ConocoPhillips: Hopeful for Lukoil Venture in Next Year

Mar 23, 2007 (From the Wall Street Journal via Dow Jones Newswires)

ConocoPhillips (COP) Chairman and Chief Executive James Mulva said this week he was confident he would finalize a joint venture with Russian oil giant OAO Lukoil in the next year. The project, however, won't necessarily be in oil-rich Russia.

"We have some interesting things we can do together inside and outside Russia that hopefully in the next year or so will be announced," he said in an interview with The Wall Street Journal. ConocoPhillips has amassed a 20% stake in Lukoil, the largest crude oil producer in Russia. It began buying shares when it bought the Russian government's 7.6% stake in 2004 and has slowly increased its position. ConocoPhillips is limited to a 20% ownership stake.

At the time of the initial purchase, the companies said they would like to pursue joint ventures together. ConocoPhillips has sold some Eastern Europe gasoline stations and a stake in refining assets to Lukoil, but the companies have yet to pursue a new venture.

As part of the original deal, ConocoPhillips also acquired a 17.5% interest in Lukoil's claim on Iraq's vast West Qurna oilfield, with estimated reserves of 15 billion barrels. Lukoil's 1997 concession was canceled shortly before the U.S.-led invasion of Iraq. Lukoil and the Russian government are pushing for the recognition of that contract.

Mulva said "there is a fair degree of discussion taking place between Iraq and the Russian government and Lukoil on that. And we feel quite good about that contract being ultimately affirmed," he said. Mulva said ConocoPhillips, however, would not put employees in the country until there was more security and stability. Mulva also said more work needed to be done by Iraqi officials on guidelines regulating international oil company involvement in the country.

Mulva was more downbeat on the prospects of resolving the situation in Venezuela, where the state is insisting on taking over operations and majority ownership in the nation's massive heavy-oil belt.

"We do not have a proposal from the ministry or the government," he said. He is concerned about compensation for what he termed the expropriation of some of ConocoPhillips' ownership stake. Hugo Chavez's government, earlier this month, issued a decree for the state oil company to take control of heavy-oil projects by May 1 and to increase the state company's stake to 60%.

"Hopefully we can find a way of meeting our and Venezuela's objectives, but we have no proposals at this point," says Mulva.

Copyright (c) 2007 Dow Jones & Company, Inc.


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