Russia's second-biggest oil producer Lukoil is studying the possible sale of its oil trading arm, Switzerland-based Litasco, fearing that the new U.S. sanctions on Russia will make it more difficult for the oil trader to raise new financing, Reuters reported on Wednesday, citing industry sources.
Litasco's sale could take place sometime at the end of this year, a senior industry source told Reuters, adding that this could be the first move to Lukoil selling more assets abroad to focus on upstream in Russia.
"One of the reasons behind the sale idea is sanctions. The sale will also help divert a big chunk of working capital from trading activities towards upstream projects in Russia," Reuters quoted the source as saying.
Another Reuters source confirmed there were plans for a possible sale and added that "Gradually, Litasco will become an independent trading house like Vitol or Trafigura."
Geneva-based Litasco was set up in 2000 as the exclusive international marketing and trading company of Lukoil, and trades Lukoil's and third-party crude and refined petroleum products. In 2015, Litasco handled 3.2 million barrels per day. Last year, that figure rose slightly, with the share of Lukoil and third-party volumes roughly remaining 50/50, Litasco's chief executive Tim Bullock told Reuters in an interview in February this year.
It's not clear how much money Lukoil could get from a Litasco sale, as most oil and commodity traders are not listed. According to Reuters, the book values of Litasco's competitors range between US$2 billion and US$6 billion.
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Talk of a possible Litasco sale is the latest sign that the new U.S. sanctions may have created more hurdles to international companies related to Russian businesses. Due to the additional sanctions, Italian bank Intesa Sanpaolo is said to have hit a snag in its plans to syndicate a US$6.2 billion (5.2 billion euro) loan it had extended to Glencore and the Qatar Investment Authority to help them fund the acquisition of a 19.5-percent interest in Russian oil giant Rosneft.
Lukoil-alongside Gazprom, Gazprom Neft, Surgutneftegas, and Rosneft-has been since 2014 on the U.S. Treasury sanctions list that prohibits the exports of goods, services (not including financial services), or technology in support of exploration or production for Russian deepwater, Arctic offshore, or shale projects that have the potential to produce oil. The latest U.S. sanctions, however, are still being studied by Western banks to fully understand the possible implications of doing business with Russia and what's permitted and what is not.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More