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Lukoil Eyes Stake in Russian State-Owned Bashneft

As privatization talk heats up in Russia, the country’s Federal Antimonopoly Service indicated today that it may approve the purchase of a stake in state-owned Bashneft by Russia’s second-largest producer, private Lukoil.

Russia is in dire need of a cash injection, and is considering partial privatization of key strategic assets, including Rosneft and Bashneft—the latter for which Lukoil has signaled an interest in acquiring shares.

Lukoil has not made a formal proposal to the government yet, Russian Tass news agency reported.

Related: OPEC Ups Pressure On Iraq, Iran To Freeze Production

"We have not yet made an official proposal to the government, there are privatization conditions yet. We are ready to consider this issue and to participate. We are interested in the controlling stake," Tass quoted Lukoil President Vagit Alekperov as saying today.

Bashneft was nationalized only two years ago, and the government now owns a 75-percent stake. It may move to sell either a 50 percent-plus stake or go for a stock market offering of 25 percent. The remaining 25-percent stake is currently owned by Russia’s Bashkortostan republic, which is not planning on selling.

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Bashneft is Russia’s sixth-largest crude oil producer, with total proved reserves of 2.15 billion barrels and probable reserves of 653 million barrels. Before the oil slump started in the summer of 2014, Bashneft was valued at up to $13 billion.

An acquisition of a stake in Bashneft would make sense for Lukoil, which already partners with the state-owned company in the Trebs and Titov oil fields, which hold some 1.1 billion barrels of estimated reserves. Lukoil is also the largest supplier of oil to the Bashneft refinery.

Russia could suffer a deficit this year of over $21 billion, even with an oil price baseline of $40 a barrel.

LukOil expects Russian oil output to drop this year—for the first time in years. In fact, it’s predicting a 2-3 percent decline, and maybe even more if the Kremlin moves to raise taxes.

By James Burgess of Oilprice.com

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