Russia's Lukoil buys $2bn onshore oil producer, refuses to invest in Arctic shelf

Russia’s second oil major Lukoil has purchased 100% of fellow oil company Samara-Nafta. The deal comes as Lukoil vice-president says he won’t give a penny for Arctic shelf exploration.

The deal to purchase Samara-Nafta now awaits approval from the Russian Antimonopoly Committee. Investment bank Goldman Sachs consulted on the deal.

Samara-Nafta’s owner, American corporation Hess, announced company was for sale in November last year. Submission of applications for the offering was closed in mid-March this year. At least 30 companies entered a bid including Rosneft, Gazprom Neft, Bashneft and Surgutneftegaz. 

Samara Nafta operates in Ulyanovsk and Samara regions. The company currently extracts around 2.5 million tonnes of oil a year and its reserves are estimated at 85 million tonnes. The company also owns rights to conduct exploration and develop more than 60 oil fields in 23 various areas.

"We bought quality assets with long-term growth potential in the new region, which has one of the most advanced oil and gas infrastructures in the country and is located close to the main markets for petroleum products. This transaction fits in the company's development strategy until 2021, which provides for the stabilization and growth of oil production in Russia,” Lukoil president, Vagit Alekperov said in the official statement.

Lukoil investment in onshore production comes as the company’s vice president and one of its major shareholders, Leonid Fedun tells the Financial Times he refuses to invest in Arctic shelf development. Fedun believes working in the Arctic is accompanied by too high a risk and will not be profitable enough.

“If someone asked me to invest in exploration and development in the Arctic, I would not give a penny,” Fedun told the Financial Times.

Fedun cited as an example Royal Dutch Shell, which explores and develops Alaskan oil fields. The company has reportedly invested around $5 billion and so far has not been able to achieve any considerable success, having not drilled any productive wells. There are more attractive investment projects where there is no need to build pipelines, lay on electricity and move workers for temporary settlement, the businessman said.

It is however unclear if Leonid Fedun was talking on behalf of the company or voicing his own opinions. 

In April 2012, representatives of private Russian oil companies, including the president of Lukoil Vagit Alekperov, wrote to then-Premier Vladimir Putin asking to be allowed to work on the Russian Arctic shelf as under current legislation permits only state-owned companies, Rosneft and Gazprom. Additionally, Lukoil has held talks with Rosneft over joint development of the shelf, but they haven’t resulted in any breakthrough yet.