The independent Italian refinery firm ERG has confirmed that is has reached a new agreement with Russia's Lukoil which will see the two companies cooperate on joint refining ventures.

In a statement released to investors, it was revealed that Lukoil paid around £1 billion for ERG's Priolo refinery in the east of Sicily, which is currently capable of producing 320,000 barrels a day.

These assets will be transferred to a new company set up as part of the new deal, which will be 51 per cent owned by the ERG Group, with Russia's largest private oil company to hold the remaining 49 per cent.

According to Italy's industry ministry undersecretary Adolfo Urso, this new deal represents the largest Russian investment in the Mediterranean country to date.

"The deal will strengthen the partnership between the two countries, not only at a commercial level, but also at an industrial one," he told the country's ANSA news agency.

Lukoil's vice president Leonid Fedun said that he expects the deal to push the company's net profits up by one per cent, with profits from the Sicilian refinery to be used in arbitrage operations to the US as well as to support its petrol stations in the Balkans.