A History of Russian Ties Helped Gunvor Win Big Sanctions Prize

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The sanctions news sent crude prices jumping and left host governments and partners scrambling to assess what the penalties would mean for Lukoil’s long list of investments outside of Russia. Its giant Geneva-based trading arm Litasco was immediately shunned by banks and other commodity groups.  

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On Oct. 27, less than a week after the sanctions were announced, Lukoil released a statement announcing it planned to sell its international assets. Two and a half days later, the company said it had accepted an offer from Gunvor, and agreed not to engage with any other buyers.

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The rapid deal shocked the market, and also came as a surprise to many of Gunvor’s employees, who received the news via an internal email. 

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Several parties — including major commodity trading houses and national oil producers — made inquiries to Lukoil after its announcement that it would sell its portfolio, only to be told a deal had already been arranged, according to people familiar with the matter.

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In response to questions, a Gunvor spokesperson reiterated that the company was already in touch with Lukoil about certain assets when the sanctions was announced, and said that there were multiple parties considered for the transaction, not just Gunvor. Lukoil didn’t immediately respond to a request for comment sent during a public holiday in Russia. 

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“Gunvor has been well positioned, and it’s unlikely that this happened overnight,” said James Lowrey — a strategic advisor who formerly headed Sumitomo Mitsui Banking Corporation’s commodity finance analysis and risk stream globally said of the deal. “These kinds of conversations will have been had because of the relationships Gunvor has had in Russia and still has in the region.”

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Incorporating Lukoil’s international assets would transform Gunvor from having zero upstream capacity to around 440,000 barrels of oil and condensate, according to Bloomberg calculations  – nearly as much as Diamondback Energy Inc., one of the Permian Basin’s biggest independent producers.

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As well as refineries and thousands of petrol stations, Lukoil has major production assets across Central Asia, the Middle East, Mexico and Africa. 

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In Kazakhstan, it holds a 5% stake in the giant Chevron-led Tengiz oilfield and 13.5% in Karachaganak. In Azerbaijan, it owns 20% of the BP-led Shah Deniz gas field that has become a key source of supplies to Europe. And in Uzbekistan it has significant gas assets that helped it produce 16.2 billion cubic meters of gas from its non-Russian assets last year. 

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But it’s in Iraq where its presence is greatest. Lukoil operates and holds a 75% stake in the giant West Qurna 2 oil project near Basra in the south of the country. The field was pumping more than 480,000 barrels of crude a day in April, according to Interfax. 

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“This is transformational for Gunvor, it’s not just the crude oil production and the refining – it’s a massive, integrated network of assets,” said Lowrey. “This will stretch their enterprise in every way possible.

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The deal also raises questions about the future of Gunvor, including as the company continues to face questions about succession. Glencore’s expansion into owning more production assets in the 2000s helped push the trading house towards an initial public offering, while other energy producers including Abu Dhabi National Oil Co. have expressed interest in the past in buying all or part of Gunvor itself. Still, Törnqvist said in the TV interview that the deal would have ‘nothing’ to do with his 85% stake in the firm.

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Törnqvist hinted that Gunvor may seek to sell some of the upstream holdings, saying that Lukoil’s “trading-related” assets in downstream and refining were the parts of the business he was most confident would fit into Gunvor’s portfolio. He added that it was still too early to speculate. 

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He said the Lukoil deal could help Gunvor navigate a less-profitable trading environment, with profits falling 71% drop in profits in the first half.

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“What we’re now trying to do with Lukoil is obviously giving a network around our trading,” he said. 

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—With assistance from Salma El Wardany, Dinesh Nair, Magdalena Del Valle, Kevin Crowley and Joumanna Bercetche.

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