National Oilwell Varco opens Russia plant despite killed Rosneft deal

National Oilwell Varco opens Russia plant despite killed Rosneft deal
By Jason Corcoran December 16, 2015

National Oilwell Varco (NOV), one of the world's largest producers of equipment for the oil and gas sector, launched a large plant in central Russia in December, even after the US State Department is said to have killed its valuable deal with oil major Rosneft, bne IntelliNews can reveal. 

Houston-based NOV held the grand opening for its 42,000-square-metre plant near Kostroma, which employs more than 300 people, with virtually no press publicity or any statements on its US and Russian websites.

The company made the decision to build in Russia on the Volga River back in 2012 prior to the start of the Ukrainian crisis in late 2013 and the subsequent sanctions imposed on Russian companies by the West for the Kremlin's annexation of Crimea and support for an armed uprising in East Ukraine.

Industry sources told bne IntelliNews that a NOV deal with Rosneft to build offshore platforms jointly at its Zvevda Shipyard had been killed earlier this year by the US State Department, even though this work wasn't prohibited by the sanctions. "Looks like Varco was told to take one for Team USA," an industry insider said.

The restrictions stopped US companies from engaging in Arctic, deepwater and shale oil exploration but didn't cover many existing conventional oil-drilling operations involving Western companies in Russia.

The US State Department press service did not offer immediate respond to an email seeking comment on the claims that it had a hand in the demise of NOV's deal with Rosneft.

Meanwhile, the relatively low-profile opening of the Kostroma plant did not carry any particular significance, company officials said.

"We discussed the opening internally and decided there is enough information out there [to not need further publicity],'' John McCarthy, NOV's country manager for Russia, told bne IntelliNews by phone on December 16. As for the deal with Rosneft, McCarthy said: "This is not part of my business.''

NOV expects the plant to reach full capacity by 2019 by being able to produce 16,000 tons (14,500 metric tonnes) of equipment such as mobile and stationary rigs.

The company signed the initial agreement to build the plant in July 2012 with the regional Kostroma government. A report by the government said the company had spent 4.2bn rubles ($60mn) on the plant and the average monthly salary will be between RUB40,000-57,000.

Located in the Volgorechensk industrial park about 40 kilometres from Kostroma, the facility is set to become the region's third-largest employer. Kostroma was suggested to the company because of its excellent transport links on the Volga and proximity to steelmaking plants and a skilled workforce.  Construction of a short spur from a federal railway is being financed by NOV and will be completed next year.

"We are ready to cooperate with any partner who is compliant and respects both US and Russian legislation," General Manager Anthony Crawford was quoted as saying in the latest edition of Oil and Gas Eurasia magazine.

But in August 2014, NOV themselves warned that Russia sanctions could hurt their results. The company didn't give an estimate on the potential impact, but said the severity of delayed or lost revenue would depend on the duration of sanctions and other government actions.

Russia sales, worth $100mn for the first six months of that year, "may be restricted in the future by these sanctions", the company said Monday in a filing with the Securities and Exchange Commission. NOV said their overall investment in Russia was $140mn.

Politics is muddying the waters for foreign companies trying to participate in any development of Russia's oil industry. Schlumberger in September backed out of a $1.7bn deal for a stake in Russia's largest onshore drilling company after Moscow blocked a deadline imposed by the US oil-services giant.

In April 2013, the Kostroma Centre for the Support of Public Initiatives ran foul of a law requiring organisations that receive funds from abroad and engage in political activity to register as foreign agents.

The Washington Post reported that Howard Solomon, the US Embassy's political officer, had toured  the Varco plant, met officials and participated in a roundtable organised by the Kostroma Centre. Nikolai Sorokin, a professor for the centre, subsequently appeared in court, accused of being a foreign agent. It is not known whether National Oilwell Varco funded the centre but the NGO was fined and has since suspended its activities.