Russia's second-biggest oil producer OAO Lukoil (LKOH.RS) said Thursday it has agreed to finalize a joint venture deal with Italian refiner ERG SpA (ERG.MI).
The Russian-Italian venture will include Lukoil taking a 49% stake in ERG's Isab refinery in Priolo, Sicily.
Lukoil agreed in June to pay EUR1.35 billion for the stake in the joint venture, but the tight liquidity situation had put the project in doubt.
The company said it will pay ERG EUR600 million in cash Dec. 1, while the rest will be paid in three installments before the end of September 2009.
Lukoil also said Thursday it has asked to borrow $1.8 billion from state development bank VEB, the Interfax news agency reported, citing the company's Chief Executive Vagit Alekperov. The funds will be used to refinance loans, he added.
In late September, Russia's four biggest energy companies - OAO Gazprom (GAZP.RS), OAO Rosneft (ROSN.RS), Lukoil and TNK-BP Holding (TNBP.RS) - sent a joint letter to the government asking for additional credit to refinance debt.
At that point, analysts said Lukoil would be the most likely of the four companies to feel negative effects from the tight credit situation.
In terms of the joint venture, ERG will have a put option valid for five years to sell its stake to Lukoil, but Alekperov said Thursday that the Italian firm hasn't expressed any desire to do so.
Lukoil has pledged to invest $25 billion in its downstream business by 2017 and has been looking to bolster its presence in Europe, in particular.
The Russian company said it plans to fully integrate its share of the Isab refinery into its supply chain, noting that the Sicilian plant can process Russia's benchmark Urals-blend crude. Isab can refine about 320,000 barrels of oil a day and is well positioned to meet growing European demand for kerosene and diesel, Lukoil said.
Lukoil already owns refineries in Bulgaria and Romania and runs retail stations in Hungary, Finland, Poland, Serbia, Romania, F.Y.R.O.M, Cyprus and Turkey.