Russia's oil fire sale
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Aïda Amer/Axios
Lukoil is Russia's second largest oil company, with global operations stretching from extraction fields in Iraq to gas stations in Pennsylvania.
- It's also got a financial gun to its head, due to U.S. sanctions that are set to take effect in less than two weeks, prompting it to put its international operations up for sale.
- What comes next involves more questions than answers.
The sanctions would effectively isolate Lukoil, making many banks or other counterparties wary of doing business with the company.
- Lukoil entered talks to sell its international assets to Swiss commodities trader Gunvor. But that deal collapsed over U.S. concerns that Gunvor was too tight with the Kremlin.
- The sanctions then were delayed from Nov. 21 to Dec. 13, ostensibly to give Lukoil more time to find a buyer.
Lukoil may not be able to strike a deal by its new deadline, let alone close the transaction.
- Take the case of Carlyle, which Reuters was first to report has interest in buying the entire package. It's already applied for a license with the Office of Foreign Assets Control (OFAC), but a source says it hasn't yet begun real due diligence. That process could take months.
- Carlyle declined comment.
- Other suitors — including Chevron, ExxonMobil and Adnoc — reportedly. have expressed interest in various assets, but it's unclear if Lukoil would proceed with piecemeal sales when a full break is on the table.
There's also uncertainty around what the U.S. would approve.
- For example, OFAC says that a deal must "not provide a windfall to Lukoil." But it doesn't define "windfall," nor would the Treasury Department comment when asked by Axios.
- It's also not clear that the U.S. would approve a non-U.S. buyer.
Meanwhile, some Lukoil-related businesses already are struggling. For example, a Finnish fuel retailer just filed for administration.
- If the sanctions do hit before Lukoil finalizes a deal, some of the assets could degrade; thus making a transaction even less likely. Or at least complicating pricing that already is expected to be a major discount to what may have been valued north of $20 billion in a normal environment.
Further complicating matters is a new U.S. proposal to end the war in Ukraine. Were it accepted by both sides, the sanctions would be removed.
- Peace remains elusive, but there are some positive developments this morning. Lukoil could cross its fingers and wait.
The bottom line is that Lukoil is a very motivated seller, but its exit route is very bumpy.
