LUKOIL found help in Cyprus

Lukoil, forced to stop oil supplies to its own refinery in Sicily ISAB due to the EU embargo introduced on December 5, finally found a buyer for the asset. They became the company GOI Energy, which belongs to the Cypriot investment fund Argus New Energy Fund. The amount of the deal was not disclosed, but could be more than €1.5 billion. Argus investors already own stakes in the large Israeli oil refining group Bazan. According to experts, the buyer of ISAB was able to offer a good price for the asset and enlisted the support of Trafigura for stable oil supplies.

Lukoil’s Swiss trader Litasco has entered into an agreement with GOI Energy Limited to sell ISAB refineries in Italy, the Russian oil company said. The deal is scheduled to be closed by the end of March 2023, its amount was not disclosed. Closing the deal will be subject to approvals from the Italian government.

LUKOIL’s release notes that GOI Energy is the energy division of the Argus New Energy Fund. Two funds with the same name are registered in Cyprus, the last one was created in July 2022 for investments in oil refining. “GOI is a partnership of leading experts with rich experience in the field of oil refining, oil trading, as well as financial restructuring in oil refining,” LUKOIL said in a statement. GOI investors own a controlling stake in the Bazan group, LUKOIL points out. Bazan is Israel’s largest oil refiner and operates a refinery in Haifa. The maximum refining capacity of Bazan is 9.8 million tons of oil per year. According to the Tel Aviv Stock Exchange, Bazan is owned by Israel Corporation (7.3%, its largest shareholder Idan Ofer) and Israel Petrochemical Enterprises (24%), the rest is traded on the exchange.

After the change of ownership in ISAB, trader Trafigura will carry out the supply of oil and the shipment of oil products under the concluded agreement. In recent years, the loading of refineries has been 10-11 million tons (in the pandemic 2020 – 8 million tons), ISAB accounts for 22% of all fuel supplies to the Italian market, while more than 95% of oil products produced by refineries are sold through Lukoil Italia and Litasco. This plant was the largest, most modernized and profitable of LUKOIL’s foreign refineries. The company still has refineries in Romania and Bulgaria, as well as a stake in refineries in the Netherlands. LUKOIL sold its filling station network in Europe after the outbreak of the conflict in Ukraine in 2014.

Since the beginning of December, the refinery, which has been in trouble because of the sixth round of sanctions that banned the purchase of marine shipments of Russian oil, has been under state control. Thus, ISAB faced the refusal of counterparties to provide financing for alternative supplies, although LUKOIL and its subsidiary Swiss trader Litasco are not under sanctions. In this regard, LUKOIL faced an urgent need to find a buyer for the asset as soon as possible, otherwise the plant could face closure, which was also feared by the Italian authorities. Negotiations were held with several buyers, among whom was the American Crossbridge Energy Partners, which enlisted the support of the Vitol trader.

In recent months, LUKOIL has been negotiating with a number of players to sell ISAB, despite the absence of formal restrictions on the operation of refineries, the value of the asset for the company has noticeably decreased due to restrictions imposed by the EU countries on the supply of oil from Russia, said Sergey Kondratiev from the Institute of Economics and Finance. He believes that GOI Energy offered the company more attractive terms. The refinery was unofficially valued for sale at €1.5bn, the expert recalls, which is well below the asset’s market value of €3bn based on a 2013 valuation and 2014-2022 upgrade costs.

Dmitry Kozlov