuanian government.
"ConocoPhillips and Lukoil would acquire the stake in Mazeikiu Nafta in equal parts, as we believe that cooperation between ConocoPhillips and Lukoil is of utmost importance. Our know-how and cooperation expertise would guarantee the success of investments into Mazeikiu Nafta and the upgrade of facilities with respect to global standards," Mulva said.
Following their meeting, Dauksys said that ConocoPhillips enjoyed the support of both U.S. and Russian presidents. Mazeikiu Nafta's current controlling shareholder, Yukos, is being dismantled by the Kremlin after its CEO, Mikhail Khodorkovsky, became too involved in Russian politics.
Mulva therefore stressed the political significance of cooperation between ConocoPhillips and Lukoil. A joint purchase by two companies would secure the supply of feedstock, product-marketing in the Baltic region and exports, he said.
"We are ready to negotiate and hope to open talks in the coming weeks," he said.
ConocoPhillips holds 14.8 percent of Lukoil and is expected to raise this stake to 20 percent by the end of 2006.
According to unofficial sources, seven prospective bidders for the Lithuanian refinery will offer bids by Nov. 10 to Yukos. Other companies include PKN Orlen, Poland's largest oil concern and KazMunaiGaz, the Kazakh state-run oil concern.
The government is walking a tightrope as it tries to accommodate investors, Yukos, which has expressed willingness to sell but is conducting negotiations of its own, the Russian government, and even the European Union.
Last week, the local press reported that any sale agreement of the refinery, the only one in the Baltics, would have to be approved by European competition authorities. With ConocoPhillips/Lukoil, problems could arise given that the company already has a significant portion of the retail gasoline market.
Specifically, Lukoil holds some 40 percent of the market, while Mazeikiu Nafta controls 8 percent via its chain of filling stations.
"With the purchase of Mazeikiu Nafta, these concerns would take control of the sole producer of petroleum products and the significant share of petroleum products trade market. This would pose certain threats for competition," said Rimantas Stanikunas, chairman of Lithuania's Competition Council.
"However, if we are subject to a reservation stating that we must divest some activities so as to purchase the Mazeikiai company, we will consider such a condition," Paleichik added.
Yukos controls 53.7 percent of Mazeikiu Nafta, while the government has 40.6 percent. According to one scenario, the Lithuanian government would borrow up to 900 million euros to buy Yukos' stake, then turn around and sell the sake, along with an additional 20 percent of outstanding stock, to the investor.
Unofficially, Yukos wants nearly $1 billion for the asset.
To complicate matters, a Netherlands-based court arrested the asset 's Yukos owns Mazeikiu Nafta via a Dutch subsidiary 's for one month on request of Russian authorities. Yukos stills owes some $7 billion in tax arrears, and last month a top Russian tax collector said authorities would begin seizing the oil company's assets.
Meanwhile, KazMunaiGaz, widely seen as a long shot in the competition, is not giving up hope for a claim to the Baltic refinery. Last week executives reconfirmed their intention to take part in the upcoming sale, and they argued the company's case by trumpeting its upstream activities.
"Financial positions of KazMunaiGaz are very strong, and the bid, which the company is capable of placing for the stake in Mazeikiu Nafta, would be higher compared with any rivaling bid," Daniyar Amangildin, CEO of KazMunaiGaz U.K., told the Baltic News Service.
Amangildin noted that the purchase of Mazeikiu Nafta was one of the strategic objectives for KazMunaiGaz, which holds the crude resources of 25 million tons per year together with its subsidiaries. He stressed that, in September, the company concluded a 10-year contract with Transneft, Russia's pipeline operator; this would allow KazMunaiGaz to supply Lithuania with 12 million tons of crude per year.
Amangildin also stressed that the Kazakh company could opt to use an alternative and advantageous route of crude supply via Butinge.
"According to our arrangements, if necessary, we may hand over our crude in the Caspian Sea and get the crude in the North Sea in return, and transport it to Butinge from there. With this option the crude imported via Butinge would be much cheaper, compared with the purchase of crude on global markets, which would secure the high margin of activities of the Mazeikiai company," Amangildin noted.
