Lukoil Reportedly Backs Xtellus Proposal in High-Stakes Sanctions Deal

Key Moments

Preference Emerging for Xtellus’ Cashless Structure

Lukoil now leans toward the Xtellus Partners bid, according to two people familiar with the talks. The company prefers this proposal because Xtellus offers a cashless swap. In this structure, U.S. investors would return Lukoil securities in exchange for its foreign assets. This approach could help Lukoil move its global portfolio, valued at $22 billion.

The sources, who requested anonymity because the talks remain sensitive, said Xtellus plans to coordinate a full swap of U.S.-held Lukoil securities. Xtellus declined to comment, and Lukoil has not responded.

U.S. Sanctions, Deadline Extension, and Investor Losses

The U.S. Treasury recently extended Lukoil’s deadline to sell its international assets to January 17. This move follows sanctions imposed on both Lukoil and Rosneft as Washington continues to pressure Moscow over the war in Ukraine.

The sanctions forced major U.S. asset managers—such as BlackRock, JPMorgan, and Goldman Sachs—to freeze and later write off their Russian holdings. These losses came after Russia’s invasion of Ukraine in 2022.

Lukoil’s global operations include upstream oil and gas projects, refining assets, and a network of more than 2,000 fuel stations. As a result, a wide range of bidders have shown interest, including private equity firm Carlyle and oil major Chevron.

Deal Complexity and Treasury Clearance

Four sources involved in or briefed on the process said that Lukoil appointed vice president for finance Pavel Zhdanov to oversee negotiations. However, even if Lukoil and Xtellus reach an agreement, they must still seek approval from the U.S. Treasury. This requirement follows guidance issued to bidders in November.

According to three of the four sources, the Xtellus proposal introduces more complexity than rival bids. It uses Lukoil’s equity directly in the swap, which requires full transparency around who owns the securities. Before March 2022, Lukoil sat in major emerging-market indexes tracked by institutional investors and exchange-traded funds. Many investors gained exposure through internationally traded derivatives as well.

U.S. Policy Objectives and Russian Constraints

The U.S. Treasury has already outlined strict conditions for any deal. It wants a transaction that supports U.S. national security and foreign policy goals, cuts Lukoil’s overseas ties, avoids any windfall for the company, and blocks sanctioned funds from reaching it.

Even so, two of the four sources said the Xtellus structure could introduce a further complication. Because Xtellus plans to swap securities, the deal may require approval from Russian President Vladimir Putin. He banned the trading of Russian shares abroad in 2022.

Risks if No Agreement Is Reached

If Lukoil fails to close the sale before the deadline, its foreign assets could slip into legal and operational uncertainty. The same two sources noted that local authorities could even seize some assets. They added that Lukoil may consider legal action once sanctions ease, although that option remains distant.

Overview of Key Elements in the Lukoil-Xtellus Process