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Last updated on April 21, 2014 at 8:55 EDT

Lukoil and ERG Establish JV to Operate Sicilian Refinery

June 25, 2008

Russian oil major Lukoil and Italian company ERG have signed an agreement to establish a refining joint venture in Italy. This joint venture will operate the exisiting ISAB refinery complex in Priolo, Sicily.

As part of the transaction, Lukoil will acquire a 49% stake in the joint venture for a cash consideration of E1.35 billion excluding inventory, while ERG retains 51%. The transaction structure provides Lukoil with a possibility to increase its stake in future.

The ISAB refinery complex is reportedly one of the largest refineries in the region and is well positioned to meet the growing middle-distillate demand in Europe, especially kerosene and diesel.

The refinery includes two sites which are joined by a pipeline system and integrated into a single refining unit with total annual refining capacity of 16 million tons. The refining unit comprises a wide range of refining processes such as catalytic cracking, hydrocracking and others. The unit also includes three jetties, storage tanks of 3.7 million cubic meters, a 99MW power generation plant and other related infrastructure.

Each partner will be responsible for procuring its share of crude, and marketing its share of products in accordance with its equity stake in the joint venture. The ISAB refinery has the flexibility to process different crude oil varieties including Ural crude, and Lukoil intends to fully integrate its share of the refinery into its supply chain.

The transaction is contingent upon necessary antitrust approvals and other customary closing conditions, including an approval by the European Commission for Competition, and is expected to be closed in the fourth quarter of 2008.

Vagit Alekperov, president of Lukoil, said: “Establishment of a refining joint venture in Italy is a cornerstone of Lukoil’s growth strategy in the area of developing its downstream operations in Western Europe. Lukoil’s overall refining capacities will increase by 13% and overseas refining capacities will increase by 60%. The refinery’s advantageous location and an opportunity to process Russian crude make this project very attractive. In ERG, Lukoil acquires an experienced and reliable partner in one of the world’s energy centers.”