(Rewrites, adds analyst comment and background.) By Jacob Gronholt-Pedersen Of DOW JONES NEWSWIRES MOSCOW (Dow Jones)--ConocoPhillips (COP) Wednesday said it would sell its entire stake in Russia's OAO Lukoil Holdings (LKOH.RS), terminating what had been one of the highest-profile investments by a western company in Russia's oil and gas sector. Foreign oil majors won lucrative deals in Russia during the 1990s, when domestic oil producers lacked both technology and money to develop the industry. But as Russia's economy boomed during Vladimir Putin's presidency from 2000 to 2008, the Kremlin tightened its grip on the economy, in particular the strategic oil and gas sector. ConocoPhillips--the third-largest U.S. oil company by market value--bought 7.6% of Lukoil in 2004 for $2.4 billion. The stake grew to nearly 20% in the following three years. The deal followed by a year the creation of TNK-BP Ltd., a 50:50 joint venture between BP PLC (BP) and a group of Russian billionaires. Both deals provided the western oil majors with access to enormous oil and gas reserves. And both were initially seen as signs that western companies could still do business in Russia. But by 2008 the BP partnership deteriorated as the two sides fought for control of the venture. The disagreement, since resolved after the Russians won a series of concessions, culminated with the expulsion of the BP-nominated chief executive from the country. ConocoPhillips' investment into Lukoil avoided a similar breakdown, but it didn't lead to any new projects or any significant influence in the Russian company's board room. "I think all sides were disappointed," said Ron Smith, head of Europe, Middle East and Africa research at brokerage Chevreux. "It worked well in theory, but just didn't turn out quite as rosy as they had figured." "It's a major hurdle for foreign companies putting new money to work in Russia," Smith said. "The real problem is that the Russian government doesn't see the need for foreign companies to work in [exploration and production] anymore." ConocoPhillips' announcement Wednesday that it intends to sell its full 20% stake in the Russian company comes as it gears up for a major restructuring program that includes plans to sell assets worth $10 billion. Lukoil said it will spend $3.44 billion to buy a 7.6% stake at $53.25 per share before Aug. 16, and that it has until Sept. 26 to buy another 11.6% stake--meaning that it could buy nearly all of the shares now held by the U.S. company. Lukoil shares closed up 3.5% Wednesday, outperforming a 0.5% fall on Moscow's Micex index. Investors had worried that ConocoPhillips would sell some or all of its 20% stake in the Russian oil company on the open market. "This definitely takes off some of the pressure on the stock and removes the overhang," said UniCredit analyst Artem Konchin. UniCredit's Konchin believes the real effect on the stock depends on how Lukoil chooses to use the shares. "It would make sense for Lukoil to keep the shares until the taxation environment in Russia has improved and valuations are higher," said Konchin. -By Jacob Gronholt-Pedersen, Dow Jones Newswires; +7 495 232 9197; jacob.pedersen@dowjones.com (END) Dow Jones Newswires July 28, 2010 13:51 ET (17:51 GMT)