The Russians are coming : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

November 4, 2000 Russian Oil Company Buys U.S. Gas Station Chain By SABRINA TAVERNISE OSCOW, Nov. 3 B Russia's biggest oil producer, Lukoil Holding, purchased a chain of 1,300 gas stations in the United States, most of them in the Northeast, in a move analysts said was aimed more at burnishing its image than bolstering profits.

The purchase will make Lukoil the first Russian company to acquire a publicly traded American one. Lukoil has been expanding its business outside Russia for several years now, with refineries and gas stations throughout eastern and central Europe and the former Soviet Union.

The Russian company will pay $71 million for Getty Petroleum Marketing Inc., all that remains of the once- mighty Getty Oil Company. The price, about $55,000 a gas station, is negligible for the Russian company, which has had a surge in profits on decade-high crude oil prices. Lukoil's profit will top $3.5 billion this year, more than triple last year's, according to United Financial Group, an investment bank in Moscow.

Even so, analysts questioned the economic reasons for the acquisition, saying the company most likely needed a safe place to put its extra cash. While it has come a long way from the economic free-for-all of the early 1990's, the Russian market is still a risky place to invest, and businesses prefer to spread assets out over other markets.

"There are no obvious synergies between the two companies," said Dmitry Avdeev, oil analyst with United Financial Group. "Lukoil has excess cash flows that they need to use somehow."

This is not the first time Lukoil has tried to do business in the American retail market. In 1997, it agreed to make a multimillion-dollar investment to build a gas station chain at Food Lion stores. But according to Lukoil's American partner, Nexus Fuels, the money never came through, said OPIS Energy Group.

Lukoil, which produces far more oil than it can refine, said it might eventually supply the stations with its own product, though it will first buy from the wholesale market. The stations themselves will need investment if the Russian producer decides it wants to make them profitable.

"These aren't the nicest gas stations," said Chris Stavros, senior oil analyst with PaineWebber in New York. "You have to ask yourself if Lukoil just wants to milk the real estate for what its worth or put in some long-term investments."

The Getty stations were sold to the Power Test Corporation in 1984 when Texaco agreed to acquire the Getty Oil Company for $10.1 billion.

In November 1990, a federal jury in Hauppauge, N.Y., found a top Getty official, along with the Getty Terminals Corporation, a Jericho, N.Y. subsidiary of the Getty Petroleum Company, and two independent gasoline distributors guilty of conspiracy and of failing to pay more than $1 million in federal gasoline excise taxes in 1985.

Although the case was not considered mob-related, it came at a time when Long Island had become a hotbed of sorts for mafia-run tax evasion schemes. Gasoline bootlegging, from the late 1970's into the 1980's, had flourished in Long Island because of the region's numerous gasoline terminals, stations and car use.

Lukoil is Russia's largest oil company, with production expected to top 70 million tons of crude. It has gas stations, refineries and marketing companies in the Czech Republic, Romania and Bulgaria, and countries of the former Soviet Union.

-- Martin Thompson (, November 04, 2000

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