Lukoil (RTS: LKOH) and Italy's ERG have signed an agreement to form a joint venture to operate the ISAB refinery complex in Priolo, Sicily, Interfax reports.
Lukoil said in a press release that it would acquire a 49% stake in the joint venture for a cash consideration of EUR 1.347 billion, excluding inventory. ERG will retain 51%. The transaction structure provides Lukoil with the possibility to increase its stake in future.
Lukoil's president,. Vagit Alekperov, and Alessandro Garrone, the chief executive of ERG S.p.A., signed the agreement in Rome on June 23.
The ISAB refinery complex is one of the largest refineries in the region and is well positioned to meet the growing middle distillate demand in Europe (mainly kerosene and diesel fuel), Lukoil said. The refinery includes two sites which are united by a pipeline system and integrated in a single refining unit with total annual refining capacity of 16 million tonnes.
Each partner will be responsible for procuring its share of crude and marketing its share of products in accordance with its equity stake in the joint venture. The ISAB refinery has the flexibility to process crudes such as Urals, and Lukoil intends to fully integrate its share of
the refinery into its supply chain.
"Establishment of a refining joint venture in Italy is a cornerstone of Lukoil's growth strategy in the area of developing its downstream operations in Western Europe. Lukoil's overall refining capacities will increase by 13% and overseas refining capacities will
increase by 60%. The refinery's advantageous location and an opportunity to process Russian crude make this project very attractive. In ERG, Lukoil acquires an experienced and reliable partner in one of the world's energy centers," Lukoil's Alekperov was quoted as saying.