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LUKoil to set up refinery complex JV with Italy's ERG

MOSCOW, June 24 (RIA Novosti) - Russia's largest independent oil producer LUKoil [RTS: LKOH] said on Tuesday it would set up a joint venture with Italy's ERG S.p.A. to operate a refinery complex in southern Italy.

The agreement on the JV to operate the ISAB refinery complex in Priolo, Sicily, was signed between LUKoil President Vagit Alekperov and ERG CEO Alessandro Garrone in Rome on June 23.

Under the deal, LUKoil will acquire a 49% stake in the JV for a cash consideration of 1.35 billion euros ($2.1 billion), excluding inventory. ERG will retain 51%. The transaction provides LUKoil with an option to increase its stake in the future, the Russian oil company said.

"The establishment of a refining joint venture in Italy is a cornerstone of LUKoil's growth strategy in the area of developing its downstream operations in Western Europe. LUKoil's overall refining capacities will increase by 13% and overseas refining capacities will increase by 60%. The refinery's advantageous location and an opportunity to process Russian crude make this project very attractive," Alekperov said.

The ISAB refinery complex is one of the largest refineries in the region and is well positioned to meet the growing middle distillate demand in Europe (mainly kerosene and diesel fuel). The refinery includes two sites which are united by a pipeline system and integrated in a single refining unit with total annual refining capacity of 16 million tons (117 million barrels), LUKoil said.

Each partner will procure its share of crude and market its share of products in accordance with its equity stake in the JV. The ISAB refinery has the flexibility to process crudes such as Urals, and LUKOIL intends to fully integrate its share of the refinery into its supply chain, the Russian oil company said.

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