updated 6/9/2004 8:34:42 AM ET 2004-06-09T12:34:42

ConocoPhillips is eyeing a stake in Lukoil, Russia's largest oil company, people close to both companies say. 

The Russian government is considering auctioning its 7.6 percent stake sometime this year, and James Mulva, ConocoPhilip's president and chief executive officer, is said to be working the hardest of all the western oil companies executives to secure those shares.

Vedomosti, the Russian business daily 30 percent owned by the FT, reports today that Mr. Mulva recently held talks with German Gref, Russia's minister for trade and economic development, about the issue. 

According to Vedomosti, other market participants say Conoco hopes eventually to secure a 25 percent plus one share stake in the company. Conoco has collaborated with Lukoil on oil exploration projects. 

However, Russian officials have cautioned that an expression of an interest does not necessarily mean Conoco will secure a stake in Lukoil. 

The Russian government has yet to decide on the timing of the sale, or whether the disposal will be by auction to one strategic investor or by a sale of the shares on the equity market. 

A stake of 25 percent plus one share would give Conoco more power to block decisions and a seat on the Lukoil board. However, some oil executives have told the FT that Lukoil executives remain reluctant to cede too much of the company, and that any announcement could concern joint ventures rather than an equity deal. 

Investment bankers in Moscow say Conoco has held separate discussions with Lukoil's top managers about buying some shares from them reach the 25 percent threshold, Vedomosti reports. 

At current market capitalization of $23 billion, a 25 percent of Lukoil would be valued at $5.75 billion. 

U.S. interest in Russian oil, seen as a crucial source for reserves replacement, is intensifying. Spencer Abraham, US secretary of state, was in Moscow on an official visit last month and Condoleezza Rice, US national security adviser, has recently held talks with Russian government officials. 

ExxonMobil and Chevron Texaco have both entered talks about acquiring a stake in Yukos, the oil group whose former chief executive, Mikhail Khodorkovsky, is now in jail. 

Total of France has sought to buy a 25 percent stake in Sibneft, a smaller oil company controlled by Roman Abramovich.

But Russian observers say any preliminary negotiations about a potential deal in the oil sector should be treated with caution, as the government under President Vladimir Putin has moved towards tighter control of natural resources. 

Additional reporting by Andrew Jack in Moscow and James Politi in New York.

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.


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