- The Washington Times - Tuesday, August 3, 2004

The Russians are coming — again.

Lukoil, Russia’s second-largest oil producer, is expanding throughout the Mid-Atlantic and the Northeast.

The company has two gas stations in the area, in Georgetown and Tysons Corner. But the Washington-Baltimore region should see more red-and-white Lukoil signs featuring the water-drop logo in the next few years, said Michael Lewis, vice president and general counsel for Lukoil Americas Co., the East Meadow, N.Y., subsidiary that runs the North American business.

“We consider the region a key market,” Mr. Lewis said.

OAO Lukoil Corp., which owns 2,074 stations in the United States, plans to change about 860 to 910 Getty and Mobil stations it bought on the East Coast to the Lukoil brand within the next three years.

Lukoil produces 19 percent of Russia’s oil. OAO Yukos, the nation’s largest oil company, produces 2 percent of the world’s oil and is struggling with government demands to pay billions of dollars in back taxes.

Yukos’ problems are helping to fuel record oil prices. Crude oil on the New York Mercantile Exchange closed at $44.15 yesterday on concerns about supply and terrorism at a time of strong demand.

In the United States, most of Yukos’ compatriot’s strength is in the New York area, where Lukoil opened its first station in May 2003. Russian President Vladimir Putin later visited the location to boost the company’s efforts.

Currently, 24 Lukoil locations, originally Getty stations, are in New York, New Jersey, Pennsylvania, Virginia and the District of Columbia.

Empire Petroleum Marketing LLC, which owns the Washington-area Lukoil stations, is looking at converting another Getty station it owns in Kensington to the Lukoil brand. Renovations probably would take place next year, said Jarett Minkoff, Empire vice president.

The Rockville oil-distribution company owns and operates 30 stations that are part of the Lukoil franchise.

Mr. Minkoff, who runs the two local stations, said Empire converted the stations to Lukoil because of their access to busy roads and intersections.

“We felt if Lukoil wanted a premium brand they would need stations in premium locations,” he said, pointing to the steady stream of traffic at the Tysons Corner Lukoil last week.

He would not disclose how much the two stations are making but said the stations depend on their service stations to supplement revenue from gas sales.

Chantilly resident Steve Shan had never heard of Lukoil until he pulled into the McLean location last week. “I normally prefer Exxon Mobil because they have the Speedpass stations,” but he opted for Lukoil because it was convenient.

Customers frequently ask about the name, but few factor the Russian ownership into their buying decisions, Mr. Minkoff said.

Gilda Farrish topped off her tank at the station because the price for a regular gallon of gas, $1.94 last week, was 6 cents cheaper than in her hometown of Columbia, Md.

“Plus I have to pay cash at those stations in Columbia,” Mrs. Farrish said, using her credit card at the pump.

Empire officials hope to eventually buy gasoline from the Russian conglomerate. Gas stations owned by Lukoil get their supply mostly from Canadian and domestic sources.

OAO Lukoil plans to use its new facilities at Vysotsk terminal in the Leningrad region of Russia to export petroleum products to the United States next year.

“Obviously, the initial infrastructure needs to be laid first, and it’s not the type of supply chain that happens overnight,” Mr. Lewis said.

Mr. Lewis said Lukoil does not expect Yukos’ problems to affect its production or investments. “Right now, we don’t anticipate it to have any effect on Lukoil or its operations,” he said.

But the company probably will feel some effect from the fallout, said Edward Porter, spokesman for the American Petroleum Institute, a Washington trade group for the natural gas and oil industry.

“Certainly, it will affect new investment in Russia and have influence over oil availability in the country,” Mr. Porter said.

The Russian company started renaming the stations in 2000 after it bought Getty Petroleum Marketing Inc., and its 1,300 stations, for $71 million.

To further expose its brand, Lukoil in January bought 773 Mobil stations with supply contracts from ConocoPhillips Co. for roughly $269 million.

Pricewise, Lukoil is about the same as the rest of the stations in the Tysons Corner area, said McLean resident Matt Corey. Mr. Corey paid $27.50 last week to fill up his sport utility vehicle. “They’re pretty much all the same,” he said.

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