ARCO, LUKOIL Formalize Joint Venture Agreement; First Investment is in Caspian Pipeline Consortium

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07 February 1997

In a ceremony attended by Vice President Al Gore and Russian Prime Minister Viktor Chernomyrdin, the chief executives of Los Angeles-based ARCO (NYSE: ARC) and Russia's largest oil company, LUKOIL, today signed documents formalizing an ambitious East-West joint venture to invest in oil and gas opportunities in Russia and other countries.

The first investment by LUKARCO, BV, as the joint venture is known, will be in the Caspian Pipeline Consortium, a multi-party effort to build a 900-mile pipeline from the huge Tengiz oil field in Kazakstan to the Black Sea, via Russia. LUKARCO will hold a 12.5% interest in the project, making it the second largest oil company shareholder in CPC.

ARCO and LUKOIL also intend for LUKARCO to acquire a 5% interest in the Tengiz oil field, subject to final negotiations with Chevron for purchase of an ownership share.

The documents signed today by Vagit Alekperov, President and Chairman of the Board of LUKOIL, and Mike R.Bowlin, ARCO Chairman and Chief Executive Officer, include shareholders and financing agreements for LUKARCO projects.

LUKOIL will own a 54% interest in the joint venture, ARCO 46%. Investment in various projects could total $5 billion over 18 years, with ARCO providing most of the financing.

In addition to the joint venture involvement, ARCO owns approximately 8% of LUKOIL's total equity — the result of convertible bonds purchased by ARCO in public offerings in 1995 and 1996.

Today's signing took place in the Russian Embassy in Washington following completion of the eighth plenary session of the U.S.-Russian Joint Commission on Economic and Technological Cooperation co-chaired by the Vice President and Prime Minister. The commission seeks to broaden commercial and technological ties between the two countries.

"LUKARCO is an unprecedented event in the history of cooperation between Russian and foreign oil companies," said LUKOIL's Alekperov. "It testifies to Western companies' growing confidence in Russia's political and economic stability."

Said ARCO's Bowlin: "We are especially pleased that we can launch this historic joint venture by linking arms on two significant projects in Russia and Kazakstan. This agreement gives ARCO entry into a part of the world with enormous oil and gas potential. We look forward to a long and productive relationship with LUKOIL.

"Special recognition should also go to Vice President Gore and Prime Minister Chernomyrdin for encouraging private-sector ventures of this kind and for joining us at today's signing. It is my fervent hope that LUKARCO will be a valuable contribution to the energy dialogue between our two countries."

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