Russian oil producer Lukoil's president Vagit Alekperov resigns

Vagit Alekperov has resigned as president and member of the board of directors of Russia's second-largest crude oil producer Lukoil, the company said in a statement April 21.

The move comes after Russia's invasion of Ukraine, complicated operations for all Russian energy companies, which are subject to financial sanctions on energy trading, and have seen Western partners withdraw from cooperation projects.

Although the company called for an end to the conflict in Ukraine in early March, Alekperov was still sanctioned by the UK. The company had been under US sanctions since Russia's annexation of Crimea in 2014.

Alekperov's resignation has raised questions over the impact on the company's operations.

The move follows decisions by other Russian businessmen involved in commodities production, including Andrei Melnichenko and Alexei Mordashov, to resign from board and management positions on Western sanctions, George Voloshin, head of the Paris branch of Aperio Intelligence, said.

"Resigning from the board or management committee has the advantage of dissociating a sanctioned individual from a company," Voloshin said.

"Thus, I do not expect any major change at Lukoil. Alekperov's replacement is very likely to stay the course," he added.

Alekperov -- an influential figure in the Russian oil industry -- worked at Caspian and West Siberian oil fields as well as a deputy energy minister, before founding Lukoil in 1991.

As of March 31, Alekperov directly owns 3.12% of voting shares in the company, Lukoil said. Through family trusts and mutual funds, he is the beneficiary of a further 5.43% of company shares, without voting rights, according to Lukoil.

Production

Lukoil's oil production in 2021, excluding the West Qurna 2 project in Iraq, rose 3% year on year to 79.3 million mt, or 1.59 million b/d.

Its core assets include projects in West Siberia, which accounts for around 40% of the company's Russian production.

Lukoil is also involved in several upstream oil and gas projects abroad, including in Uzbekistan, Kazakhstan, Iraq, Mexico and Africa. In recent years, it has expanded its global presence primarily in the Caspian region and Mexico.

Lukoil also produces significant volumes of gas. In 2021, Lukoil's gas output reached 32.2 Bcm, up 11% year on year. The company attributed growth to growing production in Uzbekistan, after a decline in 2020 due to lower Chinese demand amid the coronavirus pandemic.

Russia stopped releasing monthly production data, including breakdowns by company and field, in April. The last data released for February showed Lukoil production at around 1.6 million b/d. In its monthly survey, S&P Global Commodity Insights assessed overall Russian crude production in March at 10.04 million b/d, down from 10.11 million b/d in February.

Refining

Lukoil is also a significant refiner, with 2021 crude throughput rising 7.4% year on year to 63 million mt.

The company operates some of the most advanced and complex refineries in Russia. Its 262,000 b/d Perm refinery fully halted fuel oil output in 2016 after launching a delayed coker, whereas the 226,000 b/d Volgograd refinery reduced VGO output after launching a hydrocracker the same year.

Finding homes for fuel oil and VGO production have proven to be the main challenge for Russian refineries after Moscow's invasion of Ukraine. This had led to export reductions due to sanctions or self-sanctions.

A number of refineries, that predominantly produce and export feedstocks, had to halt or reduce processing.

Lukoil is nearing the commissioning stage of a delayed coker at its 340,000 b/d Norsi, or Nizhny Novgorod refinery, and expects that after its launch the total fuel oil output of its Russian refineries will be less than 4% and the light products yield will reach 75%.

Earlier in April, Russian media reported that Lukoil has warned that the lack of outlets for fuel oil could lead to refinery closures and had proposed to ship the excess output to the country's power generation, along with temporarily lifting of the large fines for environmental damage.

Later, the company denied the information and said all its refineries were operating normally and finding homes for fuel oil.

However, market participants have noted that fuel oil is already bearing the brunt of diminishing exports and will put operations of less complex refineries in Russia under pressure.

Lukoil has also expanded its refinery ownership outside Russia. It partly owns the 180,000 b/d Zeeland refinery in the Netherlands and fully owns Bulgaria's Burgas 190,000 b/d plant as well as the 48,000 b/d Petrotel refinery in Romania.

Most recently, it acquired the 321,000 b/d ISAB refinery in Italy.