Lukoil buys back shares from stakeholder

Russian oil producer, Lukoil, will buy 7.6% of its own stock from US oil firm ConocoPhillips for $3.44 billion, Conoco said in the statement.

According to Lukoil, the deal will be completed on August 16 with the Russian oil major also retaining the option to acquire a further 11.61% of its stake at $56 per share, in the form of depository receipts before September 26, 2010.

Dmitry Dolgov, head of mass media relations at Lukoil, said the company would use both its own and borrowed funds to finance the purchase. Jim Mulva, ConocoPhillips CEO, noted that his company had had a long term mutually beneficial relationship with Lukoil but the decision to sell its stake in the Russian company had stemmed from the need to focus on its core operations and shareholder value, adding that the money received would largely go to buying back its shares on market.

The deal stipulates that the shares will be sold at $53.25 apiece for a total of $3.442 billion. Metropol senior analyst, Alexei Kokin, says the price is a good one for Lukoil

"It's a good price for Lukoil. You could say it's below market. I don't know why Conoco agreed to that price, but it's a good deal for Lukoil."

But Pavel Sorokin, analyst at Alfa Bank, believes it largely reflects current market pricing.

"The price is very close to market, just a 5% discount to the opening price this morning. I think the stock has substantial growth potential.”