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From Russia With Love

PHILADELPHIA -- Lukoil, Russia's largest oil company, has launched a marketing offensive to put its name on gas stations across the United States and become as well known here as it is at home, according to the Associated Press.

Over the last five years, OAO Lukoil has entered the U.S. market by acquiring about 1,300 Getty gas stations and 800 Mobil locations in the Northeast. It is converting them to its brand and recently launched advertising to introduce itself to consumers in 13 states.

The company plans to keep acquiring assets in the United States, the world's biggest consumer of oil. The Moscow-based conglomerate is the largest oil producer, refiner and distributor in Russia and second in the world in proven oil and natural gas reserves behind Exxon Mobil Corp.

"It is our hope that other major acquisitions will become available as the petroleum sector continues its consolidation," said Vadim Gluzman, president and chief executive of Lukoil Americas Holding Ltd., the oil giant's U.S. arm in East Meadow, N.Y.

"There are numerous opportunities to acquire new businesses in a variety of marketing channels and as a result we are more inclined to acquire existing sites than we are to construct 'new to business' units," said Gluzman. He added the company is interested in the West Coast and other U.S. regions.

Motorists in the Northeast are increasingly seeing Lukoil's red-and-white gas stations pop up: The company is morphing its Mobil stations the rate of about 10 a week, up to 78 by the end of June.

"They want to establish their brand name. Everyone knows BP. Why not Lukoil?" said John Connor, portfolio manager of the Third Millenium Russia Fund, where Lukoil represents one of its largest holdings.

"They have a lot of pride in getting the Russian name out and about in the world," said Connor.

That may explain why Russian President Vladimir Putin attended the ribbon cutting of a Lukoil gas station opening in Manhattan two years ago, shaking hands with employees and strolling through its Kwik Farms convenience store.

Ironically, Putin's government now is investigating a subsidiary of Lukoil for evading $1.5 million in taxes. The company is disputing the charges, according to spokesman Dmitri Dolgov.

Lukoil's revenue went up by 53 percent to $34 billion in 2004 over the prior year and net income rose by 15 percent to $4.2 billion thanks to a company restructuring and higher oil prices.

Lukoil has 5,000 gas stations in more than 15 countries, about half of them in the United States. The company has interests in New Jersey, Pennsylvania, New York, Connecticut, Massachusetts, Rhode Island, Virginia, Maine, Delaware, West Virginia, Vermont, New Hampshire and Maryland.

Lukoil plunged into the U.S. market with its $70 million purchase of Getty Petroleum Marketing, a marketer of gasoline and petroleum products, and the $270 million acquisition of Mobil stations from ConocoPhillips. In January, ConocoPhillips disclosed that it raised its stake in Lukoil to 10 percent from 7.6 percent.

Unlike the $18.5 billion bid by Chinese oil conglomerate CNOOC Ltd. for California oil company Unocal Corp., Lukoil's purchase didn't raise national security concerns, since it took over gas stations and not control of petroleum assets, said Connor.

To introduce consumers to the brand, Lukoil hired Arnold Worldwide, the ad agency responsible for Volkswagen's successful "Drivers Wanted" ads, to handle its $30 million marketing budget.

The ad campaign's goal is to make consumers warm up to Lukoil as an oil company, said Fran Kelly, president and chief operating officer of the Boston-based ad agency.

"There are only five or six major (gasoline) brands. I don't know if any of them is a particularly likeable brand," he said. "Lukoil has a chance to become a likeable retailer."

Realizing that most American consumers don't have any impressions about the Lukoil brand, the company decided to home in on drivers' love of their automobiles, instead of pumping up the qualities of its gasoline, as many oil companies do.

Arnold came up with what it believes is a consumer-friendly slogan for Lukoil: "We (heart) cars." Advertising proclaims that Lukoil has "car people from head to toe. The kind that drive from the garage to the mailbox."

Lukoil has dispatched interns to gas stations to talk up the company and pass out application forms for its credit card. It also sponsors sports teams in the Philadelphia area.

But such marketing machinations may not be critical for success, given soaring gasoline prices, said Stephen Kobrin, a professor of multinational management at the University of Pennsylvania's Wharton School.

"Do you look at the brand when you get gas?" said Kobrin. "It's a commodity. They need to have decent service and prices. Period."
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