Schlumberger buys into Russia's largest oilfield services group

By bne IntelliNews January 20, 2015

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Schlumberger, the leading global oilfield services group,  will acquire a 45.65% stake in its largest Russian counterpart, Eurasia Drilling Company, the US company announced on January 20. Schlumberger said it would pay $22 per share, bringing the total cost of the acquisition to approximately $1.7bn, and there is a call option for Schlumberger to buy out the company entirely within three years.

The acquisition is Russia's biggest ever oilfield services deal and comes despite the backdrop of collapsing oil prices and Western sanctions against Russia, including those on the oil industry. Eurasia Drilling's GDRs on the London Stock Exchange surged by 70% on publication of the news, to $20 from the closing of $12 on January 19, though this is still well down from the $42 they were trading at in January 2014.

“The agreement extends the successful long-term relationship enjoyed by the two companies within the strategic alliance signed in 2011, which has enabled deployment of a range of drilling and well engineering services to customers in the Russia land conventional drilling market,” Schlumberger said in a statement.

According to disclosures for 2013, Eurasia Drilling CEO Aleksandr Dzhaparidze owned 30.2% of the company, his partner Aleksandr Putilov owned 22.4%, as quoted by Interfax. "The Russian oil services market continues to demonstrate resilience to global market pressures,” Djaparidze said in a statement on the deal. “We are on track to achieve another record year by every measure.”

Eurasia Drilling holds 29% of the Russian market for oilfield services, with private oil giant Surgutneftegaz in second place. Foreign companies hold a total of around 18% of the Russian market, according to Deloitte.

Eurasia Drilling was originally the oilfield service unit of Russia's largest private oil company Lukoil, until being spun off. Lukoil continues to be Eurasia Drilling's main customer.

The acquisition comes despite a 50% drop in the price of oil since June 2014 and a breakdown in relations between Russia and the West over Russian aggression in Ukraine, which has led the West to impose swingeing sectoral sanctions on Russia, including on the oil industry. However the sanctions target Arctic and shale drilling, while the core of Eurasia Drilling's business is conventional land drilling. Sanctions have also cut off Russian companies from refinancing foreign debt, which may have tempted Eurasia Drilling to accept the offer of Schlumberger's financial backing.

 
 

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