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27 Sep, 2010 09:15

Lukoil buys up more of its shares from ConocoPhillips

Russian oil major, Lukoil, has exercised part of its ConocoPhillips buying option, taking another 4.99% of its own shares.

Lukoil and a group of investors led by Unicredit have acquired 42.5 million ordinary Lukoil shares in the form of ADR’s under an agreement with ConocoPhillips, Lukoil said in a statement.

According to Leonid Fedun, Lukoil Vice President, the main aim of the deal is to enhance the company’s attractiveness to investors and support its share prices.

"By carrying out this deal, we are purposefully implementing a program for increasing the company's investment attractiveness. This deal makes it possible to support quotations at a stable level, as it is being done with the group's own funds and, correspondingly, not increasing the company's overall debt."

Troika Dialog analysts also say the purchase is focused in keeping Lukoil’s share price stable, and that the purchased shares could be used to underpin future outlays.

“We think that Lukoil has no intention of canceling the purchased stock. We think it is possible that Lukoil may use the acquired stock in the future, as collateral for repo operations or some convertible bond structure, when and if the company feels the need to quickly raise cash for acquisitions, or upfront capex. In this respect, the buyback exercise without share cancellation adds flexibility to Lukoil's financial position, but adds little to the business' fundamental valuation.”

ConocoPhillips became a Lukoil shareholder in 2004, when it acquired the Russian government's remaining stake of 7.6% for $2 billion. The parties announced the creation of a strategic alliance, and increased its stake to 20% in 2006.

In 1Q 2010 ConocoPhillips announced it was going to reduce its stake in Lukoil from 20% to 10% before the end of 2011. The company sold shares for $274 million in April, lowering its holding to 19.9% and now has just 12.6% of Lukoil ordinary shares.

According to the agreement, Conoco may sell the remainder of its Lukoil stock on the free market before the end of 2011, with the minimum Lukoil share price being at $55 per a share until September 27, and at least $53.25 until January 1, 2011. The maximum amount of Lukoil stock to be sold via exchange is not to exceed 5 million shares in any month and Lukoil has preemptive rights to buy up the shares, the agreement adds.