U.S. sanctions against Iran forced OAO Lukoil Holdings to abandon a project in the Islamic Republic, the Russian oil company said Wednesday, as diplomatic pressure starts hurting investments from countries considered close to Iran.
In its consolidated financial statements for 2009, Lukoil said it booked an impairment loss of $63 million "for [the] Anaran project in Iran, which was abandoned due to international sanctions." The company said, however, that it may return to the project if international political conditions improve.
Lukoil also said that its full-year net profit fell 23% due to lower oil prices. Net profit for 2009 totaled $7.01 billion, compared with $9.14 billion in 2008. Revenue declined 25% to $81.08 billion from $107.68 billion as average oil prices fell.
ConocoPhillips, the third-largest U.S. oil company after Exxon Mobil Corp. and Chevron Corp., said Wednesday it would halve its 20% stake in Lukoil in order to buy back shares.
Conoco expects to receive about $5 billion based on recent share prices, currently at levels seen five years ago. "We just felt it was [better] for us to take half of our ownership and invest in our own shares, rather than Lukoil's," ConocoPhillips CEO Jim Mulva said.
Lukoil doesn't rule out buying back shares from ConocoPhillips, Lukoil Vice President Leonid Fedun said. A final decision on the issue would depend on the financial health of the company, he said.
Lukoil's statement on Iran comes after a string of Western companies, including oil major Royal Dutch Shell PLC and industrial-parts maker Ingersoll-Rand Co., said they would abstain from signing oil contracts as new sanctions against Iran loom.
But now some oil companies from Russia—a country on better terms with Iran—are also keeping their distance, narrowing the range of alternatives available to the Islamic Republic for investment. U.S. sanctions already barred investments of more than $20 million a year in Iranian exploration and production, but they are facing legal uncertainty in Europe when it comes to non-U.S. companies.
However, legislation passed by U.S. lawmakers in late January would complicate any investment in Iran by expanding sanctions to financial institutions, insurers and export credit agencies aiding the Iranian oil sector.
Lukoil has stronger U.S. connections than most Russian companies. It is unclear when Lukoil, which entered the Anaran onshore block in 2003 before a significant discovery in 2005, discontinued works there. But its partner in the block, Statoil ASA said last year that its own "work on this project has been stopped." However, the head of Lukoil's overseas operations, Andrey Kuzyaev, said on a conference call, that "We're not saying goodbye to this project."