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MarketWatch: ConocoPhillips to search for fresh opportunities with Russia’s Lukoil

Nov 3, 2006

NEW YORK (MarketWatch) — ConocoPhillips (COP) will continue looking for fresh opportunities with Russia’s Lukoil Holdings (LKOH.RS), the company’s chief executive said Thursday.

ConocoPhillips has a 19% stake in Lukoil, Russia’s largest crude oil producer, which will rise to 20% by year end. Together they are developing the Yuzhno-Khylchuyuskoye field in northern Russia, which currently produces 10,000-11,000 barrels of oil a day.

The field licenses are held by the joint venture, Naryanmarneftegaz, which is targeting output of 200,000 barrels a day by 2010.

“We are looking for other opportunities by which we can work together outside Russia and in Russia both upstream and downstream,” Conoco CEO Jim Mulva said at an energy conference in New York hosted by Merrill Lynch. He noted that the company’s experience in Russia so far has been trouble-free.

ConocoPhillips is focused on its exploration and petroleum businesses, while Lukoil is also interested in downstream activities in Eastern Europe, Mulva said.

Lukoil has previously said it is examining refiners in southern Europe.

“As part of our $3 billion or $4 billion disposition program, we are looking at selling some of our joint venture refining interests and marketing assets in Eastern Europe so it is logical for us to be talking and working with Lukoil,” Mulva said. “But the next step for us is what can we be doing together with Lukoil in Russia and outside Russia.”

In contrast to the recent experience of some other western companies in Russia, Mulva said ConocoPhillips’ experience has been “very good”.

The Russian government has been stepping up regulatory oversight of coastal areas off the Sakhalin Islands where ExxonMobil has a 30% stake in a consortium developing an oil and gas field called Sakhalin-1, and Royal Dutch Shell PLC has a 55% stake in a project called Sakhalin-2.

The scrutiny has led to clashes over environmental and cost issues with foreign oil companies that have signed partnership agreements to develop the oil and gas fields.

Mulva said Conoco hasn’t had such troubles in Russia. “In terms of the political situation, I have to tell you, everything from the ministers all the way up to President Putin when we did our transaction, have followed through,” Mulva said. “I think from a Russian point of view … they look at how we participate with Lukoil as a good way, maybe a model, by which international oil companies participate with Lukoil and in Russia.”

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