LukOil America CEO Vadim Gluzman: "they don't care whether we are Russian or not"

Original Article

Russian oil giant sweeps into American towns
Sun Sep 17, 2006 8:14 PM ET
By Deepa Babington

SOUTH BRUNSWICK, New Jersey (Reuters) - Like many New Jersey motorists, Kevin Teeter had never heard of LUKOIL until his local gas pump began sporting the name last month.

Now, he couldn't escape the Russian oil company's presence if he tried. Almost overnight, gas outlets boasting its name in a splash of red and white have begun multiplying across the state's car-clogged highways and suburbs.

Bolstered by ambitions to grab a foothold in America and take on better-known gasoline brands like Mobil and BP, LUKOIL is in the midst of a $35 million campaign to stamp its name prominently across a vast network of U.S. gas stations.

In just a few years, the company has quietly built up a fleet of nearly 2,000 gas outlets in 13 states along the U.S. East Coast by taking over Getty Petroleum and later, pumps shed by ConocoPhillips.

Until recently, they all continued to operate under the well-known Getty and Mobil brand names. Emboldened by initial signs of acceptance from U.S. drivers, however, LUKOIL is rebranding most of them under its own name, hoping to become a household name itself and save on royalties to Exxon Mobil.

Only 15 years ago, at end of the Cold War, such a campaign by a Russian company would have been unfathomable. Today, few Americans are batting an eyelid as fear of Russia is replaced by anxiety over dependence on Middle Eastern oil.

"All we hear is they don't care whether we are Russian or not," LUKOIL Americas CEO Vadim Gluzman said in an interview. "They would certainly care if we were from the Middle East, but there's no concern over Russia."

LUKOIL's American Web site helpfully notes that its presence here will help displace some U.S. oil imports from the Middle East. But for the most part, as long as the gasoline is cheap and the outlet clean, motorists care little about filling up with an unknown brand, Gluzman said.

WE 'HEART' CARS

His assessment is backed by drivers like college student Teeter, who remained faithful to his local South Brunswick, New Jersey, gas station even after the Mobil sign came down.

"I've been coming here for two or three years and I don't really care that the name's changed," he said, standing outside the outlet's convenience store, which is now bathed in red and white and sports LUKOIL T-shirts along the walls.

Still, in an age where energy security is a deeply emotional issue -- Chinese oil company CNOOC's deal to buy a U.S. oil firm unraveled under public pressure last year -- LUKOIL is treading carefully.

The company shies away from unduly publicizing its Russian roots, billing itself as a global oil company instead.

"We found out that not too many consumers knew that BP is not a U.S. company; they were as much unaware of BP being British as LUKOIL being Russian," Gluzman said. "They don't position themselves as a British company; we don't position ourselves as a Russian company. We just position ourselves as an international oil company."

It seems to be working. The company's statistics show LUKOIL-branded gas stations are doing almost as well as its Mobil outlets and performing better than Getty outlets.

So far, roughly 400 gas stations, mainly in New Jersey and Pennsylvania, have been converted into LUKOIL outlets.

An advertising campaign with the slogan "We 'heart' cars" to hone in on the American love affair with their automobiles is in full swing, and the company sponsors local baseball and football teams, including the Philadelphia Eagles.

THE AMERICAN DREAM

Today, LUKOIL owns more gas stations in the United States than it does in Russia. It became the first Russian oil firm to buy a New York Stock Exchange-listed company when it bought Getty Petroleum and its 1,300 stations in November 2000, and then added nearly 800 Mobil-branded stations from ConocoPhillips to its fleet in 2004.

But that's only a start.

Gluzman hopes to increase its fleet to as many as 3000 U.S. gas stations, and ultimately, have them supplied with crude oil shipped in from northern Russia. He also plans to go shopping for U.S. refineries to process that Russian crude.

All this is part of even larger ambitions LUKOIL has of becoming a force to reckon with in the world's largest gasoline market, and play in the same league with so-called supermajors like Exxon Mobil Corp. and Chevron.

It already has the second largest oil reserves behind Exxon, and was named by Boston Consulting Group as among the 100 most promising companies from rapidly developing economies giving traditional American titans a run for their money.

"It's dramatic but it's based on many years of preparing and building it up -- they have always aspired to be a global brand," said Clifford Gaddy, a Russia expert at the Brookings Institution. "There's a general consensus among the Russian elite that their big companies should be international players."

But while LUKOIL rolls into American neighborhoods, its U.S. rivals are finding it far from easy to expand in Russia.

Russia's vast reserves are coveted by Western oil majors hungry for new sources of production, but the Kremlin's push to regain control over energy resources and pursuit of oil company YUKOS over back taxes has deterred foreign majors.

Gluzman dismisses those claims, pointing to LUKOIL's own joint venture with ConocoPhillips and a large Exxon-led project in Russia's far-eastern Sakhalin island.

"I don't believe this is a real problem," he said simply. "It's all been politicized."

LukOil President Vagit Alekperov at a NYC photo op with President Putin and U.S. Senator Charles Schumer (D-NY)