Kazakhstan's KazMunayGas National Co. JSC is in the bidding process to acquire the Bulgarian refinery owned by Russia's Lukoil PJSC, according to two sources familiar with the discussions.

Source: SwissInfo

Litasco SA, the primary shareholder of Lukoil Neftohim Burgas AD, along with its affiliate, has already accepted binding offers from multiple prospective buyers, including KazMunayGas, as revealed by sources who requested anonymity due to the confidentiality of the negotiations. The Kazakh state firm is currently exploring financing options for this potential acquisition with Vitol Group, the largest independent oil trader globally and a significant player in Kazakhstan.

Following Russia's invasion of Ukraine, European refineries have increased their imports of Kazakh crude oil. Presently, they source approximately 80% of the oil transported via the Caspian Pipeline Consortium, a notable increase from about half prior to the conflict, according to ship tracking data from Bloomberg.

In 2023, Bulgaria opted to prohibit the import of Russian oil, aligning with similar actions taken across Europe. Consequently, the proportion of crude oil from Kazakhstan refined in Bulgaria rose to around 40%, with the remainder sourced from the Middle East.

KazMunayGas, which already processes Kazakh crude at its Petromidia refinery in Romania, anticipates that the sale process will take roughly a month, as stated by one of the sources. The estimated price for the refinery could be around $1 billion. While Litasco is not under sanctions, a key condition of the sale is a guarantee that the funds will not be sent to Russia, according to the source.

KazMunayGas, Lukoil, and Bulgaria's Energy Ministry have not responded to requests for comments. A spokesperson for Vitol declined to provide any statements.

There are great synergies in the regional downstream and also for processing its own crude

Analyst Jonathan Lamb from Wood & Co. believes that KazMunayGas' acquisition of the Bulgarian refinery would be a positive development.

Lamb noted that the transaction would more than double the Kazakh company's refining capacity in Europe, in addition to its Petromidia facility. He remarked that the reported sale price of approximately $1 billion "appears to be low," highlighting that the Burgas oil refinery features a residue hydrocracker that was commissioned in 2015 after a $1.5 billion upgrade.

Hungary's Mol Nyrt. is also vying for the Bulgarian plant, as indicated by Hungarian Prime Minister Viktor Orban in December. Mol has refrained from commenting on this statement.

Is monitoring the process closely, but it cannot have a direct involvement in the change of ownership, as at the moment there is one majority private owner

KazMunayGas is seeking assistance for its bid from the Bulgarian government, asserting that the refinery was designed to process Russian oil of a quality comparable to Kazakh crude. Should its bid succeed, the company has pledged to supply Kazakh oil to the refinery under optimal terms, claiming that other bids can't ensure such a stable supply, according to the sources.

KazMunayGas and Lukoil have previously agreed to collaborate on the development of oil fields in the Caspian Sea. Lukoil also possesses a 5% stake in the Chevron-led Tengiz oil venture, Tengizchevroil, and a 13.5% interest in Karachaganak Petroleum Operating B.V. in Kazakhstan.