Washington. Russian oil company LUKOIL and America's Atlantic Richfield Company (ARCO) signed a contract in Washington to form a joint venture unlike any other in the history of cooperation between Russian and foreign oil and gas companies.

The contract allows LukArco, as the venture will be known, to start work on a number of highly promising projects to develop oil and gas fields in Russia and the CIS, as well as outside the former Soviet Union.

ARCO, which has its headquarters in Los Angeles, will open a credit line for $4.5 billion to finance LukArco's exploration and production programs. Talks on several major projects are already in their closing stages. Investments will total around $5 billion. The two companies expect to invest a combined $400 million this year alone.

"The creation of LukArco is unprecedented in the practice of cooperation between Russian and foreign oil companies," LUKOIL President Vahit Alekperov said. "It signifies the growing certainty of Western investors in Russia's political and economic stability," he said.

"This agreement will give ARCO access to a region with huge oil and gas potential," Mike Bowlin, chairman of the board and chief executive director at ARCO, said. "We hope for long and productive cooperation with LUKOIL. We would like to express our special gratitude to Vice President Al Gore and Prime Minister Viktor Chernomyrdin, who were at the ceremony today, for their encouragement of private business in this area. I really hope that LukArco will become a valued contributor to the dialogue between the two countries in the area of energy," he said.

The agreement was signed during the eighth plenary session of the Russian-American Commission on Technical and Economic Cooperation, known as the Gore-Chernomyrdin commission. The commission, chaired by Chernomyrdin and Gore, works to expand bilateral cooperation between Russia and the United States in business, technical and economic projects.

The document signed today includes shareholder and financial agreements setting down how LUKOIL and ARCO will split profits and provide finance for their joint venture's future projects. LUKOIL and ARCO own respective stakes of 54% and 46% in LukArco.

The two companies reached preliminary agreement to form the venture in March last year, but only the official signing of the contract today will allow them to start work on concrete investment projects.

ARCO currently owns 7.99% of LUKOIL's shares, which it acquired through convertible bonds it bought for $340 million. This is the biggest officially declared shareholding by a foreign investor in a Russian oil company to date.

LUKOIL is Russia's biggest oil producer. It has proven reserves of over 10 billion barrels, making it one of the world's biggest oil companies. LUKOIL was formed in 1991 on the basis of three major Western Siberian production units. It became Russia's first vertically integrated well-to-gas-pump oil company in 1993.

LUKOIL posted a net profit in 1996 of over $600 million, according to Russian accounting principles. It extracted 58.3 million tonnes of oil equivalent last year, or 1.24 million barrels a day.

ARCO is the seventh biggest American energy producer. It deals with oil and gas exploration, production and marketing in many countries. It turned a net profit of $1.7 billion in 1996.

 

 

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