Lukoil - Russia's Second Largest Oil Company

Lukoil - Russia's Second Largest Oil Company

Lukoil is Russia's second largest oil company and its second largest producer of oil. In 2009, the company produced 97.615 million tons of oil; 1.972 million barrels per day (313,500 m/d).


Headquartered in Moscow, Lukoil is the second largest public company (next to ExxonMobil) in terms of proven oil and gas reserves. In 2008, the company had 19.3 billion barrels of oil equivalent per SPE standards. This accounts to some 1.3% of global oil reserves. The company has operations in more than 40 countries around the world.




Lukoil was formed in 1991 when three state-run, western Siberian companies named after the respective town in Khanty Mansi Autonomous Okrug that each was based, Langepasneftegaz, Urayneftegaz, and Kogalymneftegaz, merged. The initials of the three companies are preserved in the name Lukoil. The central figure in the company's founding was the Soviet deputy minister of oil production Vagit Alekperov. He came to believe the only way Russians could compete against western companies was to copy their business model. That meant vertically integrating the three branches of the industry - exploration, refining, and distribution - that were strictly separate under the old Soviet system. It is one of the largest tax payers of the Russian Federation, and the amount of taxes paid in 2010 is US$30.2 billion. It was one of the first Russian companies to receive full listing on the London Stock Exchange.


In 1994, Lukoil became the first company to begin offering shares of stock on the new Russian Trading System.


Exploration and production


Lukoil carries out exploration and/or production of oil and gas in Russia and as of 2008 thirty other countries, amongst others Azerbaijan, Belgium, Bulgaria, Colombia, Egypt, Kazakhstan, Iran, Iraq, Saudi Arabia, Uzbekistan, and Venezuela.


In September 2004 ConocoPhillips purchased a 7.6% stake in Lukoil and signed an agreement that could increase this figure in the future to up to 20%. The two oil companies have agreed to jointly develop an oil and gas field in the northern Timan-Pechora area of Russia (Komi Republic) and intend to secure the rights to develop the West Qurna Field in Iraq, one of the country's largest.


Development of the Aral Sea


Uzbekistan's deputy prime minister Ergash Shaismatov announced on 30 August 2006 that the Uzbek government and an international consortium consisting of state-run Uzbekneftegaz, Lukoil Overseas, Petronas, Korea National Oil Corporation, and China National Petroleum Corporation signed a production sharing agreement to explore and develop oil and gas fields in the Aral Sea, stating The Aral Sea is largely unknown, but it holds a lot of promise in terms of finding oil and gas. There is risk of course but we believe in the success of this unique project". The consortium was created in September 2005.


Oil refining and petrochemical facilities


Lukoil owns seven oil-processing companies in Eastern Europe with total capacity of 54,1 mln tpa and holds 49% share of ISAB refinery complex in Sicily:


Country Name Location Launched Acquired Capacity, mln tpa Lukoil-Nizhegorodnefteorgsintez Kstovo 1958 2000 15,0 Lukoil-Permnefteorgsintez Perm 1958 1991 12,0 Lukoil-Volgogradneftepererabotka Volgograd 1957 1991 9,9 Lukoil-Ukhtaneftepererabotka Ukhta 1934 2000 3,7 Lukoil-Odessky Neftepererabatyvayuschiy zavod Odessa 1937 1999 3,6 Lukoil Neftochim Burgas Burgas 1964 1999 7,5 Petrotel-Lukoil Ploie ti 1904 1998 2,4 ISAB Priolo Gargallo 1975 2008* 16,0* TRN Vlissingen 1973 2009* 7,9*


49% and 45% shares respectively


The company also owns several petrochemical plants in Budennovsk, Saratov and Kalush, all managed by "Lukoil-Neftechim".


A Lukoil station in Vails Gate, New York


Proven reserves


As of January 2009, the company had proven reserves of 14.5 billion barrels (2.31 10 m) of oil and 29.3 trillion cubic feet (830 km) of gas, per PRMS (previously called SPE) requirements.


Petrol Retail Sales


Lukoil sells petrol in 59 regions of Russia and in 24 other countries (Azerbaijan, Belarus, Belgium (through its subsidiary "Jet" until late 2008, and progressively directly under the Lukoil brand), Bulgaria, Croatia (operated by Lukoil Croatia, but under the brand name "Europa-Mil"), Cyprus, Czech Republic, Slovakia (Rebranded from "Jet" to "Lukoil"), Estonia, Finland (Teboil), Georgia, Hungary, Italy, Latvia, Lithuania, Republic of Macedonia, Moldova, Montenegro, Poland (Rebranded from "Jet" to "Lukoil" in August 2008), Romania, Serbia, Turkey, USA and Ukraine). As of the end of 2006, it has 197 tank farms and 6,090 filling stations. The company runs four main oil refineries in Russia with a combined refining capacity of approximately 44.1 million tones, two mini-refineries and also refineries outside Russia.


In 2000, Lukoil purchased Getty Oil and converted a number of Getty stations in the US to Lukoil in 2003.


In 2004, Lukoil acquired Schlotzmeyer Bros., who formerly owned the Mobil stations in New Jersey and Pennsylvania. Many of these stations had Circle K stores, which Lukoil converted to its own Kwik Farms brand. However, many Mobil franchisees in the area did not want to convert their stations to Lukoil, because it sold its fuel at the same prices as more established brands.


In 2008, Lukoil purchased petroleum distribution company Akpet in Turkey. As a result of this acquisition, Lukoil market share in Turkish retail market increased to 5% with 8 storage facilities and over 600 petroleum stations across the country.




Environmental record


The gas flare over Lukoil's Kstovo plant is a major local landmark


According to Lukoil, their numbers in 2007 recorded a drop of 7.8% in the volume of pollutant effects and a drop of 3.8% in the area of contaminated lands compared to 2006. These numbers came after an appeal from EMERCON of Russia (the Ministry of the Russian Federation for Civil Defense, Emergencies and Natural Disaster Recovery), which proposed that Lukoil participate in the development of monitoring, prevention, and emergency recovery systems.


In an effort to increase their productivity, Lukoil organized a contract to begin an oil pumping block in the Azerbaijan sector of the Caspian Sea. They arranged an Environmental Impact Assessment of the drill site in order to organize a second exploration drill. This block, D-222, is the largest prospective structure in the north-east section of the Caspian Sea. The key issue of the assessment was the amount of damage the block would be doing to the fish stock in the area. Taking into account the depth of the operation of about 700 meters, the amount of harm would be minimal with most of the fish harmed being plankton and benthos. A rescue and salvage ship will be placed into operation to mitigate the impact on the area. They have also developed contingency plans for oil spills, and implemented an environmental monitoring system.


Owners Protest


On September 14, 2012 more than 50 Lukoil gas station owners in New Jersey and Pennsylvania temporarily raised their prices to over $8 a gallon to protest Lukoil's wholesale gas pricing. The owners are typically charged a wholesale price that is 5 to 10 cents a gallon more than their competitors and some are accessed an additional 25 to 30 a gallon based on their location. According to the station owners this makes it difficult to be competitive with stations that sell more established brands for lower prices.


Management and major shareholders


A Lukoil gas station in Tula, Russia A Lukoil gas station in Macedonia


Company's top managers control over half of Lukoil shares while about 20% is owned by ConocoPhillips. The rest of shares is a free-float. On 24 March 2010, ConocoPhillips announced it would begin selling half of its 20% stake in the company.


Board of Directors elected at the Annual General Shareholders Meeting on 28 June 2005 consists of:


Valery Grayfer (Chairman, General Director of the JSC RITEK)


Vagit Alekperov (President of the JSC Lukoil)






Lukoil has been titular sponsor of FC Spartak Moscow since 2000. One of the company's top managers, Leonid Fedun, is also the owner of the club.






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