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Lukoil: It's Russian For "Fill 'Er Up"


The Russians are coming -- to New Jersey. The strip of scruffy motels and gas stations on Route 4, just over the George Washington Bridge from Manhattan, is already home to Exxon (XOM), Sunoco (SUN), BP (BP), and other brands. But lately an interloper from Eastern Europe has put up pumps next to those stalwarts of the commuter business. Lukoil (LUKOY), Russia's top oil producer, has opened two stations on the strip, part of a U.S. expansion aimed at making its red-and-white logo an international icon and catapulting the company into the ranks of global oil giants.

It's a story that has been playing out across the northeastern U.S. Since 2000, when Lukoil bought Getty Petroleum Marketing Ltd., it has quietly built a gas station empire stretching from Maine to Virginia. Lukoil owns some 2,000 outlets and aims to acquire up to 1,000 more. So far, 400 stations carry the Lukoil logo, and the goal is to rebrand them all by 2008. Lukoil has 7% of the market across the 13 states where it operates, and in New Jersey and Pennsylvania its share is 24%.

Lukoil is already Russia's top oil player. It earned $6.4 billion on revenues of $56.2 billion in 2005, with profits per barrel some 30% higher than at No. 2 Rosneft. Even as the Kremlin has asserted control over energy, Lukoil has remained independent. That's a testament to the political and business acumen of Lukoil's president and founder, Vagit Alekperov. President Vladimir V. Putin even blessed a union with ConocoPhillips (COP), today a 19% shareholder in Lukoil. "Putin has a strategy to create global energy companies," says Julia Nanay, an analyst at Washington consultant PFC Energy.

The U.S. is a key part of Alekperov's global design. On Oct. 18 in New York, he is set to unveil a 10-year development plan. Although details are sketchy, Lukoil aims to invest $100 billion, including some $35 billion in refineries and gas stations, and to double output. "The future of Lukoil is in two markets: America and China," says Leonid Fedun, vice-president for strategic development.

Can Lukoil pull it off? One key may lie in Lukoil's rich assets in Russia's far north, where it is working on a field that could produce 200,000 barrels per day by 2009. The plan is to ship that crude to the U.S. for refining and sale. Although Lukoil doesn't yet own a U.S. refinery -- Fedun says they're too pricey right now -- the company hopes to buy one eventually. Says Fedun: "We're planning to approach the level of the world's major energy companies."

By Jason Bush


Steve Ballmer, Power Forward
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