Publication: Monitor Volume: 2 Issue: 176

Atlantic Richfield (ARCO) and the Russian oil giant LUKoil have agreed to set up a joint venture — Lukarco. (Wall Street Journal, September 20) The agreement goes beyond earlier deals between Russian and western oil companies, which to date have resulted only in preliminary agreements. Indeed, despite their need for both the cash and the know-how that western energy companies can supply, Russian oil companies have so far resisted substantial western involvement and jealously guarded the oil reserves at their disposal. One result is that Russia’s total oil production continues to fall, while the contribution of joint ventures to that total amounted last year to only 5 percent. (Finansovye izvestiya, June 20) In the case of Lukarco, however, a major Russian oil company is bringing a western partner into developments crucial to the Russian company’s own future.

LUKoil’s control of Lukarco will still be considerable: its stake in the joint venture will be 54 percent, ARCO’s 46 percent. ARCO will reportedly provide most of the cash, while LUKoil’s contribution will consist of its existing stake in the Caspian Pipeline Consortium, Caspian offshore development, and oil fields in Kazakhstan. The difference in the two partners’ contributions reflects their respective strengths: ARCO has substantial reserves of cash but not of oil, while LUKoil has plenty of oil but little cash. Although the new venture could set a pattern for other cash-strapped Russian oil companies, many uncertainties remain about the deal, not least the security of the Caspian pipeline.

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