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ConocoPhillips buys share in Russian oil giant Lukoil

U.S. oil giant ConocoPhillips Inc. agreed to pay nearly $2-billion Wednesday for the Russian government's remaining 7.6 percent stake in Lukoil, the world's No. 2 oil company _ a deal expected to clear the way for joint ventures in Siberia and Iraq, while allaying broader concerns about the Kremlin's commitment to foreign investment.

The transaction, Russia's biggest privatization, lays the groundwork for ConocoPhillips to eventually own 20 percent of Lukoil.

ConocoPhillips president James Mulva said the deal would benefit Russian and U.S. interests, while bringing both countries closer.

He brushed aside questions about the politically charged government investigation of Russia's biggest oil producer, Yukos, and its jailed billionaire owner Mikhail Khodorkovsky. Critics allege the Yukos investigation, which has pushed the company toward bankruptcy, is retribution for Khodorkovsky's political ambitions, and question the government's commitment to free enterprise. The Russian government has denied wrongdoing, saying it is only acting to prevent tax abuses.

Mulva said ConocoPhillips has a "good corporate citizen" for a partner in Lukoil, and inevitably faces economic and political risks in all countries where it works.

Lukoil president Vagit Alekperov called the sale, which completely takes the Russian government out of the company, a "landmark both for Lukoil and the country as a whole."

On Wednesday, ConocoPhillips shares fell $1.64, or 2 percent, to close at $81.57 on the New York Stock Exchange. The stock reached a 52-week high of $83.21 on Tuesday.

ConocoPhillips' acquisition is the biggest foreign investment in Russia since BP's $7-billion merger with Russian company TNK, sealed before the Yukos clampdown began last year.

It follows Russia's recently announced, multibillion-dollar energy projects with South Korea and French company Total's reported $1-billion acquisition of a blocking stake in gas producer Novatek.

"From a psychological point of view, it is important it demonstrates how interested foreign investors are in buying assets in Russia," the Interfax news agency quoted Maxim Shein, an analyst at Broker Credit Services, as saying.

After an auction that lasted slightly more than one minute Wednesday morning, ConocoPhillips _ acting through a vehicle company _ snapped up the stake for $1.988-billion, just a fraction above the $1.928-billion starting price.

In addition to gaining representation on Lukoil's board, the acquisition will allow the Houston company to book a proportion of Lukoil's revenues and massive reserves of 20.1-billion barrels. In terms of reserves, Lukoil is the second-biggest oil company in the world, behind ExxonMobil Corp.

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