Russia's Lukoil pulls out of Central Europe

By bne IntelliNews August 5, 2014

bne -


Lukoil announced on August 4 a deal to sell its filling station network in Central Europe. Coming hard on the heels of a similar exit from Ukraine, Russia's largest privately-owned oil producer appears to be backing off as sanctions against Russia start to impact at ground level.

Lukoil said in a statement that it has agreed to sell 44 filling stations in the Czech Republic to Slovnaft Ceska Republica, a unit of Hungary's MOL. Meanwhile, the Russian company will also offload 75 stations in Hungary and 19 in Slovakia to Norm Benzinkut Kft - a Budapest-based company set up in March this year. 

None of the parties volunteered a value for the deals, which Lukoil said should be closed by the end of the year. "The decision to sell the assets was taken as part of the effort to optimize Lukoil's business in petroleum-product marketing," the Lukoil statement reads.

That "optimization" programme saw the Russian company announce a similar pullback in Ukraine on July 31. Lukoil said it has agreed the sale of 238 fuel stations and six storage facilities in Ukraine, to Austria's AMIC Energy Management. That deal came as a handful of the facilities in western Ukraine were under blockade from pro-Ukrainian activists who demanded the company provide Kyiv's military with free fuel.

However, the real pressure is speculated to stem via the financial markets, as the US and EU press harder to limit funding to Russian companies. Although Lukoil has not featured on any of the lists in the West, CEO Vagit Alekperov said on July 31 that financing issues has the company pulling in its head to concentrate on domestic investments.

"The fact that the access to financing would be hampered would [lead] to cuts in our costs and investment programs," the CEO said, according to Reuters. "We are a Russian company. This will impact us, just like everyone else."

Indeed, Lukoil's exit from EU retail markets appears part of a trickle of evidence that US and EU sanctions are now starting to have real effect on the ground. On August 3, a low-cost airline run by flag carrier Aeroflot announced it is to suspend all flights after its plane lease agreement was cancelled under Brussels' limits.


The CEE exit looks something of an about-face for Lukoil. Having bought refineries in Romania and Bulgaria in the early years of the century, the company was still reported to be looking to expand its market share in CEE until recently. The company's goal was to raise its share to 30% in each country.

That strategy for international expansion was a response to the increasing difficulties the company faces in its upstream operations at home. Blocked from offshore deposits by Russian legislation limiting non-state companies from exploiting the shelf, Lukoil's Western Siberian production heartland has been seeing reserves rapidly depleting for years. 

The company earmarked $20bn for investment in 2014, according to Reuters, with the bulk set to go to its large - and dragged out - project in Iraq. The company is also set to start production from an offshore field in the Caspian Sea next year and recently acquired several producing assets in Russia. Sanctions introduced in July by the US and EU on the export of technology needed to exploit more challenging fields will do little to widen its options.

At the same time, the size of the deals that will see Lukoil exit Central European retail markets are so small that it's hard to believe the decisions are purely driven by financing issues. "According to our estimates, Lukoil’s Hungarian, Czech Republic and Slovakian businesses account for 4% of its international retail product sales revenue and 0.3% of its total revenue," write analysts at VTB Capital. "We estimate the deal value to be in the range of $90-110m. Given the relatively small financial implications for Lukoil, we do not expect any market reaction."

Yet the deal is clearly an exit from a Central European market that Lukoil has enjoyed for over a decade. The lack of western oil majors in the region was seen as a plus for the Russian company, leaving it to compete with regional players such as Austria's OMV and Hungary's MOL. 

The latter has raced into the lead this year, having sealed a deal in May to buy the Czech, Slovak and Romanian units of Italy's Eni. That deal handed it 208 filling stations across the region, although the Hungarian company missed out on a stake in Ceska Rafinerska. The Czech refinery was snapped up by Poland's state-controlled PKN Orlen using pre-emptive rights.

"The acquisition of Lukoil’s network of 44 high-throughput service stations in the Czech Republic is in line with MOL Group’s retail growth strategy in CEE and it further increases the group’s market presence within the supply radius of its core refineries," MOL said in a statement. The Hungarian company owns four refineries in Hungary, Slovakia and Croatia, and had over 1,700 filling stations in CEE before it launched its recent acquisitions drive.

"Together with the recently announced acquisition of the Eni retail network this acquisition will allow MOL Group to reach a countrywide presence of 318 service stations and to firmly establish itself among the leading motor fuel retailers in the Czech Republic," the press release continues. 

"MOL will have some 8.6% market share by the number of stations and some 13-15% by volume, which is close to the critical volume of 15%," notes Tamas Pletser at Erste. "We estimate the price to be around €45m, assuming €1m per station." 



Notice: Undefined index: social in /var/www/html/application/views/scripts/index/article.phtml on line 259

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more